Document:

f8k063008ex10ii_ea2bcc.htm

     

     

    Bedminster
Capital Corp.

    
      
        

      

    

    90
Washington Valley Road ·
Bedminster ·
NJ  07921 ·
Telephone (908) 719-8941

    

    

    

    

    June 30,
2008

     

     

     

    Mr.
Christian Van Pelt

    Whitetail
Group LLC

    7 Hilltop
Road

    Mendham,  New
Jersey

     

    
      	
              Re:

            	
              Bedminster
      Capital Corp. ------Whitetail
Group

            

    

     

    
      	
               
      

            	
              Dear
      Christian:

            

    

     

    
      	
               
      

            	
                           The
      Real Estate Consulting Agreement dated March 1,  2007 between
      Whitetail Group LLC and Bedminster Capital Corp. is hereby terminated as
      of today.    We look forward to working with you
      through Theseus Asset Management
LLC.

            

    

     

     

     

     

     

    Very
truly yours,

     

     

       Paul  Patriziof8k063008ex10iii_ea2bcc.htm

     

     

    Bedminster
Capital Corp.

    
      
        

      

    

    90
Washington Valley Road ·
Bedminster ·
NJ  07921 ·
Telephone (908) 719-8941

    

    

    

    

    June 30 ,
2008

     

     

    The
Management Agreement between Apogee Holdings Inc. ( Apogee) and Bedminster
Capital Corp. ( BCC) dated March 1 , 2007 is hereby terminated by the parties
effective today.    Apogee agrees to waive all outstanding
amounts owed to it under the Agreement.

     

     

     

     

     

    BEDMINSTER
CAPITAL
CORP.                                        APOGEE
HOLDINGS INC.

     

     

     

    __________________________                                     
__________________________

     

    Paul
Patrizio   ,  CEO                                                                Paul
Patrizio,  Presidentex10_1.htm

  
    Exhibit
10.1

    

    RESTATED AND AMENDED LOAN
AND SECURITY AGREEMENT

    

    

    This RESTATED AND AMENDED LOAN AND
SECURITY AGREEMENT made and dated as of June 27, 2008, by and
between

    

    FIVE STAR GROUP, INC., a
corporation of the State of Delaware with its principal corporate place of
business at 903 Murray Road, East Hanover, Morris County, New Jersey 07936 with
its mailing address at 903 Murray Road, P.O. Box 1960, East Hanover, Morris
County, New Jersey 07936 (hereinafter referred to as “BORROWER”)

    

    and

    

    BANK OF AMERICA, N.A., a national banking
association organized and existing under the laws of the United States, with
offices at 335 Madison Avenue, 6th Floor, New York, New York 10017 (being
hereinafter referred to as “LENDER”)

    

    WITNESSES
THAT:

     

    (1)           WHEREAS, on or about June 20,
2003, BORROWER and LENDER (through its predecessor Fleet Capital Corporation)
entered into a certain Loan and Security Agreement which has been amended by the
following instruments of modification (such certain Loan and Security Agreement
as so amended being hereinafter referred to as the “2003 Loan Agreement”):

     

    
      	
               
      

            	
              (i)

            	
              an
      instrument of modification dated as of May 28, 2004 and entitled “First
      Modification Agreement”;

            

    

    

    
      	
               
      

            	
              (ii)

            	
              an
      instrument of modification dated as of March 22, 2005 and entitled “Second
      Modification Agreement”;

            

    

    

    
      	
               
      

            	
              (iii)

            	
              an
      instrument of modification dated as of June 1, 2005 and entitled “Third
      Modification Agreement”;

            

    

    

    
      	
               
      

            	
              (iv)

            	
              an
      instrument of modification dated as of September 26, 2005, but effective
      as of August 1, 2005, and entitled “Fourth Modification
      Agreement”;

            

    

     

    
      
      

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (v)

            	
              
                an
      instrument of modification dated as of November 14, 2005, but effective as
      of August 1, 2005, and constituting a fifth modification
      agreement;

              

            

    

    

    
      	
               
      

            	
              (vi)

            	
              
                an
      instrument of modification dated as of March 23, 2006, but effective as of
      December 31, 2005, and constituting a sixth modification
      agreement;

              

            

    

     

    
      	
               
      

            	
              (vii)

            	
              
                an
      instrument of modification dated as of March 23, 2007, and constituting a
      seventh modification agreement;
and

              

            

    

    
      

      
        	
                 
      

              	
                (viii)

              	
                
                  an
      instrument of modification dated as of March 24, 2008, and constituting an
      eighth modification
agreement.

                

              

      

       

    

    (2)           WHEREAS, in order to secure
BORROWER’s payment and performance obligations under the 2003 Loan Agreement,
BORROWER provided LENDER with a first lien on all assets of
BORROWER;

     

    (3)           WHEREAS, in order to provide
notice of the security interests held by LENDER in all assets of BORROWER, UCC Financing Statement #20979454
was filed in the Office of the Delaware Secretary of State on March 27,
2002, and continued on October 4, 2006, under Amendment No.
63432051;

     

    (4)           WHEREAS, the obligations now
or hereafter owed to LENDER under the 2003 Loan Agreement have been guaranteed
by FIVE STAR PRODUCTS,
INC. (formerly known as
“AMERICAN DRUG COMPANY, INC.” and hereinafter the “GUARANTOR”) pursuant to an
instrument of guaranty dated on or about June 20, 2003 (the foregoing guaranty
as from time to time amended and reaffirmed being hereinafter called the “2003 Guaranty”);

     

    (5)           WHEREAS, certain claims of
JL DISTRIBUTORS INDUSTRIES,
INC. (hereinafter “SELLER”) against BORROWER and
GUARANTOR have been subordinated to the obligations now or hereafter owed by
BORROWER to LENDER pursuant to a Subordination Agreement and Assignment dated on
or about June 20, 2003 (hereinafter the “2003 Subordination
Agreement”);

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (6)           WHEREAS, the 2003 Loan
Agreement matures on June 30, 2008;

     

    (7)           WHEREAS, BORROWER has
requested that LENDER extend the maturity date of the 2003 Loan Agreement to
June 30, 2011;

     

    (8)           WHEREAS, LENDER is willing to
do the foregoing, but only if the conditions contained in this Agreement are
satisfied;

     

    (9)           WHEREAS, in order to induce
LENDER to enter into this Agreement, BORROWER is willing to execute this
Agreement and comply, or cause compliance, with the provisions
hereof;

     

    NOW THEREFORE in consideration
of the premises and the covenants contained in this Agreement and for other good
and valuable consideration, BORROWER and LENDER do hereby agree as
follows:

     

    PART
ONE

     

    THE
2003 LOAN AGREEMENT

     

    (a)           From
and after the Effective Date, this Agreement and the other Loan Documents
restate and amend the obligations of BORROWER under the 2003 Loan Agreement and
the Loan Documents outstanding thereunder.

     

    (b)           From
and after the Effective Date, this Agreement and the other Loan Documents are
intended to restate, amend, substitute for and replace in their entirety the
2003 Loan Agreement and the Loan Documents
outstanding thereunder.

     

    (c)           All
sums outstanding on the Effective Date under the 2003 Loan Agreement shall be
and hereby are restated and recast, without more, as an Advance under the
Revolving Loan.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (d)           The
2003 Guaranty and the 2003 Subordination Agreement shall be restated and amended
by instruments which substitute for and replace in their entirety the 2003
Guaranty and the 2003 Subordination Agreement.

     

    PART
TWO

     

    RECITATION
THAT ALL SUMS ARE DUE WITHOUT DEFENSE

     

    (a)           REVOLVING LOAN AMOUNTS
DUE:  BORROWER confirms to LENDER that, as of the close of
business on June 24, 2008, the principal amount now due and outstanding on the
2003 Loan Agreement is: $27,596,143.04 (interest being current as of May 31,
2008).

     

    (b)           LETTERS OF CREDIT OUTSTANDING:
BORROWER confirms to LENDER that, as of the opening of business on the date
hereof, there were no Letters of Credit outstanding under the 2003 Loan
Agreement.

     

    (c)           NO OFFSETS AGAINST AMOUNT
DUE

     

    (1)           BORROWER
hereby represents, warrants and confirms that as of the date hereof and the
Effective Date, the obligations owed by BORROWER to LENDER under the 2003 Loan
Agreement are not subject to any defenses, recoupments, set-offs or
counterclaims of any kind whatsoever; and any and all such defenses,
recoupments, set-offs or counterclaims are hereby expressly waived by
BORROWER.

     

    (2)           BORROWER
agrees that there exist no claims or charges relating to any actions or
inactions of LENDER in extending financial accommodations to BORROWER under the
2003 Loan Agreement or in LENDER’s making disbursements to BORROWER thereunder
or in otherwise administering the 2003 Loan Agreement and the other Loan
Documents referred to therein (as from time to time amended and
extended).

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (d)           RELEASE. For itself and its
heirs, personal representatives, successors and assigns, BORROWER waives,
releases and discharges any and all claims or causes of action of any kind
whatsoever, whether at law or in equity, and including, but not limited to, all
claims, defenses, recoupments, set-offs or counterclaims of any kind whatsoever,
arising on or prior to the date hereof, which BORROWER may have against LENDER,
its predecessors, its successors and assigns, agents, officers, directors,
employees and counsel, in connection with the 2003 Loan Agreement and the other
Loan Documents referred to therein (as from time to time amended and extended).
The waivers, releases and discharges made and given herein include waiver by
BORROWER of any damages which may have been or may in the future be caused to
BORROWER, its property or business prospects because of the actions waived and
released and the agreements made herein, including without limitation, any
actual or implicit, direct or indirect, incidental or consequential damages
suffered by BORROWER therefrom, including but not limited to (1) lost profits,
(2) loss of business opportunity, (3) increased financing costs, (4) increased
legal and other administrative fees and (5) damages to business
reputation.

     

    PART
THREE

     

    SUBSTITUTION
FOR AND REPLACEMENT OF
2003 LOAN AGREEMENT

     

    The following provisions of this
Agreement hereby restate, amend, substitute for and replace in their entirety
the 2003 Loan Agreement.  On and after the Effective
Date,  the rights of BORROWER and LENDER shall be determined by
reference to the following provisions of this Agreement and the Loan Documents
defined herein rather than by reference to the provisions of the 2003Loan
Agreement the Loan Documents outstanding thereunder:

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    ARTICLE
I

     

     

    DEFINITIONS

     

    1.1           DEFINITIONS OF “BORROWER”,
“GUARANTOR”, “LENDER”,
“SELLER”, “2003 Guaranty, “2003 Loan Agreement” and “2003 Subordination
Agreement”.   The terms “BORROWER”, “GUARANTOR”, “LENDER”, “SELLER”, “2003
Guaranty”, “2003 Loan
Agreement” and “2003
Subordination Agreement” shall have the meanings given those terms in the
Preliminary Statements of this Agreement.

     

    1.2           “ACCESSIONS” means, in
addition to the definition of Accessions as contained in the
UCC, Goods that are physically united with other Goods in such a manner that the
identity of the original Goods is not lost.

     

    1.3           “ACCOUNTING
TERMS”.  Any accounting terms used in this Agreement that are
not specifically defined herein shall have the meanings customarily given to
them in accordance with GAAP as in effect on the date of this Agreement, except
that references in Article
V and/or Article VI
to GAAP shall be deemed to refer to generally accepted accounting
principles as in effect on the date of the financial statements delivered
pursuant thereto and consistently applied over the period to which they
relate.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    1.4           “ACCOUNTS” or “ACCOUNTS RECEIVABLE” means, in
addition to the definition of Account as contained in the
UCC, all of the accounts, contract rights of BORROWER (including its rights as
an unpaid vendor, or lienor, including stoppage in transit, replevin and
reclamation), including without limitation any right to the payment of a
monetary obligation, whether or not earned by performance (a) for property that
has been or is to be sold, leased, licensed, assigned or otherwise disposed of,
(b) for services rendered or to be rendered, (c) for a policy of insurance
issued or to be issued, (d) for a secondary obligation incurred or to be
incurred; (e) for energy provided or to be provided; (f) for the use or hire of
a vessel under a charter or other contract; (g) arising out of the use of a
credit or charge card or information contained on or for use with the card; (h)
Health-Care-Insurance Receivables and Bondable Transition
Property.  The term does not include (i) rights to payment evidenced
by Chattel Paper or an Instrument; (ii) Commercial Tort Claims; (iii) Deposit
Accounts; (iv) Investment Property; (v) Letter-of-Credit Rights or Letters of
Credit; (vi) rights to payment for money or funds advanced or sold, other than
rights arising out of the use of a credit or charge card or information
contained on or for use with the card.

     

    1.5           “ACCOUNT DEBTOR” means, in
addition to the definition of Account Debtor as contained in
the UCC, the person or persons obligated to BORROWER on an Account, Chattel
Paper or General Intangible, or who is represented by BORROWER to be so
obligated.

     

    1.6           “ACH FACILITY” means any
automatic clearinghouse facility now or hereafter provided to BORROWER by
LENDER.

     

    1.7           “ADVANCES” is a collective
term which means all cash advances and extensions of monetary credit, including
those reimbursable expenses of LENDER deemed to be Advances under this Agreement
and other amounts which LENDER is authorized by this Agreement to charge against
the Revolving Loan, and other amounts (including, without duplication, the
Letter of Credit Advances and other amounts now or hereafter due under the
Letter of Credit Obligations and reimbursed to or paid by LENDER pursuant to the
Authorization to Charge) which LENDER is authorized by this Agreement to charge
against the Revolving Loan, now or at any time hereafter made by LENDER to, on
behalf of or for the account of BORROWER under the Revolving Loan, the Letter of
Credit Obligations and/or any of the other Liabilities.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    1.8           “AGREEMENT” is a collective
term which means all of the following:

     

    
      
        	
                 
      

              	
                (a)

              	
                this
      Restated and Amended Loan and Security Agreement;
  and

              

      

       

    

    
      	
               
      

            	
              (b)

            	
              all
      extensions, modifications (including without limitation modifications
      increasing or decreasing the amount of the Revolving Loan), refinancings,
      renewals, substitutions, replacements and/or redatings
    hereof.

            

    

    

    1.9           
“APPLICATION(S)” shall
have the meaning given that term in Section 2.7(b)
below.

     

    1.10          
“AUTHORIZATION TO
CHARGE” has the meaning given that term in Section 2.9
below.

     

    1.11           “BLOCKED ACCOUNTS” shall mean
the checking/demand deposit operating accounts (if more than one) which is
maintained either in LENDER’s name or in BORROWER’s name for the benefit of
LENDER at LENDER or one or more financial institutions (including any LENDER’s
Affiliate) of LENDER’s choosing and into which are to be deposited all
Collateral Proceeds.

     

    1.12           “BOOKS AND RECORDS” means all
books and records (including such books and records as are contained in
computerized storage media), including, without limitation, all inventory,
purchasing, accounting, sales, export, import, manufacturing, banking and
shipping records, all customer and supplier lists, files, records, literature
and correspondence and all advertising, marketing and public relations
materials, drawings, engineering, manufacturing and assembly information,
operating and training manuals, quotations, bids, trade association membership,
customer credit information and pricing information, business plans, studies and
analysis and personnel records.

     

    1.13           “BORROWING BASE CERTIFICATE”
means that certain certification  in the form attached hereto as Exhibit “A” for certifications
which are required to be submitted no less frequently than weekly, setting
forth, among other things, information relating to amounts and agings of
Eligible Receivables and/or amounts and values of Eligible
Inventory.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    1.14           “BUSINESS DAY” shall mean a
day on which LENDER at its office listed in Section 9.1 hereof is open for
business during its usual business hours and offering substantially all its
services; provided however that when used with reference to LIBOR Loans the term
“Business Day” shall also exclude any day upon which banks are not open for
dealings in U.S. Dollar deposits on the London interbank market.

     

    1.15           “CERTIFICATION AS TO LIENS”
means any certification now or hereafter given by BORROWER setting forth the
existence or non-existence of UCC liens filed against BORROWER.

     

    1.16           “CERTIFICATION RESPONSIVE TO THE
GUARANTY” is a collective term which means the certification of GUARANTOR
as to the truth and accuracy of certain representations and warranties set forth
in the Guaranty, to which is attached each of the following:

     

    
      
        	
                (a)

              	
                Exhibit
      “A”:

              	
                the
      Certification of an assistant corporate secretary or the corporate
      secretary of GUARANTOR as to a true, complete and correct copy of the
      resolutions adopted by GUARANTOR’s Board of Directors authorizing the
      execution, delivery and performance of the Guaranty and any other
      documents required thereunder or hereunder;

              
	 
      	 
      	 
      
	
                (b)

              	
                Exhibit
    “B”:

              	
                 the
      Certification of an assistant corporate secretary or the corporate
      secretary of GUARANTOR as to the true, complete and correct copy of the
      incumbency and specimen signatures of those officers of GUARANTOR who are
      to execute the Guaranty and any other documents required thereunder or
      hereunder;

              
	 
      	 
      	 
      
	
                (c)

              	
                Exhibit
    “C”:

              	
                a
      true, complete and correct copy of GUARANTOR’s Certificate of
      Incorporation, as amended;

              
	 
      	 
      	 
      
	
                (d)

              	
                Exhibit
      “D”:

              	
                a
      true, complete and correct copy of GUARANTOR’s By-Laws, as
      amended;

              

      

    

    
       

      
        
          
            
              
                
                  
                  

                

                
                  9

                  
                    

                  

                

                
                  
                  

                

              

              
                 

                
                  
                    	
                            (e)

                          	
                            Exhibit
      “E”:

                          	
                            the
      certificate as to the Good Standing of GUARANTOR for the State of
      Delaware;

                          
	 
      	 
      	 
      
	
                            (f)

                          	
                            Exhibit
      “F”:

                          	
                            the
      certificate as to the Good Standing of GUARANTOR for the State of New
      York.

                          

                  

                

                
                   

                

              

            

          

        

      

    

    1.17           “CERTIFICATION RESPONSIVE TO THE LOAN
AGREEMENT” is a collective term which means the certification of BORROWER
as to the truth and accuracy of certain representations and warranties, to which
is attached each of the following:

    
       

      
        
          	
                  (a)

                	
                  Exhibit
      “A”:

                	
                  the
      Certification of an assistant corporate secretary or the corporate
      secretary of BORROWER as to a true, complete and correct copy of the
      resolutions adopted by BORROWER’s Board of Directors authorizing the
      execution and delivery of this Agreement, the borrowings hereunder, and
      the execution and delivery of the other Loan Documents;

                
	 
      	 
      	 
      
	
                  (b)

                	
                  Exhibit
      “B”:

                	
                  the
      Certification of an assistant corporate secretary or the corporate
      secretary of BORROWER as to a true, complete and correct copy of the
      incumbency and specimen signatures of those officers of BORROWER who are
      to execute this Agreement and the other Loan Documents;
  and

                
	 
      	 
      	 
      
	
                  (c)

                	
                  Exhibit
      “C”:

                	
                  a
      true, complete and correct copy of BORROWER’s Certificate of
      Incorporation, as amended;

                
	 
      	 
      	 
      
	
                  (d)

                	
                  Exhibit
      “D”:

                	
                  a
      true, complete and correct copy of BORROWER’s By-Laws, as
      amended;

                
	 
      	 
      	 
      
	
                  
                    (e)

                  

                	
                  Exhibit
      “E”:

                	
                  the
      certificate as to BORROWER’s “Good Standing” in the State of
      Delaware;

                
	 
      	 
      	 
      
	
                  
                    (f)

                  

                	
                  Exhibit
      “F”:

                	
                  the
      certificate as to BORROWER’s “Good Standing” and authorization to do
      business in the State of Connecticut;

                
	 
      	 
      	 
      
	
                  
                    (g)

                  

                	
                  Exhibit
      “G”:

                	
                  the
      certificate as to BORROWER’s “Good Standing” and authorization to do
      business in the State of New Jersey;

                
	 
      	 
      	 
      
	
                  
                    (h)

                  

                	
                  Exhibit
      “H”:

                	
                  the
      certificate as to BORROWER’s “Good Standing” and authorization to do
      business in the State of New
York;

                

        

      

       

    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    
      
         

        
          
            	
                    
                      (i)

                    

                  	
                    Exhibit
      “I”:

                  	
                    disclosure
      schedule setting forth any exceptions to representations made by BORRWER
      in this Agreement;

                  

          

           

        

      

    

    1.18           “CHATTEL PAPER” means, in
addition to the definition of Chattel Paper as contained in
the UCC, a record or records that evidence both a monetary obligation and one or
more of the following: a security interest in specific Goods, a security
interest in specific Goods and software used in the Goods, a security interest
in specific Goods and license of software used in the Goods, a lease of specific
Goods, or a lease of specific Goods and license of software used in the
Goods.  Chattel Paper also includes: (i) Tangible Chattel Paper (i.e., Chattel Paper evidenced
by a record or records consisting of information that is inscribed on a tangible
medium) and (ii) Electronic Chattel Paper (i.e., Chattel Paper evidenced
by a record or records consisting of information stored in an electronic
medium).  The term does not include (x) charters of other contracts
involving the use or hire of a vessel or (y) records that evidence a right to
payment arising out of the use of a credit or charge card or information
contained on or for use with the card.  If a transaction is evidenced
by records that include an instrument or series of instruments, the group of
records taken together constitutes Chattel Paper.

     

    1.19           “COLLATERAL” is a collective
term which means all of the following:

     

    
      
        
          	
                  
                    (a)

                  

                	
                  all property (including
      but not limited to all Collateral described in Article III of this
      Agreement), whether real, personal or mixed, or tangible or intangible,
      now or at any time hereafter given, assigned or pledged to LENDER to
      secure the Liabilities by BORROWER or by GUARANTOR; and

                
	 
      	 
      
	
                  
                    (b)

                  

                	
                  all
      products and Proceeds of the
foregoing.

                

        

      

       

    

    1.20           “COLLATERAL LOCATIONS” is a
collective term which means the locations referenced and set forth in Section 4.6
below.

     

    1.21           “COLLATERAL PROCEEDS” is a
collective term which means each of the following:

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    
       

      
        	
                
                  (a)

                

              	
                all
      Proceeds (including proceeds in the form of cash, invoices, Accounts
      Receivable, checks, notes, instruments for the payment of money,
      remittances in kind, and the like) which BORROWER receives from any sale,
      lease, transfer, exchange or other disposition of any of the Collateral
      (whether tangible or intangible) and/or from services rendered by BORROWER
      to Account Debtors and other third parties; and

              
	 
      	 
      
	
                
                  (b)

                

              	
                all
      other sums received by BORROWER as payment for services rendered by it to
      Account Debtors and/or other third parties and/or as payment from any
      sale, lease, transfer, exchange or other disposition of any of its assets
      (whether tangible or intangible) or which BORROWER receives for any other
      reason whatsoever; and

              
	 
      	 
      
	
                
                  (c)

                

              	
                all
      products and Proceeds of all the foregoing, including insurance proceeds
      and condemnation awards.

              

      

    

    
    

     

    1.22           “COLLATERAL UPDATE CERTIFICATE”
means that certain certification in the form attached hereto as Exhibit “B” (or as otherwise
acceptable to LENDER).

     

    1.23           “COMMERCIAL TORT CLAIMS” means,
in addition to the definition of Commercial Tort Claims as contained in the UCC,
a claim arising in tort with respect to which (a) the claimant is an
organization or (b) the claimant is an individual and the claim arose in the
course of claimant’s business or profession and does not include damages arising
out of personal injury to or death of an individual.

     

    1.24           “CONSIGNMENTS” means, in
addition to the definition of Consignments as contained in
the UCC, a transaction, regardless of form, in which Goods are delivered to a
merchant for the purpose of sale and the merchant (i) deals in Goods of that
kind under a name other than that of the person making delivery; (ii) is not an
auctioneer; and (iii) is not generally known by its creditors to be
substantially engaged in selling the Goods of others.

     

    1.25           “CONTRACT RIGHTS” means any
right of BORROWER to receive payment or performance under a contract not yet
earned by payment and/or performance and any franchise right to operate a
business.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    1.26           “DEFAULT RATE” means a rate
per annum equal to the lesser of (a) 200 basis points in excess of the
contractual rate of interest which would otherwise be paid by BORROWER hereunder
or (b) the maximum rate allowed by law, it being intended that at no time shall
the rate of interest payable on the Revolving Loan be calculated at a rate
higher than the maximum rate allowed by law.

     

    1.27           “EFFECTIVE DATE” shall be July
1, 2008.

     

    1.28            “ELIGIBLE INVENTORY” is a
collective term which means and includes such of BORROWER’s Inventory which is
and at all times shall continue in all respects to be acceptable and
satisfactory to LENDER in its reasonable commercial judgment, exercised in good
faith, and which, not in limitation of the foregoing, also consists of the
following:

     

    
      
        	
                
                  (a)

                

              	
                that
      portion of BORROWER’s inventory of finished goods held for sale by
      BORROWER, normally and currently saleable in the ordinary course of
      BORROWER’s business, and which at all times pertinent hereto is of good
      and merchantable quality, free from defects, as to which LENDER has a
      perfected first priority lien, and which is located at the Collateral
      Locations, and as to which BORROWER has satisfied all terms, conditions,
      warranties and representations of this Agreement and the other Loan
      Documents and which is valued at the lower of (i) its cost (where cost is
      computed at historic invoiced purchase price without adjustment for
      subsequently received rebates) or (ii) its market value;
    but

              
	 
      	 
      
	
                
                  (b)

                

              	
                Eligible
      Inventory does not include any of the following:

              
	 
      	 
      	 
      
	 
      	
                (1)

              	
                catalogs
      and other promotional materials of any kind;

              
	 
      	 
      	 
      
	 
      	
                (2)

              	
                raw
      materials;

              
	 
      	 
      	 
      
	 
      	
                (3)

              	
                work
      in process;

              
	 
      	 
      	 
      
	 
      	
                (4)

              	
                Inventory
      in transit except for Inventory in transit to BORROWER and for which
      LENDER is the named consignee on bills of lading or under documents of
      title acceptable to LENDER;

              
	 
      	 
      	 
      
	 
      	
                (5)

              	
                any
      returned items unless returned in salable
  condition;

              

      

    

    
       

      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    
       

      
        
          	 
      	
                  (6)

                	
                  any
      damaged, defective or recalled items;

                
	 
      	 
      	 
      
	 
      	
                  (7)

                	
                  any
      obsolete items;

                
	 
      	 
      	 
      
	 
      	
                  (8)

                	
                  any
      items used as demonstrators, prototypes or salesmen’s
    samples;

                
	 
      	 
      	 
      
	 
      	
                  (9)

                	
                  any
      items of Inventory which have been consigned to BORROWER or as to which
      any third person claims a lien, except continuing claims of trademark or
      other intellectual property  rights which do not interfere with
      or limit BORROWER’s  right to sell the Inventory in the ordinary
      course of its business;

                
	 
      	 
      	 
      
	 
      	
                  (10)

                	
                  any
      items of Inventory which have been consigned by BORROWER to a
      consignee;

                
	 
      	 
      	 
      
	 
      	
                  (11)

                	
                  any
      items of Inventory which BORROWER maintains on a bill and hold
      basis;

                
	 
      	 
      	 
      
	 
      	
                  (12)

                	
                  Inventory
      located at Collateral Locations for which appropriate lien releases and
      waivers have not been obtained (unless otherwise provided in this
      Agreement);

                
	 
      	 
      	 
      
	 
      	
                  (13)

                	
                  packing
      and shipping materials;

                
	 
      	 
      	 
      
	 
      	
                  (14)

                	
                  Inventory
      which in the reasonable commercial judgment of LENDER exercised in good
      faith is considered to be slow moving, defective or otherwise not
      merchantable.

                

        

      

    

     

    1.29           “ELIGIBLE RECEIVABLES” is a
collective term which means and includes such of BORROWER’s Accounts Receivable
which are and at all times shall continue in all respects to be acceptable and
satisfactory to LENDER in its reasonable commercial judgment, exercised in good
faith, and which, not in limitation of the foregoing, also consist of Accounts
Receivable which are created by BORROWER in the ordinary course of business in
an arm’s length third party transaction, are genuine and in all respects are
what they purport to be.  In addition to the foregoing, an Account
shall be deemed to be an Eligible Receivable only if as of the date of
computation of Eligible Receivables, such Account shall not have been
outstanding for more than ninety (90) days from the date of the invoice,
provided, however, that the following shall apply to extend the aforesaid ninety
(90) day limit:

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    (a)           if
the Account is in respect of goods to be sold by BORROWER to an Account Debtor
in a new retail establishment (i.e., a new customer for
BORROWER for a period of one-year from the establishment of the relationship),
then such Account shall not have been outstanding for more than two hundred
seventy (270) days from the date of invoice, provided, that the maximum amount
of Accounts beyond 90 days from the date of the invoice which shall be
considered Eligible Receivables pursuant to this Subsection (a) shall not exceed
$100,000 in the aggregate at any time; and

     

    (b)           in
the case of a “dated sale”, if the terms of sale were otherwise entered into by
BORROWER in respect of such invoice in the ordinary course of BORROWER’s
business, then, as of the date of computation of Eligible Receivables, such
Account shall not have been outstanding for more than one hundred fifty (150)
days from the date of the invoice relates to such “dated sale”, (1) provided,
however, that if the Account relates to the sale of “Cabot’s Stain”, then such
Account shall not have been outstanding for more than one hundred eighty (180)
days from the date of the invoice relates to such “dated sale”, and (2) provided
further that the maximum amount of Accounts which shall be considered Eligible
Receivables pursuant to this Subsection (b) shall not exceed $6,000,000 in the
aggregate at any time, and of such amount, no more than $3,000,000 in the
aggregate of all such Accounts shall at any time consist of the “Cabot’s Stain”
Accounts referred to in Subsection (b)(1) above.

     

    1.30           “EQUIPMENT” means, in addition
to the definition of Equipment contained in the
UCC, Goods of every kind, nature and description and whether affixed to realty
or not, other than Inventory, farm products or consumer goods.

     

    1.31           “EVENT OF DEFAULT” has the
meaning set forth in Article
VII of this Agreement.

     

    1.32           “FIXED CHARGE COVERAGE RATIO”
shall have the meaning given that term in Section 5.21.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    1.33           “GAAP” means generally
accepted accounting principles, applied over the period to which they relate on
a basis consistent with the December 31, 2007 audited consolidated financial
statements of GUARANTOR.

     

    1.34           “GENERAL INTANGIBLES” means
each and all of the following:

     

    
      
        	
                

                  (a)

                

              	
                all
      property included within the definition of General Intangibles
      contained in the UCC,

              
	 
      	 
      
	
                

                  (b)

                

              	
                any
      personal property, including things in action, payment intangibles and
      software but does not include Accounts, Chattel Paper, Commercial Tort
      Claims, Deposit Accounts, Documents, Goods, Instruments, Investment
      Property, Letter-of-Credit Rights, Letters of Credit, money, and oil, gas
      or other minerals before extraction,

              
	 
      	 
      
	
                

                  (c)

                

              	
                all
      rights of BORROWER, including but not limited to all rights to property,
      choses in action and other rights of BORROWER not otherwise specifically
      included elsewhere in this Agreement, further including but not limited to
      all present and future federal and state tax refunds, trademarks
      (including without limitation Five Star Products), trade names (including
      without limitation Five Star Products), service marks, copyrights and
      patents, all rights under license agreements for the use of same,
      warranties, insurance proceeds and condemnation awards;
  and

              
	 
      	 
      
	
                

                  (d)

                

              	
                (1)  all
      inventions (whether patentable or unpatentable and whether or not reduced
      to practice), all improvements thereto, and all patents, patent
      applications, and patent disclosures, together with all reissuances,
      continuations, continuations-in-part, revisions, extensions, and
      reexaminations thereof; (2) all trademarks (including, without limitation,
      the trade mark Five Star Products) service marks, trade dress, logos,
      trade names, together with all translations, adaptations, derivations, and
      combinations thereof and including all goodwill associated therewith, and
      all applications, registrations, and renewals in connection therewith; (3)
      all copyrightable works, all copyrights, and all applications,
      registrations, and renewals in connection therewith; (4) all mask works
      and all applications, registrations, and renewals in connection therewith;
      (5) all trade secrets and confidential business information (including
      ideas, research and development, know-how, formulas, compositions,
      manufacturing and production processes and techniques, technical data,
      designs, drawings, specifications, customer and supplier lists, pricing
      and cost information and business and marketing plans and proposals,
      secret processes and procedures, engineering, production, assembly,
      design, installation, other technical drawings and specifications, working
      notes and memos, market studies, consultants’ reports, technical and
      laboratory data, competitive samples, engineering prototypes, and all
      similar property of any nature, tangible or intangible); (6) all computer
      software (including data and related documentation), computer applications
      software, owned or licensed, whether for general business usage (e.g., accounting, word
      processing, graphics, spreadsheet analysis, etc.) or specific,
      unique-to-the-business usage (e.g., order processing,
      manufacturing, process control, shipping, etc.) and computer operating,
      security or programming software; (7) all rights in and to any domain
      names and url addresses; (8) all other proprietary rights; and (9) all
      copies and tangible embodiments thereof (in whatever form or
      medium);

              

      

    

    
       

      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    
       

      
        
          	
                  

                    (e)

                  

                	
                  all
      federal, foreign, state, local and other governmental consents, licenses,
      permits, franchises, approvals, notifications, numbers and identifiers
      issued by governmental authorities, grants and other authorizations
      required for the operation of BORROWER’s business;

                
	 
      	 
      
	
                  

                    (f)

                  

                	
                  all
      unperformed commitments or obligations owing to BORROWER which pertain to
      BORROWER’s business;

                
	 
      	 
      
	
                  
                    (g)

                  

                	
                  all
      other tangible and intangible assets (including the telephone and
      facsimile numbers used in connection with BORROWER’s business, all causes
      of action, rights of action (whether in tort, contract or otherwise),
      contract rights and warranty and product liability claims against third
      parties), unliquidated rights and claims pursuant to warranties made by
      manufacturers, suppliers or vendors, claims for refunds, rights of off-set
      and credits of all kinds, which are used or useful in or necessary to the
      operation of BORROWER’s business; and

                
	 
      	 
      
	
                  

                    (h)

                  

                	
                  all
      of the goodwill associated with BORROWER’s business as a going
      concern.

                

        

      

       

    

    1.35           “GOODS” means, in addition to
the definition of Goods
as contained in the UCC, all things that are movable when a security interest
attaches and includes all articles of tangible personal property capable of
being sold, supplied, leased or otherwise disposed of, and shall include all of
BORROWER’s right, title and interest in and to any Goods or other property
underlying or securing any of the Accounts Receivable.

     

    1.36           “GUARANTOR” means FIVE STAR PRODUCTS, INC., a
corporation of the State of Delaware with its principal corporate place of
business at 10 East 40th Street,
New York, New York 10016.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    1.37           “GUARANTY” is a collective
term which means all of the following:

     

    
      
        	
                

                  (a)

                

              	
                that
      certain unlimited guaranty (dated even date herewith) given by GUARANTOR
      to LENDER guaranteeing payment and performance of the Liabilities and
      executed in restatement and amendment and replacement of the 2003
      Guaranty; and

              
	 
      	 
      
	
                
                  (b)

                

              	
                all
      extensions, modifications, refinancings, renewals, substitutions,
      replacements and/or redatings of such certain
  guaranty.

              

      

    

    
    

     

    1.38           “INSTRUMENT” means, in
addition to the definition of instrument as contained in the
UCC, a negotiable instrument or a security, or any other writing which evidences
a right to the payment of a monetary obligation and is not itself a security
agreement or lease and is of the type which is, in the ordinary course of
business, transferred by delivery with any necessary endorsement or
assignment.  The term does not include (i) Investment Property, (ii)
Letters of Credit, (iii) writings that evidence a right to payment arising out
of the use of a credit or charge card or information contained on or for use
with the card.

     

    1.39           “INVENTORY” means, in addition
to the definition of Inventory as contained in the
UCC, Goods (other than farm goods) which are (a) leased by BORROWER as lessor,
or (b) held by BORROWER for sale or lease or to be furnished under contracts of
service, or (c) are furnished by BORROWER under a contract of service, or (d)
consist of raw materials, work in process, finished Goods or materials used or
consumed in a business (including materials and supplies, incidentals, packaging
materials and all other items which contribute to the finished product or to the
promotion or sale thereof) and all Goods returned by or reclaimed from
customers.

     

    1.40           “LANDLORD’S CONSENTS” is a
collective term which means those certain waivers and consents (including
warehouseman consents) pursuant to which the fee owners of the Collateral
Locations (or any other location at which BORROWER’s property is located) allow
LENDER to come onto such premises in order to exercise its rights against
BORROWER upon the occurrence of an Event of Default hereunder.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    1.41           “LENDER’S AFFILIATE” means any
entity which directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, LENDER.

     

    1.42           “LENDING FORMULA” means the
lesser of:

     

    
      
        	
                

                  (a)

                

              	
                $35,000,000 LESS the “Swap Reserve”
      (i.e., the amount approximating the marked to market exposure from time to
      time of LENDER or LENDER’s Affiliate under the Master Agreement);
      or

              
	 
      	 
      
	
                

                  (b)

                

              	
                the
      “loan value” of
      Eligible Receivables PLUS the “loan value” of Eligible
      Inventory LESS the
      amount of Outstanding Letter of Credit
  Obligations.

              

      

    

    
    

     

    1.43           “LETTER OF CREDIT ADVANCES”
means, to the extent not reimbursed by BORROWER or already paid by
Advances, (a) all amounts which LENDER has actually advanced on account of any
Letters of Credit and  any acceptances created thereunder, (b) in the
event the LENDER is not itself the issuer of any Letter of Credit, all amounts
which LENDER has actually advanced to any such issuer on account of the Letters
of Credit and any acceptances created thereunder, and (c) all other Letter of
Credit Obligations (including fees and interest presently due on any amounts
drawn under any Letter of Credit) due and payable to LENDER under any
documentation, including the Applications, now or hereafter governing LENDER’s
rights and obligations relating to any Letter of Credit.

     

    1.44            “LETTER-OF-CREDIT RIGHTS”
means, in addition to the definition of Letter of Credit Rights as
contained in the UCC, a right to payment and performance under a Letter of
Credit whether or not the beneficiary has demanded or is at the time entitled to
demand payment or performance, excluding, however, the right of a beneficiary to
demand payment or performance under a Letter of Credit.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    1.45           “LETTER OF CREDIT OBLIGATIONS”
means (a) all Letter of Credit Advances, together with all amounts which LENDER
is contingently liable to advance on account of any Letters of Credit, (b) in
the event that LENDER is not itself the issuer of any Letter of Credit, all
Letter of Credit Advances, together with all amounts which LENDER is
contingently liable to advance to any such issuer on account of the Letters of
Credit, (c) any acceptances that may be created under the foregoing and (d) all
other sums (including fees and interest due on any amounts drawn under any
Letter of Credit from the date of any such draw until the date of reimbursement
by BORROWER) due to LENDER or any issuer of any Letter of Credit under any
documentation, including the Applications, now or hereafter governing LENDER’s
rights and obligations relating to any Letter of Credit.

     

    1.46           “LETTERS OF CREDIT” is a
collective term which means those certain documentary and/or stand-by letters of
credit from time to time issued by LENDER for the benefit of beneficiaries
requested and designated by BORROWER and for the account of BORROWER and on
terms and conditions satisfactory to LENDER.

     

    1.47           “LIABILITIES” means all of the
following, without duplication:

    
       

      
        
          	
                  

                    (a)

                  

                	
                  principal
      due on the Revolving Loan and the Revolving Note (including all Advances
      and re-Advances under the Revolving Loan and the Revolving Note) to be
      paid with interest thereon as required by this Agreement and the Revolving
      Note;

                
	 
      	 
      
	
                  

                    (b)

                  

                	
                  Advances,
      re-Advances, borrowings and re-borrowings which are and which may be made
      from time to time to BORROWER under this Agreement not in compliance with
      the Lending Formula or the “loan value” requirements of Article
    II;

                
	 
      	 
      
	
                  
                    (c)

                  

                	
                  Advances,
      re-Advances, borrowings and re-borrowings which are and which may be made
      from time to time to BORROWER under the ACH Facility;

                
	 
      	 
      
	
                  

                    (d)

                  

                	
                  the
      Letter of Credit Advances and all other Letter of Credit
      Obligations;

                
	 
      	 
      
	
                  

                    (e)

                  

                	
                  Advances,
      re-Advances, borrowings and re-borrowings which are and which may be made
      from time to time to BORROWER under this Agreement over and above any
      monetary limitation on the Revolving Loan and/or the ACH Facility and/or
      the Letters of Credit and/or over and above any other lending limitation
      contained in this Agreement, and the interest
  thereon;

                

        

         

      

    

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    
      
         

        
          
            	
                    

                      (f)

                    

                  	
                    any
      and all claims, damages, losses, liabilities, reasonable costs or expenses
      whatsoever which LENDER may incur (or which may be claimed against LENDER
      by any person or entity whatsoever including any LENDER’s affiliate) by
      reason of or in connection with the execution and delivery of, or payment
      or failure to pay under the Revolving Loan and/or the Letters of Credit
      and/or the ACH Facility and/or this Agreement;

                  
	 
      	 
      
	
                    

                      (g)

                    

                  	
                    all
      other indebtedness, liabilities and obligations owing, arising, due and
      payable from BORROWER to LENDER of every kind or nature, whether absolute
      or contingent, due or to become due, joint or several, liquidated or
      unliquidated, matured or unmatured, primary or secondary, now existing or
      hereafter incurred, purchase money or nonpurchase money, arising under
      this Agreement or any of the other Loan Documents, regardless of the form
      or purpose of such indebtedness, liabilities or obligations, including,
      without limitation, any and all interest, commissions, checking account
      overdrafts, bank overdrafts, and other obligations, liabilities and
      indebtedness (including indebtedness owed under any ACH Facility) owed by
      BORROWER to LENDER or any LENDER’s Affiliate (whether direct or indirect,
      primary, secondary, contingent, joint or several, and regardless of how
      acquired by LENDER or any such Lender’s Affiliate) which are due or which
      will arise or become due in the future, no matter how or when arising and
      whether under any now existing or future agreement or instrument of
      whatever nature (1) between BORROWER and LENDER or (2) between BORROWER
      and any LENDER’s Affiliate or (3) otherwise;

                  
	 
      	 
      
	
                    

                      (h)

                    

                  	
                    the
      performance and fulfillment by BORROWER of all the terms, conditions,
      promises, covenants and provisions contained in this Agreement, or in any
      now existing agreement or future agreement or instrument of whatever
      nature (1) between BORROWER and LENDER or (2) between BORROWER and any
      LENDER’s Affiliate (including without limitation any Master
      Agreement);

                  
	 
      	 
      
	
                    

                      (i)

                    

                  	
                    BORROWER’s
      obligation to indemnify LENDER from and against any and all claims,
      damages, losses, liabilities, reasonable costs or expenses whatsoever
      which LENDER may incur (or which may be claimed against LENDER by any
      person or entity whatsoever including any LENDER’s Affiliate) by reason of
      or in connection with BORROWER’s execution and delivery of the Loan
      Documents, or payment or failure to pay under the Revolving Loan;
      and

                  
	 
      	 
      
	
                    

                      (j)

                    

                  	
                    the
      amount due upon any notes or other obligations given to, or received by,
      LENDER or any LENDER’s Affiliate on account of the obligations and
      liabilities described in Subsection (a) through
      and including Subsection
      (i) above.

                  

          

           

        

      

    

    
      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

    

    1.48           “LIBOR-RELATED
DEFINITIONS”:  The following terms shall have the meanings
given to them in the Sections referenced below:

    
      
         

        
          
            	
                    

                      (a)

                    

                  	
                    “LIBOR” shall have the
      meaning given that term in Section 2.6(e)(1)
      below.

                  
	 
      	 
      
	
                    

                      (b)

                    

                  	
                    “LIBOR Based Interest
      Period” shall have the meaning given that term in Section 2.6(e)(2)
      below.

                  
	 
      	 
      
	
                    

                      (c)

                    

                  	
                    “LIBOR Based Rate” shall
      have the meaning given that term in Section 2.6(c)
      below.

                  
	 
      	 
      
	
                    

                      (d)

                    

                  	
                    “LIBOR Option” shall have
      the meaning given that term in Section 2.6(a)(2)
      below.

                  
	 
      	 
      
	
                    

                      (e)

                    

                  	
                    “LIBOR Reserve
      Percentage” shall have the meaning given that term in Section 2.6(e)(3)
      below.

                  
	 
      	 
      
	
                    

                      (f)

                    

                  	
                    “London Banking Day”
      shall have the meaning given that term in Section 2.6(e)(4)
      below.

                  
	 
      	 
      
	
                    

                      (g)

                    

                  	
                    “Principal Balance” shall
      have the meaning given that term in Section 2.6(e)(5)
      below.

                  
	 
      	 
      
	
                    

                      (h)

                    

                  	
                    “Roll over Date” shall
      have the meaning given that term in Section 2.6(e)(6)
      below.

                  

          

        

        
        

        
          
             

          

        

      

    

    1.49           “LOAN DOCUMENTS” means this
Agreement, the Certification as to Liens, the Certification Responsive to the
Loan Agreement, the Certification Responsive to the Guaranty, the Guaranty, the
Revolving Note, the Subordination Agreement, and any agreements, documents or
instruments now or hereafter executed by BORROWER and/or GUARANTOR and delivered
to LENDER with respect to the transactions contemplated by this Agreement and
all extensions, modifications or renewals of any or all of the foregoing. Loan
Documents do not include the 2003 Loan Agreement or the 2003 Guaranty or the
2003 Subordination Agreement. Loan Documents also do not include the Master
Agreement or any present or future swap agreements, as defined in 11 U.S.C.
§101, between BORROWER and LENDER and/or any LENDER’s Affiliate).

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    1.50           “LOAN VALUE”
means:

     

    
      
        	
                

                  (a)

                

              	
                As it relates to Eligible
      Receivables:  Eligible Receivables shall normally have a
      “loan value” of
      eighty-five percent (85%)
      of such Eligible Receivables, provided, however, that in its
      reasonable commercial judgment, exercised in good faith LENDER, may on
      prior notice to BORROWER fix the aforesaid advance rate at some lesser
      percentage.

              
	 
      	 
      
	
                

                  (b)

                

              	
                As it relates to Eligible
      Inventory:  Eligible Inventory shall normally have a
      “loan value” of up
      to the greater of the following:

              
	 
      	
                (1)      the
      lesser of (A) $20,000,000, provided,
      however, that in its reasonable commercial judgment, exercised in good
      faith, LENDER may on prior notice to BORROWER fix the aforesaid “loan
      value” at some lesser amount or (B) 65% of Eligible
      Inventory valued at the lesser of cost or market value as such 65% is
      reduced by 1% per quarter, commencing July 1, 2008 (e.g., reducing from
      65% to 64% on July 1, 2008, and reducing from 64% to 63% on October 1,
      2008, and so on), provided, however, that in its reasonable commercial
      judgment, exercised in good faith, LENDER may on prior notice to BORROWER
      fix the aforesaid advance rate at some lesser percentage, LESS such
      reserves as LENDER may establish in good faith

              
	
              	

                or

              
	 
      	
                

                  (2)      the
      lesser of (A) $20,000,000, provided,
      however, that in its reasonable commercial judgment, exercised in good
      faith, LENDER may on prior notice to BORROWER fix the aforesaid “loan
      value” at some lesser amount or (B) 85% of the appraised net
      orderly liquidation value of Eligible Inventory based on an appraisal not
      less than one–year old and prepared, at BORROWER’s expense, by an
      appraiser and in form and substance acceptable to LENDER (provided,
      however, that in its reasonable commercial judgment, exercised in good
      faith, LENDER may on prior notice to BORROWER fix the aforesaid advance
      rate at some lesser
percentage).

                

              

      

    

    
    

     

    1.51            “MASTER AGREEMENT” shall mean
means any ISDA [International Swap Dealers Association, Inc.] Master Agreement
relating to interest rate contracts and/or determinations hereafter entered into
between BORROWER and LENDER or a LENDER’s Affiliate or other financial
institution (and all confirmations and schedules relating thereto, including
those now or hereafter relating to the Revolving Loan) and all extensions,
modifications, refinancings, renewals, substitutions, replacements and/or
redatings thereof.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    1.52           “MATERIALLY ADVERSE EFFECT”
shall mean the occurrence of any event or the existence of any condition which,
in the reasonable commercial judgment of LENDER, exercised in good faith,
materially and adversely changes the business, condition (financial or
otherwise), operations, performance or properties of BORROWER (and its
Subsidiaries) taken as a whole or GUARANTOR (and its Subsidiaries) taken as a
whole.

     

    1.53           “MATURITY DATE” shall mean
June 30,
2011.

     

    1.54           “OUTSTANDING” is an adjective
which means “accrued and/or unpaid at any one specific time”, and has such
meaning regardless whether the applicable underlying obligations owed under the
Revolving Loan, the Letter of Credit Obligations and/or any of the other
Liabilities are matured or unmatured, liquidated or unliquidated, direct or
indirect, absolute or contingent, joint or several, accrued or not-yet-accrued
and/or due or not-yet-due.

     

    1.55           “PERMITTED ASSET DISPOSITIONS”
means, for so long as there is no Event of Default, (a) replacement of machinery
and equipment and other capitalized assets with assets of like kind, function
and at least equal value acquired substantially concurrently with the Permitted
Asset Disposition, (b) abandonment, failure to renew or cancellation of
Intellectual Property that does not have a Materially Adverse Effect on BORROWER
and (c) leases, subleases, licenses or sublicenses of real or personal property
(other than leases, subleases, licenses or sublicenses of Eligible Receivables
or Eligible Inventory) in the ordinary course of business which does not have a
Materially Adverse Effect on BORROWER.

     

    1.56            “PERMITTED LIENS” means, as
of any particular time, any of the following, so long as none of the following
(except liens or security interests held by or in favor of LENDER) constitutes a
lien against BORROWER’s Accounts or Inventory:

     

    
      
        	
                

                  (a)

                

              	
                liens
      at any time granted by BORROWER in favor of LENDER pursuant
      hereto;

              
	 
      	 
      
	
                
                  (b)

                

              	
                liens
      for taxes, assessments and other governmental charges not yet subject to
      penalties for non-payment or the payment of which is being contested in
      food faith and for which BORROWER has established cash reserves in an
      amount satisfactory to
LENDER;

              

      

    

    
    

    
       

      
      

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

      
         

        
          
            	
                    

                      (c)

                    

                  	
                    statutory
      liens of carriers, mechanics, materialmen, landlords, warehouseman and
      other similar liens imposed by law, (i) which are incurred in the ordinary
      course of business for sums not yet overdue by more than 90 days or (ii)
      which, if due and payable, are being properly contested and for which
      BORROWER has established cash reserves in an amount satisfactory to LENDER
      or (iii) which, if due and payable, relate to Inventory at a Collateral
      Location for which BORROWER has obtained a Landlord’s Consent or other
      waiver acceptable to LENDER;

                  
	 
      	 
      
	
                    

                      (d)

                    

                  	
                    liens
      arising out of non-final judgments or awards against BORROWER which are in
      existence for less than 20 consecutive Business Days or are being properly
      contested and for which BORROWER has established cash reserves in an
      amount satisfactory to LENDER;

                  
	 
      	 
      
	
                    

                      (e)

                    

                  	
                    liens
      resulting from pledges or deposits made by BORROWER in the ordinary course
      of its business in connection with workers’ compensation laws,
      unemployment insurance laws, social security laws, or similar legislation,
      or good faith deposits or security deposits in connection with bids,
      tenders, contracts (other than for the payment of borrowed money), or
      leases to which BORROWER is a party, or deposits to secure public or
      statutory obligations of BORROWER or deposits of cash or United States
      Government Bonds to secure surety, appeal, performance or other similar
      bonds to which BORROWER is a party, or deposits as security for contested
      taxes or import duties or for the payment of rent;

                  
	 
      	 
      
	
                    

                      (f)

                    

                  	
                    survey
      exceptions, encumbrances, easements or reservations of, or rights of,
      others for rights of way, highways and railroad crossings, sewers,
      electric lines, telegraph and telephone lines and other similar purposes,
      or zoning or other restrictions as to the use of real
      properties.

                  
	 
      	 
      
	
                    (g)

                  	
                    liens
      of a collecting bank arising under the UCC on checks and other items of
      payment in the ordinary course of collection;

                  
	 
      	 
      
	
                    (h)

                  	
                    any
      title or interest of a licensor or lessor under any license or lease, to
      the extent such license or lease does not prohibit the sale of Inventory
      in the ordinary course of BORROWER’s business or does not otherwise
      violate this Agreement;

                  
	 
      	 
      
	
                    (i)

                  	
                    Purchase
      Money Liens; and

                  
	 
      	 
      
	
                    (j)

                  	
                    liens
      consented to by LENDER in
writing.

                  

          

        

        
        

        
           

        

      

    

    
    

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    1.57           “PERMITTED PURCHASE MONEY
DEBT”, means indebtedness of BORROWER that is unsecured or is secured
only by a Purchase Money Lien, provided that the aggregate amount of Purchase
Money Debt outstanding at any one time does not exceed $500,000 and the
incurrence of any Purchase Money Debt does not violate any limitation in this
Agreement regarding Capital Expenditures.  For the purposes of this
definition, the principal amount of any Permitted Purchase Money Debt shall
include any Capitalized Lease Obligation.

     

    1.58           “PRIME BASED RATE” shall have
the meaning given that term in Section 2.6(b)
below.

     

    1.59           “PRIME RATE” means the
variable rate of interest set from time to time by LENDER as its usual,
short-term base lending rate to its commercial borrowers. The Prime Rate is a
reference rate and does not necessarily represent the lowest or best rate being
charged to any customer. From time to time LENDER makes loans to certain
customers at rates of interest below the Prime Rate.

     

    1.60           “PROCEEDS” means, in addition
to the definition of proceeds given in the UCC, all additions, substitutions,
replacements, and increments to the Collateral, including cash and non-cash
proceeds of all of the Collateral in whatever form, including negotiable
instruments and other instruments for the payment of money, Chattel Paper,
security agreements or other documents, insurance or condemnation awards and any
Collateral purchased with Proceeds.

     

    1.61           “PURCHASE MONEY LIEN” means a
lien, encumbrance, mortgage or security interest upon fixed or capital assets
which secures Permitted Purchase Money Debt but only if such encumbrance is at
all times confined solely to the asset acquired through the incurrence of the
Permitted Purchase Money Debt.

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    1.62            “REGULATORY CHANGE” means as
to LENDER, any change after the date of this Agreement in United States federal,
or state, or foreign, laws or regulations (including Regulation D and the laws
or regulations that designate any assessment rate relating to certificates of
deposit or otherwise (including the “Assessment Rate” if applicable to any
Advance) or the adoption or making after such date of any interpretations,
directives or requests applying to a class of banks, including LENDER, of or
under any United States federal, or state, or foreign laws or regulations
(whether or not having the force of law) by any court or governmental or
monetary authority charged with the interpretation or administration
thereof.

     

    1.63           “RECONCILIATION CERTIFICATE”
means that certain certification in the form attached hereto as Exhibit “C” for certifications
which are required to be submitted no less frequently than monthly (unless
otherwise specified herein), setting forth, among other things, information
relating to adjustments in amounts and/or values of the Collateral.

     

    1.64           “REVOLVING LOAN” has the
meaning set forth in Section
2.1 of this Agreement.

     

    1.65           “REVOLVING NOTE” means the
master promissory note executed by BORROWER on the date hereof in favor of
LENDER so as to evidence the indebtedness of BORROWER to LENDER with respect to
any and all Advances made by LENDER under the Revolving Loan and all extensions,
modifications, refinancings, renewals, substitutions, replacements and/or
redatings of such note.

     

    1.66            “SUBORDINATION AGREEMENT” is
a collective term which means all of the following:

     

    
      
        	
                

                  (a)

                

              	
                that
      certain agreement (dated even date herewith) executed by SELLER, BORROWER
      and GUARANTOR  in favor of LENDER in restatement and amendment
      and replacement of the 2003 Subordination Agreement and pursuant to which
      SELLER subordinates to LENDER’s prior right to repayment of the
      Liabilities (1) SELLER’s rights and claims against BORROWER and (2)
      SELLER’s right to repayment of certain indebtedness owed to it by
      GUARANTOR; and

              
	 
      	 
      
	
                (b)

              	
                all
      extensions, modifications, refinancings, renewals, substitutions,
      replacements and/or redatings
thereofof.

              

      

    

    
    

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    1.67           “SUBORDINATED SELLER NOTE”
means that certain $2,800,000 (face amount) note dated as of June 30, 2005, a
copy of which is attached hereto as Exhibit A to the Subordination
Agreement, relating to GUARANTOR’s payment obligations to SELLER.

     

    1.68           “SUBSIDIARY” means any
corporation or other entity more than a majority (by number of votes) of the
voting interest therein is at the time owned or controlled by BORROWER or a
Subsidiary of BORROWER.

     

    1.69           “SUPPORTING OBLIGATIONS”
means, in addition to the definition of Supporting Obligations as
contained in the UCC, a Letter-of-Credit Right or secondary obligation that
supports the payment or performance of an Account, Chattel Paper, Document,
General Intangible, Instrument or Investment Property.

     

    1.70           “UCC” shall mean the Uniform
Commercial Code, as now in effect and as from time to time hereafter in effect
in the State of New Jersey.

     

    1.71           UCC
DEFINITIONS.  All terms defined in Articles 1 or 9 of the UCC
shall have the meanings given therein unless otherwise defined
herein.

     

    ARTICLE
II

     

    LOANS

     

    2.1           ESTABLISHMENT OF THE REVOLVING
LOAN.

     

    (a)           Upon
BORROWER’s request, made to LENDER pursuant to Section 2.13, LENDER hereby
agrees, from time to time after the Effective Date but subject to the terms and
the conditions of this Agreement, to make Advances and re-Advances to BORROWER
and issue Letters of Credit for the account of BORROWER under a revolving loan
facility, the purpose of which are to refinance existing indebtedness, pay
Liabilities in accordance with this Agreement, issue Letters of Credit, purchase
replacement Collateral in connection with Permitted Asset Dispositions, repair
or replace Collateral to the extent of insurance proceeds with respect to the
loss of or damage to said Collateral which are not otherwise applied to reduce
Liabilities hereunder, and finance working capital and general business needs,
to be disbursed by LENDER in the manner specified in Section 2.3.

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    (b)           Such
Advances and re-Advances (including BORROWER’s Letter of Credit Advances)
constitute the “Revolving Loan” described throughout this
Agreement.

     

    2.2           MAXIMUM PERMITTED REVOLVING LOAN
BORROWINGS.

     

    (a)           The
maximum which may be Outstanding under the Revolving Loan (including the amount
due or contingently due under Outstanding Letters of Credit) at any one time
cannot exceed the Lending
Formula.

     

    (b)           The
“loan value” of Eligible
Inventory and Eligible Receivables will be determined by LENDER using the
information supplied by BORROWER to LENDER in the Borrowing Base Certificate,
together with any other information which BORROWER is required to give LENDER
pursuant to Section 5.6
below.

     

    2.3           DISBURSEMENT OF REVOLVING LOAN
ADVANCES.  BORROWER shall give LENDER notice of each borrowing
hereunder as provided in Section 2.13 hereof. LENDER,
upon its receipt thereof but only to the extent BORROWER is allowed to borrow
hereunder, shall disburse such sum to BORROWER by crediting BORROWER's demand
deposit operating account at LENDER and charging BORROWER’s Revolving Loan
account on LENDER’s books. Advances can be made, however, by means other than as
aforesaid.

     

    2.4           RIGHT TO RECEIVE REVOLVING LOAN
ADVANCES.

     

    (a)           So
long as the Advances Outstanding under the Revolving Loan do not exceed the
Lending Formula and so long as BORROWER is otherwise in compliance with the
terms and conditions of this Agreement, (1) BORROWER may borrow, re-pay and
re-borrow Advances under the Revolving Loan or re-pay Letter of Credit Advances
at any time during the period from the date hereof up to the day before the
Maturity Date and (2) repayment by BORROWER of Advances Outstanding under the
Revolving Loan or Letter of Credit Advances shall not affect the ability of
BORROWER to borrow and re-borrow under this Agreement.

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    (b)           To
the extent that by operation of any circumstance which causes the amount of all
Advances Outstanding under the Revolving Loan to violate the Lending Formula,
LENDER may in its discretion make no other Advances hereunder until such
Outstanding Advances are in compliance with the Lending
Formula.  Nothing in the foregoing shall limit LENDER’s right to
declare an Event of Default because of such non-compliance.

     

    (c)           In
addition and notwithstanding anything in this Agreement to the contrary, the
obligation of LENDER to continue making advances under the Revolving Loan shall
terminate upon the expiration of this Agreement and shall be suspended upon
written notice (except in the case of the occurrence of an Event of Default
described in Section
7.6, Section 7.7
and Section 7.8 as to
which no notice shall be required) from LENDER to BORROWER of the occurrence and
during the continuance of any of the following events:

     

    
      	
               
      

            	
              (1)

            	
              an
      Event of Default hereunder; or

            
	 	 	 

    

    
      	
               
      

            	
              (2)

            	
              an
      event which, except for the passage of time or the giving of notice, would
      be such an Event of Default.

            

    

     

    2.5           REPAYMENT OF REVOLVING LOAN
ADVANCES.

     

    (a)           Subject
to the other provisions of this Section and this Agreement and so long as (1)
the Advances Outstanding under the Revolving Loan do not exceed the Lending
Formula, (2) BORROWER is otherwise in compliance with the terms and conditions
of this Agreement, any and all Advances shall be repayable on the Maturity Date
unless the term of this Agreement or LENDER’s Revolving Loan relationship with
BORROWER is sooner accelerated or terminated or modified as provided
herein.  On the Maturity Date, all Advances Outstanding under the
Revolving Loan, plus accrued interest and other amounts Outstanding thereunder,
shall be due and owing, unless sooner due or payable as provided
herein.

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    (b)           Notwithstanding
the foregoing provisions of subsection (a) above, prior to the Maturity Date the
principal owing on the Revolving Loan shall be repaid on a continuing and
continual basis as follows:

     

    (1)           (A)           BORROWER
agrees to and shall establish and maintain, or permit LENDER to establish and
maintain as determined from time to time by LENDER in its discretion, one or
more Blocked Accounts.

     

    (B)           BORROWER
agrees as follows:

     

    
      	
               
      

            	
              (i)

            	
              Each
      Blocked Account is an account owned by LENDER and holding funds of LENDER
      and not funds of BORROWER and against which BORROWER has rights only to
      the extent that funds in any such account exceeds the Liabilities after
      this Agreement has been terminated and such Liabilities have been paid in
      full.

            

    

     

    
      	
               
      

            	
              (ii)

            	
              Each
      Blocked Account is one of the Deposit Accounts described in Article III of this
      Agreement.

            

    

     

    (2)           BORROWER
agrees to and shall forthwith deposit all Collateral Proceeds into a Blocked
Account on the later of (i) the date of BORROWER’s receipt of the Collateral
Proceeds or (2) the first date upon which the Account Debtor’s check or other
payment instrument appears collectable on its face under the UCC.

     

    (3)           If
requested by LENDER on and after the occurrence of an Event of Default, BORROWER
agrees to and shall direct its Account Debtors and other third parties to remit
all Collateral Proceeds directly to one or more Blocked Accounts and/or such
other place designated by LENDER.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    (4)           BORROWER
agrees to and shall forthwith transfer, assign, endorse, deliver and turn over
to LENDER for LENDER’s deposit into any such Blocked Account and/or such other
place designated by LENDER all Collateral Proceeds which, despite BORROWER's
aforementioned direction to its Account Debtors and other third parties, are
received by BORROWER.

     

    (5)           BORROWER
hereby authorizes LENDER to effect the repayment of the Advances Outstanding on
the Revolving Loan, the payment of interest thereon and the other Liabilities on
a continuing and continual basis, either daily or on another frequency
determined by LENDER, by LENDER’s transfer, withdrawal or “sweep” of all funds
on deposit in such Blocked Accounts.   Funds deposited by
BORROWER in a Blocked Account prior to 2 p.m. on any Business Day will normally
be transferred, withdrawn or “swept” by LENDER on the immediately following
Business Day and funds deposited by BORROWER in a Blocked Account at or after 2
p.m. on any Business Day will normally be transferred, withdrawn or “swept” by
LENDER on the second Business Day following said deposit.  LENDER will
apply the funds so transferred, withdrawn or “swept” by LENDER to the repayment
of Advances Outstanding on the Revolving Loan on the applicable Business Day on
which LENDER’s aforesaid transfer, withdrawal or “sweep” occurs.

     

    (6)           If
notwithstanding the application of funds in the Blocked Accounts as set forth
above, BORROWER at any time is not in compliance with the Lending Formula,
BORROWER must, immediately upon the earlier of BORROWER’s knowledge that
non-compliance exists or notice from LENDER to do so, bring the Revolving Loan
into compliance with the Lending Formula and BORROWER will be able to draw under
the Revolving Loan only to the extent that such borrowings would be in
compliance with the Lending Formula.  In the event that BORROWER fails
to so bring balances Outstanding under the Revolving Loan into compliance with
the Lending Formula, such failure shall be an Event of Default hereunder and
LENDER shall have all rights which arise therefrom.

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    (c)           BORROWER
shall in no case commingle any of the Collateral Proceeds with any other
property of BORROWER or any other person or entity, but shall keep such
Collateral Proceeds segregated, held in trust for LENDER as LENDER’s exclusive
property and immediately transfer, assign, endorse, deliver and/or turn such
Collateral Proceeds over to LENDER in the identical form received (excluding
endorsements necessary for collection for the benefit of LENDER) to a Blocked
Account and/or such other place designated by LENDER.

     

    (d)           BORROWER
recognizes that the amounts evidenced by checks, notes, drafts or any other
items of payment relating to and/or constituting proceeds of Collateral (other
than payment via wire transfer or electronic depository check) may not be
collectible by LENDER on the date received.  In consideration of
LENDER’s agreement to conditionally afford BORROWER credit as of the Business
Day on which LENDER receives those items of payment, BORROWER agrees that, in
computing interest and the charges imposed under this Agreement, all items of
payment received by LENDER shall be deemed applied by LENDER on account of the
Liabilities (subject to final payment of such items) two Business Days after the
applicable Business Day on which LENDER transfers, withdraws or “sweeps” funds
from the corresponding Blocked Account.  LENDER is not, however,
required to give BORROWER credit for the amount of any item of payment which is
unsatisfactory to LENDER and LENDER may charge BORROWER for the amount of any
item of payment which is returned unpaid to LENDER.

     

    (e)           Nothing
in this Section 2.5 is
intended to limit the rights of LENDER under Section 2.4(c).

     

    (f)           Unless
BORROWER is otherwise given notice by LENDER in accordance with this Agreement,
all payments shall be made at the location that LENDER designates by written
notice to BORROWER given in accordance with this Agreement.

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    2.6           PAYMENT OF REVOLVING LOAN
INTEREST.

     

    (a)           (1)           BORROWER
shall pay to LENDER per annum interest on the unpaid principal amount of each
Advance made by such LENDER for the period commencing on the date of such
Advance until such Advance shall be paid in full.

     

    (2)           Subject
to the other provisions of this Section 2.6, interest shall be
charged on the Advances Outstanding under the Revolving Loan at (A) a per annum
rate (the “Prime Based
Rate” as more fully defined below) based on the fluctuating Prime Rate or
(B) at BORROWER’s option (the “LIBOR Option”) to be exercised
in the manner set forth below, a per annum rate (the “LIBOR Based Rate” as more
fully defined below) based on LIBOR (as defined below). In no event, however,
shall interest ever be calculated at a rate higher than the maximum rate allowed
by law.

     

    (b)           (1)           The
Prime Based Rate (the “Prime
Based Rate”) shall equal the Prime Rate, floating, plus
one-half of one (1⁄2%) percent, provided, however, that notwithstanding the
foregoing, the following shall apply:

     

    
      	
               
      

            	
              (a)

            	
              if
      the Fixed Charge Coverage Ratio is equal to or less than 1.49 to 1.0 but
      equal to or greater than 1.25 to 1.0, then effective upon LENDER’s
      determination of such Fixed Charge Coverage Ratio, the Prime Based Rate
      shall equal the Prime
      Rate, floating, plus three-quarters (3⁄4%)of one
    percent;

            

    

    

    
      	
               
      

            	
              (b)

            	
              if
      the Fixed Charge Coverage Ratio is equal to or less than 1.24 to 1.0 but
      equal to or greater than 1.1 to 1.0, then effective upon LENDER’s
      determination of such Fixed Charge Coverage Ratio, the Prime Based Rate
      shall equal the Prime
      Rate, floating, plus one (1%)
percent;

            

    

    

    
      	
               
      

            	
              (c)

            	
              if
      the Fixed Charge Coverage Ratio is equal to or less than 1.09 to 1.0 but
      equal to or greater than 1.0 to 1.0, then effective upon LENDER’s
      determination of such Fixed Charge Coverage Ratio, the Prime Based Rate
      shall equal the Prime
      Rate, floating, plus one and one-quarter (1 1⁄4%)
      percent;

            

    

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

    
 

    
      	
               
      

            	
              (d)

            	
              if
      the Fixed Charge Coverage Ratio is less than 1.0 to 1.0 and in all events
      on and after the occurrence and continuance of an Event of Default, per
      annum interest shall be charged on the Advances Outstanding under the
      Revolving Loan at the Default Rate.

            

    

    

    (2)           If
the interest rate is determined at a Prime Based Rate, then in the event there
should be a change in the Prime Rate, the rate of interest on the Revolving Loan
shall be changed effective as of the effective date of each such change in the
Prime Rate, as established by LENDER, without prior notice to BORROWER. Any
change in the Prime Rate shall not affect or alter any other terms or conditions
of this Agreement.  LENDER will use its best efforts to provide
BORROWER with notice of the amount of the Prime Rate or the interest rate or
rates being charged to BORROWER as part of the periodic statements of account
which LENDER provides to BORROWER hereunder but LENDER’s failure to provide such
notice shall not result in any liability to LENDER or affect the rights or
remedies of LENDER hereunder or the obligations of BORROWER
hereunder.

     

    (c)           The
LIBOR Based Rate (the “LIBOR
Based Rate”) shall be a rate per annum equal to 200 basis points in excess of
LIBOR (as defined below) with respect to the applicable LIBOR Based Interest
Period (as also defined below), it being understood that each determination of a
LIBOR Based Rate shall be made by LENDER in its sole and absolute discretion and
shall be conclusive and binding upon BORROWER, absent manifest error.
Notwithstanding the foregoing, the following shall apply:

     

    
      	
               
      

            	
              (1)

            	
              if
      the Fixed Charge Coverage Ratio is equal to or less than 1.49 to 1.0 but
      equal to or greater than 1.25 to 1.0, then effective upon LENDER’s
      determination of such Fixed Charge Coverage Ratio, the LIBOR Based Rate
      shall be a rate per annum equal to 225 basis points in excess of
      LIBOR (as defined below) with respect to the applicable LIBOR Based
      Interest Period (as also defined below);
and

            

    

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

    
 

    
      	
               
      

            	
              (2)

            	
              if
      the Fixed Charge Coverage Ratio is equal to or less than 1.24 to 1.0 but
      equal to or greater than 1.1 to 1.0, then effective upon LENDER’s
      determination of such Fixed Charge Coverage Ratio, the LIBOR Based Rate
      shall be a rate per annum equal to 250 basis points in excess of
      LIBOR (as defined below) with respect to the applicable LIBOR Based
      Interest Period (as also defined below);
and

            

    

    

    
      	
               
      

            	
              (3)

            	
              if
      the Fixed Charge Coverage Ratio is equal to or less than 1.09 to 1.0 but
      equal to or greater than 1.0 to 1.0, then effective upon LENDER’s
      determination of such Fixed Charge Coverage Ratio, the LIBOR Based Rate
      shall be a rate per annum equal to 275 basis points in excess of
      LIBOR (as defined below) with respect to the applicable LIBOR Based
      Interest Period (as also defined below);
and

            

    

    

    
      	
               
      

            	
              (4)

            	
              if
      the Fixed Charge Coverage Ratio is less than 1.0 to 1.0 and in all events
      on and after the occurrence and continuance of an Event of Default, per
      annum interest shall be charged on the Advances Outstanding under the
      Revolving Loan at the Default Rate.

            

    

     

    (d)           The
determination of the Fixed Charge Coverage Ratio shall be made in the manner set
forth in Section 5.21
below and any interest rate adjustment made with respect to such determination
shall be retroactively effective as of the date of the financial statement
supporting the determination.

     

    (e)           For
purposes of the determination of any LIBOR Based Rate, the following terms shall
have the following meanings:

     

    
      	
               
      

            	
              (1)

            	
              (A)

            	
              “LIBOR” means, as
      applicable to any LIBOR Based Interest Period, the rate per annum (rounded
      upward, if necessary, to the nearest 1/32 of one percent) as determined on
      the basis of the offered rates for deposits in U.S. dollars, for a period
      of time comparable to such LIBOR Based Interest Period as reported by
      Reuters as of 11:00 a.m., London time, on the second London Banking Day
      before the relevant libor Based Interest Period begins.

            
	 	 	 	 
	 	 	
              (B)

            	
              If
      the Reuters system is unavailable, then the applicable rate will be
      determined on the basis of the offered rates for deposits in U.S. dollars
      for a period of time comparable to such LIBOR Based Interest Period which
      are offered by four major banks in the London interbank market at
      approximately 11:00 a.m. London time, on the day that is two London
      Banking Days preceding the first day of such LIBOR Based Interest Period
      as selected by LENDER. The principal London office of each of the four
      major London banks will be requested to provide a quotation of its U.S.
      dollar deposit offered rate.  If at least two such quotations
      are provided, the rate for that date will be the arithmetic mean of the
      quotations.  If fewer than two quotations are provided as
      requested, the rate for that date will be determined on the basis of the
      rates quoted for loans in U.S. dollars to leading European banks for a
      period of time comparable to such LIBOR Based Interest Period offered by
      major banks in New York City at approximately 11:00 a.m. New York City
      time, on the day that is two London Banking Days preceding the first day
      of such LIBOR Based Interest Period. In the event that LENDER is unable to
      obtain any such quotation as provided above, it will be deemed that LIBOR
      pursuant to a LIBOR Based Interest Period cannot be
      determined.

            

    

    
       

      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (C)

            	
              In
      the event that the Board of Governors of the Federal Reserve System shall
      impose a LIBOR Reserve Percentage with respect to LIBOR deposits of LENDER
      then for any period during which such LIBOR Reserve Percentage shall
      apply, LIBOR shall be equal to the amount determined above divided by an
      amount equal to 1 minus the LIBOR Reserve
  Percentage.

            

    

     

    
      	
               
      

            	
              (2)

            	
              “LIBOR Based Interest
      Period” shall mean the period commencing on the date so specified
      in BORROWER's notice to LENDER of any election to exercise the LIBOR
      Option and ending on the date specified in such notice, which ending date
      (A) shall be either 1 month, 2 months, 3 months or 6 months after the
      commencement of the LIBOR Based Interest Period, and (B) shall in no event
      extend beyond the Maturity Date. No LIBOR Based Interest Period shall
      commence other than on a London Banking Day.  If any LIBOR Based
      Interest Period shall end on a day which is not a London Banking Day, such
      LIBOR Based Interest Period shall be extended to the next succeeding
      London Banking Day. Nothing in the foregoing shall affect any interest
      rate or interest period or minimum/maximum borrowing amount separately
      governed by the Master Agreement.

            

    

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (3)

            	
              “LIBOR Reserve
      Percentage” means for any day that percentage (expressed as a
      decimal) which is in effect on such day, as prescribed by the Board of
      Governors of the Federal Reserve System (or any successor) for determining
      the maximum reserve requirement for a member bank of the Federal Reserve
      System in New York City with deposits exceeding one billion dollars in
      respect of Eurocurrency liabilities (as defined in Regulation D of the
      Board of Governors of the Federal Reserve System) (or in respect of any
      other category of liabilities which includes deposits by reference to
      which the interest rate on loans covered by a LIBOR Based Rate is
      determined or any category of extensions of credit or other assets which
      includes loans by a non-United States office of LENDER to United States
      residents).  The LIBOR Based Rate shall be adjusted
      automatically on and as of the effective date of any change in the LIBOR
      Reserve Percentage.

            

    

    

    
      	
               
      

            	
              (4)

            	
              “London Banking Day”
      shall mean a day which is not a Saturday, Sunday or day on which banks in
      London are required or permitted to
close.

            

    

    

    
      	
               
      

            	
              (5)

            	
              “Principal Balance”
      means, at any time, the portion or portions of the Advances Outstanding
      under the Revolving Loan as to which BORROWER has elected to have interest
      determined or to be determined, as applicable, at a LIBOR Based Rate and
      includes all amounts that are to be borrowed at a LIBOR Based Rate,
      whether or not BORROWER actually borrows such
  amounts.

            

    

    

    
      	
               
      

            	
              (6)

            	
              “Roll Over Date” shall
      mean the day immediately following the last day of a LIBOR Based Interest
      Period.

            

    

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

    
 

    (f)           If
BORROWER wishes to exercise the LIBOR Option, BORROWER shall give LENDER notice
in writing or by telex or by facsimile (receipt of which must be confirmed
electronically or telephonically) of any election to exercise the LIBOR Option
at least two London Banking Days prior to the commencement of a LIBOR Based
Interest Period, which notice shall specify (1) the Principal Balance with
respect to which BORROWER is making such election, and (2) in conformity with
the definition of “LIBOR Based
Interest Period” set forth above, the date upon which such LIBOR Based
Interest Period is to commence and (3) its duration.  LENDER shall, as
soon as practical prior to or on the date of the commencement of the LIBOR Based
Interest Period, determine and quote to BORROWER a LIBOR Based Rate with respect
to the Principal Balance specified in such notice, and notify BORROWER of the
date and time by which BORROWER must accept the quoted LIBOR Based
Rate.  If BORROWER rejects the quoted LIBOR Based Rate, or if BORROWER
does not inform LENDER of its acceptance of the quoted LIBOR Based Rate by the
date and time specified by LENDER, time being of the essence, the Prime Based
Rate shall apply, or continue to apply to the specified Principal
Balance.  If BORROWER accepts the quoted LIBOR Based Rate by the date
and time specified by LENDER, the quoted LIBOR Based Rate shall be applicable to
the Principal Balance during the LIBOR Based Interest Period specified by
BORROWER in such notice.  A quoted LIBOR Based Rate may be accepted by
BORROWER either orally or in writing, provided that any such oral acceptance
shall be immediately confirmed by BORROWER in writing or by telex or by
facsimile (receipt of which must be confirmed electronically or
telephonically).  The interest rate applicable to the Principal
Balance, with respect to which BORROWER has accepted a quoted LIBOR Based Rate,
shall revert from the LIBOR Based Rate applicable thereto to the Prime Based
Rate as of the Roll Over Date applicable thereto.  LENDER shall be
under no duty or obligation to notify BORROWER that the interest rate on the
Principal Balance is about to revert from a LIBOR Based Rate to the Prime Based
Rate.

     

    (g)           The
LIBOR Option may only be exercised by BORROWER if the portion of the Revolving
Loan to be affected by the LIBOR Option would bear interest at the Prime Based
Rate on the date of commencement of the applicable LIBOR Based Interest Period,
but for the exercise by BORROWER of the LIBOR Option, and only if the following
conditions are met:

     

    
      	
               
      

            	
              (1)

            	
              No
      Event of Default has occurred and is
continuing.

            

    

    

    
      	
               
      

            	
              (2)

            	
              The
      LIBOR Based Interest Period must commence on a London Banking
      Day.

            

    

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (3)

            	
              The
      LIBOR Based Interest Period shall extend either 1 month, 2 months, 3
      months or 6 months after the commencement of the LIBOR Based Interest
      Period. Nothing in the
      foregoing shall affect any interest rate or interest period or
      minimum/maximum borrowing amount separately governed by the Master
      Agreement.

            

    

    

    
      	
               
      

            	
              (4)

            	
              The
      LIBOR Based Interest Period shall in no event extend beyond the
      termination date or any extended termination date of the Revolving
      Loan.

            

    

    

    
      	
               
      

            	
              (5)

            	
              If
      any LIBOR Based Interest Period shall end on a day which is not a London
      Banking Day, such LIBOR Based Interest Period shall be extended to the
      next succeeding London Banking Day.

            

    

    

    
      	
               
      

            	
              (6)

            	
              The
      LIBOR Option must be exercised for a minimum of $1,000,000 and integral
      multiples of $100,000 thereafter.  Nothing in the foregoing
      shall affect any interest rate or interest period or minimum/maximum
      borrowing amount separately governed by the Master
    Agreement.

            

    

    

    
      	
               
      

            	
              (7)

            	
              The
      exercise of the LIBOR Option will not result in more than 3 separate LIBOR
      subcontracts in the collective aggregate being in existence between
      BORROWER and LENDER at any one time. Nothing in the foregoing shall affect
      any interest rate or interest period or minimum/maximum borrowing amount
      separately governed by the Master
Agreement.

            

    

    

    (h)           In
the event, and on each occasion, that on or before the date upon which a LIBOR
Based Interest Period is to commence, LENDER shall have in its sole discretion
exercised in good faith using reasonable commercial judgment made a
determination (which determination shall be conclusive and binding upon
BORROWER) that a LIBOR Based Rate cannot be determined or that the current LIBOR
Based Rate will not adequately and fairly reflect the cost to LENDER of making
or maintaining any Principal Balance of any such LIBOR Based Loan, LENDER shall
so notify BORROWER and the Principal Balance with respect to which BORROWER has
exercised the LIBOR Option, shall, as applicable, bear interest or continue to
bear interest at the Prime Based Rate.

     

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

     

    (i)           In
all events, interest shall be payable monthly on an accrued basis on the last
day of each and every calendar month and shall be calculated on the basis of a
year consisting of 360 days and paid for actual days elapsed.

     

    (j)           (1)   
        On and after the occurrence of
an Event of Default hereunder or after the Maturity Date, all Outstanding
Advances shall, unless otherwise agreed by LENDER, bear interest at the Default
Rate.

     

    (2)           In
addition, interest on the Revolving Loan will be calculated at the Default Rate
prior to the declaration of an Event of Default in the event BORROWER does not
supply or cause to be delivered to LENDER any information required by this
Agreement or any of the Loan Documents by the dates such information is due
(including any grace period allowed by this Agreement).

     

    (3)           It
is nonetheless understood that LENDER’s acceptance of payment at the Default
Rate does not otherwise prevent LENDER from otherwise declaring an Event of
Default as a result of BORROWER’s failure to perform or observe any of the
foregoing.

     

    (k)           All
agreements between BORROWER and LENDER are hereby expressly limited so that in
no contingency or event whatsoever, whether by reason of acceleration of
maturity of the indebtedness evidenced hereby or otherwise, shall the amount
paid or agreed to be paid to LENDER for the use or the forbearance of the
indebtedness evidenced hereby exceed the maximum permissible under applicable
law.  As used herein, the term “applicable law” shall mean the
law in effect as of the date hereof provided, however, that in the event there
is a change in the law which results in a higher permissible rate of interest,
then this Agreement shall be governed by such new law as of its effective
date.  In this regard, it is expressly agreed that it is the intent of
BORROWER and LENDER in the execution, delivery and acceptance of this Agreement
to contract in strict compliance with the laws of the State of New Jersey from
time to time in effect.  If, under or from any circumstances
whatsoever, fulfillment of any provision hereof or of any of the Loan Documents
at the time of performance of such provision shall be due, shall involve
transcending the limit of such validity prescribed by applicable law, then the
obligation to be fulfilled shall automatically be reduced to the limits of such
validity, and if under or from circumstances whatsoever LENDER should ever
receive as interest an amount which would exceed the highest lawful rate, such
amount which would be excessive interest shall be applied to the reduction of
the principal balance evidenced hereby and not to the payment of
interest.  This provision shall control every other provision of all
agreements between BORROWER and LENDER.

     

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

     

    2.7           LETTERS OF
CREDIT.

     

    (a)           Issuance.

     

    (1)                      Subject
to the terms and conditions of this Agreement, LENDER will, from time to time
after the Effective Date and in its accordance with its usual and customary
practices, and at the request of and for the account of BORROWER, issue or
create Letters of Credit for the benefit of beneficiaries designated by
BORROWER.  The Letters of Credit and the various documents related
thereto (including the Applications defined below) are herein collectively
called “Financing
Documents”.

     

    (2)                      Unless
otherwise agreed by LENDER in writing, all shipping documents must be consigned
to LENDER.

     

    (3)                      Unless
otherwise agreed by LENDER in writing, LENDER will not issue or create any
Financing Document if the issuance thereof would result in more than $3,500,000 in Letter of Credit
Obligations being Outstanding at any one time or if the issuance thereof would
result in a violation of the Lending Formula.

     

    (4)                      (A)           Each
Financing Document shall provide that drafts drawn thereunder must be presented
to LENDER on or prior to 60 days after the issuance thereof (unless otherwise
agreed by LENDER), and, in the case of the Letters of Credit, that any
acceptances created thereunder shall mature not later than 90 days after the
creation thereof in the case of documentary Letters of Credit and 360 days n the
case of standby Letters of Credit (unless otherwise agreed by
LENDER).

     

    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

     

    (B)           In
the event that any drafts drawn under any Financing Document has an expiration
date or any acceptance has a maturity date later than the Maturity Date and
LENDER’s relationship with BORROWER under this Agreement is not extended beyond
the Maturity Date, BORROWER must obtain with a source other than LENDER or any
LENDER’s Affiliate a replacement Financing Document, Letter of Credit or
acceptance as the case may be or secure BORROWER’s obligations thereunder with
cash collateral in an amount satisfactory to LENDER acting in good faith using
reasonable commercial judgment.

     

    (5)                      BORROWER
shall give notice to LENDER of a request for issuance of any Financing Document
not less than 2 Business Days prior to the proposed issuance date (which
prescribed time period may be waived at the option of LENDER in the exercise of
its sole discretion).  Each such notice shall specify: (A) the
requested date of such issuance (which shall be a Business Day); (B) the maximum
amount of such Financing Document; (C) the expiration date of such Financing
Document; (D) the purpose of such Financing Document; (E) the name and address
of the beneficiary of such Financing Document; and (F) the required documents
under any such Financing Document.

     

    (6)                      Notwithstanding
the foregoing, LENDER shall not be under any obligation to issue or create any
Financing Document if at the time of such issuance any order, judgment or decree
of any governmental authority or arbitrator shall purport by its terms to enjoin
or restrain LENDER from issuing such Financing Document or any requirement of
law applicable to LENDER or any request or directive (whether or not having the
force of law) from any governmental authority with jurisdiction over LENDER
shall prohibit, or request that LENDER refrain from, the issuance of Letters of
Credit generally or any such Financing Documents in particular, or shall impose
upon LENDER with respect to any Financing Document any requirement (for which
LENDER is not otherwise compensated) not in effect on the date hereof, or any
unreimbursed loss, cost or expense which was not applicable, in effect or known
to LENDER as of the date hereof and which LENDER in good faith deems material to
it.

     

    
      
        
        

      

      
        43

        
          

        

      

      
        
        

      

    

     

    (b)                      Evidence
of Obligation to Pay Amounts Due under the Financing
Documents.

     

    (1)         
LENDER’s rights and BORROWER’s obligations with regard to each Financing
Document shall be evidenced by the Revolving Note and this Agreement and
determined and governed by this Agreement as supplemented by the application for
each such Letter of Credit executed by BORROWER (if any such application was in
fact so executed) or, if no such application was so executed, then by the
standard form of Letter of Credit application in use by LENDER at the time
LENDER issued any such Letter of Credit regardless whether or not any such
Application was actually executed (each such application and each such standard
form of application being hereinafter called an “Application” and collectively
called the “Applications”).

     

    (2)           (A)           In
addition, BORROWER hereby authorizes LENDER to record and enter on LENDER’s
records the amount of any acceptance and/or any Letter of Credit and/or other
Letter of Credit Advances, payments made by LENDER against any Letter of Credit
Obligations, repayments of such drawings made by or on behalf of BORROWER and
all other amounts due to LENDER or paid on account of any such Letter of Credit
Obligations. The aggregate unpaid amounts shown on the aforementioned records of
LENDER shall evidence the principal, interest and other amounts owed by BORROWER
on account of the Letter of Credit Obligations. Letter of Credit Obligations,
which are not also Letter of Credit Advances, shall not accrue interest or
represent Advances against the Revolving Note (but shall be utilized in the
computation of the Lending Formula and the limit on the aggregate amount of
Letters of Credit set forth in Section 2.7(a)(3)
above).

     

    
      
        
        

      

      
        44

        
          

        

      

      
        
        

      

    

     

    (B)           LENDER
may from time to time render a statement of the aforementioned
records.  If BORROWER fails to object to the statement within sixty
(60) days after it is received by BORROWER, it shall be deemed to be an account
stated and binding upon BORROWER, absent manifest
error.  Notwithstanding the foregoing, any failure by LENDER to enter
on its records the date and amount of any amount owed on any Letter of Credit
Obligations or any failure by LENDER to render any such statement shall not,
however, limit or otherwise affect the obligations of BORROWER under this
Agreement to pay to LENDER all amounts owing on account of the Letter of Credit
Obligations.

     

    (c)                      Repayment
of Amounts (Mandatory Borrowings to Satisfy Payment Obligations) Due under the
Financing Documents.

     

    (1)                      Unless
otherwise set forth in any applicable Application, BORROWER shall immediately
reimburse LENDER for drafts drawn under any Financing Document and all other
Letter of Credit Advances by an Advance effected by the Authorization to Charge
or otherwise in immediately available funds.

     

    (2)                      In
furtherance of the foregoing, LENDER is authorized to, and may, obtain and
effect repayment as of each due date of all amounts due under and associated
with the applicable draft and all other Letter of Credit Advances in the manner
set forth in the Authorization to Charge.

     

    (3)                      Notwithstanding
the foregoing, in the event that LENDER elects not to obtain and effect
repayment in the manner set forth in the Authorization to Charge, any funds
advanced by LENDER in payment of any Letter of Credit or any acceptance or draft
presented thereunder shall be due and payable immediately and shall bear
interest until paid in full at the Default Rate, such interest to be payable on
demand.  Interest shall be computed on the basis of a year consisting
of 360 days and paid for actual days elapsed.

     

    
      
        
        

      

      
        45

        
          

        

      

      
        
        

      

    

     

    (d)                      Non-Liability
of LENDER:  BORROWER assumes
all risks of the acts or omissions of any beneficiary or transferee of any
Financing Document with respect to its use thereof.  Except in the
case of gross negligence or willful misconduct, neither LENDER nor any LENDER’s
Affiliate nor any of officers or directors of LENDER or of any LENDER’s
Affiliate shall be liable or responsible for: (1) the use that may be made of
any Financing Document or any acts or omissions of any beneficiary or transferee
in connection therewith; (2) the validity, sufficiency or genuineness of
documents, or of any endorsement thereon, even if such documents should prove to
be in any or all respects invalid, insufficient, fraudulent or forged; (3)
payment by LENDER or any LENDER’s Affiliate against presentation of documents
that do not comply with the terms of the Financing Document issued or created by
LENDER or caused to be issued or created by LENDER or any LENDER’s Affiliate
except that BORROWER shall have a claim against LENDER, and LENDER shall be
liable to BORROWER, to the extent of any direct, but not consequential, damages
suffered by BORROWER that BORROWER proves were caused solely by LENDER’s gross
negligence or willful misconduct in determining whether documents presented
under any Financing Document comply with the terms of such Financing Document or
LENDER’s willful failure to make lawful payment under a Financing Document after
the presentation to it of a draft and documents and/or certificates strictly
complying with the terms and conditions thereof; (4) for errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex or otherwise, whether or not they are in cipher; (5) for
errors in interpretation of technical terms; (6) for any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any such Financing Document or of the proceeds thereof; and (6) for any
consequence arising from causes beyond the control of LENDER, including, without
limitation, any government acts.  None of the above shall affect,
impair, or prevent the vesting of any of LENDER’s rights or powers
hereunder.  In furtherance and not in limitation of the foregoing,
LENDER may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.  To the extent not inconsistent herewith,
the Uniform Customs and Practice for Documentary Credits as most recently
published by the International Chamber of Commerce shall be deemed a part of
this Section as if incorporated herein in all respects and shall apply to the
Letters of Credit.

     

    
      
        
        

      

      
        46

        
          

        

      

      
        
        

      

    

     

    (e)                      Indemnification
of LENDER:  In addition to
amounts payable as elsewhere provided in this Agreement, without duplication,
BORROWER agrees to indemnify and save harmless LENDER from and against any and
all claims, demands, liabilities, damages, losses, costs, charges and expenses
(including reasonable attorneys’ fees) which LENDER may incur or be subject to
as a consequence, direct or indirect, of the issuance of any Financing Document
or any action or proceeding relating to a court order, injunction, or other
process or decree restraining or seeking to restrain LENDER from paying any
amount under any Financing Document or the failure of LENDER to honor a drawing
under any Financing Document issued or created by LENDER or caused to be issued
or created by LENDER as a result of any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government or
governmental authority, except that LENDER shall not be entitled to
indemnification for matters caused solely by its gross negligence or willful
misconduct. Without modifying the foregoing, and anything contained herein to
the contrary notwithstanding, BORROWER shall cause each Financing Document
issued for its account to be canceled and returned to LENDER.

     

    (f)                      Fees for
the Letters of Credit. For the issuance, payment and/or amendment of the
Letters of Credit, BORROWER will pay all customary and applicable issuance,
payment and amendment charges of LENDER, together with (1) a letter of credit
fee monthly in arrears on the face amount of all Outstanding Letters of Credit
equal, on an annualized basis, to the applicable LIBOR margin; and (2)
a  fronting fee at the annual rate of 0.125% to LENDER, on the face
amount of all Outstanding Letters of Credit, payable monthly in
arrears.

     

    
      
        
        

      

      
        47

        
          

        

      

      
        
        

      

    

     

    (g)                      Inconsistencies:   In the
event that any term or condition set forth in any Application shall be
inconsistent with the terms and conditions of this Agreement, such inconsistency
shall be resolved by an interpretation which expands LENDER’s rights rather than
limits LENDER’s rights.

     

    2.8           PAYMENT OF LATE
CHARGES.  Any payment of interest or any other payment required
hereunder (including any payment due under any of the Letter of Credit
Obligations) received more than 10 days after the payment’s due date, if
accepted by LENDER, will be subject to a late charge of 5% of the total interest
installment.  Nothing in the foregoing is intended to mean that LENDER
will accept any payment after the payment’s due date (after any applicable
“grace” period). Nothing in the foregoing is intended to mean that LENDER’s
acceptance of any payment more than 10 days after the payment’s due date, other
than acceptance of payment of all sums outstanding under the Revolving Loan and
the Letter of Credit Obligations, is a cure of any default.

     

    2.9           AUTHORIZATION TO CHARGE
ACCOUNTS. BORROWER hereby authorizes LENDER to charge and effect payment
as of each due date of all interest and other amounts (including principal) due
under the Revolving Loan (including all amounts due and payable under the Letter
of Credit Obligations) and this Agreement by increasing the principal balance of
the Revolving Loan as though an Advance were taken by BORROWER against the
Revolving Loan in the amount of any payment effected by LENDER.  The
foregoing is defined as the “Authorization to
Charge”.

     

    
      
        
        

      

      
        48

        
          

        

      

      
        
        

      

    

     

    2.10           TERMINATION BY BORROWER OR LENDER AND
PREMIUMS DUE ON PREPAYMENT.

     

    (a)           Generally.  The Revolving
Loan relationship shall continue in full force and effect until the Maturity
Date (unless the term of this Agreement or LENDER’s Revolving Loan relationship
with BORROWER is sooner accelerated or terminated or modified as provided
herein).

     

    (b)           Termination
by LENDER.  LENDER may
terminate this Agreement on written notice to BORROWER on or after the
occurrence of an Event of Default or as otherwise allowed by this
Agreement.

     

    (c)           Termination
by BORROWER.   BORROWER may, at its option and upon at
least thirty (30) days prior written notice to LENDER, terminate this Agreement
or permanently reduce the amount which BORROWER may borrow hereunder; provided,
however, no such termination shall be effective until BORROWER has paid all of
the Liabilities in immediately available funds or taken the action with respect
to Letter of Credit Obligations required by Section 2.7(a)(4)(B) and no
such reduction will be effective until BORROWER has reduced the Outstanding
principal amount of the Revolving Loan (including, to the extent necessary, the
action with respect to Letter of Credit Obligations required by Section 2.7(a)(4)(B)) to the
reduced amount thereof. Any notice of termination or reduction given by BORROWER
shall be irrevocable unless LENDER otherwise agrees in writing. LENDER shall
have no obligation to make any Advances or other financial accommodations on or
after the termination date stated in such notice.  LENDER shall have
no obligation to make any Advances or other financial accommodations in excess
of the reduced amount of the Revolving Loan after the reduction date stated in
such notice. BORROWER may elect to terminate this Agreement in whole or in
part.  In the event that interest on any portion or portions of the
Revolving Loan is being determined at a LIBOR Based Rate, such portion or
portions may be prepaid at any time but such prepayment must be made for the
entirety of the portion for which LENDER has entered into contracts relating to
LIBOR pricing. Partial prepayments of any such portion or portions are not
allowed. In the event of any such prepayment, the provisions of Section 2.11 shall
apply.

     

    
      
        
        

      

      
        49

        
          

        

      

      
        
        

      

    

     

    (d)           Termination
Charges.  At the effective date of termination of this
Agreement for any reason (and whether by LENDER or by BORROWER), BORROWER shall
pay to LENDER (in addition to the then outstanding principal, accrued interest
and other charges owing under the terms of this Agreement and any of the other
Loan Documents and in addition to any amounts payable under Section 2.11) as a premium or
liquidated damages for the loss of the bargain and not as a penalty, the
following, as applicable (provided, however that the termination charges
hereinafter set forth in this subsection (d) shall not be payable if
substantially concurrently with the termination of this Agreement BORROWER and
LENDER enter into a new loan agreement which can reasonably be deemed to be a
replacement for this Agreement):

     

    (1)           If
termination or reduction occurs during the period commencing on the Effective
Date and ending on the day immediately preceding the first anniversary of the
Effective Date, BORROWER shall pay a prepayment premium equal to 1% of the face
amount set forth in Section
1.42(a), without reduction for any Swap Reserve,  as of the
date of termination in the case of a full termination or 1% of the amount of
partial termination or permanent reduction.

     

    (2)           If
termination or reduction occurs during the period commencing on the first
anniversary of the Effective Date and ending on the day immediately preceding
the second anniversary of the Effective Date, BORROWER shall pay a prepayment
premium equal to .75% of the face amount set forth in Section 1.42(a), without
reduction for any Swap Reserve, as of the date of termination in the case of a
full termination or .75% of the amount of partial termination or permanent
reduction.

     

    
      
        
        

      

      
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    (3)           If
termination or reduction occurs during the period commencing on the second
anniversary of the Effective Date, BORROWER shall pay a prepayment premium equal
to .5% of the face amount set forth in Section 1.42(a), without
reduction for any Swap Reserve, as of the date of termination in the case of a
full termination or .5% of the amount of partial termination or permanent
reduction.

     

    (e)           Effect of
Termination.  Upon the
termination date stated in any notice of termination of this Agreement, all
action required pursuant to Section 2.7(a)(4)(B) shall be
taken with respect to Letter of Credit Obligations and all of the other
Liabilities shall be immediately due and payable. All undertakings, agreements,
covenants, warranties and representations of BORROWER contained in the Loan
Documents shall survive any such termination and LENDER shall retain its
security interest and liens in the Collateral and all of its rights and remedies
under the Loan Documents notwithstanding such termination until BORROWER has
indefeasibly paid the Liabilities to LENDER in full, in immediately available
funds, and taken all action required pursuant to Section 2.7(a)(4)(B) with
respect to Letter of Credit Obligations, together with the applicable
termination charge, if any. Notwithstanding the payment in full of the
Liabilities, LENDER shall not be required to terminate its security interests
and liens in the Collateral unless, with respect to any loss or damage LENDER
may incur as a result of dishonored checks or other items of payment received by
LENDER from BORROWER or any Account Debtor and applied to the Liabilities,
LENDER shall, at its option, (i) have received a written agreement, executed by
BORROWER and by any person whose loans or other Advances to BORROWER are used in
whole or in part to satisfy the Liabilities, indemnifying LENDER from any such
loss or damage; or (ii) have retained any monetary reserves or security interest
and liens on the Collateral for such period of time as LENDER, in its reasonable
discretion, may deem necessary to protect LENDER from any such loss or
damage.

     

    
      
        
        

      

      
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    (f)           Yield
Maintenance Provisions Survive. In the event that interest on any portion
or portions of the Revolving Loan is being determined at a LIBOR Based Rate,
such portion or portions may be prepaid at any time but such prepayment must be
made for the entirety of the portion for which LENDER has entered into contracts
relating to LIBOR pricing. Partial prepayments of any such portion or portions
are not allowed. In the event of any such prepayment, the provisions of Section 2.11 shall
apply.

     

    (g)           Rights of
LENDER Also Continue.  Despite any modification or termination
of the Revolving Loan relationship, whether by BORROWER or by LENDER, LENDER’s
rights under this Agreement shall continue to remain in full force and effect
(as modified in the case of any modification and despite any acceleration in the
case of any acceleration and despite any termination in the case of any
termination) until all Liabilities are paid in full and all action required
pursuant to Section
2.7(a)(4)(B) has been taken with respect to Letter of Credit
Obligations.

     

    2.11           YIELD MAINTENANCE AND INDEMNIFICATION
RELATING TO LIBOR BASED INTEREST.

     

    (a)           BORROWER
hereby agrees to indemnify LENDER against any loss or expense which LENDER may
sustain or incur as a consequence of (1) any failure by BORROWER to borrow all
or any portion of any Principal Balance (relating to Advances Outstanding under
the Revolving Loan as to which BORROWER has elected to have interest determined
or to be determined, as applicable, at a LIBOR Based Rate and as more fully
defined above) or (2) the receipt or recovery by LENDER of all or any part of
any Principal Balance prior to the maturity thereof whether by voluntary or
involuntary prepayment, acceleration or otherwise.

     

    (b)           Without
limiting the effect of the foregoing, the amount to be paid by BORROWER to
LENDER in order to indemnify LENDER for any loss occasioned by any of the events
described in the preceding provisions of this Section, and as liquidated damages
therefor, shall be equal to the following amount:

     

    
      
        
        

      

      
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    The
current rate for United States Treasury securities (Bills on a discounted basis
shall be converted to a bond equivalent) with a maturity closest to the maturity
date of the LIBOR Based Interest Period chosen pursuant to the LIBOR Option and
as to which the prepayment is made shall be subtracted from the “cost of funds”
component of the LIBOR Based Rate in effect at the time of the
prepayment.  If the result is zero or a negative number, there shall
be no yield maintenance fee.  If the result is a positive number, then
the resulting percentage shall be multiplied by the amount of the Principal
Balance being prepaid. The resulting amount shall be divided by 360 and
multiplied by the number of days remaining in the term of the LIBOR Based
Interest Period chosen pursuant to the LIBOR Option as to which the prepayment
is made. Said amount shall be reduced to present value calculated by using the
number of days remaining in the designated term and using the above referenced
United States Treasury security rate and the number of days remaining in the
term of the LIBOR Based Interest Period chosen pursuant to the LIBOR Option as
to which the prepayment is made. The resulting amount shall be the yield
maintenance fee due to LENDER upon any prepayment of any Principal Balance. Such
yield maintenance fee shall be paid, if due under the formula set forth above,
upon the receipt or recovery by LENDER of all or any part of any Principal
Balance prior to the maturity thereof whether by voluntary or involuntary
prepayment, acceleration or otherwise.

    

    (c)           A
certificate as to any additional amounts payable pursuant to this Section
setting forth the basis and method of determining such amounts shall be
conclusive, absent manifest error, as to the determination by LENDER set forth
therein if made reasonably and in good faith.  BORROWER shall pay any
amounts so certified to it by LENDER within 10 days of receipt of any such
certificate.

     

    (d)           The
indemnities provided for herein shall survive payment in full of the principal
amount of the Revolving Loan and the interest due thereon.

     

    (e)           Nothing
in the foregoing shall in any way limit any obligations of BORROWER under any
Master Agreement.

     

    2.12           EVIDENCE OF REVOLVING LOAN
INDEBTEDNESS.

     

    (a)           The
Revolving Loan is evidenced by BORROWER’s certain master promissory revolving
note dated even date herewith and made payable to the order of
LENDER.  The amounts due under such note shall be payable as provided
in this Agreement.

     

    
      
        
        

      

      
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    (b)           LENDER
shall enter on LENDER’s records in accordance with its usual and customary
practices all advances made by LENDER to BORROWER under the Revolving Loan and
all interest and other amounts due thereon and all payments made on account of
principal and/or interest and/or such other amounts.  The aggregate
unpaid principal and/or interest and/or other amounts entered and shown on
LENDER’s records shall further evidence the principal and/or interest and/or
other amounts owing and unpaid on the Revolving Loan.  LENDER may from
time to time render a statement of the aforementioned records or provide
BORROWER with the ability for “online” access to such records.  If
BORROWER fails to object to any such statement within sixty (60) days after it
is received by BORROWER or made available “online” to BORROWER, such statement
shall be deemed to be an account stated and binding upon BORROWER, provided,
however, that nothing in the foregoing shall prevent LENDER or BORROWER from
correcting manifest errors in such statements. Notwithstanding the foregoing,
the following shall apply:

     

    (1)           Any
failure by LENDER to enter on its records the date and amount of any advance or
interest or other amount due on the Revolving Loan or LENDER’s failure to render
any such statement shall not, however, limit or otherwise affect the obligations
of BORROWER under this Agreement or under the Revolving Loan to repay the
principal amount of the advances, re-advances, borrowings and re-borrowings made
by LENDER to BORROWER under the Revolving Loan, together with all interest
accruing and other amounts due thereon.

     

    (2)           LENDER’s
failure to enter on its records the date and amount of any payment made by
BORROWER shall not, however, limit or otherwise affect the right of BORROWER
under the Revolving Loan to demonstrate its payment of any Advance or any
interest accruing and other amounts due thereon.

     

    
      
        
        

      

      
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    (c)           The
foregoing note (and all extensions, modifications [including without limitation
modifications increasing or decreasing the amount of the Revolving Loan],
refinancings, renewals, substitutions, replacements and/or redatings thereof)
and the records of LENDER indicating Advances made hereunder, accrued interest
and other charges due thereon, and payments made by BORROWER on account of such
Advances, interest and charges is referred to as the “Revolving Note” in this
Agreement.

     

    2.13           NOTICES RELATING TO
ADVANCES.

     

    (a)           Subject
to any special notice requirements relating to BORROWER’s exercise of any LIBOR
Option, BORROWER shall give LENDER written notice of each borrowing of each
Advance (in each case, a “Borrowing Notice”). Each such
written notice shall be irrevocable and shall be effective only if received by
LENDER, subject to any special notice requirements relating to BORROWER’s
exercise of any LIBOR Option, not later than 11 a.m., New York City time, on the
date that is one Business Day prior to the date of borrowing.

     

    (b)           Each
such notice of borrowing shall specify the amount to be borrowed or prepaid, the
date of borrowing (which shall be a Business Day).

     

    (c)           Notwithstanding
the foregoing, as it relates to any borrowing of an Advance, LENDER may in its
discretion rely on and act on oral requests made by BORROWER and the making of
any requested Advance shall conclusively establish BORROWER’s obligation to
repay such Advance in accordance with this Agreement.

     

    (d)           Also
notwithstanding the foregoing, unless payment is otherwise timely made by
BORROWER, the becoming due of any Advance or other obligation required to be
paid under this Agreement or any Loan Document shall be deemed irrevocably to be
a request by BORROWER for an Advance on the due date of, and in the amount
required to pay, such Advance or other obligation which has become due. In
addition, the presentation by BORROWER for payment by LENDER of any check or
other item of payment drawn on any demand deposit account of BORROWER at LENDER
shall be deemed irrevocably to be a request by BORROWER for an Advance in the
amount of such check or other item of payment, provided, however, that BORROWER
understands and agrees that LENDER has no obligation to honor drafts presented
against any demand deposit account having insufficient balances even if BORROWER
has the ability to borrow under the Revolving Loan.

     

    
      
        
        

      

      
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    2.14           APPLICATION OF
PAYMENTS.  LENDER may apply all payments and other sums of
money received by it from or on account of BORROWER towards the satisfaction of
those Liabilities which LENDER in its sole discretion deems fit.

     

    2.15           OBLIGATIONS
ABSOLUTE.  The obligations of BORROWER under this Agreement
shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of this Agreement, under all circumstances
whatsoever, and such obligations shall not be affected, modified or impaired
upon the happening from time to time of any event, including without limitation
any of the following, whether or not with notice to, or consent of,
BORROWER:

     

    (a)           LENDER’s
taking or not taking any of the actions referred to in the Loan
Documents;

     

    (b)           LENDER’s
release (whether with or without consideration), impairment, failure to perfect
a security interest in, exchange, surrender, substitution or modification of (1)
any Collateral or (2) any other collateral or security given by BORROWER or (3)
any collateral or security given by GUARANTOR or (4) any Proceeds of the
foregoing;

     

    (c)           any
failure, omission or delay on the part of LENDER to enforce, assert or exercise
any right, power or remedy conferred on it in the Loan Documents or any other
action or acts on the part of LENDER;

     

    
      
        
        

      

      
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    (d)           the
voluntary or involuntary liquidation, dissolution, sale or other disposition of
all or substantially all the assets, marshaling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition with creditors or readjustment, or
other similar proceedings which affect GUARANTOR or any of its
assets;

     

    (e)           LENDER’s
compromise, settlement, release (whether with or without consideration),
discharge, change, modification, amendment (whether material or otherwise) or
termination of any or all of the obligations, duties, covenants or agreements of
GUARANTOR under any of the Loan Documents;

     

    (f)           the
default or failure of BORROWER or GUARANTOR fully to perform any of the
obligations set forth in the Loan Documents;

     

    (g)           LENDER’s
inability to recover payment from any person or entity under the Loan Documents;
or

     

    (h)           the
existence of any claim, setoff, defense or other rights which BORROWER or
GUARANTOR may have at any time against any person whether in connection with
this Agreement, the other Loan Documents or any unrelated
transactions.

     

    2.16           FEES.

     

    (a)           Commitment
Fee:  BORROWER shall pay LENDER a Commitment Fee of $87,500.   The
aforementioned Commitment Fee shall be considered earned on the date hereof but
BORROWER may make payment in monthly installments, each in the amount of $2,431,
commencing on August 1, 2008, and continuing on the first day of each and every
consecutive calendar month thereafter until paid in
full.  Notwithstanding the foregoing, if an Event of Default occurs or
if this Agreement is otherwise terminated, the unpaid balance of the Commitment
Fee shall be accelerated and become immediately due and owing.

     

    
      
        
        

      

      
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    (b)           Unused
Revolving Loan Facility Fee:  In the event that average daily
usage under the Revolving Loan (including Letter of Credit Obligations) during
any calendar month or part thereof falls below $35,000,000, BORROWER shall pay
LENDER an unused Revolving Loan fee on the short fall determined at a rate equal
to 37.5 basis points per annum.  On the first day of the calendar
month immediately following the end of the preceding calendar month, BORROWER
will be responsible for the payment of the unused Revolving Loan fee, if any,
then due.  By its execution of this Agreement, each BORROWER hereby
authorizes LENDER to effect payment of all fees and expenses set forth above
pursuant to the Authorization to Charge.

     

    (c)           Collateral
Management Fee:   BORROWER shall pay LENDER a Collateral
Management Fee as more fully set forth in Article V.

     

    (d)           Verification
Fee:   BORROWER shall pay LENDER an Accounts Verification
Fee as more fully set forth in Article V.  On the
date hereof, there is no Verification Fee.

     

    (e)           Field
Examination Fee:     BORROWER
shall pay LENDER a Field Examination Fees as more fully set forth in Article
V.

     

    (f)           Letters
of Credit Fees:  BORROWER shall pay fees for the Letters of
Credit as heretofore set forth in this Article II.

     

    2.17           ADDITIONAL COSTS; CAPITAL
REQUIREMENTS.

     

    (a)           In
the event that any existing or future law or regulation, guideline or
interpretation thereof, by any court or administrative or governmental authority
charged with the administration thereof, or compliance by LENDER with any
request or directive (whether or not having the force of law) of any such
authority shall impose, modify or deem applicable or result in the application
of, any capital maintenance, capital ratio or similar requirement against loan
commitments or other obligations entered into by LENDER hereunder, and the
result of any event referred to above is, after the date of this Agreement, to
impose upon LENDER or increase any capital requirement applicable as a result of
the making or maintenance of LENDER’s commitment hereunder or otherwise (which
imposition of capital requirements may be determined by LENDER’s reasonable
allocation of the aggregate of such capital increases or impositions), then,
upon demand made by LENDER as promptly as practicable after it obtains knowledge
that such law, regulation, guideline, interpretation, request or directive
exists and determines to make such demand, BORROWER shall immediately pay to
LENDER from time to time as specified by LENDER additional commitment fees which
shall be sufficient to compensate LENDER for such imposition of or increase in
capital requirements together with interest on each such amount from the date
demanded until payment in full thereof at the Prime Based Rate and, if not paid
within 30 days after demand, then with interest thereafter at the Default
Rate.  A certificate setting forth in reasonable detail the amount
necessary to compensate LENDER as a result of an imposition of or increase in
capital requirements submitted by LENDER to BORROWER shall be conclusive, absent
manifest error, as to the amount thereof.  For purposes of this
Section, all references to “LENDER” shall be deemed to
include any participant in LENDER’s commitment hereunder, provided, however,
that the foregoing shall not require BORROWER to pay more under this Section
because of the existence of such participants than BORROWER would pay to LENDER
if there were no participants.

     

    
      
        
        

      

      
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    (b)           In
the event that any Regulatory Change after the date of this Agreement
shall:  (1) change the basis of taxation of any amounts payable to
LENDER under this Agreement or the Revolving Note (other than taxes imposed on
the overall net income of LENDER by the United States of America or the
jurisdiction in which LENDER has its principal office); or (2) impose or modify
any reserve, Federal Deposit Insurance Corporation premium or assessment,
special deposit or similar requirements relating to any extensions of credit or
other assets of, or any deposits with or other liabilities of, LENDER; or (3)
impose any other conditions affecting this Agreement in respect of Advances or
any such extensions of credit, assets, deposits or liabilities; and the result
of any event referred to in clause (1), (2) or (3) above shall be to increase
LENDER’s costs of making or maintaining any Advances including, without
limitation, its commitment hereunder, or to reduce any amount receivable by
LENDER hereunder in respect of its commitment hereunder (such increases in costs
and reductions in amounts receivable are hereinafter referred to as “Additional Costs”), then, in
each case, upon demand made by LENDER as promptly as practicable after it
obtains knowledge that such a Regulatory Change exists and determines to make
such demand (a copy of which demand shall be delivered to LENDER), BORROWER
shall pay to LENDER from time to time as specified by LENDER, additional
commitment fees or other amounts which shall be sufficient to compensate LENDER
for such increased cost or reduction in amounts receivable by LENDER from the
date of such change, together with interest on each such amount from the date
demanded until payment in full thereof at the Prime Based Rate and, if not paid
within 30 days after demand, then with interest at the Default Rate. All
references to any “LENDER” shall be deemed to
include any participant in LENDER’s commitment hereunder, provided, however,
that the foregoing shall not require BORROWER to pay more under this Section
because of the existence of such participants than BORROWER would pay to LENDER
if there were no participants.

     

    
      
        
        

      

      
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    (c)           Determinations
by LENDER for purposes of this Section of the effect of any Regulatory Change on
its costs of making or maintaining Advances or on amounts receivable by it in
respect of Advances, and of the additional amounts required to compensate LENDER
in respect of any Additional Costs, shall be set forth in writing in reasonable
detail and shall be conclusive, absent manifest error.

     

    (d)           In
the event that LENDER demands compensation under this Section, then without
limiting or reducing the obligations of BORROWER hereunder, LENDER shall take
reasonable steps to mitigate the circumstances resulting in such demand,
provided, however, that LENDER shall not be required to take such steps if, in
its opinion, such steps (1) would be inconsistent with LENDER’s internal
policies, (2) would or might have an adverse effect upon LENDER’s business,
operations, or financial condition or (3) would result in any cost, liability or
exposure to LENDER.

     

    
      
        
        

      

      
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    ARTICLE
III

     

    COLLATERAL

     

    3.1           CROSS
COLLATERALIZATION.  BORROWER agrees that payment and
performance of all Liabilities shall be secured by each and all of the
following: (a) all Collateral hereinafter set forth in this Article III, (b) all
Collateral now or hereafter given by BORROWER to LENDER and (c) all products and
Proceeds of the foregoing.

     

    3.2           ACCESSIONS.  To
secure payment and performance of all Liabilities, BORROWER hereby creates in
favor of LENDER and hereby grants to LENDER a first security interest in all
Accessions, as defined herein, presently owned by BORROWER or hereafter
existing, created or acquired by it.

     

    3.3           ACCOUNTS
RECEIVABLE.  To secure payment and performance of all
Liabilities, BORROWER hereby creates in favor of LENDER and hereby grants to
LENDER a first security interest in all Accounts, as defined herein, presently
owned by BORROWER or hereafter existing, created or acquired by it.

     

    3.4           BOOKS AND
RECORDS.  To secure the payment and performance of all
Liabilities, BORROWER hereby creates in favor of LENDER and hereby grants to
LENDER a first security interest in all of BORROWER’s Books and Records, as
defined herein, presently owned by BORROWER or hereafter existing, created or
acquired by it.

     

    3.5           CHATTEL PAPER.  To
secure payment and performance of all Liabilities, BORROWER hereby creates in
favor of LENDER and hereby grants to LENDER a first security interest in all of
BORROWER’s Chattel Paper, as defined herein, whether presently owned by BORROWER
or hereafter acquired by it, including but not limited to all such Chattel
Paper, and now or hereafter left in the possession of LENDER for any
purpose.

     

    
      
        
        

      

      
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    3.6           COMMERCIAL TORT
CLAIMS.  To secure payment and performance of all Liabilities,
BORROWER hereby creates in favor of LENDER and hereby grants to LENDER a first
security interest in all of BORROWER’s Commercial Tort Claims, as defined
herein, presently owned by BORROWER or hereafter acquired by it.

     

    3.7           CONSIGNMENTS.  To
secure payment and performance of all Liabilities, BORROWER hereby creates in
favor of LENDER and hereby grants to LENDER a first security interest in all of
BORROWER’s Consignments, as defined herein, presently owned by BORROWER or
hereafter acquired by it, including without limitation, (a) BORROWER’s rights to
the underlying Goods in any Consignment where Goods of BORROWER are delivered to
a merchant for the purpose of sale and the merchant (1) deals in Goods of that
kind under a name other than that of BORROWER; (2) is not an auctioneer; and (3)
is not generally known by its creditors to be substantially engaged in selling
the Goods of others and (b) BORROWER’s rights to the underlying Goods in any
Consignment where Goods of a third party are delivered to BORROWER for the
purpose of sale.

     

    3.8           CONTRACT RIGHTS.  To
secure payment and performance of all Liabilities, BORROWER hereby creates in
favor of LENDER and hereby grants to LENDER a first security interest in all
Contract Rights, as defined herein, presently owned by BORROWER or hereafter
acquired by it.

     

    3.9           DEPOSIT
ACCOUNTS.  To secure payment and performance of all
Liabilities, BORROWER hereby creates in favor of LENDER and hereby assigns to
LENDER and hereby grants to LENDER a first security interest in each and all the
following:

     

    
      	
               
      

            	
              (1)

            	
              the
      balance of all Deposit Accounts, now or hereafter existing, of BORROWER
      with LENDER or any LENDER’s Affiliate or in transit to any of them;
      and

            

    

     

    
      
        
        

      

      
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              (2)

            	
              all
      money, instruments, securities, documents, credits, claims, and other
      property of BORROWER, now or hereafter or for any purpose (including
      safe-keeping or pledge or security for any of the Liabilities) in the
      possession, custody, safekeeping or control of LENDER or any LENDER’s
      Affiliate or in transit to any of them;
and

            

    

    

    
      	
               
      

            	
              (3)

            	
              any
      sum now or hereafter owed by LENDER or any LENDER’s Affiliate in any
      capacity to BORROWER whether due or not;
and

            

    

    

    
      	
               
      

            	
              (4)

            	
              all
      additions, substitutions, replacements, and increments to the foregoing
      property, as well as proceeds of all of the foregoing property in whatever
      form, including cash, negotiable instruments and other instruments for the
      payment of money.

            

    

    

    3.10           EQUIPMENT.  To
secure payment and performance of all Liabilities, BORROWER hereby creates in
favor of LENDER and hereby grants to LENDER a first security interest (except
for Equipment subject to a Purchase Money Lien) in all of BORROWER’s Equipment,
as defined herein, whether presently owned by BORROWER or hereafter acquired by
it, and wherever located.

     

    3.11           GENERAL
INTANGIBLES.  To secure payment and performance of all
Liabilities, BORROWER hereby creates in favor of LENDER and hereby grants to
LENDER a first security interest in all of BORROWER’s General Intangibles, as
defined herein, whether presently owned by BORROWER or hereafter acquired by
it.

     

    3.12           GOODS.  To secure
payment and performance of all Liabilities, BORROWER hereby creates in favor of
LENDER and hereby grants to LENDER a first security interest in all of
BORROWER’s Goods, as defined herein, whether presently owned by BORROWER or
hereafter acquired by it.

     

    3.13           INSTRUMENTS.  To
secure payment and performance of all Liabilities, BORROWER hereby creates in
favor of LENDER and hereby grants to LENDER a first security interest in all of
BORROWER’s Instruments as defined herein, whether presently owned by BORROWER or
hereafter acquired by it, including but not limited to all such Instruments now
or hereafter left in the possession of LENDER for any purpose, including but not
limited for the purpose of collection.

     

    
      
        
        

      

      
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    3.14           INVENTORY.  To
secure payment and performance of all Liabilities, BORROWER hereby creates in
favor of LENDER and hereby grants to LENDER a first security interest in all of
BORROWER’s Inventory, as defined herein, whether presently owned by BORROWER or
hereafter acquired by it, and wherever located.

     

    3.15           ALL OTHER BUSINESS
ASSETS.

     

    (a)           To
secure payment and performance of all Liabilities, BORROWER hereby creates in
favor of LENDER and hereby grants a first security interest in all of BORROWER’s
other business assets, whether presently owned by BORROWER or hereafter acquired
by it, including without limitation the following categories of assets as
defined in the UCC: Inventory, Equipment (and any Accessions thereto),
Instruments (including promissory notes), Documents, Accounts (including
Health-Care-Insurance Receivables), Chattel Paper (whether tangible or
electronic), Deposit Accounts, Letter-of-Credit Rights (whether or not the
letter of credit is evidenced by a writing), Commercial Tort Claims, Securities
and all other Investment Property, General Intangibles (including payment
intangibles and software), Supporting Obligations, and any and all proceeds of
any thereof, wherever located, whether now owned and hereafter
acquired.

     

    (b)           If
BORROWER shall at any time acquire a Commercial Tort Claim, BORROWER shall
immediately notify LENDER in a writing signed by BORROWER of the brief details
thereof and grant to LENDER in such writing a security interest therein and in
the proceeds thereof, with such writing to be in form and substance satisfactory
to LENDER.

     

    3.16           PRODUCTS AND
PROCEEDS.  To secure payment and performance of all
Liabilities, BORROWER hereby creates in favor of LENDER and hereby grants to
LENDER a security interest in Proceeds and in all products of the
Collateral.

     

    
      
        
        

      

      
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    ARTICLE
IV

     

    REPRESENTATIONS

     

    In order to induce LENDER to enter into
this Agreement and to perform its obligations hereunder, BORROWER makes the
following representations to LENDER subject to the exceptions and other matters
set forth on the disclosure schedule attached to the Certification Responsive to
the Loan Agreement, each and all of which shall survive the execution and
delivery of this Agreement for the duration of the term, or the extended or
renewed term or terms of, this Agreement and each and all of which shall be
deemed to be reconfirmed and restated at and as of the date of BORROWER’s
submission of the certifications required by Section 5.6(c) and Section 5.6(d) of this
Agreement except that (i) representations which by their terms are applicable
only as of a specific date shall be deemed made only at and as of such dates and
(ii) changes in BORROWER’s business or operations that may occur after the date
hereof in the ordinary course of business which do not have a Materially Adverse
Effect on BORROWER:

     

    4.1           (a)           BORROWER
is a corporation of the State of Delaware with its principal place of business
on the date of this Agreement at 903 Murray Road, P.O. Box 1960, East Hanover,
Morris County, New Jersey 07936. BORROWER will not change its principal place of
business without first giving LENDER prior notice thereof in the manner provided
in Section 9.1 of this
Agreement.

     

    (b)           BORROWER’s
correct legal name is “FIVE
STAR GROUP, INC.”

     

    (c)           (1)           On
the date hereof, BORROWER uses no trade marks or trade names except the trade
mark and trade name “Five Star
Products”.

     

    (2)           BORROWER
will not use any other trade name without first giving LENDER prior notice
thereof in the manner provided in Section 9.1 of this
Agreement.

     

    
      
        
        

      

      
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    (d)           (1)           On
the date hereof, BORROWER owns no patents, trade names (except as set forth
above) or trade marks.

     

    (2)           BORROWER
will advise LENDER of any patents, trade names or trade marks which it acquires
and, if requested by LENDER, will provide LENDER with a security interest
therein.

     

    (e)           BORROWER
is engaged in the business of the wholesale distribution of home decorating,
hardware and finishing products and business directly related
thereto.

     

    (f)           The
stock of BORROWER is wholly owned by GUARANTOR.

     

    (g)           BORROWER
has no Subsidiaries.

     

    4.2           BORROWER
is in good standing under the laws of the State of Delaware, the state of its
incorporation.

     

    4.3           BORROWER
is qualified to do business and is in good standing in the States of
Connecticut, New Jersey and New York and in each jurisdiction where the nature
of its business requires it to be so qualified except where the failure to so
qualify would not have a Materially Adverse Effect on BORROWER.

     

    4.4           BORROWER
has the corporate power to execute, deliver and carry out this Agreement and its
Board of Directors has duly authorized and approved the terms described herein
and the taking of any and all action contemplated herein.

     

    4.5           BORROWER
will use proceeds of the Revolving Loan for only the purposes set forth in Section 2.1(a) and no
other.

     

    4.6           (a)           On
the date hereof, the Collateral given by BORROWER is located only at the
locations set forth on Schedule
“B” attached hereto.

     

    
      
        
        

      

      
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    (b)           BORROWER
may from time to time add to the locations set forth above or change the
locations set forth above but only if BORROWER gives LENDER written notice of
such change at least 30 days prior to such change and provides any Landlord’s
Consent required by LENDER (it being understood that any Inventory stored at any
location for which a Landlord’s Consent has not been provided shall not be
considered eligible for lending purposes except as otherwise allowed for certain
Inventory in-transit)

     

    (c)           The
locations set forth in subsection (a) above and any location permitted under
subsection (b) above collectively are the “Collateral Locations”
described in this Agreement.

     

    4.7           BORROWER
has full power and authority to execute, deliver and perform this Agreement, the
Revolving Note and all of the other Loan Documents to which it is party and to
perform and observe the terms and provisions hereof and thereof.

     

    4.8           This
Agreement is a legal, valid and binding agreement of BORROWER enforceable
against BORROWER in accordance with its terms and the Revolving Note and all of
the other Loan Documents to which it is a party are similarly valid, binding and
enforceable against BORROWER in accordance with their respective terms except as
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws, now or hereafter in effect,
relating to or affecting the enforcement of creditors’ rights generally and
except that the remedy of specific performance and other equitable remedies are
subject to judicial discretion.

     

    4.9           No
consent or approval of any trustee or holder of any indebtedness or obligation
of BORROWER is necessary in connection with the execution and delivery of this
Agreement or the Revolving Note or any of the other Loan Documents to which it
is a party or any transaction contemplated hereby or thereby.

     

    
      
        
        

      

      
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    4.10           No
consent, permission, authorization, order or license of any governmental
authority is necessary in connection with the execution and delivery of this
Agreement or the Revolving Note or any of the other Loan Documents to which it
is a party or any transaction contemplated hereby or thereby except where the
failure to obtain any such consent, permission, authorization, order or license
would not create a Materially Adverse Effect on BORROWER.

     

    4.11           There
is no provision of any indenture or material agreement, written or oral, to
which to the best of BORROWER’s knowledge, BORROWER is a party or under which it
is obligated which would be contravened in any material respect by the execution
and delivery of this Agreement or the Revolving Note or any of the other Loan
Documents to which it is a party or by the performance of any material
provision, condition, covenant or other term hereof or thereof except where such
contravention would not have a Materially Adverse Effect on
BORROWER.

     

    4.12           To
the best of BORROWER’s knowledge, there is no statute, rule or regulation, or
any judgment, decree or order of any court or agency binding on BORROWER which
would be contravened in any Materially Adverse Effect by the execution and
delivery of this Agreement or the Revolving Note or any of the other Loan
Documents to which it is a party or by the performance of any material
provision, condition, covenant or other term hereof or thereof except where such
contravention would not have a Materially Adverse Effect on
BORROWER.

     

    4.13           On
the date of this Agreement, BORROWER has good and marketable title to all of its
properties and assets, real, personal and mixed, as reflected on the most recent
consolidated balance sheet of BORROWER and GUARANTOR, and none of said
properties or assets is subject to any mortgage, pledge, lien, security
interest, encumbrance, charge or title retention or other security agreement or
arrangement of any character whatsoever except for Permitted Liens and except as
set forth on the Certification as to Liens and except where the existence of
such lien would not otherwise violate Section 7.4 or Section 7.5 hereof and would
also not have a Materially Adverse Effect on BORROWER.

     

    
      
        
        

      

      
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    4.14         (a)           BORROWER
has timely filed all returns and information and other reports required of it
under all Federal, State, local and foreign tax laws to which it is subject,
except where failure to file would not have a Materially Adverse Effect on
BORROWER;

     

    (b)           all
such returns and reports are true, correct and complete in all material
respects;

     

    (c)           there
are not now in effect any extensions of time in which to assess additional taxes
against BORROWER;

     

    (d)           BORROWER
has paid or made adequate provision for the full payment of all material fees,
taxes, interest and penalties which have been incurred or are due and payable by
it or which have been asserted or proposed to be asserted against it, except for
those taxes being contested in good faith and by appropriate proceedings
diligently pursued and for which BORROWER has established cash reserves to the
satisfaction of LENDER;

     

    (e)           the
liability for taxes shown on the most current financial statements of BORROWER
submitted to LENDER is sufficient for the payment of all material Federal,
State, local and foreign taxes attributable or with respect to all periods, or
portions thereof, prior to the date of such financial statements remaining
unpaid as of such date and any interest thereon to such date; and

     

    (f)           BORROWER
is not now being audited by any tax authority nor are there pending any
unresolved issues arising from prior audits, except as set forth in the most
current financial statements of BORROWER submitted to LENDER.

     

    4.15         No
material action or proceeding is now pending or, to the knowledge of BORROWER is
threatened, against BORROWER at law, in equity or otherwise, before any court,
board, commission, agency or instrumentality of any federal, state or local
government or of any agency or subdivision thereof, or before any arbitrator or
panel of arbitrators, other than claims covered by insurance that could
reasonably be expected to have a Materially Adverse Effect on
BORROWER.

     

    
      
        
        

      

      
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    4.16        (a)           On
the date hereof, there are no collective bargaining agreements or other labor
contracts covering BORROWER other than the Agreement between BORROWER and Local
No. 11 affiliated with International Brotherhood of Teamsters effective through
December 19, 2008.

     

    (b)           Except
as set forth in subsection (a) above, no such collective bargaining agreement or
other labor contract will expire during the term of this Agreement.

     

    (c)           To
the best of BORROWER’s knowledge, no union or other labor organization is on the
date hereof seeking to organize, or to be recognized as bargaining
representative for, a bargaining unit of employees of BORROWER.

     

    (d)           To
the best of BORROWER’s knowledge, there is on the date hereof no pending or,
threatened strike, work stoppage, material unfair labor practice claim or
charge, arbitration or other material labor dispute against or affecting
BORROWER or its employees which would have a Materially Adverse Effect on
BORROWER.

     

    (e)           There
has not been, during the five year period prior to the date hereof, a strike,
work stoppage, material unfair labor practice claim or charge, arbitration or
other material labor dispute against or affecting BORROWER or any of its
employees.

     

    (f)           There
are no actions, suits, charges, demands, claims, counterclaims or proceedings
pending or, to the best of BORROWER’s knowledge, threatened against BORROWER, by
or on behalf of, or with, its employees, other than employee grievances arising
in the ordinary course of business that are not, in the aggregate,
material.

     

    4.17         No
event has occurred and is continuing which would constitute an Event of Default
as defined in Article
VII or which, upon a lapse of time and notice, if applicable, would
become such an Event of Default and no borrowing by BORROWER under this
Agreement constitutes an event of default under any agreement to which BORROWER
is a party.

     

    
      
        
        

      

      
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    4.18           All
consolidated financial statements of BORROWER and GUARANTOR and all written
information and other written data furnished by BORROWER to LENDER are complete
and correct in all material respects, and such consolidated financial statements
have been prepared in accordance with GAAP and fairly represent the consolidated
financial condition of BORROWER and GUARANTOR as of such date subject to
year-end audit adjustments in the case of interim financial
statements.  Since such date no Materially Adverse Effect has occurred
with respect to BORROWER. BORROWER does not have any material contingent
obligations, liabilities for taxes or other outstanding financial obligations
which are material in the aggregate, except as disclosed in such statements,
information and data.

     

    4.19           (a)           Neither
BORROWER nor any employee benefit plan maintained by BORROWER is in violation of
any of the provisions of the Employee Retirement Income Security Act of 1974, 29
U.S.C. §1001 et
seq., as from
time to time amended (“ERISA”) or any regulations
issued thereunder by the United States Treasury Department, the Department of
Labor and the Pension Benefit Guaranty Corporation, and no prohibited
transaction (within the meaning of Title I of ERISA or the Internal Revenue Code
of 1986, as amended (the “Code”)) has occurred and is
continuing with respect to any such plan, in each instance where such violation
or prohibited transaction or any liabilities resulting directly or indirectly
therefrom individually or in the aggregate could reasonably be expected to have
a Materially Adverse Effect on BORROWER or on the ability of BORROWER to execute
this Agreement or consummate any of the transactions contemplated hereby. For
purposes of this Agreement, the term “employee benefit plan” means
any plan of a type described in Section 3(3) of ERISA in
respect of which BORROWER is an “employer” as defined in Section 3(5) of ERISA (herein
called the “Benefit
Plans” or individually the “Benefit Plan”).

     

    
      
        
        

      

      
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    (b)           With
respect to each such Benefit Plan and any trusts created thereunder except for
matters which, in the aggregate, would not have a Materially Adverse Effect on
the business of BORROWER:

     

    (1)           all
reports, forms and other information required to be filed with any government
agency or to be distributed or made available to any Benefit Plan participant or
beneficiary of any Benefit Plan have been filed, distributed or made
available;

     

    (2)           all
Benefit Plans have been amended to the extent currently required by the
applicable provisions of ERISA and the Code;

     

    (3)           BORROWER
has made all contributions required to be made with respect to each Benefit
Plan;

     

    (4)           with
respect to each group health plan maintained by BORROWER, the requirements of
Sections 601 through 608 of ERISA have been complied with;

     

    (5)           no
Benefit Plan and no trust thereunder has been terminated;

     

    (6)           there
has been no “reportable
event”, as defined in Section 4043 of ERISA, or any “accumulated funding
deficiency”;

     

    (7)           BORROWER
has not incurred any liability to the Pension Benefit Guaranty
Corporation.

     

    (c)           Neither
BORROWER nor any officer, director or other employee of BORROWER, nor any “party in interest” or “disqualified person”, as such
terms are defined in Section 3 of ERISA and Section 4975 of the Code, has, with
respect to any Benefit Plan, engaged in or been a party to any “prohibited transaction”, as
such term is defined in Section 4975 of the Code or Section 406 of ERISA, in
connection with which BORROWER or any officer, director or other employee of
BORROWER, or any Benefit Plan, could reasonably be expected to, directly or
indirectly, be subject to either a penalty, assessed pursuant to Section 502(i)
of ERISA, or a tax imposed by Section 4975 of the Code.

     

    
      
        
        

      

      
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    4.20           BORROWER
is not engaged nor will it engage, principally or as one of its important
activities, in the business of extending credit for the purpose of “purchasing” or “carrying” any “margin stock” within the
respective meanings of each of the quoted terms under Regulation U of the Board
of Governors of the Federal Reserve System as now and from time to time
hereafter in effect.  No part of the proceeds of the Revolving Loan
will be used for “purchasing” or “carrying” “margin stock” as so defined or
for any purpose which violates, or which would be inconsistent with, the
provisions of the Regulations of such Board of Governors.

     

    4.21           GUARANTOR
is indebted to SELLER under the Subordinated Seller Note in the principal amount
of $2,800,000.

     

    ARTICLE
V

     

    POSITIVE
COVENANTS

    

    BORROWER covenants and agrees that,
until the full and final payment of the Liabilities, unless LENDER waives
compliance in writing:

     

    5.1           Payment
of Liabilities.

     

    (a)           BORROWER
will repay the Revolving Loan, in accordance with the terms of the Revolving
Note and this Agreement.

     

    (b)           BORROWER
will pay and/or perform the Letter of Credit Obligations, in accordance with the
terms of the Applications and this Agreement.

     

    (c)           Unless
otherwise provided herein, BORROWER will repay LENDER’s customary service
charges associated with any accounts maintained at LENDER.

     

    
      
        
        

      

      
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    (d)           BORROWER
will repay all other Liabilities in accordance with the terms thereof and any
note and/or notes and/or records of LENDER evidencing the same.

     

    5.2           Preservation
of Existence/Rights and Conduct of Business.   BORROWER
will (a) preserve and maintain its corporate existence (provided, however, that
nothing in the foregoing shall prohibit National Patent Development Corporation
and/or any of its affiliates and/or any of its officers or directors from
increasing its ownership interest in GUARANTOR, BORROWER’s parent), (b) maintain
all of its rights, privileges and franchises necessary or desirable in the
normal conduct of its business except if no Materially Adverse Effect results
from the loss of any such rights, privileges and franchises and (c) conduct its
business in an orderly and regular manner.

     

    5.3           Preservation
of Assets.   BORROWER will maintain, preserve and keep its
properties and assets or cause the same to be maintained, preserved and kept, in
good repair, working order and condition excepting reasonable wear and tear;
make or cause to be made all necessary and proper repairs, replacements and
renewals thereto as shall from time to time be necessary; and make or cause to
be made all necessary and proper substitutions, additions, modifications and
improvements as may be necessary to preserve (a) the value of its properties and
assets, (b) their usefulness to BORROWER and (c) their fitness for their
intended purposes, provided that nothing in this Section shall prevent BORROWER
from discontinuing the operation and maintenance of any of its properties and
disposing of same if in the judgment of BORROWER such is desirable in the
conduct of its business and such discontinuance and disposition do not in the
aggregate have a Materially Adverse Effect on BORROWER.

     

    5.4           Payment
of Taxes.

     

    (a)           (1)           BORROWER
will pay as they become due, all taxes (or will provide adequate reserves
therefor), assessments, levies and other governmental charges, by whatever name
called, that may at any time be lawfully assessed or levied against or with
respect to BORROWER, the Collateral or any other property acquired by BORROWER
in substitution for, as a renewal or replacement of, or modification,
improvement or addition to the Collateral (including, but not by way of
limitation, any tax, assessment or other governmental charge which, if not paid,
will become a lien or charge upon the Collateral).

     

    
      
        
        

      

      
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    (2)           BORROWER
will also pay all utilities and other charges incurred in the operation,
maintenance, use and upkeep of the Collateral or any part thereof.

     

    (b)           (1)           If
any lien, other than a Permitted Lien, shall be claimed which in LENDER’s
reasonable commercial judgment, exercised in good faith, might create a valid
obligation having priority over the rights granted to it herein and BORROWER has
not established the reserve required by subsection (a)(1) above, LENDER may, on
prior notice to BORROWER, pay such taxes, assessments, charges or claims, and
the amount thereof, together with interest at the Default Rate, shall be added
to the Liabilities hereby secured.

     

    (2)           By
its execution of this Agreement, BORROWER authorizes LENDER to reimburse itself
for any of its expenses associated with the above in the manner set forth in the
Authorization to Charge.

     

    5.5           Cooperation
and Further Assurances.

     

    (a)           At
any time or from time to time when in the reasonable opinion of LENDER or its
counsel it shall be necessary or desirable, BORROWER will execute, acknowledge
and deliver or cause to be executed, acknowledged and delivered any supplement
hereto or other mortgage, document, instrument, agreement, UCC Financing
Statement, invoice, bill of lading, shipping document and receipt or other
writing as may reasonably be required for perfecting the liens and security
interests granted to LENDER hereunder, correcting any inadequate or incorrect
description of the Collateral or carrying out the intention of or facilitating
the performance of any term, covenant or condition of this
Agreement.

     

    
      
        
        

      

      
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    (b)           In
addition to the foregoing, BORROWER hereby authorizes LENDER to at any time and
from time to time, file financing statements, continuation statements and
amendments that describe the Collateral as all assets of BORROWER, or include
words of similar effect, and which contain any other information required by the
UCC for the sufficiency, or filing office acceptance, of any financing
statement, continuation statement or amendment, including whether BORROWER is an
organization, the type of organization, and any organization identification
number issued to BORROWER.  BORROWER agrees to furnish any such
information to LENDER promptly upon request.  Any such financing
statements, continuation statements or amendments may be signed by LENDER on
behalf of BORROWER, and may be filed at any time in any
jurisdiction.

     

    (c)           BORROWER
shall at any time and from time to time take such steps as LENDER may reasonably
request for LENDER (1) to obtain an acknowledgment, in form and substance
satisfactory to LENDER, from any bailee having possession of any of the
Collateral that said bailee holds such Collateral for LENDER, (2) to obtain
“control” of any Investment Property, Deposit Accounts, Letter-of-Credit Rights
or Electronic Chattel Paper (as such terms are defined in the UCC), with any
agreements establishing control to be in form and substance satisfactory to
LENDER, and (3) to otherwise to insure the continued perfection and priority of
LENDER’s security interest in any of the Collateral and of the preservation of
its rights therein.

     

    (d)           Nothing
contained in this Section shall be construed to narrow the scope of LENDER’s
security interest in any of the Collateral, or the perfection or priority
thereof, or to impair or otherwise limit any of the rights, powers, privileges
or remedies of LENDER hereunder.

     

    5.6           Reporting
Requirements.

     

    (a)           BORROWER
shall maintain books and records in such detail, form and scope as being
currently maintained by BORROWER.

     

    
      
        
        

      

      
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    (b)           In
addition, BORROWER shall supply to LENDER from and after the Effective Date and
on forms supplied by LENDER or otherwise reasonably acceptable to LENDER, the
information set forth in the subsections below, it being understood that in the
event that BORROWER does not supply or cause to be delivered to LENDER the
information set forth below within 10 calendar days after BORROWER receives
notice from LENDER that such information is past due, interest on the Revolving
Loan will be calculated at the Default Rate during the time that BORROWER is not
in compliance, it being further understood that LENDER’s acceptance of payment
at the Default Rate does not otherwise prevent LENDER from otherwise declaring
an Event of Default as a result thereof:

     

    (1)           Advance Request/Weekly Collateral
Reporting:  Not in limitation of the foregoing or of the right
of LENDER to request other information in the exercise of its reasonable
commercial judgment, BORROWER shall submit at the time of each request for an
advance under the Revolving Loan but in no event less frequently than weekly the
information contained in the Borrowing Base Certificate, such certificate to be
submitted no later than Wednesday after the end of the immediately preceding
week and such information to include each of the following to the extent not
specifically provided for in the Borrowing Base Certificate:

     

    
      	
               
      

            	
              (A)

            	
              all
      deposit tickets (including collections in the form of cash or
      checks).

            

    

     

    (2)           Monthly Collateral
Reporting:  Also not in limitation of the foregoing or of the
right of LENDER to reasonably request other information in the exercise of its
reasonable commercial judgment, BORROWER shall submit on a monthly basis the
following information, to be submitted no later than 20 days after the end of
each calendar month:

     

    
      
        
        

      

      
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              (A)

            	
              detailed
      invoice date Accounts Receivable aging, which detail individual Account
      Debtors’ names, addresses, amounts owed and days
    outstanding;

            

    

    

    
      	
               
      

            	
              (B)

            	
              aging
      schedules of accounts payable;

            

    

    

    
      	
               
      

            	
              (C)

            	
              Reconciliation
      Certificate, in the form attached hereto as Exhibit
    “C”;

            

    

     

    
      	
               
      

            	
              (D)

            	
              Collateral
      Update Certificate, in the form attached hereto as Exhibit “B”, including
      monthly Inventory reports showing the amount of Inventory in stock and the
      location and cost thereof; and

            

    

    
      	
               
      

            	
               
    

            

    

    
      	
               
      

            	
              (E)

            	
              reports
      and records of merchandise returns or disputes, discounts, advertising
      allowances, contraoffsets or any other offsets, volume discounts, rebate
      arrangements, sales of samples, “bill and hold” transactions, and any
      other factor which would dilute the value or reduce the amount of any
      Account Receivable.

            

    

    

    (c)           Quarterly Financial
Statements:  Also not in limitation of the foregoing or of the
right of LENDER to reasonably request other information in the exercise of its
reasonable commercial judgment, BORROWER shall, so long as any of the
Liabilities remains outstanding (unless LENDER otherwise consents in writing),
deliver to LENDER as soon as available and in any event within 50 days after the end of each of the
first three fiscal quarters of BORROWER’s fiscal year, each of the
following:

     

    (1)           financial
statements prepared internally by management substantially in the same form
(except for notes to the financial statements) as required for GUARANTOR’s
consolidated annual financial statements with BORROWER and showing on a
consolidated basis the assets and liabilities of GUARANTOR and BORROWER as at
the end of said fiscal quarter and the results of their consolidated operations
during said fiscal quarter, prepared in accordance with GAAP, all in reasonable
detail and in each case duly certified in the form attached hereto as Exhibit “D” by the principal
financial officer of BORROWER as having been prepared in accordance with GAAP
and being correct and complete in all material respects subject only to year end
adjustments, it being understood that, to the extent that GUARANTOR’s quarterly
report on Form 10-Q contains any of the foregoing items, LENDER will accept
GUARANTOR’s report on Form 10-Q in lieu of such items;

     

    
      
        
        

      

      
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    (2)           a
certificate of said officer in the form attached hereto as Exhibit “E” (i) stating that
such officer does not have any knowledge that an Event of Default (or an event
which, with notice or the lapse of time or both, would constitute an Event of
Default) exists or, if an Event of Default (or such other event) does exist, a
statement as to the nature thereof and the actions which BORROWER proposes to
take with respect thereto, and (ii) showing calculations in reasonable detail of
BORROWER’s compliance at and as of the end of each such fiscal quarter, with
each financial ratio and requirement of Article V and Article VI of this
Agreement.

     

    (d)           Annual Financial
Statements:  Not in limitation of the foregoing or of the right
of LENDER to reasonably request other information in the exercise of its
reasonable commercial judgment, BORROWER shall, so long as any of the
Liabilities remains outstanding (unless LENDER otherwise consents in writing),
deliver to LENDER as soon as available and in any event within 105 days after the end of each
fiscal year of BORROWER, each of the following:

     

    (1)           an
annual audit report for such year for GUARANTOR, including (A) on a consolidated
basis with BORROWER, their balance sheet and statements of operations, their
cash flows and changes in stockholders’ equity for such fiscal year, setting
forth in comparative form the corresponding figures for the preceding fiscal
year, prepared in accordance with GAAP and all in reasonable detail and in each
case duly certified by independent certified public accountants of recognized
standing acceptable to LENDER (BORROWER’s current accountants Eisner LLP being
acceptable to LENDER on the date hereof), and (B) on a consolidating basis for
GUARANTOR and BORROWER, their balance sheet and statement of operations, all in
reasonable detail and duly certified in the form attached hereto as Exhibit “D” by the principal
financial officer of BORROWER as having been prepared in accordance with GAAP
and being correct and complete in all material respects, it being understood
that, to the extent that GUARANTOR’s annual report on Form 10-K contains any of
the foregoing items, LENDER will accept GUARANTOR’s report on Form 10-K in lieu
of such items;

     

    
      
        
        

      

      
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    (2)           a
copy of the management letter, if any, issued by such accounting firm to
BORROWER; and

     

    (3)           a
certificate of said accounting firm  stating that, in the course of
auditing and reporting on the financial statements of BORROWER for such fiscal
year, they obtained no knowledge that BORROWER failed to comply with the terms,
covenants, provisions or conditions of Article V or Article VI hereof insofar as
such Articles relate to accounting matters or, if such accountants shall have
obtained knowledge of such failure, they shall disclose the failure in such
statement; and

     

    (4)           a
certificate of the chief financial officer of BORROWER in the form attached
hereto as Exhibit “E”
(A) stating that such officer does not have any knowledge that an Event of
Default (or an event which, with notice or the lapse of time or both, would
constitute an Event of Default) exists, or, if an Event of Default (or such
other event) does exist, a statement of the nature thereof and the actions which
BORROWER proposes to take with respect thereto and (B) showing calculations in
reasonable detail of BORROWER’s compliance at and as of the end of each such
fiscal year with each financial ratio and requirement of Article V and Article VI of this
Agreement.

     

    (e)           Annual Tax
Returns:  BORROWER hereby covenants to furnish to LENDER, no
later than the date upon which such tax return may be timely filed, a true copy
of the tax return of BORROWER as filed with the Internal Revenue
Service.

     

    
      
        
        

      

      
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    (f)           Annual
Projections:  Not in limitation of the foregoing or of the
right of LENDER to request other information, BORROWER shall, so long as any of
the Liabilities remains outstanding (unless LENDER otherwise consents in
writing), deliver to LENDER as soon as available and in any event prior to the end of each of its
fiscal years, consolidated projections for BORROWER and GUARANTOR for the
immediately upcoming fiscal year, prepared on an annual basis, and including
balance sheet, profit and loss and cash flow and in form acceptable to
LENDER.

     

    (g)           Notice of Default: BORROWER
hereby covenants to furnish to LENDER as soon as possible and in any event
within three days after it becomes aware of the occurrence of each Event of
Default (or each event which, with the giving of notice or lapse of time or
both, would constitute an Event of Default) the written statement of the chief
financial officer of BORROWER setting forth details of such Event of Default (or
such other event) and the action which BORROWER proposes to take with respect
thereto.

     

    (h)           Notice of Adverse
Condition:  BORROWER hereby covenants to furnish to LENDER as
soon as possible the written statement of the chief financial officer of
BORROWER setting forth details of any action, event or condition of any nature
of which BORROWER is aware, which may reasonably be expected to have a
Materially Adverse Effect on BORROWER or the value of the Collateral or the
liens and security interests granted to LENDER herein and the action which
BORROWER proposes to take with respect thereto.

     

    (i)           Notice of
Litigation:  BORROWER will notify LENDER in writing within a
reasonable time (which shall in no event exceed ten business days after
BORROWER’s knowledge) of the commencement or threat of any litigation against
BORROWER which, if determined adversely to it, would result in its dissolution
or liquidation, prevent or materially impair it from conducting its business
substantially as now conducted, prevent or materially impair BORROWER from
repaying the Revolving Loan and the other Liabilities or prevent or materially
impair BORROWER from otherwise faithfully performing its obligations under this
Agreement or result in a Materially Adverse Effect  on
BORROWER.  Without intending to limit the generality of the foregoing,
any litigation which seeks monetary damages (whether compensatory or punitive)
from BORROWER in an aggregate amount in excess of $150,000.00 which is not
covered by insurance shall be deemed to constitute litigation of a character
which must be reported to LENDER, provided, however, that this sentence shall
not constitute a presumption that litigation in excess of $150,000 would result
in a Materially Adverse Effect on BORROWER.

     

    
      
        
        

      

      
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    (j)           Other
Information:  BORROWER will promptly after a written request
therefor provide LENDER with: (1) such other information regarding the
Collateral (including, without limitation, Accounts Receivable and Inventory) or
any Collateral Proceeds and the business, affairs and condition of BORROWER
(including, without limitation, projections) as LENDER may reasonably request
from time to time, and (2) such other financial data or information evidencing
compliance with the requirements of this Agreement, the Revolving Note and the
other Loan Documents, as LENDER may reasonably request from time to
time.

     

    5.7           Compliance
with Laws.   BORROWER will at all times comply with, or
cause to be complied with, all laws, statutes, rules, regulations, orders and
directions of any governmental authority having jurisdiction over it and its
business except for non-compliance that would not have singly or in the
aggregate have a Materially Adverse Effect on BORROWER.

     

    5.8           Insurance.

     

    (a)           BORROWER
shall maintain insurance coverage as follows:

     

    (1)           Casualty
Insurance:  At BORROWER’s expense, an original policy or
policies of insurance issued by financially sound and reputable insurer or
insurers satisfactory to LENDER (in the exercise of its reasonable commercial
judgment) insuring BORROWER’s machinery, equipment, fixtures and personal
property against such perils and on such terms and in such amounts as is
customarily maintained by similar businesses.  Without limiting the
generality of the foregoing, said insurance shall in no event be less than that
amount necessary to prevent BORROWER and LENDER from being deemed co-insurers
under applicable law (and in no event less than the replacement value of the
property insured) and shall insure against the hazards of fire, extended
coverage, vandalism, malicious mischief and sprinkler leakage and shall name
LENDER as mortgagee and loss payee, as its interests may appear.  Such
policy shall contain a 30 day notice of cancellation and non-renewal
provision.

     

    
      
        
        

      

      
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    (2)           Liability
Insurance:  At BORROWER’s expense, an original policy or
policies of liability insurance issued by financially sound and reputable
insurer or insurers satisfactory to LENDER (in the exercise of its reasonable
commercial judgment) and in amounts not less than
$1,000,000/$3,000,000.  Such policy shall name LENDER as an additional
insured, as its interests may appear, and shall contain a 30 day notice of
cancellation and non-renewal provision.

     

    (b)           Certificates
evidencing the coverage afforded under BORROWER’s policies of insurance and, if
requested, copies of all policies are to be delivered to LENDER.

     

    (c)           If
BORROWER fails to take the action called for herein, LENDER may, in its
discretion upon 10 days prior notice to BORROWER or such shorter period as may
be necessary to prevent a gap in insurance protection and coverage, obtain
insurance covering LENDER’s interest in the Collateral and the amount of the
premium for said insurance, together with per annum interest at the
Default Rate, shall be added to the Liabilities and the repayment thereof shall
be secured by the Collateral.

     

    
      
        
        

      

      
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    (d)           All
rights to insurance proceeds are hereby assigned to LENDER to the extent of the
unpaid Liabilities.

     

    (e)           Unless
otherwise agreed in writing, LENDER shall have the sole right, in its own name
or in BORROWER’s name, to file claims under any 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.

     

    (f)           BORROWER
shall have no claim against insurance proceeds until all of the Liabilities are
paid in full. LENDER shall not be responsible for any failure to collect any
insurance proceeds, regardless of the cause of such failure.  Nothing
herein shall in any way affect LENDER’s lien against the Collateral or the
liability of any person responsible for the payment of the balance of the
Liabilities.

     

    (g)           In
the event the Collateral or any part thereof shall be damaged or destroyed,
LENDER, at its election, may (1) apply the insurance proceeds or any part
thereof to the payment of the Liabilities, whether the indebtedness be matured
or not, (2) use the same or any part thereof to fulfill any of the covenants
contained herein or in the other Loan Documents as LENDER may determine, (3) use
the same or any part thereof to replace or restore the Collateral to the extent
satisfactory to LENDER, or (4) release the same to BORROWER.

     

    (h)           BORROWER
agrees that in the event that the Collateral or any part thereof shall be
damaged or partially or totally destroyed there shall be no abatement or
reduction in the amounts payable hereunder and BORROWER shall continue to be
obligated to make such payments.

     

    (i)           Any
monies released by LENDER to BORROWER or paid or applied on the cost of
replacement or restoration shall in no event be deemed a payment on any of the
Liabilities.

     

    
      
        
        

      

      
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    (j)           Anything
to the contrary herein contained notwithstanding, any proceeds paid over to
LENDER and not used for replacement or restoration shall be applied to pay
accrued interest and any other sums then due and owing to LENDER, and any excess
shall be paid over to BORROWER.

     

    5.9           No
Disposal of Collateral.

     

    (a)           BORROWER
will safeguard, protect and hold all the Collateral for LENDER’s account and
make no disposition thereof except in the regular course of business as
hereinafter provided in this Section.

     

    (b)           Until
LENDER shall have given written notice to BORROWER that an Event of Default has
occurred and is continuing, BORROWER may make Permitted Asset Dispositions and
any Inventory which may from time to time remain in possession or control of
BORROWER or any third party may be sold and shipped to customers in the ordinary
course of business, on open account and on terms not exceeding the terms
currently extended.  LENDER shall have the right to withdraw this
permission at any time by written notice to BORROWER after an Event of Default
has occurred and is continuing, in which event no further disposition shall be
made of the Collateral without LENDER’s written approval.

     

    (c)           The
rights given BORROWER in subsection (b) above to transfer Inventory are
expressly conditioned upon BORROWER’s forthwith transferring, assigning,
endorsing, delivering and turning over to LENDER all Collateral Proceeds, or
causing all such Collateral Proceeds to be forthwith transferred, assigned,
endorsed, delivered and turned over to LENDER, by deposit into one or more
Blocked Accounts and/or such other place designated by LENDER (all as more fully
set forth in Section 2.5
above).

     

    
      
        
        

      

      
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    (d)           Upon
the sale, lease, transfer, exchange, or other disposition of the Collateral, the
security interests and liens created and provided for herein shall without break
in continuity and without further formality or act continue in and attach to the
instruments for the payment of money, Accounts Receivable, Contract Rights,
documents of title, shipping documents, Chattel Paper and all other cash and
non-cash Proceeds of such sale, lease, transfer, exchange or disposition,
including Collateral returned or rejected by customers or repossessed by
LENDER.  As to any such sale, lease, transfer, exchange or
disposition, LENDER shall have all of the rights of an unpaid seller, including
stoppage in transit, replevin and reclamation.

     

    5.10           LENDER’s
Power to Endorse Checks and Drafts.  For purposes of
implementing this Agreement and also for purposes of paying and satisfying the
Liabilities, BORROWER hereby designates LENDER or LENDER’s representative as its
attorney-in-fact with power to endorse its name upon any acceptances, cash
equivalents, checks, drafts, money orders, notes, instruments for the payment of
money and other evidences of payment or Collateral that may come into LENDER’s
possession.  BORROWER also designates LENDER or LENDER’s
representative as its attorney-in-fact to sign BORROWER’s name on any invoice or
bill of lading relating to any of the Accounts Receivable, drafts against
Account Debtors, and assignments and verifications of Accounts Receivable to any
Account Debtor and to do all other acts and things necessary to carry out this
Agreement.  All acts of said attorney or designee are hereby ratified
and approved. This power is coupled with an interest and is irrevocable while
any of the Liabilities remains unpaid.  As it relates for to action
taken by LENDER or LENDER’s representative while acting as the aforesaid
attorney-in-fact, neither LENDER nor LENDER’s representative shall itself, nor
shall its respective directors, managers, officers, employees or agents, be
liable or responsible, directly or indirectly, to the other for any action
taken, or omitted to be taken by it in good faith, or for the consequences of
any oversight or error of judgment on its part occurring in good faith, unless
the taking of, or omitting to take, such action, or such oversight or error in
judgment by such party or its directors, managers, officers, employees or
agents, constitutes gross negligence or willful misconduct.

     

    
      
        
        

      

      
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    5.11           Verification
of Accounts Receivable.

     

    (a)           LENDER
shall have the right at BORROWER’s expense but no more frequently than quarterly
(unless an Event of Default has occurred and is continuing) to obtain
verifications from Account Debtors relating to the amount and validity of any
Account Receivable.

     

    (b)           Unless
an Event of Default has occurred, there shall be no verification expense payable
to LENDER. If an Event of Default has occurred, there shall be no limit on
LENDER’s right to reimbursement of actual verification expense.

     

    (c)           By
its execution of this Agreement, BORROWER authorizes LENDER to reimburse itself
for any of its expenses associated with subsection (b) above in the manner set
forth in the Authorization to Charge.

     

    (d)           Any
verifications prepared or conducted by BORROWER or its accountants shall be
supplied to LENDER.

     

    5.12           Permitted
Access to Inspect Collateral and Records.

     

    (a)           LENDER
shall have full access during normal business hours to, and the right, through
its officers, agents, attorneys or accountants and at BORROWER’s expense
to:  examine, check, inspect and make abstracts and copies from
BORROWER’s books, accounts, orders, records, audits, correspondence, and all
other papers; confirm and verify all Accounts Receivable and the other
Collateral; enter upon BORROWER’s premises during business hours and from time
to time, for the purpose of examining BORROWER’s records concerning the
Collateral and for inspecting the Collateral and any and all records. So long as
no Event of Default has occurred and is continuing, LENDER’s access shall be
upon reasonable request and upon prior notice to BORROWER, provided, however,
that nothing in the foregoing shall operate to limit or diminish LENDER’s right
to examine BORROWER’s records concerning the Collateral and for inspecting the
Collateral and any and all records relating thereto.

     

    
      
        
        

      

      
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    (b)           BORROWER
will reimburse LENDER for all of its examination fees incurred by LENDER
pursuant to the exercise of its rights under this Section.

     

    (c)           Unless
an Event of Default has occurred, this reimbursement shall be paid at the rate
of $850 per man day, plus
expenses, with a maximum of $15,000 being paid in any one calendar
year.  If an Event of Default has occurred, there shall be no limit on
LENDER’s right to reimbursement.

     

    (d)           By
its execution of this Agreement, BORROWER authorizes LENDER to reimburse itself
for any of its expenses associated with the above in the manner set forth in the
Authorization to Charge.

     

    5.13           Collateral
Management Fee.

     

    (a)           In
order to compensate LENDER for its expenses in monitoring, reviewing and
analyzing BORROWER’s records, financial statements and Collateral, BORROWER will
pay LENDER an annual Collateral Management Fee of $50,000 each year (with no
adjustment if the Revolving Loan is paid in full or reduced during the year for
which payment was made), with the first such annual fee to be paid on the
Effective Date and thereafter paid on each anniversary of the Effective Date.
The aforementioned Collateral Management Fee shall be considered earned on July
1 of each year that this Agreement is in effect (commencing with the Effective
Date), but payment for the applicable year may be made in monthly installments,
each in the amount of  $4,167, commencing on August 1, 2008.
Notwithstanding the foregoing, if an Event of Default occurs or if this
Agreement is otherwise terminated, the unpaid balance of the Collateral
Management Fee for the applicable year shall be accelerated and become
immediately due and owing.

     

    (b)           By
its execution of this Agreement, BORROWER authorizes LENDER to reimburse itself
for any of its expenses associated with the above in the manner set forth in the
Authorization to Charge.

     

    
      
        
        

      

      
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    5.14           Operating
Accounts.   BORROWER will maintain its primary operating
account(s) at any entity which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with,
LENDER, it being understood and agreed that all such accounts are agreed to be
Deposit Accounts for purposes of this Agreement and shall be subject to a
Blocked Account agreement to the extent required by LENDER.

     

    5.15           Disclosure
of Certain Information.   Upon request by LENDER, BORROWER
agrees to authorize and direct all accountants and auditors employed by it at
any time during the term of this Agreement to exhibit and deliver to LENDER
copies of any of its financial statements, trial balances or other accounting
records of any sort in their possession, and to disclose to LENDER any
information they may have concerning its financial status and business
operations.

     

    5.16           Warranties
relating to Accounts Receivable and Inventory.

     

    (a)           Except
as may otherwise be specifically provided as to a particular Account, invoice or
other writing, BORROWER warrants that as to each Account against which LENDER
has made or is making an Advance that each such Account is an Eligible
Receivable.

     

    (b)           Except
as may otherwise be specifically provided as to particular Inventory, BORROWER
warrants that as to all Inventory against which LENDER has made or is making an
Advance that such Inventory is Eligible Inventory.

     

    5.17           If
any of the Accounts Receivable includes a charge for any tax payable to any
governmental tax authority, LENDER is hereby authorized in LENDER’s reasonable
discretion, to pay the amount thereof to the proper taxing authority for
BORROWER’s account and to charge the amount of such tax against a specially
designated demand deposit account of BORROWER at LENDER or, in the absence of
such designation or in the event that there are insufficient funds in such
designated account, then to any demand deposit account of BORROWER at LENDER as
of each due date. In the event that there are insufficient funds in any such
account on any applicable payment due date, then LENDER is hereby authorized to
effect payment by charge against the Revolving Loan by increasing the principal
balance of the Revolving Loan as though an Advance were taken by BORROWER
against the Revolving Loan in the amount of any payment effected by LENDER.
BORROWER shall notify LENDER if any Accounts Receivable include any tax due to
any such taxing authority, and in the absence of notice to LENDER, LENDER shall
have the right to retain the full proceeds of such Accounts Receivable, and
shall not be liable for any taxes that may be due from BORROWER by reason of the
sale and delivery creating such Accounts Receivable.

     

    
      
        
        

      

      
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    5.18           Guaranty/Subordination
Agreement.

     

    (a)           BORROWER
will obtain the Guaranty of GUARANTOR required by this Agreement.

                    

    
      (b)           BORROWER
will obtain the Subordination Agreement required by this Agreement so as to
postpone the payment of the “Claims” specified in the Subordination Agreement to
the extent specified therein.

    

     

    5.19           Minimum
Tangible Net Worth.

     

    (a)           As
at March 31, 2008 and continuing at all times thereafter, BORROWER shall
maintain its Tangible Net Worth at a minimum of $7,000,000.

     

    (b)           For
purposes of this covenant and Section 5.20, “Tangible Net Worth” shall be
determined by the following formula:

    the sum
on a consolidated basis of the par value of the capital stock of GUARANTOR and
BORROWER plus paid-in capital +/- surplus/deficit (excluding any surplus or
deficit representing the cumulative income statement component of any change in
valuation arising under the Master Agreement) + debt whose payment is
subordinated to the prior payment of the Liabilities (the category “Other
Comprehensive Income or Loss” to the extent that it relates to any value created
by the Master Agreement to be excluded from this calculation)

     

    
      
        
        

      

      
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    less

    

    the sum
on a consolidated basis of treasury stock of GUARANTOR and BORROWER +
unamortized debt discount and expense + book value of good will (excluding,
however, any negative good will) + book value of trademarks + book value of
tradenames + book value of patents + deferred charges + book value of intangible
assets + all indebtedness due from BORROWER’s officers or shareholders
(provided, however, that the effect of negative goodwill on the consolidated
income statement and balance sheet of GUARANTOR and BORROWER shall be
excluded)

     

    (c)           Compliance
with this Section will be tested annually and quarterly by reference to (and use
of the consolidated sums contained in) the consolidated annual and quarterly
financial statements of GUARANTOR and BORROWER required to be submitted pursuant
to Section 5.6 above and
by using GAAP.

     

    (d)           Although
compliance with this Section will be tested annually and quarterly as aforesaid,
nothing in the foregoing shall prevent LENDER from determining that this
covenant has been violated prior to LENDER’s receipt of any of the
aforementioned financial statements in the event LENDER obtains actual knowledge
that BORROWER is not in compliance with this covenant.

     

    5.20           Total
Debt to Tangible Net Worth.

     

    (a)           As
at December 31, 2007, and as at each fiscal year end thereafter, BORROWER shall
maintain the ratio of its Total Debt to Tangible Net Worth at no more than 6.0
to 1.0.

     

    (b)           For
purposes of this covenant, “Total Debt” shall include all amounts owed by
BORROWER which are properly reflected on its balance sheet as short or long
term, including all amounts owed by
BORROWER to LENDER but excluding any debt whose payment has been subordinated to
the prior payment of the Liabilities. For purposes of this covenant, Tangible
Net Worth shall have the meaning given that term in Section 5.19(b)
above.

     

    
      
        
        

      

      
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    (c)           Compliance
with this Section will be tested annually by reference to (and use of the
consolidated sums contained in) the annual consolidated financial statements of
GUARANTOR and BORROWER required to be submitted pursuant to Section 5.6 above and by using
GAAP.

     

    (d)           Although
compliance with this Section will be tested annually as aforesaid, nothing in
the foregoing shall prevent LENDER from determining that this covenant has been
violated prior to LENDER’s receipt of any of the aforementioned financial
statements in the event LENDER obtains actual knowledge that BORROWER is not in
compliance with this covenant.

     

    5.21           Fixed
Charge Coverage:

     

    (a)           As
at March 31, 2008 and continuing at all times thereafter, BORROWER must maintain
its “Fixed Charge
Coverage” at a ratio (the “Fixed Charge Coverage Ratio”)
equal to or greater than 1.0 to
1.0.

     

    (b)           Compliance
with this Section will be tested quarterly and annually, using a rolling 12 month
basis, by reference to (and use of the consolidated sums contained in)
the annual and quarterly financial statements of GUARANTOR and BORROWER required
to be submitted pursuant to Section 5.6 above and by using
GAAP.

     

    (c)           (1)           For
purposes of this covenant, “Fixed Charge Coverage Ratio”
shall be calculated as follows:

     

    the
consolidated earnings of GUARANTOR and BORROWER before interest, taxes,
depreciation and amortization and before the income statement component of any
change in valuation arising under the Master Agreement

    PLUS non-cash charges related
to any equity instruments (common stock, options and warrants) issued to any
employee, director, or consultant,

    LESS “Unfunded Capital
Expenditures”,

     

    
      
        
        

      

      
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    LESS cash payment of income
tax liabilities

    LESS cash distributions to
stockholders

    LESS all scheduled principal
payments paid as allowed by the Subordinated Seller Note

    

    --divided
by--

    

    interest
expense PLUS the current
maturities of

    long term
debt as reported in the consolidated annual financial statements of GUARANTOR
and BORROWER

    for its
fiscal year immediately preceding the applicable test period

    
      PLUS current maturities of
Capital Lease Obligations as reported in the consolidated  annual
financial statements of GUARANTOR and BORROWER for its fiscal year immediately
preceding the applicable test period

    

    

    (2)           For
purposes of this covenant, “Unfunded Capital Expenditures”
means BORROWER’s Capital Expenditures minus any loans and/or leases incurred in
financing any such Capital Expenditures.

     

    (3)           For
purposes of this covenant, “Capital Expenditures” means
any expenditures (including deposits, and Capitalized Lease Obligations based
upon the present value of all future payments) for assets which the purchaser
contemplates will be used or usable in fiscal years subsequent to the year of
acquisition, all computed in accordance with GAAP.

     

    (4)           For
purposes of this covenant, a “Capitalized Lease Obligation”
means an obligation to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real and/or personal property
which obligation is required to be classified and accounted for as a capital
lease on a balance sheet prepared in accordance with GAAP, and for purposes
hereof the amount of such obligation shall be the capitalized amount thereof
determined in accordance with GAAP.

     

    (d)           Although
compliance with this Section will be tested quarterly and annually as aforesaid,
nothing in the foregoing shall prevent LENDER from determining that this
covenant has been violated prior to LENDER’s receipt of any of the
aforementioned financial statements in the event LENDER obtains actual knowledge
that BORROWER is not in compliance with this covenant.

     

    
      
        
        

      

      
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    5.22           Inventory
Appraisals:   On a frequency requested by LENDER but in no
event more frequently than once a year unless an Event of Default has occurred,
BORROWER shall provide LENDER at BORROWER’s expense an appraisal of BORROWER’s
Inventory prepared by an appraiser and on a basis acceptable to LENDER and
otherwise in form and substance satisfactory to LENDER.

     

    5.23           Landlord’s
Consents.

     

    (a)           BORROWER
will obtain Landlord’s Consents for its East Hanover (NJ), Newington (CN),
Brooklyn (NY) and Morristown (NJ) Collateral Locations set forth on Exhibit B no
later than July 31, 2008, in form and substance acceptable to LENDER. In the
event that despite BORROWER’s best commercial efforts BORROWER is unable to
deliver to LENDER any such required Landlord’s Consent by such date, LENDER will
forbear from requiring such Landlord’s Consent upon the condition that (1)
BORROWER shall, with the submission of each monthly Borrowing Base Certificate,
provide evidence to LENDER that all rent payments made by BORROWER to the owner
or owners of the Collateral Locations are current as of the first day of the
month in which the Borrower Base Certificate is presented and (2) BORROWER’s
availability to borrow under the Lending Formula is reduced by an amount equal
to 3-months rent for any Collateral Location for which a Landlord’s Consent is
not obtained.  BORROWER’s failure to provide LENDER with proof of any
such rent payment or to comply with the Lending Formula as modified as aforesaid
will be an Event of Default hereunder.

     

    (b)           BORROWER
will also obtain Landlord’s Consents for any Collateral Location in existence
after the date hereof and LENDER’s consent to any such new Collateral Location
is conditioned location upon BORROWER’s obtaining such Landlord’s Consents in
form and substance acceptable to LENDER.

     

    
      
        
        

      

      
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    ARTICLE
VI

     

    NEGATIVE
COVENANTS

    

    BORROWER covenants and agrees, that
until the full and final payment of the Liabilities, unless LENDER waives
compliance in writing:

     

    6.1           Change in Location: BORROWER
will not (a) change the location of its chief executive office or where its
books and records are maintained or (b) change the names currently used by it
for billing or other business purposes or (c) change or add to any Collateral
Locations unless in each case above (i) BORROWER shall have given LENDER 30 days
written notice of such change and (ii) LENDER shall have received such
instruments or documents as LENDER may reasonably request so that such change
will not impair or negatively affect the security interests granted to LENDER
hereunder.

     

    6.2           Changes in
Business:  Except as permitted by the proviso set forth in
Section 5.2 hereof,
BORROWER will not (a) make any material change in its business or in the nature
of its operation, or (b) liquidate or dissolve itself (or suffer any liquidation
or dissolution) or (c) convey, sell, lease, assign, transfer or otherwise
dispose of any of its property, assets or business except sales of Inventory or
other Collateral in the ordinary course of business and for a fair consideration
and Permitted Asset Dispositions or (d) dispose of any shares of stock or any
indebtedness of a third party, whether now owned or hereafter acquired
(provided, however, that nothing in the foregoing shall prohibit National Patent
Development Corporation and/or any of its affiliates and/or any of its officers
or directors from increasing its ownership interest in GUARANTOR, BORROWER’s
parent), or (e) discount, sell, pledge, hypothecate or otherwise dispose of
Accounts Receivable.

     

    
      
        
        

      

      
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    6.3           Dissolution, Mergers, Acquisitions,
Formation of Subsidiaries:   BORROWER will (a) not
dissolve or otherwise dispose of all or a substantial part of its assets, (b)
not consolidate with or merge into another corporation or entity permit one or
more other corporations or entities to consolidate with or merge into it
(whether or not BORROWER or any Subsidiary is the surviving entity) except that
GUARANTOR may merge with and into BORROWER so long as BORROWER is the survivor,
(c) not acquire all or substantially all of the assets or any of the capital
stock of any corporation or other entity and (d) not form or create or acquire
any Subsidiary.

     

    6.4           Liens: Except for Permitted
Liens or as disclosed in the Certification as to Liens, BORROWER will not suffer
to exist any lien, encumbrance, mortgage or security interest on property on
which a lien has been given to LENDER pursuant to this Agreement or any of the
other Loan Documents.

     

    6.5           Indebtedness:  BORROWER
will not create, incur, permit to exist or have outstanding any indebtedness,
except:

     

    (a)           indebtedness
of BORROWER to LENDER under this Agreement and the Revolving Note;

     

    (b)           accrued
taxes, assessments and governmental charges not yet due and payable,
non-interest bearing accounts payable and accrued liabilities, and non-interest
bearing deferred liabilities other than for borrowed money (e.g., deferred
compensation and deferred taxes), in each case incurred and continuing in the
ordinary course of business;

     

    (c)           Permitted
Purchase Money Debt and Capitalized Lease Obligations (as defined below in this
Article), in each case incurred only if, after giving effect thereto, the limit
on Capital Expenditures set forth in this Article would not be
breached;

     

    (d)           debt
under the Subordination Agreement;

     

    
      
        
        

      

      
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    (e)           operating
expenses incurred in the ordinary course of business so long as payment thereof
is not past due unless being contested in good faith; and

     

    (f)           indebtedness
related to surety, appeal or performance bonds or obligations of a like
nature.

     

    6.6           Guaranties:

     

    (a)           BORROWER
will not assume, endorse, be or become liable for, or guarantee, the obligations
of any person or entity, except by the endorsement of negotiable instruments for
deposit or collection in the ordinary course of business and except for any such
guarantees in an aggregate maximum amount outstanding at any one time of
$50,000.

     

    (b)           For
the purposes hereof, the term “guarantee” shall include any agreement, whether
such agreement is on a contingency or otherwise, to purchase, repurchase or
otherwise acquire indebtedness of any other person or entity, or to purchase,
sell or lease, as lessee or lessor, property or services, in any such case
primarily for the purpose of enabling another person to make payment of any
indebtedness, or to make any payment (whether as an advance, capital
contribution, purchase of an equity interest or otherwise) to assure a minimum
equity, asset base, working capital or other balance sheet or financial
condition, in connection with the indebtedness of another person or entity, or
to supply funds to or in any manner invest in another person or entity in
connection with the indebtedness of such person or entity.

     

    6.7           ERISA:

     

    (a)           BORROWER
will not permit the occurrence of any Termination Event under ERISA, or the
occurrence of a termination or partial termination of a Defined Contribution
Plan which would result in a liability to BORROWER or any Subsidiary in excess
of $150,000.

     

    (b)           BORROWER
will not engage, or permit BORROWER or any Subsidiary to engage, in any
prohibited transaction under Section 406 of ERISA or Section 4975 of the
Internal Revenue Code, for which a civil penalty pursuant to Section 502(i) of
ERISA or a tax pursuant to Section 4975 of the Internal Revenue Code is imposed
in excess of $150,000.

     

    
      
        
        

      

      
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    (c)           BORROWER
will not engage or permit BORROWER or any Subsidiary to engage, in any breach of
fiduciary duty under Part 4 of Title I of ERISA; or

     

    (d)           BORROWER
will not permit the establishment of any Employee Benefit Plan providing
post-retirement welfare benefits or establish or amend any Employee Benefit Plan
which establishment or amendment could result in liability to BORROWER or any
Subsidiary individually or together with all similar liabilities and increases,
is material to BORROWER or any Subsidiary; or

     

    (e)           BORROWER
will not fail, or permit BORROWER or any Subsidiary to fail, to establish,
maintain and operate each Employee Benefit Plan in compliance in all material
respects with the provisions of ERISA, the Internal Revenue Code and all other
applicable laws and the regulations and interpretations thereof.

     

    6.8           Compromise of Claims: BORROWER
will not compromise, settle or adjust any claims which are part of or which
affect the Collateral except in the ordinary course of business.

     

    6.9           Bank Accounts: BORROWER will
not establish any deposit or other bank account with any financial institution
unless such account is approved in writing by LENDER.

     

    6.10           Subordinated
Debt:

     

    (a)           BORROWER
will not amend or change, or consent to any amendment or change, with respect
to, the Subordination Agreement or any other document evidencing or securing the
debt subordinated thereby.

     

    
      
        
        

      

      
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    (b)           BORROWER
will not directly or indirectly, make any principal payment or distribution of
or on account of any debt subordinated by the Subordinated Debt except to the
extent expressly allowed in the Subordination Agreement.

     

    6.11           Loans and
Investments:  BORROWER will not make loans or advances or make
or suffer to exist, any investment in any person or entity, including, without
limitation, any loans to or investments in GUARANTOR or any shareholder,
director, officer or employee of BORROWER or GUARANTOR, provided however, that
notwithstanding the foregoing, BORROWER may make investments in:

    
      

      
        	
                 
      

              	
                
                  (a)

                

              	
                
                  obligations
      issued or guaranteed by the United States of
  America;

                

              

      

       

    

    
      	
               
      

            	
              (b)

            	
              certificates
      of deposit, bankers acceptances and other “money market instruments”
      issued by any bank or trust company organized under the laws of the United
      States of America or any State thereof and having capital and surplus in
      an aggregate amount of not less than
  $100,000,000;

            

    

    

    
      	
               
      

            	
              
                (c)

              

            	
              
                open
      market commercial paper bearing the highest credit rating issued by
      Standard & Poor’s Corporation or by another nationally recognized
      credit rating agency;

              

            

    

     

    
      
        	
                 
      

              	
                
                  (d)

                

              	
                
                  repurchase
      agreements entered into with any bank or trust company organized under the
      laws of the United States of America or any State thereof and having
      capital and surplus in an aggregate amount of not less than $100,000,000
      relating to United States of America government
      obligations;

                

              

      

      
        

        
          	
                   
      

                	
                  
                    (e)

                  

                	
                  
                    shares
      of “money market funds”, each having net assets of not less than
      $100,000,000; and

                  

                

        

         

      

    

    
      	
               
      

            	
              (f)

            	
              any
      other investments in a maximum aggregate amount of $100,000 or
      less.

            

    

    

    in each
case maturing or being due or payable in full not more than 365 days after
BORROWER’s acquisition thereof.

     

    6.12           Fiscal Year: BORROWER will not
change its fiscal year without the prior written consent of LENDER, which
consent shall not be unreasonably withheld.

     

    
      
        
        

      

      
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    6.13           Amendment of Corporate
Documents: BORROWER will not modify, amend, supplement or terminate, or
agree to modify, amend, supplement or terminate, its certificate of
incorporation or by-laws except for amendments that would not adversely affect
any Liabilities, any Collateral, any rights or remedies of LENDER hereunder or
the ability of BORROWER to perform its obligations, or conduct its business as
previously conducted.

     

    6.14           No Year-to-Date Net Loss in Excess of
$300,000:

     

    (a)           BORROWER
will not suffer a year-to-date Net Loss (as determined by GAAP) of $300,000 or
more in any fiscal year. In determining BORROWER’s compliance with this
covenant, BORROWER’s earnings shall be increased by non-cash charges related to
any equity instruments (common stock, options and warrants) issued to any
employee, director, or consultant of BORROWER.

     

    (b)           LENDER
will determine compliance with this Section on a quarterly basis (commencing
with the fiscal quarter ending March 31, 2008) using the consolidated financial
information of GUARANTOR and BORROWER required to be submitted by BORROWER under
this Agreement and by using GAAP.

     

    (c)           Although
compliance with this Section will be tested quarterly as aforesaid, nothing in
the foregoing shall prevent LENDER from determining that this covenant has been
violated prior to LENDER’s receipt of any of the aforementioned financial
statements in the event LENDER obtains actual knowledge that BORROWER is not in
compliance with this covenant.

     

    6.15           Losses in Any Two Consecutive Fiscal
Quarters:

     

    (a)           BORROWER
will not suffer a Net Loss (as determined by GAAP) for any two consecutive
fiscal quarters. In determining BORROWER’s compliance with this covenant,
BORROWER’s earnings shall be increased by non-cash charges related to any equity
instruments (common stock, options and warrants) issued to any employee,
director, or consultant of BORROWER.

     

    
      
        
        

      

      
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    (b)           LENDER
will determine compliance with this Section on a quarterly basis (commencing
with the fiscal quarter ending March 31, 2008) using the consolidated financial
information of GUARANTOR and BORROWER required to be submitted by BORROWER under
this Agreement and by using GAAP.

     

    (c)           Although
compliance with this Section will be tested quarterly as aforesaid, nothing in
the foregoing shall prevent LENDER from determining that this covenant has been
violated prior to LENDER’s receipt of any of the aforementioned financial
statements in the event LENDER obtains actual knowledge that BORROWER is not in
compliance with this covenant.

     

    6.16           Capital
Expenditures:

     

    (a)           BORROWER
will not in any fiscal year incur Capital Expenditures in an amount exceeding
$1,000,000  plus
a sum equal to (i) insurance proceeds utilized to replace or repair Collateral
damaged or destroyed and (ii) the lesser of (A) $500,000 or (B) the net amount
received by BORROWER from the sale of its capital stock or other equity
contribution received by BORROWER.

     

    (b)           For
purposes of this covenant, the term “Capital
Expenditures” shall have the meaning given that term in Section
5.21.

     

    (c)           LENDER
will determine compliance with this Section on an annual basis (commencing with
the fiscal year ending December 31, 2008) using the consolidated financial
information required to be submitted by BORROWER under this Agreement and by
using GAAP.

     

    (d)           Although
compliance with this Section will be tested annually as aforesaid, nothing in
the foregoing shall prevent LENDER from determining that this covenant has been
violated prior to LENDER’s receipt of any of the aforementioned financial
statements in the event LENDER obtains actual knowledge that BORROWER is not in
compliance with this covenant.

     

    
      
        
        

      

      
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    6.17           Margin
Securities:  BORROWER will not own, purchase or acquire (or
enter into any contract to purchase or acquire) any “margin security” as defined
by any regulation of the Board of Governors as now in effect or as the same may
hereafter be in effect unless, prior to any such purchase or acquisition or
entering into any such contract, LENDER is to have received an opinion of
counsel satisfactory to LENDER to the effect that such purchase or acquisition
will not cause this Agreement to violate Regulations G or U or any other
regulation of the Board of Governors then in effect.

     

    ARTICLE
VII

     

    EVENTS OF
DEFAULT

    

    Regardless of the terms of any of the
other Loan Documents, the occurrence of any of the following events shall be
deemed an event of default (an “Event of Default”)
hereunder:

     

    7.1           (a)   
       BORROWER shall fail to pay on its due
date any interest or principal or premium due on the Revolving Loan or the
Revolving Note;

     

    (b)           BORROWER
shall fail to pay to LENDER after demand therefor any amount drawn under any
Letter of Credit, or interest thereon or fees therefor or any of the other
Letter of Credit Obligations;

     

    (c)           BORROWER
shall fail to pay within 10 days of its due date any other payment due under
this Agreement;

     

    7.2           BORROWER
shall fail to perform or observe any covenant of BORROWER contained in Section 5.6, Section 5.18, Section 5.19, Section 5.20 or Section 5.21 or Article VI of this
Agreement;

     

    
      
        
        

      

      
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    7.3           (a)          any
representation or warranty herein or in any of the other Loan Documents or in
connection with any transaction contemplated hereby or thereby shall prove to
have been false or misleading in any material respect when made, or if of a
continuing nature, becomes materially false;

     

    (b)       
  to the extent that any aforementioned representation is made to the
best of the information, knowledge or belief of BORROWER but the underlying
representation is nonetheless false or misleading in any material respect, an
Event of Default will be deemed to have occurred hereunder if BORROWER fails to
make correct the underlying representation 30 Business Days after notice from
LENDER to do so;

     

    7.4           (a)         
LENDER shall fail to have a legal, valid and binding first lien on the Accounts
Receivable and Inventory;

     

    (b)         
Except for Permitted Liens and except as may be set forth on the Certification
as to Liens, LENDER shall fail to have a legal, valid and binding first lien on
any of the other Collateral;

     

    7.5           (a)         
any consensual lien or encumbrance or any security interest, perfected or
otherwise, other than the security interests specifically provided for or
permitted hereunder, shall be created in the Collateral;

     

    (b)           any
non-consensual lien, including but not limited to any judgment against BORROWER
or GUARANTOR, becomes an encumbrance against BORROWER’s Accounts or Inventory
and BORROWER does not remove or discharge such lien within 10 days after notice
from LENDER to do so;

     

    (c)           any
non-consensual lien, including but not limited to any judgment against BORROWER
or GUARANTOR in any amount in excess of $50,000 becomes an encumbrance against
any of the other Collateral and BORROWER does not remove or discharge such lien
within 30 days after notice from LENDER to do so;

     

    
      
        
        

      

      
        103

        
          

        

      

      
        
        

      

    

     

    7.6           BORROWER
or GUARANTOR shall admit in writing an inability to pay debts as they come due
or shall file any petition or action for relief under any bankruptcy,
reorganization, insolvency or moratorium law, or any other law or laws for the
relief of, or relating to, debtors;

     

    7.7           an
involuntary petition shall be filed under any bankruptcy or insolvency statute
against BORROWER or GUARANTOR and such petition is not discharged or stayed
within 60 days from the date of the filing of the petition;

     

    7.8           a
receiver or trustee shall be appointed to take possession of the properties of
BORROWER or GUARANTOR;

     

    7.9           BORROWER
or GUARANTOR ceases all or substantially all of its operations;

     

    7.10           any
default shall occur under any other loan agreement involving either the
borrowing of money or the advance of credit to which BORROWER or GUARANTOR may
be a party as borrower or guarantor and such default results in the acceleration
of the money owing under such other loan agreement;

     

    7.11           BORROWER
or GUARANTOR shall breach, violate or default under, any term, condition,
provision, representation or warranty contained in this Agreement not
specifically referred to in this Article VII and such breach,
default or violation is not cured within the earlier of (a) the time period
given by this Agreement for cure or (b) in the absence of this Agreement’s
giving any such time period for cure, 30 Business Days after notice from LENDER
to do so;

     

    7.12           any
breach, default or violation shall occur under any of the terms, conditions,
representations, warranties or covenants contained in any of the other Loan
Documents and such breach, default or violation is not cured within the earlier
of (a) the time period given by any such other Loan Document for cure or (b) in
the absence of any such other Loan Document’s giving any such time period for
cure, 30 Business Days after notice from LENDER to do so;

     

    
      
        
        

      

      
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    7.13           any
of the Loan Documents (or any provision thereof) is claimed by BORROWER or by
GUARANTOR to be invalid or unenforceable;

     

    7.14           BORROWER
or GUARANTOR shall fail to obtain and deliver to LENDER any mortgage, financing
statement, subordination agreement or any other documentation required to be
signed or obtained as part of this Agreement or shall have failed to take any
action requested by LENDER to perfect or protect the security interests provided
for herein and such failure is not cured within the earlier of (a) the time
period given by this Agreement for cure or (b) in the absence of this
Agreement’s giving any such time period for cure, 30 Business Days after notice
from LENDER to do so;

     

    7.15           GUARANTOR
disclaims liability or seeks to terminate liability under the Guaranty or
GUARANTOR breaches any covenant, condition, warranty, representation or other
provision of the Guaranty;

     

    7.16           BORROWER
obtains any loan secured by Accounts Receivable or Inventory from any source
other than LENDER;

     

    7.17           if
BORROWER is not in compliance with the Lending Formula and BORROWER fails to
come into compliance with such Lending Formula immediately after BORROWER
receives notice that it is required to do so;

     

    7.18           BORROWER
shall fail to timely remit payment to any of the landlords of any of the
Collateral Locations or any default shall occur under any lease at such location
which is not cured by BORROWER within 10 Business Days after the occurrence of
such default;

     

    7.19           any
other event occurs or condition exists which, in the opinion of LENDER,
constitutes a Materially Adverse Effect on BORROWER or which, in the opinion of
LENDER, impairs the ability of BORROWER to discharge its obligations hereunder
or which causes LENDER to deem itself insecure;

     

    
      
        
        

      

      
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    7.20           any
other event occurs or condition exists which, in the opinion of LENDER,
constitutes a Materially Adverse Effect on GUARANTOR or which, in the opinion of
LENDER, impairs the ability of GUARANTOR to discharge its obligations under the
Guaranty or which causes LENDER to deem itself insecure.

    

     

    ARTICLE
VIII

     

    REMEDIES

     

    8.1           Upon
the occurrence and continuance of an Event of Default, LENDER may do any or all
of the following at the same time or at different times:

     

    (a)           LENDER
may, by written notice to BORROWER, declare the entire principal amount of the
Revolving Loan, or the unpaid balance thereof, together with all accrued
interest and all other lawful and proper charges thereon, immediately due and
payable whereupon all such sums shall become immediately due and payable with
interest thereafter at the Default Rate, without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived by
BORROWER.

     

    (b)           LENDER
may declare the entire principal face amount of the Letters of Credit or the
amount for which LENDER may be liable thereunder and all the other Letter of
Credit Obligations, together with all accrued interest and all other lawful and
proper charges thereon, immediately due and payable, whereupon all such sums
shall become immediately due and payable with interest thereafter at the Default
Rate, without presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived by BORROWER.  For purposes of this
Section, LENDER shall be entitled to declare immediately due all sums which
LENDER is itself obligated to advance under the Letters of Credit and the other
Letter of Credit Obligations, or any such sums which LENDER is obligated to
advance to any issuer of any such Letter of Credit whether or not such sums have
yet been advanced or funded by LENDER.  Upon such declaration, all
such sums shall become immediately due and payable.

     

    
      
        
        

      

      
        106

        
          

        

      

      
        
        

      

    

     

    (c)           LENDER
may, by written notice to BORROWER, declare all other Liabilities, together with
all accrued interest and all other lawful and proper charges thereon, to be
forthwith due and payable with interest thereafter at the Default Rate,
whereupon all such sums shall become immediately due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by BORROWER.

     

    (d)           LENDER
may proceed with or without judicial process to take possession of all or any
part of the Collateral not already in the possession of
LENDER.  BORROWER agrees that upon receipt of notice of LENDER’s
intention to take possession of all or any part of said Collateral, BORROWER
will do everything reasonably necessary to make same available to
LENDER.

     

    (e)           LENDER
may assign, transfer and deliver at any time or from time to time, in accordance
with the UCC, the whole or any portion of any Collateral which is subject to the
UCC or any rights or interests therein; and without limiting the scope of
LENDER’s rights thereunder, sell such Collateral at a public or private sale, or
in any other manner, at such price or prices as LENDER may deem best, and either
for cash or credit, or for future delivery, at the option of LENDER, in bulk or
in parcels and with or without having such Collateral at the sale or other
disposition. LENDER shall have the right to be the purchaser at any public sale.
Any notification of a sale or other disposition of the Collateral or of any
other action by LENDER required to be given by LENDER to BORROWER will be
sufficient if given not less than ten (10) days prior to the day on which such
sale or other disposition will be made and in the manner set forth in Section 9.1; such notification
shall be deemed reasonable notice.  In the event of a sale of such
Collateral, or any other disposition thereof, LENDER shall apply all proceeds
first to all costs and expenses of disposition, including attorneys’ fees, and
then to the Liabilities of BORROWER to LENDER.

     

    
      
        
        

      

      
        107

        
          

        

      

      
        
        

      

    

     

    (f)           
(1)           LENDER may
immediately, and without notice or other action, set-off and apply against the
Liabilities (A) any and all deposits, Deposit Accounts (as defined in the UCC)
and all other items described in Section 3.9 hereof and/or (B)
any sum owed by LENDER in any capacity to BORROWER whether due or not. ANY AND
ALL RIGHTS TO REQUIRE LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO
ANY OTHER COLLATERAL WHICH SECURES THE REVOLVING LOAN, PRIOR TO EXERCISING ITS
RIGHT OF SETOFF WITH RESPECT TO THE FOREGOING, ARE HEREBY KNOWINGLY, VOLUNTARILY
AND IRREVOCABLY WAIVED. LENDER may do the foregoing even though some or all of
the Liabilities may be unmatured and regardless of the adequacy of any other
Collateral securing the Liabilities. LENDER shall be deemed to have exercised
such right of set-off and to have made a charge against any such sum immediately
upon the occurrence of such Event of Default, even though the actual book
entries may be made at some time subsequent thereto.

     

    (2)           Upon
the expiration of LENDER’s obligations under the Letters of Credit, BORROWER
will be entitled to a refund of those sums so set-off, less the expenses of the
LENDER otherwise provided for in this Agreement, if such sums have not drawn
against the Letters of Credit.

     

    (g)           LENDER
may send notice of assignment and/or notice of LENDER’s security interest to any
and all Account Debtors or any third party holding or otherwise concerned with
any of the Collateral, and thereafter, LENDER shall have the sole right to
collect the Accounts Receivable and/or take possession of the
Collateral.  Any and all of LENDER’s reasonable collection expenses,
including but not limited to stationery and postage, telephone and telegraph,
secretarial and clerical expenses and the salaries of any collection agencies or
attorneys utilized, shall be added to the Liabilities and charged against a
specially designated demand deposit account of BORROWER at LENDER or, in the
absence of such designation or in the event that there are insufficient funds in
such designated account, then to any demand deposit account of BORROWER at
LENDER as of each due date.

     

    
      
        
        

      

      
        108

        
          

        

      

      
        
        

      

    

     

    (h)           LENDER
may without notice to or consent from BORROWER, sue upon or otherwise collect,
extend the time of payment of, or compromise or settle for cash, credit or
otherwise, upon any terms, any of the Accounts Receivable or any securities,
instruments or insurance applicable thereto and/or release the Account Debtor
thereon.  LENDER is authorized and empowered to accept the return of
the Goods represented by any of the Accounts Receivable, without notice to or
consent by BORROWER all without discharging or in any way affecting BORROWER’s
liability hereunder.  LENDER does not, by anything herein or in any
assignment or otherwise, assume any obligations of BORROWER under any Account,
contract or agreement assigned to LENDER, and LENDER shall not be responsible in
any way for the performance by BORROWER of any of the terms and conditions
thereof.

     

    (i)           LENDER
may notify the Post Office authorities to change the address for delivery of
mail addressed to BORROWER to such address as LENDER may designate.

     

    (j)           LENDER
may add to the Liabilities LENDER’s reasonable expenses to obtain or enforce
payment of any Liabilities hereunder and the enforcement or liquidation of any
debt hereunder shall include reasonable attorneys’ fees, plus other legal
expenses incurred by LENDER.

     

    
      
        
        

      

      
        109

        
          

        

      

      
        
        

      

    

     

    8.2           LENDER
is hereby further granted a license or other right to use, without charge at all
times on and after the occurrence and continuance of an Event of Default,
BORROWER’s labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks and advertising matter, or any property of a
similar nature, as it pertains to the Collateral, in advertising for sale and
selling any Collateral, and BORROWER’s rights under all licenses and franchise
agreements are to inure to LENDER’s benefit.

     

    8.3           BORROWER
shall remain liable for any deficiency resulting from a sale, lease, foreclosure
or other disposal of the Collateral and shall pay any such deficiency forthwith
on demand, together with per annum interest at the Default Rate.

     

    8.4           The
rights of LENDER under this Article are in addition to all other remedies,
statutory and otherwise, which are available to it at law or in equity or
otherwise and whether or not under the terms of any of the other Loan
Documents.

     

    
      
        
        

      

      
        110

        
          

        

      

      
        
        

      

    

     

    ARTICLE
IX

     

    MISCELLANEOUS

    

    9.1           COMMUNICATIONS AND
NOTICES:

     

    (a)           Any
communications between the parties hereto or notices provided herein to be given
may be given by mailing the same, certified mail, return receipt requested,
postage prepaid or by confirmed facsimile transmission or hand delivery or by an
overnight delivery service, as follows:

    
      

      
        	
                 
      

              	
                (1)

              	
                to
      LENDER at: 

                  
                    
                      335
      Madison Avenue

                      6th
      Floor

                      New
      York, New York 10017

                      Attn:
      Account Officer for Five Star Group,
    Inc.;

                    

                  

                

              

      

       

    

    
      	
               
      

            	
              (2)

            	
              to
      BORROWER at the address first above given for BORROWER in this
      Agreement;

            

    

    

    
      	
               
      

            	
              (3)

            	
              to
      such other addresses as any party may in writing hereafter indicate by
      notice given in conformity with this
Section.

            

    

     

    (b)           Notices
sent by certified mail shall be deemed received when
accepted.  Notices sent by confirmed facsimile transmission or hand
delivery shall be deemed received when delivered to the address and/or person
designated in this Section.  Notices sent by overnight delivery
service shall be deemed received upon delivery.

     

    9.2           LENDER MAY PAY, SATISFY, DISCHARGE OR
BOND CERTAIN OF BORROWER'S OBLIGATIONS:  In the event that
BORROWER shall default in the performance of any of the provisions of this
Agreement or in the event that BORROWER shall fail to pay any tax, assessment,
government charge or levy, except as the same are being contested in good faith
by appropriate proceedings, or shall fail to discharge any lien, encumbrance or
security interest prohibited hereby, or shall fail to comply with any other
obligation of BORROWER to LENDER hereunder, LENDER may, but shall not be
required to, pay, satisfy, discharge or bond the same for the account of
BORROWER and all moneys so paid out shall be an obligation of BORROWER
hereunder, repayable on demand, together with per annum interest at the
Default Rate.

     

    
      
        
        

      

      
        111

        
          

        

      

      
        
        

      

    

     

    9.3           PLEDGE TO FEDERAL
RESERVE:  LENDER may at any time pledge all or any portion of
its rights under the Loan Documents including the Revolving Note to any of the
Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12
U.S.C. Section 341.  No such pledge or enforcement thereof shall
release LENDER from its obligations under any of the Loan
Documents.

     

    9.4           PAYMENTS IN LAWFUL MONEY OF THE
UNITED STATES:  All payments shall be in lawful money of the
United States in immediately available funds unless otherwise provided in this
Agreement.

     

    9.5           SUCCESSORS AND
ASSIGNS:  This Agreement shall bind and inure to the benefit of
the parties hereto and their respective successors and assigns; provided,
however, that BORROWER shall not assign this Agreement or any of its rights,
duties or obligations hereunder without the prior written consent of LENDER and
any purported assignment or delegation without such consent shall be
void.

     

    9.6           LENDER’S RIGHTS NOT IMPAIRED BY DELAY
IN EXERCISING RIGHTS:  No delay or omission to exercise any
right, power or remedy accruing to LENDER upon any breach or default (whether
such breach or default is now or hereafter occurring) of BORROWER under this
Agreement, the Revolving Note or any of the other Loan Documents shall (a)
impair any such right, power or remedy of LENDER, (b) be construed to be a
waiver of any such breach or default, or an acquiescence therein, or (c) be
construed to be a waiver of or an acquiescence in any similar breach or default
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of LENDER of any breach or default under this Agreement,
the Revolving Note or any of the other Loan Documents, or any waiver on the part
of LENDER of any provision or condition of this Agreement or any of such other
Loan Documents, must be in writing and shall be effective only to the extent
specifically set forth in such writing.  All remedies, either under
this Agreement, the Revolving Note or any of the other Loan Documents, or by law
or otherwise afforded to of LENDER shall be cumulative and not
alternative.

     

    
      
        
        

      

      
        112

        
          

        

      

      
        
        

      

    

     

    9.7           LENDER’S COSTS AND
EXPENSES:

     

    (a)           BORROWER
will pay the reasonable fees and the reasonable out-of-pocket expenses incurred
by LENDER in connection with (1) the preparation of this Agreement and other
related documents, whether or not the transactions hereby contemplated shall be
consummated, (2) the making of the Revolving Loan hereunder and (3) the
determination and/or enforcement of the rights of LENDER in connection with such
documents and/or with the Revolving Loan. Such out-of-pocket expenses include
but are not limited to, charges for the examination of title, inspections and
drawings of paper, recording and filing fees, and all reasonable attorneys’
fees, including the fees and disbursements of LENDER’s counsel.

     

    (b)           Whenever
any attorney is used to provide advice to LENDER regarding LENDER’s relationship
with BORROWER or whenever any attorney is used to collect any obligation or to
determine, preserve or enforce any right of LENDER against BORROWER or against
the Collateral under this Agreement, the Revolving Note or any of the other Loan
Documents, whether by suit or other means, BORROWER agrees to pay the reasonable
attorney’s fees and other costs and expenses incurred by
LENDER.  BORROWER also agrees to pay LENDER’s attorneys a reasonable
fee and costs and expenses for enforcing against third parties any other rights
of LENDER pertaining hereto including LENDER’s defending against any claim
pertaining to the Collateral, provided, however, that BORROWER shall not be
obligated to pay for more than one attorney representing LENDER except during
such period of time as an Event of Default may have occurred and is
continuing.

     

    
      
        
        

      

      
        113

        
          

        

      

      
        
        

      

    

     

    (c)           Any
payment required of BORROWER hereunder shall be made within 10 days of LENDER’s
request that BORROWER do so. In the event that BORROWER fails to do so, BORROWER
by its execution of this Agreement authorizes LENDER to reimburse itself for any
of its fees, costs and expenses associated with the above in the manner set
forth in the Authorization to Charge.  BORROWER’s failure to make any
such payment or LENDER’s inability to charge against or add to the Revolving
Loan shall be an Event of Default hereunder.

     

    (d)           Until
paid by BORROWER, all of the expenses set forth in this Section above shall bear
interest at the Default Rate and all such amounts shall be added to the
Revolving Loan and shall be secured by the Collateral.

     

    9.8           NO WAIVER OF LENDER'S RIGHT OF
SET-OFF:  Nothing in this Agreement shall be deemed any waiver
or prohibition of LENDER’s right of set-off.

     

    9.9           GOVERNING LAW:  This
Agreement and each of the other Loan Documents shall be governed by, and
construed under, the laws of the State of New Jersey.

     

    9.10          FORUM FOR
LITIGATION:  BORROWER agrees that, in addition to any other
available forum, any suit, action or proceeding against it arising under or
growing out of, or relating to this Agreement or any note or other instrument or
agreement required hereunder, or any other instrument executed by BORROWER for
the benefit of LENDER, may be instituted in any Federal court in the State of
New Jersey or any State court in the State of New Jersey or in any other court
having jurisdiction, and BORROWER hereby waives any objection which it might
have now or hereafter to the laying of the venue of any such suit, action or
proceeding, and irrevocably submits to the jurisdiction of any such court in any
suit, action or proceeding and waives any claim or defense of inconvenient
forum.

     

    
      
        
        

      

      
        114

        
          

        

      

      
        
        

      

    

     

    9.11           AGREEMENT MUST BE SIGNED BY
LENDER:   This Agreement shall not be effective against
LENDER unless signed by an officer of LENDER.

     

    9.12           ENTIRE
UNDERSTANDING:  This Agreement contains the entire
understanding of the parties and any promises or representations not herein
contained shall have no force and effect, unless in writing, duly signed by the
party to be charged.

     

    9.13           MODIFICATIONS:  As
it relates to LENDER, neither this Agreement nor any portion or provision hereof
may be changed, modified, amended, waived, supplemented, discharged, canceled or
terminated orally or by any course of dealing, or in any manner other than by an
agreement in writing, signed by LENDER.

     

    9.14           CONTINUATION OF SECURITY
INTERESTS:  The security interests, liens, and rights granted
to LENDER hereunder shall continue in full force and effect notwithstanding the
fact that BORROWER’s account may, from time to time, be temporarily in a credit
position.

     

    9.15           SURVIVAL OF
REPRESENTATIONS:  All representations, warranties, covenants,
waivers and agreements contained herein shall survive execution hereof, unless
otherwise provided.

     

    9.16           SEVERABILITY:  The
provisions of this Agreement are severable, and if any clause or provision
hereof shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall affect only such
clause or provision, or part thereof, in such jurisdiction and shall not in any
manner affect such clause or provision in any other jurisdiction, or any other
clause or provision in this Agreement in any jurisdiction.  Each of
the covenants, agreements and conditions contained in this Agreement is
independent and compliance by BORROWER with any of them shall not excuse
non-compliance by BORROWER with any other.  All covenants hereunder
shall be given independent effect so that if a particular action or condition is
not permitted by any of such covenants, the fact that it would be permitted by
an exception to, or be otherwise within the limitations of, another covenant
shall not avoid the occurrence of an Event of Default if such action is taken or
condition exists.

     

    
      
        
        

      

      
        115

        
          

        

      

      
        
        

      

    

     

    9.17           ACTIONS OF
LENDER:  Any requirement in this Agreement that LENDER act
reasonably or any requirement in this Agreement that LENDER show materiality
shall be broadly and liberally construed in favor of LENDER bearing in mind the
need of LENDER to protect its security interests and to realize upon the
Collateral.

     

    9.18           INCONSISTENCIES:  In
the event of any inconsistency between this Agreement and any of the other Loan
Documents affording LENDER rights and remedies (except the 2003 Loan Agreement
and any Loan Documents thereunder which, from and after the Effective Date, are
fully superseded by this Agreement and the Loan Documents hereunder), such
inconsistency shall be resolved by an interpretation which expands such rights
rather than limits such rights.

     

    9.19           CONFIRMATORY SEARCHES:
BORROWER understands that LENDER may order confirmatory searches after the date
of this Agreement in order to verify that all UCC Financing Statements have been
filed and that LENDER holds the lien priorities against the Collateral as
required by this Agreement.  BORROWER agrees to pay all of LENDER’s
expenses, including reasonable attorneys’ fees, incurred in procuring and
reviewing such searches. By its execution of this Agreement, BORROWER authorizes
LENDER to reimburse itself for any of its expenses associated with the above in
the manner set forth in the Authorization to Charge.

     

    9.20           LENDER NOT BORROWER’S AGENT:
Nothing herein contained shall be construed to constitute LENDER as BORROWER’s
agent for any purpose whatsoever. In addition, LENDER shall not be responsible
or liable for (a) any acts of omission or commission, (b) any error of judgment,
(c) any mistake of fact, (d) any shortage, discrepancy, impairment, damage, loss
or destruction of any part of the Collateral wherever the same may be located
and regardless of the cause thereof or (e) any error or omission or delay of any
kind occurring in the settlement, collection or payment of any of the Accounts
Receivable or any instrument received in payment thereof or for any damage
resulting therefrom.

     

    
      
        
        

      

      
        116

        
          

        

      

      
        
        

      

    

     

    9.21           LOST LOAN
DOCUMENTS:  Upon receipt of an affidavit of an officer of
LENDER as to the loss, theft, destruction or mutilation of the Revolving Note or
any other security document which is not of public record, BORROWER will issue,
in lieu thereof, a replacement Revolving Note or other security document in the
same principal amount thereof and otherwise of like tenor.

     

    9.22           COUNTERPARTS:  This
Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which taken together shall constitute one and the
same agreement.  Delivery of an executed counterpart of a signature
page to this Agreement by facsimile or in PDF shall be as effective as delivery
of a manually executed counterpart of this Agreement.

     

    9.23           DISPUTE RESOLUTION
PROVISION.  This paragraph, including the subparagraphs below,
is referred to as the “Dispute
Resolution Provision.”  This Dispute Resolution Provision is a
material inducement for the parties entering into this Agreement.

     

    (a)           This
Dispute Resolution Provision concerns the resolution of any controversies or
claims between the parties, whether arising in contract, tort or by statute,
including but not limited to controversies or claims that arise out of or relate
to: (i) this agreement (including any renewals, extensions or modifications); or
(ii) any document related to this agreement (collectively a “Claim”).  For the
purposes of this Dispute Resolution Provision only, the term “parties” shall
include any parent corporation, subsidiary or affiliate of LENDER involved in
the servicing, management or administration of any obligation described or
evidenced by this agreement.

     

    
      
        
        

      

      
        117

        
          

        

      

      
        
        

      

    

     

    (b)           At
the request of any party to this agreement, any Claim shall be resolved by
binding arbitration in accordance with the Federal Arbitration Act (Title 9,
U.S. Code) (the “Act”).  The Act will
apply even though this agreement provides that it is governed by the law of a
specified state.

     

    (c)           Arbitration
proceedings will be determined in accordance with the Act, the then-current
rules and procedures for the arbitration of financial services disputes of the
American Arbitration Association or any successor thereof (“AAA”), and the terms of this
Dispute Resolution Provision.  In the event of any inconsistency, the
terms of this Dispute Resolution Provision shall control.  If AAA is
unwilling or unable to (i) serve as the provider of arbitration or (ii) enforce
any provision of this arbitration clause, LENDER may designate another
arbitration organization with similar procedures to serve as the provider of
arbitration.

     

    (d)           The
arbitration shall be administered by AAA and conducted, unless otherwise
required by law, in any U.S. state where real or tangible personal property
collateral for this credit is located or if there is no such collateral, in the
state specified in the governing law section of this agreement.  All
Claims shall be determined by one arbitrator; however, if Claims exceed Five
Million Dollars ($5,000,000), upon the request of any party, the Claims shall be
decided by three arbitrators.  All arbitration hearings shall commence
within ninety (90) days of the demand for arbitration and close within ninety
(90) days of commencement and the award of the arbitrator(s) shall be issued
within thirty (30) days of the close of the hearing.  However, the
arbitrator(s), upon a showing of good cause, may extend the commencement of the
hearing for up to an additional sixty (60) days.  The arbitrator(s)
shall provide a concise written statement of reasons for the
award.  The arbitration award may be submitted to any court having
jurisdiction to be confirmed and have judgment entered and
enforced.

     

    (e)           The
arbitrator(s) will give effect to statutes of limitation in determining any
Claim and may dismiss the arbitration on the basis that the Claim is barred. For
purposes of the application of any statutes of limitation, the service on AAA
under applicable AAA rules of a notice of Claim is the equivalent of the filing
of a lawsuit.  Any dispute concerning this arbitration provision or
whether a Claim is arbitrable shall be determined by the arbitrator(s), except
as set forth at subparagraph (h) of this Dispute Resolution
Provision.  The arbitrator(s) shall have the power to award legal fees
pursuant to the terms of this agreement.

     

    
      
        
        

      

      
        118

        
          

        

      

      
        
        

      

    

     

    (f)           This
paragraph does not limit the right of any party to: (i) exercise self-help
remedies, such as but not limited to, setoff; (ii) initiate judicial or
non-judicial foreclosure against any real or personal property collateral; (iii)
exercise any judicial or power of sale rights, or (iv) act in a court of law to
obtain an interim remedy, such as but not limited to, injunctive relief, writ of
possession or appointment of a receiver, or additional or supplementary
remedies.

     

    (g)           The
filing of a court action is not intended to constitute a waiver of the right of
any party, including the suing party, thereafter to require submittal of the
Claim to arbitration.

     

    (h)          
Any
arbitration or trial by a judge of any Claim will take place on an individual
basis without resort to any form of class or representative action (the “Class
Action Waiver”).  Regardless of anything else in this Dispute
Resolution Provision, the validity and effect of the Class Action Waiver may be
determined only by a court and not by an arbitrator.  The parties to
this Agreement acknowledge that the Class Action Waiver is material and
essential to the arbitration of any disputes between the parties and is
nonseverable from the agreement to arbitrate Claims. If the Class Action Waiver
is limited, voided or found unenforceable, then the parties’ agreement to
arbitrate shall be null and void with respect to such proceeding, subject to the
right to appeal the limitation or invalidation of the Class Action
Waiver.  The Parties
acknowledge and agree that under no circumstances will a class action be
arbitrated.

     

    
      
        
        

      

      
        119

        
          

        

      

      
        
        

      

    

     

    (i)           By
agreeing to binding arbitration, the parties irrevocably and voluntarily waive
any right they may have to a trial by jury in respect of any
Claim.  Furthermore, without intending in any way to limit this
agreement to arbitrate, to the extent any Claim is not arbitrated, the parties
irrevocably and voluntarily waive any right they may have to a trial by jury in
respect of such Claim.  This waiver of jury trial shall remain in
effect even if the Class Action Waiver is limited, voided or found
unenforceable.  WHETHER THE CLAIM IS DECIDED BY
ARBITRATION OR BY TRIAL BY A JUDGE, THE PARTIES AGREE AND UNDERSTAND THAT THE
EFFECT OF THIS AGREEMENT IS THAT THEY ARE GIVING UP THE RIGHT TO TRIAL BY JURY
TO THE EXTENT PERMITTED BY LAW.

    

    

    THIS
IS THE LAST PAGE OF THIS INSTRUMENT.

     

    THE
NEXT PAGE IS THE SIGNATURE PAGE. 

     

     

     

     

    
      
        
        

      

      
        120

        
          

        

      

      
        
        

      

    

     

    IN WITNESS WHEREOF, BORROWER
and LENDER have caused this Restated and Amended Loan and Security
Agreement to be executed by their respective duly authorized officers on the
date and year first above written.

     

    
      
        	WITNESS: 	 	FIVE STAR GROUP,
      INC.	 
	 	 	 	 	 
	 	 	 	 	 
	/s/
      IRA SOBOTKO	 	By: 	/s/ JOHN BELKNAP	 
	Ira
      Sobotko, Secretary 	 	 	John Belknap, Vice
    President	 
	 	 	 	 	 

      

    

     

     

     

     

    
      
        
          	  
    	 	BANK OF AMERICA,
      N.A.	 
	 	 	 	 	 
	 	 	 	 	 
	  
    	 	By: 	/s/ EDMUNDO KAHN	 
	 	 	 	Edmundo Kahn, Vice
    President	 
	 	 	 	 	 

        

      

       

    

     

    

    
      
        
        

      

      
        121

        
          

        

      

      
        
        

      

    

     

    LIST OF EXHIBITS AND
SCHEDULES

     

     

    
      

      
        	
                Exhibit
      “A”:

              	
                Borrowing
      Base Certificate (see
      Section 1.13)

              
	 
      	 
      
	
                Exhibit
      “B”:

              	
                Collateral
      Update Certificate (see Section
      1.22)

              
	 
      	 
      
	
                Exhibit
      “C”:

              	
                Reconciliation
      Certificate (see
      Section 1.63)

              
	 
      	 
      
	
                Exhibit
      “D”:

              	
                Compliance
      Certificate (see
      Section 5.6(c)(1) and Section 5.6(d)(1)

              
	 
      	 
      
	
                Exhibit
      “E”:

              	
                Certificate
      of No Default (see Section 5.6(c)(2)
      and Section 5.6(d)(4))

              

      

    

    
 

     

     

     

    122

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