JUNIOR
SECURITY AGREEMENT

between

SUNSET
BRANDS, INC.
U.S. MILLS, INC.

and

IBF
FUND LIQUIDATING  LLC

Dated
as of 
November 10, 2005

---

SECURITY
AGREEMENT

TABLE
OF CONTENTS

PageI.
  DEFINITIONS
  21.1
  General
  Terms
  2II.
  PAYMENTS AND
  COLLATERAL
  22.1
  Intentionally
  Omitted
  22.2
  Intentionally
  Omitted
  22.3
  Intentionally
  Omitted
  22.4
  Intentionally
  Omitted
  22.5
  Intentionally
  Omitted [moved to Section 2.16]
  22.6
  Intentionally
  Omitted
  22.7
  Intentionally
  Omitted
  22.8
  Intentionally
  Omitted
  22.9
  Intentionally
  Omitted
  22.10
  Intentionally
  Omitted
  22.11
  Intentionally
  Omitted [moved to Section 2.17]
  22.12
  Intentionally
  Omitted [moved to Section 2.18]
  22.13
  Grant of
  Security Interest; Collateral
  32.14
  Collateral
  Administration
  42.15
  Power of Attorney
  52.16
  Lockbox Accounts
  62.17
  Other
  Mandatory Prepayments
  62.18
  Payments by
  Debenture Holder
  7III.
  INTENTIONALLY
  OMITTED
  7IV.
  CONDITIONS
  PRECEDENT
  74.1
  Conditions
  to Closing
  7V.
  REPRESENTATIONS
  AND WARRANTIES
  105.1
  Organization
  and Authority
  105.2
  Debenture
  Documents
  105.3
  Subsidiaries,
  Capitalization and Ownership Interests
  115.4
  Properties
  115.5
  Other
  Agreements
  115.6
  Litigation
  125.7
  Hazardous
  Materials
  125.8
  Potential
  Tax Liability; Tax Returns; Governmental Reports
  125.9
  Financial
  Statements and Reports
  125.10
  Compliance
  with Law
  135.11
  Intellectual
  Property
  135.12
  Licenses and
  Permits; Labor
  135.13
  No Default
  145.14
  Disclosure
  145.15
  Existing
  Indebtedness; Investments, Guarantees and Certain Contracts
  145.16
  Other
  Agreements
  14i

5.17
  Insurance
  155.18
  Names;
  Location of Offices, Records and Collateral
  155.19
  Intentionally
  Omitted
  155.20
  Intentionally
  Omitted
  155.21
  Survival
  15VI.
  AFFIRMATIVE
  COVENANTS
  156.1
  Financial
  Statements, Financial Reports and Other Information
  156.2
  Payment of
  Obligations
  176.3
  Conduct of
  Business and Maintenance of Existence and Assets
  176.4
  Compliance
  with Legal and Other Obligations
  176.5
  Insurance
  186.6
  True Books
  186.7
  Inspections;
  Periodic Audits and Reappraisals
  186.8
  Further
  Assurances; Post Closing
  196.9
  Payment of
  Indebtedness
  196.10
  Lien
  Searches
  196.11
  Intentionally
  Omitted
  196.12
  Collateral
  Documents; Security Interest in Collateral
  196.13
  Intentionally
  Omitted
  206.14
  Taxes and
  Other Charges
  206.15
  Payroll
  Taxes
  206.16
  Inventory
  Covenants
  21VII.
  NEGATIVE
  COVENANTS
  217.1
  Financial
  Covenants
  217.2
  Permitted
  Indebtedness
  217.3
  Permitted
  Liens
  227.4
  Investments;
  New Facilities or Collateral; Subsidiaries
  227.5
  Dividends;
  Redemptions
  237.6
  Transactions
  with Affiliates
  237.7
  Charter
  Documents; Fiscal Year; Name; Jurisdiction of Organization;Dissolution;
  Use of Proceeds
  247.8
  Truth of
  Statements
  247.10
  Transfer of
  Assets
  24VIII.
  EVENTS OF
  DEFAULT
  25IX.
  RIGHTS AND
  REMEDIES AFTER DEFAULT
  289.1
  Rights and
  Remedies
  289.2
  Application
  of Proceeds
  299.3
  Rights of
  Debenture Holder to Appoint Receiver
  299.4
  Rights and
  Remedies not Exclusive
  29X.
  WAIVERS AND
  JUDICIAL PROCEEDINGS
  3010.1
  Waivers
  3010.2
  Delay; No
  Waiver of Defaults
  3010.3
  Jury Waiver
  3010.4
  Cooperation
  in Discovery and Litigation
  31ii

XI.
  EFFECTIVE
  DATE AND TERMINATION
  3111.1
  Termination
  and Effective Date Thereof
  3111.2
  Survival
  31XII.
  MISCELLANEOUS
  3212.1
  Governing
  Law; Jurisdiction; Service of Process; Venue
  3212.2
  Successors
  and Assigns; Participations; New Debenture Holders
  3212.3
  Application
  of Payments
  3312.4
  Indemnity
  3312.5
  Notice
  3412.6
  Severability;
  Captions; Counterparts; Facsimile Signatures
  3412.7
  Expenses
  3412.8
  Entire
  Agreement
  3512.9
  Debenture
  Holder Approvals
  3512.10
  Confidentiality
  and Publicity
  3512.11
  Release of
  Debenture Holder
  3612.12
  Agent
  3612.13
  Agreement
  Controls
  3612.14
  Master
  Subordination Agreement
  38ANNEX I
  1FINANCIAL COVENANTS
  11)
  Minimum
  EBITDA
  12)
  Maximum
  Senior Leverage Ratio (Senior Debt to EBITDA)
  13)
  Fixed Charge
  Coverage Ratio (EBITDA/Fixed Charges)
  1APPENDIX A
  1DEFINITIONS
  1iii

JUNIOR
SECURITY AGREEMENT

THIS
JUNIOR SECURITY AGREEMENT (the Agreement)
dated as of November 10, 2005, is entered into betweenU.S. MILLS, INC., a Delaware
corporation (Borrower), SUNSET
BRANDS, INC. a Nevada corporation (Guarantor, and together with Borrower,
jointly and severally, the Obligors), and IBF FUND LIQUIDATING LLC, a
Delaware limited liability company, as holder of the Convertible Debentures (as
defined below) (the Debenture
Holder).

WHEREAS,
pursuant to that certain Amended and Restated Acquisition Agreement and Plan of
Merger dated as of the date hereof (as amended, restated, supplemented or
otherwise modified from time to time, the Acquisition
Agreement), by and among Borrower, Guarantor, Debenture Holder and
USM Acquisition Sub, Inc. (Merger Sub),
Guarantor will acquire Borrower by merger (the Acquisition).

WHEREAS,
pursuant to the terms of the Acquisition Agreement, Guarantor shall issue to
the Debenture Holder Secured Convertible Debentures dated the date hereof in
the aggregate original principal amount of $5,000,000 (as such may be replaced,
substituted or reissued from time to time in accordance with their terms,
collectively, the Convertible Debentures)
which are convertible into the common stock of Guarantor, as payment of a
portion of the consideration for the Acquisition;

WHEREAS,
the Obligors are party to that certain Revolving Credit, Term Loan and Security
Agreement, dated as of the date hereof (as amended, restated, supplemented or
otherwise modified from time to time, the Credit
Agreement), by and among Borrower, Guarantor and CapitalSource
Finance LLC, as lender (CapitalSource).

WHEREAS,
the Obligors are party to that Security Agreement, dated as of the date hereof
(as amended, restated, supplemented or otherwise modified from time to time,
the Security Agreement), by and
among Borrower, Guarantor and IBF Fund Liquidating LLC, as seller (Seller).

WHEREAS,
Debenture Holder is party to that certain Master Subordination and
Intercreditor Agreement, dated as of the date hereof (as amended, restated,
supplemented or otherwise modified from time to time, the Master Subordination Agreement), by and
among Seller (as defined therein) Debenture Holder, Guarantor, Borrower and
CapitalSource.

WHEREAS,
Debenture Holder is party to that certain Junior Subordination and
Intercreditor Agreement, dated as of the date hereof (as amended, restated,
supplemented or otherwise modified from time to time, the Junior Subordination Agreement), by and
among Seller (as defined therein), Debenture Holder, Guarantor and Borrower.

WHEREAS,
in order to induce Debenture Holder to enter into the Acquisition Agreement and
to accept the Convertible Debentures as payment of a portion of the
consideration for the Acquisition, the Obligors have agreed to grant to
Debenture Holder a continuing security interest in and to the Collateral in
order to secure the Obligations, by the granting of the security interests
contemplated by this Agreement.

NOW,
THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the receipt and adequacy of which hereby are acknowledged, the
Obligors and Debenture Holder hereby agree as follows:

I. DEFINITIONS1.1 General TermsFor
purposes of this Agreement, in addition to the definitions above and elsewhere
in this Agreement, the terms listed in Appendix A and Annex I
hereto shall have the meanings given such terms in Appendix A and Annex
I, which are incorporated herein and made a part hereof.  All capitalized terms used which are not
specifically defined herein shall have meanings provided in Article 9 of
the UCC in effect on the date hereof to the extent the same are used or defined
therein.  Unless otherwise specified
herein or in Appendix A, Annex I, any agreement, contract or
instrument referred to herein or in Appendix A or Annex I shall
mean such agreement, contract or instrument as modified, amended, restated or
supplemented from time to time.  Unless
otherwise specified, as used in the Debenture Documents or in any certificate,
report, instrument or other document made or delivered pursuant to any of the
Debenture Documents, all accounting terms not defined in Appendix A, Annex
I or elsewhere in this Agreement shall have the meanings given to such
terms in and shall be interpreted in accordance with GAAP.  References herein to Eastern Time shall
mean eastern standard time or eastern daylight savings time as in effect on any
date of determination in the eastern United States of America.

II. PAYMENTS AND COLLATERAL2.1 Intentionally Omitted2.2 Intentionally Omitted2.3 Intentionally Omitted2.4 Intentionally Omitted2.5 Intentionally Omitted2.6 Intentionally
  Omitted2.7 Intentionally
  Omitted2.8 Intentionally
  Omitted2.9 Intentionally Omitted2.10 Intentionally Omitted2.11 Intentionally
  Omitted2.12 Intentionally Omitted2

2.13 Grant of Security Interest;
  Collateral(a)
To secure the payment and performance of the Obligations, each Obligor hereby
grants to Debenture Holder a continuing security interest in and Lien upon, and
pledges to Debenture Holder, all of its right, title and interest in and to the
following (collectively and each individually, the Collateral), which security
interest is intended to be senior in priority to all other security interests
except with respect to the security interest granted to CapitalSource pursuant
to the terms of the Credit Agreement and other Loan Documents (as defined in
the Credit Agreement) and with respect to the security interest granted to
Seller pursuant to the terms of the Security Agreement and other Security
Documents (as defined in the Security Agreement):

(i)
all of such Obligors tangible personal property, including without limitation
all present and future Inventory, Goods, and Equipment (including items of
equipment which are or become Fixtures), now owned or hereafter acquired;

(ii) all of such Obligors intangible personal property, including without
limitation all present and future Accounts, contract rights, Permits, General Intangibles, Payment Intangibles, Chattel
Paper, Documents, Documents of Title, Instruments, Securities, Financial Assets,
Deposit Accounts, Investment Property, Letter-of-Credit Rights and Supporting
Obligations, rights to the payment of money or other forms of consideration of
any kind, tax refunds, insurance proceeds, now owned or hereafter acquired, and
all intangible and tangible personal property relating to or arising out of any
of the foregoing;

(iii) all of such Obligors present and future Government Contracts and rights
thereunder and the related Government Accounts and proceeds thereof, now or
hereafter owned or acquired by such Obligor; provided, however,
that Debenture Holder shall not have a security interest in any rights under
any Government Contract of such Obligor or in the related Government Account
where the taking of such security interest is a violation of an express
prohibition contained in the Government Contract (for purposes of this
limitation, the fact that a Government Contract is subject to, or otherwise
refers to, Title 31, § 203 or Title 41, § 15 of the United
States Code shall not be deemed an express prohibition against assignment
thereof) or is prohibited by applicable law, unless in any case consent is
otherwise validly obtained; and

(iv) any and all additions and accessions to any of the foregoing, and any and
all replacements, products and proceeds (including insurance proceeds) of any
of the foregoing.

(b)
Notwithstanding the foregoing provisions of this Section 2.13, such
grant of a security interest shall not extend to, and the term Collateral
shall not include, any General Intangibles of such Obligor to the extent that
(i) such General Intangibles are not assignable or capable of being
encumbered as a matter of law or under the terms of any license or other
agreement applicable thereto (but solely to the extent that any such
restriction shall be enforceable under applicable law) without the consent of
the licensor thereof or other applicable party thereto, and (ii) such
consent has not been obtained; provided, however, that the
foregoing grant of a security interest shall extend to, and the term
Collateral shall include, each of the following: (a) any General
Intangible which is in the nature of an Account or a right to the payment of
money or a proceed of, or otherwise related to the enforcement or collection of,
any Account or right to the payment of money, or goods which are the subject of
any Account or right to the payment of money, (b) any and all proceeds of
any General Intangible that is otherwise excluded to the extent that the
assignment, pledge or encumbrance of such proceeds is not so restricted, and
(c) upon obtaining the consent of any such licensor or other applicable
party with respect to any such otherwise excluded General Intangible, such
General Intangible as well as any and all

3

proceeds thereof that might theretofore have been
excluded from such grant of a security interest and from the term Collateral.

(c)
In addition to the foregoing, to secure the payment and performance of the
Obligations, Guarantor has pledged to Debenture Holder all of the securities
Guarantor owns in direct subsidiaries of Guarantor pursuant to the Stock Pledge
Agreement.

(d)
Upon the execution and delivery of this Agreement, and upon the proper filing
of the necessary financing statements recordation of the Collateral Patent,
Trademark and Copyright Assignment in the United States Patent and Trademark
Office and/or the United States Copyright Office, and proper delivery of the
necessary stock certificates, without any further action, Debenture Holder will
have a good, valid and perfected Lien and security interest in the Collateral,
subject to no transfer or other restrictions or Liens of any kind in favor of
any other Person except for Permitted Liens.
No financing statement relating to any of the Collateral is on file in
any public office except those (i) on behalf of Debenture Holder, and/or
(ii) in connection with Permitted Liens.

2.14 Collateral Administration(a)
All Collateral (except Deposit Accounts) will at all times be kept by the
Obligors at the locations set forth on Schedule 5.18B hereto and
shall not, without forty calendar days prior written notice to Debenture
Holder, be moved therefrom, and in any case shall not be moved outside the
continental United States.

(b)
Each Obligor shall keep accurate and complete records of its Accounts and all
payments and collections thereon and shall submit such records to Debenture
Holder on such periodic bases as Debenture Holder may request.

(c)
Whether or not an Event of Default has occurred, any of Debenture Holders
officers, employees, representatives or agents shall have the right, at any
time during normal business hours, in the name of Debenture Holder, any designee
of Debenture Holder or either Obligor, to verify the validity, amount or any
other matter relating to any Accounts of either Obligor.  The Obligors shall cooperate fully with
Debenture Holder in an effort to facilitate and promptly conclude such verification
process.

(d)
To expedite collection, subject to the terms of the Master Subordination
Agreement and the Junior Subordination Agreement, the Obligors shall endeavor
in the first instance to make collection of its Accounts for Debenture
Holder.  Subject to the terms of the
Master Subordination Agreement and the Junior Subordination Agreement,
Debenture Holder shall have the right at all times after the occurrence and
during the continuance of an Event of Default to notify Account Debtors owing
Accounts to either Obligor that their Accounts have been assigned to Debenture
Holder and to collect such Accounts directly in its own name and to charge
collection costs and expenses, including reasonable attorneys fees, to the
Obligors.

(e)
As and when determined by Debenture Holder in its sole discretion, Debenture
Holder will perform the searches described in clauses (i) and (ii) below
against the Obligors (the results of which are to be consistent with the
Obligors representations and warranties under this Agreement), all at the
Obligors expense:  (i) UCC
searches with the Secretary of State of the jurisdiction of organization of the
Obligors and the Secretary of State and local filing offices of each
jurisdiction where the Obligors maintain their respective executive offices, a
place of business or assets; (ii) lien searches with the United States
Patent and Trademark Office and the United States Copyright Office;and
(iii) judgment,

4

federal tax lien and corporate and partnership tax
lien searches, in each jurisdiction searched under clause (i) above.

(f)
Upon notice from Debenture Holder that the Master Subordination Agreement and
the Junior Subordination Agreement have been terminated, each Obligor
(i) shall provide prompt written notice to its current bank to transfer
all items, collections and remittances to the Concentration Account,
(ii) shall provide prompt written notice to each Account Debtor that
Debenture Holder has been granted a lien and security interest in, upon and to
all Accounts applicable to such Account Debtor and shall direct each Account
Debtor to make payments to the appropriate Lockbox Account, and each Obligor
hereby authorizes Debenture Holder, upon any failure to send such notices and
directions within fifteen calendar days after the date of this Agreement (or
fifteen calendar days after the Person becomes an Account Debtor), to send any
and all similar notices and directions to such Account Debtors, and (iii) shall
do anything further that may be lawfully required by Debenture Holder to create
and perfect Debenture Holders lien on any collateral and effectuate the
intentions of the Debenture Documents.
Upon notice from Debenture Holder that the Master Subordination Agreement
and the Junior Subordination Agreement have been terminated, each Obligor shall
immediately deliver to Debenture Holder all items for which Debenture Holder
must receive possession to obtain a perfected security interest and all notes,
certificates, and documents of title, Chattel Paper, warehouse receipts,
Instruments, and any other similar instruments constituting Collateral
(collectively, Control Collateral).  Until such time as the Master Subordination
Agreement has terminated, all Control Collateral shall be held by CapitalSource
for the benefit of Seller and Debenture Holder for the purpose of perfecting
Sellers and Debenture Holders security interest therein.  Concurrently with the termination of the
Master Subordination Agreement, CapitalSource shall deliver all Control
Collateral to Seller.  After the
termination of the Master Subordination Agreement and until such time as the
Junior Subordination Agreement has terminated, all Control Collateral shall be
held by Seller for the benefit of Debenture Holder for the purpose of
perfecting Debenture Holders security interest therein.  Concurrently with the termination of the
Junior Subordination Agreement, Seller shall deliver all Control Collateral to
Debenture Holder.

2.15
  Power of AttorneyDebenture
Holder is hereby irrevocably made, constituted and appointed the true and
lawful attorney for each Obligor (without requiring Debenture Holder to act as
such) with full power of substitution to, subject to the terms of the Master
Subordination Agreement and the Junior Subordination Agreement, do the
following: (i) endorse the name of any such Person upon any and all checks,
drafts, money orders, and other instruments for the payment of money that are
payable to such Person and constitute collections on its or their Accounts;
(ii) execute in the name of such Person any financing statements, schedules,
assignments, instruments, documents, and statements that it is or they or are
obligated to give Debenture Holder under any of the Debenture Documents; and
(iii) do such other and further acts and deeds in the name of such Person that
Debenture Holder may deem necessary or desirable to enforce any Account or
other Collateral or to perfect Debenture Holders security interest or lien in
any Collateral.  If any such Person
breaches its obligation hereunder to direct payments of Accounts or the
proceeds of any other Collateral to the appropriate Lockbox Account, Debenture
Holder, as the irrevocably made, constituted and appointed true and lawful
attorney for such Person pursuant to this paragraph, may, by the signature or
other act of any of Debenture Holders officers or authorized signatories
(without requiring any of them to do so), direct, subject to the terms of the
Master Subordination Agreement and the Junior Subordination Agreement, any
federal, state or private payor or fiscal intermediary to pay proceeds of
Accounts or any other Collateral to the appropriate Lockbox Account.

5

2.16
  Lockbox AccountsBorrower
shall maintain one or more lockbox accounts (individually and collectively, the
Lockbox Account) with one or more banks acceptable
to Debenture Holder (each, a Lockbox Bank), and shall execute with each
Lockbox Bank one or more agreements acceptable to Debenture Holder
(individually and collectively, the Lockbox
Agreement), and such
other agreements related thereto as Debenture Holder may require.  Borrower shall ensure that all collections
of Borrowers Accounts and all other cash payments received by Borrower are
paid and delivered directly from Account Debtors and other Persons into the
appropriate Lockbox Account; provided, however, that all invoices for
Borrowers Accounts shall bear Borrowers name as the addressee for payments
thereunder.  The Lockbox Agreements
shall provide that the Lockbox Banks immediately will transfer all funds paid
into the Lockbox Accounts into a depository account or accounts maintained at a
financial institution approved in advance by Debenture Holder (the Concentration Account).
The Concentration Account shall be subject at all times to a deposit
account control agreement in form and substance satisfactory to Debenture
Holder which perfects the Debenture Holders security interest in the
Concentration Account.  Notwithstanding
and without limiting any other provision of any Debenture Document, upon the
occurrence and during the continuance of an Event of Default, Debenture Holder
shall apply, on a daily basis, all funds transferred into the Concentration
Account pursuant to the Lockbox Agreement and this Section 2.16 in
such order and manner as determined by Debenture Holder.  To the extent that any Accounts are
collected by Borrower or any other cash payments received by Borrower are not
sent directly to the appropriate Lockbox Account but are received by Borrower
or any of Borrowers Affiliates, such collections and proceeds shall be held in
trust for the benefit of Debenture Holder and immediately remitted (and in any
event within two Business Days), in the form received, to the appropriate
Lockbox Account for immediate transfer to the Concentration Account.  Borrower acknowledges and agrees that
compliance with the terms of this Section 2.16 is an essential term of
this Agreement, and that, in addition to and notwithstanding any other rights
Debenture Holder may have hereunder, under any other Debenture Document, under
applicable law or at equity, upon each and every failure by Borrower or any of
Borrowers Affiliates to comply with any such terms Debenture Holder shall be
entitled to assess the Lockbox Non-Compliance Fee which shall operate to
increase the interest rate payable with respect to the Convertible Debentures
by one percent per annum during any period of non-compliance, whether or not a
Default or an Event of Default occurs or is declared, provided that nothing
shall prevent Debenture Holder from considering any failure to comply with the
terms of this Section 2.16to be a Default or an Event of
Default.  If applicable, at any time
prior to the execution of all or any of the Lockbox Agreements and operation of
all or any of the Lockbox Accounts, Borrower and Borrowers Affiliates shall
direct all collections or proceeds it receives on Accounts or from other
Collateral to the accounts(s) and in the manner specified by Debenture Holder
in its sole discretion.  The provisions of this Section 2.16
shall not become operative until the termination of the Master Subordination
Agreement and the Junior Subordination Agreement, and until such time, the
Lockbox Accounts of Borrower shall be controlled by CapitalSource for the
purpose of perfecting Sellers and Debenture Holders security interest
therein.  Upon or promptly after
termination of the Master Subordination Agreement and the Junior Subordination
Agreement, Borrower shall obtain in favor of Debenture Holder an authenticated
Lockbox Agreement from each bank holding a Lockbox Account that, immediately
prior to such termination, was subject to a Lockbox Agreement in favor of
Seller.

2.17Other Mandatory PrepaymentsIn
addition to and without limiting any provision of any Debenture Document:

6

(a) if a Change of Control occurs, on or prior to the third Business Day
following the date of such Change of Control, subject to the terms of the
Master Subordination Agreement and the Junior Subordination Agreement, Borrower shall prepay the Obligations, in
full in cash together with accrued interest thereon to the date of prepayment
and all other amounts owing to Debenture Holder under the Debenture Documents;
and

(b)
if Borrower (i) sells any of its assets or properties other than in the
ordinary course of its business, (ii) sells or issues any subordinated debt
other than the transactions set forth on Schedule 2.17 or (iii) receives any
property damage insurance award which is not used to repair or replace the
property covered thereby or incurs any Indebtedness except for Permitted
Indebtedness, then, subject to the terms of the Master Subordination Agreement and
the Junior Subordination Agreement,
it shall apply 100% of the proceeds thereof to the prepayment of the
Obligations owing to Debenture Holder under the Debenture Documents, such
payment to be applied at such time and in such manner and order as Debenture
Holder shall decide in its sole discretion.

2.18 Payments by Debenture HolderShould
any amount required to be paid under any Debenture Document be unpaid, such
amount may be paid by Debenture Holder, which payment shall be added to the
outstanding principal amount of the Convertible Debentures as of the date such
payment is due, and Borrower irrevocably authorizes disbursement of any such
funds to Debenture Holder by way of direct payment of the relevant amount, interest
or Obligations.  No payment or
prepayment of any amount by Debenture Holder or any other Person shall entitle
any Person to be subrogated to the rights of Debenture Holder under any
Debenture Document unless and until the Obligations have been fully performed
and paid irrevocably in cash and this Agreement has been terminated.  Any sums expended by Debenture Holder as a
result of Borrowers or Guarantors failure to pay, perform or comply with any
Debenture Document or any of the Obligations may be added to the outstanding
principal amount of the Convertible Debentures and added to the Obligations.

III. INTENTIONALLY OMITTEDIV. CONDITIONS PRECEDENT4.1 Conditions to ClosingThe
obligations of Debenture Holder to consummate the transactions contemplated
herein and in the Acquisition Agreement, are subject to the satisfaction, in
the sole judgment of Debenture Holder, of the following:

(a)
(i) Each Obligor shall have delivered to Debenture Holder (A) the
Debenture Documents to which it is a party, each duly executed by an authorized
officer of such Obligor and the other parties thereto (including the Stock
Pledge Agreement and the Intellectual Property Security Agreement)
(B) intentionally omitted, (C) audited annual consolidated and consolidating financial
statements of Borrower for Borrowers most recently ended fiscal year,
including notes thereto, consisting of a balance sheet at the end of such
completed fiscal year and the related statements of income, retained earnings,
cash flows and owners equity for such completed fiscal year, which financial
statements shall be prepared and certified without qualification by an
independent certified public accounting firm reasonably satisfactory to Debenture
Holder in accordance with GAAP consistently

7

applied with prior periods,
and (D) unaudited consolidated and consolidating financial statements of
Borrower consisting of a balance sheet and statements of income, retained
earnings, cash flows and owners equity for the period from the beginning of
the current fiscal year through the end of the most recently ended calendar
month, which financial statements shall be prepared in accordance with GAAP
consistently applied with prior periods;

(b)
all in form and substance satisfactory to Debenture Holder in its sole
discretion, Debenture Holder shall have received (i) a report of Uniform
Commercial Code financing statement, tax and judgment lien searches performed
with respect to each Obligor in each jurisdiction determined by Debenture
Holder in its sole discretion, and such report shall show no Liens on the
Collateral (other than Permitted Liens), (ii) each document (including,
without limitation, any Uniform Commercial Code financing statement) required
by any Debenture Document or under law or requested by Debenture Holder to be
filed, registered or recorded to create in favor of Debenture Holder, a
perfected security interest upon the Collateral that is senior in priority to
all other security interests except with respect to the security interest
granted to CapitalSource pursuant to the terms of the Credit Agreement and
other Loan Documents (as defined in the Credit Agreement) and with respect to
the security interest granted to Seller pursuant to the terms of the Security
Agreement and other Security Documents (as defined in the Security Agreement),
and (iii) evidence of each such filing, registration or recordation and of
the payment by Borrower of any necessary fee, tax or expense relating thereto;

(c)
Debenture Holder shall have received (i) the Charter and Good Standing
Documents, all in form and substance acceptable to Debenture Holder, (ii) a
certificate of the corporate secretary or assistant secretary of each Obligor
dated the Closing Date, as to the incumbency and signature of the Persons
executing the Debenture Documents, in form and substance acceptable to
Debenture Holder, and (iii) the written legal opinion of counsel for Borrower,
in form and substance satisfactory to Debenture Holder and its counsel;

(d)
Debenture Holder shall have received a certificate of the chief financial
officer (or, in the absence of a chief financial officer, the chief executive
officer) of Borrower, in form and substance satisfactory to Debenture Holder
(each, a Solvency Certificate), certifying (i) the solvency
of such Person after giving effect to the transactions contemplated by the
Debenture Documents, and (ii) as to such Persons financial resources and ability
to meet its obligations and liabilities as they become due, to the effect that
as of the Closing Date and after giving effect to such transactions
contemplated herein and in the Acquisition Agreement: (A) the assets of such
Person, at a Fair Valuation, exceed the total liabilities (including
contingent, subordinated, unmatured and unliquidated liabilities) of such
Person, and (B) no unreasonably small capital base with which to engage in its
anticipated business exists with respect to such Person;

(e) Debenture Holder shall have completed examinations, the results of which
shall be satisfactory in form and substance to Debenture Holder, of the
Collateral, the financial statements and the books, records, business,
obligations, financial condition and operational state of each Obligor, and
each such Person shall have demonstrated to Debenture Holders satisfaction
that (i) its operations comply, in all respects deemed material by
Debenture Holder, in its sole judgment, with all applicable federal, state,
foreign and local laws, statutes and regulations, (ii) its operations are
not the subject of any governmental investigation, evaluation or any remedial
action which could result in any expenditure or liability deemed material by
Debenture Holder, in its sole judgment, and (iii) it has no liability
(whether contingent or otherwise) that is deemed material by Debenture Holder,
in its sole judgment;

(f)
Debenture Holder shall have received all fees, charges and expenses payable to
Debenture Holder on or prior to the Closing Date pursuant to the Debenture
Documents;

8

(g)
all in form and substance satisfactory to Debenture Holder in its sole
discretion, Debenture Holder shall have received such consents, approvals and
agreements, including, without limitation, any applicable Landlord Waivers and
Consents with respect to any and all leases set forth on Schedule 5.4,
from such third parties as Debenture Holder and its counsel shall determine are
necessary or desirable with respect to (i) the Debenture Documents and/or
the transactions contemplated thereby, and/or (ii) claims against either
Obligor or the Collateral;

(h)
Each Obligor shall be in compliance with Section 6.5, and Debenture
Holder shall have received copies of all insurance policies or binders,
original certificates of all insurance policies of the Obligors confirming that
they are in effect and that the premiums due and owing with respect thereto
have been paid in full and endorsements of such policies issued by the
applicable Insurers and in each case naming Debenture Holder as loss payee or
additional insured, as appropriate;

(i)
all corporate and other proceedings, documents, instruments and other legal
matters in connection with the transactions contemplated by the Debenture
Documents (including, but not limited to, those relating to corporate and
capital structures of each Obligor) shall be satisfactory to Debenture Holder;

(j)
Debenture Holder shall have received, in form and substance satisfactory to
Debenture Holder, (i) evidence of the repayment in full and termination of
all current indebtedness and
obligations being paid off at Closing and
all related documents, agreements and instruments and of all Liens, security
interests and Uniform Commercial Code financing statements relating thereto,
and (ii) release and termination of any and all Liens, security interest
and/or Uniform Commercial Code financing statements in, on, against or with
respect to any of the Collateral (other than Permitted Liens);

(k)
Debenture Holder shall have received a fully executed copy of the Credit
Agreement (including all schedules, annexes, appendices and other attachments
thereto).

(l)
Guarantor shall have received a minimum equity infusion of $1,500,000 in a
form, and under terms and conditions, acceptable to Debenture Holder in its
sole discretion;

(m)
Debenture Holder shall have received such other documents, certificates,
information or legal opinions as Debenture Holder may reasonably request, all
in form and substance reasonably satisfactory to Debenture Holder;

(n)
Guarantor shall have issued the Convertible Debentures in favor of the
Debenture Holder on terms and conditions acceptable to the Debenture Holder in
its sole discretion;

(o)
the Obligors shall have issued subordinated
promissory notes in favor of the Debenture Holder in the amounts of $5,000,000
and $1,000,000, respectively, on terms and conditions acceptable to the
Debenture Holder in its sole discretion;

(p)
Borrower shall have issued to Seller Series B preferred stock having an
aggregate value equal to $1,500,000, plus the additional Series B preferred
stock issued to Seller with respect to the Working Capital Adjustment under the
Acquisition Agreement;

(q)
each of the representations and warranties made by each Obligor in or pursuant
to this Agreement shall be accurate, and no Default or Event of Default shall
have occurred or be continuing or would exist after giving effect to the
transactions contemplated herein and in the Acquisition Agreement;

9

(r)
except as disclosed in the historical financial statements, there shall be no
liabilities or obligations with respect to either Obligor of any nature
whatsoever which, either individually or in the aggregate, would reasonably be
likely to have a Material Adverse Effect; and

(s)
Debenture Holder shall have received duly executed signature pages from all
other parties to the Junior Subordination Agreement and the Prepayment Letter
Agreement.

(t)
Debenture Holder shall have received a copy of an order entered in the
bankruptcy case for InterBank Funding Corp. (Case No. 02-41590-brl in the
Southern District of New York) approving the revised terms of the Acquisition
Agreement and otherwise in form and detail satisfactory to Debenture Holder
(the Sale Order); and

(u)
No appeal of the Sale Order or stay of the transactions covered by the Sale
Order shall have occurred prior to the Closing.

V.
REPRESENTATIONS AND WARRANTIES

Each
Obligor, jointly and severally, represents and warrants as of the date hereof,
the Closing Date, as follows:

5.1
Organization and Authority

Each
Obligor is a corporation duly organized, validly existing
and in good standing under the laws of its state of formation.  Each Obligor (i) has all requisite
corporate or entity power and authority to own its properties and assets and to
carry on its business as now being conducted and as contemplated in the
Debenture Documents, (ii) is duly qualified to do business in every
jurisdiction in which failure so to qualify would reasonably be likely to have
a Material Adverse Effect, and (iii) has all requisite power and authority
(A) to execute, deliver and perform the Debenture Documents to which it is
a party, (B) to borrow hereunder, (C) to consummate the transactions
contemplated under the Debenture Documents, and (D) to grant the Liens
with regard to the Collateral pursuant to the Security Documents to which it is
a party.  No Obligor is an investment
company registered or required to be registered under the Investment Company
Act of 1940, as amended, or is controlled by such an investment company.

5.2
Debenture Documents

The
execution, delivery and performance by each Obligor of the Debenture Documents
to which it is a party, and the consummation of the transactions contemplated
thereby, (i) have been duly authorized by all requisite action of each
such Person and have been duly executed and delivered by or on behalf of each such
Person; (ii) do not violate any provisions of (A) applicable law, statute,
rule, regulation, ordinance or tariff, (B) any order of any Governmental
Authority binding on any such Person or any of their respective properties, or
(C) the certificate of incorporation or bylaws (or any other equivalent
governing agreement or document) of any such Person, or any agreement between
any such Person and its respective stockholders, members, partners or equity
owners or among any such stockholders, members, partners or equity owners;
(iii) except as set forth in Schedule 5.2, are not in conflict with, and
do not result in a breach or default of or constitute an event of default, or
an event, fact, condition or circumstance which, with notice or passage of
time, or both, would constitute or result in a conflict, breach, default or
event of default under, any indenture, agreement or other instrument to which
any such Person is a party, or by which the properties or assets of such Person
are bound; (iv) except as set forth therein, will not result in the
creation or imposition of any Lien of any nature upon any of the

10

properties or assets of any such Person, and
(v) except as set forth on Schedule 5.2, do not require the
consent, approval or authorization of, or filing, registration or qualification
with, any Governmental Authority or any other Person.  When executed and delivered, each of the Debenture Documents to
which each Obligor is a party will constitute the legal, valid and binding
obligation of each Obligor, enforceable against each Obligor in accordance with
its terms, subject to the effect of any applicable bankruptcy, moratorium,
insolvency, reorganization or other similar law affecting the enforceability of
creditors rights generally and to the effect of general principles of equity
which may limit the availability of equitable remedies (whether in a proceeding
at law or in equity).

5.3
Subsidiaries, Capitalization and Ownership Interests

Except
as listed on Schedule 5.3, each Obligor has no Subsidiaries.  Schedule 5.3 states the
authorized and issued capitalization of each Obligor, the number and class of
equity securities and/or ownership, voting or partnership interests issued and
outstanding of each Obligor and the record and beneficial owners thereof
(including options, warrants and other rights to acquire any of the
foregoing).  The ownership or
partnership interests of each Obligor that is a limited partnership or a
limited liability company are not certificated, the documents relating to such
interests do not expressly state that the interests are governed by Article 8
of the Uniform Commercial Code, and the interests are not held in a securities
account.  The outstanding equity securities
and/or ownership, voting or partnership interests of each Obligor have been
duly authorized and validly issued and are fully paid and nonassessable, and
each Person listed on Schedule 5.3 owns beneficially and of record
all the equity securities and/or ownership, voting or partnership interests it
is listed as owning free and clear of any Liens other than Liens created by the
Security Documents.  Schedule 5.3
also lists the directors, members, managers and/or partners of each
Obligor.  Except as listed on Schedule
5.3, no Obligor owns an interest in, participate in or engage in any joint
venture, partnership or similar arrangements with any Person.

5.4
Properties

Each
Obligor (i) is the sole owner and has good, valid and marketable title to, or a
valid leasehold interest in, all of its properties and assets, including the
Collateral, whether personal or real, subject to no transfer restrictions or
Liens of any kind except for Permitted Liens, and (ii) is in compliance in
all material respects with each lease to which it is a party or otherwise
bound.  Schedule 5.4 lists
all real properties (and their locations) owned or leased by or to, and all
other assets or property that are leased or licensed by, each Obligor and all
leases (including leases of leased real property) covering or with respect to
such properties and assets all warehouses, fulfillment houses or other
locations at which any of such Obligors Inventory is located.  Each Obligor enjoys peaceful and undisturbed
possession under all such leases and such leases are all the leases necessary
for the operation of such properties and assets, are valid and subsisting and
are in full force and effect.

5.5
Other Agreements

No
Obligor is (i) a party to any judgment, order or decree or any agreement,
document or instrument, or subject to any restriction, which would affect its
ability to execute and deliver, or perform under, any Debenture Document or to
pay the Obligations, (ii) in default in the performance, observance or fulfillment
of any obligation, covenant or condition contained in any agreement, document
or instrument to which it is a party or to which any of its properties or
assets are subject, which default, if not remedied within any applicable grace
or cure period would reasonably be likely to have a Material Adverse Effect,
nor is there any event, fact, condition or circumstance which, with notice or
passage of time or both, would constitute or result in a conflict, breach,
default or event of default under, any of the

11

foregoing which, if not remedied within any applicable
grace or cure period would reasonably be likely to have a Material Adverse
Effect; or (iii) a party or subject to any agreement, document or instrument
with respect to, or obligation to pay any, management or service fee with
respect to, the ownership, operation, leasing or performance of any of its
business or any facility, nor is there any manager with respect to any such
facility.

5.6
Litigation

There
is no action, suit, proceeding or investigation pending or, to their knowledge,
threatened against either Obligor that (i) questions or could prevent the
validity of any of the Debenture Documents or the right of either Obligor to
enter into any Debenture Document or to consummate the transactions
contemplated thereby, (ii) would reasonably be likely to be or have, either
individually or in the aggregate, any Material Adverse Change or Material
Adverse Effect, or (iii) would reasonably be likely to result in any Change
of Control or other change in the current ownership, control or management of
either Obligor.  Neither Obligor is
aware that there is any basis for the foregoing.  Neither Obligor is a party or subject to any order, writ,
injunction, judgment or decree of any Governmental Authority.  There is no action, suit, proceeding or
investigation initiated by either Obligor currently pending.  Neither Obligor has an existing accrued
and/or unpaid Indebtedness to any Governmental Authority or any other
governmental payor.

5.7
Hazardous Materials

Each
Obligor is in compliance in all material respects with all applicable
Environmental Laws.  Neither Obligor has
been notified of any action, suit, proceeding or investigation
(i) relating in any way to compliance by or liability of such Obligor
under any Environmental Laws, (ii) which otherwise deals with any Hazardous
Substance or any Environmental Law, or (iii) which seeks to suspend, revoke or
terminate any license, permit or approval necessary for the generation,
handling, storage, treatment or disposal of any Hazardous Substance.

5.8
Potential Tax Liability; Tax Returns; Governmental Reports

(a)
Except as disclosed in Schedule 5.8, neither Obligor (i) has received
any oral or written communication from the Internal Revenue Service with
respect to any investigation or assessment relating to such Obligor directly,
or relating to any consolidated tax return which was filed on behalf of such
Obligor, (ii) is not aware of any year which remains open pending tax
examination or audit by the IRS, and (iii) is not aware of any information that
could give rise to an IRS tax liability or assessment.

(b)
Except as disclosed in Schedule 5.8, each Obligor (i) has filed all
federal, state, foreign (if applicable) and local tax returns and other reports
which are required by law to be filed by such Obligor, (ii) has paid all taxes,
assessments, fees and other governmental charges, including, without
limitation, payroll and other employment related taxes, in each case that are
due and payable, except only for items that such Obligor is currently
contesting in good faith with adequate reserves under GAAP, which contested
items are described on Schedule 5.8.

5.9
Financial Statements and Reports

All
financial statements and financial information relating to each Obligor that
have been or may hereafter be delivered to Debenture Holder
by such Obligor are accurate and complete and have

12

been prepared in accordance
with GAAP consistently applied with prior periods.  Neither Obligor has any material obligations or liabilities of
any kind not disclosed in such financial information or statements, and since
the date of the most recent financial statements submitted to Debenture Holder,
there has not occurred any Material Adverse Change, Material Adverse Effect to
such Obligors knowledge, any other event or condition that would reasonably be
likely to have a Material Adverse Effect.

5.10
Compliance with Law

To the best of each Obligors knowledge after making
all due inquiry, each Obligor (i) is in compliance with all laws,
statutes, rules, regulations, ordinances and tariffs of any Governmental
Authority applicable to such Obligors and/or such Obligors business, assets
or operations, including, without limitation, ERISA, and (ii) is not in
violation of any order of any Governmental Authority or other board or
tribunal, except where noncompliance or violation could not reasonably be expected
to have a Material Adverse Effect.
There is no event, fact, condition or circumstance which, with notice or
passage of time, or both, would constitute or result in any noncompliance with,
or any violation of, any of the foregoing, in each case except where
noncompliance or violation could not reasonably be expected to have a Material
Adverse Effect.  Neither Obligor has
received any notice that such Obligor is not in compliance in any respect with
any of the requirements of any of the foregoing.  Neither Obligor has (a) engaged in any Prohibited
Transactions as defined in Section 406 of ERISA and Section 4975 of
the Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder, (b) failed to meet any applicable minimum funding
requirements under Section 302 of ERISA in respect of its plans and no
funding requirements have been postponed or delayed, (c) knowledge of any
amounts due but unpaid to the Pension Benefit Guaranty Corporation, or of any
event or occurrence which would cause the Pension Benefit Guaranty Corporation
to institute proceedings under Title IV of ERISA to terminate any of the
employee benefit plans, (d) fiduciary responsibility under ERISA for
investments with respect to any plan existing for the benefit of Persons other
than its employees or former employees, or (e) withdrawn, completely or
partially, from any multi-employer pension plans so as to incur liability under
the MultiEmployer Pension Plan Amendments of 1980.  With respect to each Obligor, there exists no event described in
Section 4043 of ERISA, excluding Subsections 4043(b)(2) and
4043(b)(3) thereof, for which the thirty (30) day notice period contained in 12
C.F.R. § 2615.3 has not been waived.

5.11
Intellectual Property

Except
as set forth on Schedule 5.11, the Obligors do not own, license or
utilize, and are not a party to, any patents, patent applications, trademark
registrations, trademark applications, registered copyrights, copyright
applications, trade names, or any material licenses of any registered patents,
trademarks or copyrights (collectively, the Intellectual Property).  Each Obligor shall update Schedule 5.11
within 20 days after the end of any month in which such Obligor acquires rights
in new Intellectual Property.  All of
the Intellectual Property is in full force and effect and not in known conflict
with the rights of others.

5.12
Licenses and Permits; Labor

Each
Obligor is in compliance, in all material respects and where non-compliance
would not have a Material Adverse Effect on its business, with and has all
Permits necessary or required by applicable law or Governmental Authority for
the operation of its businesses.  All of
the foregoing are in full force and effect and not in known conflict with the
rights of others.  Neither Obligor is
(i)  in breach of or default under the provisions of any of the foregoing,
nor is there any event, fact, condition or

13

circumstance which, with notice or passage of time or
both, would constitute or result in a conflict, breach, default or event of
default under, any of the foregoing which, if not remedied within any
applicable grace or cure period would reasonably be likely to have a Material
Adverse Effect, (ii) a party to or subject to any agreement, instrument or
restriction that is so unusual or burdensome that it might have a Material
Adverse Effect, and/or (iii) involved in any labor dispute, strike, walkout or
union organization which would reasonably be likely to have a Material Adverse
Effect.

5.13
No Default

There
does not exist any Default or Event of Default or any event, fact, condition or
circumstance which, with the giving of notice or passage of time or both, would
constitute or result in a Default or Event of Default.

5.14
Disclosure

No
Debenture Document nor any other agreement, document, certificate, or statement
furnished to Debenture Holder by or on behalf of the Obligors in connection
with the transactions contemplated by the Debenture Documents, nor any
representation or warranty made by either Obligor in any Debenture Document,
contains any untrue statement of material fact or omits to state any fact
necessary to make the statements therein not materially misleading.  There is no fact known to either Obligor
which has not been disclosed to Debenture Holder in writing which would
reasonably be likely to have a Material Adverse Effect.

5.15
Existing Indebtedness; Investments, Guarantees and Certain Contracts

Except
as contemplated by the Debenture Documents or as otherwise set forth on Schedule 5.15A,
neither Obligor (i) has any outstanding Indebtedness, (ii) is subject
or party to any mortgage, note, indenture, indemnity or guarantee of, with
respect to or evidencing any Indebtedness of any other Person, or
(iii) owns or holds any equity or long-term debt investments in, or has
any outstanding advances to or any outstanding guarantees for the obligations of,
or any outstanding borrowings from, any Person.  Each Obligor has performed all material obligations required to
be performed by such Obligor pursuant to or in connection with any items listed
on Schedule 5.15A and there has occurred no breach, default or event
of default under any document evidencing any such items or any fact,
circumstance, condition or event which, with the giving of notice or passage of
time or both, would constitute or result in a breach, default or event of
default thereunder.  Schedule 5.15B
sets forth all Indebtedness with a maturity date during the term of this
Agreement, and identifies such maturity date.

5.16
Other Agreements

Except
as set forth on Schedule 5.16, (i) there are no existing or proposed agreements,  arrangements, understandings or transactions
between either Obligor and any of either Obligors officers, members, managers,
directors, stockholders, partners, other interest holders, employees or Affiliates
or any members of their respective immediate families, and (ii) none of the
foregoing Persons are directly or indirectly, indebted to or have any direct or
indirect ownership, partnership or voting interest in, to each Obligors
knowledge, any Affiliate of either Obligor or any Person that competes with
either Obligor (except that any such Persons may own stock in (but not
exceeding two (2%) percent of the outstanding capital stock of) any publicly
traded company that may compete with either Obligor.

14

5.17
Insurance

Each
Obligor has in full force and effect such insurance policies as are customary
in its industry and as may be required pursuant to Section 6.5
hereof.  All such insurance policies are
listed and described on Schedule 5.17.

5.18
Names; Location of Offices, Records and Collateral

During
the preceding five years, neither Obligor has conducted business under or used
any name (whether corporate, partnership or assumed) other than as shown on Schedule
5.18A.  Each Obligor is the sole
owner of all of its names listed on Schedule 5.18A, and any and all
business done and invoices issued in such names are such Obligors sales,
business and invoices.  Each trade name
of each Obligor represents a division or trading style of such Obligor.  Each Obligor maintains its places of
business and chief executive offices only at the locations set forth on Schedule
5.18B, and all Accounts of the Obligors arise, originate and are located,
and all of the Collateral, including Inventory and all books and records in
connection therewith or in any way relating thereto or evidencing the
Collateral are located and shall only be located, in and at such
locations.  All of the Collateral is
located only in the continental United States.

5.19
Intentionally Omitted

5.20
Intentionally Omitted

5.21
Survival

Each Obligor makes the representations and warranties contained herein with the
knowledge and intention that Debenture Holder is relying and will rely thereon.  All such representations and warranties will
survive the execution and delivery of this Agreement until all Obligations have
been indefeasibly paid in full and this Agreement has been terminated.

VI.
AFFIRMATIVE COVENANTS

Each
Obligor, jointly and severally, covenants and agrees that, until full
performance and satisfaction, and indefeasible payment in full in cash, of all
the Obligations and termination of this Agreement:

6.1
Financial Statements, Financial Reports and Other Information

(a)
Financial Reports.  Obligors
shall furnish to Debenture Holder (i) upon filing thereof with the Securities
and Exchange Commission (provided such filing is within the time prescribed in
the securities laws and regulations) and in any event within 115 calendar days
after the end of each fiscal year of the Obligors, audited annual consolidated
and consolidating financial statements of Obligors, including the notes
thereto, consisting of a consolidated and consolidating balance sheet at the
end of such completed fiscal year and the related consolidated and
consolidating statements of income, retained earnings, cash flows and owners
equity for such completed fiscal year, which financial statements shall be
prepared and certified without qualification as to scope by an independent
certified public accounting firm satisfactory to Debenture Holder and
accompanied by related management letters,

15

if available, and (ii) as soon as available and
in any event within thirty calendar days after the end of each calendar month,
unaudited consolidated and consolidating financial statements of Obligors
consisting of a balance sheet and statements of income, retained earnings, cash
flows and owners equity as of  the end
of the immediately preceding calendar month.
All such financial statements shall be prepared in accordance with GAAP
consistently applied with prior periods.
With each such financial statement, Obligors shall also deliver a
certificate of its chief financial officer in substantially the form of Exhibit
B hereto (a Compliance Certificate) stating that (A) such person has reviewed
the relevant terms of the Debenture Documents and the condition of Obligors,
(B) no Default or Event of Default has occurred or is continuing, or, if any of
the foregoing has occurred or is continuing, specifying the nature and status
and period of existence thereof and the steps taken or proposed to be taken
with respect thereto, and (C) Borrower is in compliance with all financial
covenants attached as Annex I hereto.
Such certificate shall be accompanied by the calculations necessary to
show compliance with the financial covenants in a form satisfactory to
Debenture Holder.

(b)
Other Materials.  Obligors shall
furnish to Debenture Holder as soon as available, and in any event:  (i) within fifteen calendar days after the
filing thereof with the Securities and Exchange Commission, copies of such
financial statements (other than those required to be delivered pursuant to Section 6.1(a))
prepared by, for or on behalf of Obligors and any other notes, reports and
other materials related thereto, including, without limitation, any pro forma
financial statements, which Obligors file with the Securities and Exchange
Commission, (ii) concurrently with the distribution thereof to the Obligors
stockholders, any reports, returns, information, notices and other materials
that Obligors shall send to its stockholders, members, partners or other equity
owners at any time, and (iii) copies of material licenses and permits required
by any applicable federal, state, foreign or local law, statute ordinance or
regulation or Governmental Authority for the operation of its business, where
the failure to obtain such license or permit would have a Material Adverse
Effect on the Borrowers business, (iv) within twenty calendar days after
the end of each calendar month for such month, (1) a sales and collection
report and accounts receivable and accounts payable aging schedule, including a
report of sales, credits issued and collections received, all such reports
showing a reconciliation to the amounts reported in the monthly financial
statements, and (2) evidence satisfactory to Debenture Holder that all
amounts owing to all warehouses as of the end of such month have been paid in
full, (v) promptly upon receipt thereof, copies of any reports submitted to
Obligors by their independent accountants in connection with any interim audit
of the books of such Person or any of its Affiliates and copies of each
management control letter provided by such independent accountants, and (vi)
within ten calendar days of any request thereof, such additional information,
documents, statements, reports and other materials as Lender may reasonably
request from a credit or security perspective or otherwise from time to time.

(c)
Notices.  Each Obligor shall
promptly, and in any event within ten Business Days after such Obligor or any
authorized officer of such Obligor obtains knowledge thereof, notify Debenture
Holder in writing of (i) any pending or threatened litigation, suit,
investigation, arbitration, dispute resolution proceeding or administrative
proceeding brought or initiated by either Obligor or otherwise affecting or
involving or relating to either Obligor or any of its property or assets to the
extent (A) the amount in controversy exceeds $80,000, or (B) to the extent any
of the foregoing seeks injunctive or declarative relief, (ii) any Default or
Event of Default, which notice shall specify the nature and status thereof, the
period of existence thereof and what action is proposed to be taken with
respect thereto, (iii) any other development, event, fact, circumstance or
condition that would reasonably be likely to have a Material Adverse Effect, in
each case describing the nature and status thereof and the action proposed to
be taken with respect thereto, (iv) any notice received by either Obligor
from any payor of a claim, suit or other action such payor has, claims or has
filed against either Obligor, (v) any matter(s) affecting the value,
enforceability or collectability of any of the Collateral, including, without
limitation, claims or disputes in the amount of $80,000 or more, singly or in
the aggregate, in existence at any one

16

time, (vi) any
notice given by either Obligor to any other lender of such Obligor, which
notice to Debenture Holder shall be accompanied by a copy of the applicable
notice given to the other lender, (vii) receipt of any notice or request from
any Governmental Authority or governmental payor regarding any liability or
claim of liability, (viii) receipt of any notice by either Obligor regarding
termination of any manager of any facility owned, operated or leased by such
Obligor, (ix) any Account becoming evidenced or secured by an Instrument or
Chattel Paper, and/or (x) receipt of any notice from any Account Debtor under a
material contract notifying such Obligor of a material breach under or
termination of such contract.

(d)
Consents.  The Obligors shall
obtain and deliver from time to time all required consents, approvals and
agreements from such third parties as Debenture Holder shall determine are
necessary or desirable in its sole discretion, each of which must be
satisfactory to Debenture Holder in its sole discretion, with respect to (i)
the Debenture Documents and the transactions contemplated thereby, (ii) claims
against the Obligors or the Collateral, and/or (iii) any agreements, consents,
documents or instruments to which either Obligor is a party or by which any
properties or assets of the Obligors or any of the Collateral is or are bound
or subject, including, without limitation, Landlord Waivers and Consents with
respect to leases.

(e)
Operating Budget.  Borrower shall
furnish to Debenture Holder on or prior to the Closing Date and for each fiscal
year of Borrower thereafter not less than fifteen calendar days prior to the
commencement of such fiscal year, consolidated and consolidating month by month
projected operating budgets, annual projections, profit and loss statements,
balance sheets and cash flow reports of and for Borrower for such upcoming
fiscal year (including an income statement for each month and a balance sheet
as at the end of the last month in each fiscal quarter), in each case prepared
in accordance with GAAP consistently applied with prior periods.

6.2
Payment of Obligations

Borrower
shall make full and timely indefeasible payment in cash of all
Obligations.

6.3
Conduct of Business and Maintenance of Existence and Assets

Each
Obligor shall (i) conduct its business in accordance with good business
practices customary to the industry, (ii) engage principally in the same or
similar lines of business substantially as heretofore conducted, (iii) collect
its Accounts in the ordinary course of business, (iv) maintain all of its
material properties, assets and equipment used or useful in its business in
good repair, working order and condition (normal wear and tear excepted and
except as may be disposed of in the ordinary course of business and in
accordance with the terms of the Debenture Documents and otherwise as
determined by such Obligor using commercially reasonable business judgment),
(v) from time to time to make all necessary or desirable repairs, renewals and
replacements thereof, as determined by such Obligor using commercially
reasonable business judgment, (vi) maintain and keep in full force and effect
its existence and all material Permits and qualifications to do business and
good standing in each jurisdiction in which the ownership or lease of property
or the nature of its business makes such Permits or qualification necessary and
in which failure to maintain such Permits or qualification could reasonably be
likely to have a Material Adverse Effect; and (vii) remain in good standing and
maintain operations in all jurisdictions in which currently located.

6.4
Compliance with Legal and Other Obligations

17

Each
Obligor shall (i) comply with all laws, statutes, rules, regulations,
ordinances and tariffs of all Governmental Authorities applicable to it or its
business, assets or operations; (ii) pay all taxes, assessments, fees, governmental
charges, claims for labor, supplies, rent and all other obligations or
liabilities of any kind, except liabilities being contested in good faith and
against which adequate reserves have been established in accordance with GAAP,
(iii) perform in accordance with its terms each contract, agreement or other
arrangement to which it is a party or by which it or any of the Collateral is
bound, except where the failure to comply, pay or perform could not reasonably
be expected to have a Material Adverse Effect, and (iv) maintain and comply
with all Permits necessary to conduct its business and comply with any new or
additional requirements that may be imposed on it or its business.

6.5
Insurance

Each
Obligor shall (i) keep all of its insurable properties and assets including,
without limitation, Inventory that is in transit (whether by vessel, air or
land) adequately insured in all material respects against losses, damages and
hazards as are customarily insured against by businesses engaging in similar
activities or owning similar assets or properties and at least the minimum
amount required by applicable law, including, without limitation, professional
liability insurance, as applicable; and maintain general public liability
insurance at all times against liability on account of damage to persons and
property having such limits, deductibles, exclusions and co-insurance and other
provisions as are customary for a business engaged in activities similar to
those of such Obligor; and (ii) maintain insurance under all applicable
workers compensation laws; all of the foregoing insurance policies to
(A) be satisfactory in form and substance to Debenture Holder, (B) name
Debenture Holder as loss payee and additional insured thereunder, and (C) expressly
provide that they cannot be altered, amended, modified or canceled without
forty-five  Business Days prior written notice to Debenture Holder and
that they inure to the benefit of Debenture Holder notwithstanding any action
or omission or negligence of or by such Obligor or any insured thereunder.

6.6
True Books

Each
Obligor shall (i) keep true, complete and accurate books of record and account
in accordance with commercially reasonable business practices in which true and
correct entries are made of all of its and their dealings and transactions in
all material respects; and (ii) set up and maintain on its books such reserves
as may be required by GAAP with respect to doubtful accounts and all taxes,
assessments, charges, levies and claims and with respect to its business, and
include such reserves in its quarterly as well as year end financial
statements.

6.7
Inspections; Periodic Audits and Reappraisals

Each
Obligor shall permit the representatives of Debenture Holder, at the expense of
the Obligors, from time to time during normal business hours upon reasonable
notice, to (i) visit and inspect any of its offices or properties or any other
place where Collateral is located to inspect the Collateral and/or to examine
or audit all of its books of account, records, reports and other papers, (ii)
make copies and extracts therefrom, and (iii) discuss its business, operations,
prospects, properties, assets, liabilities, condition and/or Accounts and Inventory
with its officers and independent public accountants (and by this provision
such officers and accountants are authorized to discuss the foregoing).  Debenture Holder is also authorized from
time to time to conduct or obtain audits and to obtain updated appraisals of
Inventory and intellectual property by appraisers acceptable to the Debenture
Holder in its discretion.  Other than
during the occurrence and continuance of a Default or an Event of Default, not
more than four such inspections, audits or appraisals related to any 12-month
period shall be at the expense of the

18

Obligors.
Debenture Holder may increase the frequency of inspections or audits
that are at the Obligors expense during the occurrence and continuance of a
Default or an Event of Default.

6.8
Further Assurances; Post Closing

At
Obligors cost and expense, each Obligor shall (i) take such further actions,
obtain such consents and approvals and duly execute and deliver such further
agreements, assignments, instructions or documents as Debenture Holder may
request with respect to the purposes, terms and conditions of the Debenture
Documents and the consummation of the transactions contemplated thereby, and
(ii) without limiting and notwithstanding any other provision of any
Debenture Document, execute and deliver, or cause to be executed and delivered,
such agreements and documents, and take or cause to be taken such actions, and
otherwise perform, observe and comply with such obligations, as are set forth
on Schedule 6.8.

6.9
Payment of Indebtedness

Except
as otherwise prescribed in the Debenture Documents, the Obligors shall pay,
discharge or otherwise satisfy at or before maturity (subject to applicable
grace periods and, in the case of trade payables, to ordinary course payment
practices) all of their material obligations and liabilities, except when the
amount or validity thereof is being contested in good faith by appropriate
proceedings and such reserves as Debenture Holder may deem proper and necessary
in its sole discretion shall have been made, but in no event shall such reserve
exceed the amount of the obligations or liabilities so contested.

6.10
Lien Searches

If
Liens other than Permitted Liens exist, Obligors immediately shall take,
execute and deliver all actions, documents and instruments necessary to release
and terminate such Liens.

6.11
Intentionally Omitted

6.12
Collateral Documents; Security Interest in Collateral

The
Obligors shall (i) execute, obtain, deliver, file, register and/or record any
and all financing statements, continuation statements, stock powers,
instruments and other documents, or cause the execution, filing, registration,
recording or delivery of any and all of the foregoing, that are necessary or
required under law or otherwise or reasonably requested by Debenture Holder to
be executed, filed, registered, obtained, delivered or recorded to create,
maintain, perfect, preserve, validate or otherwise protect the pledge of the
Collateral to Debenture Holder and Debenture Holders perfected Lien on the
Collateral that is senior in priority to all other security interests except
with respect to the security interest granted to CapitalSource pursuant to the
terms of the Credit Agreement and other Loan Documents (as defined in the
Credit Agreement) and with respect to the security interest granted to Seller
pursuant to the terms of the Security Agreement and other Security Documents
(as defined in the Security Agreement) (and each Obligor irrevocably grants
Debenture Holder the right, at Debenture Holders option, to file any or all of
the foregoing), (ii) immediately upon learning thereof, report to Debenture
Holder any reclamation, return or repossession of goods in excess of $40,000
(individually or in the aggregate), and (iii) defend the Collateral and
Debenture Holders perfected Lien thereon against all claims and demands of all
Persons at any time claiming the same or any interest therein adverse to

19

Debenture Holder, and pay all reasonable costs and
expenses (including, without limitation, in-house documentation and diligence
fees and legal expenses and reasonable attorneys fees and expenses) in
connection with such defense, which may at Debenture Holders discretion be
added to the Obligations.

6.13
Intentionally Omitted

6.14
Taxes and Other Charges

(a)
All payments and reimbursements to Debenture Holder made under any Debenture Document
shall be free and clear of and without deduction for all taxes, levies,
imposts, deductions, assessments, charges or withholdings, and all liabilities
with respect thereto of any nature whatsoever, excluding taxes to the extent
imposed on Debenture Holders net income.
If the Obligors shall be required by law to deduct any such amounts from
or in respect of any sum payable under any Debenture Document to Debenture
Holder, then the sum payable to Debenture Holder shall be increased as may be
necessary so that, after making all required deductions, Debenture Holder
receives an amount equal to the sum it would have received had no such
deductions been made.  Notwithstanding
any other provision of any Debenture Document, if at any time after the Closing
(i) any change in any existing law, regulation, treaty or directive or in
the interpretation or application thereof, (ii) any new law, regulation, treaty
or directive enacted or any interpretation or application thereof, or
(iii) compliance by Debenture Holder with any request or directive
(whether or not having the force of law) from any Governmental Authority:  (A) subjects Debenture Holder to any tax,
levy, impost, deduction, assessment, charge or withholding of any kind
whatsoever with respect to any Debenture Document, or changes the basis of
taxation of payments to Debenture Holder of any amount payable thereunder
(except for net income taxes, or franchise taxes imposed in lieu of net income
taxes, imposed generally by federal, state or local taxing authorities with
respect to interest or commitment fees or other fees payable hereunder or
changes in the rate of tax on the overall net income of Debenture Holder), or
(B) imposes on Debenture Holder any other condition or increased cost in
connection with the transactions contemplated thereby or participations
therein, then, in any such case, the Obligors shall promptly pay to Debenture
Holder any additional amounts necessary to compensate Debenture Holder, on an
after-tax basis, for such additional cost or reduced amount as determined by
Debenture Holder.  If Debenture Holder
becomes entitled to claim any additional amounts pursuant to this Section
6.14 it shall promptly notify the Obligors of the event by reason of which
Debenture Holder has become so entitled, and each such notice of additional
amounts payable pursuant to this Section 6.14 submitted by Debenture
Holder to the Obligors shall, absent manifest error, be final, conclusive and
binding for all purposes.

(b)
The Obligors shall promptly, and in any event within ten Business Days after
either Obligor or any authorized officer of either Obligor obtains knowledge
thereof, notify Debenture Holder in writing of any oral or written
communication from the Internal Revenue Service or otherwise with respect to
any (i) tax investigations, relating to either Obligor directly, or
relating to any consolidated tax return which was filed on behalf of either
Obligor, (ii) notices of tax assessment or possible tax assessment, (iii) years
that are designated open pending tax examination or audit, and (iv) information
that could give rise to an IRS tax liability or assessment.

6.15
Payroll Taxes

Without
limiting or being limited by any other provision of any Debenture Document,
each Obligor at all times shall retain and use a Person acceptable to Debenture
Holder to process, manage and pay its payroll taxes and shall cause to be
delivered to Debenture Holder within fifteen calendar days

20

after the end of each calendar month a report of its
payroll taxes for the immediately preceding calendar month and evidence of payment thereof.

6.16
Inventory Covenants

With
respect to the Inventory, Borrower:  (a)
shall at all times maintain inventory records reasonably satisfactory to
Debenture Holder, keeping correct and accurate records itemizing and describing
the kind, type, quality and quantity of Inventory, Borrowers cost therefore
and daily withdrawals therefrom and additions thereto; (b) shall not remove any
Inventory from the locations set forth or permitted herein, without the prior
written consent of Debenture Holder, which consent shall not be unreasonably
denied or delayed, except for sales of Inventory in the ordinary course of Borrowers
business and except to move Inventory directly from one location set forth or
permitted herein to another such location; (c) shall produce, use store,
ship and maintain the Inventory with all reasonable care and caution and in
accordance with applicable standards of any insurance and in conformity with
applicable laws (including the requirements of the Federal Fair Labor Standards
Act of 1938, as amended and all rules, regulations and orders related thereto);
(d) assumes all responsibility and liability arising from or relating to the
production, use, sale or other disposition of the Inventory; (e) shall not sell
Inventory to any customer on approval, or any other basis which entitles the
customer to return or may obligate Borrower to repurchase such Inventory; (f)
shall keep the Inventory in good and marketable condition; and (g) shall not,
without prior written notice to Debenture Holder, acquire or accept any
Inventory on consignment or approval.

VII.
NEGATIVE COVENANTS

Each
Obligor, jointly and severally, covenants and agrees that, until full
performance and satisfaction, and indefeasible payment in full in cash, of all
of the Obligations and termination of this Agreement:

7.1
Financial Covenants

Borrower
shall not violate the financial covenants set forth on Annex I to this
Agreement, which is incorporated herein and made a part hereof.

7.2
Permitted Indebtedness

Neither
Obligor shall create, incur, assume or suffer to exist any Indebtedness, except
the following (collectively, Permitted Indebtedness): (i) Indebtedness
under the Debenture Documents, (ii) any Indebtedness set forth on Schedule 7.2,
(iii) Capitalized Lease Obligations incurred after the Closing Date and
Indebtedness incurred pursuant to purchase money Liens permitted by Section 7.3(v),
provided that the aggregate amount of such Capitalized Lease Obligations and
purchase money indebtedness outstanding at any time shall not exceed $150,000, (iv) Indebtedness in connection
with advances made by a stockholder in order to cure any default of the
financial covenants set forth on Annex I; provided, however,
that such Indebtedness shall be on an unsecured basis, subordinated in right of
repayment and remedies to all of the Obligations and to all of Debenture
Holders rights pursuant to a subordination agreement in form and substance
satisfactory to Debenture Holder; (v) accounts payable to trade creditors
and current operating expenses (other than for borrowed money) which are not
aged more than 120 calendar days from the billing date or more than 30 days
from the due date, in each case incurred in the ordinary course of business and
paid within such time period, unless the same are being

21

contested in good faith and by appropriate and lawful
proceedings and such reserves, if any, with respect thereto as are required by
GAAP and deemed adequate by the Obligors independent accountants shall have
been reserved; (vi) borrowings incurred in the ordinary course of business
and not exceeding $80,000 individually or in the aggregate outstanding at any
one time, provided, however, that such Indebtedness shall be on
an unsecured basis, subordinated in right of repayment and remedies to all of
the Obligations and to all of Debenture Holders rights pursuant to a
subordination agreement in form and substance satisfactory to Debenture Holder;
(vii) Permitted Subordinated Debt and (viii) Indebtedness under the Credit
Agreement.  Neither Obligor shall make
prepayments on any existing or future Indebtedness to any Person other than
(i) to Capital Source in accordance with the terms of the Credit
Agreement, (ii) to Seller subject to the terms of the Master Subordination
Agreement , or (iii) to the Debenture Holder subject to the terms of the
Master Subordination Agreement and the Junior Subordination Agreement or (iv)
to the extent specifically permitted by this Agreement.

7.3
Permitted Liens

Neither
Obligor shall create, incur, assume or suffer to exist any Lien upon, in or
against, or pledge of, any of the Collateral or any of its properties or assets
or any of its shares, securities or other equity or ownership or partnership
interests, whether now owned or hereafter acquired, except the following
(collectively, Permitted Liens): (i) Liens under the Debenture Documents or
otherwise arising in favor of Debenture Holder, (ii) Liens imposed by law for
taxes (other than payroll taxes), assessments or charges of any Governmental
Authority for claims not yet due or which are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves or other
appropriate provisions are being maintained by such Person in accordance with
GAAP to the satisfaction of Debenture Holder in its sole discretion, (iii) (A)
statutory Liens of landlords (provided that any such landlord has executed a
Landlord Waiver and Consent in form and substance satisfactory to Debenture
Holder) and of carriers, warehousemen, mechanics, materialmen, and
(B) other Liens imposed by law or that arise by operation of law in the
ordinary course of business from the date of creation thereof, in each case
only for amounts not yet due or which are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves or other
appropriate provisions are being maintained by such Person in accordance with
GAAP to the satisfaction of Debenture Holder in its sole discretion, (iv) Liens
(A) incurred or deposits made in the ordinary course of business (including,
without limitation, surety bonds and appeal bonds) in connection with workers
compensation, unemployment insurance and other types of social security
benefits or to secure the performance of tenders, bids, leases, contracts
(other than for the repayment of Indebtedness), statutory obligations and other
similar obligations, or (B) arising as a result of progress payments under
government contracts, (v) purchase money Liens (A) securing Indebtedness
permitted under Section 7.2(iii), or (B) in connection with
the purchase by such Person of equipment in the normal course of business, provided
that such payables shall not exceed any limits on Indebtedness provided for
herein and shall otherwise be Permitted Indebtedness hereunder, (vi) Liens
securing Permitted Subordinated Debt, provided that such Liens
are subordinated to the Liens in favor of Debenture Holder pursuant to a
written agreement acceptable to Debenture Holder; (vii) Liens disclosed on
Schedule 7.3; (viii) Liens in favor of Capital Source granted pursuant
to the Security Documents (as defined in the Credit Agreement) and (ix) Liens
in favor of Seller granted pursuant to the Security Documents (as defined in
the Security Agreement).

7.4
Investments; New Facilities or Collateral; Subsidiaries

Neither
Obligor, directly or indirectly, shall (i) purchase, own, hold, invest in
or otherwise acquire obligations or stock or securities of, or any other
interest in, or all or substantially all of the assets of, any Person or any
joint venture, or (ii) make or permit to exist any loans, advances or

22

guarantees to or for the benefit of any Person or
assume, guarantee, endorse, contingently agree to purchase or otherwise become
liable for or upon or incur any obligation of any Person (other than those
created by the Debenture Documents and Permitted Indebtedness and other than
(A) trade credit extended in the ordinary course of business, (B) advances
for business travel and similar temporary advances made in the ordinary course
of business to officers, directors and employees, and (C) the endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business).  Neither
Obligor, directly or indirectly, shall purchase, own, operate, hold, invest in
or otherwise acquire any facility, property or assets or any Collateral that is
not located at the locations set forth on Schedule 5.18B unless such
Obligor shall first obtain the written consent of the Debenture Holder, which
consent shall not be unreasonably withheld. 
Neither Obligor shall have Subsidiaries other than those Subsidiaries,
if any, existing at Closing and set forth in Schedule 5.3.

7.5
Dividends; Redemptions

Neither
Obligor shall (i) declare, pay or make any dividend or Distribution on any
shares of capital stock or other securities or interests other than dividends
or Distributions payable in its stock, of split-ups or reclassifications of its
stock , (ii) apply any of its funds, property or assets to the acquisition,
redemption or other retirement of any capital stock or other securities or
interests or of any options to purchase or acquire any of the foregoing
(provided, however, that either Obligor may (1) redeem its capital stock
from terminated employees pursuant to, but only to the extent required under
the terms of the related employment agreements, and (2) prepay certain
Permitted Indebtedness if allowed to do so under the terms and conditions of the
Subordination Agreements, as long as no Default or Event of Default has
occurred and is continuing or would be cause by or result therefrom), (iii)
otherwise make any payments or Distributions to any stockholder, member,
partner or other equity owner in such Persons capacity as such, or (iv) make
any payment of any management or service fee except as permitted in writing by
Debenture Holder in advance, and provided further, that neither Obligor shall
make or suffer to exist any such payment described in (i) through (iv) above if
a Default or Event of Default has occurred and is continuing or would result
therefrom.

7.6
Transactions with Affiliates

Except
as set forth in Schedule 7.6, neither Obligor shall enter into or consummate
any transaction of any kind with any of its Affiliates or any of their
respective Affiliates other than: (i) salary, bonus, employee stock option and
other compensation and employment arrangements with directors or officers in
the ordinary course of business, provided, that no payment of any type
of any compensation listed above shall be permitted if a Default or Event of
Default has occurred and remains in effect or would be caused by or result from
such payment, (ii) Distributions and dividends permitted pursuant to Section
7.5, (iii) transactions with Debenture Holder or any Affiliate of Debenture
Holder, and (iv) payments permitted under and pursuant to written agreements
entered into by and between either Obligor and one or more of its Affiliates
that both (A) reflect and constitute transactions on overall terms at
least as favorable to such Obligor as would be the case in an arms-length
transaction between unrelated parties of equal bargaining power, and (B) are
subject to such terms and conditions as determined by Debenture Holder in its
sole discretion; provided, that notwithstanding the foregoing neither
Obligor shall (W) enter into or consummate any transaction or agreement
pursuant to which it becomes a party to any mortgage, note, indenture or
guarantee evidencing any Indebtedness of any of its Affiliates or otherwise to
become responsible or liable, as a guarantor, surety or otherwise, pursuant to agreement for any
Indebtedness of any such Affiliate, (X) make any payment to any of its Affiliates
in excess of $80,000 without the prior written consent of Debenture Holder, (Y)
make any payment that is restricted or prohibited by the Junior Management Fee
Subordination Agreement or (Z) make any payment for any present or future
obligation of any Subsidiary or other Affiliate of such Obligor (including,
without

23

limitation any amounts owing
by Low Carb Creations, Inc. to (i) Wells Fargo Bank, N.A. (or any of its
Affiliates) or (ii) the Langdon Family Revocable Trust).

7.7
Charter Documents; Fiscal Year; Name; Jurisdiction of Organization;
Dissolution; Use of Proceeds

Neither
Obligor shall
(i) amend, modify, restate or change its certificate of incorporation or
formation or bylaws or similar charter documents in a manner that would be
adverse to Debenture Holder, (ii) change its fiscal year unless such
Obligor demonstrates to Debenture Holders satisfaction compliance with the
covenants contained herein for both the fiscal year in effect prior to any
change and the new fiscal year period by delivery to Debenture Holder of
appropriate interim and annual pro forma, historical and current compliance
certificates for such periods and such other information as Debenture Holder
may reasonably request, (iii) without at least ten (10) days prior written
notice to Debenture Holder, change its name or change its jurisdiction of
organization; (iv) amend, alter or suspend or terminate or make provisional in
any material way, any Permit without the prior written consent of Debenture
Holder, which consent shall not be unreasonably withheld, or (v) wind up,
liquidate or dissolve (voluntarily or involuntarily) or commence or suffer any
proceedings seeking or that would result in any of the foregoing.

7.8
Truth of Statements

Neither
Obligor shall furnish to Debenture Holder any certificate or other document
that contains any untrue statement of a material fact or that omits to state a
material fact necessary to make it not misleading in light of the circumstances
under which it was furnished.

7.9
IRS Form 8821

Neither
Obligor shall alter, amend, restate, or otherwise modify, or withdraw,
terminate or re-file the IRS Form 8821 required to be filed pursuant to the
Conditions Precedent in Section 4.1 hereof.

7.10
Transfer of Assets

Notwithstanding
any other provision of this Agreement or any other Security Document, neither
Obligor shall sell, lease, transfer, assign or otherwise dispose of any interest
in any properties or assets (other than obsolete equipment or excess equipment
no longer needed in the conduct of the business in the ordinary course of
business and sales of Inventory in the ordinary course of business), or agree
to do any of the foregoing at any future time, except that:

(a) Either
  Obligor may lease (as lessee) real or personal property or surrender all or a
  portion of a lease of the same, in each case in the ordinary course of
  business (so long as such lease does not create or result in and is not
  otherwise a Capitalized Lease Obligation prohibited under this Agreement), provided
  that a Landlord Waiver and Consent and such other consents as are required by
  Debenture Holder are signed and delivered to Debenture Holder with respect to
  any lease of real or other property, as applicable;(b) Either
  Obligor may arrange for warehousing, fulfillment or storage of Inventory at
  locations not owned or leased by such Obligor in each case in the ordinary
  course of24

business, provided that a
  Warehouse Waiver and Consent and such other consents as are required by
  Debenture Holder are signed and delivered to Debenture Holder with respect to
  any such location;(c) Either
  Obligor may license or sublicense Intellectual Property or customer lists
  from third parties in the ordinary course of business, provided, that
  such licenses or sublicenses shall not interfere with the business or other
  operations of Borrower and that Borrowers rights, title and/or interest in
  or to such Intellectual Property and customer lists and interests therein are
  pledged to Debenture Holder as further security for the Obligations and
  included as part of the Collateral;(d) Each
  Obligor agrees not sell, transfer, amend or dispose of any of its rights
  relating to (a) any registered Intellectual Property (or any applications
  therefor), or (b) any other material Intellectual Property, without first
  providing to Debenture Holder written notice of its intent and providing
  Debenture Holder with the opportunity to object in writing within five (5)
  days of the receipt of such notice; and(e) Either
  Obligor may consummate such other sales or dispositions of property or assets
  (including any sale or transfer or disposition of all or any part of its
  assets and thereupon and within one year thereafter rent or lease the assets
  so sold or transferred) only to the extent prior written notice has been
  given to Debenture Holder and to the extent Debenture Holder has given its
  prior written consent thereto, subject in each case to such conditions as may
  be set forth in such consent.7.11
Payment on Permitted Subordinated Debt

Borrower
shall not, unless expressly permitted under the Subordination Agreements,
(i) make any prepayment of any part or all of any Permitted Subordinated
Debt, (ii) repurchase, redeem or retire any instrument evidencing any such
Permitted Subordinated Debt prior to maturity, or (iii) enter into any
agreement (oral or written) which could in any way be construed to amend,
modify, alter or terminate any one or more instruments or agreements evidencing
or relating to any Permitted Subordinated Debt in a manner adverse to Debenture
Holder, as determined by Debenture Holder in its sole discretion.

VIII.
EVENTS OF DEFAULTThe
occurrence of any one or more of the following shall constitute an Event of
Default:

(a)
Borrower shall fail to pay any amount on the Obligations or provided for in any
Debenture Document when due (whether on any payment date, at maturity, by
reason of acceleration, by notice of intention to prepay, by required
prepayment or otherwise);

(b)
any representation, statement or warranty made or deemed made by either Obligor
in any Debenture Document or in any other certificate, document, report or
opinion delivered in conjunction with any Debenture Document to which it is a
party, shall not be true and correct in all material respects or shall have been
false or misleading in any material respect on the date when made or deemed to
have been made (except to the extent already qualified by materiality, in which
case it shall be true and correct in all respects and shall not be false or
misleading in any respect);

25

(c)
Obligor or other party thereto other than Debenture Holder shall be in
violation, breach or default of, or shall fail to perform, observe or comply
with any covenant, obligation or agreement set forth in, any Debenture Document
and such violation, breach, default or failure shall not be cured within the
applicable period set forth in the applicable Debenture Document; provided
that, with respect to the affirmative covenants set forth in Article VI
(other than Sections 6.1(c), 6.2, 6.3, 6.5, 6.8 and 6.9 for which there
shall be no cure period), there shall be a thirty calendar day cure period
commencing from the earlier of (i) Receipt by such Person of written
notice of such breach, default, violation or failure, and (ii) the time at
which such Person or any authorized officer thereof knew or became aware, or
should have known or been aware, of such failure, violation, breach or default;

(d)
(i) any of the Debenture Documents ceases to be in full force and effect, or
(ii) except as set forth herein or under any applicable Debenture
Document, any Lien created thereunder ceases to constitute a valid perfected
Lien on the Collateral in accordance with the terms thereof, or Debenture
Holder ceases to have a valid perfected security interest in any of the
Collateral or any securities pledged to Debenture Holder pursuant to the
Security Documents that is senior in priority to all other security interests
except with respect to the security interest granted to CapitalSource pursuant
to the terms of the Credit Agreement and other Loan Documents (as defined in
the Credit Agreement) and with respect to the security interest granted to
Seller pursuant to the terms of the Security Agreement and other Security Documents
(as defined in the Security Agreement);

(e)
one or more tax assessments, judgments or decrees is rendered against either
Obligor in an amount in excess of $80,000 individually or $150,000 in the
aggregate, which is/are not satisfied, stayed, vacated or discharged of record
within forty-five calendar days of being rendered or is/are not subject to a
good faith dispute for which adequate reserves have been put aside;

(f)
(i) any default occurs, which is not cured or waived, (x) in the
payment of any amount with respect to any Indebtedness (other than the
Obligations) of either Obligor in excess of $80,000, (y) in the
performance, observance or fulfillment of any material provision contained in
any agreement, contract, document or instrument to which either Obligor is a
party or to which any of their properties or assets are subject or bound under
or pursuant to which any Indebtedness was issued, created, assumed, guaranteed
or secured and such default continues for more than any applicable grace period
or permits the holder of any Indebtedness to accelerate the maturity thereof,
or (z) in the performance, observance or fulfillment of any provision contained
in any agreement, contract, document or instrument between either Obligor and Debenture Holder or any Affiliate of Debenture
Holder (other than the Debenture Documents) and such default continues
for more than any applicable grace period (if any), or (ii) any Indebtedness of either Obligor is declared to be due
and payable or is required to be prepaid (other than by a regularly scheduled
payment) prior to the stated maturity thereof, or any obligation of such Person
for the payment of Indebtedness (other than the Obligations) is not paid when
due or within any applicable grace period, or any such obligation becomes or is
declared to be due and payable before the expressed maturity thereof, or there
occurs an event which, with the giving of notice or lapse of time, or both,
would cause any such obligation to become, or allow any such obligation to be
declared to be, due and payable;

(g)
Either Obligor shall (i) be unable to pay its debts generally as they
become due, (ii) have total liabilities (including contingent,
subordinated, unmatured and unliquidated liabilities) that exceed its assets,
at a Fair Valuation, (iii) have an unreasonably small capital base with which
to engage in its anticipated business, (iv) file a petition under any
insolvency statute, (v) make a general assignment for the benefit of its
creditors, (vi) commence a proceeding for the appointment of a receiver,
trustee, liquidator or conservator of itself or of the whole or any substantial
part of its property, or (vii) file a

26

petition seeking reorganization or liquidation or
similar relief under any Debtor Relief Law or any other applicable law or
statute;

(h)
(i) a court of competent jurisdiction shall (A) enter an order, judgment or
decree appointing a custodian, receiver, trustee, liquidator or conservator of
either Obligor or the whole or any substantial part of any such Persons
properties, which shall continue unstayed and in effect for a period of
forty-five calendar days, (B) shall approve a petition filed against either
Obligor seeking reorganization, liquidation or similar relief under the any
Debtor Relief Law or any other applicable law or statute, which is not
dismissed within forty-five calendar days or, (C) under the provisions of
any Debtor Relief Law or other applicable law or statute, assume custody or
control of either Obligor or of the whole or any substantial part of any such
Persons properties, which is not irrevocably relinquished within forty-five
calendar days, or (ii) there is commenced against either Obligor any
proceeding or petition seeking reorganization, liquidation or similar relief
under any Debtor Relief Law or any other applicable law or statute and either
(A) any such proceeding or petition is not unconditionally dismissed
within forty-five calendar days after the date of commencement, or
(B) either Obligor takes any action to indicate its approval of or consent
to any such proceeding or petition;

(i)
(i) any Change of Control occurs or any agreement or commitment to cause
or that may result in any such Change of Control is entered into, (ii) any
Material Adverse Effect, or Material Adverse Change occurs or is reasonably
expected to occur, or (iii) either Obligor ceases a material portion of
its business operations as currently conducted;

(j)
Debenture Holder receives any indication or evidence that Borrower may have
directly or indirectly been engaged in any type of activity which, in Debenture
Holders judgment, might result in forfeiture of any property to any
Governmental Authority which shall have continued unremedied for a period of
thirty calendar days after written notice from Debenture Holder;

(k)
an Event of Default occurs under any
other Debenture Document after notice (if required) and the expiration of any
applicable grace period;

(l)
uninsured damage to, or loss, theft or destruction of, any portion of the
Collateral occurs that exceeds $80,000 in the aggregate;

(m)
Either Obligor or any of its respective directors or senior officers is
criminally indicted or convicted under any law that could lead to a forfeiture
of any Collateral;

(n)
The common stock of
Borrower shall cease to be quoted for trading or listed for trading on either
the NASD OTC Bulletin Board, Nasdaq SmallCap Market, New York Stock Exchange,
American Stock Exchange or the Nasdaq National Market and shall not again be
quoted or listed for trading thereon within ten Business Days of such
delisting;

(o)
the issuance of any process for levy, attachment or garnishment or execution
upon or prior to any judgment against either Obligor or any of their property
or assets; or

(p)
either Obligor does, or enters into or becomes a party to any agreement or
commitment to do, or cause to be done, any of the things described in this
Article VIII or otherwise prohibited by any Debenture Document (subject to any
cure periods set forth therein); then, and in any such event, notwithstanding
any other provision of any Debenture Document, Debenture Holder may, without
notice or demand, elect all or any of the Obligations to be due and payable
immediately (except in the case of an Event of Default under Section 8(d),
(g), (h) or (i)(iii), in which event all of the

27

foregoing shall
automatically and without further act by Debenture Holder be due and payable, provided
that, with respect to non-material breaches or violations that constitute
Events of Default under clause (ii) of Section 8(d), there shall be a five
(5) Business Day cure period commencing from the earlier of (A) Receipt by
the applicable Person of written notice of such breach or violation or of any
event, fact or circumstance constituting or resulting in any of the foregoing,
and (B) the time at which such Person or any authorized officer thereof knew or
became aware, or should have known or been aware, of such breach or violation
and resulting Event of Default or of any event, fact or circumstance
constituting or resulting in any of the foregoing), in each case without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived each Obligor.

IX.
RIGHTS AND REMEDIES AFTER DEFAULT9.1
Rights and Remedies

(a)
In addition to the acceleration provisions set forth in Article VIII
above, upon the occurrence and continuation of an Event of Default, subject to
the terms of the Master Subordination Agreement and the Junior Subordination
Agreement, Debenture Holder shall have the right to exercise any and all
rights, options and remedies provided for in the Debenture Documents, under the
UCC or at law or in equity, including, without limitation, the right to
(i) apply any property of either Obligor held by Debenture Holder to reduce
the Obligations, (ii) foreclose the Liens created under the Security Documents,
(iii) realize upon, take possession of and/or sell any Collateral or
securities pledged with or without judicial process, (iv) exercise all
rights and powers with respect to the Collateral as either Obligor, as
applicable, might exercise, (v) collect and send notices regarding the
Collateral, with or without judicial process, (vi) by its own means or with
judicial assistance, enter any premises at which Collateral and/or pledged securities
are located, or render any of the foregoing unusable or dispose of the
Collateral and/or pledged securities on such premises without any liability for
rent, storage, utilities, or other sums, and neither Obligor shall resist or
interfere with such action, (vii) at the Obligors expense, require that
all or any part of the Collateral be assembled and made available to Debenture
Holder at any place designated by Debenture Holder, (viii) intentionally
omitted, (ix) assess the Non-Compliance Fee, and/or (x) relinquish or abandon
any Collateral or securities pledged or any Lien thereon.  Notwithstanding any provision of any
Debenture Document, Debenture Holder, in its sole discretion, shall have the
right, at any time that either Obligor fails to do so, and from time to time,
without prior notice, to: (i) obtain insurance covering any of the
Collateral to the extent required hereunder; (ii) pay for the performance of
any of Obligations; (iii) discharge taxes or Liens on any of the Collateral
that are in violation of any Debenture Document unless such Obligor is in good
faith with due diligence by appropriate proceedings contesting those items; and
(iv) pay for the maintenance and preservation of the Collateral.  Such expenses and advances shall be added to
the Obligations until reimbursed to Debenture Holder and shall be secured by
the Collateral, and such payments by Debenture Holder shall not be construed as
a waiver by Debenture Holder of any Event of Default or any other rights or
remedies of Debenture Holder.

(b)
Each Obligor agrees that notice received by it at least fifteen calendar days
before the time of any intended public sale, or the time after which any
private sale or other disposition of Collateral is to be made, shall be deemed
to be reasonable notice of such sale or other disposition.  If permitted by applicable law, any
perishable Collateral which threatens to speedily decline in value or which is
sold on a recognized market may be sold immediately by Debenture Holder without
prior notice to either Obligor.  At any
sale or disposition of Collateral or securities pledged, Debenture Holder may
(to the extent permitted by applicable law) purchase all or any part thereof
free from any right of redemption by the Obligors which right is hereby waived
and released.  Each Obligor covenants
and

28

agrees not to, and not to permit or cause any of its
Subsidiaries to, interfere with or impose any obstacle to Debenture Holders
exercise of its rights and remedies with respect to the Collateral.  Debenture Holder, in dealing with or
disposing of the Collateral or any part thereof, shall not be required to give
priority or preference to any item of Collateral or otherwise to marshal assets
or to take possession or sell any Collateral with judicial process.

9.2
Application of Proceeds

In
addition to any other rights, options and remedies Debenture Holder has under
the Debenture Documents, the UCC, at law or in equity, subject to the terms of
the Master Subordination Agreement and the Junior Subordination
Agreement, all dividends,
interest, rents, issues, profits, fees, revenues, income and other proceeds
collected or received from collecting, holding, managing, renting, selling, or
otherwise disposing of all or any part of the Collateral or any proceeds
thereof upon exercise of its remedies hereunder shall be applied in the
following order of priority:  (i) first,
to the payment of all costs and expenses of such collection, storage, lease,
holding, operation, management, sale, disposition or delivery and of conducting
each Obligors business and of maintenance, repairs, replacements, alterations,
additions and improvements of or to the Collateral, and to the payment of all
sums which Debenture Holder may be required or may elect to pay, if any, for
taxes, assessments, insurance and other charges upon the Collateral or any part
thereof, and all other payments that Debenture Holder may be required or
authorized to make under any provision of this Agreement (including, without
limitation, in each such case, in-house documentation and diligence fees and
legal expenses, search, audit, recording, professional and filing fees and
expenses and reasonable attorneys fees and all expenses, liabilities and
advances made or incurred in connection therewith); (ii) second, to
the payment of all Obligations as provided herein; (iii) third, to the
satisfaction of Indebtedness secured by any subordinate security interest of
record in the Collateral if written notification of demand therefore is
received before distribution of the proceeds is completed, provided,
that, if requested by Debenture Holder, the holder of a subordinate security
interest shall furnish reasonable proof of its interest, and unless it does so,
Debenture Holder need not address its claims; and (iv) fourth, to
the payment of any surplus then remaining to the Obligors, unless otherwise
provided by law or directed by a court of competent jurisdiction, provided
that the Obligors shall be liable for any deficiency if such proceeds are
insufficient to satisfy the Obligations or any of the other items referred to
in this section.

9.3
Rights of Debenture Holder to Appoint Receiver

Without
limiting and in addition to any other rights, options and remedies Debenture
Holder has under the Debenture Documents, the UCC, at law or in equity, upon
the occurrence and continuation of an Event of Default, subject to the terms of
the Master Subordination Agreement and the Junior Subordination Agreement, Debenture Holder shall have the right to
apply for and have a receiver appointed by a court of competent jurisdiction in
any action taken by Debenture Holder to enforce its rights and remedies in
order to manage, protect, preserve, sell or dispose the Collateral and continue
the operation of the business of the Obligors and to collect all revenues and
profits thereof and apply the same to the payment of all expenses and other
charges of such receivership including the compensation of the receiver and to the
payments as aforesaid until a sale or other disposition of such Collateral
shall be finally made and consummated.

9.4
Rights and Remedies not Exclusive

Subject
to the terms of the Master Subordination Agreement and the Junior Subordination
Agreement, Debenture Holder shall have the right in its sole discretion to
determine which rights, Liens and/or remedies Debenture Holder may at any time
pursue, relinquish, subordinate or

29

modify, and such determination will not in any way
modify or affect any of Debenture Holders rights, Liens or remedies under any
Debenture Document, applicable law or equity. 
The enumeration of any rights and remedies in any Debenture Document is
not intended to be exhaustive, and all rights and remedies of Debenture Holder
described in any Debenture Document are cumulative and are not alternative to
or exclusive of any other rights or remedies which Debenture Holder otherwise
may have.  The partial or complete
exercise of any right or remedy shall not preclude any other further exercise
of such or any other right or remedy.

X.
WAIVERS AND JUDICIAL PROCEEDINGS10.1 Waivers

Except
as expressly provided for herein, each Obligor hereby waives setoff,
counterclaim, demand, presentment, protest, all defenses with respect to any
and all instruments and all notices and demands of any description, and the
pleading of any statute of limitations as a defense to any demand under any
Debenture Document.  Each Obligor hereby
waives any and all defenses and counterclaims it may have or could interpose in
any action or procedure brought by Debenture Holder to obtain an order of court
recognizing the assignment of, or Lien of Debenture Holder in and to, any
Collateral.  With respect to any action hereunder,
Debenture Holder conclusively may rely upon, and shall incur no liability to
the Obligors in acting upon, any request or other communication that Debenture
Holder reasonably believes to have been given or made by a person authorized on
such Obligors behalf, whether or not such person is listed on the incumbency
certificate delivered pursuant to Section 4.1 hereof.  In each such
case, each Obligor hereby waives the right to dispute Debenture Holders action
based upon such request or other communication, absent manifest error.

10.2
Delay; No Waiver of Defaults

No
course of action or dealing, renewal, release or extension of any provision of
any Debenture Document, or single or partial exercise of any such provision, or
delay, failure or omission on Debenture Holders part in enforcing any such
provision shall affect the liability of either Obligor or operate as a waiver
of such provision or affect the liability of either Obligor or preclude any
other or further exercise of such provision. 
No waiver by any party to any Debenture Document of any one or more
defaults by any other party in the performance of any of the provisions of any
Debenture Document shall operate or be construed as a waiver of any future
default, whether of a like or different nature, and each such waiver shall be
limited solely to the express terms and provisions of such waiver.  Notwithstanding any other provision of any
Debenture Document, by completing the Closing under this Agreement, Debenture
Holder does not waive any breach of any representation or warranty under any
Debenture Document, and all of Debenture Holders claims and rights resulting
from any such breach or misrepresentation are specifically reserved.

10.3
Jury Waiver

EACH
PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM OR CAUSE OF ACTION ARISING UNDER THE DEBENTURE DOCUMENTS OR IN ANY
WAY CONNECTED WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT TO
THE DEBENTURE DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY, WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE.  EACH PARTY

30

HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES TO
THE WAIVER OF THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY.

10.4
Cooperation in Discovery and Litigation

In
any litigation, arbitration or other dispute resolution proceeding relating to
any Debenture Document, each Obligor waives any and all defenses, objections
and counterclaims it may have or could interpose with respect to (i) any of its
directors, officers, employees or agents being deemed to be employees or
managing agents of such Obligor for purposes of all applicable law or court
rules regarding the production of witnesses by notice for testimony (whether in
a deposition, at trial or otherwise), (ii) Debenture Holders counsel
examining any such individuals as if under cross-examination and using any
discovery deposition of any of them as if it were an evidence deposition,
and/or (iii) using all commercially reasonable efforts to produce in any such
dispute resolution proceeding, at the time and in the manner requested by
Debenture Holder, all Persons, documents (whether in tangible, electronic or
other form) and/or other things under its control and relating to the dispute.

XI.
EFFECTIVE DATE AND TERMINATION11.1
Termination and Effective Date Thereof

(a)
This Agreement shall continue in full force and effect until the full performance
and indefeasible payment in cash of all Obligations, unless terminated sooner
as provided in this Section 11.1. 
Borrower may terminate this Agreement at any time upon not less than one
hundred calendar days prior written notice to Debenture Holder and upon full
performance and indefeasible payment in full in cash of all Obligations on or
prior to such one hundredth calendar day after Receipt by Debenture Holder of
such written notice.All
of the Obligations shall be immediately due and payable upon any such
termination on the termination date stated in any notice of termination (the Termination Date); provided that,
notwithstanding any other provision of any Debenture Document, the Termination
Date shall be effective no earlier than the first Business Day of the month
following the expiration of the one hundred calendar days prior written notice
period.  Notwithstanding any other
provision of any Debenture Document, no termination of this Agreement shall affect
Debenture Holders rights or any of the Obligations existing as of the
effective date of such termination, and the provisions of the Debenture
Documents shall continue to be fully operative until the Obligations have been
fully performed and indefeasibly paid in cash in full.  The Liens granted to Debenture Holder under
the Security Documents and the financing statements filed pursuant thereto and
the rights and powers of Debenture Holder shall continue in full force and
effect until all of the Obligations have been fully performed and indefeasibly
paid in full in cash and this Agreement has been terminated.

11.2
Survival

All
obligations, covenants, agreements, representations, warranties, waivers and
indemnities made by each Obligor in any Debenture Document shall survive the
execution and delivery of the Debenture Documents, the Closing, and any
termination of this Agreement until all Obligations are fully performed and
indefeasibly paid in full in cash.  The
obligations and provisions of Sections 3.4, 3.5,

31

6.13, 10.1, 10.3, 11.1,
11.2, 12.4, 12.7 and 12.10 shall survive termination of the
Debenture Documents and any payment, in full or in part, of the Obligations.

XII.
MISCELLANEOUS12.1
Governing Law; Jurisdiction; Service of Process; Venue

The
Debenture Documents shall be governed by and construed in accordance with the
internal laws of the State of New York without giving effect to its choice of
law provisions.  Any judicial proceeding
against either Obligor with respect to the Obligations, any Debenture Document
or any related agreement may be brought in any federal or state court of
competent jurisdiction located in the State of New York.  By execution and delivery of each Debenture
Document to which it is a party, each Obligor (i) accepts the
non-exclusive jurisdiction of the aforesaid courts and irrevocably agrees to be
bound by any judgment rendered thereby, (ii) waives personal service of
process, (iii) agrees that service of process upon it may be made by certified
or registered mail, return receipt requested, pursuant to Section 12.5
hereof, (iv) waives any objection to jurisdiction and venue of any action
instituted hereunder and agrees not to assert any defense based on lack of
jurisdiction, venue or convenience,
and (v) agrees that Debenture Holder has accepted in New York the Debenture Documents executed by each
Obligor.  Nothing shall affect
the right of Debenture Holder to serve process in any manner permitted by law
or shall limit the right of Debenture Holder to bring proceedings against
either Obligor in the courts of any other jurisdiction having
jurisdiction.  Any judicial proceedings
against Debenture Holder involving, directly or indirectly, the Obligations,
any Debenture Document or any related agreement shall be brought only in a
federal or state court located in the State of New York.  All parties acknowledge that they
participated in the negotiation and drafting of this Agreement and that,
accordingly, no party shall move or petition a court construing this Agreement
to construe it more stringently against one party than against any other.

12.2
Successors and Assigns; Participations; New Debenture Holders

The
Debenture Documents shall inure to the benefit of Debenture Holder, Transferees
and all future holders of the Convertible Debentures, the Obligations and/or
any of the Collateral, and each of their respective successors and
assigns. Each Debenture Document shall
be binding upon the Persons other than Debenture Holder that are parties
thereto and their respective successors and assigns, and no such Person may
assign, delegate or transfer any Debenture Document or any of its rights or
obligations thereunder without the prior written consent of Debenture Holder. No rights are intended to be created under
any Debenture Document for the benefit of any third party done, creditor or
incidental beneficiary of either Obligor.
Nothing contained in any Debenture Document shall be construed as a
delegation to Debenture Holder of any other Persons duty of performance. EACH OBLIGOR ACKNOWLEDGES AND AGREES THAT
DEBENTURE HOLDER AT ANY TIME AND FROM TIME TO TIME MAY (I) DIVIDE AND RESTATE
ANY NOTE, AND/OR (II) SELL, ASSIGN OR GRANT PARTICIPATING INTERESTS IN OR
TRANSFER ALL OR ANY PART OF ITS RIGHTS OR OBLIGATIONS UNDER ANY DEBENTURE
DOCUMENT, THE CONVERTIBLE DEBENTURES, THE OBLIGATIONS AND/OR THE COLLATERAL TO
OTHER PERSONS (EACH SUCH TRANSFEREE, ASSIGNEE OR PURCHASER, A TRANSFEREE).  Each Transferee shall
have all of the rights and benefits with respect to the Obligations, the
Convertible Debentures, Collateral and/or Debenture Documents held by it as
fully as if the original holder thereof, and either Debenture Holder or any
Transferee may be designated as the sole agent to manage the transactions and
obligations contemplated therein; provided that, notwithstanding
anything to the contrary in any Debenture

32

Document, the Obligors shall not be obligated to pay
under this Agreement to any Transferee any sum in excess of the sum which the
Obligors would have been obligated to pay to Debenture Holder had such
participation not been effected. 
Notwithstanding any other provision of any Debenture Document, Debenture
Holder may disclose to any Transferee all information, reports, financial
statements, certificates and documents obtained under any provision of any
Debenture Document.

12.3
Application of Payments

To
the extent that any payment made or received with respect to the Obligations is
subsequently invalidated, determined to be fraudulent or preferential, set
aside or required to be repaid to a trustee, debtor in possession, receiver,
custodian or any other Person under any Debtor Relief Law, common law or
equitable cause or any other law, then the Obligations intended to be satisfied
by such payment shall be revived and shall continue as if such payment had not
been received by Debenture Holder.  Any
payments with respect to the Obligations received shall be credited and applied
in such manner and order as Debenture Holder shall decide in its sole
discretion.

12.4
Indemnity

Each
Obligors jointly and severally shall indemnify Debenture Holder, its Affiliates
and its and their respective managers, members, officers, employees,
Affiliates, agents, representatives, successors, assigns, accountants and
attorneys (collectively, the Indemnified
Persons) from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, reasonable fees and
disbursements of counsel and in-house documentation and diligence fees and
legal expenses) which may be imposed on, incurred by or asserted against any
Indemnified Person with respect to or arising out of, or in any litigation,
proceeding or investigation instituted or conducted by any Person with respect
to any aspect of, or any transaction contemplated by or referred to in, or any
matter related to, any Debenture Document or any agreement, document or
transaction contemplated thereby, whether or not such Indemnified Person is a
party thereto, except to the extent that any of the foregoing arises out of the
gross negligence or willful misconduct of such Indemnified Person.  If any Indemnified Person uses in-house
counsel for any purpose for which the Obligors are responsible to pay or
indemnify, each Obligor expressly agrees that its indemnification obligations include
reasonable charges for such work commensurate with the fees that would
otherwise be charged by outside legal counsel selected by such Indemnified
Person in its sole discretion for the work performed.  Debenture Holder agrees to give each Obligor reasonable notice of
any event of which Debenture Holder becomes aware for which indemnification may
be required under this Section 12.4, and Debenture Holder may elect (but
is not obligated) to direct the defense thereof, provided that the selection of
counsel shall be subject to the Obligors consent, which consent shall not be
unreasonably withheld or delayed.  Any
Indemnified Person may, in its reasonable discretion, take such actions as it
deems necessary and appropriate to investigate, defend or settle any event or
take other remedial or corrective actions with respect thereto as may be
necessary for the protection of such Indemnified Person or the Collateral.  Notwithstanding the foregoing, if any
Insurer agrees to undertake the defense of an event (an Insured Event), Debenture
Holder agrees not to exercise its right to select counsel to defend the event
if that would cause either Obligors Insurer to deny coverage; provided,
however, that Debenture Holder reserves the right to retain counsel to
represent any Indemnified Person with respect to an Insured Event at its sole
cost and expense.  To the extent that
Debenture Holder obtains recovery from a third party other than an Indemnified
Person of any of the amounts that either Obligor has paid to Debenture Holder
pursuant to the indemnity set forth in this Section 12.4, then Debenture
Holder shall promptly pay to such Obligor the amount of such recovery.

33

12.5
Notice

Any
notice or request under any Debenture Document shall be given to any party to
this Agreement at such partys address set forth beneath its signature on the
signature page to this Agreement, or at such other address as such party may
hereafter specify in a notice given in the manner required under this Section
12.5.  Any notice or request
hereunder shall be given only by, and shall be deemed to have been received
upon (each, a Receipt):  (i) registered or certified mail, return receipt requested,
on the date on which received as indicated in such return receipt,
(ii) delivery by a nationally recognized overnight courier, one (1)
Business Day after deposit with such courier, or (iii) facsimile transmission,
in each case upon telephone or further electronic communication from the
recipient acknowledging receipt (whether automatic or manual from recipient),
as applicable.

12.6
Severability; Captions; Counterparts; Facsimile Signatures

If
any provision of any Debenture Document is adjudicated to be invalid under
applicable laws or regulations, such provision shall be inapplicable to the
extent of such invalidity without affecting the validity or enforceability of
the remainder of the Debenture Documents which shall be given effect so far as
possible.  The captions in the Debenture
Documents are intended for convenience and reference only and shall not affect
the meaning or interpretation of the Debenture Documents.  The Debenture Documents may be executed in
one or more counterparts (which taken together, as applicable, shall constitute
one and the same instrument) and by facsimile transmission, which facsimile
signatures shall be considered original executed counterparts.  Each party to this Agreement agrees that it
will be bound by its own facsimile signature and that it accepts the facsimile
signature of each other party.

12.7
Expenses

The
Obligors shall pay, whether or not the Closing occurs, all costs and expenses
incurred by Debenture Holder and/or its Affiliates, including, without
limitation, documentation and diligence fees and expenses, all search, audit,
appraisal, recording, professional and filing fees and expenses and all other
out-of-pocket charges and expenses (including, without limitation, UCC and
judgment and tax lien searches and UCC filings and fees for post-Closing UCC and
judgment and tax lien searches and wire transfer fees and audit expenses), and
reasonable attorneys fees and expenses, (i) in any effort to enforce, protect
or collect payment of any Obligation or to enforce any Debenture Document or
any related agreement, document or instrument, (ii) in connection with entering
into, negotiating, preparing, reviewing and executing the Debenture Documents
and/or any related agreements, documents or instruments, (iii) arising in any
way out of administration of the Obligations, (iv) in connection with
instituting, maintaining, preserving, enforcing and/or foreclosing on Debenture
Holders Liens in any of the Collateral or securities pledged under the
Debenture Documents, whether through judicial proceedings or otherwise, (v) in
defending or prosecuting any actions, claims or proceedings arising out of or
relating to Debenture Holders transactions with the Obligors, (vi) in seeking,
obtaining or receiving any advice with respect to its rights and obligations
under any Debenture Document and any related agreement, document or instrument,
and/or (vii) in connection with any modification, restatement, supplement,
amendment, waiver or extension of any Debenture Document and/or any related
agreement, document or instrument.  All
of the foregoing shall be charged to Borrowers and shall be part of the
Obligations.  If Debenture Holder or any
of its Affiliates uses in-house counsel for any purpose under any Debenture
Document for which the Obligors are responsible to pay or indemnify, each
Obligor expressly agrees that its Obligations include reasonable charges for
such work commensurate with the fees that would otherwise be charged by outside
legal counsel selected by Debenture Holder or such Affiliate in

34

its sole discretion for the work performed.  Without limiting the foregoing, the Obligors
shall pay all taxes (other than taxes based upon or measured by Debenture
Holders income or revenues or any personal property tax), if any, in connection
with the issuance of the Convertible Debentures and the filing and/or recording
of any documents and/or financing statements.

12.8
Entire Agreement

This
Agreement and the other Debenture Documents to which each Obligor is a party
constitute the entire agreement between the Obligors and Debenture Holder with
respect to the subject matter hereof and thereof, and supersede all prior
agreements and understandings, if any, relating to the subject matter hereof or
thereof.  Any promises, representations,
warranties or guarantees not herein contained and hereinafter made shall have
no force and effect unless in writing signed by the Obligors and Debenture
Holder.  No provision of this Agreement
may be changed, modified, amended, restated, waived, supplemented, discharged,
canceled or terminated orally or by any course of dealing or in any other
manner other than by an agreement in writing signed by Debenture Holder and the
Obligors.  Each party hereto
acknowledges that it has been advised by counsel in connection with the
negotiation and execution of this Agreement and is not relying upon oral
representations or statements inconsistent with the terms and provisions
hereof.

12.9
Debenture Holder Approvals

Unless
expressly provided herein to the contrary, any approval, consent, waiver or
satisfaction of Debenture Holder with respect to any matter that is subject of
any Debenture Document may be granted or withheld by Debenture Holder in its
sole and absolute discretion.

12.10
Confidentiality and Publicity

(a)
Each Obligor agrees, and agrees to cause each of its Affiliates, (i) not to
transmit or disclose provisions of any Debenture Document to any Person (other
than to such Obligors advisors and officers on a need-to-know basis or as
otherwise may be required by law) without Debenture Holders prior written
consent, except as required by applicable law or any regulations thereunder,
(ii) to inform all Persons of the confidential nature of the Debenture
Documents and to direct them not to disclose the same to any other Person and
to require each of them to be bound by these provisions.  Each Obligor agrees to submit to Debenture
Holder and Debenture Holder reserves the right to review and approve all
materials that such Obligor or any of its Affiliates prepares that contain
Debenture Holders name or describe or refer to any Debenture Document, any of
the terms thereof or any of the transactions contemplated thereby.  Neither Obligor shall, and shall not permit
any of its Affiliates to, use Debenture Holders name (or the name of any of
Debenture Holders Affiliates) in connection with any of its business
operations, including without limitation, advertising, marketing or press
releases or such other similar purposes, without Debenture Holders prior
written consent.  Nothing contained in
any Debenture Document is intended to permit or authorize either Obligor or any
of its Affiliates to contract on behalf of Debenture Holder.

(b)
Each Obligor hereby
agrees that Debenture Holder or any Affiliate of Debenture Holder may (i)
disclose a general description of transactions arising under the Debenture
Documents for advertising, marketing or other similar purposes and (ii) use
such Obligors name, logo or other indicia germane to such party in connection
with such advertising, marketing or other similar purposes.

35

12.11
Release of Debenture Holder

Notwithstanding
any other provision of any Debenture Document, each Obligor voluntarily,
knowingly, unconditionally and irrevocably, with specific and express intent,
for and on behalf of itself, its managers, members, directors, officers,
employees, stockholders, Affiliates, agents, representatives, accountants,
attorneys, successors and assigns and their respective Affiliates
(collectively, the Releasing Parties), hereby fully
and completely releases and forever discharges the Indemnified Persons and any
other Person or Insurer which may be responsible or liable for the acts or
omissions of any of the Indemnified Persons, or who may be liable for the
injury or damage resulting therefrom (collectively, with the Indemnified
Persons, the Released Parties), of and from any
and all actions, causes of action, damages, claims, obligations, liabilities,
costs, expenses and demands of any kind whatsoever, at law or in equity,
matured or unmatured, vested or contingent, that any of the Releasing Parties
has against any of the Released Parties as of the date of the Closing.  Each Obligor acknowledges that the foregoing
release is a material inducement to Debenture Holders decision to enter into
the Acquisition Agreement and accept the Convertible Debentures as payment of a
portion of the consideration for the Acquisition and has been relied upon by
Debenture Holder in agreeing to enter into the Acquisition Agreement and accept
the Convertible Debentures as payment of a portion of the consideration for the
Acquisition.

12.12
Agent

Debenture
Holder and its successors and assigns hereby (i) designate and appoint IBF Fund
Liquidating LLC, a Delaware limited liability company, and its successors and
assigns (IBF), to act as agent
for Debenture Holder and its successors and assigns under this Agreement and
all other Debenture Documents, (ii) irrevocably authorize IBF to take all
actions on its behalf under the provision of this Agreement and all other
Debenture Documents, and (iii) to exercise all such powers and rights, and to
perform all such duties and obligations hereunder and thereunder.  IBF, on
behalf of Debenture Holder, shall hold all Collateral, payments of principal
and interest, fees, charges and collections received pursuant to this Agreement
and all other Debenture Documents.  Each Obligor acknowledges that
Debenture Holder and its successors and assigns transfer and assign to IBF the
right to act as Debenture Holders agent to enforce all rights and perform all
obligations of Debenture Holder contained herein and in all of the other Debenture
Documents.  Each Obligor shall within fifteen Business
Days after Debenture Holders reasonable request, take such further actions,
obtain such consents and approvals and duly execute and deliver such further
agreements, amendments, assignments, instructions or documents as Debenture
Holder may request to evidence the appointment and designation of IBF as agent
for Debenture Holder and other financial institutions from time to time party
hereto and to the other Debenture Documents.

12.13
Agreement Controls

In
the event of any inconsistency between this Agreement and any other Debenture
Documents, the terms of this Agreement shall control.

12.14
Guarantee

Guarantor
unconditionally guarantees, as a primary obligor and not merely as a surety,
the due and punctual payment of the principal of and interest on the
Convertible Debenture and of all other Obligations, when and as due, whether at
maturity, by acceleration, by notice or prepayment or

36

otherwise.  Guarantor further agrees that the
Obligations may be extended and renewed, in whole or in part, without notice to
or further assent from it, and that it will remain bound upon its guarantee
notwithstanding any extension or renewal of any Obligations.

The
Obligations of Guarantor hereunder will be limited to the maximum amount which,
after giving effect to all other contingent and fixed liabilities of Guarantor
will result in the Obligations of Guarantor hereunder not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law.

To
the fullest extent permitted by law, Guarantor waives presentment to, demand of
payment from and protest to the Borrower or any other Person of any of the
Obligations, and also waives notice of acceptance of its guarantee and notice
of protest for nonpayment.  To the
fullest extent permitted by law, the obligations of Guarantor hereunder shall
not be affected by (a) the failure of the Debenture Holder to assert any
claim or demand or to enforce any right or remedy against Borrower under the
provisions of this Agreement or any of the other Debenture Documents or
otherwise; (b) any rescission, waiver, amendment or modification of any of
the terms or provisions of this Agreement, any of the other Debenture
Documents, or any other agreement; or (c) the release of any security held
by Debenture Holder for the Obligations or any of them.

Guarantor
further agrees that its guarantee hereunder constitutes a guarantee of payment
when due and of performance and not of collection, and waives any right to
require that any resort be had by Debenture Holder to any security (if any)
held for payment of the Obligations or to any balance of any deposit account or
credit on the books of Debenture Holder in favor of Borrower or any other
Person.

To
the fullest extent permitted by law, the obligations of Guarantor hereunder
shall not be subject to any reduction, limitation, impairment or termination
for any reason, including, without limitation, any claim of waiver, release,
surrender, alteration or compromise, and shall not be subject to any defense or
setoff, counterclaim, recoupment or termination whatsoever by reason of the
invalidity, illegality or unenforceability of any of the Obligations or
otherwise.  Without limiting the
generality of the foregoing, to the fullest extent permitted by law, the
obligations of Guarantor hereunder shall not be discharged or impaired or
otherwise affected by the failure of the Debenture Holder to assert any claim
or demand or to enforce any remedy under this Agreement or under any other
Debenture Document, or any other agreement, by any waiver or modification of
any provision thereof, by any default, failure or delay, willful or otherwise,
in the performance of any of the Obligations, or by any other act or omission
which may or might in any manner or to any extent vary the risk of Guarantor or
otherwise operate as a discharge of Guarantor as a matter of law or equity.

Guarantor
further agrees that its guarantee shall remain in full force and effect until
the indefeasible payment and satisfaction in full of the Obligations and the
termination of the this Agreement and the other Debenture Documents and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of principal or of interest on any Obligation or
of any other Obligation is rescinded or must otherwise be returned by the Debenture
Holder upon the bankruptcy or reorganization of Borrower, Guarantor or
otherwise.

Guarantor
hereby waives and releases all rights of subrogation against Borrower and its
property and all rights of indemnification, contribution and reimbursement from
Borrower and its property, in each case in connection with this guarantee and
any payments made hereunder, and regardless of whether such rights arise by
operation of law, pursuant to contract or otherwise.

37

12.15
Subordination

Notwithstanding
anything contained herein to the contrary, this Agreement and the exercise of
any right or remedy hereunder by Debenture Holder are subject to the terms of
the Master Subordination Agreement.  The
Liens in the Collateral granted herein are subordinated to the Liens in the
Collateral granted to CapitalSource in the manner and to the extent set forth
in the Master Subordination Agreement.

Notwithstanding
anything contained herein to the contrary, this Agreement and the exercise of
any right or remedy hereunder by Debenture Holder are subject to the terms of
the Junior Subordination Agreement.  The
Liens in the Collateral granted herein are subordinated to the Liens in the
Collateral granted to Senior Creditor (as defined in the Junior Subordination
Agreement) in the manner and to the extent set forth in the Junior
Subordination Agreement.

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

38

IN
WITNESS WHEREOF, each of the parties has duly executed this Security Agreement
as of the date first written above.

SUNSET BRANDS, INC.By:
    /s/ Todd SandersName:
    Todd SandersIts:
    President & CEOAddress for Notices:Sunset Brands, Inc.10990 Wilshire Blvd., Suite
        1220Los Angeles, CA 90024Attention: PresidentTelephone: (310) 478-4600FAX: (310) 478-4601U.S. MILLS, INC.By:
    /s/ Todd SandersName:
    Todd SandersIts:
    CEOBy:
    /s/ Charles VerdeName:
    Charles VerdeIts:
    PresidentAddress for Notices:U.S. Mills, Inc.200 Reservoir StreetNeedham, MA 02494Attention: PresidentTelephone: (781) 444-0440FAX: (781) 444-3411IBF FUND LIQUIDATING LLCBy:
    /s/ Arthur J. SteinbergName:
    Arthur J. SteinbergIts:
    ManagerAddress for Notices:c/o Kaye Scholer LLP425 Park AvenueNew York, NY 10022Attention: Arthur J. Steinberg,
        Esq., ManagerTelephone: (212) 836-8564FAX: (212) 836-615739

SCHEDULES

Schedule 2.17
  --
  Other Mandatory PaymentsSchedule 5.2
  --
  Required ConsentsSchedule 5.3
  --
  Capitalization, Organization Chart (including all subsidiaries,
  authorized/issued capitalization, owners, directors, officers and managers)
  and Joint VenturesSchedule 5.4
  --
  Liens; Real and Personal Property Owned or Leased; LeasesSchedule 5.8
  --
  TaxesSchedule 5.11
  --
  Intellectual PropertySchedule 5.15A
  --
  Existing IndebtednessSchedule 5.15B
  --
  Indebtedness Maturing During TermSchedule 5.16
  --
  Other AgreementsSchedule 5.17
  --
  InsuranceSchedule 5.18A
  --
  Corporate NamesSchedule 5.18B
  --
  Places of BusinessSchedule 6.8
  --
  Further Assurances/Post ClosingSchedule 7.2
  --
  Permitted IndebtednessSchedule 7.3
  --
  Permitted LiensSchedule 7.5
  --
  DividendsSchedule 7.6
  --
  Transactions with Affiliates40

ANNEX
I

FINANCIAL
COVENANTS

1) Minimum EBITDAM

For
the Test Period ending on November 30, 2005 and for the Test Periods ending on
the last day of each calendar month thereafter, Borrower shall not permit its
EBITDAM to be less than the following amounts on the Test Periods set forth
below:

Test Period Ended
  
  Min.
  EBITDAM Covenant LevelNovember 30, 2005
  
  $  144,500December 31, 2005
  
  $  270,225January 31, 2006
  
  $  383,650February 28, 2006
  
  $  498,525March 31, 2006
  
  $  604,750April 30, 2006
  
  $  662,550May 31,
  2006
  
  $  545,500June 30,
  2006
  
  $  505,750and the last
  day of each 
  month thereafter2)
Maximum Senior Leverage Ratio (Senior Debt to EBITDAM)

For
the Test Period ending on November 30, 2005 and for each Test Period ending on
the last day of each calendar month thereafter, Borrower shall not permit its
Maximum Senior Leverage Ratio to be more than 4.60 to 1.0.

3)
Minimum Fixed Charge Coverage Ratio (EBITDAM/Fixed Charges)

For
the Test Period ending on November 30, 2005 and for the Test Periods ending on
the last day of each calendar month thereafter, Borrower shall not permit its
Minimum Fixed Charge Coverage Ratio to be less than the following amounts on
the Test Periods set forth below:

Test Period
  Ended
  
  Minimum Fixed Charge Coverage RatioNovember 30,
  2005 through
  and including October 31, 2006
  
  0.80 to 1.0November 30,
  2006 through
  and including October 31, 2007
  
  0.87 to 1.0November 30,
  2007 and the last day of
  each month thereafter
  
  0.94 to 1.04)
Minimum Liquidity

1

At
Closing and at all other times Borrower shall have not less than $200,000 of
Available Cash on hand.

For
purposes of the covenants set forth in this Annex I, the terms listed below
shall have the following meanings:

Available
Cash shall mean, for and on any date, the sum without duplication of the
following for Borrower:  (a)
unrestricted cash on hand on such date, (b) Cash Equivalents held on such date,
and (c) the unborrowed Availability (as such term is defined in the Credit
Agreement) on and as of such date.

Cash
Equivalents shall mean (a) securities issued, or directly and fully
guaranteed or insured, by the United States or any agency or instrumentality
thereof (provided that the full faith and credit of the United States is
pledged in support thereof) having maturities of not more than six months from
the date of acquisition, (b) U.S. dollar denominated time deposits,
certificates of deposit and bankers acceptances of (i) any domestic commercial
bank of recognized standing having capital and surplus in excess of
$500,000,000, or (ii) any bank (or the parent company of such bank) whose
short-term commercial paper rating from Standard & Poors Ratings Services
(S&P)
is at least A-2 or the equivalent thereof or from Moodys Investors Service,
Inc. (Moodys) is at least P-2 or the equivalent thereof in
each case with maturities of not more than six months from the date of
acquisition (any bank meeting the qualifications specified in clauses (b)(i) or
(ii), an Approved Bank), (c) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clause (a), above, entered into with any Approved Bank, (d) commercial
paper issued by any Approved Bank or by the parent company of any Approved Bank
and commercial paper issued by, or guaranteed by, any industrial or financial
company with a short-term commercial paper rating of at least A-2 or the
equivalent thereof by S&P or at least P-2 or the equivalent thereof by
Moodys, or guaranteed by any industrial company with a long term unsecured
debt rating of at least A or A2, or the equivalent of each thereof, from
S&P or Moodys, as the case may be, and in each case maturing within six
months after the date of acquisition and (e) investments in money market funds
substantially all of whose assets are comprised of securities of the type
described in clauses (a) through (d) above.

EBITDAM
shall mean, for any Test Period, the sum, without duplication, of the following
for Borrower, on a consolidated basis:
Net Income determined in accordance with GAAP, plus,
(a) Interest Expense, (b) taxes on income, whether paid, payable or
accrued, (c) depreciation expense, (d) amortization expense, (e) all other
non-cash, non-recurring charges and expenses, excluding accruals for cash
expenses made in the ordinary course of business, (f) loss from any sale of
assets, other than sales in the ordinary course of business, all of the
foregoing determined in accordance with GAAP, and (g) plus any management fees
paid or accrued by Borrower during such period, minus (a) gains from any
sale of assets, other than sales in the ordinary course of business and
(b) other extraordinary or non-recurring gains.

Fixed
Charge Coverage Ratio shall mean, for Borrower collectively on a
consolidated basis, the ratio of (a) EBITDAM for the Test Period, to (b)
Fixed Charges for the Test Period.

Fixed
Charges shall mean, the sum of the following:  (a) Total Debt Service, (b) Capital Expenditures, (c)
income taxes paid in cash or accrued, (d) dividends paid or accrued or
declared, and (e) management fees paid or accrued.

Interest
Expense shall mean, for any Test Period, total interest expense (including
attributable to Capital Leases in accordance with GAAP) fees with respect to
all outstanding

2

Indebtedness
including capitalized interest but excluding commissions, discounts and other
fees owed with respect to letters of credit and bankers acceptance financing
and net costs under Interest Rate Agreements.

Interest
Rate Agreement shall mean any interest rate swap, cap or collar agreement
or other similar agreement or arrangement designed to hedge the position with
respect to interest rates.

Total
Senior Leverage Ratio shall mean, at any date of determination, for
Borrower individually and collectively on a consolidated and consolidating
basis, the ratio of (i) Total Senior Debt on such date, to
(ii) EBITDAM for the Test Period most recently ended on such date (taken
as one accounting period) multiplied by the factor necessary to convert
such Test Period EBITDAM into an annualized basis.

Test
Period shall mean the six most recent calendar months then ended (taken as
one accounting period), or such other period as specified in the Agreement or
any Annex thereto; except that for the period prior to the six month
anniversary of the Closing Date, the Test Period shall be equal to the trailing
number of months then elapsed since November 1, 2005.

Total
Senior Debt shall mean, at any date of determination, for Borrower
individually and collectively on a consolidated and consolidating basis, the
total Indebtedness owed to CapitalSource under the Credit Agreement and secured
by liens on the Borrowers assets on such date less cash and Cash Equivalents
held on such date.

Total
Debt Service shall mean the sum of (i) all payments of principal on
Indebtedness, and (ii) cash Interest Expense, in each case for such
period.

3

APPENDIX
A

DEFINITIONS

Accounts
shall mean all accounts (as defined in the UCC) of the Obligors (or, if
referring to another Person, of such other Person), including without
limitation, accounts, accounts receivables, monies due or to become due and
obligations in any form (whether arising in connection with contracts, contract
rights, Instruments, General Intangibles or Chattel Paper), in each case
whether arising out of goods sold or services rendered or from any other
transaction and whether or not earned by performance, now or hereafter in
existence, and all documents of title or other documents representing any of
the foregoing, and all collateral security and guaranties of any kind, now or
hereafter in existence, given by any Person with respect to any of the
foregoing.

Account
Debtor shall mean any Person who is obligated under an Account.

Affiliate
shall mean, as to any Person, any other Person (a) that, directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, such Person, (b) who is a director or officer (i) of such
Person, (ii) of any Subsidiary of such Person, or (iii) of any Person
described in clause (a) above with respect to such Person, or (c) which,
directly or indirectly through one or more intermediaries, is the beneficial or
record owner (as defined in Rule 13d-3 of the Securities Exchange Act of 1934,
as amended, as the same is in effect on the date hereof) of five percent (5%)
or more of any class of the outstanding voting stock, securities or other
equity or ownership interests of such Person.
For purposes of this definition, the term control (and the correlative
terms, controlled by and under common control with) shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies, whether through ownership of
securities or other interests, by contract or otherwise.  Affiliate shall include any Subsidiary.

Business
Day shall mean any day other than a Saturday, Sunday or other day on which
the Federal Reserve is closed.

Capital
Expenditures shall mean, for any Test Period, the sum (without
duplication) of all expenditures (whether paid in cash or accrued as
liabilities) during the Test Period that are or should be treated as capital
expenditures under GAAP.

Capital
Lease shall mean, as to any Person, a lease of any interest in any kind of
property or asset by that Person as lessee that is, should be or should have
been recorded as a capital lease in accordance with GAAP.

Capitalized
Lease Obligations shall mean all obligations of any Person under Capital
Leases, in each case, taken at the amount thereof accounted for as a liability
in accordance with GAAP.

Change of Control shall mean, with respect to either Obligor, the
occurrence of any of the following:  (i)
a merger, consolidation, reorganization, recapitalization or share or interest
exchange, sale or transfer or any other transaction or series of transactions
in which its stockholders, managers, partners or interest holders immediately
prior to such transaction or series of transactions receive, in exchange for
the stock or interests owned by them, cash, property or securities of the resulting
or surviving entity or any Affiliate thereof, and, as a result thereof, Persons
who, individually or in the

1

aggregate,
were holders of 50% or more of its voting stock, securities or equity,
partnership or ownership interests immediately prior to such transaction or
series of transactions hold less than 50% of the voting stock, securities or
other equity, partnership or ownership interests of the resulting or surviving
entity or such Affiliate thereof, calculated on a fully diluted basis, (ii) a direct
or indirect sale, transfer or other conveyance or disposition, in any single
transaction or series of transactions, of all or substantially all of its
assets, (iii) the initial public offering of its securities, or (iv) any
change in/of control or sale or disposition or similar event as defined
in any document governing indebtedness of such Person which gives the holder of
such indebtedness the right to accelerate or otherwise require payment of such
indebtedness prior to the maturity date thereof.

Charter
and Good Standing Documents shall mean, for each Obligor (i) a copy
of the certificate of incorporation or formation (or other charter document)
certified as of a date satisfactory to Debenture Holder before the Closing Date
by the applicable Governmental Authority of the jurisdiction of incorporation
or organization of such Obligor, (ii) a copy of the bylaws or similar
organizational documents certified as of a date satisfactory to Debenture
Holder before the Closing Date by the corporate secretary or assistant
secretary of such Obligor, (iii) an original certificate of good standing
as of a date acceptable to Debenture Holder issued by the applicable
Governmental Authority of the jurisdiction of incorporation or organization of
such Obligor and of every other jurisdiction in which each Obligor has an
office or conducts business or is otherwise required to be in good standing,
and (iv) copies of the resolutions of the Board of Directors or managers
(or other applicable governing body) and, if required, stockholders, members or
other equity owners authorizing the execution, delivery and performance of the
Debenture Documents to which such Obligor is a party, certified by an
authorized officer of such Person as of the Closing Date.

Closing
shall mean the satisfaction, or written waiver by Debenture Holder, of all of
the conditions precedent set forth in the Agreement required to be satisfied
prior to the consummation of the transactions contemplated hereby.

Closing
Date shall mean the date of this Agreement.

Collateral
shall have the meaning given such term in Section 2.13.

Collateral
Patent, Trademark and Copyright Assignment shall mean (i) the Intellectual
Property Security Agreement dated as of the date hereof made by the Obligors in
favor of Debenture Holder or (ii) any patent, trademark, or copyright
assignment or acknowledgement executed by and among Borrower and/or Guarantor
and Debenture Holder, as such may be modified, amended or supplemented from
time to time.

Concentration
Account shall have the meaning given such term in Section 2.16.

Control
Collateral shall have the meaning given such term in Section 2.14.

Convertible
Debentures shall have the meaning given such terms in the recitals of this
Agreement.

Debenture
Documents shall mean, collectively and each individually, the Convertible
Debentures, the Intellectual Property Security Agreement, the Stock Pledge
Agreement, the Lockbox Agreements, the Uniform Commercial Code Financing
Statements, the Subordination Agreements, the Landlord Waiver and Consents, and
all other agreements, documents, instruments and certificates

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heretofore or
hereafter executed or delivered to Debenture Holder in connection with this
Agreement or the Acquisition Agreement, as the same may be amended, modified or
supplemented from time to time.

Debenture
Holder shall have the meaning given such term in the recitals of this
Agreement.

Debtor
Relief Law shall mean, collectively, the Bankruptcy Code of the United
States of America and all other applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization
or similar debtor relief laws from time to time in effect affecting the rights
of creditors generally, as amended from time to time.

Default
shall mean any event, fact, circumstance or condition that, with the giving of
applicable notice or passage of time or both, would constitute or be or result
in an Event of Default.

Distribution
shall mean any fee, payment, bonus or other remuneration of any kind, and any
repayment of or debt service on loans or other indebtedness.

Environmental
Laws shall mean, collectively and each individually, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Superfund
Amendment and Reauthorization Act of 1986, the Resource Conservation and
Recovery Act, the Toxic Substances Control Act, the Clean Air Act, the Clean
Water Act, any other Superfund or Superlien law and all other federal,
state and local and foreign environmental, land use, zoning, health, chemical
use, safety and sanitation laws, statutes, ordinances and codes relating to the
protection of the environment and/or governing the use, storage, treatment,
generation, transportation, processing, handling, production or disposal of
Hazardous Substances, in each case, as amended, and the rules, regulations,
policies, guidelines, interpretations, decisions, orders and directives of
Governmental Authorities with respect thereto.

ERISA
shall mean the Employee Retirement Income Security Act of 1974, as amended, and
the regulations thereunder.

Event
of Default shall mean the occurrence of any event set forth in Article VIII.

Fair
Valuation shall mean the determination of the value of the consolidated
assets of a Person on the basis of the amount which may be realized by a
willing seller within a reasonable time through collection or sale of such
assets at market value on a going concern basis to an interested buyer who is
willing to purchase under ordinary selling conditions in an arms length
transaction.

GAAP
shall mean generally accepted accounting principles in the United States of
America in effect from time to time  as
applied by nationally recognized accounting firms.

Government Account
shall be
defined to mean all Accounts arising out of or with respect to any Government
Contract.

Government Contract
shall be
defined to mean all contracts with the United States Government or with any
agency thereof, and all amendments thereto.

Governmental
Authority shall mean any federal, state, municipal, national, local or
other governmental department, court, commission, board, bureau, agency or
instrumentality or political subdivision thereof, or any entity or officer
exercising executive, legislative or judicial, regulatory or

3

administrative
functions of or pertaining to any government or any court, in each case,
whether of the United States or a state, territory or possession thereof, a
foreign sovereign entity or country or jurisdiction or the District of
Columbia.

Hazardous
Substances shall mean, without limitation, any flammable explosives,
radon, radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous
materials, hazardous wastes, hazardous or toxic substances or related materials
as defined in or subject to any applicable Environmental Law.

Indebtedness
of any Person shall mean, without duplication, (a) all items which, in
accordance with GAAP, would be included in determining total liabilities as
shown on the liability side of the balance sheet of such Person as of the date
as of which Indebtedness is to be determined, including any lease which, in
accordance with GAAP would constitute Indebtedness, (b) all indebtedness
secured by any mortgage, pledge, security, Lien or conditional sale or other
title retention agreement to which any property or asset owned or held by such
Person is subject, whether or not the indebtedness secured thereby shall have
been assumed, (c) all indebtedness of others which such Person has directly or
indirectly guaranteed, endorsed (otherwise than for collection or deposit in
the ordinary course of business), discounted or sold with recourse or agreed
(contingently or otherwise) to purchase or repurchase or otherwise acquire, or
in respect of which such Person has agreed to supply or advance funds (whether
by way of loan, stock, equity or other ownership interest purchase, capital
contribution or otherwise) or otherwise to become directly or indirectly
liable.

Indemnified
Person shall have the meaning given such term in Section 12.4.

Insured
Event shall have the meaning given such term in Section 12.4.

Insurer
shall mean a Person that insures another Person against any costs incurred in
the receipt by such other Person of Services, or that has an agreement with
either Obligor to compensate it for providing services to such Person.

Intellectual
Property Security Agreement shall mean that certain Junior Intellectual
Property Security Agreement dated as of the date hereof entered into among
Borrower, Guarantor and Debenture Holder, as such agreement may be modified,
amended, restated or supplemented from time to time.

Inventory
shall mean all inventory (as defined in the UCC) of the Obligors (or, if
referring to another Person, of such other Person), now owned or hereafter
acquired, and all documents of title or other documents representing any of the
foregoing, and all collateral security and guaranties of any kind, now or
hereafter in existence, given by any Person with respect to any of the
foregoing.

Junior
Subordination Agreement shall have the meaning given such term in the
recitals of this Agreement.

Landlord
Waiver and Consent shall mean a waiver/consent in form and substance
satisfactory to Debenture Holder from the owner/lessor of any premises not
owned by either Obligor at which any of the Collateral is now or hereafter
located for the purpose of providing Debenture Holder access to such
Collateral, in each case as such may be modified, amended or supplemented from
time to time.

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Lien
shall mean any mortgage, pledge, security interest, encumbrance, restriction,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement or any lease
in the nature thereof), or any other arrangement pursuant to which title to the
property is retained by or vested in some other Person for security purposes.

Lockbox
Accounts shall have the meaning given such term in Section 2.16.

Lockbox
Agreement shall have the meaning given such term in Section 2.16.

Lockbox
Bank shall have the meaning given such term in Section 2.16.

Junior
Management Fee Subordination Agreement shall mean that certain Junior
Management Fee Subordination Agreement dated as of the date hereof entered into
by and among Sunset International Holdings, Inc., Borrower and the Debenture
Holder, as such agreement may be modified, amended or restated or supplemented
from time to time.

Master
Subordination Agreement shall have the meaning given such term in the
recitals of this Agreement.

Material
Adverse Effect or Material Adverse Change shall mean any event,
condition or circumstance or set of events, conditions or circumstances or any
change(s) which (i) has, had or would reasonably be likely to have any
material adverse effect upon or change in the validity or enforceability of any
Debenture Document, (ii) has been or would reasonably be likely to be material
and adverse to the value of any of the Collateral, to the priority of the
Debenture Holders security interest in the Collateral, or to the business,
operations, prospects, properties, assets, liabilities or condition of the
Obligors, either individually or taken as a whole, or (iii) has materially
impaired or would reasonably be likely to materially impair the ability of
either Obligor to pay any portion of the Obligations or to otherwise perform
the Obligations or to consummate the transactions under the Debenture Documents
executed by such Person.

Non-Compliance
Fee shall mean a daily fee payable by Borrower equal to the greater of (i)
$500, or (ii) five one-hundredths of one percent (0.05%) of the outstanding
principal balance of the Obligations as of any date of determination.

Obligations
shall mean all present and future obligations, Indebtedness and liabilities of
Borrower and Guarantor to Debenture Holder at any time and from time to time of
every kind, nature and description, direct or indirect, secured or unsecured,
joint and several, absolute or contingent, due or to become due, matured or
unmatured, now existing or hereafter arising, contractual or tortious,
liquidated or unliquidated, under any of the Debenture Documents or otherwise
relating to the Convertible Debentures, including, without limitation, all
applicable fees, charges and expenses and all amounts paid or advanced by
Debenture Holder on behalf of or for the benefit of Borrower and/or Guarantor
for any reason at any time, including in each case obligations of performance
as well as obligations of payment and interest that accrue after the
commencement of any proceeding under any Debtor Relief Law by or against any
such Person.

Permit
shall mean collectively all licenses, leases, powers, permits, franchises,
certificates, authorizations, approvals, certificates of need, provider numbers
and other rights.

Permitted
Indebtedness shall have the meaning given such term in Section 7.2.

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Permitted
Liens shall have the meaning given such term in Section 7.3.

Permitted
Subordinated Debt shall mean indebtedness incurred by Borrower which is
subordinated to the indebtedness of Borrower owed to Debenture Holder pursuant
to a written agreement approved by Debenture Holder in writing.

Person
shall mean an individual, a partnership, a corporation, a limited liability
company, a business trust, a joint stock company, a trust, an unincorporated
association, a joint venture, a Governmental Authority or any other entity of
whatever nature.

Receipt
shall have the meaning given such term in Section 12.5.

Released
Parties shall have the meaning given such term in Section 12.11.

Releasing
Parties shall have the meaning given such term in Section 12.11.

Security
Documents shall mean this Agreement, the Stock Pledge Agreement,
Collateral Patent, Trademark, and Copyright Assignment, the Intellectual
Property Security Agreement, Lockbox Agreements, Uniform Commercial Code
Financing Statements and all other documents or instruments necessary to create
or perfect the Liens in the Collateral, as such may be modified, amended or
supplemented from time to time.

Seller
shall have the meaning given such term in the recitals of this Agreement.

Solvency
Certificate shall have the meaning given such term in Section 4.1(d).

Stock
Pledge Agreement shall mean that certain Junior Stock Pledge Agreement by
and between Guarantor and Debenture Holder executed in connection herewith as
such may be modified, amended or supplemented from time to time.

Subordination
Agreements shall mean, collectively and each individually, (i) the
Master Subordination Agreement,
(ii) the Junior Subordination and Intercreditor Agreement, and (iii) and any other
subordination agreements (the terms of which shall be satisfactory to Debenture
Holder) to which Debenture Holder and other creditors of the Obligors are a
party, as such agreements may be modified, amended, restated or supplemented
from time to time.

Subsidiary
shall mean, (i) as to Borrower, any Person in which more than 50% of all
equity, membership, partnership or other ownership interests is owned directly
or indirectly by Borrower or one or more of its Subsidiaries, and (ii) as to
any other Person, any Person in which more than 50% of all equity, membership,
partnership or other ownership interests is owned directly or indirectly by
such Person or by one or more of such Persons Subsidiaries.

Term
shall mean the period commencing on the date set forth on the first page hereof
and ending on the third anniversary hereof.

Termination
Date shall have the meaning given such term in Section 11.1.

Transferee
shall have the meaning given such term in Section 12.2.

UCC
shall mean the Uniform Commercial Code as in effect in the State of New York
from time to time.

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Warehouse
Waiver and Consent shall mean a waiver/consent in form and substance
satisfactory to Debenture Holder from any warehouseman, fulfillment house or
other person owning a facility not owned by the Obligors at which any Inventory
is now or hereafter located for the purpose of providing Debenture Holder
access to such Inventory, in each case as may be modified, amended or
supplemented from time to time.

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