Document:

EXHIBIT 4.5

THIS SECURED DEBENTURE, AND THE SECURITIES INTO WHICH IT IS
CONVERTIBLE (COLLECTIVELY, THE "SECURITIES"), HAVE NOT BEEN REGISTERED
WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE. THE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE
HARBOR FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES ARE "RESTRICTED"
AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE
ACT, PURSUANT TO REGULATION D OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH
OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER HEDGING TRANSACTIONS
INVOLVING THE SECURITIES MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE ACT.

THE OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE
MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN MASTER SUBORDINATION AND
INTERCREDITOR AGREEMENT (AS AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE
MODIFIED FROM TIME TO TIME, THE "MASTER SUBORDINATION AGREEMENT"), DATED
AS OF NOVEMBER ___, 2005, BY AND AMONG SUNSET BRANDS, INC.,
U.S MILLS, INC., IBF FUND LIQUIDATING LLC,
AS SELLER, IBF FUND LIQUIDATING LLC, AS DEBENTURE
HOLDER,
AND CAPITALSOURCE FINANCE LLC. EACH HOLDER HEREOF, BY ITS ACCEPTANCE HEREOF,
SHALL BE BOUND BY THE PROVISIONS OF THE MASTER SUBORDINATION AGREEMENT.

THE OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE
MANNER AND TO THE EXTENT SET FORTH IN THAT CERTAIN JUNIOR SUBORDINATION AND
INTERCREDITOR AGREEMENT (AS AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE
MODIFIED FROM TIME TO TIME, THE "JUNIOR SUBORDINATION AGREEMENT"), DATED
AS OF NOVEMBER ___, 2005, BY AND AMONG SUNSET
BRANDS, INC., U.S MILLS, INC., IBF FUND LIQUIDATING LLC,
AS SENIOR CREDITOR, AND IBF FUND LIQUIDATING LLC,
AS SUBORDINATED CREDITOR.
EACH HOLDER HEREOF, BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE PROVISIONS
OF THE JUNIOR SUBORDINATION AGREEMENT.

SECURED DEBENTURE

SUNSET BRANDS, INC.

12% Secured Convertible Debenture

November __, 2008

	 	US$5,000,000

This Secured Debenture (collectively
with any reissue, substitution or replacement thereof,
the "Debenture") is issued on November
__, 2005 (the "Closing Date") by Sunset Brands, Inc., a Nevada
corporation (the "Company"), to IBF Fund Liquidating LLC (together with
its permitted successors and assigns, the "Holder") pursuant to
exemptions from registration under the Securities Act of 1933, as amended
(the "Securities Act")

ARTICLE I.

Section 1.01     Principal and
Interest. For value received, the Company hereby promises to pay to the
order of the Holder on November __, 2008 in lawful money
of the United States of America and in immediately available funds the principal
sum of Five Million Dollars ($5,000,000.00), together with interest on the
unpaid principal of this Debenture at the rate of twelve percent (12%) per year
(computed on the basis of a 365-day year and the actual days elapsed) from the
Closing Date until paid. The entire principal amount and
all accrued interest shall be paid to the Holder on the third (3rd)
anniversary of the Closing 
Date. Notwithstanding anything to the contrary contained
herein, the Holder shall not be entitled to convert this Debenture for a number
of shares of Common Stock in excess of that number of shares of Common Stock
which, upon giving effect to such conversion, would cause the aggregate number
of shares of Common Stock beneficially owned by the Holder and its affiliates to
exceed 4.99% of the outstanding shares of the Common Stock following such
conversion (which provision may be waived by the Holder by written notice from
the Holder to the Company, which notice shall be effective 61 days after the
date of such notice).

Section 1.02     Optional
Conversion. The Holder is entitled, at its option, to convert, and sell
on the same day, at any time and from time to time, until payment in full of
this Debenture, all or any part of the principal amount of the Debenture, plus
accrued interest, into shares (the "Conversion Shares") of the Company's
common stock, par value $0.001 per share ("Common Stock"), at the price
per share (subject to adjustment pursuant to Section 5.02(h), the "Conversion
Price") equal to $0.37. No fraction of shares or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share. To convert this Debenture,
the Holder hereof shall deliver written notice thereof, substantially in the
form of Exhibit "A" to this Debenture, with appropriate insertions (the "Conversion
Notice"), to the Company at its address as set forth herein. The date upon
which the conversion shall be effective (the "Conversion Date") shall be
deemed to be the date set forth in the Conversion Notice.

Section 1.03     Reservation of
Common Stock. The Company shall reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of this Debenture, such number of shares of Common
Stock as shall from time to time be sufficient to effect such conversion, based
upon the Conversion Price. If at any time the Company does not have a sufficient
number of Conversion Shares authorized and available, then the Company shall
call and hold a special meeting of its stockholders within thirty (30) days of
that time for the sole purpose of increasing the number of authorized shares of
Common Stock.

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Section 1.04    
Right of
Redemption. The Company at its option shall have the right to redeem,
with three (3) business days advance written notice (the "Redemption Notice"),
a portion or all outstanding convertible debenture. The redemption price shall
be one hundred twenty percent (120%) of the amount redeemed plus accrued
interest. The Holder shall have the right to convert all or any
part of this Debenture at its discretion, even after
receipt of a Redemption Notice.

Section 1.05    
Registration
Rights. The Company is obligated to register the resale of the
Conversion Shares under the Securities Act pursuant to the terms of a
Registration Rights Agreement between the Company and the Holder of even date
herewith (the "Registration Rights Agreement").

Section 1.06    
Interest
Payments. The interest so payable will be paid at the time of maturity
or conversion to the person in whose name this Debenture is registered. At the
time such interest is payable, the Company, in its sole discretion, may elect to
pay the interest in cash (via wire transfer or certified funds) or in the form
of Common Stock. If paid in the form of Common Stock, the amount of stock to be
issued will be calculated as follows: the value of the stock shall be the
closing bid price of the Company's Common Stock on: (i) the date the interest
payment is due; or (ii) if the interest payment is not made when due, the date
the interest payment is made. A number of shares of Common Stock with a value
equal to the amount of interest due shall be issued. No fractional shares will
be issued; therefore, in the event that the value of the Common Stock per share
does not equal the total interest due, the Company will pay the balance in cash.

Section 1.07    
Paying Agent and
Registrar. Initially, the Company will act as paying agent and
registrar. The Company may change any paying agent, registrar, or
Company-registrar by giving the Holder not less than ten (10) business days'
written notice of its election to do so, specifying the name, address, telephone
number and facsimile number of the paying agent or registrar. The Company may
act in any such capacity.

Section 1.08    
Secured Nature
of Debenture. This Debenture is secured by all of the assets and
property of the Company and U.S. Mills, Inc. as set
forth in the Junior Security
Agreement dated as of the date hereof
among the Company, U.S. Mills, Inc. and the Holder (the "Security
Agreement"), the Junior Pledge Agreement, dated as of the date hereof, by and
between the Company and the Holder (the "Pledge
Agreement"), and the Junior Intellectual Property 
Security Agreement, dated as of the 
date hereof by and among the Company, the Holder and U.S.
Mills, Inc. (the "IP Security Agreement"). As set forth in
the Security Agreement, the Holder's security interest shall terminate upon the
indefeasible payment in full of 
all Obligations (as defined in the
Security Agreement) and the termination of the Security Agreement.

Section 1.09    
Transaction
Documents. "Transaction Documents" means the 
Security Agreement, the 
IP Security Agreement, the
Pledge Agreement, the Irrevocable Transfer Agent Instructions and the
Registration Rights Agreement.

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ARTICLE II.

Section 2.01     Amendments and
Waiver of Default. The Debenture may not be amended. Notwithstanding the
above, without the consent of the Holder, the Debenture may be amended to cure
any ambiguity, defect or inconsistency, or to provide for assumption of the
Company obligations to the Holder.

ARTICLE III.

Section 3.01     Events of Default.

(a)     An "Event of Default,"
wherever used herein, means any one of the following events (whatever the reason
and whether it shall be voluntary or involuntary or effected by operation of law
or pursuant to any judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body) (an Event of Default
shall only be deemed to have occurred only after the Holder delivers written
notice to the Company of such event (the "Notice of Default") and
provides the Company with ten (10) days to cure such event (the "Cure Period"));
provided, however, that no Cure Period shall apply to the Events of Default
described in Sections 3.01(a)(3), (4) or (11):

(1)     Any default in the payment of the
principal of, interest on or other charges in respect of this Debenture, free of
any claim of subordination, as and when the same shall become due and payable
(whether on a Conversion Date or the Maturity Date or by acceleration or
otherwise);

(2)     The Company shall fail to observe
or perform any other covenant, agreement or warranty contained in, or otherwise
commit any breach or default of any provision of this Debenture or any
Transaction Document (as defined herein) which is not cured with in the time
prescribed;

(3)     The Company or any subsidiary of
the Company (with the exception of Low Carb Creations, Inc.) shall commence, or
there shall be commenced against the Company or any subsidiary of the Company
under any applicable bankruptcy or insolvency laws as now or hereafter in effect
or any successor thereto, or the Company or any subsidiary of the Company
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to the
Company or any subsidiary of the Company or there is commenced against the
Company or any subsidiary of the Company any such bankruptcy, insolvency or
other proceeding which remains undismissed for a period of 61 days; or the
Company or any subsidiary of the Company is adjudicated insolvent or bankrupt;
or any order of relief or other order approving any such case or proceeding is
entered; or the Company or any subsidiary of the Company suffers any appointment
of any custodian, private or court appointed receiver or the like for it or any
substantial part of its property which continues undischarged or unstayed for a
period of sixty one (61) days; or the Company or any subsidiary of the Company
makes a general assignment for the benefit of creditors; or the Company or any
subsidiary of the Company shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as they become due; or the
Company or any subsidiary of the Company shall call 

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a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of its
debts; or the Company or any subsidiary of the Company shall by any act or
failure to act expressly indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or other action is taken by the Company
or any subsidiary of the Company for the purpose of effecting any of the
foregoing;

(4)     The Company or any subsidiary of
the Company (with the exception of Low Carb Creations, Inc.) shall default in
any of its obligations under any other debenture or any mortgage, credit
agreement, security agreement, promissory notes
or other facility, indenture agreement, factoring agreement or other instrument
under which there may be issued, or by which there may be secured or evidenced
any indebtedness for borrowed money or money due under any long term leasing or
factoring arrangement of the Company or any subsidiary of the Company in an
amount exceeding $100,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness becoming
or being declared due and payable prior to the date on which it would otherwise
become due and payable, including, without limitation, under the financing
or other documents between the
Company and CapitalSource Finance, LLC and between the Company and IBF Fund
Liquidating LLC;

(5)     The Common Stock shall cease to be
quoted for trading or listed for trading on either The
National Association of Securities Dealers Inc.'s Over-The-Counter
Bulletin Board ("OTCBB"), Nasdaq
SmallCap Market, New York Stock Exchange, American Stock Exchange or the Nasdaq
National Market (each, a "Subsequent Market") and shall not again be
quoted or listed for trading thereon within five (5)
trading days of such delisting;

(6)     The Company or any subsidiary of
the Company (with the exception of Low Carb Creations, Inc.) shall be a party to
any Change of Control Transaction unless the proceeds of such transaction are
used to pay this Debenture in full as of the closing date thereof. For purposes
of this Section "Change of Control Transaction" means the occurrence of (a) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the 
Securities Exchange Act of
1934, as amended (the "Exchange Act")) of effective
control (whether through legal or beneficial ownership of capital stock of the
Company, by contract or otherwise) of in excess of fifty percent (50%) of the
voting securities of the Company (except that the acquisition of voting
securities by the Holder shall not constitute a Change of Control Transaction
for purposes hereof), (b) a replacement at one time or over time of more than
one-half of the members of the board of directors of the Company which is not
approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), (c) the merger, consolidation or sale of fifty
percent (50%) or more of the assets of the Company or any subsidiary of the
Company in one or a series of related transactions with or into another entity,
or (d) the execution by the Company of an agreement to which the Company is a
party or by which it is bound, providing for any of the events set forth above
in (a), (b) or (c);

(7)     The Company shall fail to file the
Registration Statement (as such term is defined in
Registration Rights Agreement of even date herewith) with the SEC, or the Registrable Securities (as such term is defined in the
Registration Rights Agreement) shall not 

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have been declared effective by the
SEC, in each case within the time periods set forth in the Registration Rights Agreement of even date herewith between
the Company and the Holder;

(8)     If the effectiveness of the
Registration Statement lapses for any reason or the Holder shall not be
permitted to resell the shares of Common Stock underlying this Debenture under
the Registration Statement, in either case, for more than five (5) consecutive
trading days or an aggregate of eight (8) trading days (which need not be
consecutive trading days);

(9)     The Company shall fail for any
reason to deliver Common Stock certificates to a Holder prior to the fifth (5th)
trading day after a Conversion Date or the Company shall provide notice to the
Holder, including by way of public announcement, at any time, of its intention
not to comply with requests for conversions of this Debenture in accordance with
the terms hereof;

(10)     The Company shall fail to complete
its merger with U.S. Mills, Inc. for any reason;

(11)     An event of default under the
financing or other documents between
the Company and CapitalSource Finance, LLC and between the Company and IBF Fund
Liquidating LLC, which is not cured with in the time prescribed thereto or is
not waived, shall be deemed an Event of Default herein;

(b)     During the time that any portion of
this Debenture is outstanding, if any Event of Default has occurred and remains
uncured with in the time prescribed or is not waived, the full principal amount
of this Debenture, together with interest and other amounts owing in respect
thereof, to the date of acceleration shall become, at the Holder's election,
immediately due and payable in cash, provided however, the Holder may
request (but shall have no obligation to request) payment of such amounts in
Common Stock of the Company. 

Section 3.02     Failure to Issue
Unrestricted Common Stock. As indicated in Article III Section 3.01, a
breach by the Company of its obligations under the
Registration Rights Agreement shall be deemed an Event of Default, which if not
cured within ten (10) days, shall entitle the Holder to accelerate full
repayment of all debentures outstanding and accrued interest thereon or,
notwithstanding any limitations contained in this Debenture and/or the
Securities Purchase Agreement, to convert all debentures outstanding and accrued
interest thereon into shares of Common Stock pursuant to Section 1.02 herein.
The Company acknowledges that failure to honor a Notice of Conversion shall
cause irreparable harm to the Holder. 

ARTICLE IV.

Section 4.01     Rights and Terms of
Conversion. This Debenture, in whole or in part, may be converted at any
time following the Closing Date, into shares of Common Stock at a price equal to
the Conversion Price as described in Section 1.02 above.

Section 4.02     Re-issuance of
Debenture. When the Holder elects to convert, sell,
assign or otherwise transfer a part of the Debenture,
the Company shall, within three days of
the 

6

Holder's request, reissue a new Debenture
or Debentures, as applicable in the
same form as this Debenture to reflect the new principal amount(s).

ARTICLE V.

Section 5.01     Anti-dilution.
In the event that the Company shall at any time subdivide the outstanding
shares of Common Stock, or shall issue a stock dividend on the outstanding
Common Stock, the Conversion Price in effect immediately prior to such
subdivision or the issuance of such dividend shall be proportionately decreased,
and in the event that the Company shall at any time combine the outstanding
shares of Common Stock, the Conversion Price in effect immediately prior to such
combination shall be proportionately increased, effective at the close of
business on the date of such subdivision, dividend or combination as the case
may be.

Section 5.02     Covenants.

(a)     Consent of Holder to Sell
Capital Stock or Grant Security Interests. Except for the capital stock to be
issued under this Debenture or any issuances of capital stock or other
securities to IBF Fund Liquidating LLC pursuant to the Amended and Restated
Merger Agreement, dated as of November __, 2005, among IBF Fund Liquidating LLC,
the Company, U.S. Mills, Inc. and USM Acquisition Sub, Inc. and the other
agreements contemplated thereby, so long as any of the principal of or interest
on this Debenture remains unpaid and unconverted, the Company shall not, without
the prior consent of the Holder (i) issue or sell any Common Stock or preferred
stock with or without consideration, (ii) issue or sell any preferred stock,
warrant, option, right, contract, call, or other security or instrument granting
the holder thereof the right to acquire Common Stock or preferred stock with or
without consideration, or (iii) enter into any security instrument granting a
security interest in any of the assets of the Company other than the Revolving
Credit, Term Loan and Security Agreement dated as of the date hereof by and
among the Company, U.S. Mills, Inc. and Capitalsource Finance LLC and related
documents (as such may be amended, restated, supplemented or otherwise modified
from time to time in accordance with their terms) and the Security Agreement and
related documents (as such may be amended, restated, supplemented or otherwise
modified from time to time in accordance with their terms). Notwithstanding the
foregoing, the above restriction shall not apply to: (a) options to purchase
shares of Common Stock, provided (I) such options are issued on or after the
date hereof to employees of the Company, (II) the exercise price of such options
is not less than the higher of (i) the closing bid price of the Common Stock, as
quoted by Bloomberg, LP, on the date of issuance of such option or (ii) $0.37
per share, and (III) such issuance is limited to no more than 20% of the
Company's outstanding shares of Common Stock on a fully diluted basis; (b) the
issuance or sale of securities of the Company where the proceeds of such
issuance or sale pay the outstanding principal and accrued interest of this
Debenture in full as of the closing date thereof or (c) shares of Common Stock
for consideration per share equal to or greater than the Conversion Price, and
(ii) any rights, warrants or options to subscribe for or purchase Common Stock
or securities convertible into or exercisable for shares of Common Stock, in
each case, where the lowest price per share for which one share of Common Stock
is issuable upon the conversion or exchange thereof is equal to or greater than
the Conversion Price.

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(b)    
Form D. The Company agrees
to file a Form D with respect to the Conversion Shares as required under
Regulation D and to provide a copy thereof to the Holder promptly after such
filing. The Company represents and warrants that it has taken
such action as it has determined is
necessary to qualify the Conversion Shares, or obtained
an exemption for the sale of the Conversion Shares
to the Holder,
under applicable securities or "Blue Sky" laws of the states of the United
States, and has 
provided evidence of any such
action so taken to the Holder.

(c)    
Reporting Status. Until the earlier of (i) the date as of which the
Holder may sell all of the
Conversion Shares without restriction pursuant to Rule 144(k) promulgated under
the Securities Act (or any successor thereto), and (ii) the
date on which (A) the Holder shall
have sold all the Conversion Shares and (B) this Debenture is
no longer outstanding, the
Company shall file in a timely manner all reports required to be filed with the
Securities and Exchange Commission (the "SEC")
pursuant to the Exchange Act and the regulations of the SEC thereunder, and the
Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would otherwise permit such termination.

(d)    
Reservation of Shares. The Company shall take all action reasonably
necessary to at all times have authorized, and reserved for the purpose of
issuance, such number of shares of Common Stock as shall be necessary to effect
the issuance of the Conversion Shares. If at any time the Company does not have
available such shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all of the Conversion Shares, the Company shall call
and hold a special meeting of the shareholders within thirty (30) days of such
occurrence, for the sole purpose of increasing the number of shares authorized.
The Company's management shall recommend to the shareholders to vote in favor of
increasing the number of shares of Common Stock authorized. Management shall
also vote all of its shares in favor of increasing the number of authorized
shares of Common Stock.

(e)     Listing or Quotation. The Company
shall promptly secure the listing or quotation of the Conversion Shares upon
each national securities exchange, automated quotation system or the OTCBB or
other market, if any, upon which shares of Common Stock are then listed or
quoted (subject to official notice of issuance) and shall use its best efforts
to maintain, so long as any other shares of Common Stock shall be so listed,
such listing of all Conversion Shares from time to time issuable under the terms
of this Debenture. The Company shall maintain the Common Stock's authorization
for quotation on the OTCBB or any applicable Subsequent Market.

(f)    
Transactions With Affiliates. So long as this Debenture
is outstanding, the Company shall not, and shall
cause each of its subsidiaries not to, enter into, amend, modify or supplement,
or permit any subsidiary to enter into, amend, modify or supplement any
agreement, transaction, commitment, or arrangement with any of its or any
subsidiary's officers, directors, persons
who were officers or directors at any time during the previous two (2) years,
stockholders who beneficially own five percent (5%) or more of the Common Stock,
or Affiliates (as defined below) or with any individual related by blood,
marriage, or adoption to any such individual or with any entity in which any
such entity or individual owns a five percent (5%) or more beneficial interest
(each a "Related Party"), except for (a) customary employment
arrangements and benefit programs on reasonable terms, (b) any investment in an
Affiliate of the 

8

Company, (c) any agreement, transaction, commitment, or
arrangement on an arms-length basis on terms no less favorable than terms which
would have been obtainable from a person other than such Related Party
and (d) any agreement, transaction, commitment,
or arrangement which is approved by a majority of the disinterested directors of
the Company; for purposes hereof, any director who is also an officer of the
Company or any subsidiary of the Company shall not be a disinterested director
with respect to any such agreement, transaction, commitment, or arrangement. "Affiliate"
for purposes hereof means, with respect to any person or entity, another person
or entity that, directly or indirectly, (i) has a ten percent (10%) or more
equity interest in that person or entity, (ii) has ten percent (10%) or more
common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or entity. "Control"
or "controls" for purposes hereof means that a person or entity has the
power, direct or indirect, to conduct or govern the policies of another person
or entity.

(g)    
Transfer Agent. The Company covenants and agrees that, in the event that
the Company's agency relationship with the transfer agent should be terminated
for any reason prior to a date which is two (2) years after the Closing Date,
the Company shall immediately appoint a new transfer agent and shall require
that the new transfer agent execute and agree to be bound by the terms of the
Irrevocable Transfer Agent Instructions (as defined herein).

(h)     Corporate Existence. If the
Company at any time after the date of issuance of this Debenture subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
will be proportionately reduced and the number of shares of Common Stock
issuable upon conversion of this Debenture will be proportionately increased. If
the Company at any time after the date of issuance of this Debenture combines
(by combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased and the number of Conversion Shares issuable upon
conversion of this Debenture will be proportionately decreased. Any adjustment
under this Section 5.02(h) shall become effective at the close of business on
the date the subdivision or combination becomes effective.

(i)     Transfer Agent Instructions.
Simultaneously with the execution and deliver of this Debenture, the Company
shall execute and deliver Irrevocable Transfer Agent Instructions, substantially
in the form attached hereto as Exhibit B (the "Irrevocable Transfer Agent
Instructions"), to its transfer agent irrevocably appointing Western States
Transfer and Registrar, Inc. as the Company's agent for purpose of having
certificates issued, registered in the name of the Holder or its nominee(s), for
the Conversion Shares representing such amounts of this Debenture as specified
from time to time by the Holder to the Company upon conversion of this
Debenture, for interest owed pursuant to this Debenture, and for any and all
Liquidated Damages (as defined in the Registration Rights Agreement). Western
States Transfer and Registrar, Inc. shall be paid a cash fee of Fifty Dollars
($50) for every occasion it acts pursuant to the Irrevocable Transfer Agent
Instructions. The Company shall not change its transfer agent without the
express written consent of the Holder, which may be withheld by the Holder in
its sole discretion; provided, however, that Company shall be permitted to
change its transfer agent to Continental Stock Transfer & Trust Company. The
Company warrants that no instruction other than the Irrevocable Transfer Agent
Instructions will be given by the Company to its 

9

transfer agent and that the
Conversion Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section 5.02(i) shall affect in
any way the Holder's obligations and agreement to comply with all applicable
securities laws upon resale of Conversion Shares. If the Holder provides the
Company with an opinion of counsel, in form, scope and substance customary for
opinions of counsel in comparable transactions to the effect that registration
of a resale by the Holder of any of the Conversion Shares is not required under
the Securities Act, the Company shall within two (2) business days instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by the Holder. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Holder by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5.02(i) will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of this
Section 5.02(i), that the Holder shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.

(j)     Transfer of Debenture. The
Holder shall be permitted to sell, assign, transfer or otherwise dispose of (a
"Disposition") all or any portion of this Debenture from time to time; 
provided, that the Holder shall provide the Company with 30 days' prior
written notice of any such Disposition if the consummation of such Disposition
is proposed to occur prior to the date that is 360 days following the date
hereof.

ARTICLE VI.

Section 6.01     Notice. 
Notices regarding this Debenture shall be sent to the parties at the following
addresses, unless a party notifies the other parties, in writing, of a change of
address:

	If to the Company, to:	Sunset Brands, Inc.
	 	10990 Wilshire Blvd - Suite 1220
	 	Los Angeles, CA 90024
	 	Attention: Todd Sanders
	 	Telephone: (310) 478-4600
	 	Facsimile: (310) 478-4601 
	 	 
	With a copy to:	Hodgson Russ LLP
	 	60 East 42nd Street - 37th
		Floor
	 	New York, NY 10165
	 	Attention: Jeffrey A. Rinde, Esq.
	 	Telephone: (212) 661-3535
	 	Facsimile: (212) 972-1677

10

	 	 
	If to the Holder:	IBF Fund Liquidating LLC
	 	c/o Kaye Scholer LLP
	 	425 Park Avenue
	 	New York, New York 10022
	 	Attention: Arthur J. Steinberg, Esq.
		

		Manager

		
	 	Telephone: (212)
		836-8564
	 	Facsimile: (212) 836- 6157
	 	 
	With a copy to:	Kaye Scholer LLP 
	 	425 Park Avenue 
	 	New York, NY 10022
	 	Attention: Emanuel S. Cherney, Esq.
	 	
		Telephone: (212) 836-7061
	 	Facsimile:
		(212) 836-7152
	 	 

Section 6.02     Governing Law.
This Debenture shall be deemed to be made under and shall be construed in
accordance with the laws of the State of New York without giving effect to the
principals of conflict of laws thereof. Each of the parties consents to the
jurisdiction of the U.S. District Court sitting in the District of the State of
New York or the state courts of the State of New York sitting in New York
County, New York in connection with any dispute arising under this Debenture and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens to the bringing
of any such proceeding in such jurisdictions.

Section 6.03     Severability.
The invalidity of any of the provisions of this Debenture shall not
invalidate or otherwise affect any of the other provisions of this Debenture,
which shall remain in full force and effect.

Section 6.04     Entire Agreement
and Amendments. This Debenture represents the entire agreement between
the parties hereto with respect to the subject matter hereof and there are no
representations, warranties or commitments, except as set forth herein. This
Debenture may be amended only by an instrument in writing executed by the
parties hereto.

Section 6.05     Counterparts.
This Debenture may be executed in multiple counterparts, each of which shall
be an original, but all of which shall be deemed to constitute on instrument.

11

IN WITNESS WHEREOF, with the
intent to be legally bound hereby, the Company as executed this Debenture as of
the date first written above.

	 	SUNSET BRANDS, INC.
	 	 
	 	By: 	
		 

	 	Name: Todd Sanders
	 	Title: President & CEO

 

12

 

EXHIBIT "A"

NOTICE OF CONVERSION

(To be executed by the Holder in order
to Convert the Debenture)

	TO:	 

The undersigned hereby irrevocably
elects to convert US$ of the principal amount of the above Debenture into
Shares of Common Stock of Sunset Brands, Inc., according to the conditions
stated therein, as of the Conversion Date written below.

	
		Conversion Date:
	
		 

	
		Applicable Conversion
		Price:
	
		 

	
		Signature:
	
		 

	
		Name:
	
		 

	
		Address:
	
		 

	
		Amount to be converted:
	
		US$ 

	
		Amount of Debenture
		unconverted:
	
		US$ 

	
		Conversion Price per
		share: 
	
		US$ 

	
		Number of shares of
		Common Stock to be issued:
	
		 

	
		Please issue the shares
		of Common Stock in the following name and to the following address:
	
		 

	
		Issue to:
	
		 

	
		Authorized Signature:
	
		 

	
		Name:
	
		 

	
		Title:
	
		 

	
		Phone Number:
	
		 

	
		Broker DTC Participant
		Code:
	
		 

	
		Account Number:Exhibit 10.1

REVOLVING CREDIT, TERM LOAN AND SECURITY AGREEMENT

               
THIS REVOLVING CREDIT, TERM LOAN AND SECURITY AGREEMENT (the "Agreement")
dated as of November 10, 2005, is entered into between U.S. MILLS, INC.,
a Delaware corporation ("Borrower"), survivor by merger to USM
Acquisition Sub, Inc. ("Merger Sub"), SUNSET BRANDS, INC. a Nevada 
corporation ("Corporate Guarantor") (Borrower and Corporate Guarantor
each individually an "Obligor and collectively the "Obligors"),
and CAPITALSOURCE FINANCE LLC, a Delaware limited liability company (the
"Lender").

               
WHEREAS, Corporate Guarantor, Merger Sub, Borrower, and Seller are parties to a
certain Amended and Restated Acquisition Agreement and Plan of Merger dated as
of the date hereof (the "Stock Purchase Agreement");

               
WHEREAS, simultaneously with the closing of the loan transactions contemplated
in this Agreement and the purchase of the capital stock of Borrower by Merger
Sub pursuant to the Stock Purchase Agreement, Merger Sub shall be merged with
Borrower and the surviving company shall be Borrower, at which time, among other
things, Borrower shall have assumed by operation of law and by the Stock
Purchase Agreement all of the combined obligations, liabilities, agreements,
covenants and indebtedness of both Borrower and Merger Sub under or in
connection with this Agreement and the other Loan Documents;

               
WHEREAS, Obligors have requested that Lender make available to Borrower (a) a
revolving credit facility (the "Revolving Facility") in a maximum
principal amount at any time outstanding of up to Three Million Dollars
($3,000,000), (the "Revolving Facility Cap"), and (b) a term loan (the 
"Term Loan") in a maximum principal amount of Three Million Five Hundred
Thousand Dollars ($3,500,000) (the "Maximum Term Loan Amount")
(collectively, the Revolving Facility Cap and the Maximum Term Loan Amount are
the "Facility Cap"), the proceeds of which shall be used by Borrower for
refinancing Borrower's existing obligations and indebtedness; for the generation
of receivables/inventory; payments due Seller under the Stock Purchase
Agreement.; for payments to Lender hereunder and for any other lawful purpose
authorized by this Agreement;

               
WHEREAS, Lender is willing to make the Revolving Facility and the Term Loan
available to Borrower upon the terms and subject to the conditions set forth
herein.

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

I.    
DEFINITIONS

       
1.1     General Terms

               
For purposes of this Agreement, in addition to the definitions above and
elsewhere in this Agreement, the terms listed in Appendix A and Annex
I hereto shall have the meanings given such terms in Appendix A and
Annex I, which are incorporated herein and made a part hereof. All
capitalized terms used which are not specifically defined herein shall have
meanings provided in Article 9 of the UCC in effect on the date hereof to the
extent the same are used or defined therein. Unless otherwise specified herein
or in Appendix A, Annex I, any agreement, contract or instrument
referred to herein or in Appendix A or Annex I shall mean such
agreement, contract or instrument as modified, amended, restated or supplemented
from time to time. Unless otherwise specified, as used in the Loan Documents 

 

or in any certificate, report, instrument or other document
made or delivered pursuant to any of the Loan Documents, all accounting terms
not defined in Appendix A, Annex I or elsewhere in this Agreement
shall have the meanings given to such terms in and shall be interpreted in
accordance with GAAP. References herein to "Eastern Time" shall mean eastern
standard time or eastern daylight savings time as in effect on any date of
determination in the eastern United States of America.

II.     ADVANCES,
PAYMENT AND INTEREST

       
2.1     The Revolving Facility

               
(a) Subject to the provisions of this Agreement, Lender shall make Advances to
Borrower under the Revolving Facility from time to time during the Term, 
provided that, notwithstanding any other provision of this Agreement, the
aggregate amount of all Advances at any one time outstanding under the Revolving
Facility shall not exceed the lesser of (a) the Revolving Facility Cap, and
(b) the Availability. The Revolving Facility is a revolving credit facility,
which may be drawn, repaid and redrawn, from time to time as permitted under
this Agreement. Any determination as to whether there is Availability for
Advances shall be made by Lender in its sole discretion and is final and binding
upon Borrower. Unless otherwise permitted by Lender, each Advance shall be in an
amount of at least $1,000. Subject to the provisions of this Agreement, Borrower
may request Advances under the Revolving Facility up to and including the value,
in U.S. Dollars, of the sum of (i) the Borrowing Base for Eligible Receivables,
and (ii) the Borrowing Base for Eligible Inventory minus, if applicable, amounts
adjusted or reserved pursuant to this Agreement (such calculated amount being
referred to herein as the "Availability") provided, however, that
at no time shall more than fifty percent (50 %) of the Availability be comprised
of the Borrowing Base for Eligible Inventory. Advances under the Revolving
Facility automatically shall be made for the payment of interest on the Loan and
other Obligations on the date when due to the extent available and as provided
for herein.

               
(b) Lender has established the above-referenced advance rate for Availability
and, in its sole credit judgment, may further adjust the Availability and such
advance rate by applying percentages (known as "dilution factors") to Eligible
Receivables based upon Borrower's actual recent collection history in a manner
consistent with Lender's underwriting practices and procedures, including
without limitation Lender's review and analysis of, among other things,
Borrower's historical returns, rebates, discounts, credits and allowances
(collectively, the "Dilution Items"). Such dilution factors and the
advance rate for Availability may be adjusted by Lender throughout the Term as
warranted by Lender's underwriting practices and procedures in its sole credit
judgment. Also, Lender shall have the right to establish from time to time, in
its sole credit judgment, reserves against the Borrowing Base, which reserves
shall have the effect of reducing the amounts otherwise eligible to be disbursed
to Borrower under the Revolving Facility pursuant to this Agreement.

       
2.2     The Revolving Facility;
Maturity

               
All amounts outstanding under the Revolving Facility and other Obligations shall
be due and payable in full in cash, if not earlier in accordance with this
Agreement, on the earliest of (i) the occurrence of an Event of Default if
required pursuant hereto or Lender's demand upon an Event of Default, (ii) the
Termination Date, and (iii) the last day of the Term (such earliest date being
the "Revolving Facility Maturity Date").

2

       
2.3     Interest on the Revolving
Facility

               
Interest on outstanding Advances under the Revolving Facility shall be payable
monthly in arrears on the first day of each calendar month at an annual rate of
Prime Rate plus 1.00% provided, however, that, notwithstanding any
provision of any Loan Document, for the purpose of calculating interest
hereunder, the Prime Rate shall be not less than 6.75%, in each case calculated
on the basis of a 360-day year and for the actual number of calendar days
elapsed in each interest calculation period. Interest accrued on each Advance
under the Revolving Facility shall be due and payable on the first day of each
calendar month, in accordance with the procedures provided for in Section 2.5
and Section 2.6, commencing December 1, 2005, and continuing until the
later of the expiration of the Term and the full performance and irrevocable
payment in full in cash of the Obligations and termination of this Agreement

       
2.4     Revolving Facility
Disbursements; Requirement to Deliver Borrowing Certificate

               
So long as no Default or Event of Default shall have occurred and be continuing,
Borrower may give Lender irrevocable written notice requesting an Advance under
the Revolving Facility by delivering to Lender not later than 11:00 a.m.
(Eastern Time) at least two but not more than four Business Days before the
proposed borrowing date of such requested Advance (the "Borrowing Date"),
a completed Borrowing Certificate and relevant supporting documentation
satisfactory to Lender, which shall (i) specify the proposed Borrowing Date of
such Advance which shall be a Business Day, (ii) specify the principal amount of
such requested Advance, (iii) certify the matters contained in Section 4.2,
and (iv) specify the amount of any recoupments of any third party payor being
sought, requested or claimed, or, to Borrower's knowledge, threatened against
Borrower or Borrower's Affiliates. Each time a request for an Advance is made,
and, in any event and regardless of whether an Advance is being requested, on
Tuesday of each week during the Term (and more frequently if Lender shall so
request) until the Obligations are indefeasibly paid in cash in full and this
Agreement is terminated, Borrower shall deliver to Lender a Borrowing
Certificate accompanied by a separate detailed aging and categorizing of
Borrower's accounts receivable and accounts payable and such other supporting
documentation with respect to the figures and information in the Borrowing
Certificate as Lender shall reasonably request from a credit or security
perspective or otherwise. On each Borrowing Date, Borrower irrevocably
authorizes Lender to disburse the proceeds of the requested Advance to the
appropriate Borrower's account(s) as set forth on Schedule 2.4, in all
cases for credit to the appropriate Borrower (or to such other account as to
which the appropriate Borrower shall instruct Lender) via Federal funds wire
transfer no later than 4:00 p.m. (Eastern Time).

       
2.5     Revolving Facility
Collections; Repayment; Borrowing Availability and Lockbox

               
Borrower shall maintain one or more lockbox accounts (individually and
collectively, the "Lockbox Account") with one or more banks acceptable to
Lender (each, a "Lockbox Bank"), and shall execute with each Lockbox Bank
one or more agreements acceptable to Lender (individually and collectively, the
"Lockbox Agreement"), and such other agreements related thereto as Lender
may require. Each Borrower shall ensure that all collections of Borrower's
Accounts and all other cash payments received by any Borrower are paid and
delivered directly from Account Debtors and other Persons into the appropriate
Lockbox Account; provided, however, that all invoices for Borrower's Accounts
shall bear Borrower's name as the addressee for payments thereunder. The Lockbox
Agreements shall provide that the Lockbox Banks immediately will transfer all
funds paid into the Lockbox Accounts into a depository account or accounts
maintained by Lender or an Affiliate of Lender at such bank as Lender may
communicate to Borrower from time to time (the "Concentration 

3

Account"). Notwithstanding and without limiting any
other provision of any Loan Document, Lender shall apply, on a daily basis, all
funds transferred into the Concentration Account pursuant to the Lockbox
Agreement and this Section 2.5 in such order and manner as determined by
Lender. To the extent that any Accounts are collected by Borrower or any other
cash payments received by Borrower are not sent directly to the appropriate
Lockbox Account but are received by Borrower or any of Borrower's Affiliates,
such collections and proceeds shall be held in trust for the benefit of Lender
and immediately remitted (and in any event within two Business Days), in the
form received, to the appropriate Lockbox Account for immediate transfer to the
Concentration Account. Borrower acknowledges and agrees that compliance with the
terms of this Section 2.5 is an essential term of this Agreement, and
that, in addition to and notwithstanding any other rights Lender may have
hereunder, under any other Loan Document, under applicable law or at equity,
upon each and every failure by Borrower or any of Borrower's Affiliates to
comply with any such terms Lender shall be entitled to assess the Lockbox
Non-Compliance Fee which shall operate to increase the Applicable Rate by two
percent per annum during any period of non-compliance, whether or not a Default
or an Event of Default occurs or is declared, provided that nothing shall
prevent Lender from considering any failure to comply with the terms of this 
Section 2.5 to be a Default or an Event of Default. All funds transferred to
the Concentration Account for application to the Obligations under the Revolving
Facility shall be applied to reduce the Obligations under the Revolving
Facility, but, for purposes of calculating interest hereunder, shall be subject
to a three Business Day clearance period. If as the result of collections
of Accounts and/or any other cash payments received by any Borrower pursuant to
this Section 2.5 a credit balance exists with respect to the
Concentration Account, such credit balance shall not accrue interest in favor of
a Borrower, but Lender shall within 2 Business Days remit the amount of such
credit balance to Borrower. If applicable, at any time prior to the execution of
all or any of the Lockbox Agreements and operation of all or any of the Lockbox
Accounts, Borrower and Borrower's Affiliates shall direct all collections or
proceeds it receives on Accounts or from other Collateral to the accounts(s) and
in the manner specified by Lender in its sole discretion.

       
2.6     The Term Loan
Facility

               
Subject to the terms and conditions set forth in this Agreement, Lender agrees
to loan to Borrower on the Closing Date the Maximum Term Loan Amount, such
amount to be in the form of the Term Loan to be constituted of a single draw
equal to such Maximum Term Loan Amount to be disbursed to the appropriate
Borrower's account(s) as set forth on Schedule 2.4. The Term Loan is not
a revolving credit facility, and any repayments of principal shall be applied to
permanently reduce the Term Loan. 

       
2.7     Interest on the Term
Loan

               
Interest on the outstanding balance of the Term Loan shall be payable monthly in
arrears on the first day of each calendar month at an annual rate of the Prime
Rate plus 4.00% provided, however, that, (a) interest shall only
accrue on $2,000,000 of the outstanding principal balance of the Term Loan until
January 1, 2006, and thereafter interest shall accrue on the entire outstanding
principal balance, and (b) notwithstanding any provision of any Loan Document,
for the purpose of calculating interest hereunder, the Prime Rate shall be not
less than 6.75%, calculated on the basis of a 360-day year and for the actual
number of calendar days elapsed in each interest calculation period. Interest
accrued on the Term Loan shall be due and payable on the first day of each
calendar month commencing December
1, 2005, and continuing until the full performance and
irrevocable payment in full in cash of the Term Loan Obligations and termination
of this Agreement. Advances under the Revolving Facility

4

may be made automatically
for the payment of interest on the Term Loan and other Obligations on the date
when due to the extent available and as provided for herein. 

       
2.8     Repayment of Term Loan;
Maturity

               
(a)     Payment of principal and all other amounts
outstanding under the Term Loan and all other Obligations due hereunder shall be
due and payable in full, and the Term Loan shall mature, if not earlier in
accordance with this Agreement, on the Term Loan Maturity Date. 

               
(b)     Payment of principal (in addition to the interest
payments in Section 2.7) and all other amounts outstanding under the Term
Loan shall be made as follows:

	               
	(i)     $33,333.33 per month shall be due and payable,
	beginning December 1, 2005 and
	continuing on the first day of each month thereafter through the end of the
	Term; and 

	               
	(ii)     the unpaid principal of the Term Loan and all
	other Obligations under the Term Loan shall be due and payable in full, if
	not earlier in accordance with this Agreement, on the earlier of (i) the
	occurrence of an Event of Default if required pursuant hereto or Lender's
	demand upon an Event of Default, (ii) the Termination Date, and (iii) the
	last day of the Term (such earlier date being the "Term Loan Maturity
	Date").

       
2.9     
Promise to Pay; Manner of Payment

               
Borrower absolutely and unconditionally promises to pay principal, interest and
all other amounts payable hereunder, or under any other Loan Document, without
any right of rescission and without any deduction whatsoever, including any
deduction for any setoff, counterclaim or recoupment, and notwithstanding any
damage to, defects in or destruction of the Collateral or any other event,
including obsolescence of any property or improvements. All payments made by
Borrower (other than payments automatically paid through Advances under the
Revolving Facility as provided herein), shall be made only by wire transfer on
the date when due, without offset or counterclaim, in U.S. Dollars, in
immediately available funds to such account as may be indicated in writing by
Lender to Borrower from time to time. Any such payment received after 2:00 p.m.
(Eastern Time) on the date when due shall be deemed received on the following
Business Day. Whenever any payment hereunder shall be stated to be due or shall
become due and payable on a day other than a Business Day, the due date thereof
shall be extended to, and such payment shall be made on, the next succeeding
Business Day, and such extension of time in such case shall be included in the
computation of payment of any interest (at the interest rate then in effect
during such extension) and/or fees, as the case may be.

       
2.10     Repayment of Excess Advances

               
Any balance of Advances under the Revolving Facility outstanding at any time in
excess of the lesser of the Revolving Facility Cap or the Availability shall be
immediately due and payable by Borrower without the necessity of any demand, at
the Payment Office, whether or not a Default or Event of Default has occurred or
is continuing and shall be paid in the manner specified in Section 2.9.

        
2.11     Other Mandatory Prepayments

5

               
In addition to and without limiting any provision of any Loan Document:

               
(a)     if a Change of Control occurs, on or prior to the
first Business Day following the date of such Change of Control, Borrower shall
prepay the Loans, including, without limitation, all outstanding Advances, the
Term Loan and all other Obligations, in full in cash together with accrued
interest thereon to the date of prepayment and all other amounts owing to Lender
under the Loan Documents; 

               
(b)     if any Borrower (i) sells any of its assets or
properties, other than in the ordinary course of its business, (ii) sells or
issues any subordinated debt other than the transactions set forth on Schedule
2.11, receives any property damage insurance award which is not used to repair
or replace the property covered thereby or incurs any Indebtedness except for
Permitted Indebtedness, then it shall apply 100% of the proceeds thereof to the
prepayment of the Loans together with accrued interest thereon and all other
Obligations owing to Lender under the Loan Documents, such payment to be applied
at such time and in such manner and order as Lender shall decide in its sole
discretion; and

               
(c)     with respect to each Excess Cash Flow Period,
Borrower shall furnish Lender with a written calculation of Excess Cash Flow for
the Excess Cash Flow Period then ended, and Borrower shall pay to Lender an
amount equal to the Excess Cash Flow Percentage multiplied by the Borrower's
Excess Cash Flow for such Excess Cash Flow Period. Such payments shall be made
no later than fifteen (15) calendar days after the delivery to Lender of the
Borrower's financial statements for the last month of each Excess Cash Flow
Period, but in any event not later than forty-five (45) calendar days after the
end of each Excess Cash Flow Period; provided, however, that such
payments are to be applied to the Obligations relating to the Term Loan at such
time and in such manner and order as Lender shall decide in its sole discretion.

        2.12    
Payments by Lender

               
Should any amount required to be paid under any Loan Document be unpaid, such
amount may be paid by Lender, which payment shall be deemed a request for an
Advance under the Revolving Facility as of the date such payment is due, and
Borrower irrevocably authorizes disbursement of any such funds to Lender by way
of direct payment of the relevant amount, interest or Obligations. No payment or
prepayment of any amount by Lender or any other Person shall entitle any Person
to be subrogated to the rights of Lender under any Loan Document unless and
until the Obligations have been fully performed and paid irrevocably in cash and
this Agreement has been terminated. Any sums expended by Lender as a result of
Obligor's or Guarantor's failure to pay, perform or comply with any Loan
Document or any of the Obligations may be charged to Borrower's account as an
Advance under the Revolving Facility and added to the Obligations.

        2.13    
Grant of Security Interest; Collateral

               
(a)     To secure the payment and performance of the
Obligations, each Obligor hereby grants to Lender a continuing security interest
in and Lien upon, and pledges to Lender, all of its right, title and interest in
and to the following (collectively and each individually, the "Collateral"),
which security interest is intended to be a first priority security interest:

6

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

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

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

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

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

               
(c)     In addition to the foregoing, to secure the payment
and performance of the Obligations, Corporate Guarantor has pledged to Lender
all of the securities Corporate Guarantor owns in Borrower pursuant to the Stock
Pledge Agreement. 

               
(d)     Upon the execution and delivery of this Agreement,
and upon the proper filing of the necessary financing statements recordation of
the Collateral Patent, Trademark and Copyright Assignment in the United States
Patent and Trademark Office and/or the United States Copyright Office, and
proper delivery of the necessary stock certificates, without any further action,
Lender will have a 

7

good, valid and perfected first priority Lien and security
interest in the Collateral, subject to no transfer or other restrictions or
Liens of any kind in favor of any other Person except for Permitted Liens. No
financing statement relating to any of the Collateral is on file in any public
office except those (i) on behalf of Lender, and/or (ii) in connection with
Permitted Liens. 

        2.14    
Collateral Administration

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

               
(b)     Each Obligor shall keep accurate and complete
records of its Accounts and all payments and collections thereon and shall
submit such records to Lender on such periodic bases as Lender may request. In
addition, if Accounts of Borrower in an aggregate face amount in excess of
$25,000 become ineligible because they fall within one of the specified
categories of ineligibility set forth in the definition of Eligible Receivables,
Borrower shall notify Lender of such occurrence on the third Business Day after
Borrower or any one of its officers, directors or members of senior management
becomes aware of it and the Borrowing Base shall thereupon be adjusted to
reflect such occurrence. If requested by Lender, Borrower shall execute and
deliver to Lender formal written assignments of all of its Accounts weekly or
daily as Lender may request, including all Accounts created since the date of
the last assignment, together with copies of claims, invoices and/or other
information related thereto. To the extent that collections from such assigned
accounts exceed the amount of the Obligations, such excess amount shall not
accrue interest in favor of Borrower, but Lender shall remit the amount of such
excess to Borrower within two Business Days. 

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

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

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

               
(f)     Each Obligor (i) shall provide prompt written notice
to its current bank to transfer all items, collections and remittances to the
Concentration Account, (ii) shall provide prompt 

8

written notice to each Account Debtor that Lender has been
granted a lien and security interest in, upon and to all Accounts applicable to
such Account Debtor and shall direct each Account Debtor to make payments to the
appropriate Lockbox Account, and each Obligor hereby authorizes Lender, upon any
failure to send such notices and directions within ten calendar days after the
date of this Agreement (or ten calendar days after the Person becomes an Account
Debtor), to send any and all similar notices and directions to such Account
Debtors, and (iii) shall do anything further that may be lawfully required by
Lender to create and perfect Lender's lien on any collateral and effectuate the
intentions of the Loan Documents. At Lender's request, each Obligor shall
immediately deliver to Lender all items for which Lender must receive possession
to obtain a perfected security interest and all notes, certificates, and
documents of title, Chattel Paper, warehouse receipts, Instruments, and any
other similar instruments constituting Collateral.

        2.15    
Power of Attorney

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

        2.16    
Evidence of Loans

                   
(a)     Lender shall maintain, in accordance with its usual
practice, electronic or written records evidencing the indebtedness and
obligations to such Lender resulting from each Loan made by such Lender from
time to time, including without limitation, the amounts of principal and
interest payable and paid to such Lender from time to time under this Agreement.

                   
(b)     The entries made in the electronic or written
records maintained pursuant to this Section 2.16 (the "Register") shall
be prima facie evidence of the existence and amounts of the obligations and
indebtedness therein recorded; provided, however, that the failure
of the Lender to maintain such records or any error therein shall not in any
manner affect the obligations of the Borrower to repay the Loans or Obligations
in accordance with their terms.

                   
(c)     Lender will account to Borrower monthly with a
statement of Advances under the Revolving Facility, and any charges and payments
made pursuant to this Agreement, and in the absence of manifest error, such
accounting rendered by Lender shall be deemed final, binding and conclusive
unless Lender is notified by Borrower in writing to the contrary within fifteen
calendar days 

9

of Receipt of each accounting, which notice shall be deemed
an objection only to items specifically objected to therein.

                   
(d)     The Borrower agrees that:

                           
(i)     upon written notice by Lender to the Borrower that a
promissory note or other evidence of indebtedness is requested by Lender to
evidence the Loans and other Obligations owing or payable to, or to be made by,
such Lender, the Borrower shall promptly execute and deliver to Lender an
appropriate promissory note or notes in form and substance reasonably acceptable
to the Lender and Borrower (and in any event within five Business Days of any
such acceptable request), payable to the order of Lender in a principal amount
equal to the amount of the Loans owing or payable to Lender;

                           
(ii)     all references to Notes in the Loan Documents shall
mean Notes, if any, to the extent issued (and not returned to the Borrower for
cancellation) hereunder, as the same may be amended, modified, divided,
supplemented and/or restated from time to time; and

                           
(iii)     upon Lender's written request, and in any event
within five Business Days of any such acceptable request, Borrower shall execute
and deliver to Lender new notes and/or divide the notes in exchange for then
existing notes in such smaller amounts or denominations as Lender shall specify
in its sole and absolute discretion; provided, that the aggregate
principal amount of such new Notes shall not exceed the aggregate principal
amount of the Notes outstanding at the time such request is made; and 
provided, further, that such notes that are to be replaced shall then
be deemed no longer outstanding hereunder and replaced by such new notes and
returned to the Borrower within a reasonable period of time after Lender's
receipt of the replacement notes.

III.     FEES AND
OTHER CHARGES

       
3.1     Commitment Fee

               
On or before the Closing Date, Borrower shall pay to Lender a nonrefundable
commitment fee of $75,000. Lender acknowledges that Borrower has previously paid
$50,000 towards the above nonrefundable commitment fee.

       
3.2     Unused Line Fee

               
Borrower shall pay to Lender monthly an unused line fee (the "Unused Line
Fee") in an amount equal to 0.021% per month of the difference derived by
subtracting (i) the daily average amount of the balances under the Revolving
Facility outstanding during the preceding month, from (ii) the Revolving
Facility Cap. The Unused Line Fee shall be payable monthly in arrears on the
first day of each successive calendar month (starting with the month in which
the Closing Date occurs). 

       
3.3     Collateral Management Fee

               
Borrower shall pay Lender as additional interest a monthly collateral management
fee (the "Collateral Management Fee") equal to 0.0625% per month of the
Fee Facility Cap. The 

10

Collateral Management Fee shall be payable monthly in arrears
on the first day of each successive calendar month (starting with the month in
which the Closing Date occurs). 

       
3.4     Computation of Fees; Lawful
Limits

               
All fees hereunder shall be computed on the basis of a year of 360 days and for
the actual number of days elapsed in each calculation period, as applicable. In
no contingency or event whatsoever, whether by reason of acceleration or
otherwise, shall the interest and other charges paid or agreed to be paid to
Lender for the use, forbearance or detention of money hereunder exceed the
maximum rate permissible under applicable law which a court of competent
jurisdiction shall, in a final determination, deem applicable hereto. If, due to
any circumstance whatsoever, fulfillment of any provision hereof, at the time
performance of such provision shall be due, shall exceed any such limit, then,
the obligation to be so fulfilled shall be reduced to such lawful limit, and, if
Lender shall have received interest or any other charges of any kind which might
be deemed to be interest under applicable law in excess of the maximum lawful
rate, then such excess shall be applied first to any unpaid fees and charges
hereunder, then to unpaid principal balance owed by Borrower hereunder, and if
the then remaining excess interest is greater than the previously unpaid
principal balance, Lender shall promptly refund such excess amount to Borrower
and the provisions hereof shall be deemed amended to provide for such
permissible rate. The terms and provisions of this Section 3.4 shall
control to the extent any other provision of any Loan Document is inconsistent
herewith.

       
3.5     Default Rate of Interest

               
Upon the occurrence and during the continuation of an Event of Default, the
Applicable Rate of interest in effect at such time with respect to the
Obligations shall be increased by 5.0% per annum (the "Default Rate").

 

IV.    
CONDITIONS PRECEDENT

       
4.1     Conditions to Initial
Advance, Funding of the Term Loan, and Closing

               
The obligations of Lender to consummate the transactions contemplated herein and
to make the initial Advance under the Revolving Facility (the "Initial
Advance") and to fund the Term Loan, are subject to the satisfaction, in the
sole judgment of Lender, of the following:

               
(a)     Each Obligor shall have delivered to Lender (A) the
Loan Documents to which it is a party, each duly executed by an authorized
officer of such Obligor and the other parties thereto, (B) a Borrowing
Certificate for the Initial Advance under the Revolving Facility executed by an
authorized officer of Borrower, (C) audited annual consolidated and
consolidating financial statements of Borrower for Borrower's most recently
ended fiscal year, including notes thereto, consisting of a balance sheet at the
end of such completed fiscal year and the related statements of income, retained
earnings, cash flows and owner's equity for such completed fiscal year, which
financial statements shall be prepared and certified without qualification by an
independent certified public accounting firm reasonably satisfactory to
Lender/in accordance with GAAP consistently applied with prior periods, and (D)
unaudited consolidated and consolidating financial statements of Borrower
consisting of a balance sheet and statements of income, retained earnings, cash
flows and owner's equity for the period from the 

11

beginning of the current fiscal year through the end of the
most recently ended calendar month, which financial statements shall be prepared
in accordance with GAAP consistently applied with prior periods;

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

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

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

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

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

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

12

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

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

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

               
(k)     Borrower shall have not less than $800,000 of
Available Cash on hand.

               
(l)     Borrower shall have executed and filed IRS Form 8821
with the appropriate office of the Internal Revenue Service; 

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

               
(n)     Borrower shall have issued a convertible debenture
in favor of Seller in the amount of $5,000,000 in a form, and under terms and
conditions, acceptable to the Lender in its sole discretion;

               
(o)     Borrower shall have issued subordinated notes in
favor of the Seller in the principal amount equal to $5,000,000 and $1,000,000,
respectively, on terms and conditions acceptable to the Lender in its sole
discretion; 

               
(p)     Borrower shall have received a minimum equity
infusion of $1,500,000 in a form, and under terms and conditions, acceptable to
the Lender in its sole discretion; 

               
(q)     Lender shall have received all amounts from the
participants necessary to fund the participants' portion of the Term Loan as set
forth in the Participation Agreement; 

               
(r)     Lender shall have received a copy of an order
entered in the bankruptcy case for InterBank Funding Corp. (Case No.
02-41590-br1in the Southern District of New York) approving the revised terms of
the Stock Purchase Agreement and otherwise in form and detail satisfactory to
Lender (the "Sale Order"); and

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

13

       
4.2     Conditions to Each Advance 

               
The obligations of Lender to make any Advance (including, without limitation,
the Initial Advance) are subject to the satisfaction, in the sole judgment of
Lender, of the following additional conditions precedent:

               
(a)     Borrower shall have delivered to Lender a Borrowing
Certificate for the Advance executed by an authorized officer of Borrower, which
shall constitute a representation and warranty by Borrower as of the Borrowing
Date of such Advance that the conditions contained in this Section 4.2
have been satisfied; provided, however, that any determination as
to whether to fund Advances or extensions of credit shall be made by Lender in
its sole discretion;

               
(b)     each of the representations and warranties made by
each Obligor in or pursuant to this Agreement shall be accurate, before and
after giving effect to such Advance, and no Default or Event of Default shall
have occurred or be continuing or would exist after giving effect to the Advance
under the Revolving Facility on such date;

               
(c)     immediately after giving effect to the requested
Advance, the aggregate outstanding principal amount of Advances under the
Revolving Facility shall not exceed either the Availability or the Revolving
Facility Cap;

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

               
(e)     Lender shall have received all fees, charges and
expenses payable to Lender on or prior to such date pursuant to the Loan
Documents; and 

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

V.    
REPRESENTATIONS AND WARRANTIES

               
Each Obligor, jointly and severally, represents and warrants as of the date
hereof, the Closing Date, each Borrowing Date and, if applicable, the date of
funding of the Term Loan as follows: 

       
5.1     Organization and Authority

               
Each Obligor is a corporation duly organized, validly existing and in
good standing under the laws of its state of formation. Each Obligor (i) has all
requisite corporate or entity power and authority to own its properties and
assets and to carry on its business as now being conducted and as contemplated
in the Loan Documents, (ii) is duly qualified to do business in every
jurisdiction in which failure so to qualify would reasonably be likely to have a
Material Adverse Effect, and (iii) has all requisite power and authority (A) to
execute, deliver and perform the Loan Documents to which it is a party, (B) to
borrow hereunder, (C) to consummate the transactions contemplated under the Loan

14

Documents, and (D) to grant the Liens with regard to the
Collateral pursuant to the Security Documents to which it is a party. No Obligor
is an "investment company" registered or required to be registered under the
Investment Company Act of 1940, as amended, or is controlled by such an
"investment company."

       
5.2     Loan Documents

               
The execution, delivery and performance by each Obligor of the Loan Documents to
which it is a party, and the consummation of the transactions contemplated
thereby, (i) have been duly authorized by all requisite action of each such
Person and have been duly executed and delivered by or on behalf of each such
Person; (ii) do not violate any provisions of (A) applicable law, statute, rule,
regulation, ordinance or tariff, (B) any order of any Governmental Authority
binding on any such Person or any of their respective properties, or (C) the
certificate of incorporation or bylaws (or any other equivalent governing
agreement or document) of any such Person, or any agreement between any such
Person and its respective stockholders, members, partners or equity owners or
among any such stockholders, members, partners or equity owners; (iii) except as
set forth in Schedule 5.2, are not in conflict with, and do not result in
a breach or default of or constitute an event of default, or an event, fact,
condition or circumstance which, with notice or passage of time, or both, would
constitute or result in a conflict, breach, default or event of default under,
any indenture, agreement or other instrument to which any such Person is a
party, or by which the properties or assets of such Person are bound;
(iv) except as set forth therein, will not result in the creation or imposition
of any Lien of any nature upon any of the properties or assets of any such
Person, and (v) except as set forth on Schedule 5.2, do not require the
consent, approval or authorization of, or filing, registration or qualification
with, any Governmental Authority or any other Person. When executed and
delivered, each of the Loan Documents to which each Obligor is a party will
constitute the legal, valid and binding obligation of each Obligor, enforceable
against each Obligor in accordance with its terms, subject to the effect of any
applicable bankruptcy, moratorium, insolvency, reorganization or other similar
law affecting the enforceability of creditors' rights generally and to the
effect of general principles of equity which may limit the availability of
equitable remedies (whether in a proceeding at law or in equity).

       
5.3     Subsidiaries, Capitalization
and Ownership Interests

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

15

       
5.4     Properties

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

       
5.5     Other Agreements

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

       
5.6     Litigation

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

       
5.7     Hazardous Materials

               
Each Obligor is in compliance in all material respects with all applicable
Environmental Laws. Neither Obligor has been notified of any action, suit,
proceeding or investigation (i) relating in any way to compliance by or
liability of such Obligor under any Environmental Laws, (ii) which otherwise
deals with any Hazardous Substance or any Environmental Law, or (iii) which 

16

seeks to suspend, revoke or terminate any license, permit or
approval necessary for the generation, handling, storage, treatment or disposal
of any Hazardous Substance.

       
5.8     Potential Tax Liability; Tax
Returns; Governmental Reports; NOL

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

               
(b)     Except as disclosed in Schedule 5.8, neither
Obligor (i) has filed all federal, state, foreign (if applicable) and local tax
returns and other reports which are required by law to be filed by such Obligor,
(ii) has paid all taxes, assessments, fees and other governmental charges,
including, without limitation, payroll and other employment related taxes, in
each case that are due and payable, except only for items that such Obligor is
currently contesting in good faith with adequate reserves under GAAP, which
contested items are described on Schedule 5.8. 

               
(c)     At the Closing Date, Borrower possesses no less than
$8,100,000 in valid net operating loss (NOL) carryforwards which the Borrower
will be able to apply against Borrower's taxable income during the Term.

       
5.9     Financial Statements and
Reports

               
All financial statements and financial information relating to each Obligor that
have been or may hereafter be delivered to Lender by such Obligor are accurate
and complete and have been prepared in accordance with GAAP consistently applied
with prior periods. Neither Obligor has any material obligations or liabilities
of any kind not disclosed in such financial information or statements, and since
the date of the most recent financial statements submitted to Lender, there has
not occurred any Material Adverse Change, Material Adverse Effect to such
Obligor's knowledge, any other event or condition that would reasonably be
likely to have a Material Adverse Effect.

       
5.10     Compliance with Law

               
To the best of each Obligor's knowledge after making all due inquiry, each
Obligor (i) is in compliance with all laws, statutes, rules, regulations,
ordinances and tariffs of any Governmental Authority applicable to such Obligor
and/or such Obligor's business, assets or operations, including, without
limitation, ERISA, and (ii) is not in violation of any order of any Governmental
Authority or other board or tribunal, except where noncompliance or violation
could not reasonably be expected to have a Material Adverse Effect. There is no
event, fact, condition or circumstance which, with notice or passage of time, or
both, would constitute or result in any noncompliance with, or any violation of,
any of the foregoing, in each case except where noncompliance or violation could
not reasonably be expected to have a Material Adverse Effect. Neither Obligor
has received any notice that such Obligor is not in compliance in any respect
with any of the requirements of any of the foregoing. Neither Obligor has (a)
engaged in any Prohibited Transactions as defined in Section 406 of ERISA and
Section 4975 of the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder, (b) failed to meet any applicable minimum
funding requirements under Section 302 of ERISA in respect of 

17

its plans and no funding requirements have been postponed or
delayed, (c) knowledge of any amounts due but unpaid to the Pension Benefit
Guaranty Corporation, or of any event or occurrence which would cause the
Pension Benefit Guaranty Corporation to institute proceedings under Title IV of
ERISA to terminate any of the employee benefit plans, (d) fiduciary
responsibility under ERISA for investments with respect to any plan existing for
the benefit of Persons other than its employees or former employees, or (e)
withdrawn, completely or partially, from any multi-employer pension plans so as
to incur liability under the MultiEmployer Pension Plan Amendments of 1980. With
respect to each Obligor, there exists no event described in Section 4043 of
ERISA, excluding Subsections 4043(b)(2) and 4043(b)(3) thereof, for which the
thirty (30) day notice period contained in 12 C.F.R. §  2615.3 has not been
waived. 

       
5.11     Intellectual Property

               
Except as set forth on Schedule 5.11, Obligors do not own, and are not a
party to, any patents, patent applications, trademark registrations, trademark
applications, registered copyrights, copyright applications, trade names, or any
material licenses of any registered patents, trademarks or copyrights
(collectively, the "Intellectual Property"). Each Obligor shall update 
Schedule 5.11 within 10 days after the end of any month in which such
Obligor acquires rights in new Intellectual Property.
All of the Intellectual Property is in full force and
effect and not in known conflict with the rights of others.

       
5.12     Licenses and Permits; Labor

               
Each Obligor is in compliance, in all material respects
and where non-compliance would not have a Material Adverse Effect on its
business, with and has all Permits necessary or required by applicable law or
Governmental Authority for the operation of its businesses. All of the foregoing
are in full force and effect and not in known conflict with the rights of
others. Neither Obligor
is (i) in breach of or default under the provisions of any of the foregoing, nor
is there any event, fact, condition or circumstance which, with notice or
passage of time or both, would constitute or result in a conflict, breach,
default or event of default under, any of the foregoing which, if not remedied
within any applicable grace or cure period would reasonably be likely to have a
Material Adverse Effect, (ii) a party to or subject to any agreement, instrument
or restriction that is so unusual or burdensome that it might have a Material
Adverse Effect, and/or (iii) and has not been, involved in any labor dispute,
strike, walkout or union organization which would reasonably be likely to have a
Material Adverse Effect.

       
5.13     No Default

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

       
5.14     Disclosure

               
No Loan Document nor any other agreement, document, certificate, or statement
furnished to Lender by or on behalf of Obligors in connection with the
transactions contemplated by the Loan Documents, nor any representation or
warranty made by either Obligor in any Loan Document, contains any untrue
statement of material fact or omits to state any fact necessary to make the
statements 

18

therein not materially misleading. There is no fact known to
either Obligor which has not been disclosed to Lender in writing which would
reasonably be likely to have a Material Adverse Effect. 

       
5.15     Existing Indebtedness;
Investments, Guarantees and Certain Contracts

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

       
5.16     Other Agreements

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

       
5.17     Insurance

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

       
5.18     Names; Location of Offices,
Records and Collateral

               
During the preceding five years, each Obligor has conducted business under or
used any name (whether corporate, partnership or assumed) other than as shown on
Schedule 5.18A. Each Obligor is the sole owner of all of its names listed
on Schedule 5.18A, and any and all business done and invoices issued in
such names are such Obligor's sales, business and invoices. Each trade name of
each Obligor represents a division or trading style of such Obligor. Borrower
maintains its places of business and chief executive offices only at the
locations set forth on Schedule 5.18B, and all Accounts of Obligors
arise, originate and are located, and all of the Collateral, including Inventory
and all books and records in connection therewith or in any way relating thereto
or evidencing the Collateral are located and shall only be located, in and at
such locations. All of the Collateral is located only in the continental United
States.

19

       
5.19     Non-Subordination

               
The Obligations are not subordinated in any way to any other obligations of
Obligors or to the rights of any other Person.

       
5.20     Accounts and Inventory

               
(a)     In determining which Accounts are Eligible
Receivables, Lender may rely on all statements and representations made by
Borrower with respect to any Account. Unless otherwise indicated in writing to
Lender, (i) each Account of Borrower is genuine and in all respects what it
purports to be and is not evidenced by a judgment, (ii) each Account of Borrower
arises out of a completed, bona fide sale and delivery of goods or rendering of
services by Borrower in the ordinary course of business and in accordance with
the terms and conditions of all purchase orders, contracts, certifications,
participations and other documents relating thereto or forming a part of the
contract between Borrower and the Account Debtor, (iii) each Account of Borrower
is for a liquidated amount maturing as stated in a claim or invoice covering
such sale of goods or rendering of services, a copy of which has been furnished
or is available to Lender, (iv) each Account of Borrower together with Lender's
security interest therein, is not and will not be in the future (by voluntary
act or omission by Borrower), subject to any offset, lien, deduction, defense,
dispute, counterclaim or other adverse condition, is absolutely owing to
Borrower and is not contingent in any respect or for any reason, (v) there are
no facts, events or occurrences which in any way impair the validity or
enforceability of any Account of Borrower or tend to reduce the amount payable
thereunder from the face amount of the claim or invoice and statements delivered
to Lender with respect thereto, (vi) (A) the Account Debtor under each Account
of Borrower had the capacity to contract at the time any contract or other
document giving rise thereto was executed and (B) each such Account Debtor is
solvent, (vii) to the best of the Borrower's knowledge, there are no proceedings
or actions which are threatened or pending against any Account Debtor under any
Account of Borrower which will likely result in any Material Adverse Change in
such Account Debtor's financial condition or the collectability thereof, (viii)
each Account of Borrower has been billed and forwarded to the Account Debtor for
payment in accordance with applicable laws and is in compliance and conformance
with any requisite procedures, requirements and regulations governing payment by
such Account Debtor with respect to such Account, and, (ix) Borrower has
obtained and currently has all Permits necessary in the generation of each
Account of Borrower.

               
(b)     In determining which Inventory is Eligible
Inventory, Lender may rely on all statements and representations made by
Borrower with respect to any Inventory. Unless otherwise indicated in writing to
Lender (including, without limitation, any Borrowing Certificate), (i) Borrower
has at all times maintained correct and accurate records itemizing and
describing the kind, type, quality and quantity of Inventory in all material
respects, Borrower's cost therefore and daily withdrawals therefrom and
additions thereto; (b) has not removed any Inventory from the locations set
forth or permitted herein, except for sales of Inventory in the ordinary course
of Borrower's business and except to move Inventory directly from one location
set forth or permitted herein to another such location; (c) has produced, used,
stored, shipped and maintained Inventory with all reasonable care and caution
and in accordance with applicable standards of any insurance and in conformity
with applicable laws (including the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations and orders related
thereto); (d) except as set forth on Schedule 5.20, has not sold
Inventory to any customer on approval, or any other basis which entitles the
customer to return or may obligate Borrower to repurchase such Inventory; (e)
has kept Inventory in good and marketable condition; and (f) has not 

20

acquired or accepted any Inventory on consignment or approval
except as set forth on Schedule 5.20 and (g) has not permitted Inventory
to be subject to any Lien except Liens in favor of Lender.

       
5.21     Survival

               
Each Obligor makes the representations and warranties contained herein with the
knowledge and intention that Lender is relying and will rely thereon. All such
representations and warranties will survive the execution and delivery of this
Agreement and the making of the Advances under the Revolving Facility and the
funding of the Term Loan until all Obligations have indefeasibly paid in full
and the Lender has no further obligation to make any further Loans or other
financial accommodations to Borrower. 

VI.    
AFFIRMATIVE COVENANTS

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

       
6.1     Financial Statements,
Borrowing Certificate, Financial Reports and Other Information

               
(a)     Financial Reports. In addition to providing
the Borrowing Certificate in accordance with Section 2.4, Obligors shall
furnish to Lender (i) upon filing thereof with the Securities and Exchange
Commission (provided such filing is within the time prescribed in the securities
laws and regulations) and in any event within 105 calendar days after the end of
each fiscal year of Obligors, audited annual consolidated and consolidating
financial statements of Obligors, including the notes thereto, consisting of a
consolidated and consolidating balance sheet at the end of such completed fiscal
year and the related consolidated and consolidating statements of income,
retained earnings, cash flows and owners' equity for such completed fiscal year,
which financial statements shall be prepared and certified without qualification
as to scope by an independent certified public accounting firm satisfactory to
Lender and accompanied by related management letters, if available, and (ii) as
soon as available and in any event within twenty-five calendar days after the
end of each calendar month, unaudited consolidated and consolidating financial
statements of Obligors consisting of a balance sheet and statements of income,
retained earnings, cash flows and owners' equity as of the end of the
immediately preceding calendar month. All such financial statements shall be
prepared in accordance with GAAP consistently applied with prior periods. With
each such financial statement, Obligors shall also deliver a certificate of its
chief financial officer in substantially the form of Exhibit B hereto (a
"Compliance Certificate") stating that (A) such person has reviewed the relevant
terms of the Loan Documents and the condition of Obligors, (B) no Default or
Event of Default has occurred or is continuing, or, if any of the foregoing has
occurred or is continuing, specifying the nature and status and period of
existence thereof and the steps taken or proposed to be taken with respect
thereto, and (C) Borrower is in compliance with all financial covenants attached
as Annex I hereto. Such certificate shall be accompanied by the calculations
necessary to show compliance with the financial covenants in a form satisfactory
to Lender.

               
(b)     Other Materials. 
Obligors shall
furnish to Lender as soon as available, and in any event (i) within ten calendar
days after the filing thereof with the Securities and Exchange Commission,
copies of such financial statements (other than those required to be delivered
pursuant to Section 6.1(a)) prepared by, for or on behalf of 
Obligors and any
other notes, reports and other materials 

21

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

               
(c)     Notices. 
Obligors shall
promptly, and in any event within two Business Days after either Obligor or any
authorized officer of either Obligor obtains knowledge thereof, notify Lender in
writing of (i) any pending or threatened litigation, suit, investigation,
arbitration, dispute resolution proceeding or administrative proceeding brought
or initiated by either Obligor or otherwise affecting or involving or relating
to Borrower or any of its property or assets to the extent (A) the amount in
controversy exceeds $25,000, or (B) to the extent any of the foregoing seeks
injunctive or declarative relief, (ii) any Default or Event of Default, which
notice shall specify the nature and status thereof, the period of existence
thereof and what action is proposed to be taken with respect thereto, (iii) any
other development, event, fact, circumstance or condition that would reasonably
be likely to have a Material Adverse Effect, in each case describing the nature
and status thereof and the action proposed to be taken with respect thereto,
(iv) any notice received by either Obligor from any payor of a claim, suit or
other action such payor has, claims or has filed against such Obligor, (v) any
matter(s) affecting the value, enforceability or collectability of any of the
Collateral, including, without limitation, claims or disputes in the amount of
$25,000 or more, singly or in the aggregate, in existence at any one time, (vi)
any notice given by either Obligor to any other lender of such Obligor, which
notice to Lender shall be accompanied by a copy of the applicable notice given
to the other lender, (vii) receipt of any notice or request from any
Governmental Authority or governmental payor regarding any liability or claim of
liability, (viii) receipt of any notice by either Obligor regarding termination
of any manager of any facility owned, operated or leased by such Obligor, (ix)
any Account becoming evidenced or secured by an Instrument or Chattel Paper,
and/or (x) receipt of any notice from any Account Debtor under a material
contract notifying such Obligor of a material breach under or termination of
such contract.

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

               
(e)     Operating Budget. Borrower shall furnish to
Lender on or prior to the Closing Date and for each fiscal year of Borrower
thereafter not less than thirty calendar days prior to the 

22

commencement of such fiscal year, consolidated and
consolidating month by month projected operating budgets, annual projections,
profit and loss statements, balance sheets and cash flow reports of and for
Borrower for such upcoming fiscal year (including an income statement for each
month and a balance sheet as at the end of the last month in each fiscal
quarter), in each case prepared in accordance with GAAP consistently applied
with prior periods

       
6.2     Payment of Obligations

               
Borrower shall make full and timely indefeasible payment in cash of the
principal of and interest on the Loans, Advances and all other Obligations. 

       
6.3     Conduct of Business and
Maintenance of Existence and Assets

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

       
6.4     Compliance with Legal and
Other Obligations

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

       
6.5     Insurance

               
Each Obligor shall (i) keep all of its insurable properties and assets
including, without limitation, Inventory that is in transit (whether by vessel,
air or land) adequately insured in all material respects against losses, damages
and hazards as are customarily insured against by businesses engaging in similar
activities or owning similar assets or properties and at least the minimum
amount required by applicable law, including, without limitation, professional
liability insurance, as applicable; and maintain general public liability
insurance at all times against liability on account of damage to persons and 

23

property having such limits, deductibles, exclusions and
co-insurance and other provisions as are customary for a business engaged in
activities similar to those of such Obligor; and (ii) maintain insurance under
all applicable workers' compensation laws; all of the foregoing insurance
policies to (A) be satisfactory in form and substance to Lender, (B) name Lender
as loss payee and additional insured thereunder, and (C) expressly provide that
they cannot be altered, amended, modified or canceled without thirty Business
Days prior written notice to Lender and that they inure to the benefit of Lender
notwithstanding any action or omission or negligence of or by such Obligor or
any insured thereunder. 

       
6.6     True Books

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

       
6.7     Inspections; Periodic Audits
and Reappraisals

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

       
6.8     Further Assurances; Post
Closing 

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

       
6.9     Payment of Indebtedness

               
Except as otherwise prescribed in the Loan Documents, Obligors shall pay,
discharge or otherwise satisfy at or before maturity (subject to applicable
grace periods and, in the case of trade payables, to ordinary course payment
practices) all of its material obligations and liabilities, except when 

24

the amount or validity thereof is being contested in good
faith by appropriate proceedings and such reserves as Lender may deem proper and
necessary in its sole discretion shall have been made, but in no event shall
such reserve exceed the amount of the obligations or liabilities so contested.

       
6.10     Lien Searches

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

       
6.11     Use of Proceeds

               
Borrower shall use the proceeds from the Revolving Facility and the Term Loan
only for the purposes set forth in the first "WHEREAS" clause of this Agreement.

       
6.12     Collateral Documents;
Security Interest in Collateral

               
Obligors shall (i) execute, obtain,
deliver, file, register and/or record any and all financing statements,
continuation statements, stock powers, instruments and other documents, or cause
the execution, filing, registration, recording or delivery of any and all of the
foregoing, that are necessary or required under law or otherwise or reasonably
requested by Lender to be executed, filed, registered, obtained, delivered or
recorded to create, maintain, perfect, preserve, validate or otherwise protect
the pledge of the Collateral to Lender and Lender's perfected first priority
Lien on the Collateral (and each Obligor 
irrevocably grants Lender the right, at
Lender's option, to file any or all of the foregoing), (ii) immediately upon
learning thereof, report to Lender any reclamation, return or repossession of
goods in excess of $10,000 (individually or in the aggregate), and (iii) defend
the Collateral and Lender's perfected first priority Lien thereon against all
claims and demands of all Persons at any time claiming the same or any interest
therein adverse to Lender, and pay all reasonable costs and expenses (including,
without limitation, in-house documentation and diligence fees and legal expenses
and reasonable attorneys' fees and expenses) in connection with such defense,
which may at Lender's discretion be added to the Obligations.

       
6.13     Right of First Refusal

               
If at any time either Obligor or any of their respective Affiliates (each, a "Credit
Party") receives from a third party an offer, term sheet or commitment or
makes a proposal accepted by any Person (each, an "Offer") which provides
for any type of debt financing to or for a Credit Party, such Credit Party, on
behalf of itself or such Affiliate, shall immediately notify such third party
making the offer of Lender's rights under this Section 6.13, and further
shall immediately notify Lender of the Offer in writing (including all material
terms of the Offer). Lender shall have fifteen calendar days after Receipt of
such notice (the "Option Period") to agree to provide similar financing
in the place of such Person upon substantially the same terms and conditions (or
terms more favorable to such Credit Party) as set forth in the Offer. Lender
shall notify Credit Party in writing of Lender's acceptance of the Offer
pursuant hereto (the "Acceptance Notice"), in which case Credit Party
shall obtain such financing from Lender and shall not accept the Offer from such
other Person. If no Acceptance Notice has been Received from Lender within the
Option Period, Credit Party may consummate the Offer with the other Person on
the terms and conditions set forth in the Offer (the "Transaction"); 
provided, however, that none of foregoing or any failure by Lender to
issue an Acceptance Notice shall be construed as a waiver of any of the terms,
covenants or conditions of any of the Loan Documents. If the Transaction is not

25

consummated on the terms set forth in the Offer or with the
Person providing the Offer or during the ninety calendar day period following
the expiration of the Option Period, Credit Party shall not be permitted to
consummate the Transaction without again complying with this Section 6.13.
The provisions of this Section 6.13 shall survive the payment in full of
the Obligations and termination of this Agreement for a period of six months.
For purposes of this Section 6.13, "Lender" shall include CapitalSource
Finance LLC and any of its parents, subsidiaries or Affiliates.

       
6.14     Taxes and Other Charges

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

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

       
6.15     Payroll Taxes

               
Without limiting or being limited by any other provision of any Loan Document,
Obligors at all times shall retain and use a Person acceptable to Lender to
process, manage and pay its payroll taxes and shall cause to be delivered to
Lender within ten calendar days after the end of each 

26

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

        6.16    
Inventory Covenants

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

VII.     NEGATIVE
COVENANTS

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

        7.1    
Financial Covenants

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

        7.2    
Permitted Indebtedness

               
Obligors shall not create, incur, assume or suffer to exist any Indebtedness,
except the following (collectively, "Permitted Indebtedness"): (i)
Indebtedness under the Loan Documents, (ii) any Indebtedness set forth on 
Schedule 7.2, (iii) Capitalized Lease Obligations incurred after the Closing
Date and Indebtedness incurred pursuant to purchase money Liens permitted by 
Section 7.3(v), provided that the aggregate amount of such Capitalized Lease
Obligations and purchase money indebtedness outstanding at any time shall not
exceed $50,000, (iv) Indebtedness in connection with advances made by a
stockholder in order to cure any default of the financial covenants set forth on
Annex I; provided, however, that such Indebtedness shall be
on an unsecured basis, subordinated in right of repayment and remedies to all of
the Obligations and to all of Lender's rights pursuant to a subordination
agreement in form and substance satisfactory to Lender; (v) accounts payable to
trade creditors and current operating expenses (other than for borrowed money)
which are not aged more than 120 calendar days from the billing date or more
than 30 days from the due date, in each case incurred in the ordinary course of
business and paid within such time period, unless the same are being contested
in good faith and by appropriate and lawful proceedings and such reserves, if
any, with respect thereto as are required 

27

by GAAP and deemed adequate by Obligors' independent
accountants shall have been reserved; (vi) borrowings incurred in the ordinary
course of business and not exceeding $25,000 individually or in the aggregate
outstanding at any one time, provided, however, that such
Indebtedness shall be on an unsecured basis, subordinated in right of repayment
and remedies to all of the Obligations and to all of Lender's rights pursuant to
a subordination agreement in form and substance satisfactory to Lender ; and
(vii) Permitted Subordinated Debt. Obligors shall not make prepayments on any
existing or future Indebtedness to any Person other than (i) to Lender, (ii) to
the extent permitted by the Subordination Agreement, or (iii) to the extent
specifically permitted by this Agreement or any subsequent agreement between
Obligors and Lender. 

       
7.3     Permitted Liens

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

       
7.4     Investments; New Facilities
or Collateral; Subsidiaries

               
Neither Obligor, directly or indirectly, shall (i) purchase, own, hold, invest
in or otherwise acquire obligations or stock or securities of, or any other
interest in, or all or substantially all of the assets of, any Person or any
joint venture, or (ii) make or permit to exist any loans, advances or guarantees
to or for the benefit of any Person or assume, guarantee, endorse, contingently
agree to purchase or otherwise become liable for or upon or incur any obligation
of any Person (other than those created by the Loan Documents and Permitted
Indebtedness and other than (A) trade credit extended in the ordinary course of
business, (B) advances for business travel and similar temporary advances made
in the ordinary course of business to officers, directors and employees, and (C)
the endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of 

28

business). Neither Obligor, directly or indirectly, shall
purchase, own, operate, hold, invest in or otherwise acquire any facility,
property or assets or any Collateral that is not located at the locations set
forth on Schedule 5.18B unless such Obligor shall first obtain the
written consent of the Lender, which consent may be withheld or given in the
Lender's Permitted Discretion. Neither Obligor 
shall have Subsidiaries other than those
Subsidiaries, if any, existing at Closing and set forth in Schedule 5.3.

       
7.5     Dividends; Redemptions

               
Neither Obligor 
shall (i) declare, pay or make any dividend
or Distribution on any shares of capital stock or other securities or interests
other than dividends or Distributions payable in its stock, of split-ups or
reclassifications of its stock, (ii) apply any of its funds, property or assets
to the acquisition, redemption or other retirement of any capital stock or other
securities or interests or of any options to purchase or acquire any of the
foregoing (provided, however, that either Obligor may (1) redeem its capital
stock from terminated employees pursuant to, but only to the extent required
under the terms of the related employment agreements, and (2) pay or prepay
certain Permitted Indebtedness if allowed to do so under the terms and
conditions of the Master Subordination Agreement, as long as no Default or Event
of Default has occurred and is continuing or would be cause by or result
therefrom), (iii) otherwise make any payments or Distributions to any
stockholder, member, partner or other equity owner in such Person's capacity as
such, or (iv) make any payment of any management or service fee except as
permitted in writing by Lender in advance, and provided further, that Borrower
shall not make or suffer to exist any such payment described in (i) through (iv)
above if a Default or Event of Default has occurred and is continuing or would
result therefrom.

       
7.6     Transactions with Affiliates

               
Except as set forth in Schedule 7.6, neither Obligor
shall enter into or consummate any
transaction of any kind with any of its Affiliates or any Guarantor or any of
their respective Affiliates other than: (i) salary, bonus, employee stock option
and other compensation and employment arrangements with directors or officers in
the ordinary course of business, provided, that no payment of any bonus
shall be permitted if a Default or Event of Default has occurred and remains in
effect or would be caused by or result from such payment, (ii) Distributions and
dividends permitted pursuant to Section 7.5, (iii) transactions with
Lender or any Affiliate of Lender, and (iv) payments permitted under and
pursuant to written agreements entered into by and between either Obligor
and one or more of its Affiliates
that both (A) reflect and constitute transactions on overall terms at least as
favorable to such Obligor 
as would be the case in an arm's-length
transaction between unrelated parties of equal bargaining power, and (B) are
subject to such terms and conditions as determined by Lender in its sole
discretion; provided, that notwithstanding the foregoing neither Obligor
shall (W) enter into or consummate
any transaction or agreement pursuant to which it becomes a party to any
mortgage, note, indenture or guarantee evidencing any Indebtedness of any of its
Affiliates or otherwise to become responsible or liable, as a guarantor, surety
or otherwise, pursuant to agreement for any Indebtedness of any such Affiliate,
(X) make any payment to any of its Affiliates in excess of $25,000 without the
prior written consent of Lender, (Y) make any payment that is restricted or
prohibited by the Management Fee Subordination Agreement, or (Z) make any
payment for any present or future obligation of any Subsidiary or other
Affiliate of Borrower (including, without limitation any amounts owing by Low
Carb Creations, Inc. to (i) Wells Fargo Bank, N.A. (or any of its Affiliates) or
(ii) the Langdon Family Revocable Trust).

29

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

               
Neither Obligor 
shall (i) amend, modify, restate or change
its certificate of incorporation or formation or bylaws or similar charter
documents in a manner that would be adverse to Lender, (ii) change its fiscal
year unless such Obligor 
demonstrates to Lender's satisfaction
compliance with the covenants contained herein for both the fiscal year in
effect prior to any change and the new fiscal year period by delivery to Lender
of appropriate interim and annual pro forma, historical and current compliance
certificates for such periods and such other information as Lender may
reasonably request, (iii) without at least twenty (20) days prior written notice
to Lender, change its name or change its jurisdiction of organization; (iv)
amend, alter or suspend or terminate or make provisional in any material way,
any Permit without the prior written consent of Lender, which consent shall not
be unreasonably withheld, (v) wind up, liquidate or dissolve (voluntarily or
involuntarily) or commence or suffer any proceedings seeking or that would
result in any of the foregoing, or (vi) use any proceeds of any Advance for
"purchasing" or "carrying" "margin stock" as defined in Regulations U, T or X of
the Board of Governors of the Federal Reserve System. 

        
7.8     Truth of Statements

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

        
7.9     IRS Form 8821

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

        
7.10     Transfer of Assets

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

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

               
(b)     Either Obligor 
may arrange for warehousing, fulfillment or
storage of Inventory at locations not owned or leased by such Obligor in each
case in the ordinary course of business, provided that a Warehouse Waiver and
Consent and such other consents as are required by Lender are signed and
delivered to Lender with respect to any such location;

30

               
(c)     Either Obligor 
may license or sublicense Intellectual
Property or customer lists from third parties in the ordinary course of
business, provided, that such licenses or sublicenses shall not interfere
with the business or other operations of Borrower and that Borrower's rights,
title and/or interest in or to such Intellectual Property and customer lists and
interests therein are pledged to Lender as further security for the Obligations
and included as part of the Collateral; 

               
(d)     Each Obligor agrees not sell, transfer, amend or
dispose of any of its rights relating to (a) any registered Intellectual
Property (or any applications therefor), or (b) any other material Intellectual
Property, without first providing to the Lender written notice of its intent and
providing the Lender with the opportunity to object in writing within ten (10)
days of the receipt of such notice; and

               
(e)     Either Obligor 
may consummate such other sales or
dispositions of property or assets (including any sale or transfer or
disposition of all or any part of its assets and thereupon and within one year
thereafter rent or lease the assets so sold or transferred) only to the extent
prior written notice has been given to Lender and to the extent Lender has given
its prior written consent thereto, subject in each case to such conditions as
may be set forth in such consent.

        7.11    
Payment on Permitted Subordinated Debt

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

VIII.     EVENTS
OF DEFAULT

               
The occurrence of any one or more of the following shall constitute an "Event of
Default:"

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

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

               
(c)     any Obligor, Guarantor or other party thereto other
than Lender shall be in violation, breach or default of, or shall fail to
perform, observe or comply with any covenant, obligation or agreement set forth
in, any Loan Document and such violation, breach, default or failure shall not
be cured within the applicable period set forth in the applicable Loan Document;
provided that, with respect to the affirmative covenants set forth in 
Article VI (other than Sections 6.1(c), 6.2, 6.3, 6.5, 6.8, 6.9, 6.11,
and 6.16 for which there shall be no cure period), there shall be a fifteen
calendar day cure period 

31

commencing from the earlier of (i) Receipt by such Person of
written notice of such breach, default, violation or failure, and (ii) the time
at which such Person or any authorized officer thereof knew or became aware, or
should have known or been aware, of such failure, violation, breach or default,
but no Advances will be made during the cure period;

               
(d)     (i) any of the Loan Documents ceases to be in full
force and effect, or (ii) except as set forth herein or under any applicable
Loan Document, any Lien created thereunder ceases to constitute a valid
perfected first priority Lien on the Collateral in accordance with the terms
thereof, or Lender ceases to have a valid perfected first priority security
interest in any of the Collateral or any securities pledged to Lender pursuant
to the Security Documents;

               
(e)     one or more tax assessments, judgments or decrees is
rendered against any Obligor or Guarantor in an amount in excess of $25,000
individually or $50,000 in the aggregate, which is/are not satisfied, stayed,
vacated or discharged of record within thirty calendar days of being rendered or
is/are not subject to a good faith dispute for which adequate reserves have been
put aside, but no Advances will be made before the judgment is stayed, vacated
or discharged; 

               
(f)     (i) any default occurs, which is not cured or
waived, (x) in the payment of any amount with respect to any Indebtedness (other
than the Obligations) of any Obligor or Guarantor in excess of $25,000, (y) in
the performance, observance or fulfillment of any material provision contained
in any agreement, contract, document or instrument to which any Obligor or
Guarantor is a party or to which any of their properties or assets are subject
or bound under or pursuant to which any Indebtedness was issued, created,
assumed, guaranteed or secured and such default continues for more than any
applicable grace period or permits the holder of any Indebtedness to accelerate
the maturity thereof, or (z) in the performance, observance or fulfillment of
any provision contained in any agreement, contract, document or instrument
between any Obligor or Guarantor and Lender or any Affiliate of Lender (other
than the Loan Documents) and such default continues for more than any applicable
grace period (if any), or (ii) any Indebtedness of any Obligor or Guarantor is
declared to be due and payable or is required to be prepaid (other than by a
regularly scheduled payment) prior to the stated maturity thereof, or any
obligation of such Person for the payment of Indebtedness (other than the
Obligations) is not paid when due or within any applicable grace period, or any
such obligation becomes or is declared to be due and payable before the
expressed maturity thereof, or there occurs an event which, with the giving of
notice or lapse of time, or both, would cause any such obligation to become, or
allow any such obligation to be declared to be, due and payable; 

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

               
(h)     a court of competent jurisdiction shall (A) enter an
order, judgment or decree appointing a custodian, receiver, trustee, liquidator
or conservator of any Obligor or Guarantor or the whole or any substantial part
of any such Person's properties, which shall continue unstayed and in effect for
a period of thirty calendar days, (B) shall approve a petition filed against any
Obligor or Guarantor seeking reorganization, liquidation or similar relief under
the any Debtor Relief Law or any other applicable law or statute, which is not
dismissed within thirty calendar days or, (C) under the provisions 

32

of any Debtor Relief Law or other applicable law or statute,
assume custody or control of any Obligor or Guarantor or of the whole or any
substantial part of any such Person's properties, which is not irrevocably
relinquished within thirty calendar days, or (ii) there is commenced against any
Obligor or Guarantor any proceeding or petition seeking reorganization,
liquidation or similar relief under any Debtor Relief Law or any other
applicable law or statute and either (A) any such proceeding or petition is not
unconditionally dismissed within thirty calendar days after the date of
commencement, or (B) any Obligor or Guarantor takes any action to indicate its
approval of or consent to any such proceeding or petition, but no Advances will
be made before any such order, judgment or decree described above is stayed,
vacated or discharged, any such petition described above is dismissed, or any
such custody or control described above is relinquished;

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

               
(j)     Lender receives any indication or evidence that
Borrower may have directly or indirectly been engaged in any type of activity
which, in Lender's judgment, might result in forfeiture of any property to any
Governmental Authority which shall have continued unremedied for a period of ten
calendar days after written notice from Lender (but no Advances will be made
before any such activity ceases);

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

               
(l)     uninsured damage to, or loss, theft or destruction
of, any portion of the Collateral occurs that exceeds $25,000 in the aggregate;

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

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

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

               
(p)     any Obligor or Guarantor does, or enters into or
becomes a party to any agreement or commitment to do, or cause to be done, any
of the things described in this Article VIII or otherwise prohibited by
any Loan Document (subject to any cure periods set forth therein); then, and in
any such event, notwithstanding any other provision of any Loan Document, Lender
may, without notice or demand, do any of the following: (i) terminate its
obligations to make Advances hereunder, whereupon the same shall immediately
terminate and (ii) elect all or any of the Loans and/or Notes, all interest
thereon and all other Obligations to be due and payable immediately (except in
the case of an Event of Default under Section 8(d), (g), (h)
or (i)(iii), in which event all of the foregoing shall automatically and
without further act by Lender be due and payable, provided that, with
respect to non-material breaches or violations that constitute Events of Default
under clause (ii) of Section 8(d), there shall be a three (3) Business
Day cure period (but no Advances will be made during any such cure period)
commencing from 

33

the earlier of (A) Receipt by the applicable Person of
written notice of such breach or violation or of any event, fact or circumstance
constituting or resulting in any of the foregoing, and (B) the time at which
such Person or any authorized officer thereof knew or became aware, or should
have known or been aware, of such breach or violation and resulting Event of
Default or of any event, fact or circumstance constituting or resulting in any
of the foregoing), in each case without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by Borrower. 

IX.     RIGHTS
AND REMEDIES AFTER DEFAULT

        
9.1    
Rights and Remedies

               
(a)     In addition to the acceleration provisions set forth
in Article VIII above, upon the occurrence and continuation of an Event
of Default, Lender shall have the right to exercise any and all rights, options
and remedies provided for in the Loan Documents, under the UCC or at law or in
equity, including, without limitation, the right to (i) apply any property of
any Obligor held by Lender to reduce the Obligations, (ii) foreclose the Liens
created under the Security Documents, (iii) realize upon, take possession of
and/or sell any Collateral or securities pledged with or without judicial
process, (iv) exercise all rights and powers with respect to the Collateral as
any Obligor, as applicable, might exercise, (v) collect and send notices
regarding the Collateral, with or without judicial process, (vi) by its own
means or with judicial assistance, enter any premises at which Collateral and/or
pledged securities are located, or render any of the foregoing unusable or
dispose of the Collateral and/or pledged securities on such premises without any
liability for rent, storage, utilities, or other sums, and no Obligor shall
resist or interfere with such action, (vii) at Obligors' expense, require that
all or any part of the Collateral be assembled and made available to Lender at
any place designated by Lender, (viii) reduce or otherwise change the Facility
Cap, (ix) assess the Non-Compliance Fee, and/or (x) relinquish or abandon any
Collateral or securities pledged or any Lien thereon. Notwithstanding any
provision of any Loan Document, Lender, in its sole discretion, shall have the
right, at any time that any Obligor fails to do so, and from time to time,
without prior notice, to: (i) obtain insurance covering any of the Collateral to
the extent required hereunder; (ii) pay for the performance of any of
Obligations; (iii) discharge taxes or Liens on any of the Collateral that are in
violation of any Loan document unless such Obligor is in good faith with due
diligence by appropriate proceedings contesting those items; and (iv) pay for
the maintenance and preservation of the Collateral. Such expenses and advances
shall be added to the Obligations until reimbursed to Lender and shall be
secured by the Collateral, and such payments by Lender shall not be construed as
a waiver by Lender of any Event of Default or any other rights or remedies of
Lender.

               
(b)     Obligors agree that notice received by it at least
ten calendar days before the time of any intended public sale, or the time after
which any private sale or other disposition of Collateral is to be made, shall
be deemed to be reasonable notice of such sale or other disposition. If
permitted by applicable law, any perishable Collateral which threatens to
speedily decline in value or which is sold on a recognized market may be sold
immediately by Lender without prior notice to Obligors. At any sale or
disposition of Collateral or securities pledged, Lender may (to the extent
permitted by applicable law) purchase all or any part thereof free from any
right of redemption by Obligors which right is hereby waived and released.
Obligors covenant and agree not to, and not to permit or cause any of its
Subsidiaries to, interfere with or impose any obstacle to Lender's exercise of
its rights and remedies with respect to the Collateral. Lender, in dealing with
or disposing of the Collateral or any part thereof, shall not be required to
give priority or preference to any item of Collateral or otherwise to marshal
assets or to take possession or sell any Collateral with judicial process.

34

       
9.2     Application of Proceeds

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

       
9.3     Rights of Lender to Appoint
Receiver

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

       
9.4     Rights and Remedies not
Exclusive

               
Lender shall have the right in its sole discretion to determine which rights,
Liens and/or remedies Lender may at any time pursue, relinquish, subordinate or
modify, and such determination will not in any way modify or affect any of
Lender's rights, Liens or remedies under any Loan Document, applicable law or
equity. The enumeration of any rights and remedies in any Loan Document is not
intended to be exhaustive, and all rights and remedies of Lender described in
any Loan Document are cumulative and are not alternative to or exclusive of any
other rights or remedies which Lender otherwise may have. The partial or
complete exercise of any right or remedy shall not preclude any other further
exercise of such or any other right or remedy. 

35

X.     WAIVERS
AND JUDICIAL PROCEEDINGS

       
10.1     Waivers

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

       
10.2     Delay; No Waiver of
Defaults

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

       
10.3     Jury Waiver

               
EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY
OF ANY CLAIM OR CAUSE OF ACTION ARISING UNDER THE LOAN DOCUMENTS OR IN ANY WAY
CONNECTED WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT TO THE
LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY, WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. EACH
PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENTS OF THE PARTIES TO THE WAIVER OF THEIR RESPECTIVE RIGHTS
TO TRIAL BY JURY.

        10.4    
Cooperation in Discovery and Litigation

               
In any litigation, arbitration or other dispute resolution proceeding relating
to any Loan Document, each Obligor 
waives any and all defenses, objections and
counterclaims it may have or could 

36

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

XI.     EFFECTIVE
DATE AND TERMINATION

       
11.1     Termination and Effective
Date Thereof

               
(a)     Subject to Lender's right to terminate and cease
making Advances upon or after any Event of Default, this Agreement shall
continue in full force and effect until the full performance and indefeasible
payment in cash of all Obligations, unless terminated sooner as provided in this
Section 11.1. Borrower may terminate this Agreement at any time upon not
less than ninety calendar days' prior written notice to Lender and upon full
performance and indefeasible payment in full in cash of all Obligations on or
prior to such ninetieth calendar day after Receipt by Lender of such written
notice. All of the Obligations shall be immediately due and payable upon
any such termination on the termination date stated in any notice of termination
(the "Termination Date"); provided that, notwithstanding any other
provision of any Loan Document, the Termination Date shall be effective no
earlier than the first Business Day of the month following the expiration of the
ninety calendar days' prior written notice period. Notwithstanding any other
provision of any Loan Document, no termination of this Agreement shall affect
Lender's rights or any of the Obligations existing as of the effective date of
such termination, and the provisions of the Loan Documents shall continue to be
fully operative until the Obligations have been fully performed and indefeasibly
paid in cash in full. The Liens granted to Lender under the Security Documents
and the financing statements filed pursuant thereto and the rights and powers of
Lender shall continue in full force and effect notwithstanding the fact that
Borrower's borrowings hereunder may from time to time be in a zero or credit
position until all of the Obligations have been fully performed and indefeasibly
paid in full in cash. 

               
(b)     If (i) Borrower terminates the
Loans under this Section 11.1, (ii) Borrower voluntarily or
involuntarily repays the Obligations (other than reductions to zero of the
outstanding balance of the Revolving Facility resulting from the ordinary course
operation of the provisions of Section 2.5), whether by virtue of
Lender's exercising its right of set off or otherwise; (iii) the Obligations are
accelerated by Lender (each of the events described in (i), (ii) and (iii) above
being hereinafter referred to as, a "Revolver Termination"), then at the
effective date of any such Revolver Termination, Borrower shall pay Lender (in
addition to the then outstanding principal, accrued interest and other
Obligations relating to the Revolving Facility pursuant to the terms of this
Agreement and any other Loan Document), to compensate Lender for the loss of
bargain and not as a penalty, an amount equal to the applicable Minimum
Termination Fee. 

       
11.2     Survival

               
All obligations, covenants, agreements, representations, warranties, waivers and
indemnities made by Obligors in any Loan Document shall survive the execution
and delivery of the Loan Documents, the Closing, the making of the Advances and
any termination of this Agreement until 

37

all Obligations are fully performed and indefeasibly paid in
full in cash. The obligations and provisions of Sections 3.4, 3.5, 6.13,
10.1, 10.3, 11.1, 11.2, 12.4, 12.7 and 12.10 shall survive termination of
the Loan Documents and any payment, in full or in part, of the Obligations.

XII.    
MISCELLANEOUS

       
12.1     Governing Law;
Jurisdiction; Service of Process; Venue

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

       
12.2     Successors and Assigns;
Participations; New Lenders

               
The Loan Documents shall inure to the benefit of Lender, Transferees and all
future holders of the Loan, any Note, the Obligations and/or any of the
Collateral, and each of their respective successors and assigns. Each Loan
Document shall be binding upon the Persons' other than Lender that are parties
thereto and their respective successors and assigns, and no such Person may
assign, delegate or transfer any Loan Document or any of its rights or
obligations thereunder without the prior written consent of Lender. No rights
are intended to be created under any Loan Document for the benefit of any third
party done, creditor or incidental beneficiary of either Obligor or Guarantor.
Nothing contained in any Loan Document shall be construed as a delegation to
Lender of any other Person's duty of performance. EACH OBLIGOR ACKNOWLEDGES AND
AGREES THAT Lender at any time and from time to time may (I) DIVIDE AND RESTATE
ANY NOTE, AND/OR (II) sell, assign or GRANT PARTICIPATING INTERESTS IN OR
transfer all or any part of its rights or obligations under ANY LOAN DOCUMENT,
loans, any Note, the obligations AND/OR the collateral TO OTHER PERSONS (EACH
SUCH TRANSFEREE, ASSIGNEE OR PURCHASER, A "TRANSFEREE"). Each Transferee
shall have all of the rights and benefits with respect to the Loans,
Obligations, any Notes, Collateral and/or Loan Documents held by it as fully as
if the original holder thereof, and either Lender or any Transferee may be
designated as the sole agent to manage the transactions and obligations
contemplated therein; provided that, notwithstanding anything to the
contrary in any Loan Document, Obligors shall not be 

38

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

       
12.3     Application of Payments

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

       
12.4     Indemnity

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

39

       
12.5     Notice

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

       
12.6     Severability; Captions;
Counterparts; Facsimile Signatures

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

       
12.7     Expenses

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

40

personal property tax), if any, in connection with the
issuance of any Note and the filing and/or recording of any documents and/or
financing statements. 

       
12.8     Entire Agreement

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

       
12.9     Lender Approvals

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

       
12.10     Confidentiality and
Publicity

               
(a)     Each Obligor agrees, and agrees to cause each of its
Affiliates, (i) not to transmit or disclose provisions of any Loan Document to
any Person (other than to such Obligor's advisors and officers on a need-to-know
basis or as otherwise may be required by law) without Lender's prior written
consent, except as required by applicable law or any regulations thereunder,
(ii) to inform all Persons of the confidential nature of the Loan Documents and
to direct them not to disclose the same to any other Person and to require each
of them to be bound by these provisions. Each Obligor agrees to submit to Lender
and Lender reserves the right to review and approve all materials that such
Obligor or any of its Affiliates prepares that contain Lender's name or describe
or refer to any Loan Document, any of the terms thereof or any of the
transactions contemplated thereby. Obligors shall not, and shall not permit any
of its Affiliates to, use Lender's name (or the name of any of Lender's
Affiliates) in connection with any of its business operations, including without
limitation, advertising, marketing or press releases or such other similar
purposes, without Lender's prior written consent. Nothing contained in any Loan
Document is intended to permit or authorize either Obligor or any of its
Affiliates to contract on behalf of Lender. 

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

       
12.11     Release of Lender

               
Notwithstanding any other provision of any Loan Document, each Obligor
voluntarily, knowingly, unconditionally and irrevocably, with specific and
express intent, for and on behalf of itself, 

41

its managers, members, directors, officers, employees,
stockholders, Affiliates, agents, representatives, accountants, attorneys,
successors and assigns and their respective Affiliates (collectively, the 
"Releasing Parties"), hereby fully and completely releases and forever
discharges the Indemnified Persons and any other Person or Insurer which may be
responsible or liable for the acts or omissions of any of the Indemnified
Persons, or who may be liable for the injury or damage resulting therefrom
(collectively, with the Indemnified Persons, the "Released Parties"), of
and from any and all actions, causes of action, damages, claims, obligations,
liabilities, costs, expenses and demands of any kind whatsoever, at law or in
equity, matured or unmatured, vested or contingent, that any of the Releasing
Parties has against any of the Released Parties as of the date of the Closing.
Each Obligor acknowledges that the foregoing release is a material inducement to
Lender's decision to extend to Borrower the financial accommodations hereunder
and has been relied upon by Lender in agreeing to make the Advances. 

        12.12
    
Agent

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

        12.13    
Agreement Controls

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

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

42

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

	 	
		BORROWER:

	 	
		

	 	U.S. MILLS, INC.
	 	
		

	 	
		By: 
	 
	 	
		Name: 
	Todd Sanders
	 	
		Its: 
	Chief Executive Officer
	
		
	 
	 	
		Address for Notices:

	 	
		U.S. Mills, Inc.

	 	
		200 Reservoir Street

	 	
		Needham, MA 02494

	 	
		Attention: President

	 	
		Telephone: (781) 444-0440

	 	
		FAX: (781) 444-3411

	
		
	 
	
		
	 
	 	CORPORATE GUARANTOR:

		

		SUNSET BRANDS, INC.
	 	
		 

	 	
		By: 
	 
	 	
		Name: 
	Todd Sanders
	 	
		Its: 
	Chief Executive Officer
	
		
	 
	 	
		Address for Notices:

	 	
		Sunset Brands, Inc.

	 	
		10990 Wilshire Blvd., Suite 1220

	 	
		Los Angeles, CA 90024

	 	
		Attention: President

	 	
		Telephone: (310) 478-4600

	 	
		FAX: (310) 478-4601

	
		
	 
	 	
		LENDER:

		

		CAPITALSOURCE FINANCE LLC

	 	
		

	 	
		By: 
	 
	 	
		Name: 
	 
	 	
		Its: 
	 
	
		
	 
	 	
		Address for Notices:

	 	
		CapitalSource Finance LLC

	 	
		4445 Willard Avenue, 12th
		Floor

	 	
		Chevy Chase, MD 20815

	 	
		Attention: Business Credit Services,
		Portfolio Manager

	 	
		Telephone: (301) 841-2700 

	 	
		FAX: (301) 841-2340

SCHEDULES

	Schedule 2.4	-- 	Borrowers' Account(s)
	 	 	 
	Schedule 5.2	-- 	Required Consents
	 	 	 
	Schedule 5.3	-- 	Capitalization, Organization Chart
		(including all subsidiaries, authorized/issued capitalization, owners,
		directors, officers and managers) and Joint Ventures
	 	 	 
	Schedule 5.4	-- 	Liens; Real and Personal Property Owned
		or Leased; Leases
	 	 	 
	Schedule 5.5	-- 	Defaults 
	 	 	 
	Schedule 5.8	-- 	Taxes
	 	 	 
	Schedule 5.11	-- 	Intellectual Property
	 	 	 
	Schedule 5.15A	-- 	Existing Indebtedness
	 	 	 
	Schedule 5.15B	-- 	Indebtedness Maturing During Term
	 	 	 
	Schedule 5.16	-- 	Other Agreements
	 	 	 
	Schedule 5.17	-- 	Insurance
	 	 	 
	Schedule 5.18A	-- 	Corporate Names
	 	 	 
	Schedule 5.18B	-- 	Places of Business
	 	 	 
	Schedule 5.20	-- 	Inventory Disclosures
	 	 	 
	Schedule 6.8 
			-- 	Further Assurances/Post Closing
	 	 	 
	Schedule 7.2 
			-- 	Permitted Indebtedness
	 	 	 
	Schedule 7.3 
			-- 	Permitted Liens

1

ANNEX I

FINANCIAL COVENANTS

       
1)     Minimum EBITDAM

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

 

	Test
		Period Ended        
		 	Min. EBITDAM
		Covenant Level 
		 

	November 30, 2005               
		    	$525,000
	December 31, 2005               
		   	 $700,000 
	January 31, 2006                  
			$855,000 
	February 28, 2006                 
			$1,010,000 
	March 31, 2006                       
			$1,030,000 
	April 30, 2006                       
			$915,000 
	May 31, 2006                       
			$755,000 
	June 30, 2006                       
		

		and the last day of each

		month thereafter	$700,000 
		

       
2)     Maximum Senior Leverage Ratio
(Senior Debt to EBITDAM)

               
For the Test Period ending on November 30, 2005 and for each Test Period ending
on the last day of each calendar month thereafter, Borrower shall not permit its
Maximum Senior Leverage Ratio to be more than 3.5 to 1.0.

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

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

	Test Period Ended        
		 	Minimum 
		Fixed Charge Coverage Ratio 

	November 
		30, 2005 through

		and including October 31, 2006	
		1.1 to 1.0 

	November 
		30, 2006 through

		and including October 31, 2007             
			
		1.2 to 1.0

1

	November 
		30, 2007 and the last day

		of each month thereafter             
			
		1.3 to 1.0

 

       
4)     Minimum Liquidity 

               
At Closing and at all other times Borrower shall have not less than $250,000 of
Available Cash on hand. 

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

               
"Available Cash" shall mean, for and on any date, the sum without
duplication of the following for Borrower: (a) unrestricted cash on hand on such
date, (b) Cash Equivalents held on such date, and (c) the unborrowed
Availability on and as of such date.

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

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

2

any sale of assets, other than sales in
the ordinary course of business and (b) other extraordinary or non-recurring
gains.

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

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

               
"Interest Expense" shall mean, for any Test Period, total interest
expense (including attributable to Capital Leases in accordance with GAAP) fees
with respect to all outstanding Indebtedness including capitalized interest but
excluding commissions, discounts and other fees owed with respect to letters of
credit and bankers' acceptance financing and net costs under Interest Rate
Agreements. 

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

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

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

               
"Total Senior Debt" shall mean, at any date of determination, for
Borrower individually and collectively on a consolidated and consolidating
basis, the total senior level Indebtedness secured by first priority liens on
the Borrower's assets on such date less cash and Cash Equivalents held on such
date. 

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

3

APPENDIX A

DEFINITIONS

               
"Acceptance Notice" shall have the meaning given such term in Section
6.13.

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

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

               
"Advance" shall mean a borrowing under the Revolving Facility. Any
amounts paid by Lender on behalf of Borrower or Guarantor under any Loan
Document shall be an Advance for purposes of the Agreement.

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

               
"Applicable Rate" shall mean the interest rates applicable from time to
time to Advances under the Agreement.

               
"Available Cash" shall mean, for and on any date, the sum without
duplication of the following for Borrower: (a) unrestricted cash on hand on such
date, (b) Cash Equivalents held on such date, and (c) the unborrowed
Availability on and as of such date.

               
"Availability" shall have the meaning given such term in Section
2.1(a).

               
"Borrowing Base for Eligible Inventory" shall mean, as of any date of
determination, the amount up to the lesser of (i) up to 65% of the value of
finished goods Eligible Inventory of the Borrower valued at the lower of cost or
market value, as determined by the Lender in its sole discretion, with cost
determined under the first-in-first-out method; or (ii) 90% of the net orderly
liquidation value in U.S. Dollars of Eligible Inventory, as determined with
reference to the most recent Borrowing Certificate and otherwise in accordance
with this Agreement; provided, however, that if as of such date
the most recent 

1

Borrowing Certificate is of a date more than five Business
Days before or after such date, the Borrowing Base for Eligible Inventory shall
be determined by Lender in its sole discretion.

               
"Borrowing Base for Eligible Receivables" shall mean, as of any date of
determination, eighty-five percent (85%) of the net collectible U.S. Dollar
value of Eligible Receivables, as determined with reference to the most recent
Borrowing Certificate and otherwise in accordance with this Agreement; 
provided, however, that if as of such date the most recent Borrowing
Certificate is of a date more than five Business Days before or after such date,
the Borrowing Base shall be determined by Lender in its sole discretion. 

               
"Borrowing Certificate" shall mean a Borrowing Certificate substantially
in the form of Exhibit A.

               
"Borrowing Date" shall have the meaning given such term in Section 2.4.

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

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

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

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

               
"Change of Control" shall mean, with respect to either Obligor, the
occurrence of any of the following: (i) a merger, consolidation, reorganization,
recapitalization or share or interest exchange, sale or transfer or any other
transaction or series of transactions in which its stockholders, managers,
partners or interest holders immediately prior to such transaction or series of
transactions receive, in exchange for the stock or interests owned by them,
cash, property or securities of the resulting or surviving entity or any
Affiliate thereof, and, as a result thereof, Persons who, individually or in the
aggregate, were holders of 50% or more of its voting stock, securities or
equity, partnership or ownership interests immediately prior to such transaction
or series of transactions hold less than 50% of the voting stock, securities or
other equity, partnership or ownership interests of the resulting or surviving
entity or such Affiliate thereof, calculated on a fully diluted basis, (ii) a
direct or indirect sale, transfer or other conveyance or disposition, in any
single transaction or series of transactions, of all or substantially all of its
assets, (iii) the initial public offering of its
securities, or (iv) any "change in/of control" or "sale" or "disposition" or
similar event as defined in any document governing indebtedness of such Person
which gives the holder of such indebtedness the right to accelerate or otherwise
require payment of such indebtedness prior to the maturity date thereof.

               
"Charter and Good Standing Documents" shall mean, for each Obligor (i) a
copy of the certificate of incorporation or formation (or other charter
document) certified as of a date satisfactory to Lender before the Closing Date
by the applicable Governmental Authority of the jurisdiction of incorporation or
organization of Borrower, (ii) a copy of the bylaws or similar organizational
documents certified as of a date satisfactory to Lender before the Closing Date
by the corporate secretary or assistant 

2

secretary of Borrower, (iii) an original certificate of good
standing as of a date acceptable to Lender issued by the applicable Governmental
Authority of the jurisdiction of incorporation or organization of such Borrower
and of every other jurisdiction in which Borrower has an office or conducts
business or is otherwise required to be in good standing, and (iv) copies of the
resolutions of the Board of Directors or managers (or other applicable governing
body) and, if required, stockholders, members or other equity owners authorizing
the execution, delivery and performance of the Loan Documents to which Borrower
is a party, certified by an authorized officer of such Person as of the Closing
Date.

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

               
"Closing Date" shall mean the date of this Agreement. 

               
"Collateral" shall have the meaning given such term in Section 2.9.

               
"Collateral Management Fee" shall have the meaning given such term in 
Section 3.3.

               
"Collateral Patent, Trademark and Copyright Assignment" shall mean any
patent, trademark, or copyright assignment or acknowledgement executed by and
between Borrower and Lender, as such may be modified, amended or supplemented
from time to time. 

               
"Concentration Account" shall have the meaning given such term in 
Section 2.5.

               
"Credit Party" shall have the meaning given such term in Section 6.13.

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

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

               
"Dilution Items" shall have the meaning given such term in Section
2.1(b).

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

               
"Eligible Inventory" shall mean Borrower's saleable Inventory consisting
of finished goods, which Inventory of finished goods is currently in existence
at Borrower's places of business for which Lender has received a Landlord Waiver
and Consent and/or Mortgagee Waiver and Consent in form satisfactory to it and
is saleable in the ordinary course of Borrower's business and which Lender, in
its sole discretion, deems Eligible Inventory unless one or more of the
following applies which would eliminate such items or items of Inventory
consisting of finished goods from being considered as Eligible Inventory:

               
(a)     such Inventory is not subject to a valid perfected
first priority security interest in favor of the Lender; 

3

               
(b)     any consent, license, approval or authorization
required to be obtained by Borrower in connection with the granting of a
security interest under the Security Documents or in connection with the
manufacture or sale of such Inventory has not been or was not duly obtained and
is not in full force and effect;

               
(c)     any covenant, representation or warranty contained
in this Agreement or in any other Loan Document with respect to such Inventory
has been breached and remains uncured;

               
(d)     such Inventory is not owned by Borrower;

               
(e)     such Inventory does not comply, or was not
manufactured in compliance, in all material respects, with all applicable
requirements of all statutes, laws, rules, regulations, ordinances, codes,
policies, rules of common law, and the like, now or hereafter in effect, of any
Governmental Authority, including any judicial or administrative interpretations
thereof, and any judicial or administrative orders, consents, decrees or
judgments; 

               
(f)     such Inventory does not, or at the time of its
purchase from the vendor did not, constitute "inventory" under Article 9 of the
UCC as then in effect in the jurisdiction whose law governs perfection of the
security interest;

               
(g)     the Person for whose account such Inventory is being
or was produced has commenced a voluntary case under any federal bankruptcy or
state or federal insolvency laws or has made an assignment for the benefit of
creditors, or if a decree or order for relief has been entered by a court having
jurisdiction in respect of such Person in an involuntary case under any federal
bankruptcy or state or federal insolvency laws, or if any other petition or
application for relief under any federal bankruptcy or state or federal
insolvency laws has been filed against such Person, or if such Person has
failed, suspended business, ceased to be solvent, called a meeting of its
creditors, or has consented to or suffered a receiver, trustee, liquidator or
custodian to be appointed for it or for all or a significant portion of its
assets or affairs; 

               
(h)     the transfer of Inventory to Borrower by vendor,
supplier or other Person did not constitute a valid sale and transfer to
Borrower of all right, title and interest of such Person in the inventory
enforceable against all creditors of and purchasers from such person;

               
(i)     (A) Borrower is not the sole owner of all right,
title and interest in and to such Inventory, (B) Borrower does not have a valid
ownership interest therein free and clear of all Liens other than Liens granted
under the Loan Documents, or (C) any offsets, defenses or counterclaims have
been asserted or threatened in writing against such Inventory;

               
(j)     such Inventory is not in good working order or is
damaged;

               
(k)     such Inventory is not located at a location which is
owned by Borrower or subject to a Landlord Waiver and Consent;

               
(l)     such Inventory consists only of packing or packaging
materials, displays, supplies, samples, pallets, parts or other components or is
returned, rejected, repossessed or discontinued product or Inventory;

4

               
(m)     such Inventory is subject to a bona fide dispute or
is or has been classified as counterfeit or fraudulent; 

               
(n)     such Inventory has been sold, assigned, or otherwise
encumbered by Borrower except pursuant to the Loan Documents; 

               
(o)     such Inventory is not associated with a documented
purchase order;

               
(p)     such Inventory consists of equipment that Borrower
offers for rental or that is being rented from the Borrower or equipment
borrowed by Borrower or given to Borrower to serve as demonstration equipment;

               
(q)     such Inventory constitutes custom Inventory,
private-label Inventory, raw materials in process, work-in-process, obsolete or
unmerchantable Inventory, Inventory allocated to current warranty assignments,
Inventory that consists of spare parts or Inventory subject to a quality
assurance hold:

               
(r)     such Inventory is in transit;

               
(s)     such Inventory is (i) not in Borrower's possession
and control or (ii) outside the continental United States;

               
(t)     such Inventory otherwise is not satisfactory to the
Lender, as determined in the sole discretion of the Lender; 

               
(u)     Such Inventory is or has been utilized as
demonstration models.

               
"Eligible Receivables" shall mean each Account arising in the ordinary
course of Borrower's business from the sale of goods or rendering of services
which Lender, in its sole discretion, deems an Eligible Receivable unless: 

               
(a)    it is not subject to a valid perfected first priority
security interest in favor of Lender, subject to no other Lien;

               
(b)    it is not evidenced by an invoice, statement or other
documentary evidence satisfactory to Lender; provided, that Lender in its
sole discretion may from time to time include as Accounts that are not evidenced
by an invoice, statement or other documentary evidence satisfactory to Lender as
Eligible Receivables and determine the advance rate, liquidity factors and
reserves applicable to Advances made on any such Accounts;

               
(c)    it or any portion thereof (in which case only such portion
shall not be an Eligible Receivable) is payable by a beneficiary, recipient or
subscriber individually and not directly by an Account Debtor;

               
(d)    it arises out of services rendered or a sale made to, or
out of any other transaction between Borrower or any of its
Subsidiaries and, one or more Affiliates of Borrower or any of its Subsidiaries;

5

               
(e)    it remains unpaid for longer than the earlier of (i) 60
calendar days after the invoice due date, and (ii) 90 calendar days
after original invoice date;

               
(f)    with respect to all Accounts owed by any particular
Account Debtor and/or its Affiliates, if more than 50% of the aggregate balance
of all such Accounts owing from such Account Debtor and/or its Affiliates remain
unpaid for longer than the earlier of (i) 60 calendar days after
the invoice due date, and (ii) 90 calendar days after original invoice date;

               
(g)    with respect to all Accounts owed by any particular
Account Debtor and/or its Affiliates, 25% or more of all such Accounts are not
deemed Eligible Receivables for any reason hereunder (which percentage may, in
Lender's sole discretion, be increased or decreased);

               
(h)    with respect to all Accounts owed by any particular
Account Debtor and/or its Affiliates, if such Accounts exceed 20% of the net
collectible dollar value of all Eligible Receivables at any one time (which
percentage may, in Lender's sole discretion, be increased or decreased); 

               
(i)    any covenant, agreement, representation or warranty
contained in any Loan Document with respect to such Account has been breached
and remains uncured;

               
(j)    the Account Debtor for such Account has commenced a
voluntary case under any Debtor Relief Law or has made an assignment for the
benefit of creditors, or a decree or order for relief has been entered by a
court having jurisdiction in respect of such Account Debtor in an involuntary
case under any Debtor Relief Law, or any other petition or application for
relief under any Debtor Relief Law has been filed against such Account Debtor,
or such Account Debtor has failed, suspended business, ceased to be solvent,
called a meeting of its creditors, or has consented to or suffered a receiver,
trustee, liquidator or custodian to be appointed for it or for all or a
significant portion of its assets or affairs, or Borrower, in the ordinary
course of business, should have known of any of the foregoing;

               
(k)    it arises from the sale of property or services rendered
to one or more Account Debtors outside the continental United States or that
have their principal place of business or chief executive offices outside the
continental United States;

               
(l)    it represents the sale of goods or rendering of services
to an Account Debtor on a bill-and-hold, guaranteed sale, sale-and-return, sale
on approval, consignment or any other repurchase or return basis or is evidenced
by Chattel Paper or an Instrument of any kind or has been reduced to judgment;

               
(m)    the applicable Account Debtor for such Account is any
Governmental Authority, unless rights to payment of such Account have been
assigned to Lender pursuant to the Assignment of Claims Act of 1940, as amended
(31 U.S.C. Section 3727, et seq. and 41 U.S.C. Section 15, et seq.), or
otherwise only if all applicable statutes or regulations respecting the
assignment of Government Accounts have been complied with;

               
(n)    it is subject to any offset, credit (including any
resource or other income credit or offset) deduction, defense, discount,
chargeback, freight claim, allowance, adjustment, dispute or counterclaim, or is
contingent in any respect or for any reason;

               
(o)    there is any agreement with an Account Debtor for any
deduction from such Account, except for discounts or allowances made in the
ordinary course of business for prompt payment, all of which discounts or
allowances are reflected in the calculation of the face value of each 

6

invoice related thereto, such that only the discounted amount
of such Account after giving effect to such discounts and allowances shall be
considered an Eligible Receivable; 

               
(p)    any return, rejection or repossession of goods or services
related to it has occurred;

               
(q)    it is not payable to Borrower;

               
(r)    Borrower has agreed to accept or has accepted any non-cash
payment for such Account;

               
(s)    with respect to any Account arising from the sale of
goods, the goods have not been shipped to the Account Debtor or its designee;

               
(t)    with respect to any Account arising from the performance
of services, the services have not been actually performed or the services were
undertaken in violation of any law; or

               
(u)    such Account fails to meet such other specifications and
requirements which may from time to time be established by Lender or is not
otherwise satisfactory to Lender, as determined in Lender's sole discretion.

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

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

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

               
"Excess Cash Flow" shall mean, for any Excess Cash Flow Period, without
duplication, an amount equal to the sum of: (i) EBITDAM, (ii) an amount equal to
the aggregate net cash proceeds of the sale, lease, transfer or other
disposition of assets by Borrower during such period to the extent not required
to be applied to mandatory prepayments or payments on the Loans, and (iii)
without duplication of other items included in this definition an amount equal
to any tax refunds or credits received by Borrower during such period, less:
(i) an amount equal to the permitted Capital Expenditures of Borrower for such
period, (ii) an amount equal to the sum of all regularly
scheduled payments and optional and mandatory prepayments of principal on
Indebtedness of Borrower for money borrowed actually made in cash during such
period to the extent permitted hereunder, (iii) an amount equal to the sum of
all regularly scheduled payments and optional and mandatory payments of interest
on Indebtedness of Borrower for money borrowed actually made in cash during such
period to the extent permitted hereunder, and (iv) any management fees paid to
the extent permitted hereunder. 

7

               
"Excess Cash Flow Percentage" shall mean (a) 50% during the first and
second Excess Cash Flow Periods, (b) 35% during the third and fourth Excess Cash
Flow Periods, and (c) 25% during each Excess Cash Flow Period thereafter. 

               
"Excess Cash Flow Period" shall mean the period from the Closing date to
April 30, 2006, and each six (6) month period thereafter during the Term.

               
"Facility Cap" shall have the meaning
given the term in the Recitals of this Agreement.

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

               
"Fee Facility Cap" shall mean $7,500,000.

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

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

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

               
"Governmental Authority" shall mean any federal, state, municipal,
national, local or other governmental department, court, commission, board,
bureau, agency or instrumentality or political subdivision thereof, or any
entity or officer exercising executive, legislative or judicial, regulatory or
administrative functions of or pertaining to any government or any court, in
each case, whether of the United States or a state, territory or possession
thereof, a foreign sovereign entity or country or jurisdiction or the District
of Columbia.

               
"Guarantor" shall mean, collectively and each individually, Corporate
Guarantor, Todd Sanders and all other guarantors of the Obligations or any part
thereof. 

               
"Guaranty" shall mean, collectively and each individually, all guarantees
executed by Guarantor. 

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

               
"Indebtedness" of any Person shall mean, without duplication, (a) all
items which, in accordance with GAAP, would be included in determining total
liabilities as shown on the liability side of the balance sheet of such Person
as of the date as of which Indebtedness is to be determined, including any lease
which, in accordance with GAAP would constitute Indebtedness, (b) all
indebtedness secured by any mortgage, pledge, security, Lien or conditional sale
or other title retention agreement to which any property or asset owned or held
by such Person is subject, whether or not the indebtedness secured thereby shall
have been assumed, (c) all indebtedness of others which such Person has directly
or 

8

indirectly guaranteed, endorsed (otherwise than for
collection or deposit in the ordinary course of business), discounted or sold
with recourse or agreed (contingently or otherwise) to purchase or repurchase or
otherwise acquire, or in respect of which such Person has agreed to supply or
advance funds (whether by way of loan, stock, equity or other ownership interest
purchase, capital contribution or otherwise) or otherwise to become directly or
indirectly liable. 

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

               
"Initial Advance" shall have the meaning given such term in Section
4.1.

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

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

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

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

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

               
"Loan" or "Loans" shall mean, individually and collectively, all
Advances under the Revolving Facility and all amounts loaned under the Term
Loan.

               
"Loan Documents" shall mean, collectively and each individually, the
Agreement, the Notes, the Guaranty, the Security Documents, the Stock
Pledge Agreement, the Lockbox Agreements, the Uniform Commercial Code Financing
Statements, the Subordination Agreements, the Landlord Waiver and Consents, the
Borrowing Certificates, and all other agreements, documents, instruments
and certificates heretofore or hereafter executed or delivered to Lender in
connection with any of the foregoing or the Loans, as the same may be amended,
modified or supplemented from time to time.

               
"Lockbox Accounts" shall have the meaning given such term in Section
2.5.

               
"Lockbox Agreement" shall have the meaning given such term in Section
2.5.

               
"Lockbox Bank" shall have the meaning given such term in Section 2.5.

               
"Lockbox Non-Compliance Fee" shall mean the fee payable to the Lender
under the terms and conditions set forth in Section 2.5.

9

               
"Master Subordination Agreement" shall mean that certain Master
Subordination and Intercreditor Agreement dated of even date herewith among
Obligors, Lender as Senior Lender, Seller and the Debenture Holder (as defined
therein), as Subordinated Lender(s), as such may be modified, amended or
supplemented from time to time.

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

               
"Maximum Term Loan Amount" shall have the meaning assigned to such term
in the fourth Recital of this Agreement.

               
"Minimum Termination Fee" shall mean (for the time period indicated) the
amount equal to (i) 3.0% of the Fee Facility Cap, if the date of notice of such
termination by Borrower is after the Closing Date but before the first
anniversary of the Closing Date; (ii) 2.0% of the Fee Facility Cap, if the date
of notice of such termination by Borrower is on or after the first 
anniversary of the Closing Date but before the second anniversary of the Closing
Date; and (iii) 1.0% of the Fee Facility Cap, if the date of notice of such
termination by Borrower is on or after the second anniversary of the
Closing Date.

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

               
"Note" or "Notes" shall mean Notes issued pursuant to Section 2.12.

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

               
"Offer" shall have the meaning given such term in Section 6.13.

               
"Option Period" shall have the meaning given such term in Section 6.13.

10

               
"Payment Office" shall mean initially the address set forth beneath
Lender's name on the signature page of the Agreement, and thereafter, such other
office of Lender, if any, which it may designate by notice to Borrower to be the
Payment Office.

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

               
"Permitted Discretion" shall mean a determination or judgment made by
Lender in good faith in the exercise of reasonable (from the perspective of a
secured lender) business judgment.

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

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

               
"Permitted Subordinated Debt" shall mean
indebtedness incurred by Borrower which is subordinated to Borrower's
indebtedness owed to Lender pursuant to the Master Subordination Agreement or
any other Subordination Agreement.

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

               
"Prime Rate" shall mean a fluctuating interest rate per annum equal at
all times to the rate of interest announced publicly from time to time by
Citibank, N.A. as its base rate; provided, that such rate is not
necessarily the best rate offered to its customers, and, should Lender be unable
to determine such rate, such other indication of the prevailing prime rate of
interest as may reasonably be chosen by Lender; provided, that each
change in the fluctuating interest rate shall take effect simultaneously with
the corresponding change in the Prime Rate.

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

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

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

               
"Revolver Termination" shall have the meaning given such term in 
Section 11.1(b).

               
"Revolving Facility Cap" shall have the meaning given such term in the
Recitals. 

               
"Revolving Facility Maturity Date" shall have the meaning given such term
in Section 2.2.

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

               
"Seller" shall mean IBF Fund Liquidating LLC.

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

11

               
"Stock Pledge Agreement" shall mean that certain Stock Pledge Agreement
by and between Corporate Guarantor and Lender executed in connection herewith as
such may be modified, amended or supplemented from time to time.

               
"Subordination Agreement" shall mean, collectively and each individually,
the Master Subordination Agreement, and any other subordination agreements (the
terms of which shall be satisfactory to Lender) to which Lender and other
creditors of Obligors are a party.

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

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

               
"Term Loan Maturity Date" shall have the meaning assigned to such term in
Section 2.8.

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

               
"Transaction" shall have the meaning given such term in Section 6.13.

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

               
"UCC" shall mean the Uniform Commercial Code as in effect in the State of
Maryland from time to time.

               
"Unused Line Fee" shall have the meaning given such term in Section
3.2.

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

12

 

 

 

 

REVOLVING CREDIT, TERM LOAN AND SECURITY AGREEMENT

 

between

 

US MILLS, INC., as Borrower,

SUNSET BRANDS, INC., as Corporate Guarantor

 

and

 

CAPITALSOURCE FINANCE LLC, as Lender

 

 

 

 

Dated as of 

November 10, 2005

 

 

i

REVOLVING CREDIT, TERM LOAN AND SECURITY AGREEMENT

TABLE OF CONTENTS

	 	 	 	Page
	I.  	DEFINITIONS 	1
	 	1.1  	General Terms 	1
	II.  	ADVANCES, PAYMENT AND
		INTEREST 	2
	 	2.1  	The Revolving Facility 	2
	 	2.2  	The Revolving Facility; Maturity 
			2
	 	2.3  	Interest on the Revolving Facility 
			3
	 	2.4  	Revolving Facility Disbursements;
		Requirement to Deliver Borrowing Certificate	3
	 	2.5  	Revolving Facility Collections;
		Repayment; Borrowing Availability and Lockbox 	3
	 	2.6  	The Term Loan Facility 	4
	 	2.7  	Interest on the Term Loan 	4
	 	2.8  	Repayment of Term Loan; Maturity 
			5
	 	2.9  	Promise to Pay; Manner of Payment 
			5
	 	2.10  	Repayment of Excess Advances 	5
	 	2.11  	Other Mandatory Prepayments 	5
	 	2.12  	Payments by Lender 	6
	 	2.13  	Grant of Security Interest; Collateral
			6
	 	2.14  	Collateral Administration 	8
	 	2.15  	Power of Attorney 	9
	 	2.16  	Evidence of Loans 	9
	III.  	FEES AND OTHER CHARGES 
			10
	 	3.1  	Commitment Fee 	10
	 	3.2  	Unused Line Fee 	10
	 	3.3  	Collateral Management Fee 	10
	 	3.4  	Computation of Fees; Lawful Limits 
			11
	 	3.5  	Default Rate of Interest 	11
	IV.  	CONDITIONS PRECEDENT 
			11
	 	4.1  	Conditions to Initial Advance, Funding of
		the Term Loan, and Closing 	11
	 	4.2  	Conditions to Each Advance 	14
	V.  	REPRESENTATIONS AND
		WARRANTIES 	14
	 	5.1  	Organization and Authority 	14
	 	5.2  	Loan Documents 	15
	 	5.3  	Subsidiaries, Capitalization and
		Ownership Interests 	15
	 	5.4  	Properties 	16
	 	5.5  	Other Agreements 	16
	 	5.6  	Litigation 	16
	 	5.7  	Hazardous Materials 	16
	 	5.8  	Potential Tax Liability; Tax Returns;
		Governmental Reports; NOL 	17
	 	5.9  	Financial Statements and Reports 
			17
	 	5.10  	Compliance with Law 	17

 

	 	5.11  	Intellectual Property 	18
	 	5.12  	Licenses and Permits; Labor 	18
	 	5.13  	No Default 	18
	 	5.14  	Disclosure 	18
	 	5.15  	Existing Indebtedness; Investments,
		Guarantees and Certain Contracts 	19
	 	5.16  	Other Agreements 	19
	 	5.17  	Insurance 	19
	 	5.18  	Names; Location of Offices, Records and
		Collateral 	19
	 	5.19  	Non-Subordination 	20
	 	5.20  	Accounts and Inventory 	20
	 	5.21  	Survival 	21
	VI.  	AFFIRMATIVE COVENANTS 
			21
	 	6.1  	Financial Statements, Borrowing
		Certificate, Financial Reports and Other Information 	21
	 	6.2  	Payment of Obligations 	23
	 	6.3  	Conduct of Business and Maintenance of
		Existence and Assets 	23
	 	6.4  	Compliance with Legal and Other
		Obligations 	23
	 	6.5	 Insurance 	23
	 	6.6  	True Books 	24
	 	6.7	 Inspections; Periodic Audits and
		Reappraisals 	24
	 	6.8  	Further Assurances; Post Closing 
			24
	 	6.9  	Payment of Indebtedness 	24
	 	6.10  	Lien Searches 	25
	 	6.11  	Use of Proceeds 	25
	 	6.12  	Collateral Documents; Security Interest
		in Collateral 	25
	 	6.13  	Right of First Refusal 	25
	 	6.14  	Taxes and Other Charges 	26
	 	6.15  	Payroll Taxes 	26
	 	6.16  	Inventory Covenants 	27
	VII.  	NEGATIVE COVENANTS 
			27
	 	7.1  	Financial Covenants 	27
	 	7.2  	Permitted Indebtedness 	27
	 	7.3  	Permitted Liens 	28
	 	7.4  	Investments; New Facilities or
		Collateral; Subsidiaries 	28
	 	7.5  	Dividends; Redemptions 	29
	 	7.6  	Transactions with Affiliates 	29
	 	7.7  	Charter Documents; Fiscal Year; Name;
		Jurisdiction of Organization; Dissolution; Use of Proceeds 	30
	 	7.8  	Truth of Statements 	30
	 	7.9  	IRS Form 8821 	30
	 	7.10  	Transfer of Assets 	30
	 	7.11  	Payment on Permitted Subordinated Debt
			31
	VIII.  	EVENTS OF DEFAULT 
			31
	IX.  	RIGHTS AND REMEDIES AFTER
		DEFAULT 	34
	 	9.1  	Rights and Remedies 	34
	 	9.2  	Application of Proceeds 	35
	 	9.3  	Rights of Lender to Appoint Receiver
			35

ii

	 	9.4  	Rights and Remedies not Exclusive 
			35
	X.  	WAIVERS AND JUDICIAL
		PROCEEDINGS 	36
	 	10.1  	Waivers 	36
	 	10.2  	Delay; No Waiver of Defaults 	36
	 	10.3  	Jury Waiver 	36
	 	10.4  	Cooperation in Discovery and Litigation
			36
	XI.  	EFFECTIVE DATE AND
		TERMINATION 	37
	 	11.1  	Termination and Effective Date Thereof
			37
	 	11.2  	Survival 	37
	XII.  	MISCELLANEOUS 	38
	 	12.1  	Governing Law; Jurisdiction; Service of
		Process; Venue 	38
	 	12.2  	Successors and Assigns; Participations;
		New Lenders 	38
	 	12.3  	Application of Payments 	39
	 	12.4  	Indemnity 	39
	 	12.5  	Notice 	40
	 	12.6  	Severability; Captions; Counterparts;
		Facsimile Signatures 	40
	 	12.7  	Expenses 	40
	 	12.8  	Entire Agreement 	41
	 	12.9  	Lender Approvals 	41
	 	12.10  	Confidentiality and Publicity 
			41
	 	12.11  	Release of Lender 	41
	 	12.12  	Agent 	42
	 	12.13  	Agreement Controls 	42
	 	ANNEX I 	1
	 	FINANCIAL COVENANTS 
			1
	 	1)  	Minimum EBITDAM 	1
	 	2)  	Maximum Senior Leverage Ratio (Senior
		Debt to EBITDAM) 	1
	 	3)  	Minimum Fixed Charge Coverage Ratio (EBITDAM/Fixed
		Charges) 	1
	 	4)  	Minimum Liquidity 	2

iii

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