Document:

EXHIBIT 10.02

     FIRST  AMENDMENT,  dated  as  of  May  11, 2006 ("Amendment"), to and under
CREDIT  AND  SECURITY AGREEMENT, dated as of July 28, 2004 (as amended from time
to  time, the "Credit Agreement"), by and among AMERICAN/UNIVERSAL SUPPLY, INC.,
a  New  York  corporation  ("American"),  THE RAL SUPPLY GROUP, INC., a New York
corporation  ("RAL")  and  UNIVERSAL  SUPPLY GROUP, INC., a New York corporation
("Universal"; American, RAL and Universal are each individually referred to as a
"Borrower"  and are collectively referred to as the "Borrowers") and WELLS FARGO
BANK,  NATIONAL  ASSOCIATION,  acting  through  its  Wells Fargo Business Credit
operating  division,  as  successor  to  Wells  Fargo Business Credit, Inc. (the
"Lender").  Terms  which  are  capitalized  in  this Amendment and not otherwise
defined  shall have the meanings ascribed to such terms in the Credit Agreement.

     WHEREAS,  the  Borrowers  have  requested  that  the Lender (i) provide the
Borrowers  with  up  to  $500,000  of temporary overadvances and (ii) extend the
maturity  date  of  the  Credit  Agreement,  and  the  Lender  has agreed to the
foregoing  request,  on  the  terms  and  conditions  set  forth  herein;

     NOW,  THEREFORE,  in consideration of the mutual promises contained herein,
and  for  other  good and valuable consideration, the receipt and sufficiency of
which  are  hereby  acknowledged,  the  Borrowers and the Lender hereby agree as
follows:

     SECTION  ONE.  AMENDMENTS  TO  CREDIT  AGREEMENT.
                    ---------------------------------

     (a)     Effective  upon  satisfaction of the conditions precedent set forth
in subsection (a) of Section Four hereof, the Credit Agreement is hereby amended
as  follows:

          (i)     SECTION 1.1. DEFINITIONS.  (1)  The  following  defined  terms
                  ------------ -----------
contained  in  Section  1.1  of the Credit Agreement are amended and restated as
follows:

          "BORROWING BASE" means, with respect to any Borrower at any time,
     and  subject  to  change  from  time  to  time  in  the  Lender's sole
     discretion,  which  discretion  shall  be  exercised in a commercially
     reasonable  manner,  the  lesser  of:

               (a)     the Maximum Line, minus  the  L/C  Amount, minus the
          aggregate  principal  amount  of outstanding Advances made to the
          other  Borrowers;  or

               (b)     the  sum  of:

                    (i)       up to eighty-five percent (85%) of such Borrower's
                              Eligible  Accounts,  plus
                                                   ----

                    (ii)      the lesser  of:  (A)  up  to  fifty-seven  percent
                              (57%)  of  the  lower  of  the cost or fair market
                              value,  as  determined in accordance with GAAP, of
                              such  Borrower's  Eligible  Inventory,  but  in no
                              event to exceed $8,500,000.00, minus the aggregate
                                                             -----
                              principal  amount  of  outstanding  Advances  made
                              to  the  other  Borrowers  pursuant to this clause
                              (ii),

<PAGE>
                              and  (B)  up  to  ninety-five  percent  (95%)  of
                              the  liquidation value of such Borrower's Eligible
                              Inventory,  net  of  liquidation and other related
                              expenses,  as determined by the Lender in its sole
                              discretion, which discretion shall be exercised in
                              a  commercially reasonable manner, but in no event
                              to  exceed  $8,500,000.00,  minus  the  aggregate
                                                          -----
                              principal  amount  of outstanding Advances made to
                              the  other Borrowers pursuant to this clause (ii),
                              plus
                              ----

                    (iii)     up to  the  amount  of  the  Structural  Sublimit
                              then  in  effect,  minus  the  aggregate principal
                                                 -----
                              amount  of  outstanding Advances made to the other
                              Borrowers  pursuant  to  this  clause  (iii), plus
                                                                            ----

                    (iv)      up to the  amount  of  the  Overadvance  Sublimit
                              then  in  effect,  minus  the  aggregate principal
                                                 -----
                              amount  of  outstanding Advances made to the other
                              Borrowers  pursuant  to  this  clause  (iv), minus
                                                                           -----

                    (v)       up to the  amount  of  the  Landlord  Reserve then
                              in effect, apportioned among the Borrowers in such
                              manner  as  the  Lender may determine from time to
                              time  in  its  sole  discretion,  which discretion
                              shall  be  exercised  in a commercially reasonable
                              manner,  minus
                                       -----

                    (vi)      up to the  amount  of  the  Availability  Reserve
                              then in effect, apportioned among the Borrowers in
                              such  manner as the Lender may determine from time
                              to  time  in its sole discretion, which discretion
                              shall  be  exercised  in a commercially reasonable
                              manner,  minus
                                       -----

                    (vii)     the portion  of  the  L/C  Amount  relating  to
                              Letters  of  Credit  issued  for  such  Borrower's
                              account, minus
                                       -----

                    (viii)    such  other  reserves  as  the  Lender  may
                              establish  from  time  to  time  in  its  sole
                              discretion, which discretion shall be exercised in
                              a  commercially  reasonable  manner.

     Notwithstanding  the  foregoing,  in  the  event that dilution for all
Accounts  during  any  ninety  (90)  consecutive day period, expressed as a
percentage,  as  determined by the Lender in its sole discretion, exercised
in  a  commercially reasonable manner, pursuant to its periodic examination
of the Borrowers' collateral reports and/or books and records, exceeds four
percent  (4%),  then  the Lender, in its sole discretion, may implement and
maintain  such  reserves  and/or  reduce  the  advance  percentages used in
determining  the  Borrowing  Base  to  adjust  for  such  excess.

                                        2
<PAGE>
          "FLOATING  RATE"  means  with respect to all Advances, other than
     Overadvances and Structural Sublimit Advances, an annual rate equal to
     the  Prime Rate minus one-quarter of one percent (1/4 of 1%), and with
                     -----
     respect  to  Overadvances  and Structural Sublimit Advances, an annual
     rate equal to the Prime Rate plus one-half of one percent (1/2 of 1%),
                                  ----
     which  annual  rate,  in each case, shall change when and as the Prime
     Rate  changes.

          (2)     The following new defined terms shall be inserted  in  Section
1.1 of the  Credit  Agreement  in  alphabetical  order:

          "OVERADVANCE  SUBLIMIT"  means,  on  May  11, 2006, the amount of
     $500,000,  which amount shall be automatically and permanently reduced
     on  each  Business  Day,  beginning  on  July  11, 2006, by the sum of
     $12,500.00,  until  reduced  to  zero  (-0-).

          "OVERADVANCES"  means Advances made pursuant to and in accordance
     with  the  terms  of  paragraph  (b)(iv) of the defined term Borrowing
     Base.

          (ii)     SECTION 2.12. The following sentence is  added  at the end of
                   -------------
Section  2.12  of  the  Credit  Agreement:

     In  furtherance  and  not  in  limitation  of  Section  2.3,  the
     Borrowers  jointly  and  severally  agree  to  permanently pre-pay the
     aggregate  principal  balance of the Overadvances (i) on each Business
     Day  of  each month, beginning on July 11, 2006, by an amount equal to
     $12,500.00,  and (ii) on September 11, 2006 by an amount such that the
     Overadvances  shall  be  reduced  to  zero  (-0-).

     (b)     EFFECTIVE  UPON  SATISFACTION OF THE CONDITIONS PRECEDENT SET FORTH
IN SUBSECTION (B) OF SECTION FOUR HEREOF, THE CREDIT AGREEMENT IS HEREBY AMENDED
AS  FOLLOWS:

          (i)     SECTION 1.1. DEFINITIONS. The following defined term contained
                  -----------  -----------
in Section  1.1 of the Credit  Agreement  is  amended  and  restated as follows:

          "ORIGINAL  MATURITY  DATE"  means  August  1,  2010.

     SECTION  TWO.  AMENDMENT  FEE.  In consideration for the accommodations and
                    --------------
amendments  provided  herein,  the  Borrowers  shall  pay  to  the  Lender  a
non-refundable  fee  in  the  amount of $10,000 (the "Amendment Fee"), which fee
shall  be  fully  earned on the date hereof.  The Borrowers hereby authorize the
Lender  to charge the Borrowers' loan account with the Lender in payment of such
fee.

     SECTION  THREE.  REPRESENTATIONS  AND  WARRANTIES.  To induce the Lender to
                      --------------------------------
enter  into  this Amendment, each Borrower warrants and represents to the Lender
as  follows:

          (a)     all of the  representations  and  warranties  contained in the
Credit Agreement and each other Loan Document continue to be true and correct in
all material respects as of the date hereof, as  if  repeated  as  of  the  date
hereof, except for such representations and  warranties which,  by their  terms,
are only made  as  of  a  previous  date;

                                        3
<PAGE>
          (b)     the execution, delivery and performance by  each  Borrower  of
this Amendment, the consummation of the transactions herein contemplated and the
compliance with the provisions hereof have been duly authorized by all necessary
corporate action and do not and will not require any consent or approval of such
Borrower's  stockholders; require any authorization, consent, license, permit or
approval  by,  or  registration,  declaration  or filing with, or notice to, any
governmental  department,  commission, board, bureau, agency or instrumentality,
domestic  or  foreign,  or  any third party, except such authorization, consent,
license,  permit,  approval,  registration, declaration, filing or notice as has
been  obtained,  accomplished  or  given  prior  to the date hereof; violate any
provision  of  any  law,  rule  or  regulation  (including,  without limitation,
Regulation  X of the Board of Governors of the Federal Reserve System) or of any
order,  writ,  injunction  or decree presently in effect having applicability to
such  Borrower or of such Borrower's articles of incorporation or bylaws; result
in  a  breach  of  or constitute a default under any indenture or loan or credit
agreement  or  any  other  material agreement, lease or instrument to which such
Borrower  is  a party or by which it or its properties may be bound or affected;
or  result in, or require, the creation or imposition of any Lien (other than in
favor  of the Lender) upon or with respect to any of the properties now owned or
hereafter  acquired  by  such  Borrower;

          (c)     upon its execution, this Amendment shall constitute the legal,
validand binding obligation of each Borrower, enforceable against  each Borrower
in accordance  with  its  terms;

          (d)     no Default or Event of Default has occurred and is continuing;
and

          (e)     since  the  date  of  the  audited financial statements of the
Borrowers  for  the  fiscal  year  ended  December  31,  2005, there has been no
material adverse change  in  any  Borrower's  business,  properties or condition
(financial or otherwise).

     SECTION  FOUR.  CONDITIONS  PRECEDENT.  (a)  The  amendments  to the Credit
                     ---------------------
Agreement  set  forth  in  subsection  (a)  of  Section  One hereof shall become
effective  upon  the  date  on  which  all  of  the  following events shall have
occurred:

               (i)     the Lender  shall  have  received  this  Amendment,  duly
     executed by each  Borrower;

               (ii)    the  Lender  shall  have  received  the  Amendment  Fee;

               (iii)   the Lender shall have received payment of  all  fees  and
     disbursements  incurred  by  the Lender in connection with the preparation,
     negotiation and closing of this Amendment and the transactions contemplated
     to  occur  hereunder;  and

               (iv)    no event has occurred and is continuing which constitutes
     a Default or an Event of Default, and no event or development which has had
     or  is  reasonably  likely  to  have  a  Material Adverse Effect shall have
     occurred  since the date of the Borrowers' audited financial statements for
     the  fiscal  year  ended  December  31,  2005.

                                        4
<PAGE>
          (b)     The amendment to the Credit Agreement set forth in  subsection
(b) of Section One hereof shall become effective upon the date on which  all  of
the following  events  shall  have  occurred:

               (i)     the  Lender  shall  have  received  this  Amendment, duly
     executed by each  Borrower;

               (ii)    the  Lender  shall  have  received  a certificate of each
     Borrower's Secretary  or  Assistant  Secretary  certifying  as  to  (A) the
     resolutions  of  such  Borrower's  directors  and,  if  required,
     shareholders,  authorizing  the  execution, delivery and performance of the
     this  Amendment,  (B) such Borrower's articles of incorporation and bylaws,
     and  (C) the signatures of such Borrower's officers or agents authorized to
     execute  and  deliver  the this Amendment and other instruments, agreements
     and  certificates to be delivered in connection with this Amendment on such
     Borrower's  behalf;

               (iii)   the  Lender shall have  received  a  current  certificate
     issued  by  the  Secretary  of  State  of  each  Borrower's  state  of
     incorporation  certifying  that  such  Borrower  is  in compliance with all
     applicable  organizational  requirements  of  such  state;

               (iv)    the  Lender shall have received the Amendment Fee, if not
     previously  received  by  the  Lender;

               (v)     the  Lender  shall  have received payment of all fees and
     disbursements  incurred  by  the Lender in connection with the preparation,
     negotiation and closing of this Amendment and the transactions contemplated
     to  occur  hereunder;

               (vi)    the Lender shall have received from each Guarantor a duly
     executed  original  (or  any  executed  facsimile  copy)  of  the Guarantor
     Acknowledgment  and  Consent  in  substantially the form attached hereto as
     Exhibit  A;

               (vii)   the Lender  shall  have  received  from  each  holder  of
     Subordinated  Debt  a  duly  executed  original  (or any executed facsimile
     copy)  of  the  Subordinated  Lender  Acknowledgment  and  Consent  in
     substantially  the  form  attached  hereto  as  Exhibit  B;  and

               (viii)  no event has occurred and is continuing which constitutes
     a  Default  or  an  Event  of  Default,  and  no event or development which
     has  had  or  is  reasonably likely to have a Material Adverse Effect shall
     have occurred since the date of the Borrowers' audited financial statements
     for  the  fiscal  year  ended  December  31,  2005.

     SECTION  FIVE.  GENERAL  PROVISIONS.
                     -------------------

          (a)     Except as herein expressly amended, the Credit  Agreement  and
all  of  the other Loan Documents are ratified and confirmed in all respects and
shall remain in full force and effect in accordance with their respective terms.

                                        5
<PAGE>
          (b)     All  references to the Credit Agreement in the Loan  Documents
shall  mean the Credit Agreement as amended as of the effective date hereof, and
as  amended hereby and as hereafter amended, supplemented and modified from time
to  time.

          (c)     This  Amendment embodies  the  entire a greement  between  the
parties  hereto  with  respect  to  the subject matter hereof and supercedes all
prior  agreements,  commitments,  arrangements,  negotiations or understandings,
whether  written  or  oral,  of  the  parties  with  respect  thereto.

          (d)    This Amendment shall be governed by and construed in accordance
with the internal laws of the State of New York, without regard to the conflicts
of  law  principals  thereof.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                        6
<PAGE>
     IN  WITNESS  WHEREOF,  the  Borrowers  and  the Lender have signed below to
indicate  their  agreement  with  the  foregoing  and  their  intent to be bound
thereby.

                                   AMERICAN/UNIVERSAL SUPPLY, INC.

                                   By:  /s/ Richard P. Hennig
                                        -----------------------------------
                                        Name: Richard P. Hennig
                                        Title: President

                                   THE RAL SUPPLY GROUP, INC.

                                   By:  /s/ William Pagano_
                                        -----------------------------------
                                        Name: William Pagano
                                        Title: Vice President

                                   UNIVERSAL SUPPLY GROUP, INC.

                                   By:  /s/ William Pagano
                                        -----------------------------------
                                        Name: William Pagano
                                        Title: President

                                   WELLS FARGO BANK, NATIONAL ASSOCIATION,
                                     acting through its Wells Fargo
                                     Business Credit operating division

                                   By:  /s/ Baraka Stewart
                                        -----------------------------------
                                        Name: Baraka Stewart
                                        Title: Vice President

<PAGE>
                                    EXHIBIT A
                                    ---------

                  Form of Guarantor Acknowledgment and Consent
                  --------------------------------------------

     The  undersigned,  each  a  guarantor  with  respect  to the obligations of
American/Universal  Supply,  Inc.,  a New York corporation ("American"), The RAL
Supply  Group,  Inc., a New York corporation ("RAL") and Universal Supply Group,
Inc.,  a  New  York  corporation  ("Universal";  American, RAL and Universal are
collectively  referred  to  as  the  "Borrowers"), to Wells Fargo Bank, National
Association,  acting through its Wells Fargo Business Credit operating division,
as  successor  to  Wells  Fargo  Business Credit, Inc. (the "Lender"), under the
Credit  and  Security Agreement, dated as of July 28, 2004 (as amended from time
to  time,  the  "Credit  Agreement"), by and among the Borrowers and the Lender,
hereby  (i)  acknowledges and consent to the execution, delivery and performance
by  the  Borrowers  of  the  First  Amendment,  dated  as  of  May 11, 2006 (the
"Amendment"),  to  and under the Credit and Security Agreement, by and among the
Borrowers  and the Lender, attached hereto as Annex A, (ii) reaffirms and agrees
that  the  Guaranty  by Corporations, dated as of July 28, 2004 (as amended from
time  to  time,  the "Guaranty"), made by the undersigned for the benefit of the
Lender is in full force and effect, without defense, offset or counterclaim, and
will  remain  in  full force and effect from and after the effective date of the
Amendment,  and the undersigned acknowledges and guarantees the Indebtedness (as
defined  in  the  Guaranty),  including,  without limiting the generality of the
foregoing,  the  obligations  of  the  Borrowers  under the Credit Agreement, as
amended  by  the Amendment; and (iii) the execution, delivery and performance of
this Guarantor Acknowledgment and Consent (the "Consent") and the performance of
the  Guaranty,  as  amended  and  supplemented  by  this Consent, have been duly
authorized by all necessary corporate action and do not and will not require any
consent  or  approval  of  such  undersigned's  stockholders,  or  require  any
authorization,  consent,  license,  permit  or  approval  by,  or  registration,
declaration  or  filing  with,  or  notice  to,  any  governmental  department,
commission,  board,  bureau,  agency or instrumentality, domestic or foreign, or
any  third party, except such authorization, consent, license, permit, approval,
registration,  declaration,  filing or notice as has been obtained, accomplished
or given prior to the date hereof, in order for this Consent or the Guaranty, as
amended  and  supplemented  by  this  Consent,  to  be effective and enforceable
against  the  undersigned with respect to all of the Indebtedness (as defined in
the  Guaranty).

     In addition to the foregoing, Colonial Commercial Corp. ("Colonial") hereby
(i)  reaffirms  and agrees that each of the General Security Agreement, dated as
of  July  28,  2004  (as  amended  from time to time, the "Security Agreement"),
entered  into  by  Colonial  and the Lender and the Securities Pledge Agreement,
dated  as of July 28, 2004 (as amended from time to time, the "Pledge Agreement"
and,  together with the Security Agreement, the "Collateral Documents"), made by
Colonial  in favor of the Lender is in full force and effect, and will remain in
full  force  and  effect from and after the effective date of the Amendment, and
acknowledges  that the Collateral (as defined in the Security Agreement) and the
Pledged  Collateral  (as  defined  in  the  Pledge  Agreement)  will  secure the
Indebtedness  (as  defined  in the Guaranty) and (ii) represents and warrants to
the  Lender that as of the date hereof all of the representations and warranties
of  Colonial  contained  in  the  Collateral  Documents, as supplemented by this
Consent, continue to be true and correct in all material respects as of the date
hereof,  as  if  repeated  as  of  the  date  hereof,

<PAGE>
except  for  such representations and warranties which, by their terms, are only
made  as  of  a  previous  date.

     Unless  otherwise  specified herein, capitalized terms used herein have the
meanings  specified  in  the  Amendment.

                                   AMERICAN/UNIVERSAL SUPPLY, INC.

                                   By:  /s/ Richard P. Hennig
                                        -----------------------------------
                                        Name: Richard P. Hennig
                                        Title: President

                                   THE RAL SUPPLY GROUP, INC.

                                   By:  /s/ William Pagano
                                        -----------------------------------
                                        Name: William Pagano
                                        Title: Vice President

                                   UNIVERSAL SUPPLY GROUP, INC.

                                   By:  /s/ William Pagano
                                        -----------------------------------
                                        Name: William Pagano
                                        Title: President

                                   COLONIAL COMMERCIAL CORP.

                                   By:  /s/ William Pagano
                                        -----------------------------------
                                        Name: William Pagano
                                        Title: Chief Executive Officer

<PAGE>
                                                            Annex A to Guarantor
                                                      Acknowledgment and Consent

                                 First Amendment
                                 ---------------

<PAGE>
                                    EXHIBIT B
                                    ---------

             Form of Subordinated Lender Acknowledgment and Consent
             ------------------------------------------------------

     The  undersigned,  each  a  holder  of Subordinated Debt (as defined in the
Credit  and  Security Agreement, dated as of July 28, 2004 (as amended from time
to  time, the "Credit Agreement"), by and among American/Universal Supply, Inc.,
a  New  York  corporation  ("American"),  The RAL Supply Group, Inc., a New York
corporation  ("RAL")  and  Universal  Supply Group, Inc., a New York corporation
("Universal";  American,  RAL  and Universal are collectively referred to as the
"Borrowers"),  and  Wells  Fargo  Bank, National Association, acting through its
Wells  Fargo  Business  Credit  operating  division, as successor to Wells Fargo
Business  Credit,  Inc.,  hereby  (i) acknowledges and consent to the execution,
delivery  and  performance  by the Borrowers of the First Amendment, dated as of
May  11,  2006  (the  "Amendment"),  to and under the Credit Agreement, attached
hereto  as  Annex  A, (ii) reaffirms and agrees that the Subordination Agreement
set  forth  on  Annex  B attached hereto to which it is a party (each as amended
from  time to time, the "Subordination Agreement"), is in full force and effect,
and  will  remain  in full force and effect from and after the effective date of
the  Amendment.

     Unless  otherwise  specified herein, capitalized terms used herein have the
meanings  specified  in  the  Amendment.

                                   HILDEBRANDT PROPERTIES, LLC

                                   By:  /s/ Paul H. Hildebrandt
                                        ------------------------------------
                                        Name: Paul H. Hildebrandt
                                        Title:

                                   COLONIAL COMMERCIAL CORP.

                                   By:  /s/ William Pagano
                                        ------------------------------------
                                        Name: William Pagano
                                        Title: Chief Executive Officer

                                   GOLDMAN ASSOCIATES OF NEW YORK, INC.

                                   By:  /s/ Michael Goldman
                                        ------------------------------------
                                        Name: Michael Goldman
                                        Title: President

                                   For  Rita  Folger,  William  Pagano,  Paul H.
                                   Hildebrandt,  John  A.  Hildebrandt,  Eileen
                                   Goldman,  William  Salek,  James  Fallon,
                                   Richard  A. Cancelosi  and Margaret Friedrich
                                   by Power of Attorney

                                        /s/ William Pagano
                                        ------------------------------------
                                        William Pagano, Attorney-in-Fact

<PAGE>
                                                  Annex A to Subordinated Lender
                                                      Acknowledgment and Consent

                                 First Amendment
                                 ---------------

<PAGE>
                                                  Annex B to Subordinated Lender
                                                      Acknowledgment and Consent

                            Subordination Agreements
                            ------------------------

Subordination Agreement, dated as of the 28th day of July, 2004, as amended from
time  to  time,  made  by  Hildebrandt Properties, LLC, for the benefit of Wells
Fargo  Business  Credit,  Inc.

Subordination Agreement, dated as of the 28th day of July, 2004, as amended from
time  to  time,  made  by  Paul  H.  Hildebrandt, for the benefit of Wells Fargo
Business  Credit,  Inc.

Subordination Agreement, dated as of the 28th day of July, 2004, as amended from
time  to  time, made by Colonial Commercial Corp. for the benefit of Wells Fargo
Business  Credit,  Inc.

Subordination Agreement, dated as of the 28th day of July, 2004, as amended from
time  to  time,  made  by  Goldman  Associates  of  New  York,  Inc., a New York
corporation,  for  the  benefit  of  Wells  Fargo  Business  Credit,  Inc.

Subordination Agreement, dated as of the 28th day of July, 2004, as amended from
time  to time, made by Rita Folger, William Pagano, Paul H. Hildebrandt, John A.
Hildebrandt,  Eileen  Goldman, William Salek, James Fallon, Richard A. Cancelosi
and  Margaret  Friedrich,  for  the benefit of Wells Fargo Business Credit, Inc.Exhibit
      10.1

     

    SETTLEMENT
      AGREEMENT AND MUTUAL RELEASE

     

    This
      AGREEMENT OF SETTLEMENT AND MUTUAL RELEASE (the "Agreement") is entered into
      by
      and between Defendants U.S. Global Nanospace, Inc. (f/k/a U.S. Global Aerospace,
      Inc.) ( “USGN”) and Julie Seaman (“Seaman”), Plaintiff Everest International,
      Inc. f/k/a West Harris Property, Inc. (“Everest”), and USDR, Inc., USDR
      Aerospace, LTD., Lake Comanche Ranch, LTD., Avcom Technologies, LTD., and
      Serliuqs Corp., (collectively “USDR”). Hereafter, the aforementioned business
      entities and individuals shall be jointly referred to as “Parties.”

     

    RECITALS

     

    WHEREAS,
      on December 19, 2005, Everest, by and through his counsel filed a Complaint
      in
      Tarrant County District Court, State of Texas, entitled Everest
      International, Inc. f/k/a/ West Harris Property, Inc. v. U.S. Global Nanospace,
      Inc., U.S. Global Aerospace, Inc., and Julie Seaman,
      Cause
      No. 141-215474-05 (the "Action") arising out of the purported breach of an
      agreement to lease property at 1016 Harris Road, Arlington, TX, which is owned
      by Everest (hereinafter the “Property”); 

     

    WHEREAS,
      the Parties are represented by counsel and have had the opportunity to consult
      with such counsel before signing this Settlement Agreement; and

     

    WHEREAS,
      the Parties have concluded that in order to avoid further expenditure of
      substantial time, effort and resources in litigating the disputes among the
      Parties, the Parties wish to fully, finally and forever settle and compromise
      all claims held or asserted through the date of this Agreement.

     

    THE
      PARTIES THEREFORE NOW, in
      consideration of the foregoing recitals and mutual undertakings contained in
      this Agreement, the Parties agree to the terms set forth below:

     

    1. Obligations
      of USDR and Seaman:
      In
      consideration of this Agreement, USDR, as owner of the following items, shall
      convey and transfer ownership to USGN each of the following items, along with
      all documents, titles, keys and combinations necessary to transfer
      ownership:

    

    

    
      	 	
              (a)

            	
              All
                equipment related to metal fabrication, such as drill presses, welders,
                table saw, and tools;

            

    

    
      	 	
              (b)

            	
              All
                pallet racks and shelving;

            

    

    
      	 	
              (c)

            	
              All
                office furniture and front office filing cabinets (not including
                computers, printers, copiers, or phone systems);
                

            

    

    
      	 	
              (d)

            	
              One
                Yale Forklift, model GIC505DENUAE083 (title transfer after loading
                complete);

            

    

    
      	 	
              (e)

            	
              One
                floor pallet jack;

            

    

    
      	 	
              (f)

            	
              One
                “Movin Cool” Classic Plus 14, located in the computer room of the
                Property;

            

    

    
      	 	
              (g)

            	
              One
                HP DesignJet 450C (as is with stored document files removed);
                and

            

      	 	(h)	One single axle utility trailer (with no certificate
              of
              origin, title, or tags).

    

     

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    USDR
      and
      Seaman, as controlling principal on behalf USDR, represent and warrant that
      USDR
      and Seaman have all requisite power and authority (corporate or otherwise)
      to
      execute, deliver and perform this Agreement and the transactions contemplated
      thereby, and that USDR holds unencumbered title to all property to be
      transferred to USGN under this Agreement. USDR and Seaman agree that Everest
      and
      USGN will be held harmless for any subsequent claims of ownership relating
      to
      any property that is removed from the Property and/or any property that is
      transferred to USGN or Everest as part of this Agreement.

    

    
      	2.  	
              Obligations
                of USGN.
                In consideration of this Agreement, USGN agrees to the
                

            

    

    following:

    

    
      	 	
              (a)

            	
              conveyance
                and transfer of ownership of the items listed in ¶ 1, above, to Everest by
                June 16, 2006, along with all documents, titles, keys and combinations
                necessary to transfer ownership; 

            

    

    

    
      	 	
              (b)

            	
              other
                than the items set forth in ¶ 1 above, removal of all other items
                belonging to USGN, USDR and Seaman that are remaining on the Property,
                leaving the Property broom clean, within ten calendar days of June
                16,
                2006, in the following order: 

            

    

    
      	 	
              i.

            	
              removal
                of property in the fenced parking area of the Property, including
                the 48’
                truck trailer located on the
                Property;

            

    

    
      	 	
              ii.

            	
              removal
                of the three large storage units behind the building located on the
                Property;

            

    

    
      	 	
              iii.

            	
              removal
                of the chemicals stored in the southwest corner of the building located
                on
                the Property, including all cabinets and
                containers;

            

    

    
      	 	
              iv.

            	
              removal
                of the contents of the warehouse area of the building located on
                the
                Property; and

            

      	 	v. 	
              removal
                of all files and computers owned by USGN in the office area of the
                building located on the Property;

            

    

     

    
      	 	
              (c)

            	
              issuance
                of 893,617 shares (closing price on June 12, 2006 of $.047 per share)
                of
                restricted common stock of USGN to Everest (the “Shares”) within ten
                calendar days of June 16, 2006;

            

      	 	 	 

      	 	(d)	
              tender
                cash payment in the amount of $10,000 to Everest by June 16, 2006;
                

            

      	 	 	 

      	 	(e) 	
              forfeit
                all claims to the $11,000 security deposit paid to Everest pursuant
                to the
                Lease Agreement; and

            

      	 	 	 

      	 	(e)	
              tender
                cash payment of $32,000 at 10% per year via monthly installments
                of
                $1,464.43 commencing on October 1, 2006 with no prepayment
                penalty.

            

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    3. Obligations
      of Everest.
      Everest
      agrees to give USGN and its employees access to the Property for the purpose
      of
      removing their property therefrom.
      Everest
      further agrees that, within five business days following full execution of
      this
      Agreement and the completion of the Obligations of USGN in Paragraph 2(a),
      2(b),
      2(c) and 2(d), it shall cause its counsel to file a dismissal of the Action
      with
      prejudice
      as to
      all of the Defendants. 

     

    4. Costs
      and Fees.
      All
      parties agree to bear their own costs and fees with regard to this
      Action.

     

    5. Release
      by Everest.
      In
      further consideration of the foregoing, Everest, on behalf of itself and their
      respective officers, directors, parent corporations, subsidiary and affiliate
      corporations, employees, agents, servants, attorneys, heirs, executors,
      representatives, administrators and assigns, does hereby release and discharge
      USGN, Seaman and USDR, and their respective officers, directors, parent
      corporations, subsidiary and affiliate corporations, employees, agents,
      servants, attorneys, heirs, executors, representatives, administrators and
      assigns, jointly and severally, from any and all rights, claims, debts, demands,
      acts, agreements, liabilities, obligations, damages, costs, fees (including,
      without limitation, those of attorneys), expenses, actions, and/or causes of
      action of any nature whatsoever, whether known or unknown, suspected or claimed,
      matured or unmatured, fixed or contingent, direct or indirect, through the
      date
      of this Agreement.

     

    6. Release
      by Defendants.
      In
      further consideration of the foregoing, USGN, Seaman and USDR (collectively,
      “Defendants”), on behalf of themselves and their respective officers, directors,
      parent corporations, subsidiary and affiliate corporations, employees, agents,
      servants, attorneys, heirs, executors, representatives, administrators and
      assigns, does hereby release and discharge Everest, and its respective officers,
      directors, parent corporations, subsidiary and affiliate corporations,
      employees, agents, servants, attorneys, heirs, executors, representatives,
      administrators and assigns, jointly and severally, from any and all rights,
      claims, debts, demands, acts, agreements, liabilities, obligations, damages,
      costs, fees (including, without limitation, those of attorneys), expenses,
      actions, and/or causes of action of any nature whatsoever. 

     

    7. Release
      by Seaman and USDR.
      In
      further consideration of the foregoing, USGN, Seaman and USDR (collectively,
      “Defendants”), on behalf of themselves and their respective officers, directors,
      parent corporations, subsidiary and affiliate corporations, employees, agents,
      servants, attorneys, heirs, executors, representatives, administrators and
      assigns, does hereby release and discharge Everest, and its respective officers,
      directors, parent corporations, subsidiary and affiliate corporations,
      employees, agents, servants, attorneys, heirs, executors, representatives,
      administrators and assigns, jointly and severally, from any and all rights,
      claims, debts, demands, acts, agreements, liabilities, obligations, damages,
      costs, fees (including, without limitation, those of attorneys), expenses,
      actions, and/or causes of action relating to or arising out of the storage
      of or
      damages to any property belonging to USDR or Seaman located at or on the
      Property.

     

    8. Waiver
      of All Claims.
      The
      Parties agree that the releases provided for herein extend to all claims
      released above whether known or unknown, suspected or unsuspected. 

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    9. Representations
      and Warranties.
      The
      Parties represent and warrant to and agree with each other as
      follows:

     

    (a)  Each
      party has had the opportunity to receive and have received independent legal
      advice from attorneys of their choice with respect to the advisability of making
      this settlement and the releases provided herein and with respect to the
      advisability of executing this Agreement;

     

    (b)  Except
      as
      expressly stated in this Agreement, no party has made any statement or
      representation to any other party regarding any fact, which statement or
      representation is relied upon by any other party in entering into this
      Agreement. In connection with the execution of this Agreement or the making
      of
      this Settlement provided for herein, no party to this Agreement has relied
      upon
      any statement, representation or promise of any other party not expressly
      contained herein;

     

    (c)  This
      Agreement is intended to be final and binding upon the Parties and is further
      intended to be effective as a full and final accord and satisfaction regardless
      of any claims of fraud, misrepresentation, concealment of fact, mistake of
      fact
      or law, duress, or any other circumstances whatsoever. Each party relies upon
      the finality of this Agreement as a material factor inducing that party's
      execution of this Agreement;

     

    (d)  There
      are
      no other agreements or understandings between the Parties hereto relating to
      the
      matters or releases referred to in this Agreement;

     

    (e)  All
      Parties hereto and their counsel have made such investigation of the facts
      pertaining to the releases contained herein as they deem necessary;

     

    (f)  The
      terms
      of this Agreement are contractual and are the result of arms-length negotiation
      among the Parties; 

     

    (g)  This
      Agreement has been carefully read by each party and the contents thereof are
      known and understood by each of the Parties; and

     

    (h)  Consistent
      with their obligations under the law, all Parties to this Agreement agree that
      they shall not take any position with any third party that is contrary to,
      or in
      any way inconsistent with, any provision of this Agreement.

     

    10. Everest’s
      Representations and Warranties for Issuance of USGN Stock

     

    (i) Everest
      understands and acknowledges that the Shares have not been 

    registered
      with the Securities and Exchange Commission under Section 5 of the of the
      Securities Act or registered or qualified with any applicable state or
      territorial securities regulatory agency in reliance upon one or more exemptions
      afforded from registration or qualification.

    

    (ii) Everest
      understands and acknowledges that the Shares are deemed
      to
      be “restricted” under the Securities Act, and may be re-sold only pursuant to
      exemptions provided by the Securities Act or pursuant to an effective
      registration statement. Everest understands and acknowledges that USGN is
      required to place a legend on the certificate stating that the Common Stock
      not
      been registered under the Securities Act.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    11. Survival
      of Warranties.
      The
      representations and warranties contained in this Agreement are deemed to and
      do
      survive execution of this Agreement and/or the closing hereof.

     

    12. Further
      Representations.
      The
      Parties hereto represent and warrant to each other that they have not heretofore
      assigned or transferred, or purported to assign or transfer, to any person
      or
      other entity, any right, title or interest in any claim or other matter which
      each purports to release herein. In the event that such representation is false,
      and any such claim or matter is asserted against any party hereto (and/or the
      successor of such party) by any party or entity who is the assignee or
      transferee of such claim or matter, then the party hereto who assigned or
      transferred such claim or matter shall fully indemnify, defend and hold harmless
      the party against whom such claim or matter is asserted (and its successors)
      from and against such claims or matters and from all actual costs, fees
      (including all attorneys' fees), expenses, liabilities and damages which that
      party (and/or its successors) incurs as a result of the assertion of such claim
      or matter.

     

    13. Modifications.
      This
      Agreement may not be amended, canceled, revoked or otherwise modified except
      by
      written agreement subscribed by all of the Parties to be charged with such
      modification.

     

    14. No
      Admission of Liability.
      The
      Parties hereto explicitly acknowledge and agree that this Agreement represents
      settlement of doubtful and disputed claims, and that by entering into this
      Agreement, no party admits or acknowledges the existence of any liability or
      wrongdoing. 

     

    15. Covenant
      Not to Sue.
      Each
      party covenants and agrees not to bring any action, claim, suit or proceeding
      against any party hereto which concerns the Released Matters, and each party
      further covenants and agrees that this Agreement is a bar to any such claim,
      action, suit or proceeding, save
      and
      except the breach or non-performance of this Agreement by any
      party.

     

    16. Severability.
      If a
      court of competent jurisdiction rules that any portion of this Agreement is
      invalid or unenforceable, the remaining provisions shall remain in full force
      and effect.

     

    17. Warranty
      of Authority.
      Each
      party whose signature is affixed hereto in its representative capacity
      represents and warrants that it is authorized to execute this Agreement on
      behalf of and to bind the entity on whose behalf its signature is
      affixed.

     

    18. Entire
      Agreement.
      This
      Agreement constitutes the entire agreement between the Parties and supersedes
      any and all other arrangements, understandings, negotiations, or discussions,
      either oral or in writing, express or implied, relative to the matters which
      are
      the subject of this Agreement. The Parties hereto acknowledge that no
      representations, inducements, promises, agreement or warranties, oral or
      otherwise, have been made by any party hereto, or anyone acting on their behalf,
      which are not embodied in this Agreement, that they have not executed this
      Agreement in reliance on any such representation, inducement, promise, agreement
      or warranty, and that no representation, inducement, promise, agreement or
      warranty not contained in this Agreement including, but not limited to, any
      purported supplements, modifications, waivers or terminations of this Agreement
      shall be valid or binding unless executed in writing by all of the
      Parties.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    19. Counterparts.
      This
      Agreement may be executed in one or more counterparts, each of which when
      executed and delivered shall be an original, and all of which when executed
      shall constitute one and the same instrument.

     

    20. Facsimile
      Signatures.
      This
      Agreement may be executed and delivered by facsimile, in which case the Parties
      shall promptly exchange hard copies of the signature pages.

     

    21. Authorship.
      This
      Agreement shall be deemed to have been mutually pre-approved by all Parties
      with
      the advice of counsel and shall not be construed for or against any of them
      solely by reason of authorship.

     

    22. Remedies
      for Breach.
      In the
      event of a breach of this Agreement, the Parties shall have all remedies
      available at law or in equity. 

     

    IN
      WITNESS WHEREOF, the Parties hereto have executed this Agreement on the date
      set
      forth below.

     

    
      	
              Dated:
                June 15, 2006

            	
              U.S.
                GLOBAL NANOSPACE, INC.

              (f/k/a
                U.S. GLOBAL AEROSPACE, INC.)

            
	 	 	 	 
	 	By:
              	
              
                /s/
                  Carl Gruenler

              

            	 
	 	Its:	
              Chief
                Executive Officer

            	 
	 	 	 	 
	
              Dated:
                June 15, 2006

            	USDR,
              INC. 	 
	 	 	 	 
	 	By:
              	
              
                /s/
                  Julie Seaman

              

            	 
	 	Its:
              	
              Secretary

            	 
	 	 	 	 
	 	 	 	 
	
              Dated:
                June 14, 2006

            	
              EVEREST
                INTERNATIONAL, INC., 

              f/k/a/
                WEST HARRIS PROPERTY, INC.

            
	 	 	 	 
	 	By:
              	
              
                /s/
                  Patrick H. Sullins

              

            	 
	 	Its:	
              President

            	 
	 	 	 	 
	 	
              /s/
                Julie Seaman

            	 
	
              Dated:
                June 15, 2006

            	JULIE SEAMAN,
              individually	 

    

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    ACKNOWLEDGMENT

     

     

    
      	STATE
              OF                   
               CT                 
              	§	 
	 	§	 
	COUNTY OF 
                       
              HARTFORD        	§	 

    

     

     

    
      BEFORE
        ME, the
        undersigned notary public, on this day personally appeared CARL
        GRUENLER, who, being duly sworn on his oath, deposed and declared himself
        to be in his capacity as representative of U.S. Global Nanospace, Inc. (f/k/a
        U.S. Global Aerospace, Inc.), a Delaware corporation, and acknolwedged that
        he
        is duly authorized to enter into, sign and execute the foregoing instrument
        on
        behalf of U.S. Global Nanospace, Inc., on this 15th day of June,
        2006.

       

    

     

    
      	 	 	/s/
              ILLEGIBLE                                         
              
	 	 	
            
	 	 	Notary Public in and for the
	 	 	 
	 	 	State
              of              
              CT             
              
	 	 	 
	 	 	My Commission Expires:
              9/30/2009

    

     

     

    
      
        	STATE OF __________________	§	 
	 	§	 
	COUNTY OF ________________	§	 

      

       

    

    
      

        BEFORE
          ME, the
          undersigned notary public, on this day personally appeared Patrick Sullins,
          who,
          being duly sworn on his oath, deposed and declared himself to be in his
          capacity
          as representative of Everest International, Inc., a Texas corporation,
          and
          acknolwedged that he is duly authorized to enter into, sign and execute
          the
          foregoing instrument on behalf of Everest International, Inc., on this
          ______
          day of ______________, 2006.

         

      

    

     

    
      
        	 	 	____________________________________
	 	 	
              
	 	 	Notary Public in and for the
	 	 	 
	 	 	State of _____________
	 	 	 
	 	 	My Commission
                Expires:

      

       

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    
    

    
       

      
        	STATE OF __________________	§	 
	 	§	 
	COUNTY OF ________________	§	 

      

     

    BEFORE
      ME, the
      undersigned notary public, on this day personally appeared Patrick Sullins,
      who,
      being duly sworn on his oath, deposed and declared himself to be in his capacity
      as representative of Everest International, Inc., a Texas corporation, and
      acknolwedged that he is duly authorized to enter into, sign and execute the
      foregoing instrument on behalf of Everest International, Inc., on this ______
      day of ______________, 2006.

     

     

    
      
        
          	 	 	____________________________________
	 	 	
                
	 	 	Notary Public in and for the
	 	 	 
	 	 	State of _____________
	 	 	 
	 	 	My Commission
                  Expires:

        

         

         

      

    

    
      
        	STATE
                OF               
                 Texas           	§	 
	 	§	 
	COUNTY OF
                        
                Johnson          
                	§	 

      

     

    BEFORE
      ME, the
      undersigned notary public, on this day personally appeared Julie Seaman, who,
      being duly sworn on her oath, deposed and declared
      herself to be in her capacity as representative of USDR, Inc., a Nevada
      Corporation and acknowledge that she is duly authorized to enter into, sign
      and
      execute the foregoing instrument on behalf of USDR, Inc. on this 15 day of
      June,
      2006.

     

    
      
        
          
            	 	 	/s/
                    Kimberly B.
                    LoDico                      
                    
	 	 	
                  
	 	 	Notary Public in and for the
	 	 	 
	 	 	State
                    of                Texas           
	 	 	 
	 	 	My Commission Expires:
                    08/18/2009

          

           

        

      

    

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

     

    
      
        
          
            	STATE
                    OF               
                     Texas           	§	 
	 	§	 
	COUNTY
                    OF          Tarrant          
                    	§	 

          

      

      BEFORE
        ME, the
        undersigned notary public, on this day personally appeared Patrick Sullins,
        who,
        being duly sworn on his oath, deposed and declared himself to be in his capacity
        as representative of Everest International, Inc., a Texas corporation, and
        acknolwedged that he is duly authorized to enter into, sign and execute the
        foregoing instrument on behalf of Everest International, Inc., on this
        14th day of June, 2006.

       

       

      
        
          
            	 	 	/s/
                    Connie
                    Brannan                                              
                    
	 	 	
                  
	 	 	Notary Public in and for the
	 	 	 
	 	 	State
                    of                Texas           
	 	 	 
	 	 	My Commission Expires:
                    3-22-08

          

           

        

      

      
         

        
          	STATE OF __________________	§	 
	 	§	 
	COUNTY OF ________________	§	 

        

      

      
 

      
        BEFORE
          ME, the
          undersigned notary public, on this day personally appeared Julie Seaman,
          an
          individual, who, being duly sworn on his oath, deposed and acknowledged
          that she
          entered into, signed and executed the foregoing instrument, on this ______
          day
          of ______________, 2006.

         

      

      
        
          
            
              	 	 	____________________________________
	 	 	
                    
	 	 	Notary Public in and for the
	 	 	 
	 	 	State of _____________
	 	 	 
	 	 	My Commission Expires:

            

             

          

        

      

      

      
        
          
          

        

        
          9

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