Document:

kl02080_ex10-1.htm

    
      

    

    Exhibit
10.1

    

    

    

    

     

     

    
 

    

    

    TERM
LOAN AND SECURITY AGREEMENT

    

    

    

    

    By
and between

    

    

    NEW
WORLD BRANDS, INC.

    

    as
Borrower

    ______________________

    

    

    TELES AG INFORMATIONS
TECHNOLOGIEN, as
Lender

    

    

    February
15, 2008

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    TABLE OF
CONTENTS

    

     

                                                                                                  Page

     

    
      	
               
      

            	
              ARTICLE  I  DEFINITIONS

            

    

    
      	
               
      

            	
              1.1.

            	
              General
      Definitions.........................................................................................................................................................................................................................1

            	
               

            

    

    
      	
               
      

            	
              1.2.

            	
              Accounting
      Terms..........................................................................................................................................................................................................................9 

            	
               

            

    

    
      	
               
      

            	
              1.3.

            	
              Other
      Definitional
      Terms................................................................................................................................................................................................................9 

            	
               

            

    

     

    
      	
               
      

            	
              ARTICLE  II  TERM
      LOAN...........................................................................................................................................................................................................................9

            

    

    
      	
               
      

            	
              2.1.

            	
              Term
      Loan........................................................................................................................................................................................................................................9 

            	
               

            

    

    
      	
               
      

            	
              2.2.

            	
              Repayment
      of Term
      Loan............................................................................................................................................................................................................10 

            	
               

            

    

    
      	
               
      

            	
              2.3.

            	
              Use
      of
      Proceeds.............................................................................................................................................................................................................................9 

            	
               

            

    

    
      	
               
      

            	
              2.4.

            	
              Payments
      and
      Computations.....................................................................................................................................................................................................10 

            	
               

            

    

     

    
      	
               
      

            	
              ARTICLE  III  INTEREST
      AND
      FEES......................................................................................................................................................................................................
      11

            

    

    
      	
               
      

            	
              3.1.

            	
              Interest
      on Term
      Loan.................................................................................................................................................................................................................11 

            	
               

            

    

    
      	
               
      

            	
              3.2.

            	
              Interest
      After Event of
      Default..................................................................................................................................................................................................11 

            	
               

            

    

     

    
      	
               
      

            	
              ARTICLE  IV  COLLATERAL....................................................................................................................................................................................................................11

            

    

    
      	
               
      

            	
              4.1.

            	
              Description....................................................................................................................................................................................................................................11

            	
               

            

    

    
      	
               
      

            	
              4.2.

            	
              Lien
      Documents...........................................................................................................................................................................................................................12 

            	
               

            

    

    
      	
               
      

            	
              4.3.

            	
              Other
      Actions...............................................................................................................................................................................................................................13 

            	
               

            

    

    
      	
               
      

            	
              4.4.

            	
              Searches
      and
      Certificates...........................................................................................................................................................................................................13 

            	
               

            

    

     

    
      	
               
      

            	
              ARTICLE  V  CONDITIONS
      PRECEDENT..............................................................................................................................................................................................13

            

    

     

    
      	
               
      

            	
              ARTICLE  VI  REPRESENTATIONS
      AND
      WARRANTIES.................................................................................................................................................................15

            

    

    
      	
               
      

            	
              6.1.

            	
              Organization
      and
      Qualification..................................................................................................................................................................................................15 

            	
               

            

    

    
      	
               
      

            	
              6.2.

            	
              Liens..............................................................................................................................................................................................................................................16 

            	
               

            

    

    
              6.3.      No
Conflict...................................................................................................................................................................................................................................16

    

    
      	
               
      

            	
              6.4.

            	
              Enforceability...............................................................................................................................................................................................................................16 

            	
               

            

    

    
      	
               
      

            	
              6.5.

            	
              Financial
      Data..............................................................................................................................................................................................................................16 

            	
               

            

    

    
      	
               
      

            	
              6.6.

            	
              Locations
      of Offices, Records and
      Inventory........................................................................................................................................................................16 

            	
               

            

    

    
      	
               
      

            	
              6.7.

            	
              Business
      Names..........................................................................................................................................................................................................................17 

            	
               

            

    

    
      	
               
      

            	
              6.8.

            	
              Affiliates
      and
      Subsidiaries.........................................................................................................................................................................................................17 

            	
               

            

    

    
      	
               
      

            	
              6.9.

            	
              Judgments
      or
      Litigation.............................................................................................................................................................................................................17 

            	
               

            

    

    
             
6.10.   
Defaults........................................................................................................................................................................................................................................17 

    

    
      	
               
      

            	
              6.11.

            	
              Compliance
      with
      Law.................................................................................................................................................................................................................17 

            	
               

            

    

    
      	
               

            	 	 	 

    

     

     

    i

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
               

            	
              6.12.

            	
              Compliance
      with Environmental
      Laws..................................................................................................................................................................................17 

            	
               

            

    

    
      	
               
      

            	
              6.13.

            	
              Intellectual
      Property................................................................................................................................................................................................................18 

            	
               

            

    

    
      	
               
      

            	
              6.14.

            	
              Licenses
      and
      Permits...............................................................................................................................................................................................................18 

            	
               

            

    

    
      	
               
      

            	
              6.15.

            	
              Title
      to
      Property.......................................................................................................................................................................................................................19 

            	
               

            

    

    
      	
               
      

            	
              6.16.

            	
              Labor
      Matters..........................................................................................................................................................................................................................19

            	
               

            

    

    
      	
               
      

            	
              6.17.

            	
              Investment
      Company.............................................................................................................................................................................................................19 

            	
               

            

    

    
      	
               
      

            	
              6.18.

            	
              Margin
      Security......................................................................................................................................................................................................................19 

            	
               

            

    

    
      	
               
      

            	
              6.19.

            	
              Taxes
      and Tax
      Returns..........................................................................................................................................................................................................19 

            	
               

            

    

    
      	
               
      

            	
              6.20.

            	
              Status
      of
      Accounts................................................................................................................................................................................................................20 

            	
               

            

    

    
      	
               
      

            	
              6.21.

            	
              Material
      Contracts................................................................................................................................................................................................................
      20 

            	
               

            

    

    
      	
               
      

            	
              6.22.

            	
              Accuracy
      and Completeness of
      Information.....................................................................................................................................................................20 

            	
               

            

    

    
      	
               
      

            	
              6.23.

            	
              Solvency..................................................................................................................................................................................................................................20 

            	
               

            

    

    
      	
               
      

            	
              6.24.

            	
              Commercial
      Tort
      Claims.........................................................................................................................................................................................................21 

            	
               

            

    

    
      	
               
      

            	
              6.25.

            	
              Letter
      of Credit
      Rights...........................................................................................................................................................................................................21 

            	
               

            

    

    
      	
               
      

            	
              6.26.

            	
              Deposit
      Accounts.................................................................................................................................................................................................................21 

            	
               

            

    

    
      	
               
      

            	
              6.27.

            	
              Anti-Terrorism
      Law...............................................................................................................................................................................................................21 

            	
               

            

    

    
      	
               
      

            	
              6.28.

            	
              Survival
      of
      Representations................................................................................................................................................................................................21 

            	
               

            

    

     

    
      	
               
      

            	
              ARTICLE  VII  AFFIRMATIVE
      COVENANTS................................................................................................................................................................................22

            

    

    
      	
               
      

            	
              7.1.

            	
              Financial
      Information...........................................................................................................................................................................................................22 

            	
               

            

    

    
      	
               
      

            	
              7.2.

            	
              Existence................................................................................................................................................................................................................................22 

            	
               

            

    

    
      	
               
      

            	
              7.3.

            	
              Environmental
      Matters........................................................................................................................................................................................................22 

            	
               

            

    

    
      	
               
      

            	
              7.4.

            	
              Books
      and
      Records..............................................................................................................................................................................................................23 

            	
               

            

    

    
      	
               
      

            	
              7.5.

            	
              Collateral
      Records................................................................................................................................................................................................................23

            	
               

            

    

    
      	
               
      

            	
              7.6.

            	
              Changes
      in
      Locations.........................................................................................................................................................................................................23 

            	
               

            

    

    
      	
               
      

            	
              7.7.

            	
              Insurance;
      Casualty
      Loss..................................................................................................................................................................................................23 

            	
               

            

    

    
      	
               
      

            	
              7.8.

            	
              Taxes.....................................................................................................................................................................................................................................24 

            	
               

            

    

    
      	
               
      

            	
              7.9.

            	
              Compliance
      With
      Laws......................................................................................................................................................................................................25 

            	
               

            

    

    
      	
               
      

            	
              7.10.

            	
              Fiscal
      Year............................................................................................................................................................................................................................25 

            	
               

            

    

    
      	
               
      

            	
              7.11.

            	
              Notification
      of Certain
      Events..........................................................................................................................................................................................25 

            	
               

            

    

    
      	
               
      

            	
              7.12.

            	
              Collection
      of
      Accounts.....................................................................................................................................................................................................25 

            	
               

            

    

    
      	
               
      

            	
              7.13.

            	
              Trademarks.........................................................................................................................................................................................................................26 

            	
               

            

    

    
      	
               
      

            	
              7.14.

            	
              Maintenance
      of
      Property.................................................................................................................................................................................................26 

            	
               

            

    

    
      	
               
      

            	
              7.15.

            	
              Commercial
      Tort
      Claims...................................................................................................................................................................................................26 

            	
               

            

    

    
      	
               
      

            	
              7.16.

            	
              Letter
      of Credit
      Rights.....................................................................................................................................................................................................26 

            	
               

            

    

     

    
      	
               
      

            	
              ARTICLE  VIII  FINANCIAL
      COVENANTS................................................................................................................................................................................26

            

    

    
      	
               
      

            	
              8.1.

            	
              Current
      Ratio.....................................................................................................................................................................................................................26 

            	
               

            

    

    
      	
               
      

            	
              8.2.

            	
              Debt
      to Worth
      Ratio........................................................................................................................................................................................................26 

            	
               

            

    

     

    
      	
               
      

            	
              ARTICLE  IX  NEGATIVE
      COVENANTS....................................................................................................................................................................................27

            

    

    
      	
               
      

            	
              9.1.

            	
              Liens..................................................................................................................................................................................................................................27 

            	
               

            

    

    
      	
               
      

            	
              9.2.

            	
              Indebtedness...................................................................................................................................................................................................................27 

            	
               

            

    

    
      	
               
      

            	
              9.3.

            	
              Sale
      of
      Assets..................................................................................................................................................................................................................27 

            	
               

            

    

    
      	 	 	 	 

    

     

    ii

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    
      	 	 	 	 
	
               
      

            	
              9.4.

            	
              Organizational
      Changes...............................................................................................................................................................................................27 

            	
               

            

    

    
      	
               
      

            	
              9.5.

            	
              Guarantees.....................................................................................................................................................................................................................27 

            	
               

            

    

    
      	
               
      

            	
              9.6.

            	
              Investments...................................................................................................................................................................................................................27 

            	
               

            

    

    
      	
               
      

            	
              9.7.

            	
              Affiliate
      Transactions..................................................................................................................................................................................................27 

            	
               

            

    

    
      	
               
      

            	
              9.8.

            	
              Third
      Party
      Loans.........................................................................................................................................................................................................27 

            	
               

            

    

    
      	
               
      

            	
              9.9.

            	
              Issuance
      of
      Stock.........................................................................................................................................................................................................27 

            	
               

            

    

    
      	
               
      

            	
              9.10.

            	
              Amendments
      of Material
      Contracts..........................................................................................................................................................................27 

            	
               

            

    

    
      	
               
      

            	
              9.11.

            	
              Senior
      Debt...................................................................................................................................................................................................................28 

            	
               

            

    

    
      	
               
      

            	
              9.12.

            	
              Licenses,
      Etc.................................................................................................................................................................................................................28 

            	
               

            

    

    
      	
               
      

            	
              9.13.

            	
              Anti-Terrorism
      Laws....................................................................................................................................................................................................28 

            	
               

            

    

    
      	
               
      

            	
              9.14.

            	
              Amendment
      of P & S Credit
      Documents..................................................................................................................................................................28 

            	
               

            

    

     

    
      	
               
      

            	
              ARTICLE  X  APPOINTMENT
      AS
      ATTORNEY-IN-FACT..................................................................................................................................................28

            

    

     

    
      	
               
      

            	
              ARTICLE  XI  EVENTS
      OF DEFAULT AND
      REMEDIES.....................................................................................................................................................29

            

    

    
      	
               
      

            	
              11.1.

            	
              Events
      of
      Default.........................................................................................................................................................................................................29 

            	
               

            

    

    
      	
               
      

            	
              11.2.

            	
              Rights
      and Remedies upon a Default or an Event of
      Default...............................................................................................................................31

            

    

    
      	
               
      

            	
              11.3.

            	
              Nature
      of
      Remedies.....................................................................................................................................................................................................31 

            	
               

            

    

     

    
      	
               
      

            	
              ARTICLE  XII  TERMINATION...............................................................................................................................................................................................32

            

    

     

    
      	
               
      

            	
              ARTICLE  XIII  MISCELLANEOUS.........................................................................................................................................................................................32

            

    

    
      	
               
      

            	
              13.1.

            	
              Waivers.........................................................................................................................................................................................................................32

            	
               

            

    

    
      	
               
      

            	
              13.2.

            	
              JURY
      TRIAL................................................................................................................................................................................................................32 

            	
               

            

    

    
      	
               
      

            	
              13.3.

            	
              GOVERNING
      LAW; SUBMISSION TO JURISDICTION;
      VENUE......................................................................................................................32 

            	
               

            

    

    
      	
               
      

            	
              13.4.

            	
              Notices..........................................................................................................................................................................................................................33 

            	
               

            

    

    
      	
               
      

            	
              13.5.

            	
              Assignability...............................................................................................................................................................................................................33 

            	
               

            

    

    
      	
               
      

            	
              13.6.

            	
              Payment
      of
      Expenses.................................................................................................................................................................................................33 

            	
               

            

    

    
      	
               
      

            	
              13.7.

            	
              Indemnification...........................................................................................................................................................................................................34 

            	
               

            

    

    
      	
               
      

            	
              13.8.

            	
              Entire
      Agreement, Successors and
      Assigns..........................................................................................................................................................34 

            	
               

            

    

    
      	
               
      

            	
              13.9.

            	
              Amendments...............................................................................................................................................................................................................35 

            	
               

            
	 	13.10.	Non-Agency
      of
      Lender..............................................................................................................................................................................................35	 
	 	13.11. 	Counterparts................................................................................................................................................................................................................35 	 
	 	13.12.	Effectiveness...............................................................................................................................................................................................................35 	 
	 	13.13	Severability..................................................................................................................................................................................................................35 	 
	 	13.14	Headings
      Descriptive.................................................................................................................................................................................................35 	 
	 	13.15 	Maximum
      Rate.............................................................................................................................................................................................................35	 
	 	13.16	Information..................................................................................................................................................................................................................36	 
	 	 	 	 
	 	 	 	 
	 	 	 	 

    

    
    

    
    

    
    

    
    

    
    

    
    

    
    

    

    iii

    
 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBITS AND
SCHEDULES

    

    EXHIBITS

    

    Exhibit
A                                Form
of Term Note

    

    SCHEDULES

    

    Schedule
1.1                          Permitted
Indebtedness

    Schedule
1.2                          Permitted
Investments

    Schedule
1.3                          Permitted
Liens

    
      	
              Schedule
      1.4

            	
              Subordinated
      Debt

            

    

    
      	
              Schedule
      6.1

            	
              Current
      Holders of Capital Stock

            

    

    Schedule
6.6                          Places
of Business/Collateral Locations

    Schedule
6.7                          Business
Names

    Schedule
6.8                     
    Subsidiaries and Affiliates

    Schedule
6.9                          Litigation

    Schedule
6.13                        Intellectual
Property

    Schedule
6.15                        Real
Property Leases

    Schedule
6.21                        Material
Contracts

    
      	
              Schedule
      6.24

            	
              Commercial
      Tort Claims

            

    

    
      	
              Schedule
      6.25

            	
              Letter
      of Credit Rights

            

    

    
      	
              Schedule
      6.26

            	
              Depository
      Institutions/Deposit Accounts

            

    

     

     

     

    iv

    
 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    TERM
LOAN AND SECURITY AGREEMENT

    

    THIS TERM LOAN AND SECURITY
AGREEMENT is entered into as of February 15, 2008 (this “Agreement”),
between NEW WORLD BRANDS, INC.
a Delaware corporation
(“Borrower”), and TELES
AG INFORMATIONSTECHNOLOGIEN, a German corporation (“Lender”).

     

    Background

     

    WHEREAS,
Borrower and Lender entered into a Share Sale and Purchase Agreement dated July
25, 2007 (the “Purchase Agreement”), with respect to the purchase by Lender of
all of the issued and outstanding shares of capital stock of IP Gear Ltd., an
Israeli limited liability company (“IP Gear”); and

     

    WHEREAS,
pursuant to Article VI, Section 2 of the Purchase Agreement, Lender has agreed
to make a term loan in the amount of One Million Dollars ($1,000,000), on the
terms set forth in the Purchase Agreement and as otherwise provided in this Loan
Agreement (the “Term Loan”); and

     

    WHEREAS,
Borrower wishes to obtain the Term Loan from Lender, and, upon the terms and
subject to the conditions set forth herein, Lender is willing to make the Term
Loan to Borrower.

     

    NOW,
THEREFORE, Borrower and Lender, intending to be legally bound hereby, agree as
follows:

     

    ARTICLE  I       DEFINITIONS

     

    1.1. General
Definitions.

     

    As used
herein, the following terms shall have the meanings herein
specified:

     

    “Accounts” shall mean
all of Borrower’s “accounts” (as defined in the UCC), whether now existing or
existing in the future, including, without limitation, all accounts receivable
and all accounts created by or arising from all sales of goods or rendition of
services made under Borrower’s legal name or Borrower’s trade names or styles or
through Borrower’s divisions.

     

    “Advances” shall mean
and include all loan advances made by Lender to Borrower pursuant to the
Commitment.

     

    “Affiliate” shall mean
any entity which directly or indirectly controls, is controlled by, or is under
common control with, Borrower.  For purposes of this definition,
“control” shall mean the possession, directly or indirectly, of the power to (i)
vote 10% or more of the securities having ordinary voting power for the election
of directors of such Person, or (ii) direct or cause the direction of management
and policies of a business, whether through the ownership of voting securities,
by contract or otherwise and either alone or in conjunction with others or any
group.

     

    “Anti-Terrorism Laws”
shall mean any statute, treaty, law (including common law),

     

     

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

     

    ordinance,
regulation, rule, order, opinion, release, injunction, writ, decree or award of
any Official Body relating to terrorism or money laundering, including Executive
Order No. 13224 and the USA Patriot Act.

     

    “Asset Disposition”
shall mean any disposition (other than a disposition of Inventory in the
ordinary course of Borrower’s business) of any existing or future Property of
Borrower.

     

    “Authorized Person”
means the Chief Executive Officer, President, any Vice President, Controller, or
Chief Financial Officer of Borrower.

     

    “Business Day” shall
mean any day other than a Saturday, a Sunday, a legal holiday or a day on which
banking institutions are authorized or required by law or other governmental
action to close in New York, New York.

     

    “Capitalized Lease
Obligations”  shall mean any Indebtedness of Borrower
represented by obligations under a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.

     

    “Capital Stock” shall
mean (i) in the case of a corporation, capital stock, (ii) in the case of an
association or business entity, any and all shares, interests, participations,
rights or other equivalents (however designated) of capital stock, (iii) in the
case of a partnership, partnership interests (whether general or limited), (iv)
in the case of a limited liability company, membership interests and
(v) any other equity interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.

     

    “Casualty Loss” shall
have the meaning given to such term in Section
7.7.

     

    “Closing” shall mean
the consummation of the making of the Term Loan available by Lender to Borrower
under this Agreement.

     

    “Closing Date” shall
mean the date on which the Closing occurs.

     

    “Collateral” shall
mean any and all rights and interests in or to Property (including leasehold
improvements) of Borrower, whether now owned or hereafter acquired, pledged from
time to time as security for the Obligations pursuant to this Agreement or any
of the other Loan Documents.

     

    “Collateral Agent”
shall mean P&S, in its capacity as collateral agent pursuant to the
Intercreditor Agreement.

     

    “Commitment” means the
obligation of Lender to make Advances to Borrower in an aggregate principal
amount not exceeding $1,000,000.

     

    “Contractual
Obligations” shall mean, with respect to any Person, any term or
provision of any securities issued by such Person, or any indenture, mortgage,
deed of trust, contract, undertaking, document, instrument or other agreement to
which such Person is a party or by which it or any of its properties is bound or
to which it or any of its properties is subject.

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

     

    “Control Agreement”
shall mean an agreement, in form and substance satisfactory to Lender, among
Borrower, a Depository Institution and Collateral Agent pursuant to which such
Depository Institution agrees, inter alia, to transfer all
funds of Borrower maintained in any deposit account with that Depository
Institution to the control of Collateral Agent for the benefit of P&S and
Lender on the terms set forth in the Intercreditor Agreement; provided, however,
that in the event the Intercreditor Agreement is terminated or ceases to be in
effect for any reason any Control Agreement shall be in favor of Lender or such
successor Collateral Agent as Lender may approve in its sole
discretion.

     

    “Default” shall mean
an event, condition or default which, with the giving of notice, the passage of
time or both would be an Event of Default.

     

    “Depository
Institution shall mean each depository institution where Borrower
maintains a bank account and which institutions are set forth on Schedule 6.26, along
with the numbers and title of each account maintained by Borrower at such
institution.

     

    “Distribution
Agreement” shall mean the Partner Agreement dated as of July 25, 2007 by
and between the Lender and the Borrower.

     

    “Event(s) of Default”
shall have the meaning provided for in Article
XI.

     

    “Executive Order No.
13224” shall mean the Executive Order No. 13224 on Terrorist Financing,
effective September 24, 2001, as the same has been, or shall hereafter be,
renewed, extended, amended or replaced.

     

    “Expenses” shall have
the meaning given to such term in Section
13.6.

     

    “Financials” shall
have the meaning given to such term in Section
6.5.

     

    “Financial Statements”
shall mean the Financial Statements Borrower is obligated to deliver pursuant to
Section 7.1 of
this Agreement.

     

    “GAAP” shall mean
generally accepted accounting principles in the United States of America, as in
effect on the date hereof and applied on a consistent basis with the
Financials.

     

    “Governmental
Authority” shall mean any federal, state, local or foreign court or
governmental agency, authority, instrumentality or regulatory body.

     

    “Guarantor” shall mean
any Person who may hereafter guarantee payment or performance of the whole or
any part of the Obligations; “Guarantors” means collectively all such
Persons.

     

    “Guaranty” shall mean
any guaranty of the obligations of Borrower executed by a Guarantor in favor of
Lender.

     

    “Highest Lawful Rate”
shall mean, at any given time during which any Obligations shall be outstanding
hereunder, the maximum nonusurious interest rate, if any, that at any time or
from time to time may be contracted for, taken, reserved, charged or received on
the indebtedness under this Agreement, under the laws of the State of New York
(or the law of any other jurisdiction whose

     

     

    
      
        
        

      

      
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    laws may,
by order of court, be mandatorily applicable notwithstanding other provisions of
this Agreement and the other Loan Documents), in any case after taking into
account, to the extent permitted by applicable law, any and all relevant
payments or charges under this Agreement and any other Loan Documents executed
in connection herewith, and any available exemptions, exceptions and
exclusions.

     

    "Indebtedness" of a
Person at a particular date shall mean all obligations of such Person which in
accordance with GAAP would be classified upon a balance sheet as liabilities
(except capital stock and surplus earned or otherwise) and in any event, without
limitation by reason of enumeration, shall include all indebtedness, debt and
other similar monetary obligations of such Person whether direct or guaranteed,
and all premiums, if any, due at the required prepayment dates of such
indebtedness, and  all indebtedness secured by a Lien on assets owned
by such Person, whether or not such indebtedness actually shall have been
created, assumed or incurred by such Person.  Any indebtedness of such
Person resulting from the acquisition by such Person of any assets subject to
any Lien shall be deemed, for the purposes hereof, to be the equivalent of the
creation, assumption and incurring of the indebtedness secured thereby, whether
or not actually so created, assumed or incurred.

     

    “Intercreditor
Agreement” shall mean the Intercreditor Agreement dated as of even date
herewith among Borrower, Lender and P & S, as amended, modified, restated or
replaced from time to time.

     

    “Inventory” shall mean
all of Borrower’s inventory, including without limitation, (i) all raw
materials, work in process, parts, components, assemblies, supplies and
materials used or consumed in Borrower’s business; (ii) all goods, wares and
merchandise, finished or unfinished, held for sale or lease or leased or
furnished or to be furnished under contracts of service; and (iii) all goods
returned to or repossessed by Borrower.

     

    “Investment” in any
Person shall mean (i) the acquisition (whether for cash, property, services,
assumption of Indebtedness, securities or otherwise, but exclusive of the
acquisition of inventory, supplies, equipment and other property or assets used
or consumed in the ordinary course of business of Borrower and capital
expenditures not otherwise prohibited hereunder) of assets, shares of Capital
Stock, bonds, notes, debentures, partnership, joint ventures or other ownership
interests or other securities of such Person, or (ii) any other capital
contribution to or investment in such Person.  In determining the
aggregate amount of Investments outstanding at any particular time,
(a) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption, retirement,
repayment, liquidating dividend or liquidating distribution); (b) there shall be
deducted in respect of any Investment any cash amounts received as earnings on
such Investment, whether as dividends, interest or otherwise; and (c) there
shall not be deducted from or included in, as applicable, the aggregate amount
of Investments any decrease or increase, as applicable, in the market value
thereof.

     

    “Kamrat Family” shall
mean David Kamrat and Noah Kamrat, excluding any of their heirs, successors and
assigns.

     

    “Lien(s)” shall mean
any lien, charge, trust, pledge, security interest, deed of trust, mortgage,
assignment or other claim or encumbrance of any kind or nature upon any interest
in Property.

     

     

     

    
      
        
        

      

      
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    “Loan Documents” shall
mean, collectively, this Agreement, the Note, the Guarantees, the Security
Documents, the Intercreditor Agreement and all other documents, agreements,
instruments, opinions and certificates executed and delivered in connection
herewith or therewith, as the same may be modified, amended, extended, restated
or supplemented from time to time.

     

    “Lockbox Account”
shall have the meaning given to such term in Section
2.4(b).

     

    “Material Adverse
Change” shall mean a material adverse change in (i) the business,
operations, results of operations, assets, liabilities or condition (financial
or otherwise) of Borrower, (ii) the Collateral, (iii) Borrower’s ability to
perform its obligations under the Loan Documents, or (iv) the validity,
enforceability or availability of rights and remedies of Lender hereunder, in
each case as determined by Lender in its sole but reasonable
discretion.

     

    “Material Adverse
Effect” shall mean a material adverse effect on (i) the business,
operations, results of operations, assets, liabilities or condition (financial
or otherwise) of Borrower, (ii) the Collateral, (iii) Borrower’s ability to
perform its respective obligations under the Loan Documents, or (iv) the
validity, enforceability or availability of rights and remedies of Lender
hereunder, in each case as determined by Lender in its sole
discretion.

     

    “Material Contract”
shall mean any contract or other arrangement, whether written or oral, to which
Borrower is a party as to which the breach, nonperformance, cancellation or
failure to renew by any party thereto could reasonably be expected to have a
Material Adverse Effect, and shall include, without limitation, the Distribution
Agreement.

     

    “Maturity Date” shall
mean February 1, 2012.

     

    “Net Cash Proceeds”
shall mean the aggregate cash proceeds received by Borrower in respect of any
Asset Disposition, net of (i) direct costs (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and (ii)
taxes paid or payable as a result thereof; it being understood that “Net Cash
Proceeds” shall include, without limitation, any cash received upon the sale or
other disposition of any non-cash consideration received by Borrower in any
Asset Disposition.

     

    “Note” shall mean the
Term Note payable to the order of Lender, evidencing the Term Loan.

     

    “Obligations” shall
mean the outstanding balance of the Term Loan, any other loans and advances or
extensions of credit made or to be made at any time by Lender to Borrower, or to
others for Borrower’s account in each case pursuant to the terms and provisions
of this Agreement or any other Loan Document, together with interest thereon
(including interest which may accrue as post-petition interest in connection
with any bankruptcy or similar proceeding), and expenses, liabilities and
obligations of every kind or nature which may at any time be owing by Borrower
to Lender pursuant to this Agreement, any other Loan Document, or otherwise,
whether now in existence, hereafter arising or incurred from time to time by
Borrower, and all expenses incurred at any time by Lender, as well as
expenditures to protect, preserve or defend any Collateral and Lender’s rights
hereunder or in the Collateral, all of the foregoing, whether unsecured or
secured, due or to become due, absolute or contingent, joint or several, matured
or unmatured, direct or

     

     

    
      
        
        

      

      
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    indirect,
related or unrelated and whether Borrower is liable to Lender for such
indebtedness as principal, surety, endorser, guarantor or
otherwise.

     

    “Official Body” shall
mean any national, federal, state, local or other government or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality of either, or any court, tribunal, grand jury or
arbitrator, in each case whether domestic or foreign.

     

    “P & S” shall mean
P & S Spirit, LLC, a Nevada limited liability company, and its successors
and assigns.

     

    “P & S Credit
Documents” shall mean the Credit Line and Security Agreement dated as of
May 30, 2007 between Borrower and P & S, and all Obligations of Borrower to
P & S thereunder and the “Loan Documents” (as defined therein) executed in
connection therewith, as amended, modified, restated or replaced from time to
time subject to the terms of this Agreement and the Intercreditor
Agreement.

     

    “P & S
Obligations” shall mean all obligations of Borrower to P & S under
the terms and provisions of the P & S Credit Documents and any securities,
indenture, mortgage, deed of trust, contract, undertaking, document, instrument
or other agreement to which Borrower is a party or by which it or any of its
properties is bound or to which it or any of its properties is
subject.

     

    “P & S Term Loan
Agreement” shall mean the Term Loan and Security Agreement dated as of
May 30, 2007 between Borrower and P & S, and all Obligations of Borrower to
P & S thereunder and the “Loan Documents” (as defined therein) executed in
connection therewith, as amended, modified, restated or replaced from time to
time.

     

    “Permitted
Indebtedness” shall mean the Indebtedness scheduled on Schedule 1.1 to this
Agreement.

     

    “Permitted
Investments” shall mean:

     

    (i)           interest-bearing
demand or time deposits (including certificates of deposit) which are insured by
the Federal Deposit Insurance Corporation (“FDIC”) or a similar federal
insurance program; provided, however, that
Borrower may, in the ordinary course of their business, maintain in their
disbursement account from time to time amounts in excess of then applicable FDIC
or other program insurance limits;

     

    (ii)           Investments
existing on the Closing Date and set forth on Schedule 1.2
attached hereto;

     

    (iii)           marketable,
direct obligations of the United States of America, its agencies and
instrumentalities maturing within 365 days of the date of purchase;

     

    (iv)           commercial
paper issued by corporations, each of which shall have a net worth of at least
$100,000,000, and each of which conducts a substantial part of its business in
the United States of America, maturing within 270 days from the date of the
original issue thereof, and which at the time of acquisition has the highest
rating by Moody’s Investors Service, Inc. or Standard and Poor’s
Corporation;

     

     

     

    
      
        
        

      

      
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    (v)           bankers’
acceptances, and certificates of deposit maturing within 365 days of the date of
purchase which are issued by, or time deposits maintained with, an eligible
institution having capital, surplus and undivided profits totaling more than
$100,000,000 and which have the highest rating by Moody’s Investors Service,
Inc. or Standard and Poor’s Corporation; and

     

    (vi)           money
market or similar funds that invest primarily in the types of investments
referred to in clauses (i), (iii), (iv) and (v) above.

     

    “Permitted Liens”
shall mean:

     

    (i)           Liens
set forth on Schedule
1.3 attached hereto;

     

    (ii)          Liens
on fixed assets securing Indebtedness (including Capital Leases and purchase
money Indebtedness); provided that (A) any
such Lien attaches only to the assets to be financed and (B) a description of
the assets so financed is furnished to Lender;

     

    (iii)         Liens
of warehousemen, mechanics, materialmen, workers, repairmen, fillers, packagers,
processors, common carriers, landlords and other similar Liens arising by
operation of law or otherwise, not waived in connection herewith, for amounts
that are not yet due and payable or which are being diligently contested in good
faith by Borrower by appropriate proceedings, provided that in any
such case an adequate reserve is being maintained by Borrower for the payment of
same;

     

    (iv)         Liens
for taxes, assessments or other governmental charges not yet due and payable or
which are being diligently contested in good faith by Borrower by appropriate
proceedings, provided that in any
such case an adequate reserve is being maintained by Borrower for the payment of
same in accordance with GAAP; and

     

    (v)          deposits
or pledges to secure obligations under workmen’s compensation, social security
or similar laws, or under unemployment insurance.

     

    “Person” shall mean
any individual, sole proprietorship, partnership, joint venture, limited
liability entity, trust, unincorporated organization, association, corporation,
institution, entity, or government (including any division, agency or department
thereof), and, as applicable, the successors, heirs and assigns of
each.

     

    “Property” shall mean
all personal and real property of every kind and description (whether tangible
or intangible) in which a Person has any right, title or interest.

     

    “Proprietary Rights”
shall have the meaning given to such term in Section
6.13.

     

    “Security Documents”
shall mean any existing or future agreement or document granting, creating or
conferring any Lien in favor of Lender securing all or any portion of the
Obligations.

     

    “Subordinated Debt”
shall mean existing Indebtedness, if any, set forth and indicated as
subordinated set forth on Schedule 1.1(e)
hereto and unsecured Indebtedness hereafter incurred by Borrower, which, in each
case, is expressly subordinated and made junior to the payment and

     

     

    
      
        
        

      

      
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    performance
in full of the Obligations and under a written agreement acceptable to
Lender.

     

    “Subordination
Agreements” shall mean the agreements entered into from time to time by
and among Borrower, Lender, and a third party creditor of Borrower providing for
the subordination of such third party creditor’s claims to those of Lender on
terms and conditions satisfactory to Lender.

     

     

    “Subsidiary” shall
mean, as to any Person, (i) any corporation more than 50% of whose Capital Stock
of any class or classes having by the terms thereof ordinary voting power to
elect a majority of the directors of such corporation (irrespective of whether
or not at the time, any class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at the time
owned by such Person directly or indirectly through Subsidiaries, (ii) any
partnership, association, joint venture or other entity in which such Person
directly or indirectly through Subsidiaries has more than a 50% interest in the
total capital, total income and/or total ownership interests of such entity at
any time and (iii) any partnership in which such Person is a general
partner.

     

    “Tangible Net Worth”
shall mean the value of Borrower’s total assets (including leaseholds and
leasehold and reserves against assets but excluding goodwill, patents,
trademarks, trade names, organization expense, unamortized debt discount and
expense, capitalized or deferred research and development costs, deferred
marketing expenses, and other like intangibles, and monies due from affiliates,
officers, directors, employees, shareholders, members or managers of Borrower)
less total liabilities, including but not limited to accrued and deferred income
taxes, but excluding the non-current portion of Subordinated Debt.

     

    “Taxes” shall mean any
federal, state, local or foreign income, sales, use, transfer, payroll,
personal, property, occupancy, franchise or other tax, levy, impost, fee,
imposition, assessment or similar charge, together with any interest or
penalties thereon.

     

    “Termination Date”
shall have the meaning set forth in Section
2.01.

     

    “Third-Party Loan”
shall mean any loan, advance, deposit or extension of credit made or granted by
Borrower to any other Person.

     

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

     

    “USA Patriot Act”
shall mean the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, as
the same has been, or shall hereafter be, renewed, extended, amended or
replaced.

     

    “Voting Stock” shall
mean, with respect to any Person, Capital Stock issued by such Person the
holders of which are ordinarily, in the absence of contingencies, entitled to
vote for the election of directors (or persons performing similar functions) of
such Person, even though the right so to vote has been suspended by the
happening of such a contingency.

     

     

    
      
        
        

      

      
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    1.2. Accounting Terms.  Unless
otherwise defined or specified herein, all accounting terms shall be construed
herein and all accounting determinations for purposes of determining compliance
with Article VIII hereof and otherwise to be made under this Agreement shall be
made in accordance with GAAP applied on a basis consistent in all material
respects with the Financials.  All Financial Statements required to be
delivered hereunder from and after the Closing Date and all financial records
shall be maintained in accordance with GAAP as in effect as of the date of the
Financials.  If GAAP shall change from the basis used in preparing the
Financials, the certificates required to be delivered pursuant to Section 7.1(c)
demonstrating compliance with the covenants contained herein shall include
calculations setting forth the adjustments necessary to demonstrate how Borrower
is in compliance with the financial covenants based upon GAAP as in effect on
the Closing Date.  If Borrower shall change its method of inventory
accounting, all calculations necessary to determine compliance with the
covenants contained herein shall be made as if such method of inventory
accounting had not been so changed.

     

    1.3. Other Definitional
Terms.  Terms
not otherwise defined herein which are defined in the UCC shall have the
meanings given them in the UCC.  It is the specific intent of Borrower
and Lender that references to terms defined in the UCC shall mean the
definitions set forth in the UCC as the UCC is in effect from time to
time.  The term “on the date hereof” shall mean the date of this
Agreement.  The words “hereof”, “herein” and “hereunder” and words of
similar import when used in this Agreement shall refer to the Agreement as a
whole and not to any particular provision of this Agreement, unless otherwise
specifically provided.  References in this Agreement to “Articles”,
“Sections”, “Schedules” or “Exhibits” shall be to Articles, Sections, Schedules
or Exhibits of or to this Agreement unless otherwise specifically
provided.  Any of the terms defined in Section 1.1 may, unless the
context otherwise requires, be used in the singular or plural depending on the
reference.  “Include”, “includes” and “including” shall be deemed to
be followed by “without limitation” whether or not they are in fact followed by
such words or words of like import.  “Writing”, “written” and
comparable terms refer to printing, typing, computer disk, e-mail and other
means of reproducing words in a visible form.  References to any
agreement or contract are to such agreement or contract as amended, modified or
supplemented from time to time in accordance with the terms hereof and
thereof.  References to any Person include the successors and
permitted assigns of such Person.  References “from” or “through” any
date mean, unless otherwise specified, “from and including” or “through and
including”, respectively.  References to any times herein shall refer
to the applicable time in New York, New York.

     

    ARTICLE  II      TERM
LOAN

     

    2.1. Term
Loan.  From time to time prior to February 1, 2009 or the
earlier termination in full of the Commitment (in either case the “Termination
Date”), and subject to all of the terms and conditions of this Agreement,
Borrower may obtain Advances from Lender up to the amount of the outstanding
Commitment.  Amounts borrowed pursuant to this Section 2.1 may not be
reborrowed, notwithstanding any payments hereunder.  Borrower may
request an Advance hereunder by three days written notice to Lender, which
notice shall be irrevocable and shall specify Borrower’s proposed use of the
proceeds of such Advance.  Any such notice received by Lender after
2:00 P.M. shall be deemed received on the immediately following Business
Day.  Each Advance shall be in an integral multiple of $100,000 and
not less than $100,000.  All such Advances shall be evidenced by a
single promissory note of Borrower in the form set forth on Exhibit A

     

     

     

    
      
        
        

      

      
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    attached
hereto (the “Term Note”) representing the obligations of Borrower to pay Lender
the outstanding amount of the Term Loan plus interest accrued thereon, as set
forth herein.  The Term Note shall be executed by Borrower and
delivered to Lender prior to the initial Advance.  Although the Term
Note shall be expressed to be payable in the full amount of the Commitment,
Borrower shall be obligated to pay only the amounts actually disbursed to or for
the account of Borrower, together with interest on the unpaid balance of sums so
disbursed which remain outstanding from time to time, at the rates and on the
dates specified herein or in the Term Note, and together with the other amounts
provided herein.

     

    2.2. Repayment of Term
Loan.  The outstanding balance of the Term Loan shall be due
and payable on or before the Maturity Date, subject to acceleration as herein
provided.  Borrower shall pay principal, interest, and all other
amounts payable hereunder without any deduction whatsoever, including, but not
limited to, any deduction for any setoff or counterclaim, all of which are
hereby waived.  Any partial prepayment of principal shall be in an
amount of $100,000 or even multiples thereof, and shall be accompanied by
accrued and unpaid interest on the amount prepaid to the date of such
prepayment.  In the event that the aggregate outstanding principal
amount of the Advances shall at any time exceed the Commitment, Borrower shall
immediately prepay the Term Loan in the amount necessary to eliminate such
excess.

     

    2.3. Use of
Proceeds.  Borrower shall apply the proceeds of the Term Loan
to (i) pay fees and Expenses relating to this transaction, and (ii) working
capital.  Without the prior written consent of Lender, this Term Loan
may not be used, in whole or in part, to make any payment to P & S with
respect to any P & S Obligations.

     

    2.4. Payments and
Computations.

     

    (a) Borrower
shall make each payment hereunder and under the Note not later than 2:00 P.M. on
the day when due.  Any payment received after 2:00 P.M.
(including any payment in full of the Obligations) shall be deemed received on
the immediately following Business Day.  Any payment which is due on a
day which is not a Business Day shall be paid on the next succeeding Business
Day.  All prepayments of every kind on account of the Term Loan shall
be first applied to accrued and unpaid interest and then to the principal
balance thereof.

     

    (b) At
Lender’s request or as otherwise required pursuant to the terms of the
Intercreditor Agreement, all proceeds of Collateral shall be deposited by
Borrower into either (i) a lockbox account or a blocked account (“Lockbox
Account”) established at a Depository Institution, pursuant to a Control
Agreement.  Lender assumes no responsibility for such blocked account
arrangement or the actions of the Collateral Agent, including any claim or
accord and satisfaction or release with respect to deposits accepted by any
Depository Institution thereunder.  Borrower hereby agrees to execute
such agreements as Lender or Collateral Agent may require to establish the
Lockbox Account.

     

    (c) Borrower
shall pay principal, interest and other amounts payable hereunder without any
deduction, setoff, recoupment or counterclaim.

     

    (d) Lender’s
records of advances and payments under the Term Loan shall be deemed correct and
binding upon Borrower except for manifest error.

     

     

    
      
        
        

      

      
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    ARTICLE  III      PAYMENT
OF PRINCIPAL, INTEREST AND FEES

     

    3.1. Principal
Amortization.  The outstanding principal amount of the Term
Loan shall be payable in eleven equal quarterly installments of $83,400.00, on
the first day of each February, May, August and November commencing May 1, 2009,
with a final payment of $82,600.000 on the Maturity Date.  In the
event that outstanding principal amount of the Term Loan on the Termination Date
is less than the Commitment, the amount of the quarterly installments shall be
adjusted to the amount necessary to fully amortize the outstanding principal
amount of the Term Loan over the same period.

     

    3.2. Interest on Term
Loan.  Interest
on the outstanding principal amount of the Term Loan shall be paid in arrears on
the first day of each February, May, August and November commencing May 1, 2008,
at the per annum interest rate equal to seven percent (7%) per annum, compounded
quarterly (subject to adjustment in the manner provided herein and in the
Note).

     

    3.3. Interest After Event of
Default.  Interest on the outstanding principal amount of the
Term Loan as of the date an Event of Default occurs, and at all times thereafter
until the earlier of the date upon which (a) all Obligations have been paid and
satisfied in full or (b) such Event of Default shall have been cured or
waived, shall be payable on demand at a per annum interest rate equal to ten
percent (10%) per annum, compounded quarterly.  To the extent
permitted by applicable law, interest shall accrue at the applicable rate(s)
provided for in this Agreement notwithstanding the occurrence of any Event of
Default, acceleration of the Obligations, the entry of any judgment, or the
commencement of any bankruptcy, reorganization, receivership or other
proceedings.

     

    ARTICLE  IV     COLLATERAL

     

    4.1. Description.  As
security for the payment of the Obligations, and satisfaction by Borrower of all
covenants and undertakings contained in this Agreement and the other Loan
Documents, Borrower hereby assigns and grants to Lender a continuing first
(subject only to any Permitted Liens, if any) Lien on and security interest in,
upon and to all of Borrower’s personal property, including, without limitation,
all of the following personal property:

     

    (a) Accounts - All of
Borrower’s now owned and hereafter acquired, created, or arising
Accounts;

     

    (b) Inventory - All of
Borrower’s now owned or hereafter acquired Inventory of every nature and kind,
wherever located (including any Inventory sold by Lender to Borrower pursuant to
the distribution arrangements described in the Purchase Agreement, in which
Lender shall possess a purchase money security interest (provided, however, that
the proceeds of such Inventory shall be subject to the terms of the
Intercreditor Agreement));

     

    (c) General Intangibles -
All of Borrower’s now owned and hereafter acquired, created or arising General
Intangibles of every kind and description, including, without limitation,
customer lists, choses in action, claims, books, records, goodwill, patents and
patent applications, copyrights, trademarks, tradenames, service marks,
tradestyles, trademark applications, trade secrets, contracts, contract rights,
royalties, licenses, franchises, deposits, license, franchise and
royalty

     

     

    
      
        
        

      

      
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    agreements,
formulae, tax and any other types of refunds, returned and unearned insurance
premiums, rights and claims under insurance policies including without
limitation, credit insurance and key man life insurance policies, and computer
information, software, records and data;

     

    (d) Equipment - All of
Borrower’s now owned and hereafter acquired Equipment, including, without
limitation, machinery, vehicles, furniture and Fixtures, wherever located, and
all replacements, parts, accessories, substitutions and additions
thereto;

     

    (e) Deposit Accounts -
All of Borrower’s now existing and hereafter acquired or arising Deposit
Accounts, reserves and credit balances of every nature, wherever located, and
all documents and records associated therewith;

     

    (f) Property in Lender’s
Possession - All personal property of Borrower, now or hereafter in the
possession of Lender;

     

    (g) Investment Property -
All of Borrower’s now owned or hereafter acquired Investment Property of every
kind;

     

    (h) Letter of Credit
Rights – All of Borrower’s now owned or hereafter acquired Letter of
Credit Rights;

     

    (i) Commercial Tort
Claims – All of Borrower’s now owned or hereafter acquired Commercial
Tort Claims;

     

    (j) Other Property - All
of Borrower’s now owned or hereafter acquired or created Instruments and other
notes receivable, Goods, Chattel Paper, Documents (including bills of lading,
warehouse receipts and other documents of title), Payment Intangibles,
guarantees, Supporting Obligations, letters of credit, rights of rescission,
stoppage in transit, replevin, and reclamation, and returned, reclaimed and
repossessed goods; and

     

    (k) Proceeds - The
Proceeds (including, without limitation, insurance proceeds), whether cash or
non-cash, of all of the foregoing personal property and interests in personal
property.

     

    4.2. Lien
Documents.  At Closing, and thereafter from time to time as
Lender deems necessary, Borrower shall execute and/or deliver to Lender or
authorize, as applicable, the following (all in form and substance satisfactory
to Lender):

     

    (a) Financing Statements
- Financing statements, which Lender may file in any jurisdiction where any
Collateral is or may be located and in any other jurisdiction that Lender deems
appropriate; and

     

    (b) Other Agreements -
Any other agreements, documents, instruments and writings, including, without
limitation, trademark, patent and/or copyright security agreements and
amendments or supplements thereto, as may be required by Lender to evidence,
create, perfect or protect Lender’s Liens and security interests in the
Collateral.

     

     

     

    
      
        
        

      

      
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    4.3. Other
Actions.  Borrower will defend the Collateral against all Liens
(other than Permitted Liens), claims and demands of all Persons at any time
claiming the same or any interest therein.  Borrower agrees to comply
with the requirements of all state and federal laws and requests of Lender in
order for Lender to have and maintain a valid and perfected first security
interest (subject only to Permitted Liens, if any) in the Collateral including,
without limitation, executing such documents as Lender may require to obtain
Control (as defined in the UCC) over all Letter of Credit Rights, Deposit
Accounts and Investment Property.  Lender is hereby authorized by
Borrower to file any financing statements covering the Collateral or an
amendment that adds collateral covered by a financing statement or an amendment
that adds a debtor to a financing statement, in each case whether or not
Borrower’s signature appears thereon. Borrower hereby authorizes Lender to file
financing statements and amendments to financing statements describing the
Collateral in any filing office as Lender, in its sole discretion, may
determine, including financing statements listing “All Assets” in the collateral
description therein, as well as language indicating that the acquisition by a
third party of any right, title or interest in or to the Collateral without
Lender’s consent, shall be a violation of Lender’s rights.  In
addition to the foregoing, Borrower shall perform all further acts that may be
lawfully and reasonably required by Lender to secure Lender and effectuate the
intentions and objects of this Agreement, including, but not limited to, the
execution and delivery of continuation statements, amendments to financing
statements, security agreements, contracts and any other documents required
hereunder.  Borrower shall use commercially reasonable efforts to
obtain acknowledgment and waiver agreements from the owner or lessor of any
warehouse or distribution location and Borrower shall endeavor to obtain
acknowledgment and waiver agreements from the owner or lessor of each showroom
location.  At Lender’s request, Borrower shall immediately deliver to
Lender all documents or items for which Lender must receive possession to obtain
and/or maintain perfected security interests, including without limitation, all
notes, letters of credit, certificates and documents of title, chattel paper,
warehouse receipts, instruments, and any other similar Collateral.

     

    4.4. Searches and
Certificates.

     

    Borrower
shall, prior to or at Closing, and thereafter as Lender may determine from time
to time, at Borrower’s expense, obtain (and Lender may also do so, at its
option, but at Borrower’s expense from time to time) the following searches (the
results of which are to be consistent with the warranties made by Borrower in
this Agreement and in any other Loan Document):

     

    (a) UCC
searches with the Secretary of State of Borrower’s jurisdiction of
organization;

     

    (b) Judgment,
federal tax lien and state tax lien searches, in Borrower’s jurisdiction of
organization and each state or other jurisdiction where Borrower maintains its
executive office, a place of business, or any Property; and

     

    (c) Searches
of ownership and Lien status of intellectual property in the appropriate
governmental offices.

     

    ARTICLE  V      CONDITIONS
PRECEDENT

     

    The
obligation of Lender to extend the Term Loan and make Advances
thereunder

     

     

     

    
      
        
        

      

      
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    shall be
subject to the satisfaction of the following conditions precedent on or before
the date indicated (all agreements and documents from Borrower or any other
Person to be in form and substance acceptable to Lender, in its sole
discretion):

     

    (a) Executed Loan
Documents.  On or before the Closing Date, Lender shall have
received duly executed copies of: this Agreement, the Note, the Security
Documents, and all other Loan Documents.

     

    (b) Organizational
Documents.  On or before the Closing Date, Lender shall have
received:

     

    (i) Charter
Documents.  Copies of the articles or certificates of
incorporation or other charter documents of Borrower certified to be true and
complete as of a recent date by the appropriate Governmental Authority of the
state or other jurisdiction of its incorporation and certified by a secretary or
assistant secretary of Borrower to be true and correct as of the Closing
Date.

     

    (ii) Bylaws.  A
copy of the bylaws of Borrower certified by a secretary or assistant secretary
of Borrower to be true and correct as of the Closing Date.

     

    (iii) Resolutions.  Copies
of resolutions or unanimous written consent of the board of directors of
Borrower approving and adopting the Loan Documents, the transactions
contemplated therein and authorizing execution and delivery thereof, certified
by a secretary or assistant secretary of Borrower to be true and correct and in
force and effect as of the Closing Date.

     

    (iv) Good
Standing.  Copies of a certificate of good standing, existence
or its equivalent with respect to Borrower certified as of a recent date by the
appropriate Governmental Authorities of the state or other jurisdiction of
organization and each other jurisdiction in which the failure to so qualify and
be in good standing could reasonably be expected to have a Material Adverse
Effect.

     

    (v) Incumbency.  An
incumbency certificate of Borrower certified by a secretary or assistant
secretary of Borrower to be true and correct as of the Closing
Date.

     

    (c) Financial
Statements.  On or before the Closing Date, Lender shall have
received Borrower’s audited Financial Statements for the fiscal year ending
December 31, 2006, and unaudited Financial Statements for the nine months ended
September 30, 2007, and such other information relating to Borrower as Lender
may reasonably require.

     

    (d) Personal Property
Collateral.  On or before the Closing Date, Lender shall have
received duly authorized or, if required executed, UCC financing statements and
other lien documents for filing including all necessary documents (including
lien termination documents by any existing lender) to perfect Lender’s security
interest in the Collateral, all as may be required by Lender.

     

    (e) Payoff of P & S Term
Loan and Release of Related Collateral.  Before the date of the
first Advance hereunder, Lender shall have received satisfactory evidence that
all

     

     

     

    
      
        
        

      

      
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    obligations
of Borrower and each of its Affiliates to P & S under the P & S Term
Loan Agreement shall have been irrevocably repaid in full, and the obligations
under any related guarantees, stock pledges and Other Loan Documents (as defined
in the P & S Credit Documents) securing the obligations of Borrower under
the P & S Term Loan Agreement shall have been released.

     

    (f) Priority of
Liens.  On or before the Closing Date, Lender shall have
received satisfactory evidence that (i) Lender holds a perfected Lien on
all Collateral and (ii) none of the Collateral is subject to any other Liens
other than Permitted Liens.

     

    (g) Consummation of
Merger.  Before the date of the first Advance hereunder, the
merger of Qualmax, Inc. with and into Borrower shall have been consummated in
all respects, and Borrower shall have delivered to Lender evidence thereof to
the satisfaction of Lender.

     

    (h) Evidence of
Insurance.  On or before the Closing Date, Lender shall have
received copies of insurance policies or certificates of insurance (on Acord
form 27) of Borrower evidencing liability and casualty insurance meeting the
requirements set forth in the Loan Documents, including, without limitation,
naming Lender as loss payee (as to property and casualty coverage) and as
additional insured (as to liability coverage).

     

    (i) Consents.  On
or before the Closing Date, Lender shall have received evidence that all
governmental, shareholder, member and third party consents and approvals
required in connection with the transactions contemplated hereby and expiration
of all applicable waiting periods without any action being taken by any
authority that could restrain, prevent or impose any material adverse conditions
on such transactions or that could seek or threaten any of the foregoing, and no
law or regulation shall be applicable which in the judgment of Lender could have
such effect.

     

    (j) Fees and
Expenses.  On or before the Closing Date, Borrower shall have
paid all fees and Expenses owed to Lender as of the Closing Date.

     

    (k) P & S Credit
Documents.   On the Closing Date and on the date of each
Advance, no default or event of default under any of the P & S Credit
Documents shall have occurred and remain outstanding or uncured.

     

    (l) Other.  On
the Closing Date and on the date of each Advance, the Lender shall have received
such other documents, instruments, agreements or information as are required to
be provided herein or under any other Loan Documents or as may otherwise be or
have been requested by Lender.

     

    ARTICLE  VI     REPRESENTATIONS
AND WARRANTIES

     

    In order
to induce Lender to enter into this Agreement and to make available the Term
Loan contemplated hereby, Borrower hereby represents and warrants to Lender
that, as of the Closing Date and as of the date of each Advance:

     

    6.1. Organization and
Qualification.   Borrower
(i) is a corporation duly organized, validly existing and in good standing under
the laws of the state of its incorporation or organization, (ii)
has

     

     

    
      
        
        

      

      
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    the power
and authority to own its Property and assets and to transact the businesses in
which it is presently, or proposes to be, engaged, and (iii) is duly
qualified and is authorized to do business and is in good standing in every
jurisdiction in which the failure to be so qualified could reasonably be
expected to have a Material Adverse Effect.  All of the Capital Stock
of Borrower is owned beneficially and of record by the persons, and in the
amounts, set forth on Schedule
6.1.

     

    6.2. Liens.   There
are no Liens in favor of any Person with respect to any Property of Borrower
other than Permitted Liens.

     

    6.3. No Conflict.   The
execution and delivery by Borrower of this Agreement and each of the other Loan
Documents executed and delivered in connection herewith and the performance of
the obligations of Borrower hereunder and thereunder and the consummation by
Borrower of the transactions contemplated hereby and thereby: (i) are within the
powers of Borrower; (ii) are duly authorized by the Board of Directors of
Borrower and, if necessary, its stockholders; (iii) are not in
contravention of the terms of the articles or certificate of incorporation or
bylaws of Borrower or of any Contractual Obligations; (iv) do not require
the consent, registration or approval of any Governmental Authority or any other
Person; (v) do not contravene any statute, law, ordinance regulation, rule,
order or other governmental restriction applicable to or binding upon Borrower;
and (vi) will not, except as contemplated herein for the benefit of Lender,
result in the imposition of any Liens upon any Property of Borrower under any
existing indenture, mortgage, deed of trust, loan or agreement or other material
agreement or instrument to which Borrower is a party or by which it or any of
its Property may be bound or affected.

     

    6.4. Enforceability.  The
Agreement and all of the other Loan Documents are the legal, valid and binding
obligations of Borrower, and are enforceable against Borrower in accordance with
their terms.

     

    6.5. Financial Data.  Borrower
shall have furnished to Lender the following Financial Statements (the
“Financials”):  (i) the consolidated balance sheet of Borrower as of,
and statements of income, retained earnings and changes in cash flow for the
fiscal year ended December 31, 2006, audited by independent certified public
accountants, and (ii) the unaudited consolidated and consolidating balance sheet
of Borrower as of, and statement of income, and retained earnings for the nine
months ending September 30, 2007,  prepared by the chief financial
officer of Borrower.  The Financials are in accordance with the books
and records of Borrower and fairly present the financial condition of Borrower
at the dates thereof and the results of operations for the periods indicated
(subject, in the case of unaudited Financial Statements, to normal year end
adjustments), and such Financial Statements have been prepared in conformity
with GAAP consistently applied throughout the periods involved.  Since
December 31, 2006, there have been no changes in the condition, financial or
otherwise, of Borrower as shown on the respective balance sheets of Borrower
described above, except (a) as contemplated herein and (b) for changes which
individually or in the aggregate do not constitute a Material Adverse
Change.

     

    6.6. Locations of Offices,
Records and Inventory.  Borrower’s
chief executive office and all other places of business (with a separate
itemization for warehouse locations) are set forth in Schedule 6.6
hereto, and the books and records of Borrower and all chattel paper and all
records of accounts are located at the chief executive offices of
Borrower.  There is no address in which Borrower has any Collateral
other than the addresses as set forth on Schedule
6.6.  Schedule 6.6
also

     

     

    
      
        
        

      

      
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    contains
a true, correct and complete list of (i) the legal names and addresses of
each landlord, warehouseman, filler, processor and packer at which Inventory is
stored, or equipment is located.  None of the receipts received by
Borrower from any warehouseman, filler, processor or packer states that the
goods covered thereby are to be delivered to bearer or to the order of a named
person or to a named person and such named person’s assigns.

     

    6.7. Business
Names.  Borrower has not used any legal or fictitious name
during the five (5) years preceding the date hereof, other than the legal name
shown on its Certificate of Incorporation, as it may be amended to the date
hereof, delivered to Lender and those names as set forth on Schedule
6.7.

     

    6.8. Affiliates and
Subsidiaries.  There are no Affiliates or direct or indirect
Subsidiaries of Borrower except as set forth on Schedule 6.8.
Borrower is not a party to any partnership or joint venture except as set
forth on Schedule 6.8.

     

    6.9. Judgments or
Litigation.  Except
as set forth on Schedule 6.9, there
is no material (a) judgment, order, writ or decree outstanding against Borrower
or (b) pending or, to the best of Borrower’s knowledge, threatened litigation,
contested claim, governmental, administrative or regulatory investigation,
arbitration, or governmental audit (for taxes or otherwise) or proceeding by or
against Borrower.  No judgment, order, writ, decree, pending or
threatened litigation, contested claim, investigation, arbitration and
governmental proceeding pertaining to Borrower (individually or in the
aggregate) could reasonably be expected to have a Material Adverse
Effect.

     

    6.10. Defaults.  Borrower
is not in default under any Contractual Obligations which default could
reasonably be expected to have a Material Adverse Effect.

     

    6.11. Compliance with
Law.  Borrower has not violated or failed to comply with
(including without limitation in the ownership and use of its Property and the
conduct of its business) any statute, law, ordinance, regulation, rule or order
of any foreign, federal, state or local government, or any other Governmental
Authority or any self regulatory organization, or any judgment, decree or order
of any court, applicable to its business or operations which failure or
violation could reasonably be expected to have a Material Adverse
Effect.  Borrower has not received any notice to the effect that, or
otherwise been advised that, it is not in compliance with, and Borrower has no
reason to anticipate that any currently existing circumstances are likely to
result in the violation of any such statute, law, ordinance, regulation, rule,
judgment, decree or order which failure or violation could reasonably be
expected to have a Material Adverse Effect.

     

    6.12. Compliance with
Environmental Laws.  The operations of Borrower materially
comply with all applicable federal, state or local environmental, health and
safety statutes, regulations, directions, ordinances, criteria or guidelines;
and none of the current or former operations of Borrower are the subject of any
material judicial or administrative proceeding alleging the violation of any
federal, state or local environmental, health or safety statute, regulation,
direction, ordinance, criteria or guidelines.  None of the current or
former operations of Borrower are the subject of any federal or state
investigation evaluating whether Borrower disposed any hazardous or toxic waste,
substance or constituent or other substance at any site that may require
remedial action, or any federal or state investigation evaluating whether any
remedial action is needed to respond to a release of any hazardous or toxic
waste, substance or constituent, or other

     

     

     

    
      
        
        

      

      
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    substance
into the environment.  Borrower has not filed or received any notice
under any federal or state law indicating past or present treatment, storage or
disposal of a hazardous waste or reporting a spill or release of a hazardous or
toxic waste, substance or constituent, or other substance into the
environment.  Borrower has no contingent liability of which Borrower
have knowledge or reasonably should have knowledge in connection with any
release of any hazardous or toxic waste, substance or constituent, or other
substance into the environment, nor has Borrower received any notice, letter or
other indication of potential liability arising from the disposal of any
hazardous or toxic waste, substance or constituent or other substance into the
environment.

     

    6.13. Intellectual
Property.  Borrower possesses adequate licenses, patents,
patent applications, copyrights, service marks, trademarks and tradenames to
continue to conduct its business as heretofore conducted by it.  Schedule 6.13
attached hereto sets forth (a) all of the federal, state and foreign
registrations of trademarks, service marks and other marks, trade names or other
trade rights of Borrower, and all pending applications for any such
registrations, (b) all of the registered patents and copyrights of Borrower and
all pending applications therefore and (c) all other registered trademarks,
service marks and other marks, trade names and other trade rights used by
Borrower in connection with their business (collectively, the “Proprietary
Rights”).  Borrower is the owner of each of the Proprietary Rights set
forth on Schedule 6.13 as
indicated on such schedule, and except as set forth on Schedule 6.13 no
other Person has the right to use any of such Proprietary
Rights.  Each of the Proprietary Rights set forth on Schedule 6.13 is
federally registered, having the registration number and issue date set forth on
Schedule 6.13.  The
Proprietary Rights set forth on Schedule 6.13 are all
those used in the businesses of Borrower.  Except as set forth on
Schedule 6.13,
no Person has a right to receive any royalty or similar payment in respect of
any Proprietary Rights pursuant to any contractual arrangements entered into by
Borrower, and no Person otherwise has a right to receive any royalty or similar
payment in respect of any such Proprietary Rights except as set forth on Schedule
6.13.   Borrower has not granted any license or sold or
otherwise transferred any interest in any of the Proprietary Rights to any other
Person.  The use of each of the Proprietary Rights by Borrower is not
infringing upon or otherwise violating the rights of any third party in or to
such Proprietary Rights, and no proceeding has been instituted against or notice
received by Borrower that are presently outstanding alleging that the use of any
of the Proprietary Rights infringes upon or otherwise violates the rights of any
third party in or to any of the Proprietary Rights.  Borrower has not
given notice to any Person that it is infringing on any of the Proprietary
Rights and to the best of Borrower’s knowledge, no Person is infringing on any
of the Proprietary Rights.  All of the Proprietary Rights of Borrower
are valid and enforceable rights of Borrower and will not cease to be valid and
in full force and effect by reason of the execution and delivery of this
Agreement or the Loan Documents or the consummation of the transactions
contemplated hereby or thereby.

     

    6.14. Licenses and
Permits.  Borrower has obtained and holds in full force and
effect all material franchises, licenses, leases, permits, certificates,
authorizations, qualifications, easements, rights of way and other rights and
approvals which are necessary or appropriate for the operation of its business
as presently conducted and as proposed to be conducted.  Borrower is
not in violation of the terms of any such franchise, license, lease, permit,
certificate, authorization, qualification, easement, right of way, right or
approval which in any such case could reasonably be expected to have a Material
Adverse Effect.

     

     

    
      
        
        

      

      
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    6.15. Title to
Property.  Borrower has (i) valid leasehold interests in all of
the real property it occupies as a tenant, (all such real property and the
nature of Borrower’s interest therein is set forth on Schedule 6.15)
and (ii) good, marketable and exclusive title to all of the other Property
it purports to own  (including without limitation, all real and
personal Property in each case as reflected in the Financial Statements
delivered to Lender hereunder), other than, with respect to Property described
in clause (ii) above, properties disposed of in the ordinary course of
business or in any manner otherwise permitted under this Agreement since the
date of the most recent audited  balance sheet of Borrower, and in
each case subject to no claims, options, rights or interests of any other
Person.  Borrower enjoys peaceful and undisturbed possession of all
its real property, and there is no pending or, to the best of its knowledge,
threatened condemnation proceeding relating to any such real
property.  The leases with respect to the leased property, together
with any leases of real property entered into by Borrower after the date hereof,
are referred to collectively as the “Leases”.  None of the Leases
contains provisions which have or could reasonably be expected to have a
Material Adverse Effect.  No material default exists under any
Lease.

     

    6.16. Labor
Matters.  Borrower is not engaged in any unfair labor
practice.  There is (a) no material unfair labor practice complaint
pending against Borrower or, to the best knowledge of Borrower, threatened
against Borrower, before the National Labor Relations Board, and no grievance or
arbitration proceeding with any employee, or group or committee representing any
employees, or arising out of or under collective bargaining agreements that has
or could reasonably be expected to have a Material Adverse Effect is so pending
against Borrower or, to the best knowledge of Borrower, threatened against
Borrower, (b) no strike, labor dispute, slowdown or stoppage pending or, to the
best knowledge of Borrower, threatened against Borrower, and (c) no union
representation questions with respect to the employees of Borrower and no union
organizing activities.

     

    6.17. Investment
Company.   Borrower
is not (a) an “investment company” or a company “controlled” by an “investment
company” within the meaning of the Investment Company Act of 1940, as amended,
(b) a “holding company” or a “subsidiary company” of a “holding company,” or an
“affiliate” of a “holding company” or of a “subsidiary company” of a “holding
company,” within the meaning of the Public Utility Holding Company Act of 1935,
as amended, or (c) subject to any other law which purports to regulate or
restrict its ability to borrow money or to consummate the transactions
contemplated by this Agreement or the other Loan Documents or to perform its
obligations hereunder or thereunder.

     

    6.18. Margin
Security.  Borrower does not own any margin stock and no
portion of the proceeds of the Term Loan shall be used by Borrower for the
purpose of purchasing or carrying any “margin stock” (as defined in Regulation U
of the Board of Governors of the Federal Reserve System) or for any other
purpose which violates the provisions or Regulation U, T, or X of said Board of
Governors or for any other purpose in violation of any applicable statute or
regulation, or of the terms and conditions of this Agreement.

     

    6.19. Taxes and Tax
Returns.

     

    (a) Borrower
has timely filed (inclusive of any permitted extensions) with the appropriate
taxing authorities all returns (including, without limitation, information
returns and other material information) in respect of Taxes required to be filed
through the date hereof and will

     

     

    
      
        
        

      

      
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    timely
file (inclusive of any permitted extensions) any such returns required to be
filed on and after the date hereof except where the failure to file could not
reasonably be expected to have a Material Adverse Effect.  The
information filed is complete and accurate in all material
respects.

     

    (b) (i) All
Taxes, in respect of periods beginning prior to the date hereof, have been
timely paid, or will be timely paid, or an adequate reserve has been established
therefore, as set forth in the Financial Statements, and (ii) Borrower has no
material liability for such Taxes for such periods in excess of the amounts so
paid or reserves so established.  No material deficiencies for Taxes
have been claimed, proposed or assessed by any taxing or other Governmental
Authority against Borrower except those that are paid or contested within the
time limits designated by law or the applicable Governmental Authority and no
material tax Liens have been filed.

     

    6.20. Status of
Accounts.  Each Account is based on an actual and bona fide
sale and delivery of goods or rendition of services to customers, made by
Borrower in the ordinary course of its business; the goods and Inventory being
sold and the Accounts created are Borrower’s exclusive property and are not and
shall not be subject to any Lien, consignment arrangement, encumbrance, security
interest or financing statement whatsoever (other than Permitted Liens), and
Borrower’s customers have accepted the goods or services, owe and are obligated
to pay the full amounts stated in the invoices according to their terms, without
any dispute, offset, defense, counterclaim or contra.  Borrower
confirms to Lender that any and all taxes or fees relating to its business, its
sales, the Accounts or the goods relating thereto, are its sole responsibility
and that same will be paid by Borrower when due (unless duly contested and
adequately reserved for) and that none of said taxes or fees is or will become a
lien on or claim against the Accounts.

     

    6.21. Material
Contracts.  Schedule 6.21 sets
forth a true, correct and complete list of all the Material Contracts currently
in effect on the date hereof, including without limitation all documents
evidencing Indebtedness of Borrower.  None of the Material Contracts
contains provisions which have or could reasonably be expected to have a
Material Adverse Effect.  All of the Material Contracts are in full
force and effect, and no material defaults currently exist
thereunder.

     

    6.22. Accuracy and Completeness of
Information.  All factual information heretofore,
contemporaneously or hereafter furnished by or on behalf of Borrower in writing
to Lender for purposes of or in connection with this Agreement or any Loan
Documents, or any transaction contemplated hereby or thereby, is or will be true
and accurate in all material respects on the date as of which such information
is dated or certified and not incomplete by omitting to state any material fact
necessary to make such information not misleading at such time.  There
is no fact now known to any officer of Borrower which has, or would have, a
Material Adverse Effect which fact has not been set forth herein, in the
Financials, or any certificate, opinion or other written statement made or
furnished by Borrower to Lender.

     

    6.23. Solvency.  Both
before and after giving effect to the transactions contemplated under this
Agreement, Borrower is able to pay its respective debts as they become due, and
has capital sufficient to carry on its respective business and all businesses in
which it is about to engage, and now owns Property having a value both at fair
valuation and at present fair salable value greater than the amount required to
pay Borrower’s debts.  Borrower will not be rendered insolvent by
the

     

     

    
      
        
        

      

      
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    execution
and delivery of this Agreement or any of the other Loan Documents executed in
connection with this Agreement or by the transactions contemplated hereunder or
thereunder.

     

    6.24. Commercial Tort
Claims.  Borrower has no Commercial Tort Claims except as set
forth on Schedule
6.24 attached hereto and made a part hereof.

     

    6.25. Letter of Credit
Rights.  Borrower has no Letter of Credit Rights except as set
forth on Schedule
6.25 attached hereto and made a part hereof.

     

    6.26. Deposit
Accounts.  All Deposit Accounts of Borrower and each Depository
Institution are set forth on Schedule 6.26
attached hereto and made a part hereof.

     

    6.27. Anti-Terrorism
Law.

     

    (a) General.  Neither
Borrower nor any Affiliate of Borrower is in violation of any Anti-Terrorism Law
or engages in or conspires to engage in any transaction that evades or avoids,
or has the purpose of evading or avoiding, or attempts to violate, any of the
prohibitions set forth in any Anti-Terrorism Law.

     

    (b) Executive Order No.
13224 Neither Borrower nor any Affiliate of Borrower, or to Borrower’s
knowledge, any of their respective agents acting or benefiting in any capacity
in connection with the Loan or other transactions hereunder, is any of the
following (each a “Blocked Person”):

     

    (i) a Person
that is listed in the annex to, or is otherwise subject to the provisions of,
the Executive Order No. 13224;

     

    (ii) a Person
owned or controlled by, or acting for or on behalf of, any Person that is listed
in the annex to, or is otherwise subject to the provisions of, the Executive
Order No. 13224;

     

    (iii) a Person
with which Lender is prohibited from dealing or otherwise engaging in any
transaction by any Anti-Terrorism Law;

     

    (iv) a Person
that commits, threatens or conspires to commit or supports “terrorism” as
defined in the Executive Order No. 13224;

     

    (v) a Person
that is named as a “specially designated national” on the most current list
published by the U.S. Treasury Department Office of Foreign Asset Control at its
official website or any replacement website or other replacement official
publication of such list; or

     

    (vi) a Person
who is affiliated with a Person listed above.

     

    6.28. Survival of
Representations.  All representations made by Borrower in this
Agreement and in any other Loan Document shall survive the execution and
delivery hereof and thereof.

     

     

     

    
      
        
        

      

      
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    ARTICLE  VII      AFFIRMATIVE
COVENANTS

     

    Until termination of this Agreement and
the payment and satisfaction of all Obligations, Borrower covenants and agrees
as follows:

    

    7.1. Financial
Information.  Borrower will furnish to Lender the following
information within the following time periods:

     

    (a) within
120 days after the close of each fiscal year of Borrower, the consolidated and
consolidating audited balance sheets and statements of income and retained
earnings and of changes in cash flow of Borrower, for such year, each in
reasonable detail, each setting forth in comparative form the corresponding
figures for the preceding year, prepared in accordance with GAAP, and
accompanied by a report and unqualified opinion of an independent accountant
selected by Borrower and acceptable to Lender and concurrently with the delivery
of such financial statements, a consolidated and consolidating unaudited balance
sheet of Borrower for such year, in reasonable detail, setting forth in
comparative form the corresponding figures from the preceding year, prepared in
accordance with GAAP;

     

    (b) within 45
days after the end of each fiscal quarter of Borrower, consolidated and
consolidating unaudited Financial Statements and divisional operating income
analyses similar to those required by clause (a) above as of the end of such
period and for such period then ended and for the period from the beginning of
the current fiscal year to the end of such period, setting forth in comparative
form the corresponding figures for the comparable period in the preceding fiscal
year, prepared in accordance with GAAP (except that such quarterly statements
need not include footnotes) and certified by an Authorized Person described in
paragraph (d) below;

     

    (c) at the
time of submission of the quarterly Financial Statements (for the first three
fiscal quarters in any fiscal year) and the annual Financial Statement of
Borrower, a certificate executed by an Authorized Person, certifying that,
following a review of the Agreement, no Event of Default is outstanding and
demonstrating compliance with the financial covenants contained in Article VIII
by calculation thereof as of the end of each such fiscal quarter;
and

     

    (d) Such
other reports, certificates, schedules, documents, data or information
concerning Borrower’s finances and Property as Lender may reasonably request
from time to time.

     

    7.2. Existence.  Borrower
(a) will maintain its corporate existence, (b) will maintain in full force and
effect all material licenses, bonds, franchise, leases, trademarks and
qualifications to do business, (c) will obtain or maintain patents, contracts
and other rights necessary or desirable to the profitable conduct of its
business, (d) will continue in, and limit its operations to, the same general
lines of business as that presently conducted by it and (e) will comply with all
applicable laws, rules and regulations of any federal, state or local
Governmental Authority, except in the case of (b), (c) and (e) where
noncompliance could not reasonably be expected to have a Material Adverse
Effect.

     

    7.3. Environmental
Matters.  Borrower
will conduct its business so as to comply in all material respects with all
environmental laws, regulations, directions, ordinances, criteria and guidelines
in all jurisdictions in which any of them is or may at any time be doing
business including, without limitation, environmental land use, occupational
safety or health laws, regulations,

     

     

    
      
        
        

      

      
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    directions,
ordinances, criteria, guidelines, requirements or permits in all jurisdictions
in which it is or may at any time be doing business, except to the extent that
Borrower is contesting, in good faith by appropriate legal proceedings, any such
law, regulation, direction, ordinance, criteria, guideline, or interpretation
thereof or application thereof; provided, further, that Borrower will comply
with the order of any court or other governmental body of the applicable
jurisdiction relating to such laws unless Borrower shall currently be
prosecuting an appeal or proceedings for review and shall have secured a stay of
enforcement or execution or other arrangement postponing enforcement or
execution pending such appeal or proceedings for review.  If Borrower
shall (a) receive notice that any violation of any federal, state or local
environmental law, regulation, direction, ordinance, criteria or guideline may
have been committed or is about to be committed by Borrower, (b) receive notice
that any administrative or judicial complaint or order has been filed or is
about to be filed against Borrower alleging violations of any federal, state or
local environmental law, regulation, direction, ordinance, criteria or guideline
or requiring Borrower to take any action in connection with the release of toxic
or hazardous substances into the environment or (c) receive any notice from a
federal, state, or local governmental agency or private party alleging that
Borrower may be liable or responsible for costs associated with a response to or
cleanup of a release of a toxic or hazardous substance into the environment or
any damages caused thereby, Borrower will provide Lender with a copy of such
notice within 5 days after the receipt thereof.

     

    7.4. Books and
Records.  Borrower will maintain books and records pertaining
to the Collateral in such detail, form and scope as is consistent with good
business practice.  Borrower agrees that Lender or its agent may, upon
prior notice, enter upon the premises of Borrower, during normal business hours,
for the purpose of (a) enabling Lender’s auditors to conduct (at Borrower’s
expense) field examinations, (b) inspecting and verifying the Collateral,
(c) inspecting and/or copying (at Borrower’s expense) any and all records
pertaining thereto, and (d) discussing the affairs, finances and business of
Borrower or with any officers, employees and directors of Borrower or with
Borrower’s independent accountant.

     

    7.5. Collateral
Records.  Borrower will execute and deliver to Lender, from
time to time, solely for Lender’s convenience in maintaining a record of the
Collateral, such written statements and schedules as Lender may reasonably
require.

     

    7.6. Changes in
Locations.  Borrower agrees to afford Lender 30 days prior
written notice of any change in Borrower’s jurisdiction of organization or the
location of any Collateral (other than Inventory held for shipment by third
Persons, Inventory in transit, or Inventory held for processing by third
Persons) or in the location of its chief executive office or place of business.

     

    7.7. Insurance; Casualty
Loss.  Borrower will maintain public liability insurance, third
party property damage insurance and replacement value insurance on the
Collateral under such policies of insurance, with such insurance companies, in
such amounts and covering such risks as are at all times customary for
businesses of this type and satisfactory to Lender in its commercially
reasonable judgment.  All policies covering the Collateral are to name
Lender (or, during the term of the Intercreditor Agreement, Collateral Agent for
the benefit of P&S and Lender pursuant to the terms of the Intercreditor
Agreement) as an additional insured (as to liability coverage) and lender’s loss
payee (as to casualty and property coverage), as its interests may appear, and
are to contain such other provisions as Lender may reasonably require to fully
protect Lender’s interest in the Collateral and to any payments to be made under
such policies.  True copies of all original insurance
policies

     

     

    
      
        
        

      

      
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    or
certificates of insurance evidencing such insurance covering the Collateral are
to be delivered to Lender on or prior to the Closing Date, with such premiums
paid in accordance with each insurance carrier’s requirements with the lender’s
loss payable endorsement in favor of Lender (or, during the term of the
Intercreditor Agreement, in favor of Collateral Agent for the benefit of P&S
and Lender pursuant to the terms of the Intercreditor Agreement), and shall
provide for not less than 30 days prior written notice to Lender (or Collateral
Agent, if applicable), of the exercise of any right of
cancellation.  In the event Borrower fail to respond in a timely and
appropriate manner (as determined by Lender in its sole discretion) with respect
to collecting under any insurance policies required to be maintained hereunder,
Lender shall have the right, in the name of Lender or Borrower, to file claims
under such insurance policies, to receive and give acquittance for any payments
that may be payable thereunder, and to execute any and all endorsements,
receipts, releases, assignments, reassignments or other documents that may be
necessary to effect the collection, compromise or settlement of any claims under
any such insurance policies.  Borrower will provide written notice to
Lender of the occurrence of any of the following events within 5 Business Days
after the occurrence of such event: any Property owned or used by Borrower is
(i) materially damaged or destroyed, or suffers any other loss which is in
excess of $25,000 or (ii) is condemned, confiscated or otherwise taken, in
whole or in part, or the use thereof is otherwise diminished so as to render
impracticable or unreasonable the use of such asset or property for the purpose
to which such asset or property were used immediately prior to such
condemnation, confiscation or taking, by exercise of the powers of condemnation
or eminent domain or otherwise, and in either case the amount of the damage,
destruction, loss or diminution in value of the Collateral which is in excess of
$25,000 (collectively, a “Casualty Loss”).  Borrower will diligently
file and prosecute its claim or claims for any award or payment in connection
with a Casualty Loss.  In the event of a Casualty Loss, Borrower will
pay to Lender (or Collateral Agent, if applicable), promptly upon receipt
thereof, any and all insurance proceeds and payments received by Borrower on
account of damage, destruction or loss of all or any portion of the
Collateral.  Lender may, at its election and in its sole discretion,
and subject to the terms of the Intercreditor Agreement, either (a) apply
the proceeds realized from Casualty Losses to payment of accrued and unpaid
interest or outstanding principal of the Term Loan or (b) pay such proceeds to
Borrower to be used to repair, replace or rebuild the Property or portion
thereof that was the subject of the Casualty Loss.  After the
occurrence and during the continuance of an Event of Default, (i) no
settlement on account of any such Casualty Loss shall be made without the
consent of Lender and (ii) Lender may participate in any such proceedings and
Borrower will deliver to Lender such documents as may be requested by Lender to
permit such participation and will consult with Lender and its attorneys in the
making and prosecution of such claim or claims.  Borrower hereby
irrevocably authorizes and appoints Lender as its attorney-in-fact, to collect
and receive for any such award or payment and to file and prosecute such claim
or claims, which power of attorney shall be irrevocable and shall be deemed to
be coupled with an interest, and Borrower shall, upon demand of Lender, make,
execute and deliver any and all assignments and other instruments sufficient for
the purpose of assigning any such award or payment to Lender free and clear of
any encumbrances of any kind or nature whatsoever.

     

    7.8. Taxes.  Borrower
will pay, when due and in any event prior to delinquency, all Taxes lawfully
levied or assessed against Borrower or any of the Collateral; provided, however,
that unless such Taxes have become a federal tax or ERISA Lien on any of the
assets of Borrower, no such Tax need be paid if the same is being contested in
good faith, by appropriate proceedings promptly

     

     

     

    
      
        
        

      

      
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    instituted
and diligently conducted and if an adequate reserve or other appropriate
provision shall have been made therefore as required in order to be in
conformity with GAAP.

     

    7.9. Compliance With
Laws.  Borrower will comply with all acts, rules, regulations,
orders, directions and ordinances of any legislative, administrative or judicial
body or official applicable to the Collateral or any part thereof, and to the
operation of its business except where the failure to so comply could not
reasonably be expected to have a Material Adverse Effect.

     

    7.10. Fiscal Year.  Borrower
agrees that it will not change its fiscal year from a year ending December 31
unless required by law, in which case Borrower will give Lender at least 30 days
prior written notice thereof.

     

    7.11. Notification of Certain
Events.  Borrower
agrees that it will promptly notify Lender in writing of the occurrence of any
of the following events (but in no event shall such notice from Borrower be
received by Lender later than 5 Business Days after the occurrence of any such
event):

     

    (a) any
Material Contract of Borrower is terminated or amended in any material respect
or any new Material Contract is entered into (in which event Borrower shall
provide Lender with a copy of such Material Contract);

     

    (b) the
institution of any litigation, proceeding(s) or investigation against Borrower
in any federal, state, local or foreign court or before any commission or other
regulatory body (federal, state, local or foreign) in which a claim of at least
$25,000 or claims in the aggregate of $100,000 has been or is reasonably likely
to be asserted against Borrower;

     

    (c) any
notification of violation of any material law or regulation shall have been
received by Borrower from any local, state, federal or foreign Governmental
Authority or agency accompanied by a copy of any such notice;

     

    (d) any
breach, default or event of default under any of the P & S Credit Documents,
or delivery of notice of same from P & S, or termination of any of the P
& S Credit Documents;

     

    (e) prior to
the granting thereof, any Lien that Borrower proposes to create or permit to
exist in any of its Property, other than Permitted Liens; and

     

    (f) any
proposed change in any material respect to the operational systems,
organizational form, contracting practices or lines of business.

     

    7.12. Collection of
Accounts.  Subject to the terms of the Intercreditor Agreement,
unless an Event of Default is outstanding, Borrower may and will (subject to its
reasonable business discretion) enforce and collect all amounts owing on the
Accounts, for Lender’s benefit and on Lender’s behalf but at Borrower’s expense;
such privilege shall terminate at Lender’s option, without notice to Borrower,
which is hereby expressly waived by Borrower, upon the occurrence of any Event
of Default which has not otherwise been waived by Lender.  At Lender’s
request, before or after the occurrence of any Event of Default, any checks,
cash, notes or other instruments or property received by Borrower with respect
to any Accounts shall be held by Borrower in trust for

     

     

    
      
        
        

      

      
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    the
benefit of Lender, separate from Borrower’s own property and funds, and
immediately turned over to Lender with proper assignments or
endorsements.  Checks, drafts or other instruments received by Lender
shall not constitute final payment unless and until such instruments have
actually been collected.  Nothing contained in this Section 7.12 shall
be construed to limit or affect the provisions of Section 2.4(b) of this
Agreement.

     

    7.13. Trademarks.  Borrower
will do and cause to be done all things necessary (as determined in their
reasonable business judgment) to preserve and keep in full force and effect all
registrations of trademarks, service marks and other marks, trade names or other
trade rights.

     

    7.14. Maintenance of
Property.  Borrower
will keep all property useful and necessary to its business in good working
order and condition (ordinary wear and tear excepted) in accordance with its
past operating practices and not to commit or suffer any waste with respect to
any of its properties, except for properties which either individually or in the
aggregate are not material.

     

    7.15. Commercial Tort
Claims.   Borrower shall provide written notice to Lender
within 30 days of the date it shall arise any such Commercial Tort Claim to
which Borrower is or becomes a party or which otherwise inures to the benefit of
Borrower.  Such notice shall contain a sufficient description of the
Commercial Tort Claim including the parties, the court in which the claim was
commenced (if applicable), the docket number assigned to the case (if
applicable) and a detailed explanation of the events giving rise to such
claim.  Borrower shall grant Lender a security interest in such
Commercial Tort Claim to secure payment of the Obligations.  Borrower
shall execute and deliver such instruments, documents and agreements as Lender
may reasonably require in order to obtain and perfect such security interest
including, without limitation, a security agreement or amendment to this
Agreement all in form and substance satisfactory to Lender.  Borrower
authorize Lender to file (without Borrower’s signature), financing statements or
amendments to existing financing statements as Lender deems necessary to perfect
the security interest.

     

    7.16. Letter of Credit
Rights.  Borrower shall provide written notice to Lender within
30 days of the date it shall arise of any Letters of Credit for which Borrower
is the beneficiary.  Borrower shall execute and deliver such
instruments, documents and agreements and take such actions as Lender reasonably
may require in order to obtain and perfect its security interest in such Letter
of Credit Rights.

     

    ARTICLE  VIII       FINANCIAL
COVENANTS

     

    Until
termination of this Agreement and payment and satisfaction of all Obligations
due or to become due hereunder, Borrower further covenant and agree as
follows:

     

    8.1           Current
Ratio.  Borrower shall cause to be maintained on a consolidated
basis a ratio of current assets to current liabilities of not less than 1.2 to
1.

     

    8.2           Debt to Worth
Ratio.  Borrower shall cause to be maintained on a consolidated
basis a ratio of total Indebtedness (excluding the current portion of
Subordinated Debt) to Tangible Net Worth of not greater than 2.50 to
1.00.

     

     

    
      
        
        

      

      
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    ARTICLE  IX     NEGATIVE
COVENANTS

     

    Until
termination of this Agreement and payment and satisfaction of all Obligations,
Borrower agrees that, unless otherwise agreed in writing by Lender, it will
not:

     

    9.1. Liens.  Mortgage,
assign, pledge, transfer or otherwise permit any Lien of any kind to exist at
any time on any of its Property, except for Permitted Liens.

     

    9.2. Indebtedness.  Incur,
create or be liable for any Indebtedness other than Permitted
Indebtedness.

     

    9.3. Sale of
Assets.  Sell, lease, assign, transfer or otherwise dispose of
any Property other than (a) sales of Inventory in the ordinary course of
business, (b) sales or other dispositions in the ordinary course of business of
equipment that is obsolete or that is no longer used or useful in the conduct of
Borrower’s business, (c) sales in the ordinary course of business of Property
used in Borrower’s business that is worn out or in need of replacement and that
is replaced with Property of reasonably equivalent value or utility, and
(d) other sales of fixed assets, the net proceeds of which, shall not
exceed $100,000 in the aggregate in any fiscal year of Borrower.

     

    9.4. Organizational
Changes.  Acquire, merge, consolidate or enter into a joint
venture with any Person, alter or modify Borrower’s Articles or Certificate of
Incorporation; change Borrower’s jurisdiction of organization or formation;
without at least thirty (30) days’ prior written notice to Lender alter or
modify any legal names, mailing addresses, principal places of business; alter
or modify Borrower’s corporate structure, status or existence, or enter into or
engage in any business, operation or activity materially different from that
presently being conducted by Borrower.

     

    9.5. Guarantees. Except
for Permitted Indebtedness, assume, guarantee, endorse, or otherwise become
liable upon the obligations of any other Person, except by the endorsement of
negotiable instruments in the ordinary course of business.

     

    9.6. Investments.  Make any
Investment other than Permitted Investments.

     

    9.7. Affiliate
Transactions.  Except
as permitted by this Agreement, enter into any transaction with, including,
without limitation, the purchase, sale or exchange of property or the rendering
of any service to an Affiliate of Borrower except in the ordinary course of and
pursuant to the reasonable requirements of Borrower’s business and upon fair and
reasonable terms no less favorable to Borrower than could be obtained in a
comparable arm’s-length transaction with an unaffiliated Person.

     

    9.8. Third Party
Loans.  Make any Third Party Loan.

     

    9.9. Issuance of
Stock.  Without not less than fifteen (15) days prior written
notice to Lender, issue or distribute any Capital Stock or other securities for
consideration or otherwise.

     

    9.10. Amendments of Material
Contracts.  Amend, modify, cancel or terminate or permit the
amendment, modification, cancellation or termination of any of the P & S
Credit Documents or any other Material Contract.

     

     

    
      
        
        

      

      
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    9.11. Subordinated
Debt.  Effect
or permit any change in or amendment to any document or instrument pertaining to
the subordination, terms of payment or other terms or provisions of any
Subordinated Debt, give any notice of optional redemption or optional prepayment
or offer to repurchase under any such document or instrument, or, directly or
indirectly, make any payment of principal of or interest on or in redemption,
retirement or repurchase of any Subordinated Debt.

     

    9.12. Licenses, Etc.  Enter
into licenses of, or otherwise restrict the use of, any patents, trademarks or
copyrights which would prevent Borrower from selling, transferring, encumbering
or otherwise disposing of any such patent, trademark or copyright.

     

    9.13. Anti-Terrorism
Laws.  Borrower
and its agents shall not knowingly (i) conduct any business or engage in any
transaction or dealing with any Blocked Person, including making or receiving
any contribution of funds, goods or services to or for the benefit of any
Blocked Person, (ii) deal in, or otherwise engage in any transaction relating
to, any property or interests in property blocked pursuant to the Executive
Order No. 13224; or (iii) engage in or conspire to engage in any transaction
that evades or avoids, or has the purpose of evading or avoiding, or attempts to
violate, any of the prohibitions set forth in the Executive Order No. 13224 or
the USA Patriot Act.  Borrower shall deliver to Lender any
certification or other evidence reasonably requested from time to time by Lender
in its sole discretion, confirming Borrower’s compliance with this Section
9.13.

     

    9.14. Amendments to P & S
Credit Documents.  Amend, modify or waive any provisions of any
of the P & S Credit Documents

     

    ARTICLE  X     APPOINTMENT
AS ATTORNEY-IN-FACT

     

    Borrower hereby irrevocably authorizes
and appoints Lender, or any Person as Lender may designate, as Borrower’s
attorney-in-fact, at Borrower’s cost and expense, to exercise all of the
following powers upon the occurrence of an Event of Default, which being coupled
with an interest, shall be irrevocable until all of the Obligations to Lender
have been paid and satisfied in full:

    

    10.1.           To
receive, take, endorse, sign, assign and deliver, all in the name of Lender or
Borrower, as the case may be, any and all checks, notes, drafts, and other
documents or instruments relating to the Collateral and to apply such amount to
the Obligations in accordance with this Agreement;

    

    10.2.           To
receive, open and dispose of all mail addressed to Borrower in connection with a
Lockbox and upon the occurrence of an Event of Default to notify postal
authorities to change the address for delivery thereof to such address as Lender
may designate;

    

    10.3.           To
request periodically from customers indebted on Accounts, in the name of
Borrower or a third party designee of Lender, information concerning the
Accounts and the amounts owing thereon;

    

    10.4.           To
give customers indebted on Accounts notice of Lender’s interest therein, and/or
to instruct such customers to make payment directly to Lender for Borrower’s
account;

     

     

     

    
      
        
        

      

      
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    10.5.           To
take or bring, in the name of Lender or Borrower, all steps, actions, suits or
proceedings deemed by Lender necessary or desirable to enforce or effect
collection of the Accounts; 

    

    10.6           To
file financing statements in any office deemed appropriate by Lender for such
purpose and execute, file, record and register any or all of Lender’s security
interest in any intellectual property of Borrower with the United States Patent
and Trademark Office; and

    

    10.7.           To
do all other acts and things as Lender may deem reasonable to protect or
preserve Lender’s interest under this Agreement or to fulfill Borrower’s
obligations under this Agreement.

    

    ARTICLE  XI     EVENTS
OF DEFAULT AND REMEDIES

     

    11.1. Events of
Default.  The occurrence of any of the following events shall
constitute an “Event of Default” hereunder:

     

    (a) failure
of Borrower to pay (i) any interest or fees when due hereunder, in each case
whether at stated maturity, by acceleration, or otherwise, (ii) any principal
outstanding under the Term Loan when due, whether at stated maturity, by
acceleration or otherwise or (iii) any Expenses hereunder within 5 Business Days
after receipt by Borrower from Lender or any applicable Lender of notice that
such Expenses are payable;

     

    (b) any
representation or warranty, contained in this Agreement, the other Loan
Documents or any other agreement, document, instrument or certificate between
Borrower and Lender or executed by Borrower in favor of Lender shall prove
untrue in any material respect on or as of the date it was made or was deemed to
have been made;

     

    (c) failure
of Borrower to perform, comply with or observe any term, covenant or agreement
applicable to it contained in Article IX, or Sections 7.1, 7.2, 7.6, 7.7, 7.8,
7.11, 7.15,  7.16, or 13.6;

     

    (d) failure
of Borrower to comply with any other covenant or agreement contained in this
Agreement, the other Loan Documents or any other agreement, document, instrument
or certificate between Borrower and Lender or executed by Borrower in favor of
Lender, including, without limitation, the Distribution Agreement, and, in the
event such breach or failure to comply is capable of cure, such breach or
failure to comply is not cured within 10 days of its occurrence;

     

    (e) dissolution,
liquidation, winding up or cessation of the business (or any material portion of
the business) of Borrower, or the failure of Borrower to meet its debts
generally as they mature, or the calling of a meeting of Borrower’s creditors
for purposes of compromising Borrower’s debts;

     

    (f) the
commencement by or against Borrower of any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceedings with respect to it under any
federal or state law and, in the event any such proceeding is commenced against
Borrower, such proceeding is not dismissed within 60 days;

     

     

     

    
      
        
        

      

      
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    (g) the
occurrence of a default or event of default (in each case which shall continue
beyond the expiration of any applicable grace periods) under, or the occurrence
of any event that results in or would permit the acceleration of the maturity of
any of the obligations under, any of the P & S Credit
Documents;

     

    (h) the
occurrence of a default or event of default (in each case which shall continue
beyond the expiration of any applicable grace periods) under, or the occurrence
of any event that results in or would permit the acceleration of the maturity of
any note, agreement or instrument evidencing (i) any Subordinated Debt or
(ii) any other Indebtedness of Borrower and the aggregate principal amount of
all such Indebtedness with respect to which a default or an event of default has
occurred, or the maturity of which is accelerated or permitted to be
accelerated, exceeds $100,000;

     

    (i) any party
(other than Lender) to any Loan Document shall deny or disaffirm its obligations
under any of the Loan Documents, or an Event of Default shall have occurred or a
Default shall occurred and not been cured within any contractual cure period
under any other Loan Document, or any Loan Document shall be canceled,
terminated, revoked or rescinded without the express prior written consent of
Lender, or any action or proceeding shall have been commenced by any Person
(other than Lender) seeking to invalidate, declare unenforceable, cancel,
revoke, rescind or disaffirm the obligations of any party to any Loan
Document;

     

    (j) (i) any
holder of Subordinated Debt alleges (or any Governmental Authority with
applicable jurisdiction determines) that the Subordinated Debt is not
subordinated to any of the Obligations or (ii) the subordination provisions in
any agreement relating to Subordinated Debt shall, in whole or in part,
terminate, cease to be effective or cease to be legally valid, binding and
enforceable as to any holder of the Subordinated Debt;

     

    (k) one or
more judgments or decrees shall be entered against Borrower involving a
liability of $25,000 or more individually or in the aggregate (to the extent not
paid or covered by insurance (i) provided by a carrier who has acknowledged
coverage and has the ability to perform or (ii) as determined by Lender in
its sole discretion) and any such judgments or decrees shall not have been
vacated, satisfied, discharged or stayed or bonded pending appeal within 30 days
from the entry thereof;

     

    (l) a
Material Adverse Change occurs;

     

    (m) both of
the following shall occur:  (i) the Kamrat Family shall cease to hold
in the aggregate, at least twenty-five percent (25%) of the issued and
outstanding Capital Stock and Voting Stock of Borrower, and (ii) the Kamrat
Family and P&S shall cease to hold, in the aggregate, at least fifty percent
(50%) of the issued and outstanding Capital Stock and Voting Stock of Borrower;
or

     

    (n) Borrower
is indicted or convicted of the commission of a crime or any proceeding of any
kind is pending or threatened which would reasonably be likely to result in the
forfeiture of any material portion of the Property of Borrower to any
Governmental Authority.

     

     

     

    
      
        
        

      

      
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    11.2. Rights and Remedies upon a
Default or an Event of Default.

     

    (a) Upon the
occurrence of any Event of Default, any obligation of Lender to make Advances
under the Term Loan shall immediately terminate and Lender may take any or all
of the following actions: declare all Obligations to be immediately due and
payable (except with respect to any Event of Default set forth in Section 11.1(f) in
which case all Obligations shall automatically become immediately due and
payable without the necessity of any action, decision, notice or demand) without
presentment, demand, protest or any other action or obligation of
Lender.

     

    (b) Upon
acceleration of the Obligations, Lender may at any time, and from time to time,
take any and all such action as Lender may elect to enforce any and all rights
and interests created and existing under the Loan Documents, or arising under
applicable law, including without limitation, all rights and remedies existing
under the Security Documents, all rights of setoff and the following rights (the
enumeration of any such rights not intended to be exhaustive and the exercise of
any right shall not preclude the exercise of any other rights):

     

    (i) The right
to take possession of, send notices regarding and collect directly the
Collateral, with or without judicial process (including, without limitation, the
right to notify the United States postal authorities to redirect mail addressed
to Borrower or to an address designated by Lender);or

     

    (ii) By its
own means or with judicial assistance, enter any or all of Borrower’s premises
and take possession of the Collateral, or render it unusable, or dispose of the
Collateral on such premises, without any liability to Borrower for rent,
storage, utilities or other sums, and Borrower shall not resist or interfere
with such action; or

     

    (iii) Require
Borrower at Borrower’s expense to assemble all or any part of the Collateral and
make it available to Lender at any place designated by Lender.

     

    (c) Borrower
agrees that a notice received by it at least 10 days before the time of any
intended public sale or of the time, after which any private sale or other
disposition of the 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 Inventory or other Collateral which threatens to speedily
decline in value or which is sold on a recognized market may be sold immediately
by Lender without prior notice to Borrower.  Borrower covenants and
agrees not to interfere with or impose any obstacle to Lender’s exercise of its
rights and remedies hereunder with respect to the Collateral.  Lender
shall have no obligation to clean up or prepare the Collateral for sale except
as is required by applicable law.  If Lender sells any of the
Collateral upon credit, Borrower will only be credited with payments actually
made by the purchaser that are received by Lender and applied to the
Obligations.  Lender may in connection with any sale of the Collateral
specifically disclaim any warranties of title or the like.

     

    11.3. Nature of
Remedies.  All rights and remedies granted Lender hereunder and
under the other Loan Documents, or otherwise available at law or in equity,
shall be deemed concurrent and cumulative, and not alternative remedies, and
Lender may proceed with any number of remedies at the same time or at different
times until all Obligations are satisfied in full.  The exercise of
any one right or remedy shall not be deemed a waiver or release of any other
right or remedy, and

     

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

     

    Lender,
upon or at any time after the occurrence of an Event of Default, may proceed
against Borrower, any Guarantor, or their Property at any time, under any
agreement, with any available remedy and in any order.  Nothing
contained in this Agreement or the other Loan Documents shall be deemed to
compel Lender at any time to accept a cure of any Event of Default
hereunder.  In no event shall prior recourse to any Collateral be a
prerequisite to Lender’s right to demand payment of any Obligation from Borrower
or any Guarantor upon the occurrence and during the continuance of any Event of
Default.

     

    11.4. Application of
Proceeds.  The proceeds from the sale or disposition of any
Collateral shall be applied first to Expenses incurred by Lender and then to the
Obligations that are then due and payable, in such order or manner as Lender may
determine in its sole discretion.

     

    ARTICLE  XII     TERMINATION

     

    The
unpaid principal balance of the Term Loan, all accrued and unpaid interest
thereon, and any other amounts due hereunder shall automatically become due and
payable in full on the Maturity Date.  All of Lender’s rights, liens
and security interests in and to Borrower’s Property shall continue after any
termination until (a) all Obligations have been indefeasibly paid and satisfied
in full unless otherwise prohibited under any applicable federal or state law,
(b) Lender shall have received a written agreement (in form and substance
acceptable to Lender in its sole discretion) executed by Borrower and by a
Person whose loans or advances to Borrower are used in whole or in part to
satisfy the Obligations, indemnifying Lender from any loss or damage, or (c)
Lender shall have retained such monetary reserves necessary to pay in full all
Obligations for such period of time, in its sole discretion.

     

    ARTICLE  XIII      MISCELLANEOUS

     

    13.1. Waivers.  Except as is
otherwise provided herein, Borrower hereby waive due diligence, demand,
presentment and protest and any notices thereof as well as notice of
nonpayment.  No delay or omission of Lender to exercise any right or
remedy hereunder, whether before or after the happening of any Event of Default,
shall impair any such right or shall operate as a waiver thereof or as a waiver
of any such Event of Default.  No single or partial exercise by Lender
of any right or remedy shall preclude any other or further exercise thereof, or
preclude any other right or remedy.

     

    13.2. JURY TRIAL.  TO THE EXTENT
ANY DISPUTE IS NOT SUBJECT TO ARBITRATION, LENDER AND BORROWER EACH HEREBY
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF
THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY OTHER AGREEMENTS OR TRANSACTIONS
RELATED HERETO OR THERETO.

     

    13.3. GOVERNING LAW; SUBMISSION TO
JURISDICTION; VENUE

     

    (a) THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND THEREUNDER, AND ALL MATTERS ARISING HEREUNDER OR
THEREUNDER OR RELATED HERETO OR THERETO, SHALL BE GOVERNED BY AND

     

     

    
      
        
        

      

      
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    CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.  Any legal action or proceeding with respect to this Agreement
or any other Loan Document shall be brought in the courts of the State of New
York or of the United States District Court for the Southern District of New
York, and, by execution and delivery of this Agreement,  Borrower, and
Lender hereby irrevocably accept for themselves and in respect of their
property, generally and unconditionally, the nonexclusive jurisdiction of such
courts.  Borrower further irrevocably consents to the service of
process out of any of the aforementioned courts in any such action or proceeding
by the mailing of copies thereof by registered or certified mail return receipt
requested, postage prepaid, or by nationally recognized overnight courier to it
at the address set out for notices pursuant to Section 13.4, such
service to become effective 3 days (or 1 day if sent by such courier) after such
mailing.  Nothing herein shall affect the right of any party hereto to
serve process in any other manner permitted by law or to commence legal
proceedings or to otherwise proceed against a party hereto in any other
jurisdiction.

     

    (b) Borrower
hereby irrevocably waives any objection which it may now or hereafter have to
the laying of venue of any of the aforesaid actions or proceedings arising out
of or in connection with this Agreement or any other Loan Document brought in
the courts referred to in subsection (a) above and hereby further irrevocably
waives and agrees not to plead or claim in any such court that any such action
or proceeding brought in any such court has been brought in an inconvenient
forum.

     

    13.4. Notices.  Except
as otherwise provided herein, all notices and correspondences hereunder shall be
in writing and sent by certified or registered mail return receipt requested, by
overnight delivery service, with all charges prepaid, or by facsimile (with
transmission certification), if to Lender or Borrower to the addresses or by
facsimile transmission set forth on the signature hereto.  All such
notices and correspondence shall be deemed given (i) if sent by certified or
registered mail, 3 Business Days after being postmarked, (ii) if sent by
overnight delivery service, when received at the above stated addresses or when
delivery is refused and (iii) if sent by facsimile transmission, when receipt of
such transmission is acknowledged; provided that all notices to Lender shall not
be effective until actually received.

     

    13.5. Assignability.  Borrower
shall not have the right to assign or delegate their obligations and duties
under this Agreement or any other Loan Documents or any interest therein except
with the prior written consent of Lender.

     

    13.6. Payment of
Expenses.  Borrower agrees to: (a) pay on demand all
out-of-pocket costs and expenses (whether paid or incurred) of Lender in
connection with (i) the negotiation, preparation, execution and delivery and, to
the extent customarily charged to its customers, administration of this
Agreement and the other Loan Documents and the documents and instruments
referred to therein (including, without limitation, the reasonable fees and
expenses of counsel to Lender); (ii) searches, title examinations, filings and
recordings (including, without limitation, all stamp or recording taxes or
charges), and all other actions pertaining to the Collateral; (iii) any
amendment, waiver or consent relating hereto and thereto including, without
limitation, any such amendments, waivers or consents resulting from or related
to any work-out, re-negotiation or restructure relating to the performance by
Borrower under this Agreement; and (iv) the defense of all claims, cross-claims
or counterclaims asserted at any time by Borrower or any other Person
in

     

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

     

    connection
with the rights, claims, liens and/or interests of Lender under this Agreement
or the other Loan Documents or the Term Loan and (b) upon demand, pay to Lender
all costs and expenses (including the reasonable fees and disbursements of
counsel and other professionals) paid or incurred by Lender in (i) enforcing,
protecting, preserving or defending its rights under or in respect of this
Agreement, the other Loan Documents or any other document or instrument now or
hereafter executed and delivered in connection herewith; (ii) in collecting
the Obligations following the occurrence of an Event of Default; (iii) in
foreclosing or otherwise collecting upon the Collateral or any part thereof; and
(iv) obtaining any legal, accounting or other advice in connection with any
of the foregoing.  Borrower’s obligations under this Section 13.6 shall
survive any termination of this Agreement and the other Loan Documents and the
payment in full of the Obligations, and are in addition to, and not in
substitution of, any other of their Obligations set forth in this
Agreement.  All such costs and expenses described in this Section 13.6 are
referred to collectively as “Expenses.”

     

    13.7. Indemnification.  Borrower
shall indemnify, defend and hold harmless Lender, its  directors,
officers, members, managers, representatives, agents, employees, accountants,
counsel, successors and assigns, and their respective Affiliates  from
and against (a) any and all losses, claims, damages, liabilities,
deficiencies, judgments or expenses incurred by any of them (except to the
extent that it is finally judicially determined to have resulted from their own
gross negligence or willful misconduct) arising out of or by reason of any
litigation, investigation, claim or proceeding which arises out of or is in any
way related to (i) this Agreement, the other Loan Documents, the Collateral or
the transactions contemplated thereby, (ii) any actual or proposed use by
Borrower of the proceeds of the Term Loan, (iii) Lender entering into,
performing under or enforcing this Agreement, the other Loan Documents or any
other agreements and documents relating hereto, including, without limitation,
amounts paid in settlement, court costs and the fees and disbursements of
counsel incurred in connection with any such litigation, investigation, claim or
proceeding or any advice rendered in connection with any of the foregoing, or
(iv) the breach by Borrower of any warranty, undertaking or covenant made
at any time hereunder or under any other Loan Document and (b) any such losses,
claims, damages, liabilities, deficiencies, judgments or expenses incurred in
connection with any remedial or other action taken by Borrower or Lender in
connection with compliance by Borrower with any federal, state or local
environmental laws, acts, rules, regulations, orders, directions, ordinances,
criteria or guidelines.  If and to the extent that the obligations of
Borrower hereunder are unenforceable for any reason, Borrower hereby agrees to
make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.  Borrower’s
obligations under this Section 13.7 shall
survive any termination of this Agreement and the other Loan Documents and the
payment in full of the Obligations, and are in addition to, and not in
substitution of, any other of their Obligations set forth in this
Agreement.

     

    13.8. Entire Agreement, Successors
and Assigns.  This
Agreement along with the other Loan Documents constitutes the entire agreement
between Borrower and Lender regarding the subject matter hereof, supersedes any
prior agreements among them, and shall bind and benefit Borrower and Lender and
their respective successors and permitted assigns.  No rights are
intended to be created hereunder or under any other Loan Documents for the
benefit of any Person not a signatory hereto or thereto.

     

     

    
      
        
        

      

      
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    13.9. Amendments.  Neither
the amendment or waiver of any provision of this Agreement or any other Loan
Document, nor the consent to any departure by Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed by Lender and
each such amendment, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.

     

    13.10. Non-Agency of
Lender.  The relationship between Borrower on the one hand and
Lender on the other hand shall be solely that of Borrower and
Lender.  Lender shall not have any fiduciary responsibilities to
Borrower or be deemed to have entered into any partnership or joint venture with
Borrower.  Lender shall not undertake any responsibility to Borrower
to review, evaluate or inform Borrower of any matter in connection with any
phase of Borrower’s business or operations.

     

    13.11. Counterparts.  This
Agreement may be executed in any number of counterparts and by the different
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all of which shall together constitute one
and the same instrument.  Signature by facsimile shall bind the
parties hereto.

     

    13.12. Effectiveness.  This
Agreement shall become effective on the date on which all of the conditions to
effectiveness contained herein have been satisfied (as determined by Lender in
its sole discretion) and all of the parties have signed a copy hereof (whether
the same or different copies) and Lender shall have received executed originals
of this Agreement and the other Loan Documents.

     

    13.13. Severability.  In case
any provision in or obligation under this Agreement or the Note or the other
Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.

     

    13.14. Headings
Descriptive.  The headings of the several sections and
subsections of this Agreement, and the Table of Contents, are inserted for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Agreement.

     

    13.15. Maximum
Rate.  Notwithstanding anything to the contrary contained
elsewhere in this Agreement or in any other Loan Document, Borrower and Lender
hereby agree that all agreements among them under this Agreement and the other
Loan Documents, whether now existing or hereafter arising and whether written or
oral, are expressly limited so that in no contingency or event whatsoever shall
the amount paid, or agreed to be paid, to Lender  for the use,
forbearance, or detention of the money loaned to Borrower and evidenced hereby
or thereby or for the performance or payment of any covenant or obligation
contained herein or therein, exceed the Highest Lawful Rate. If due to any
circumstance whatsoever, fulfillment of any provisions of this Agreement or any
of the other Loan Documents at the time performance of such provision shall be
due shall exceed the Highest Lawful Rate, then, automatically, the obligation to
be fulfilled shall be modified or reduced to the extent necessary to limit such
interest to the Highest Lawful Rate, and if from any such circumstance any
Lender should ever receive anything of value deemed interest by applicable law
which would exceed the Highest Lawful Rate, such excessive interest shall be
applied (as determined by Lender) to the reduction of the principal amount then
outstanding hereunder or

     

     

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

     

    on
account of any other then outstanding Obligations and not to the payment of
interest, or if such excessive interest exceeds the principal unpaid balance
then outstanding hereunder and such other then outstanding Obligations, such
excess shall be refunded to Borrower.  All sums paid or agreed to be
paid to Lender for the use, forbearance, or detention of the Obligations and
other indebtedness of Borrower to Lender shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the full
term of such indebtedness until payment in full so that the actual rate of
interest on account of all such indebtedness does not exceed the Highest Lawful
Rate throughout the entire term of such indebtedness.  The terms and
provisions of this Section shall control every other provision of this Agreement
and all agreements between Borrower and Lender.

     

    13.16. Senior Debt.

     

    (a) The
Obligations constitute senior secured obligations of Borrower, which are and
shall be senior to all other obligations of Borrower except as expressly agreed
to in writing by Lender.

     

    (b) The Liens
created by this Agreement and the other Loan Documents on Collateral securing
the Obligations under the Term Loan shall be pari passu with all other senior,
secured obligations of Borrower.

     

    13.17. Information. 
At
Borrower’s written request, Lender agrees to keep confidential any information
furnished or made available to it by Borrower pursuant to this Agreement;
provided that nothing herein shall prevent Lender from disclosing such
information (a) to any other Person if reasonably incidental to the
administration of the credit facility provided herein, (b) as required by
any law, rule, or regulation, (c) upon the order of any court or
administrative agency; provided, however, if allowed by applicable law, rule,
regulation or order, Lender shall use commercially reasonable efforts to notify
Borrower of such order to allow Borrower to seek court relief to block or limit
such disclosure, (d) upon the request or demand of any regulatory agency or
authority; provided, however, if allowed by applicable law, rule, regulation or
order, Lender shall use commercially reasonable efforts to notify Borrower of
such order to allow Borrower to seek court relief to block or limit such
disclosure, (e) that is or becomes available to the public or that is or
becomes available to Lender other than as a result of a disclosure by Lender
prohibited by this Agreement, (f) in connection with any litigation to
which Lender or any of its Affiliates may be a party relating to this Agreement
or the transactions contemplated hereunder, (g) to the extent necessary in
connection with the exercise of any remedy under this Agreement or any other
Loan Document, and (h) any information with respect to the U.S. federal income
tax treatment and U.S. federal income tax structure of the transactions
contemplated hereby and all materials of any kind (including opinions or other
tax analyses) that are provided to Lender relating to such tax treatment and tax
structure.
b

     

    13.18. SPECIAL OREGON
NOTICE:

     

    (a) UNDER
OREGON LAW ORAL AGREEMENTS OR ORAL COMMITMENTS TO (1) LOAN MONEY, (2) EXTEND
CREDIT, (3) MODIFY OR AMEND ANY TERMS OF LOAN DOCUMENTS, (4) RELEASE ANY
GUARANTOR, (5) FOREBEAR FROM ENFORCING REPAYMENT OF ANY LOAN OR THE EXERCISE OF
ANY REMEDY

     

     

    
      
        
        

      

      
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    UNDER
LOAN DOCUMENTS, OR (6) MAKE ANY OTHER FINANCIAL ACCOMMODATION PERTAINING TO ANY
LOAN ARE ALL UNENFORCEABLE.

     

    

    [REMAINDER
OF PAGE LEFT INTENTIONALLY BLANK]

     

     

     

     

     

     

     

     

    

    37

    
 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Dated the
date and year first written above.

     

    
      	
              BORROWER:

            	
              NEW
      WORLD BRANDS, INC.

               

              By:           __________________________________

              Name:      __________________________________

              Title:        __________________________________

              340
      W. 5th
      Avenue

              Eugene,
      Oregon  97401

               

               

            
	
              LENDER:

            	
              TELES
      AG INFORMATIONSTECHNOLOGIEN

               

              By:           __________________________________

              Name:      __________________________________

              Title:        __________________________________

              Ernst-Reuter-Platz
      8

              D-10587

              Berlin,
      Germany

            

    

     

     

     

     

     

    [SIGNATURE PAGE
TO LOAN AND SECURITY AGREEMENT]kl02080_ex10-2.htm

    
      

    

     

    Exhibit 10.2

     

     

     

     

    
 

    

    

    

    

    ____________________________________________________________________

    

    

    INTERCREDITOR
AGREEMENT

     

    among

    

    NEW WORLD
BRANDS, INC.

    P & S
SPIRIT, LLC, and

    TELES AG
Informationstechnologien

     

    ________________________________

     

    Dated
February 15, 2008

    ________________________________

    

    

    ____________________________________________________________________

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    TABLE OF
CONTENTS

    

    ARTICLE I
DEFINITIONS....................................................................................................................................................................................................................................2

    1.1           Defined
Terms................................................................................................................................................................................................................................2   

     

    ARTICLE
II INTERCREDITOR
PROVISIONS...................................................................................................................................................................................................7

    2.1           Standstill ........................................................................................................................................................................................................................................
7

    2.2           Prohibition on Contesting
Liens..................................................................................................................................................................................................8

    2.3           Amendments to Loan
Documents...............................................................................................................................................................................................8

    2.4           Certain General Intercreditor
Matters..........................................................................................................................................................................................8 

    2.5           Prohibition on Certain
Advances.................................................................................................................................................................................................9 

    2.6           Certain
Notices................................................................................................................................................................................................................................9

     

    ARTICLE
III INSOLVENCY OR
LIQUIDATION..............................................................................................................................................................................................11 

     

    ARTICLE
IV RIGHTS AND REMEDIES OF SECURED
CREDITORS...........................................................................................................................................................11

    4.1           General Relation to Security
Documents...................................................................................................................................................................................11

    4.2           Power of
Attorney.........................................................................................................................................................................................................................11 

    4.3           Certain Rights After Event of
Default........................................................................................................................................................................................11

    4.4           Right to Initiate Judicial
Proceedings.........................................................................................................................................................................................12

    4.5           Right to Appoint a
Receiver........................................................................................................................................................................................................12

    4.6           Remedies Not Exclusive,
etc........................................................................................................................................................................................................12

    4.7           Certain
Waivers.............................................................................................................................................................................................................................13 

    4.8           No New
Liens.................................................................................................................................................................................................................................14 

    4.9           Fees, Taxes,
etc..............................................................................................................................................................................................................................14

    4.10         Maintenance of Liens and Further
Assurances.......................................................................................................................................................................14 

     

    ARTICLE
V
DISTRIBUTIONS............................................................................................................................................................................................................................15 

    5.1           Lockbox
Account..........................................................................................................................................................................................................................15

    5.2           Deposits..........................................................................................................................................................................................................................................15

    5.3           Distributions Before an Event of
Default...................................................................................................................................................................................15

    5.4           Directive After an Event of
Default............................................................................................................................................................................................15 

    5.5           Distributions After an Event of
Default.....................................................................................................................................................................................15 

    5.6           Calculations....................................................................................................................................................................................................................................16 

    5.7           Application of
Monies..................................................................................................................................................................................................................16 

    5.8           Collateral
Agency..........................................................................................................................................................................................................................17 

    5.9           No
Warranties................................................................................................................................................................................................................................17 

     

    ARTICLE
VI
[RESERVED]....................................................................................................................................................................................................................................18 

     

    ARTICLE
VII
MISCELLANEOUS.......................................................................................................................................................................................................................18 

    7.1           Amendments, Supplements and
Waivers..................................................................................................................................................................................18

    7.2           Notices.............................................................................................................................................................................................................................................18 

    7.3           No Implied Waiver; Cumulative
Remedies.................................................................................................................................................................................18

    7.4           Severability......................................................................................................................................................................................................................................19 

    7.5           Prior
Understandings.....................................................................................................................................................................................................................19 

    7.6           No
Partnership................................................................................................................................................................................................................................19

    7.7           Survival............................................................................................................................................................................................................................................19 

    7.8           Counterparts...................................................................................................................................................................................................................................19

    7.9           Termination of
Liens......................................................................................................................................................................................................................19

    7.10          Independent Credit
Investigation..............................................................................................................................................................................................
20

    7.11          Successors and
Assigns..............................................................................................................................................................................................................20 

    7.12          Governing
Law...............................................................................................................................................................................................................................20 

    7.13          Waiver of Right to Trial by
Jury..................................................................................................................................................................................................21

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    INTERCREDITOR
AGREEMENT

     

    THIS INTERCREDITOR AGREEMENT, dated
February 15, 2008, and entered into by and among TELES AG
Informationstechnologien, having an address at Ernst-Reuter-Platz 8,
10587 Berlin, Germany  (herein, “Teles”), P&S SPIRIT, LLC, a Nevada
limited liability company having its principal office at 2700 Lighthouse Point
East, Suite 626, Baltimore, MD 21224 (herein “P&S”),
and NEW WORLD BRANDS,
INC., a Delaware
corporation having its principal place of business at 340 West Fifth Avenue,
Eugene, OR 97401 (“NWB”
or “Borrower”).

    

    BACKGROUND

     

    A. P&S
and NWB entered into that certain Credit Line and Security Agreement dated May
30, 2007 (as amended, restated, modified, extended, renewed, replaced,
supple­mented, restructured and/or refinanced from time to time, the “Credit
Agreement”), providing for the making of revolving credit loans (“Revolving
Credit Loans”) to NWB, not to exceed at any time the principal amount of
One Million Fifty Thousand Dollars ($1,050,000.00), as contemplated
therein.

     

    B. TELES and
NWB have entered into that certain Term Loan and Security Agreement, dated as of
the date hereof (as amended, restated, modified, extended, renewed, replaced,
supple­mented, restructured and/or refinanced from time to time, the “Teles
Agreement”), pursuant to which Teles may extend term loan advances on a
non-revolving basis to NWB in an aggregate principal amount not to exceed One
Million Dollars ($1,000,000.00) which loan advances will convert to a single
term loan (said advances and the term loan together referred to herein as the
“Term
Loan”).  Teles and NWB have also entered into a revolving
Inventory Credit Line in the initial amount of Two Hundred Thousand Dollars
($200,000.00), subject to increase to an amount not to exceed Five Hundred
Thousand Dollars ($500,000.00) under certain circumstances, established under
the Share Sale and Purchase Agreement by and between Teles and NWB (the “Inventory
Credit Line”).  Credit purchases from Teles under the Inventory
Credit Line are secured by the Teles Inventory, as hereinafter
defined.

     

    C. It is a
condition precedent to the Teles Agreement that each party hereto shall have
executed and delivered this Agreement.

     

    D. NWB will
obtain benefits from the Revolving Credit Loans, the Teles Loan and the
Inventory Line and, accordingly, NWB desires to join into this Agreement to
satisfy the condi­tion precedent described in the preceding
paragraph.

     

    E. In order
to induce the Secured Creditors to consent to the incurring of the various
Secured Obligations and to induce the Secured Creditors to extend credit and
other financial accommodations and lend monies to or for the benefit of NWB, the
Secured Creditors have agreed to the provisions set forth in this
Agreement.

     

    NOW,
THEREFORE, in consideration of the foregoing, the mutual covenants and
obligations herein set forth and for other good and valuable consideration, the
sufficiency and

     

     

     

    
      
        
        

      

      
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    receipt
of which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:

     

    ARTICLE
I

    DEFINITIONS

     

    1.1 Defined
Terms.

     

    (a) Unless
otherwise defined herein, all capitalized terms used herein and defined in the
UCC shall be used herein as therein defined.  Reference to singular
terms shall include the plural and vice versa.  The following
capitalized terms used herein shall have the definitions specified
below:

     

    “Agreement”
means this Intercreditor Agreement, as amended, renewed, extended, supplemented
or otherwise modified from time to time in accordance with the terms
hereof.

     

    “Bankruptcy
Code” means Title 11 of the United States Code entitled “Bankruptcy,” as
now and hereafter in effect, or any successor statute.

     

    “Bankruptcy
Law” means the Bankruptcy Code and any similar federal, state or foreign
law for the relief of debtors.

     

    “Business
Day” means a day other than a Saturday, Sunday or other day on which
commercial banks in Baltimore, Maryland or New York, New York are authorized or
required by law to close.

     

    “Cash
Equivalents” means any of the following types of investments, to the
extent owned by NWB or any of its subsidiaries free and clear of all Liens
(other than Liens created under any Security Document):

     

    (i)           readily
marketable obligations issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof having
maturities of not more than one year from the date of acquisition thereof; provided that the
full faith and credit of the United States of America is pledged in support
thereof;

     

    (ii)           readily
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof having maturities of not more than one year from the
date of acquisition thereof; provided that at the
time of acquisition such obligations have the highest rating obtainable from
Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies,
Inc., and any successor thereto (“S&P”)
or Moody’s Investors Services, Inc. and any successor thereto (“Moody’s”);

     

    (iii)           time
deposits with, or insured certificates of deposit or bankers’ acceptances of,
any commercial bank that (i) is organized under the laws of the United States of
America, any state thereof or the District of Columbia or is the principal
banking subsidiary of a bank holding company organized under the laws of the
United States of America, any state

     

     

     

    
      
        
        

      

      
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    thereof
or the District of Columbia, and is a member of the Federal Reserve System, (ii)
issues (or the parent of which issues) commercial paper rated as described in
clause (c) of this definition and (iii) has combined capital and surplus of
at least $250,000,000, in each case with maturities of not more than one year
from the date of acquisition thereof; and

     

    (iv)           commercial
paper issued by any Person organized under the laws of any state of the United
States of America and rated at least “Prime-1” (or the then equivalent
grade) by Moody’s or at least “A-1” (or the then equivalent grade) by
S&P, in each case with maturities of not more than one year from the date of
acquisition thereof.

     

    “Collateral”
means all of the assets and property of NWB, whether real, personal or mixed,
described as Collateral in the Credit Agreement.  Notwithstanding the
foregoing, the Teles Inventory shall not be considered Collateral for purposes
of this Agreement and Teles shall not be accountable to P&S in connection
with the Teles Inventory.

     

    “Collateral
Account” has the meaning provided in Section 5.1 of this
Agreement.

     

    “Credit
Agreement” has the meaning set forth in the background above
hereto.

     

    “Discharge” means, with respect to
any Secured Obligations, (a) payment in full in cash of the principal of and
interest (including interest accruing on or after the commencement of any
Insolvency or Liquidation Proceeding, whether or not such interest would be
allowed in such Insolvency or Liquidation Proceeding), and premium, if any, on
all Indebtedness outstanding under the P&S Documents or the Teles Documents,
(b) payment in full of all other such Secured Obligations that are due and
payable or otherwise accrued and owing at or prior to the time such principal
and interest are paid, and (c) termination of any other commitments under the
P&S Documents or the Teles Documents relating to such Secured
Obligations.

     

    “Equity
Interests” of any Person means any and all capital stock, limited or
general partnership interests, limited liability company membership interests,
beneficial interests in a trust, shares, interests, rights to purchase or
acquire, warrants, options, participations, certificates of indebtedness, or
other equivalents of or interest in (however designated) equity of such
Person.

     

    “Equity
Sale” means any sale, transfer or other disposition of any capital stock
or other Equity Interests in NWB by any of its stockholders (but shall not
include the issuance by NWB of its own Equity).

     

    “Indebtedness”
of any Person means, without duplication, (i) all Obligations and other
indebtedness of such Person for borrowed money, (ii) the deferred purchase price
of assets or services payable to the sellers thereof or any of such seller’s
assignees, (iii) the amount under all letters of credit issued for the account
of such Person and, without duplication, all drafts drawn thereunder, (iv) all
Indebtedness of a second Person secured by any Lien on any property owned by
such first Person, whether or not such Indebtedness has been assumed; such
amount, for purposes of this clause (iv) being limited to
the value of such property, (v) all capitalized lease obligations of such
Person, (vi) all obligations of such Person to pay a specified purchase price
for goods or services whether or not delivered or accepted, i.e., take-or-pay and
similar

     

     

    
      
        
        

      

      
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    obligations,
(vii) all contingent obligations of such Person, and (viii) all synthetic lease
obligations.

     

    “Insolvency
or Liquidation Proceeding” means (a) any voluntary or involuntary case or
proceeding under the Bankruptcy Code with respect to NWB, (b) any other
voluntary or involuntary insolvency, reorganization or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other similar
case or proceeding with respect to NWB or with respect to a material portion of
its assets, (c) any liquidation, dissolution, reorganization or winding up of
NWB whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy, or (d) any assignment for the benefit of creditors or any other
marshalling of assets and liabilities of NWB.

     

    “Law”
means any law (including common law), constitution, statute, treaty, convention,
regulation, rule, ordinance, order, injunction, writ, decree or award of any
governmental or regulatory authority.

     

    “Lien”
means any mortgage, pledge, security interest, encumbrance, lien or charge of
any kind (including any agreement to give any of the foregoing, any conditional
sale or other title retention agreement, any financing or similar statement or
notice filed under the UCC or any similar recording or notice statute, and any
lease having substantially the same effect as the foregoing).

     

    “Loan
Documents” means the P&S Documents and the Teles
Documents.

     

    “Lockbox
Account” means a
lockbox or blocked account arrangement among P&S as collateral agent, NWB
and a Blocked Account Bank (as defined in Section 5.8) under
one or more Control Agreements (as defined in Section
5.8).

     

     “Obligations”
means any and all obligations (including guaranty obligations) with respect to
the payment and performance of (a) any principal of or interest, or premium on
any Indebtedness, including any reimbursement obligation in respect of any
letter of credit, or any other liability, including interest that accrues after
the commencement of any Insolvency or Liquidation Proceeding of NWB at the rate
provided for in the respective documen­ta­tion, whether or not a claim
for post-petition interest is allowed in any such Insolvency or Liquidation
Proceeding, (b) any fees, indemnification obligations, expense reimbursement
obligations or other liabilities payable under the documentation governing any
indebtedness (including, without limitation, the retaking, holding, selling or
otherwise disposing of or realizing on the Collateral), (c) any obligation to
post cash collateral in respect of letters of credit or any other obligations,
and (d) all performance obligations under the documentation governing any
Indebtedness.

     

    “P&S
Documents” means the Credit Agreement and each of the other agreements,
documents and instruments providing for or evidencing any other P&S
Obligation, as each may be amended, modified, restated, supplemented, replaced
and/or refinanced from time to time (including, without limitation, the Loan
Documents as defined in the Credit Agreement); provided, however, that P&S
Documents shall not include the Guaranty or the Stock Pledge Agreement, as these
terms are defined in the Credit Agreement.

     

     

     

    
      
        
        

      

      
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    “P&S
Obligations” means all Obligations outstanding under the Credit Agreement
and the other P&S Documents, and shall in any event include:  (a)
all interest accrued or accruing (or which would, absent commencement of an
Insolvency or Liquidation Proceeding (and the effect of provisions such as
Section 502(b)(2) of the Bankruptcy Code), accrue) after commencement of an
Insolvency or Liquidation Proceeding in accordance with the rate specified in
the relevant P&S Document, whether or not the claim for such interest is
allowed as a claim in such Insolvency or Liquidation Proceeding, (b) any and all
fees and expenses (including attorneys’ and/or financial consultants’ fees and
expenses) incurred by P&S after the commencement of an Insolvency or
Liquidation Proceeding, whether or not the claim for fees and expenses is
allowed under Section 506(b) of the Bankruptcy Code or any other provision of
the Bankruptcy Code or Bankruptcy Law as a claim in such Insolvency or
Liquidation Proceeding and (c) all obligations and liabilities of NWB under each
P&S Document to which it is a party which, but for the automatic stay under
Section 362(a) of the Bankruptcy Code, would become due.

     

    “Permitted
Liens” means Liens on the Collateral not prohibited under the terms of
any Loan Document.

     

    “Person”
means any individual, partnership, joint venture, firm, corporation, limited
liability company, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality
thereof.

     

    “Pro Rata
Basis” means, in relation to any amount, with respect to any Secured
Creditor sharing in such amount, a share of such amount determined by
multiplying such amount by a fraction, the numerator of which shall be the
aggregate unpaid principal amount of Secured Obligations owing to such Secured
Creditor at the time outstanding, and the denominator of which shall be the
aggregate unpaid principal amount of all such Secured Obligations owing to all
Secured Creditors.

     

    “Receivable
Rights” means, as to NWB, all rights to the payment of a monetary
obligation, whether or not earned by performance, and whether evidenced by an
Account, Chattel Paper, Instrument, General Intangible, or otherwise, together
with all other portions of the Collateral which, in the reasonable determination
of P&S, are related to the collection and performance of such rights to
payment.  Receivable Rights shall also include a portion of the
proceeds of any Equity Sale and of any Recovery Event.

     

    “Recovery
Event” means the receipt by or for the account of NWB of any insurance or
condemnation proceeds (other than proceeds from business interruption insurance)
payable (i) by reason of theft, physical destruction or damage or any other
similar event with respect to any properties or assets of NWB, (ii) by reason of
any condemnation, taking, seizing or similar event with respect to any
properties or assets of NWB, or (iii) under any policy of
insurance.

     

    “Refinance”
means, in respect of any indebtedness, to refinance, extend, renew, defease,
amend, modify, supplement, restructure, replace, refund or repay, or to issue
other indebtedness, in exchange or replacement for, such
indebtedness.  “Refinanced”
and “Refinancing” shall have correlative
meanings.

     

     

     

    
      
        
        

      

      
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    “Secured
Creditors” means P&S and Teles.

     

    “Secured
Obligations” means all P&S Obligations and Teles
Obligations.

     

    “Setoff
Amount” means any funds of NWB which are offset or retained by a Secured
Creditor against the Obligations, including by way of setoff or
recoupment.

     

    “Teles
Documents” means the Teles Agreement, and each of the other agreements,
documents and instruments providing for or evidencing the Term Loan, as the same
may be amended, modified or otherwise supplemented from time to time in
accordance with the terms hereof, thereof and the Teles Agreement.

     

    “Teles
Inventory”  means, only during the time that Obligations are
owed to Teles under the Inventory Credit Line, inventory of Teles product
purchased by NWB pursuant to the Inventory Credit Line; provided, however, that
in no event shall Teles Inventory include cash or non-cash proceeds of such
inventory, including, without limitation, Accounts, Chattel Paper or Instruments
(other than Account, Chattel Paper or Instruments received as proceeds and as
described in the last sentence of Section 2.4(c) of
this Agreement).

     

    “Teles
Obligations” means all Obligations outstanding under the Teles Agreement,
but shall not include Obligations incurred under the Inventory Credit Line, and
shall in any event include:  (a) all interest accrued or accruing (or
which would, absent commencement of an Insolvency or Liquidation Proceeding (and
the effect of provisions such as Section 502(b)(2) of the Bankruptcy Code),
accrue) after commencement of an Insolvency or Liquidation Proceeding in
accordance with the rate specified in the relevant Teles Document whether or not
the claim for such interest is allowed as a claim in such Insolvency or
Liquidation Proceeding; (b) any and all fees and expenses (including attorneys’
and/or financial consultants’ fees and expenses) incurred by Teles after the
commencement of an Insolvency or Liquidation Proceeding, whether or not the
claim for fees and expenses is allowed under Section 506(b) of the Bankruptcy
Code or any other provision of the Bankruptcy Code or Bankruptcy Law as a claim
in such Insolvency or Liquidation Proceeding; and (c) all obligations and
liabilities NWB under each Teles Document to which it is a party which, but for
the automatic stay under Section 362(a) of the Bankruptcy Code, would become
due.

     

    “UCC”
means the Uniform Commercial Code in effect on the date hereof and as amended
from time to time, as enacted in the State of Delaware or in any state or states
which, pursuant to the Uniform Commercial Code as enacted in the State of
Delaware, has jurisdiction with respect to all, or any portion of, the
Collateral or this Agreement, from time to time.  It is the intent of
the parties that the definitions set forth above should be construed in their
broadest sense so that Collateral will be construed in its broadest
sense.  Accordingly if there are, from time to time, changes to
defined terms in the UCC that broaden the definitions, they are incorporated
herein and if existing definitions in the UCC are broader than the amended
definitions, the existing ones shall be controlling.

     

    (b) Terms
Generally.  The definitions of terms herein shall apply equally
to the singular and plural forms of the terms defined.  Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. 

     

     

    
      
        
        

      

      
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    The words
“include”,
“includes” and
“including”
shall be deemed to be followed by the phrase “without
limitation.”  The word “will” shall be
construed to have the same meaning and effect as the word
“shall”.  Unless the context requires otherwise (i) any definition of
or reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified, (ii) any reference
herein to any Person shall be construed to include such Person’s successors and
assigns, (iii) the words “herein”, “hereof” and “hereunder”, and words
of similar import, shall be construed to refer to this Agreement in its entirety
and not to any particular provision hereof, (iv) all references herein to
Exhibits or Sections shall be construed to refer to Exhibits or Sections of this
Agreement, (v) the words “asset” and “property” shall be
construed to have the same meaning and effect and to refer to any and all
tangible and intangible assets and properties, including cash, securities,
accounts and contract rights, (vi) terms defined in the UCC but not otherwise
defined herein shall have the same meanings herein as are assigned thereto in
the UCC, (vii) reference to any law means such law as amended, modified,
codified, replaced or re-enacted, in whole or in part, including rules,
regulations, enforcement procedures and any interpretations promulgated
thereunder and (viii) underscored references to Sections or clauses shall refer
to those portions of this Agreement, and any underscored references to a clause
shall, unless otherwise identified, refer to the appropriate clause within the
same Section in which such reference occurs.

     

    ARTICLE
II

    INTERCREDITOR
PROVISIONS

     

    2.1 Standstill.  P&S
and Teles hereby agree as between themselves as follows (it being acknowledged
and agreed by NWB that the provisions of this Section 2.1 are
solely for the benefit of P&S and Teles; may be amended by agreement of
P&S and Teles without need of consent of any other party; and shall not
benefit or create any rights in favor of any of NWB):

     

    (a) Upon the
occurrence of any event of default under any of the P&S Documents (other
than as set forth in (c) below), P&S shall not exercise any remedy that it
may have under the P&S Documents to declare all or any portion of the
P&S Obligations to be due and payable prior to their respective due dates
and shall not commence the exercise of any other rights or remedies unless at
least forty-five (45) days have elapsed following written notice of such event
of default having been given by P&S to Teles, unless Teles otherwise
consents.  This provision shall not apply if Teles shall have, for any
reason (whether or not in breach of its agreement set forth in paragraph (b) of
this Section
2.1) declared all or any portion of the Teles Obligations to be due and
payable prior to their respective due dates, or if such obligations have been
automatically accelerated pursuant to Art. VII 1.2 of the Teles
Agreement.

     

    (b) Upon the
occurrence of any event of default under any of the Teles Documents (other than
as set forth in (c) below), Teles shall not exercise any remedy that it may have
under the Teles Documents to declare all or any portion of the Teles Obligations
to be due and payable prior to their respective due dates and shall not commence
the exercise of any other rights or remedies unless at least forty-five (45)
days have elapsed following written notice of such event of default having been
given by Teles to P&S, unless P&S otherwise consents.  This
provision shall not apply if P&S shall have, for any reason (whether or not
in breach of its agreement set forth in paragraph (a) of this Section 2.1) declared
all or any portion

     

     

     

    
      
        
        

      

      
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    of the
P&S Obligations to be due and payable prior to their respective due dates,
or if such obligations have been automatically accelerated pursuant to Section
11.1 of the Credit Agreement.

     

    (c) Subject
to the provisions of Article III hereof, so long as the Discharge of all Secured
Obligations has not occurred, whether or not any Insolvency or Liquidation
Proceeding has been commenced by or against NWB, as between Teles and P&S,
P&S acting as collateral agent for the Secured Creditors under Section 5.8 of this
Agreement shall have the exclusive right to enforce rights, exercise remedies
and make determinations regarding collections and enforcement with respect to
the Collateral consisting of Receivable Rights, and the proceeds thereof.
Nothing contained in this Section 2.1(c) shall
constitute a limitation on the provisions of Section 5.5 of this
Agreement, or on the rights of Teles under Section 2.1(b) of
this Agreement to require P&S, as collateral agent, to collect or otherwise
exercise the rights and remedies as the Secured Creditors against the Receivable
Rights.

     

    2.2 Prohibition on Contesting
Liens.

     

    (a) Each
Secured Creditor agrees that it shall not (and hereby waives any right to)
contest or support any other Person in contesting, in any proceeding (including
any Insolvency or Liquidation Proceeding), (i) the validity or enforceability of
any Loan Document or any Obligation thereunder, (ii) the validity, perfection,
priority or enforceability of the Liens, mortgages, assignments and security
interests granted pursuant to the Loan Documents or (iii) the relative rights
and duties of the holders of the Secured Obligations granted and/or established
in this Agreement or any other Loan Document with respect to such Liens,
mortgages, assignments, and security interests.

     

    (b) Each
Secured Creditor agrees that it shall not seek to avoid, have declared
fraudulent or have set aside any Secured Obligation.  In the event
that any Secured Obligation is invalidated, avoided, declared fraudulent or set
aside, the Secured Creditors agree that such Secured Obligations shall
nevertheless be considered outstanding for all purposes of this
Agreement.

     

    2.3 Amendments to Loan
Documents.  The provisions of this Agreement shall remain in
full force and effect in accordance with its terms regardless of any amendment,
modification or supplement to any Loan Document.  Without limitation
of the foregoing, this Agreement shall apply in accordance with its terms
notwithstanding any increase, decrease, addition or change in the amount,
nature, type or purpose of any Secured Obligations or any execution or delivery
of any Loan Document from time to time; provided that the principal amount of
(a) the P&S Obligations outstanding under the Credit Agreement and the
P&S Documents shall not exceed $1,050,000.00, in the aggregate principal
amount outstanding at any time and (b) the Teles Obligations outstanding under
the Teles Agreement and the Teles Documents shall not exceed $1,000,000.00, in
the aggregate principal amount outstanding at any time.

     

     

    
      
        
        

      

      
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    2.4 Certain General
Intercreditor Matters.

     

    (a) The
provisions of Article
V hereof apply solely to priorities of distributions resulting from
realization under or with respect to (i) the Collateral, (ii) Setoff Amounts and
(iii) Recovery Events, and not to the priorities of the
Obligations.  Nothing contained in this Agreement or in any Loan
Document is intended to effect a subordination of any Obligation to any other
Obligation.

     

    (b) The
Secured Creditors hereby agree that, upon any realization under or with respect
to (i) the Collateral, (ii) Setoff Amounts and (iii) Recovery Events (including
but not limited to realization under or with respect to any of the Collateral or
any collection or application of funds, by setoff or otherwise, on account of
any Obligations owed under any direct or indirect guaranty which is a Loan
Document), the Secured Creditors shall share in the proceeds of such realization
in the manner provided in Section 5.5, and if
either Secured Creditor shall realize any funds on the Loan Documents otherwise
than pursuant to this Agreement, such Secured Creditor shall remit the same to
P&S, which shall apply the same as provided herein.  Until such
time as such Secured Creditor shall have complied with the provisions of the
immediately preceding sentence, such Secured Creditor shall be deemed to hold
such funds and the proceeds thereof in trust for the other Secured
Creditor.

     

    (c) This
Agreement applies to realization under or with respect to (i) the Collateral,
(ii) Setoff Amounts and (iii)  Recovery Events.  Nothing in
this Agreement or in any Loan Document, express or implied, shall be construed
to require any Secured Creditor to share with any other Secured Creditor any
collections received on account of Secured Obligations other than on account of
(i) the Collateral, (ii) Setoff Amounts and (iii) Recovery
Events.  Without limiting the generality of the foregoing, Teles shall
not be required to share with P&S the proceeds of liquidation or disposition
of Teles Inventory, in the exercise of Teles’ rights and remedies under the UCC
and other applicable law.

     

    (d) If any
payment or distribution or security of any character (whether in cash,
securities, or other property) shall be received by either Secured Creditor out
of or in connection with the Collateral in contravention of the terms of this
Agreement or otherwise before all of the Secured Obligations shall have been
paid in full (unless otherwise approved by the other Secured Creditor) such
payment, distribution or security shall not be commingled with any property or
assets of such Secured Creditor, shall be held in trust or as custodian, and
shall promptly be paid over or delivered and transferred to NWB, subject to the
provisions of Article V of this Agreement.

     

    2.5 Prohibition on Certain
Advances.  Notwithstanding any provision in the Credit
Agreement to the contrary, no Revolving Credit Advance may be applied by NWB,
directly or indirectly, to the payment of any principal of or interest accruing
on the Term Loan.

     

    2.6 Certain
Notices.  Each Secured Creditor agrees to use its best efforts
to give to the other Secured Creditor (a) copies of any notice of the occurrence
or existence of any event of default (as defined in the Teles Documents and the
P&S Documents, respectively) sent to NWB, simultaneously with the sending of
such notice to NWB, (b) notice of the occurrence of existence of an event of
default of which such Secured Creditor has knowledge, promptly after obtaining
knowledge thereof, (c) notice of the refusal of such Secured Creditor to make
any loan to NWB pursuant to the Teles Documents or the P& S Documents, as
applicable, promptly after

     

     

    
      
        
        

      

      
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    such
refusal, and (d) notice of any enforcement action of such Secured Creditor
pursuant to Article IV hereof, prior to commencing such action, but the failure
to give any of the foregoing notices shall not affect the validity of such
notice of an event of default given to NWB or create a cause of action against
or cause a forfeiture of any rights of the party failing to give such notice or
create any claim or right on behalf of any third party.

     

    ARTICLE
III

    INSOLVENCY OR
LIQUIDATION

     

    3.1 In the
event of any Insolvency or Liquidation Proceeding, whether or not pursuant to
bankruptcy law, dissolution, liquidation or any other marshalling of the assets
or liabilities of NWB, each of the Secured Creditors shall be entitled to (a)
file its own secured claim in respect of the Secured Obligations owed to it (a
“Claim”),
(b) move for and retain for its own account adequate protection for its Claim in
the form of replacement liens, adequate protection liens, cash payments, or
other forms of adequate protection fashioned by the court, (c) make any motion,
objection or opposition that the holder of an unsecured claim would have
standing to make (other than a motion, objection or opposition that calls into
question or otherwise directly or indirectly attacks the validity, priority,
perfection, attachment, or enforceability of any lien or security interest under
any of the Loan Documents or which otherwise secures the Secured Obligations or
any adequate protection in the form of replacement liens, adequate protection
liens, cash payments, or other forms of adequate protection fashioned by the
court with respect to the Secured Obligations), and retain (subject to the
turnover provisions of this Agreement) any cash, debt securities or equity
securities distributed to such Secured Creditor on account of its Claim in any
such proceeding, or (d) assert such defenses and counterclaims, and otherwise
protect its rights, in its discretion except as expressly prohibited by this
Agreement. Notwithstanding the foregoing, no Secured Creditor will at any time
take any action that calls into question or otherwise directly or indirectly
attacks the validity, priority, perfection, attachment, or enforceability of any
lien or security interest under any of the Loan Documents.

     

    3.2 Neither
Secured Creditor (for purposes of this Section, the “Financing Secured
Creditor”) may propose, offer or support any debtor-in-possession financing
under Bankruptcy Code Section 364 or use of cash collateral under Bankruptcy
Code Section 363 without the prior consent of the other Secured Creditor (for
purposes of this paragraph, the “Non-Financing Secured Creditor”), provided that
no consent of the Non-Financing Secured Creditor shall be required if such
proposed debtor-in-possession financing under Bankruptcy Code Section 364 or use
of cash collateral under Bankruptcy Code Section 363 provides for the following
terms and conditions: (i) the debtor-in-possession agrees not to challenge the
enforceability, attachment or perfection of the liens of the Non-Financing
Secured Creditor under the P&S Documents or the Teles Documents, as
applicable; (ii) the liens securing such debtor-in-possession financing are
junior in priority to the liens of the P&S Documents or the Teles Documents,
as applicable; (iii) the Non-Financing Secured Creditor is awarded cash adequate
protection in an amount equal to interest; and (iv) the Non-Financing Secured
Creditor is granted adequate protection liens and replacement liens on
all

     

     

     

    
      
        
        

      

      
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    unencumbered
pre-petition property of NWB and post-petition property of NWB (excluding
therefrom claims of the estate under Chapter 5 of the Bankruptcy
Code).

     

    3.3 This
Agreement shall be applicable both before and after the commencement of any
Insolvency or Liquidation Proceeding by or against NWB and all converted or
succeeding cases in respect thereof, and all references herein to NWB shall be
deemed to apply to the trustee for NWB and/or to NWB as a
debtor-in-possession.

     

     

    ARTICLE
IV

    RIGHTS AND REMEDIES OF
SECURED CREDITORS

     

    4.1 General Relation to Security
Documents.  This Agreement is intended to be supplemental to,
and not in limitation of, the Loan Documents, and the rights and remedies of the
Secured Creditors contained herein and therein are intended to be
cumulative.  However, in the event of actual and irreconcilable
conflict between the provisions hereof and the provisions of the Loan Documents,
the provisions of this Agreement shall be controlling.

     

    4.2 Power of
Attorney.  NWB hereby irrevocably constitutes and appoints each
Secured Creditor and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full power and
authority in the name of NWB or the name of such attorney-in-fact, from time to
time in such Secured Creditor’s discretion, for the purpose of signing documents
and taking other action as such Secured Creditor may reasonably deem necessary
or appropriate to perfect and protect the Liens of such Secured Creditor in the
Collateral or otherwise to accomplish the purposes hereof.  This power
of attorney is a power coupled with an interest, shall be irrevocable and shall
not be subject to the limitations of Section 4.3
hereof.  Without limiting the generality of the foregoing, so long as
such Secured Creditor shall be entitled under this Agreement or any Loan
Document to make collections in respect of the Collateral, such Secured Creditor
shall have the right and power to receive, endorse and collect all checks made
payable to the order of NWB representing any dividend, payment or other
distribution in respect of the Collateral and to give full discharge for the
same.

     

    4.3 Certain Rights After Event
of Default.  NWB hereby irrevocably constitutes and appoints
each Secured Creditor and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full power and
authority in the name of NWB or otherwise, from time to time in such Secured
Creditor’s discretion, so long as any event of default under any Loan Document
has occurred and is continuing, to take any and all appropriate action and to
execute any and all documents and instruments which may be necessary or
desirable to carry out the terms of this Agreement or any Loan Document and to
accomplish the purposes hereof and thereof and, without limiting the generality
of the foregoing, NWB hereby gives such Secured Creditor the power and right on
behalf of NWB, without notice to or further assent by NWB, to do the
following:

     

    (a) to ask
for, demand, sue for, collect, receive and give acquittance for any and all
moneys due or to become due upon, or in connection with, the
Collateral;

     

     

     

    
      
        
        

      

      
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    (b) to
receive, take, endorse, assign and deliver any and all checks, notes, drafts,
acceptances, documents and other negotiable and nonnegotiable instruments taken
or received by the Secured Creditor as, or in connection with, the
Collateral;

     

    (c) to
commence, prosecute, defend, settle, compromise or adjust any claim, suit,
action or proceeding with respect to, or in connection with, the
Collateral;

     

    (d) to sell,
transfer, assign or otherwise deal in or with the Collateral or any part thereof
as fully and effectively as if such Secured Creditor were the absolute owner
thereof; and

     

    (e) to do, at
its option and at the expense and for the account of such Credit Party, at any
time or from time to time, all acts and things which such Secured Creditor deems
necessary to protect or preserve the Collateral and to realize upon the
Collateral.

     

    4.4 Right to Initiate Judicial
Proceedings.  Each Secured Creditor (a) shall have the
right and power to institute and maintain such suits and proceedings as it may
deem appropriate to protect and enforce the rights vested in it by this
Agreement and each Loan Document and (b) may either after entry, or without
entry, proceed by suit or suits at law or in equity to enforce such rights and
to foreclose upon the Collateral and to sell all or, from time to time, any of
the Collateral under the judgment or decree of a court of competent
jurisdiction.  This Section 4.4 shall not
be construed to limit any right or remedy otherwise available to such Secured
Creditor under this Agreement, any Loan Document or otherwise by Law to act
without judicial proceedings.

     

    4.5 Right to Appoint a
Receiver.  Upon the filing of a bill in equity or other
commencement of judicial proceedings or other applicable action set forth in any
Loan Document to enforce the rights of a Secured Creditor under this Agreement
or any Loan Document, said Secured Creditor shall, to the extent permitted by
Law and except to the extent (if any) expressly forbidden by a Loan Document,
without notice to NWB, without regard to the solvency or insolvency at the time
of NWB or any other Person then liable for the payment of any of the Secured
Obligations, without regard to the then value of the Collateral, and without
requiring any bond from any complainant in such proceedings, be entitled as a
matter of right to the appointment of a receiver or receivers of the Collateral,
or any part thereof, and of the rents, issues, tolls, profits, royalties,
revenues and other income thereof, pending such proceedings, with such powers as
the court making such appointment or as the applicable Loan Document, as the
case may be, shall confer, and to the entry of an order directing that the
rents, issues, tolls, profits, royalties, revenues and other income of the
property constituting the whole or any part of the Collateral be segregated,
sequestered and impounded for the benefit the Secured Creditors, to be
distributed to the Secured Creditors as set forth in Section 5.5 of this
Agreement, and NWB irrevocably consents to the appointment of such receiver or
receivers and to the entry of such order.

     

    4.6 Remedies Not Exclusive,
etc.  No remedy conferred upon or reserved to any Secured
Creditor herein or in any Loan Document is intended to be exclusive of any other
remedy or remedies, but every such remedy shall be cumulative and shall be in
addition to every

     

     

    
      
        
        

      

      
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    other
remedy conferred herein or in any Loan Document or now or hereafter existing at
law or in equity or otherwise.

     

    (a) No delay
or omission by a Secured Creditor to exercise any right, remedy or power
hereunder or under any Loan Document shall impair any such right, remedy or
power or shall be construed to be a waiver thereof, and every right, power and
remedy given by this Agreement or any Loan Document to a Secured Creditor may be
exercised from time to time and as often as may be deemed expedient by the
Secured Creditor.

     

    (b) If a
Secured Creditor shall have proceeded to enforce any right, remedy or power
under this Agreement or any Loan Document and the proceeding for the enforcement
thereof shall have been discontinued or abandoned for any reason or shall have
been determined adversely to the Secured Creditor, then NWB and the Secured
Creditors shall, subject to any determination in such proceeding, severally and
respectively be restored to their former positions and rights hereunder or
thereunder in all respects and, subject to any determination in such proceeding,
thereafter all rights, remedies and powers of the Secured Creditor and every
other Person shall continue as though no such proceeding had been
taken.

     

    (c) All
rights of action and of asserting claims upon or under this Agreement and the
Loan Documents  may be enforced by the Secured Creditors without the
possession of any original or executed instrument evidencing or governing any
Secured Obligation and without the production thereof at any trial or other
proceeding relative to such claims.

     

    4.7 Certain Waivers.

     

    (a) To the
extent it may lawfully do so, NWB agrees that it will not at any time in any
manner whatsoever claim or take the benefit or advantage of, any appraisement,
valuation, stay, extension, moratorium, turnover or redemption Law, or any Law
permitting it to direct the order in which the Collateral shall be sold, now or
at any time hereafter in force, which may delay, prevent or otherwise affect the
performance or enforcement of this Agreement or any Loan Document, hereby waives
all benefit or advantage of all such Laws, and covenants that it will not
hinder, delay or impede under color of any such Law the execution of any power
granted to the Secured Creditors in this Agreement or any Loan Document but will
suffer and permit the execution of every such power as though no such Law were
in force.

     

    (b) To the
extent it may lawfully do so, NWB, on behalf of itself and all who may claim
through or under it, including without limitation any and all subsequent
creditors, vendees, assignees and lienors, waives and releases all rights to
demand or to have any marshalling of the Collateral upon any sale, whether made
under any power of sale granted herein or in any Loan Document or pursuant to
judicial proceedings or upon any foreclosure or any enforcement of this
Agreement or any Loan Document, and consents and agrees that all the Collateral
may at any such sale be offered and sold as an entirety.  To the
fullest extent permitted by Law, NWB hereby waives any and all rights it may at
any time have to require any Secured Creditor to exercise its rights and
remedies under this Agreement, any Loan

     

     

    
      
        
        

      

      
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    Document,
any other agreement or instrument, at Law or in equity, as between different
Persons or against any single Person in any particular order, method or
manner.

     

    (c) NWB
hereby waives, to the extent permitted by applicable Law, presentment, demand,
protest and any notice of any kind (except notices expressly required hereunder
or under any Loan Document) in connection with this Agreement, the Loan
Documents and any action taken by a Secured Creditor with respect to the
Collateral.

     

    4.8 No New
Liens.  So long as the Discharge of any Secured Obligations has
not occurred, the parties hereto agree NWB shall not grant or permit any
additional Liens, or take any action to perfect any additional Liens, on any
asset or property to secure any Secured Obligation unless it has also granted a
Lien on such asset or property to secure all Secured Obligations equally and
ratably in accordance with this Agreement, provided, however, that the foregoing
shall not apply to Teles Inventory as collateral security for the Inventory
Credit Line.  To the extent that the foregoing provisions are not
complied with for any reason, without limiting any other rights and remedies
available to the other Secured Creditors, the Secured Creditor benefiting from
such new Lien agrees that any amounts received by or distributed to any of them
pursuant to or as a result of Liens granted in contravention of this Section 4.8 shall be
subject to Sections
5.4 and 5.5.

     

    4.9 Fees, Taxes,
etc.  NWB agrees to pay any and all stamp, document, transfer,
filing, recording, registration, excise or sales fees and taxes and all similar
impositions and any and all reasonable Lien searches now or hereafter payable or
determined in good faith by the Secured Creditors to be payable in connection
with this Agreement, the Loan Documents, or any other documents, instruments or
transactions pursuant to or in connection herewith or therewith and agrees to
hold each Secured Creditor harmless from and against any and all present or
future claims or liabilities with respect to, or resulting from any delay in
paying or omission to pay, any such fees, taxes or impositions.  Such
agreement extends, without limitation, to any and all taxes or other state
documentary stamp or intangible tax with respect to the filing or recording of
any financing statements or mortgages in connection herewith or in connection
with any Loan Document, regardless of whom such taxes are levied or assessed
against.  The obligations of NWB under this Section 4.9 shall
survive the termination of the other provisions of this Agreement and the
termination of any Loan Document.

     

    4.10 Maintenance of Liens and
Further Assurances.  At any time and from time to time, upon
the request of a Secured Creditor, and at the expense of NWB, NWB will promptly
execute and deliver any and all such further instruments and documents and take
such further actions as are necessary or reasonably requested  to
establish, confirm, maintain and continue and to perfect, or to protect the
perfection of, the Liens created and intended to be created hereunder and under
the Loan Documents, and all assignments made or intended to be made pursuant
thereto, or to obtain the full benefits of this Agreement and the Loan Documents
and of the rights and powers herein and therein granted, including, without
limitation, the execution and delivery of any further deeds, conveyances,
mortgages, assignments, security agreements, pledges and further assurances and
the filing of any financing or continuation statements.  NWB also
hereby authorizes each Secured Creditor to file financing statements and
continuation statements at any time with respect to any Collateral.

     

     

    
      
        
        

      

      
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    ARTICLE
V

    DISTRIBUTIONS

     

    5.1 Lockbox
Account.  P&S may, pursuant to Section 2.5(B) of the Credit
Agreement, and shall, at the request of Teles pursuant to Section 2.4(b) of the
Teles Agreement, establish a Lockbox Account.  In the event that
P&S establishes a Lockbox Account, then P&S shall establish one or more
deposit accounts, titled in its own name, along with such other sub-accounts as
it deems appropriate from time to time (collectively, the “Collateral
Account”).  P&S shall maintain the Collateral Account as
agent hereunder, and the assets therein shall be segregated and not commingled
with other assets of P&S.  Subject to the terms of this Agreement,
P&S shall have the exclusive dominion and control over the Collateral
Account and all monies in the Collateral Account shall constitute Collateral
hereunder.  All right, title and interest in and to (i) the Collateral
Account, (ii) funds on deposit therein from time to time, (iii) all proceeds of
the conversion thereof into cash, instruments, securities or other property, and
(iv) all other proceeds thereof (collectively, the “Cash
Collateral”) shall vest in P&S, for the benefit of the Secured
Creditors. NWB hereby grants, conveys, assigns, pledges and transfers to
P&S, and grants to and creates in favor of P&S, as agent for the Secured
Creditors, a continuing Lien in, the Cash Collateral.  NWB hereby
represents, warrants, covenants and agrees that such Lien shall at all times be
valid, perfected and of first priority, subject to no other Lien whatever other
than Permitted Liens, and NWB shall take or cause to be taken such actions and
shall execute and deliver such instruments and documents as may be necessary,
appropriate, or in the reasonable judgment of P&S desirable to perfect or
protect the Lien and security interest intended to be created
hereby.  P&S shall not create or suffer to exist any Lien on any
amounts or investment held in the Collateral Account other than the Lien in
favor of P&S granted under this Section
5.1.

     

    5.2 Deposits.  NWB
and Teles each agree to deposit in the Lockbox Account, or with P&S, for
deposit in the Collateral Account, all funds required to be so deposited under
this Agreement or under any Loan Document including, without limitation,
Receivable Rights.  No other funds shall be deposited in the
Collateral Account or commingled with funds in the Collateral
Account.

     

    5.3 Distributions Before an
Event of Default. The applicable control agreement for the Lockbox
Account shall provide that until such time as the depository bank has received a
written directive from P&S, as collateral agent, the depository bank shall
distribute or deposit to the credit of  NWB all funds or proceeds of
items received in the Lockbox Account.

     

    5.4 Directive After an Event of
Default.  NWB hereby agrees that upon the occurrence of an
event of default (as defined in either the Credit Agreement or the Teles
Agreement), P&S, as collateral agent hereunder, shall have the exclusive
power and right to issue written instructions to the depository institution
(which instructions may not be countermanded by NWB) directing that all funds
and the proceeds of items received and to be received in the Lockbox Account be
transferred to the Collateral Account.

     

    5.5 Distributions After an Event of
Default.  All
payments received by either Secured Creditor as a result of the exercise of any
of the enforcement rights set forth in Article

     

     

     

    
      
        
        

      

      
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    IV of
this Agreement, all monies held by P&S in the Collateral Account, and all
other proceeds of Collateral shall, to the extent available for distribution, be
distributed as follows:

     

    
      	 	
              First:  to
      each Secured Creditor in the amount of any unpaid costs, expenses and fees
      (including attorneys’ fees) owing to such Secured Creditor as a Secured
      Obligation (in the case of P&S, including reimbursement of all costs,
      expenses and fees (including attorneys’ fees) incurred in respect of its
      services as described in this Article
V);

            

    

    

    Second: to each
Secured Creditor, on a Pro Rata Basis, until all Secured
Obligations  are paid in full,

    

    in each
case to be applied, first, to outstanding amounts
other than those attributable to principal owing to each Secured Creditor
receiving such payment, and second, to amounts
attributable to principal; and

    

    Finally:  if
all Secured Obligations shall have been paid in full in cash and all commitments
to extend credit under the P&S Documents shall have been terminated
irrevocably, any surplus then remaining shall be paid to NWB or its successors
or assigns or to whomsoever may be lawfully entitled to receive the same or as a
court of competent jurisdiction may direct.

    

    5.6 Calculations.  

     

    (a) In making
the determinations and allocations required by Section 5.5 hereof, the
Secured Creditors may rely upon written information supplied by each Secured
Creditor as to the amounts owing to such Secured Creditor that are described in
item “Second” above (which the Secured Creditors agree (or shall agree) to
provide upon request).

     

    (b) Each
Secured Creditor agrees that (i) to the extent any payment of any Secured
Obligation made to it hereunder is in excess of the amount due to be paid to it
hereunder, it shall pay to the other Secured Creditor such amounts so that,
after giving effect to such payments, the amounts received by the Secured
Creditors are equal to the amounts to be paid to them hereunder, and (ii) in the
event that any payment of any Secured Obligation made to either Secured Creditor
is subsequently invalidated, declared fraudulent or preferential, set aside or
required to be paid to a trustee, receiver, or any other party under any
bankruptcy act, state or federal law, common law or equitable cause, then the
other Secured Creditor shall pay to such Secured Creditor such amounts so that,
after giving effect to the payments hereunder by all such Secured Creditors, the
amounts received by all Secured Creditors are not in excess of the amounts to be
paid to them hereunder as though any payment so invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid had not been
made.

     

    5.7 Application of Monies. The
distribution provisions of Section 5.5 are for
the sole purpose of determining the relative amounts of proceeds and other
payments to be distributed to the Secured Creditors and not for the purpose of
creating an agreement among the parties as to the manner in which any proceeds
or other payments distributed among them are actually to be applied to pay the
Secured Obligations.  Each Secured Creditor shall be free, each in its
own discretion, to apply any of the proceeds or other payments disbursed to it
hereunder to

     

     

    
      
        
        

      

      
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    the
Secured Obligations held by each in such order as it may determine (subject only
to the applicable provisions of the Credit Agreement or the Teles Agreement, as
the case may be).  NWB, by its consent hereto, agrees that in the
event any payment is made with respect to any Secured Obligations, as between
NWB and each Secured Creditor the Secured Obligations discharged by such payment
shall be the amount or amounts of the Secured Obligations to which such Secured
Creditor applies the portion of such payment distributed to it under Section 5.5 hereof as
provided in the preceding sentence.  Notwithstanding the foregoing,
for all purposes of this Agreement the Secured Obligations shall be deemed paid
to the same extent that proceeds and other payments are distributed with respect
to it pursuant to Section 5.5,
notwithstanding the actual application thereof.

     

    5.8 Collateral Agency.
Teles hereby appoints P&S as its collateral agent for the sole purpose of
(i) the creation and perfection of a security interest in the Lockbox Account
and the Collateral Account now or hereafter created, as security for the Secured
Obligations; (ii) delivery to the bank (the “Blocked
Account Bank”) at which the Collateral Account is maintained of
instructions directing disposition of the funds in the Collateral Account, in
accordance with the terms of the applicable control agreement with the Blocked
Account Bank (the “Control
Agreement”);  (iii) holding for the benefit of the Secured
Creditors any proceeds of Receivable Rights in such Collateral Accounts
including, without limitation, the Cash Collateral; and (iv) exercising rights
and remedies with respect to the Receiveable Rights and proceeds thereof
including, without limitation, the Cash Collateral, in such Collateral Account
or otherwise, and for all other purposes reasonably related to the matters
described in clauses (i) through (iv) hereof, subject to the terms of this
Article V.  P&S hereby accepts such appointment and agrees to act
as collateral agent on behalf of the Secured Creditors for the purposes
hereinabove described. Teles and NWB agree that P&S shall have no obligation
to honor, any instructions with regard to the Collateral Account or Control
Agreement, including without limitation any instruction to direct the Blocked
Account Bank to transfer any funds in the applicable Collateral Account, so long
as the P&S Obligations shall not have been paid in full, and any such
instructions shall be null and void.  P&S  may resign
from the performance of its functions and duties as agent hereunder at any time
by giving reasonable prior written notice to Teles, such resignation to be
effective upon the appointment of a successor by P&S or Teles.

     

    5.9 No
Warranties.  Teles acknowledges and agrees that: (i)
P&S  does not make any representation or warranty whatsoever as to
the nature, extent, description, validity or priority of any security interests
in or liens upon the Lockbox Account or any Collateral Account; (ii) so long as
P&S is acting as agent for Teles pursuant to Section 5.8 hereof,
P&S shall not have any liability to, and shall be held harmless by, Teles,
for any losses, damages, claim, or liability of any kind to the extent arising
out of the agency thereby created or any actions taken by P&S, or omitted to
be taken by P&S, as such agent, other than losses, damages, claims, or
liabilities arising out of gross negligence or willful misconduct; (iii) P&S
shall not act as agent for Teles with respect to any Collateral in which a
security interest may be perfected by means other than control or possession;
(iv) Teles shall immediately deliver to P&S any Receivable Rights that now
or in the future comes into its possession; and (v) the priority of the security
interests in and liens upon the Lockbox Account and the Collateral Accounts, and
the application of proceeds of the Collateral Account shall be governed by the
terms of this Article V.

     

     

     

    
      
        
        

      

      
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    ARTICLE
VI

    [RESERVED]

     

    ARTICLE
VII

    MISCELLANEOUS

     

    7.1 Amendments, Supplements and
Waivers.  With the prior written consent of both P&S and
Teles, or as otherwise expressly permitted under the Loan Documents, NWB may
from time to time enter into amendments, modifications or supplements to this
Agreement or any Loan Document for the purpose of amending, adding to, or
waiving any provisions of, this Agreement or any Loan Document, releasing any
Collateral (except for disposition of Inventory in the ordinary course of its
business), releasing or limiting the obligations of NWB under any Loan Document,
or changing in any manner the rights of either Secured Creditor or NWB hereunder
or thereunder.  Any such amendment, modification or supplement made in
accordance with this Section 7.1 shall be
binding upon NWB and each Secured Creditor and their respective successors and
assigns.  No amendment, modification or supplement relating hereto or
to any Loan Document shall be effective unless in writing manually signed by or
on behalf of the party to be charged therewith.

     

    7.2 Notices.   Except
to the extent otherwise expressly permitted hereunder or thereunder, all
notices, requests, demands, directions and other communications (collectively
“notices”) given or made under this Agreement or any Loan Document shall be
given in writing (including telexed and facsimile communications) and shall be
sent by first-class mail, nationally-recognized overnight courier, telex or
facsimile transmission (with confirmation in writing mailed first-class or sent
by such an overnight courier) or by personal delivery.  All notices
shall be sent to the applicable party at the address stated on the signature
pages hereof or in accordance with the last unrevoked written direction from
such party to the other parties hereto, in all cases with postage or other
charges prepaid.  Any such properly given notice to a Secured Creditor
shall be effective when received.  Any such properly given notice to
NWB shall be effective upon the earliest to occur of receipt, telephone
confirmation of receipt of telex or facsimile transmission communication, one
(1) Business Day after delivery to a nationally-recognized overnight courier,
five (5) Business Days  after deposit in the mail, or when telephoned
(to the extent that notice is permitted by telephone).

     

    7.3 No Implied Waiver;
Cumulative Remedies.   No course of dealing and no delay
or failure of either Secured Creditor in exercising any right, power or
privilege hereunder or under any Loan Document, or any other documents or
instruments pursuant to or in connection herewith shall affect any other or
future exercise thereof or exercise of any other right, power or privilege; nor
shall any single or partial exercise of any such right, power or privilege or
any abandonment or discontinuance of steps to enforce such a right, power or
privilege preclude any further exercise thereof or of any other right, power or
privilege.  The rights and remedies of each Secured Creditor under
this Agreement, the Loan Documents and all other agreements and instruments
pursuant to or in connection herewith or therewith are cumulative and not
exclusive of any rights or remedies which any of them would otherwise
have.  Any waiver, permit, consent or approval of any kind or
character on the part of either Secured Creditors of any breach or default
under, or term or condition of, this Agreement or any Loan

     

     

    
      
        
        

      

      
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    Document
shall be in writing and shall be effective only to the extent specifically set
forth in such writing.

     

    7.4 Severability.  The
provisions of this Agreement and of the Loan Documents are intended to be
severable.  If any provision of this Agreement or any Loan Document
shall be held invalid or unenforceable in whole or in part in any jurisdiction
such provision shall, as to such  jurisdiction, be ineffective to the
extent of such invalidity or unenforceability without in any manner affecting
the validity or enforceability thereof in any other jurisdiction or the
remaining provisions hereof or thereof in any jurisdiction.  Where,
however, such invalidity or unenforceability may be waived, it is hereby waived
by NWB to the fullest extent permitted by Law, to the end that this Agreement
and the Loan Documents shall be valid and binding agreements enforceable in
accordance with their terms.

     

    7.5 Prior
Understandings.  This Agreement and the Loan Documents
supersede all prior understandings and agreements, whether written or oral,
among the parties hereto relating to the transactions provided for
herein.

     

    7.6 No
Partnership.  This Agreement shall not in any respect be
interpreted, deemed or construed as making Teles a partner or joint venturer
with any other person or entity, including, without limitation, P&S or NWB,
nor shall it be construed as making Teles the agent or representative of P&S
or NWB nor P&S the agent or representative of Teles or NWB, except as
otherwise expressly provided for in this Agreement.. The parties hereto
acknowledge and agree that the Revolving Credit Loans and the Term Loan are
separate and distinct financing transactions and that P&S and Teles hold
separate, distinct and non-combined security interests and liens in the
Collateral.

     

    7.7 Survival.  All
representations and warranties of NWB contained herein or in any Loan Document
or made in connection herewith or therewith shall be deemed to have been relied
upon by the Secured Creditors and shall survive the execution and delivery of
this Agreement and the Loan Documents, any knowledge of or investigation by any
Secured Creditor, and all other events and conditions whatever.  All
statements in any financial statement, certificate, document or instrument from
time to time delivered by or on behalf of NWB under or in connection with this
Agreement or any Loan Document shall be deemed to constitute representations and
warranties by NWB.

     

    7.8 Counterparts.  This
Agreement and any Loan Document may be executed in any number of counterparts
and by the different parties hereto or thereto on separate counterparts each of
which, when so executed, shall be deemed an original, but all such counterparts
shall constitute but one and the same instrument.

     

    7.9 Termination of
Liens.  Except as otherwise provided in any Loan Document, upon
final and non-avoidable payment in full of all Secured Obligations (other than
indemnification obligations for which no claim is made) and termination of the
obligations of P&S to extend credit under the P&S Documents, the Liens
created hereby and by the Loan Documents shall terminate.  Except as
otherwise provided in any Loan Document, upon such termination, Secured
Creditors will, at the expense of NWB, redeliver and reassign to NWB
any

     

     

    
      
        
        

      

      
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    remaining
Collateral in its possession and take all action necessary to terminate the Lien
of the Secured Creditors in the Collateral.

     

    7.10 Independent Credit
Investigation.  Neither Secured Creditor, nor any of its
respective directors, officers, agents or employees, shall be responsible to the
other Secured Creditor for the solvency or financial condition of NWB or the
ability of NWB to repay any of the Secured Obligations, or the statements of
NWB, oral or written, or for the validity, sufficiency or enforceability of any
of the Secured Obligations, the P&S Documents, the Teles Documents, or any
document or agreement executed or delivered in connection with or pursuant to
any of the foregoing.  Each Secured Creditor has entered into its
respective financial agreements with NWB based upon its own independent
investigation, and makes no warranty or representation to the other, nor does it
rely upon any representation by the other, with respect to the matters
identified or referred to in this Section.

     

    7.11 Successors and
Assigns.  The provisions of this Agreement shall be binding
upon and inure to the benefit of NWB and the Secured Creditors, and each of
their respective successors and permitted assigns, except that NWB may not
assign or otherwise transfer any of its rights or obligations hereunder without
the prior written consent of each Secured Creditor and no Secured Creditor may
assign or otherwise transfer any of its rights or obligations hereunder, and no
new Secured Creditor may join as a party to any Loan Documents, unless (a) such
transfer or joinder is in accordance with terms of the applicable Loan Document
and (b) such transferee delivers a joinder or other agreement, reasonably
satisfactory to the other Secured Creditor, evidencing the transferee’s
agreement to be bound by the terms and conditions of this Intercreditor
Agreement (and any other attempted assignment or transfer by any party hereto
shall be null and void).

     

    7.12 Governing
Law.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN THE STATE; PROVIDED THAT EACH SECURED
CREDITOR SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

     

    (a) ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK SITTING IN THE CITY OF
WILMINGTON OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HERETO
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH PARTY HERETO IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF ANY LOAN
DOCUMENT OR OTHER DOCUMENT RELATED THERETO. EACH PARTY HERETO WAIVES PERSONAL
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY
OTHER MEANS PERMITTED BY THE LAW OF SUCH STATE.

     

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

     

    7.13 Waiver of Right to Trial by
Jury.  EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY
RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING
UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO
THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN
DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND
EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION 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 7.12 WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER
OF THEIR RIGHT TO TRIAL BY JURY.

     

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of Page Intentionally Left Blank]

     

     

     

    
 

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

    IN WITNESS WHEREOF, the parties hereto,
by their respective duly authorized officers, have executed this Intercreditor
Agreement as of the date first above written.

    

    
      	 
      
	
                                                      P&S
      SPIRIT, LLC

            
	 
      	 
      	 
      
	
                                                      By:           ______________________________

            
	
                                                      Name:      ______________________________

            
	
                                                      Title:        ______________________________

            
	
                                                      2700
      Lighthouse Point East

                                                      Suite
626

                                                      Baltimore,
      Maryland  21224

            
	 
      
	
                                                      TELES AG
      INFORMATIONSTECHNOLOGIEN

            
	 
      	 
      	 
      
	
                                                      By:          ______________________________

            
	
                                                      Name:     ______________________________

            
	
                                                      Title:       ______________________________

            
	
                                                      Ernst-Reuter-Platz
      8

                                                      10587
      Berlin, Germany

            
	 
      	 
      	 
      
	
                                                      NEW
      WORLD BRANDS, INC.

            
	 
      	 
      	 
      
	
                                                      By:      _______________________________

            
	
                                                      Name:     M.
      David Kamrat

            
	
                                                      Title:        CEO

            
	
                                                      340 W.
      5th
      Avenue

                                                      Eugene,
      Oregon 97401

            
	 
      
	 
      
	 
      
	 
      
	 
      
	 
      

    

    

    ACKNOWLEDGMENT

    

    On this ____ day of February, 2008, the
undersigned QUALMAX, INC., a Delaware corporation, hereby acknowledges and
agrees to the foregoing terms and provisions.  By its signature below,
the undersigned agrees that it will, together with its successors and assigns,
be bound by the provisions hereof; provided that, nothing in the
foregoing Intercreditor Agreement shall amend, modify, change
or  supersede the respective terms of any agreements or obligations of
the undersigned to P&S including, without limitation, that certain Guaranty
dated May 30, 2007 and that certain Collateral Pledge Agreement dated May 30,
2007, as the same may be amended, restated, modified, supplemented or replaced
from time to time. The undersigned acknowledges and agrees that it is not a
party to the foregoing Intercreditor Agreement and does not and will not receive
any right, benefit, priority or interest under or because of the existence of
the foregoing Intercreditor Agreement. The undersigned will execute and deliver
such additional documents and take such additional action as may be necessary or
desirable in the opinion of either Secured Creditor to effectuate the provisions
and purposes of the foregoing Intercreditor Agreement.

    

    

    
      	
                                                      QUALMAX,
      INC.

            
	 
      
	
                                                      
      By:         ______________________________

            
	
                                                      
      Name:    ______________________________

            
	
                                                      
      Title:      ______________________________

            
	
                                                       340
      West Fifth Avenue

                                      
      Eugene, OR  97401

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