Document:

form8k050108ex101-1.htm

    Exhibit
10.1

    LOAN
AND SECURITY AGREEMENT

    

    

    THIS LOAN AND SECURITY AGREEMENT
made as of  May 1, 2008, by and between STERLING NATIONAL BANK, a
national banking association, having an office located at 500 Seventh Avenue,
New York, New York 10018 (hereinafter referred to as the "Bank" or "Secured
Party"), CAPSTONE INDUSTRIES,
INC., a Florida corporation having its principal and chief executive
office at 350 Jim Moran Blvd., Deerfield Beach, Florida 33442 (hereinafter
referred to as the "Borrower" or "Debtor"), CHDT CORPORATION, a
Florida corporation, with
offices located at 350 Jim Moran Blvd., Deerfield Beach, Florida 33442 (the
“Entity Guarantor”) and HOWARD
ULLMAN, residing at 5000 Thoroughbred Land, Southwest Ranches, Florida
33330, and with offices located at 350 Jim Moran Blvd., Deerfield Beach, Florida
33442 (the “Individual Guarantor” and together with the Entity Guarantor,
hereinafter collectively referred to as the "Guarantors");

    

    W
I T N E S S E T H:

    

    WHEREAS,
the Borrower desires the Bank to make extensions of credit to the Borrower, and
the Bank has agreed to make such extensions of credit upon certain terms and
conditions set forth herein and in other agreements, instruments and documents
executed in conjunction herewith;

    

    NOW,
THEREFORE, in consideration of the premises and mutual agreements herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

    

    SECTION
1.  DEFINITIONS AND TERMS

    

    1.1           Defined
Terms.   As used in this Agreement, the following words and terms
shall have the following meanings:

    

    "Accounts"
or "Accounts Receivable" shall mean, in addition to the definition of the term
"account" contained in the UCC, any and all obligations of any kind at any time
due and/or owing to the Debtor (including any such obligation that might be
characterized or classified under the UCC as accounts, contract rights, chattel
paper, general intangibles or otherwise), and all rights of the Debtor to
receive payment or any other consideration whether arising from goods sold or
leased by the Debtor or services rendered or otherwise, whether or not such
right has been earned by performance, whether secured or unsecured, including
without limitation, invoices, contract rights, accounts receivable, notes,
drafts, acceptances, instruments, refunds, including tax refunds, and all other
debts, obligations and liabilities in whatever form owing to the Debtor from any
Person, all security and guaranties therefor, all of the Debtor's rights in, to
and under all purchase orders heretofore, now or hereafter received by the
Debtor for goods or services, and all Debtor's rights to goods sold (whether
delivered, undelivered, in transit or returned) which may be represented
thereby, including all of Debtor's rights as an unpaid vendor or lienor,
including stoppage in transit, replevin and reclamation, whether now existing or
hereafter arising, and all books, records, ledger cards and other tangible and
intangible property pertaining to same including records, computerized
data,  and software.

    
      
         

      

      
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    "Account
Debtor" shall mean a Person obligated on an Account, chattel paper or a general
intangible.

    

    "Advances"
shall mean any monies advanced, loans made, or credit extended to Borrower by
the Bank hereunder.

    

    "Affiliate"
of any Person shall mean (a) any Person which, directly or indirectly, is in
control of, is controlled by, or is under common control with such Person, or
(b) any Person who is a director or officer or manager (i) of such Person, (ii)
of any Subsidiary of such Person or (iii) of any Person described in clause (a)
above. For purposes of this definition, control of a Person shall mean the
power, direct or indirect, to vote 5% or more of the securities or membership
interests having ordinary voting power for the election of directors or managers
of such Person, or to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.

    

    "Agreement"
shall mean this Loan and Security Agreement, together with any and all exhibits,
schedules, amendments or supplements hereto.

    

    "Anti-Terrorism
Laws" shall mean any applicable laws relating to terrorism or money laundering,
including Executive Order No. 13224, the USA Patriot Act, applicable laws
comprising or implementing the Bank Secrecy Act, and applicable laws
administered by the United States Treasury Department’s Office of Foreign Asset
Control (as any of the foregoing may from time to time be amended, renewed,
extended, or replaced).

    

    "Bank"
shall mean STERLING NATIONAL
BANK, its affiliates and subsidiaries, and all successors and assigns
thereof (also referred to as "Secured Party" and "Lender").

    

    "Borrower"
shall mean CAPSTONE INDUSTRIES,
INC., and any other Person designated or signing this Agreement as
Borrower, together with all successors and assigns thereof (also referred to
herein as "Debtor" and "Obligor").

    

    "Borrower's
Availability" shall mean, as of any date of determination, the amount computed
under the Borrowing Base less the outstanding principal balance currently owing
on the Line of Credit, but in no event greater than the Maximum Revolving
Advance Amount.

    

    "Borrowing
Base" (also known as the "Advance Rate") shall mean the following formula
utilized by the Bank to make Advances to the Borrower subject to the Maximum
Revolving Advance Amount and subject to any sublimits established under this
Agreement: (i) up to 85% of Borrower's Eligible Accounts Receivable (consisting
only of Domestic Accounts Receivable less than 90 days from invoice date), plus
(ii) up to 50% of the value of the finished goods Eligible Inventory of Borrower
from time to time on hand, stored at warehouses located in the United States,
less reserves with respect to Inventory which the Bank may deem necessary in its
sole and absolute discretion, up to the Inventory Sublimit , plus (iii) up to
50% of the face amount of any undrawn Letters of Credit issued by the Bank from
the Loan Facility for the purchase of Inventory, up to the Letter of Credit
Sublimit. The Bank shall have the right from time to time to adjust the
foregoing percentages based upon, among other things, its sole determination of
the value or likelihood of collection of Eligible Accounts Receivables owing
to

    
      
         

      

      
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    said
Borrower from a particular Account Debtor or class of Account Debtors, and
considerations regarding Inventory. All amounts collected by Bank on Eligible
Accounts Receivable shall be credited to Borrower's current loan account with
the Bank. The excess of collections over Obligations, as herein defined, shall
be credited to Borrower on a daily basis.

    

    "Borrowing
Base Certificate" shall mean the certificate form prescribed by the Bank as its
borrowing base certificate which forms the basis upon which Advances are made to
the Borrower hereunder, and which sets forth the percentages of prescribed
assets of the Borrower as set forth in this Agreement and required by the Bank
as part of the Borrower's financial reporting obligations to the
Bank.

    

    "Business
Day" shall mean any day other than Saturday or Sunday or a legal holiday on
which commercial banks are authorized or required by law to be closed for
business in the State of New York.

    

    "Capital
Expenditures" shall mean for any period, the aggregate of all expenditures,
including that portion of Capitalized Lease Obligations attributable to that
period, made for the acquisition of any fixed assets or improvements,
replacements, substitutions or additions determined in accordance with
GAAP.

    

    "Capitalized
Lease Obligation" shall mean any Indebtedness of Debtor represented by
obligations under a lease that are required to be capitalized for financial
reporting purposes in accordance with GAAP.

    

    "Change
of Control" shall mean the occurrence of any event (whether in one or more
transactions) which results in a transfer of control of Borrower to a Person who
is not an Owner of Borrower as set forth in Schedule B, or any merger or
consolidation of or with Borrower, or any sale of all or substantially all of
the property or assets of Borrower. For purposes of this definition, "control of
Borrower" shall mean the power, direct or indirect, to direct or cause the
direction of the management and policies of Borrower whether by contract or
otherwise.

    

    "Change of Ownership" shall mean that
there has occurred a change in the ownership of the stock interest of Borrower
from that which is reflected in Schedule B without the prior written consent of
the Bank.

    

    "Collateral"
shall mean all property of any nature whatsoever pledged, assigned for security,
mortgaged, hypothecated or otherwise transferred for security to the Bank, or in
which the Bank has been granted a security interest, lien or other interest, for
the purpose of securing the Obligations.

    

    "Consents"
shall mean all filings and all licenses, permits, consents, approvals,
authorizations, qualifications and orders of each governmental body and other
third parties, domestic or foreign, necessary to carry on Debtor's business,
including, without limitation, any Consents required under all applicable
federal, state or other applicable law.

    

    
      
         

      

      
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    "Debtor"
shall mean the Borrower and any other Person who has pledged, assigned,
mortgaged, hypothecated, or granted a security interest or other Lien to the
Bank in any property in connection with the Loan Documents.

    

    "Default"
shall mean that an Event of Default (as defined herein) has occurred, the giving
of notice, the lapse of time, or both, has occurred, and such Event of Default
has continued beyond any permitted cure period.

    

    "Default
Rate" shall mean the increased rate of interest chargeable by the Bank if a
Default has occurred and as specified in Section 2 of this
Agreement.

    

    "Domestic
Accounts Receivable" shall mean Accounts with respect to which the Account
Debtor is domiciled in the United States of America.

    

    "Eligible
Accounts Receivable" shall mean those Accounts or Accounts Receivable of the
Borrower which (i) are less than ninety (90) days from the original date of
invoice; (ii) comply with all of the terms, conditions, warranties and
representations applicable to Accounts and Accounts Receivable made to the Bank
under this Agreement and the other Loan Documents; and (iii) are otherwise
acceptable in all respects to the Bank. Eligible Accounts Receivable shall not
include the following: (a) that portion of the Accounts owed by any single
Account Debtor which exceeds twenty-five percent (25%) of all of the Accounts
[commonly referred to as Accounts Receivable concentration factor], provided,
however, that the Bank may increase the concentration factor with respect to
certain Account Debtors upon request from the Borrower in the sole discretion of
the Bank; (b) all
Accounts owing by any Account Debtor if fifty percent (50%) or more of the
Accounts due from such Account Debtor are older than ninety (90) days from
original invoice date [commonly referred to as Accounts Receivable cross age
factor]; (c) Accounts arising from progress billings, invoices for deposits, and
rebills of amounts previously credited to the extent of credits issued more than
fifteen (15) days prior to such rebill; (d) Foreign Accounts Receivable; (e)
Accounts with respect to which the sale is on an installment sale, lease or
other extended payment basis; (f) Accounts with respect to which the Account
Debtor is a federal governmental authority unless approved by the Bank in
advance and subject to the Bank requiring compliance with the Federal Assignment
of Claims Act; (g) Accounts with respect to which goods are placed on
consignment, guaranteed sale, bill-and-hold, repurchase or return, or other
terms by reason of which the payment by the Account Debtor may be conditional;
(h) Accounts with respect to which the Account Debtor is a Subsidiary of,
Affiliate of, or has common officers or directors with the Debtor; (i) Accounts
with respect to which the Bank does not for any reason have a perfected first
priority security interest; (j) Accounts with respect to which the Debtor is or
may become liable to the Account Debtor for goods sold or services rendered by
the Account Debtor to the Debtor, to the extent of the Debtor's existing or
potential liability to such Account Debtor; (k) Accounts with respect to which
the Account Debtor has disputed any liability, or the Account Debtor has made
any claim with respect to any other Account due to the Debtor, or the Account is
otherwise subject to any right of setoff, deduction, breach of warranty or other
defense, dispute or counterclaim by the Account Debtor; (l) Accounts with
respect to which the Account Debtor is an officer, director, employee, or agent
of the Debtor or an Affiliate; (m) that portion of any Accounts representing
late fees, service charges or interest, but only to the extent of such portion;
(n) Accounts of an Account Debtor where the Account Debtor is located in a
state

    
      
         

      

      
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    which
requires a Notice of Business Activities Report or similar report to be filed,
and the Debtor has not filed same for the current year, or where the Debtor is
not otherwise authorized to transact business in said state, or where the Debtor
is not in good standing in such state; (o) Accounts owed by any Account Debtor
which is insolvent or is the subject of an insolvency proceeding; (p) that
portion of any Accounts represented by unperformed contract rights, documents,
instruments, chattel paper or general intangibles; and (q) any and all Accounts
of an Account Debtor whose credit worthiness is not satisfactory to the Bank in
its sole credit judgment based on information available to the Bank. References
to percentages of all Accounts are based on dollar amount of Accounts, and not
number of Accounts. Anything to the contrary notwithstanding, the Bank shall
have the right, in its sole and absolute discretion, to classify any Accounts
Receivable as not being Eligible Accounts Receivable.

    

    "Eligible
Inventory" shall mean that portion of the Borrower's Inventory of finished goods
held for sale by the Borrower, normally and currently saleable in the ordinary
course of the Borrower's business, and which at all times pertinent hereto is of
good and merchantable quality, free from defects, as to which the Bank has a
perfected first priority Lien, and which is located at the locations set forth
in this Agreement, and as to which Borrower has satisfied all terms, conditions,
warranties and representations of this Agreement and the other Loan Documents.
Eligible Inventory does not include any of the following: (a) catalogs and other
promotional materials of any kind; (b) work in process; (c) any returned items;
(d) any damaged, defective or recalled items; (e) any obsolete items; (f) any
items used as demonstrators, prototypes or salesmen's samples; (g) any items of
Inventory which have been consigned to Borrower or as to which a Person claims a
Lien; (h) any items of Inventory which have been consigned by the Borrower to a
consignee; (i) packing, packaging and shipping materials; (j) Inventory located
on premises leased by Borrower which are not located in the United States or are
leased by the Borrower from a landlord with whom the Bank has not entered into a
landlord's waiver on terms satisfactory to the Bank; (k) Inventory in the
possession of a bailee which is not located in the United States, or which has
not executed a bailee waiver acknowledging to the Bank that such bailee holds
said Inventory for the benefit of the Bank and shall act upon the instructions
of the Bank, without the further consent of the Borrower; (l) perishable items
of produce; and (m) Inventory which in the reasonable judgment of the Bank is
considered to be slow moving or otherwise not merchantable.  Eligible
Inventory shall be valued at the lower of (a) cost, (b) market value, or (c) the
valuation consistent with that employed in the preparation of the financial
statements of the Borrower required under this Agreement. Anything to the
contrary notwithstanding, the Bank shall have the right, in its sole and
absolute discretion, to classify any Inventory as not being Eligible
Inventory.

    

    
      
         

      

      
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    "Environmental
Laws" means any and all federal, state, regional, county, municipal or local
laws, statutes, rules, regulations, directives or ordinances concerning public
health, safety, or the environment, affecting or applicable to Debtor, Debtor's
operations, properties or facilities, or any property or facility at which any
Collateral is located. Without limiting the expansive definition of
Environmental Laws hereunder, Environmental Laws includes all rules,
regulations, and guidance documents promulgated or published by any agency which
regulates, investigates, or is involved with issues relating to public health,
safety, or the environment, including, without limitation, relating to (i)
releases, discharges, emissions, or disposals to air, water, land, or
groundwater; (ii) the withdrawal or use of groundwater, (iii) the use, handling,
or disposal of polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde;
(iv) the treatment, storage, disposal, or management of hazardous substances
(including, without limitation, petroleum, its derivatives, by-products, or
other hydrocarbons), and any other solid, liquid, or gaseous substance, exposure
to which is prohibited, limited, or regulated, or may or could pose a hazard to
the health and safety of the occupants of the Property and the operations
thereon or the property adjacent to or surrounding the Property; (v) the
exposure of persons to toxic, hazardous, or other controlled, prohibited, or
regulated substances; and (vi) the transportation, storage, disposal management,
or release of gaseous or liquid substances, and any regulation, order,
injunction, judgment, declaration, notice or demand issued in connection
therewith.

    

    "Equipment"
shall mean any "equipment" as such term is defined in the UCC, now or hereafter
owned by the Debtor and, in any event, including, without limitation, all
machinery, equipment, furnishings, fixtures, and vehicles now or hereafter owned
by the Debtor, of any kind, nature and description whether affixed to real
property or not, and all additions to, substitutions and replacements for or
accessions to any of the foregoing, together with all attachments, components,
parts (including spare parts), equipment and accessories installed thereon or
affixed thereto and all fuel for any thereof.

    

    "ERISA"
shall mean the Employee Retirement Income Security Act of 1974, as amended from
time to time and the rules and regulations promulgated thereunder.

    

    "Event of
Default" shall mean any of the events specified in this Agreement as
constituting an Event of Default whether or not any requirement for the giving
of notice, the lapse of time, or both, has been satisfied.

    

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

    

    "Foreign
Accounts Receivable" shall mean Accounts with respect to which the Account
Debtor is not domiciled in the United States of America.

    

    "GAAP"
shall mean the Generally Accepted Accounting Principles in the United States of
America as in effect from time to time.

    

    
      
         

      

      
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    "Guarantor(s)"
shall mean CHDT CORPORATION
(the "Entity Guarantor"), and HOWARD ULLMAN (the "Individual
Guarantor"), and any other Person designated or signing this Agreement as
Guarantor or signing any separate guaranty agreement in favor of Bank, together
with all successors and assigns, and in addition, if an individual, all heirs,
executors, administrators, and personal representatives thereof (sometimes
referred to as an "Obligor" or a "surety").

    

    "Indebtedness"
of any Person at any date, shall mean (i) all indebtedness of such Person for
borrowed money or for the deferred purchase price of property or services (other
than current trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices), (ii) any other indebtedness of
such Person which is evidenced by a note, bond, debenture or similar instrument,
(iii) all Capitalized Lease Obligations of such Person, (iv) the face amount of
all letters of credit issued for the account of such Person and all drafts drawn
thereunder, (v) all obligations of other Persons which such Person has
guaranteed, (vi) all Obligations of such Person under hedging agreements, (vii)
all liabilities secured by any Lien on any property owned by such Person even
though such Person has not assumed or otherwise become liable for the payment
thereof, and (viii) all obligations of such Person which in accordance with GAAP
would be classified upon a balance sheet as liabilities (other than current
trade liabilities incurred in the ordinary course of business and payable in
accordance with customary practices).

    

    "Intellectual
Property" shall mean all of Debtor's past, present and future: trade secrets,
know-how and other proprietary information; trademarks, Internet domain names,
service marks, trade names, business names, designs, logos, slogans (and all
translations, adaptations, derivations and combinations of the foregoing)
indicia and other source and/or business identifiers, and the goodwill of the
business relating thereto and all registrations or applications for
registrations which have heretofore been or may hereafter be issued thereon
throughout the world; copyrights (including copyrights for computer programs)
and copyright registrations or applications for registrations which have
heretofore been or may hereafter be issued throughout the world and all tangible
property embodying copyrights and unpatented inventions (whether or not
patentable); patent applications and patents; industrial design applications and
registered industrial designs; license agreements related to any of the
foregoing and income therefrom; books, records, writings, computer tapes or
disks, flow diagrams, specification sheets, computer software, source codes,
object codes, executable codes, data, databases and other physical
manifestations, embodiments or incorporations of any of the foregoing; the right
to sue for all past, present and future infringements of any of the foregoing;
all other intellectual property; and all common law and other rights throughout
the world in and to all of the foregoing.

    

    
      
         

      

      
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    "Inventory"
shall mean inventory as such term is defined in the UCC, and shall include,
without limitation, all goods and other personal property of the Debtor, whether
now owned or hereafter acquired or in which the Debtor now has or hereafter may
acquire any right, title or interest, and wherever located, whether in transit
or otherwise, held for sale or lease, or furnished or to be furnished under
contracts for service, sale or lease, including all goods returned or reclaimed
from customers, and all raw materials, work in process and materials owned by
the Debtor and used or consumed or to be used or consumed in its business, or in
the processing, packaging or shipping of the same, and all finished goods and
all assets of a type classified as Inventory as reflected, or as should be
reflected pursuant to GAAP, on the financial statements of the
Debtor.

    

    "Inventory
Sublimit" shall mean the maximum amount of Advances permitted at any time from
the Line of Credit against Eligible Inventory, which amount is fixed from time
to time by the Bank; the current Inventory Sublimit is $500,000.00.

    

    "Letters
of Credit" shall mean standby letters of credit issued to or to be issued by
Bank for the account of Borrower pursuant to this Agreement or any of the Loan
Documents, which shall be used for the purchase of Inventory.

    

    "Letter
of Credit Amount" shall mean the sum of (i) the aggregate undrawn amount of all
Letters of Credit outstanding at any time plus (ii) the aggregate amount of all
drawings under Letters of Credit for which Bank has not been reimbursed at such
time.

    

    "Letter
of Credit Documents" shall mean any Letter of Credit, any amendment thereto, any
documents delivered in connection therewith, any application therefor, or any
other documents (all in form and substance satisfactory to Bank), governing or
providing for (i) the rights and obligations of the parties concerned or at
risk, or (ii) any collateral security for such obligations.

    

    "Letter
of Credit Fees" shall mean the fees prescribed hereunder or in any of the other
Loan Documents in connection with the issuance of Letters of Credit and for
draws and payments pursuant thereto.

    

    "Letter
of Credit Sublimit" shall mean the maximum Letter of Credit Amount permitted at
any one time from the Line of Credit, which amount is fixed from time to time by
the Bank; the current Letter of Credit Sublimit is $1,000,000.00.

    

    "Lien"
shall mean any mortgage, deed of trust, pledge, hypothecation, assignment for
security, security interest, lien (whether statutory or otherwise), charge,
claim or encumbrance, or preference, priority or other security agreement or
preferential arrangement held or asserted in respect of any asset of any kind or
nature whatsoever including, without limitation, any conditional sale or other
title retention agreement, any lease having substantially the same economic
effect as any of the foregoing, and the filing of, or agreement to permit the
filing of, any financing statement under the UCC or comparable law of any
jurisdiction

    

    
      
         

      

      
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    "Line of
Credit" shall mean the revolving line of credit established for the benefit of
the Borrower having a maximum principal amount of $2,000,000.00, the proceeds of
which are to be used for the refinance of existing lender Indebtedness and for
working capital needs of the Borrower.

    

    "Loan"
shall mean any Advance or extension of credit in any form made by the Bank to or
for the benefit of the Borrower.

    

    "Loan
Facility" shall mean the Line of Credit.

    

    "Loan
Documents" shall collectively mean this Agreement and all agreements,
instruments and documents executed in connection herewith including, but not
limited to, all notes, guarantees and all documents giving the Bank an interest
in Collateral, all as may be extended, modified, renewed, restated,
supplemented, amended, or replaced from time to time.

    

    "Material
Adverse Effect" shall mean a material adverse effect with respect to (a) the
business, assets, properties, financial condition, stockholders' equity,
contingent liabilities, prospects, material agreements or results of operations
of Borrower or any Obligor under the Loan Documents, or (b) Borrower's or any
Obligor's ability to pay the Obligations in accordance with the terms hereof, or
(c) the validity or enforceability of this Agreement or any of the other Loan
Documents or the rights and remedies of Bank hereunder or
thereunder.

    

    "Material
Default With Third Party" shall mean a default under any material Indebtedness
or other material obligations of any Obligor to any third party that entitles
such third party to declare such Indebtedness or obligation due prior to its
date of maturity.

    

    "Maturity
Date" shall mean the date on which the Loan Facility matures and comes due. In
the case of the Line of Credit, the initial term shall be two (2) years (the
"Initial Term"), and the Maturity Date of the Initial Term
shall mean April ___, 2010.  The Maturity Date for the Loan
Facility shall be extended as provided for in this Agreement, with each renewal
term ("Renewal Term") having its corresponding later Maturity Date.

    

    "Maximum
Revolving Advance Amount" shall mean $2,000,000.00.

    

    "Note"
shall mean any promissory note executed at any time in connection with the Loan
Documents.

    

    "Obligations"
shall mean any and all loans, Advances, debts, liabilities, obligations,
covenants and duties owing by Borrower to Bank or to any other direct or
indirect subsidiary or affiliate of Bank of any kind or nature, present or
future (including, without limitation, any interest accruing thereon after
maturity, or after the filing of any petition in bankruptcy, or the commencement
of any insolvency, reorganization or like proceeding relating to the Borrower,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding), whether or not evidenced by any note, guaranty or other
instrument, whether arising under any agreement, instrument or document
(including, without limitation, this Agreement and the other Loan Documents),
whether or not for the payment of money, whether arising by reason of an
extension of credit, opening of a letter of credit opening of a letter of credit
or a reimbursement obligation

    
      
         

      

      
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    thereunder,
loan, equipment lease or guarantee, under any interest or currency swap, future,
hedge, derivative, option or other similar agreement, or in any other manner,
whether arising out of overdrafts or deposit or other accounts or electronic
funds transfers (whether through automated clearing houses or otherwise) or out
of Bank's non-receipt of or inability to collect funds or otherwise not being
made whole in connection with depository transfer check or other similar
arrangements, whether direct or indirect (including those acquired by assignment
or participation), absolute or contingent, joint or several, due or to become
due, now existing or hereafter arising, contractual or tortious, liquidated or
unliquidated, regardless of how such indebtedness or liabilities arise or by
what agreement or instrument they may be evidenced or whether evidenced by any
agreement or instrument, including, but not limited to, any and all of
Borrower's Indebtedness and/or liabilities under this Agreement, the other Loan
Documents or under any other agreement between Bank and Borrower and any
amendments, extensions, renewals or increases and all costs and expenses of Bank
incurred in the documentation, negotiation, modification, enforcement,
collection or otherwise in connection with any of the foregoing, including but
not limited to reasonable attorneys' fees and expenses, and expenses arising
from all obligations of Borrower to perform acts or refrain from taking any
action, and the Bank's enforcement thereof. The obligations of the Guarantors to
the Bank are also included in the term "Obligations" hereunder.

    

    "Obligor"
shall mean each Borrower and each Guarantor, together with all successors and
assigns, and in addition, if an individual, all heirs, executors,
administrators, and personal representatives thereof

    

    "Original
Owner" shall mean those Persons designated on Schedule B annexed hereto as
currently owning the stock or membership or partnership interests of the
designated Obligor.

    

    "Permitted
Liens" shall mean (a) Liens in favor of Bank; (b) Liens for taxes, assessments
or other governmental charges not delinquent or being contested in good faith
and by appropriate proceedings and with respect to which proper reserves have
been taken by Debtor; provided, that, the Lien shall have no effect on the
priority of the Liens in favor of Bank or the value of the assets in which Bank
has such a Lien and a stay of enforcement of any such Lien shall be in effect;
(c) deposits or pledges to secure obligations under worker's compensation,
social security or similar laws, or under unemployment insurance; (d) Liens
securing Capital Lease obligations of Borrower permitted by this Agreement; (e)
any interest or title of a lessor or sublessor under any lease or sublease
permitted by this Agreement; and (f) Liens listed as Permitted Liens on Schedule
B, if any.

    

    "Person"
shall mean any individual, sole proprietorship, partnership, corporation,
business trust, joint stock company, trust, unincorporated organization,
association, limited liability company, limited liability partnership,
institution, public benefit corporation, joint venture, entity or government
(whether federal, state, county, city, municipal or otherwise, including any
instrumentality, division, agency, body or department thereof).

    

    "Revolving
Credit Loans" shall mean Advances made directly to the Borrower from the Line of
Credit.

    

    
      
         

      

      
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    "Subordinated
Debt" shall mean Indebtedness of Borrower or another Person that is to be made
subordinate to the Obligations due the Bank.

    

    "Subsidiary"
shall mean, as to any Person, a corporation or other entity of whose shares of
stock or other ownership interests having ordinary voting power to elect a
majority of the directors of such corporation or entity, or other Persons
performing similar functions for such entity, are owned, directly or indirectly,
by such Person.

    

    "UCC"
shall mean the Uniform Commercial Code as in effect in the State of New York,
and Article 9 of the Uniform Commercial Code as in effect in the state of
formation of any entity which is a party to this Agreement.

    

    "Wall
Street Prime Rate" shall mean the rate of interest designated as the Prime Rate
which appears in each publication of The Wall Street Journal under the
designation entitled Money Rates. This rate of interest fluctuates and is
subject to change without prior notice. In the event that the Wall Street Prime
Rate cannot be ascertained from publication of The Wall Street Journal, the rate
of interest which shall be used in substitution thereof and until such time as
the Wall Street Prime Rate can be ascertained by reference to The Wall Street
Journal shall be a rate equal to the average of the prime rate of interest
announced from time to time by three New York banks selected by the Bank in its
discretion.

    

    1.2           Accounting
Terms.  As used in this Agreement, the other Loan Documents or any
certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in this Section or elsewhere in this
Agreement and accounting terms partly defined in this Section to the extent not
defined, shall have the respective meanings given to them under
GAAP.

    

    1.3           UCC
Terms.  If not otherwise defined in this Agreement, terms used herein
which are defined by the UCC shall have the same meaning as set forth in the
UCC. All terms indicating Collateral include the meanings assigned thereto under
the UCC.

    

    1.4           Other
Capitalized Terms.  If not otherwise defined in any other Loan
Document, capitalized terms used in such other Loan Document shall have the
respective meaning ascribed to said term in this Agreement. The definitions of
any other capitalized terms appearing in any sections of this Agreement shall be
deemed incorporated into this Section.

    

    1.5           Certain
Matters of Construction.  The terms "herein", "hereof' and "hereunder"
and other words of similar import refer to this Agreement as a whole and not to
any particular section, paragraph or subdivision. Any pronoun used shall be
deemed to cover all genders. Wherever appropriate in the context, terms used
herein in the singular also include the plural and vice versa. All references to
statutes and related regulations shall include any amendments of same and any
successor statutes and regulations. Unless otherwise provided, all references to
any instruments or agreements to which Bank is a party, including, without
limitation, references to any of the other Loan Documents, shall include any and
all modifications or amendments thereto and any and all extensions or renewals
thereof.

    

    
      
         

      

      
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    SECTION
2. LOAN FACILITY

    

    2.1           In
accordance with the Loan Documents, the Bank hereby establishes for the benefit
of the Borrower the following Loan Facility: the Line of Credit.

    

    2.2           Subject
to the terms and conditions set forth in this Agreement and the other Loan
Documents, and provided that Borrower is not in Default thereunder, the Bank
agrees that it shall, from time to time and in its sole and absolute discretion,
make Loans to or on behalf of Borrower from its Loan Facility which the Bank
deems warranted by the facts and circumstances existing at the time of each
request by Borrower. Each request by Borrower for a Loan as well as each such
Loan to be made by the Bank shall constitute a representation by Borrower that
all conditions set forth in the Loan Documents on the part of Borrower have been
satisfied on the date of such request.

    

    2.3           Borrower
may request Advances from the Line of Credit, and Borrower shall be authorized
to make such borrowings, repay same in whole or in part, and reborrow on a
revolving basis (the "Revolving Credit Loans"). At the time of each Revolving
Credit Loan made pursuant to this Agreement, Borrower shall immediately become
indebted to the Bank for the amount of each such Loan. All Advances shall be
disbursed by Bank from its office in the City and State of New York, and shall
be payable at such office. Bank agrees to make Advances to Borrower from time to
time in Bank's sole and absolute discretion up to Borrower's Availability and
subject to the Loan Documents.

    

    2.4           A
request for an Advance must be received by the Bank no later than 11:00 A.M. on
a Business Day for the Advance to be made effective as of such Business Day. If
such request is received by the Bank after said time, the Advance shall be made
effective as of the next Business Day. Requests shall be made by fax transmittal
to the Bank at the fax number provided to the Borrower by the Bank. If a request
for an Advance is made by telephone (although the Bank is not required to make
an Advance pursuant to a telephonic request), it must be promptly confirmed by
written fax transmittal. Borrower hereby authorizes Bank to make an Advance
based on (i) a fax transmittal ostensibly sent by a representative of the
Borrower without regard to verification by the Bank of the authority of the
representative, or (ii) a telephonic request for an Advance ostensibly made by a
representative of the Borrower without regard to verification by the Bank of the
authority of the representative. Borrower hereby indemnifies and holds Bank
harmless from and against any and all damages, losses, liabilities, costs and
expenses (including reasonable attorneys' fees and expenses) which may arise or
be created by the acceptance of any requests or the making of any Advances. Bank
will enter on its books and records the date and amount of each
Advance.

    

    2.5           Borrower
shall be obligated to pay to the Bank interest upon the unpaid principal balance
of Borrower's Revolving Credit Loans calculated at the close of each day, and
payable on a monthly basis. The interest rate which shall be used to calculate
the amount of interest due each day shall be the Wall Street Prime Rate plus one
and one-half percent (1.5%) per annum (the "Contract Rate"). The rate of
interest shall be adjusted automatically as of the opening of business on each
day in accordance with changes in the Wall Street Journal Prime Rate. Interest
at the rate set forth herein shall be charged on all sums due to the Bank even
after a Default or the entry of judgment. All computations of interest shall be
made on the basis of a three hundred sixty (360) day year and the actual number
of days elapsed.

    

    
      
         

      

      
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    2.6           The
amount billed to the Borrower hereunder may be charged to Borrower's account
maintained with the Bank as of the first day of the month following the month
for which it is billed. Such amount shall be deemed paid out of the first
collections in the account subsequent to the date of the charge. At Bank's
option, up to three (3) Business Days' shall be allowed subsequent to receipt of
remittances, without regard to the form thereof, from Account Debtors or the
Borrower to permit bank clearance and collection of such remittances before the
amount thereof shall be deemed collected by Bank, which time interval Borrower
agrees is reasonable. In the event Bank determines at any time, or from time to
time, in its sole discretion, to make available advances or funds to Borrower
prior to the expiration of such interval, Borrower shall pay additional interest
on such advances or funds at the rate set forth herein for each day that such
remittances are deemed uncollected under the provisions of this Paragraph. Bank
shall render to Borrower each month by mailing to Borrower, by ordinary mail
prepaid, a statement of Borrower's account with Bank, which shall be deemed to
be correct and accepted by and binding upon Borrower unless Bank shall have
received a written statement of Borrower's exceptions within 15 days after the
mailing thereof, and any event shall be deemed correct and accepted except as to
the matters stated in such exceptions.

    

    2.7           The
Revolving Credit Loans made by the Bank to Borrower pursuant to this Agreement
shall be noted on the records of the Bank. The Bank shall render to Borrower
each month by mailing to Borrower, by ordinary mail, postage prepaid, a
statement of Borrower's account with the Bank, which shall be deemed to be
correct and accepted by and binding upon Borrower unless the Bank shall have
received a written statement of Borrower's exceptions within 15 days after
mailing thereof, and in any event shall be deemed correct and accepted except as
to the matters stated in such exceptions.

    

    2.8           The
Borrower is hereby entering into a full dominion financing transaction with the
Bank. The collection of Accounts Receivable and the use of the proceeds of the
Collateral shall comply with all requirements of the Bank relating to a full
dominion financing relationship including, but not limited to, the
following:

    

    (a)           All
Accounts Receivable collections of Borrower and all checks, drafts and other
monies received by Borrower or Bank which are proceeds of the Collateral will be
deposited by the Bank into an account maintained by the Bank, and will be
credited by Bank as payment toward the Obligations on the Business Day after
which such items are deposited into such account. Borrower will pay to Bank a
sum equal to up to three (3) Business Days on all such deposits, at
the interest rate specified for Revolving Credit Loans hereunder. Borrower will
reimburse Bank on demand for the amount of any items credited as provided above
and subsequently returned unpaid. Bank may terminate the foregoing arrangement
upon notice to Borrower.

    

    (b)           Borrower
will collect its Accounts Receivable only in the ordinary course of business.
Borrower will notify all of its Account Debtors to forward all Accounts
Receivable collections owed to Borrower to a lockbox (the "Lockbox") controlled
by Bank. Borrower will execute such agreements as may be required in connection
with the Lockbox, including a Lockbox Agreement and signature cards, and will
pay all fees in connection therewith. If, notwithstanding the provisions of this
Section, Borrower receives directly any checks, drafts or other monies which are
proceeds of the Collateral, Borrower will, immediately upon receipt thereof,
forward all such checks, drafts and other monies to the Lockbox.

    

    
      
         

      

      
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    (c)           Borrower
agrees that all monies, checks, notes, instruments, drafts or other payments
relating to or constituting proceeds of any Accounts Receivable or other
Collateral of Borrower which come into the possession or under the control of
Borrower or any employees, agents or other persons acting for or in concert with
Borrower, shall be received and held in trust for Bank and such items shall be
the sole and exclusive property of Bank. Immediately upon receipt thereof,
Borrower and such other persons shall remit the same or
cause the same to be remitted, in kind, to Bank. Borrower shall deliver or cause
to be delivered to Bank, with appropriate endorsement and assignment to Bank
with full recourse to Borrower, all instruments, notes and chattel paper
constituting an Account Receivable or proceeds thereof or other Collateral. Bank
is hereby authorized to open all mail addressed to Borrower and endorse all
checks, drafts or other items for payment on behalf of Borrower. Bank is granted
a power of attorney by Borrower with full power of substitution to execute on
behalf of Borrower and in Borrower's name or to endorse Borrower's name on any
check, draft, instrument, note or other item of payment or to take any other
action or sign any document in order to effectuate the foregoing. Such power of
attorney being coupled with an interest is irrevocable.

    

    2.9           Prior
to the issuance of any Letter of Credit, the Borrower shall execute the Letter
of Credit Documents, and the Borrower shall comply with all the terms and
conditions thereof in connection with any Letters of Credit issued, such
documents being fully incorporated herein by reference. All Letters of Credit
shall be in form and substance reasonably satisfactory to the Bank. No Letter of
Credit shall be issued with an expiry date later ten (10) Business Days prior to
any Maturity Date. Each Letter of Credit
shall comply with the Letter of Credit Documents.

    

    In the
event of any request for drawing under any Letter of Credit by the beneficiary
thereof, the Bank shall promptly notify Borrower and Borrower shall immediately
reimburse the Bank on the day when such drawing is honored, by either a cash
payment by Borrower or, so long as no Event of Default has occurred and is
continuing, in the absence of such payment by Borrower, and at the Bank's
option, by the Bank automatically making or having been deemed to have made
(without further request or approval of Borrower) a cash Advance under the Line
of Credit on such date to reimburse the Bank.  Borrower's
reimbursement obligation for draws under Letters of Credit along with the
obligation to pay Letter of Credit Fees shall herein be referred to collectively
as Borrower's "Reimbursement Obligations." All of Borrower's Reimbursement
Obligations hereunder with respect to Letters of Credit shall apply
unconditionally and absolutely to Letters of Credit issued hereunder on behalf
of Borrower.

    

    The
obligation of Borrower to reimburse Lender for drawings made
(or  for  cash Advances made to cover drawings made) under
the Letters of Credit shall be unconditional and irrevocable and shall be paid
strictly in accordance with the terms of this Agreement under all circumstances
including, without limitation, the following circumstances:

    

    any
lack of validity or enforceability of any Letter of Credit;

    

    
      
         

      

      
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    the
existence of any claim, setoff, defense or other right that Borrower or any
other Person may have at any time against a beneficiary or any transferee of any
Letter of Credit (or any persons or entities for whom any such beneficiary or
transferee may be acting), the Bank or any other Person, whether in connection
with this Agreement, the transactions contemplated herein or any unrelated
transaction;

    

    any
draft, demand, certificate or any other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any respect
or any statement therein being untrue or inaccurate in any respect;

    

    payment
by the Bank under any Letter of Credit against presentation of a demand, draft
or certificate or other document that does not comply with the terms of such
Letter of Credit unless the Bank shall have acted with willful misconduct or
gross negligence in issuing such payment;

    

    any
other circumstances or happening whatsoever that is similar to any of the
foregoing; or

    

    the
fact that an Event of Default or Default shall have occurred and be
continuing.

    

    If by
reason of (i) any change after the Closing Date in applicable law, regulation,
rule, decree or regulatory requirement or any change in the interpretation or
application by any judicial or regulatory authority of any law, regulation,
rule, decree or regulatory requirement or (ii) compliance by the Bank with any
direction, reasonable request or requirement (whether or not having the force of
law) of any governmental or monetary authority including, without limitation,
Regulation D:

    

    the
Bank shall be subject to any tax or other levy or charge of any nature or to any
variation thereof (except for changes in the rate of any tax on the net income
of the Bank or its applicable lending office) or to any penalty with respect to
the maintenance or fulfillment of its obligations under this Section, whether
directly or by such being imposed on or suffered by the Bank;

    

    any
reserve, deposit or similar requirement is or shall be applicable, imposed or
modified in respect of any Letter of Credit issued by the Bank; or

    

    
      
         

      

      
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    there
shall be imposed on the Bank any other condition regarding this Section or any
Letter of Credit; and the result of the foregoing is to directly or indirectly
increase the cost to the Bank of issuing, creating, making or maintaining any
Letter of Credit or to reduce the amount receivable in respect thereof by the
Bank, then and in any such case, the Bank shall, after the additional cost is
incurred or the amount received is reduced, notify Borrower and Borrower shall
pay on demand such amounts as may be necessary to compensate the Bank for such
additional cost or reduced receipt, together with interest on such amount from
the date demanded until payment in full thereof at a rate per annum equal at all
times to the applicable interest rate under the Line of Credit.  A
certificate signed by an officer of the Bank as to the amount of such increased
cost or reduced receipt showing in reasonable detail the basis for the
calculation thereof, submitted to Borrower by the Bank shall, except for
manifest error and absent written notice from Borrower to the Bank within ten
(10) days from submission, be final, conclusive and binding for all
purposes.

    

    i           In
addition to amounts payable as elsewhere provided in this Section, without
duplication, Borrower hereby agrees to protect, indemnify, pay and save the Bank
harmless from and against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable attorneys' fees) which
the Bank may incur or be subject to as a consequence, direct or indirect, of (A)
the issuance of the Letters of Credit or (B) the failure of the Bank to honor a
drawing under any Letter of Credit as a result of any such act or omission,
whether rightful or wrongful, of any present or future de jure or de facto government or
Governmental Authority (all such acts or omissions herein called "Government
Acts") in each case except for claims, demands, liabilities, damages, losses,
costs, charges and expenses arising solely from acts or conduct of the Bank
constituting gross negligence or willful misconduct.

    

    iiAs
between Borrower and the Bank, Borrower assumes all risks of the acts and
omissions of or misuse of the Letters of Credit issued by the Bank by the
respective beneficiaries of such Letters of Credit.  In furtherance
and not in limitation of the foregoing, the Bank shall not be responsible: (A)
for the form, validity, sufficiency, accuracy, genuineness or legal effects of
any document submitted by any party in connection with the application for and
issuance if such Letters of Credit, even if it should in fact prove to be in any
or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) for
the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any such Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, that may prove to
be invalid or ineffective for any reason; (C) for failure of the beneficiary of
any such Letter of Credit to comply fully with conditions required in order to
draw upon such Letter of Credit; (D) for errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they are in cipher, unless any of the
foregoing are caused by the Bank's gross negligence or willful misconduct; (E)
for errors in interpretation of technical terms; (F) for any loss or delay in
the transmission of any document or required in order to make a drawing under
such Letter of Credit or of the proceeds thereof, unless caused by the Bank's
gross negligence or willful misconduct; (G) for the misapplication by the
beneficiary of any such Letter of Credit of the proceeds of any drawing under
such Letter of Credit;

    
      
         

      

      
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    and (H)
for any consequences arising from causes beyond the control of issuer,
including, without limitation, any Government Acts. None of the above shall
affect, impair or prevent the vesting of any of the Bank's rights or powers
hereunder.

    

    iii           In
furtherance and extension and not in limitation of the specific provisions
hereinabove set forth, any action taken or omitted by the Bank in connection
with the Letters of Credit issued by it or the related certificates, if taken or
omitted in good faith, shall not create any liability on the part of the Bank to
Borrower.

    

    f.           In
the event that any Affiliate or Subsidiary of the Borrower shall request the
issuance of a Letter of Credit from the Borrower, and the Lender issues such
Letter of Credit in its sole and absolute discretion, the Borrower shall be
fully liable to the Bank therefore as if the Borrower had requested the issuance
of such Letter of Credit, and such liability shall be included as part of the
Obligations of the Borrower to the Bank, in addition to the liability of such
Affiliate and/or Subsidiary.

    

    g.           In
connection with the issuance of Letters of Credit, the Borrower shall execute
such additional agreements and documents in connection therewith as shall be
required by the Bank, and the Borrower shall comply with all the terms and
conditions thereof in connection with any Letter of Credit issued, such
agreements and documents being fully incorporated herein by
reference.

    

    2.10                      At
no time shall the aggregate amount of all Loans made by the Bank from the Line
of Credit exceed the lesser of (i) the Borrower's Availability, or (ii) the
Maximum Revolving Advance Amount. At no time shall the outstanding amount of
Advances against Eligible Inventory exceed the outstanding amount of Advances
against Eligible Accounts Receivable. At no time shall advances against
Inventory exceed the Inventory Sublimit. At no time shall the Letter of Credit
Amount exceed the Letter of Credit Sublimit. Should the outstanding
amount of all Advances or Loans in the aggregate, or should any sublimit or
category established hereunder, exceed any limitations set forth in this
Agreement at any time, the excess shall continue to be secured by the
Collateral, shall be subject to all of the terms of this Agreement and the other
Loan Documents and, at the option of the Bank, shall immediately become due and
payable on demand by the Bank.

    

    2.11                      All
payments shall be made by Borrower to Bank at the office of the Bank as appears
in this Agreement, or such other place as Bank may from time to time specify, in
lawful currency of the United States of America in immediately available funds,
without counterclaim or set off and free and clear of, and without any deduction
or withholding for, any taxes or other payments. The Bank shall be authorized to
charge any interest payment, principal payment or other sum due under the Loan
Documents against any account maintained by the Borrower at the Bank. The
Borrower hereby authorizes the Bank to make all such charges authorized by any
of the Loan Documents. All payments shall be applied first to the payment of all
fees, expenses and other amounts due to the Bank (excluding principal and
interest), then to accrued interest, and the balance on account of outstanding
principal; provided, however, that after Default, payments will be applied to
the obligations of Borrower to Bank as Bank determines in its sole
discretion.

    
      
         

      

      
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    2.12                      If
a Maturity Date shall fall on a day, or any payment hereunder becomes due on a
day, which is not a Business Day, the due date for payment hereunder shall be
extended to the next succeeding Business Day, and such extension of time shall
be included in computing interest and fees in connection with such
payment.

    

    2.13                      Anything
to the contrary notwithstanding, on the Maturity Date the Loan Facility shall
terminate, and there shall be due and payable all unpaid principal together with
all accrued and unpaid interest, charges, fees, and all other sums computed in
accordance with this Agreement and the other Loan Documents. The liability of
the Borrower and any other party liable for any Obligations to the Bank with
respect to any other document, instrument or obligation (such as a letter of
credit) arising from the Loan Documents which matures beyond the Maturity Date,
if any, shall continue until all Obligations thereunder and under the Loan
Documents to the Bank have been satisfied in full.

    

    2.14  It
is understood and agreed that the Bank may, in its sole and absolute discretion,
create reserves and alter the Borrowing Base to reflect considerations of the
Bank including, but not limited to, expenses involved in the collection of
receivables and liquidation of Collateral, dilution in the Collateral,
obsolescence, miscalculation of value or quantities, bad debts, set-offs, market
conditions and other factors.

    

    2.15                      The
Bank may, without notice to or consent of any party liable under the Loan
Documents as an obligor, guarantor, endorser, surety or in any capacity
whatsoever and without impairing or in anywise affecting the liability of such
party to the Bank, (i) extend the time for any payment under the Loan Documents;
(ii) alter any other term of Loan Documents by agreement with the Borrower;
(iii) release, settle or compromise with any other party liable for any payment
under the Loan Documents; and/or (iv) release, or substitute for, any property
held by the Bank as security for the payment of any sum owing to the Bank by any
party hereto; and any renewal and/or modification document required by the Bank
shall be deemed consented to by all such parties without any requirement that
any such party execute any such document. The Borrower and all guarantors,
endorsers, sureties, and all other parties liable under the Loan Documents
hereby jointly and severally waive presentment, demand, notice of non-payment,
notice of protest, protest, and all other notice of any kind except as otherwise
expressly set forth in the Loan Documents.

    

    2.16                      If
Obligations become immediately due and payable pursuant to the provisions of
this Agreement, or if Obligations are not paid in full upon the effective date
of termination of this Agreement or upon a maturity date, or if an Event of
Default has occurred, Borrower shall thereafter be obligated to pay interest on
the Obligations from the date of such declaration, termination, maturity or
Event of Default, as the case may be at the option of the Bank, until the date
the Obligations are paid in full at a rate per annum (calculated on the actual
number of days based upon a year of 360 days) equal to 5% in excess of the
Contract Rate then in effect, provided, however, that such interest rate shall
in no event exceed the maximum interest rate which Borrower may pay by law (the
"Default Rate"). The Borrower acknowledges that:(i) such additional rate is a
material inducement to the Bank to make Loans hereunder; (ii) the Bank would not
have entered into the Loan Documents and agreed to make Loans hereunder in the
absence of the agreement of the Borrower to pay such additional rate; (iii) such
additional rate represents compensation for increased risk to the Bank that the
Loans hereunder will not

    
      
         

      

      
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    be
repaid; and (iv) such rate is not a penalty and represents a reasonable estimate
of (a) the cost to the Bank in allocating its resources (both personnel and
financial) to the on-going review, monitoring, administration and collection of
the Loans, and (b) compensation to the Bank for losses that are difficult to
ascertain.

    

    2.17                      Borrower
and each Guarantor hereby grants to Bank, a continuing lien, security interest
and right of set off as security for all liabilities and obligations to Bank
whether now existing or hereafter arising, upon and against all deposits,
credits, collateral and property, now or hereafter in the possession, custody
safekeeping or control of Bank or any entity under the control of Bank and its
successors and assigns or in transit to any of them. At any time, without demand
or notice (any such
notice being expressly waived and irrespective of the fact that actual book
entries may be made at some time subsequent thereto), Bank may set off the same
or any part thereof and apply the same to any liability or obligation of
Borrower and any Guarantor regardless of the adequacy of any other collateral
securing the Loan. Any and all rights to require Bank to exercise its rights or
remedies with respect to any other Collateral which secures the Loan Facility or
any Loans thereunder, prior to exercising its right of set off with respect to
such deposits, credits or other property of Borrower or any Guarantor, are
hereby knowingly, voluntarily and irrevocably waived.

    

    2.18                      Borrower
shall pay on demand all expenses of Bank in connection with the preparation,
administration default, collection, waiver or amendment of loan terms or in
connection with Bank's exercise, preservation or enforcement of any of its
rights, remedies or options hereunder, including, without limitation, reasonable
fees of outside legal counsel or the allocated reasonable costs of in-house
legal counsel, accounting, consulting, brokerage or other similar professional
fees or expenses, and any reasonable fees or expenses associated with travel or
other costs relating to any appraisals or examinations conducted in connection
with the loan or any collateral therefor, and the amount of all such expenses
shall, until paid, bear interest at the rate applicable to principal hereunder
(including any default rate) and be an obligation secured by any Collateral. If
not paid upon demand, Bank shall be authorized to charge any account of Borrower
for such expenses.

    

    2.19                      This
Agreement shall become effective the day when finally accepted by Bank at its
office in the State of New York. This Agreement shall remain in effect until the
Maturity Date of the Initial Term, and shall thereafter be deemed automatically
renewed for successive terms of two (2) years each (each renewed term being
a "Renewal Term"); subject, however, to the right of either party to terminate a
Renewal Term at any time upon at least ninety (90) days' written notice, and
subject to the payment of any prepayment premium prescribed in this Agreement.
Should an Event of Default as defined hereunder have occurred and be continuing,
the Initial Term or any Renewal Term shall be terminable at any time by Bank
forthwith on written notice. The termination of the Initial Term or any Renewal
Term shall not affect any of a Borrower's or any Guarantor's obligations under
the Loan Documents, inclusive of payment of the prepayment premium, which shall
remain in full force and effect until all Obligations have been satisfied in
full and until discharged by the Bank.

    

    
      
         

      

      
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    SECTION
3.  SECURITY; GUARANTEE; SUBORDINATION

    

    3.1           Borrower
(also referred to as "Debtor") hereby grants to the Bank, to secure the payment
and performance in full of all of the Obligations, a security interest in and so
pledges and assigns to the Bank the following properties, assets and rights of
the Debtor, wherever located, whether now owned or hereafter acquired or
arising, and all proceeds and products thereof (all of the same being
hereinafter called the "Collateral"): all personal and fixture property of every
kind and nature including without limitation all goods
(including  inventory,  machinery,
equipment  and  any  accessions  thereto),
instruments (including promissory notes), documents, accounts and accounts
receivable (including health-care-insurance receivables and other accounts
receivables), chattel paper (whether tangible or electronic), deposit accounts,
letter-of-credit rights (whether or not the letter of credit is evidenced by a
writing), commercial tort claims, securities and all other investment property,
supporting obligations, any other contract rights or rights to the payment of
money, insurance claims and proceeds, tort claims, and all general intangibles
including, without limitation, all payment intangibles, patents, patent
applications, trademarks, trademark applications, trade names, copyrights,
copyright applications, software, engineering drawings, service marks, customer
lists, goodwill, and all licenses, permits, agreements of any kind or nature
pursuant to which the Debtor possesses, uses or has authority to possess or use
property (whether tangible or intangible) of others or others possess, use or
have authority to possess or use property (whether tangible or intangible) of
the Debtor, and all recorded data of any kind or nature, regardless of the
medium of recording including, without limitation, all software, writings,
plans, specifications and schematics, and any property set forth on Schedule A
annexed hereto and made a part hereof.

    

    3.2           The
Debtor hereby irrevocably authorizes the Bank at any time and from time to time
to file in any Uniform Commercial Code jurisdiction any initial financing
statements and amendments thereto that (a) indicate the Collateral (i) as "all
assets" of the Debtor or words of similar effect, regardless of whether any
particular asset comprised in the Collateral falls within the scope of Article 9
of the Uniform Commercial Code of the State or such jurisdiction, or (ii) as
being of an equal or lesser scope or with greater detail, and (b) contain any
other information required by part 5 of Article 9 of the Uniform Commercial Code
of the State for the sufficiency or filing office acceptance of any financing
statement or amendment, including (i) whether the Debtor is an organization, the
type of organization and any organization identification number issued to the
Debtor and, (ii) in the case of a financing statement filed as a fixture filing
or indicating Collateral as-extracted collateral or timber to be cut, a
sufficient description of real property to which the Collateral relates. The
Debtor agrees to furnish any such information to the Bank promptly upon request.
The Debtor also ratifies its authorization for the Bank to have filed in any
Uniform Commercial Code jurisdiction any like initial financing statements or
amendments thereto if filed prior to the date hereof.

    

    3.3           Further
to insure the attachment, perfection and first priority of, and the ability of
the Bank to enforce, the Bank's security interest in the Collateral, the Debtor
agrees, in each case at the Debtor's own expense, to take the following actions
with respect to the following Collateral (as applicable):

    

    
      
         

      

      
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    3.3.1.
Promissory Notes and Tangible Chattel Paper. If the Debtor shall at any time
hold or acquire any promissory notes or tangible chattel paper, the Debtor shall
forthwith endorse, assign and deliver the same to the Bank, accompanied by such
instruments of transfer or assignment duly executed in blank as the Bank may
from time to time specify.

    

    3.3.2.
Deposit Accounts.  For each deposit account that the Debtor at any
time opens or maintains, the Debtor shall, at the Bank's request and option,
pursuant to an agreement in form and substance satisfactory to the Bank, either
(a) cause the depositary bank to agree to comply at any time with instructions
from the Bank to such depositary bank directing the disposition of funds from
time to time credited to such deposit account, without further consent of the
Debtor, or (b) arrange for the Bank to become the customer of the depositary
bank with respect to the deposit account, with the Debtor being permitted, only
with the consent of the Bank, to exercise rights to withdraw funds from such
deposit account. The provisions of this paragraph shall not apply to (i) any
deposit account for which the Debtor, the depositary bank and the Bank have
entered into a cash collateral agreement specially negotiated among the Debtor,
the depositary bank and the Bank for the specific purpose set forth therein,
(ii) deposit accounts for which the Bank is the depositary and (iii) deposit
accounts specially and exclusively used for payroll, payroll taxes and other
employee wage and benefit payments to or for the benefit of the Debtor's
salaried employees.

    

    3.3.3  Investment
Property. If the Debtor shall at any time hold or acquire any certificated
securities, the Debtor shall forthwith endorse, assign and deliver the same to
the Bank, accompanied by such instruments of transfer or assignment duly
executed in blank as the Bank may from time to time specify. If any securities
now or hereafter acquired by the Debtor are uncertificated and are issued to the
Debtor or its nominee directly by the issuer thereof, the Debtor shall
immediately notify the Bank thereof and, at the Bank's request and option,
pursuant to an agreement in form and substance satisfactory to the Bank, either
(a) cause the issuer to agree to comply with instructions from the Bank as to
such securities, without further consent of the Debtor or such nominee, or (b)
arrange for the Bank to become the registered owner of the securities. If any
securities, whether certificated or uncertificated, or other investment property
now or hereafter acquired by the Debtor are held by the Debtor or its nominee
through a securities intermediary or commodity intermediary, the Debtor shall
immediately notify the Bank thereof and, at the Bank's request and option,
pursuant to an agreement in form and substance satisfactory to the Bank, either
(i) cause such securities intermediary or (as the case may be) commodity
intermediary to agree to comply with entitlement orders or other instructions
from the Bank to such securities intermediary as to such securities or other
investment property, or (as the case may be) to apply any value distributed on
account of any commodity contract as directed by the Bank to such commodity
intermediary, in each case without further consent of the Debtor or such
nominee, or (ii) in the case of financial assets or other investment property
held through a securities intermediary, arrange for the Bank to become the
entitlement holder with respect to such investment property, with the Debtor
being permitted, only with the consent of the Bank, to exercise rights to
withdraw or otherwise deal with such investment property.

    

    
      
         

      

      
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    3.3.4.  Collateral
in the Possession of a Bailee. If any goods are at any time in the possession of
a bailee, the Debtor shall promptly notify the Bank thereof and, if requested by
the Bank, shall promptly obtain an acknowledgment from the bailee, in form and
substance satisfactory to the Bank, that the bailee holds such Collateral for
the benefit of the Bank and shall act upon the instructions of the Bank, without
the further consent of the Debtor.

    

    3.3.5  Electronic
Chattel Paper and Transferable Records. If the Debtor at any time holds or
acquires an interest in any electronic chattel paper or any "transferable
record," as that term is defined in Section 201 of the federal Electronic
Signatures in Global and National Commerce Act, or in § 16 of the Uniform
Electronic Transactions Act as in effect in any relevant jurisdiction, the
Debtor shall promptly notify the Bank thereof and, at the request of the Bank,
shall take such action as the Bank may reasonably request to vest in the Bank
control under UCC § 9-105 of such electronic chattel paper or control under
Section 201 of the federal Electronic Signatures in Global and National Commerce
Act or, as the case may be, § 16 of the Uniform Electronic Transactions Act, as
so in effect in such jurisdiction, of such transferable record.

    

    3.3.6.  Letter
of Credit Rights. If the Debtor is at any time a beneficiary under a letter of
credit now or hereafter issued in favor of the Debtor, the Debtor shall promptly
notify the Bank thereof and, at the request and option of the Bank, the Debtor
shall, pursuant to an agreement in form and substance satisfactory to the Bank,
either (i) arrange for the issuer and any confirmor of such letter of credit to
consent to an assignment to the Bank of the proceeds of any drawing under the
letter of credit or (ii) arrange for the Bank to become the transferee
beneficiary of the letter of credit, with the Bank agreeing, in each case, that
the proceeds of any drawing under the letter to credit are to be applied as
provided in this Agreement.

    

    3.3.7  Commercial
Tort Claims. If the Debtor shall at any time hold or acquire a commercial tort
claim, the Debtor shall immediately notify the Bank in a writing signed by the
Debtor of the details thereof and grant to the Bank in such writing a security
interest therein and in the proceeds thereof, all upon the terms of this
Agreement, with such writing to be in form and substance satisfactory to the
Bank.

    

    3.3.8.   Other
Actions as to any and all Collateral.  The Debtor further agrees to
take any other action reasonably requested by the Bank to insure the attachment,
perfection and first priority of, and the ability of the Bank to enforce, the
Bank's security interest in any and all of the Collateral including, without
limitation, (a) executing, delivering and, where appropriate, filing financing
statements and amendments relating thereto under the Uniform Commercial Code, to
the extent, if any, that the Debtor's signature thereon is required therefor,
(b) causing the Bank's name to be noted as secured party on any certificate of
title for a titled good if such notation is a condition to attachment,
perfection or priority of, or ability of the Bank to enforce, the Bank's
security interest in such Collateral, (c) complying with any provision of any
statute, regulation or treaty of the United States as to any Collateral if
compliance with such provision is a condition to attachment, perfection or
priority of, or ability of the Bank to enforce, the Bank's security interest in
such Collateral, (d) obtaining governmental and other third party consents and
approvals, including without limitation any consent of any licensor, lessor or
other

    
      
         

      

      
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    person
obligated on Collateral, (e) obtaining waivers from mortgagees and landlords in
form and substance satisfactory to the Bank and (i) taking all actions required
by any earlier versions of the Uniform Commercial Code or by other law, as
applicable in any relevant Uniform Commercial Code jurisdiction, or by other law
as applicable in any foreign jurisdiction.

    

    3.4.                      Relation
to Other Security Documents. The provisions of this Agreement shall be read and
construed with any other security documents executed at any time by the Debtor
in favor of the Bank to the end that the Bank's Collateral has the most
expansive interpretation. Nothing contained in any
such other security documents shall impair any of the rights or remedies of the
Bank hereunder. If Debtor has interests in any patents, trademarks, or
copyrights as reflected on Schedule B, at the Bank's request Debtor shall
execute and deliver to the Bank such assignments, memorandum and agreements as
Bank shall request for the Bank's perfection of its security interests granted
to the Bank hereunder including the filing thereof in the applicable U.S.
government office.

    

    3.5           In
connection with any Letter of Credit issued by the Bank on behalf of the
Borrower, the Borrower hereby pledges, assigns and transfers to the Bank, and
grants to the Bank a continuing first priority security interest in and lien on
all of the Borrower's right, title and interest in and to (i) any payment
instrument drawn under, or purported to be drawn under, such Letter of Credit
and other documents accompanying or relating to any such payment instrument;
(ii) any and all shipping documents, warehouse receipts, bills of lading,
invoices, steamship guarantees, airway releases, documents of title, policies
and certificates of insurance, and other documents accompanying or relating to
payment instruments drawn under such Letter of Credit; (iii) any and all
property shipped under or pursuant to or in connection with such Letter of
Credit, or relating thereto or to any trade documents drawn thereunder (whether
such documents, goods or other property be released to or upon Bank's order
under this agreement or any other agreement or bailee receipt or otherwise under
any payment instrument pursuant to which Bank retains a security interest); (iv)
all rights or causes of action against any party arising from or in connection
with any contract of sale or purchase of any property covered by such Letter of
Credit, or any guarantees, undertakings or other agreements, credits, or other
assurances in connection therewith and in and to the proceeds of each and all of
the foregoing; and all substitutions therefor, accessions thereto, and proceeds
and products thereof.

    

    3.6           Guarantees.
In addition to any other security interest, Lien, or other protection in favor
of the Bank as set forth in this Agreement, all of the Obligations are hereby
unconditionally and absolutely guaranteed by each Guarantor. Each Guarantor
shall execute and deliver to the Bank a written guaranty in such form as the
Bank shall require. Each Guarantor hereby consents to all extensions,
modifications, renewals, restatements, and any other change to the Loan
Documents agreed to by Borrower without further notice, action, consent or
approval from Guarantor.

    

    3.7           Cross-Collateralization
and Cross-Default. All Collateral heretofore, herein or hereafter given or
granted to the Bank shall secure payment and performance of all of the
Obligations, including any Collateral given or granted to the Bank by any
Debtor. All Loans, Advances and all other Obligations shall be and are hereby
declared to be cross-collateralized, cross-defaulted and cross-guaranteed. All
property of Borrower and each Guarantor of any kind or nature in which Bank has
been, is hereunder, or

    
      
         

      

      
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    shall
hereafter be granted a security interest or a Lien of any kind shall constitute
Collateral for all Obligations. Any event of default in connection with any
loan, advance or extension of credit made at any time by Bank to Borrower under
any documents executed in connection therewith shall automatically and without
further acts on the part of the Bank constitute an event of default under all
loans, advances and extensions of credit made at any time by Bank to Borrower.
In such event, Bank shall have available to it all rights and remedies
including, but not limited to, acceleration of any or all loans, advances and
extensions of credit made at any time by Bank to Borrower. It shall not be
necessary for cross-collateralization, cross-default, cross-acceleration or
cross-guarantee language to be inserted into any other previously existing or
hereafter created instrument, document or agreement for this section to be fully
enforceable by Bank against Borrower and each Guarantor and all of their
property of any kind or nature, including such property as is specifically
described in this Agreement, any of the other Loan Documents, or any other
documents executed by Borrower and/or any Guarantor in favor of
Bank.

    

    3.8           Order
of Proceeding. The Bank shall be under no obligation to proceed in any order or
against any property to enforce its rights under the Loan Documents, and it
shall be free to exercise its rights in any order it choses. Without limiting
the foregoing, the Bank shall be under no obligation to proceed against the
Borrower before proceeding directly against any Guarantor, nor shall the Bank be
under any obligation to proceed against any or all of the Collateral before
proceeding directly against the Borrower and/or any Guarantor in any order
determined by the Bank.

    

    3.9           Subordinations.  It
is acknowledged that the sum of $109,741.48 is currently due from Borrower to
Howard Ullman (referred to herein as "Subordinator"); that the sum of
$546,025.00 is currently due from Entity Guarantor CHDT to Subordinator Howard
Ullman; and that the sum of $317,763.00 is currently due from Borrower to Entity
Guarantor CHDT (also referred to as “Subordinator”). Each Subordinator agrees
that such $109,741.48,  $546,025.00, and $317,763.00 of Indebtedness
(each such Indebtedness referred to herein as "Subordinated Debt") due him or it
is subordinate, inferior and subject to the satisfaction of all Obligations due
the Bank. Each Subordinator agrees to execute and deliver to the Bank one or
more subordination agreements (each a "Subordination Agreement") required by the
Bank to subordinate the Subordinated Debt to the Obligations. If any
Subordinated Debt is evidenced by notes, each such note shall be subject to and
covered by the Subordination Agreement and such further documents as the Bank
shall require to effectuate such subordination.

    

    3.10                      Inventory
Insurance.  To further secure the payment and performance in full of
all of the Obligations and as additional Collateral hereunder, the Borrower
shall cause the Bank to be named as loss-payee and additional insured on an
inventory policy of insurance providing coverage in an amount to be approved by
the Bank, such policy to be satisfactory in form and substance to the Bank and
issued by an insurer acceptable to the Bank. The loss-payee and additional
insured endorsement or rider shall be accepted by the home office of the
insurance company; the assignment shall remain in full force and effect until
all Obligations have been paid, satisfied and discharged; the Borrower shall at
all times keep such policy in full force and effect, shall pay all premiums,
dues and assessments thereon, and shall not cause the coverage under the policy
to diminish below the amount set forth above; and provision shall be made to
confirm that there can be no cancellation of the policy without 30 days'
prior  written notice to the

    
      
         

      

      
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    Bank.  A
duplicate of the policy and the loss-payee endorsement or rider must be
delivered to the Bank at the time of execution and delivery of the Loan
Documents together proof of premium payment.  Thereafter, the Borrower
shall provide to the Bank proof of payment of future premiums upon the request
of the Bank.

    

    SECTION
4.  COLLATERAL; GENERAL TERMS

    

    4.1           The
Borrower (also referred to as "Debtor") warrants and represents the following
with respect to the Collateral:

    

    4.1.1  The
Debtor is (or, in the case of after acquired property, will be) the sole owner
of each item of Collateral and has good and marketable title thereto, free and
clear of any and all interests, claims and Liens except for Permitted
Liens.

    

    4.1.2  Debtor
shall maintain the Collateral in good condition and repair; make all necessary
renewals, replacements, additions, betterments and improvements thereto; pay and
discharge when due the cost of repairs and maintenance to the Collateral; pay
all rentals and other payments when due for all real estate leased or owned by
Debtor at which Collateral is located; and maintain a disaster recovery plan
with off-site back-up of the books and records of Debtor. Debtor will safeguard
and protect all Collateral for Bank's general account and make no disposition
thereof without the prior consent of the Bank whether by sale, lease or
otherwise except (i) the sale of Inventory in the ordinary course of business,
and (ii) the sale or disposition of obsolete Equipment in the ordinary course of
business; all provided that the proceeds of any such sale or disposition shall
remain subject to Bank's security interest. The Collateral may be inspected by
the Bank upon reasonable notice to the Debtor.

    

    4.1.3  That
portion of the Collateral consisting of Equipment or Inventory shall be stored
solely at the Debtor's facilities, or such other facilities as shall be
disclosed to the Bank in writing no later than 30 days prior to storage at such
facilities, and Debtor shall secure landlord waivers with respect to all such
facilities in such form as shall be satisfactory to the Bank.

    

    4.1.4  With
respect to that portion of the Collateral consisting of Inventory, the Debtor,
in addition to the foregoing, further warrants and represents that it will not
make any transfer of Inventory in partial or total satisfaction of a debt other
than a debt to the Bank; that no Inventory will be stored with a bailee or on
consignment without the prior written consent of the Bank; that no Inventory
will be stored at any location not disclosed to the Bank in writing no later
than 30 days prior to storage at such location and without the prior written
consent of the Bank to such location; and that the Debtor shall provide such
documents as the Bank may request in connection with the ownership, location,
and condition of such Inventory. If any Inventory is at any time in the
possession of a bailee, the Debtor shall promptly notify the Bank thereof and,
if requested by the Bank, shall promptly obtain an acknowledgment from the
bailee, in form and substance satisfactory to the Bank, that the bailee holds
such Inventory for the benefit of the Bank and shall act upon the instructions
of the Bank, without the further consent of the Debtor.

    

    
      
         

      

      
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    4.1.5  The
Debtor will pay or cause to be paid all taxes and other charges relating to the
Collateral. The Bank is authorized to pay any unpaid taxes or charges deemed
necessary by Bank to protect or preserve such Collateral without prior notice to
Debtor, and upon payment by the Bank same shall constitute part of the
Obligations due the Bank, and shall become due and payable to the Bank on
demand.

    

    4.1.6  The
Debtor will carry insurance issued by an insurer acceptable to Bank, in amounts
acceptable to Bank without co-insurance, against all such liability, perils and
hazards as are usually carried by entities engaged in the same or a similar
business similarly situated or as may be required by Bank in its discretion, and
in addition, will carry business interruption insurance in such amounts as may
be required by Bank. In the case of insurance on any of the Collateral, Debtor
shall carry insurance in the full insurable value thereof and cause Bank to be
named as loss payee (with a lender's loss payable endorsement) with respect to
all personal property, and additional insured with respect to all liability
insurance, as its interests may appear, with thirty (30) days' notice to be
given Bank by the insurance carrier prior to cancellation or material
modification of such insurance coverage. Such insurance shall insure the Bank
notwithstanding any act or neglect of Debtor.

    

    Debtor
shall cause to be delivered to Bank the insurance policies therefor or in the
alternative, evidence of insurance and at least thirty (30) business days prior
to the expiration of any such insurance, additional policies or duplicates
thereof or in the alternative, evidence of insurance evidencing the renewal of
such insurance and payment of the premiums therefor. Debtor shall direct all
insurers that in the event of any loss thereunder or the cancellation of any
insurance policy, the insurers shall make payments for such loss and pay all
return or unearned premiums directly to Bank and not to Debtor and Bank
jointly.

    

    In the
event of any loss, Debtor will give Bank immediate notice thereof and Bank may
make proof of loss whether the same is done by Debtor. Bank is granted a power
of attorney by Debtor with full power of substitution to file any proof of loss
in Debtor's or Bank's name, to endorse Debtor's name on any check, draft or
other instrument evidencing insurance proceeds, and to take any action or sign
any document to pursue any insurance loss claim. Such power, being coupled with
an interest, is irrevocable.

    

    In the
event of any loss, Bank, at its option, may (a) retain and apply all or any part
of the insurance proceeds to reduce, in such order and amounts as Bank may
elect, the Obligations, or (b) disburse all or any part of such insurance
proceeds to or for the benefit of Debtor for the purpose of repairing or
replacing Collateral after receiving proof satisfactory to Bank of such repair
or replacement, in either case without waiving or impairing the Obligations or
any provision of this Agreement. Any deficiency thereon shall be paid by Debtor
to Bank upon demand. Debtor shall not take out any insurance without having Bank
named as loss payee or additional insured thereon. Debtor shall bear the full
risk of loss from any loss of any nature whatsoever with respect to the
Collateral.

    

    If Debtor
fails to obtain insurance as hereinabove provided, or to keep the same in force,
Bank, if Bank so elects, may obtain such insurance and pay the premium therefor
on behalf of Debtor, and require Borrower to pay such expenses on demand, and
such expenses so advanced by Bank shall be part of the
Obligations.

    
      
         

      

      
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    4.1.7  With
respect to that portion of the Collateral consisting of Accounts Receivable, the
Debtor, in addition to the foregoing, further warrants and represents as
follows:

    

    (a) Each
Account Receivable is a bona fide, valid and legally enforceable obligation of
the Account Debtor in respect thereof and does not represent a sale on
consignment, sale or return, or other similar understanding. Except as otherwise
arising in the ordinary course of business, the right, title and interest of the
Debtor in each Account Receivable is not subject to any defense, offset,
counterclaim, or other claim, nor have any of the foregoing been asserted or
alleged against the Debtor as to any Account Receivable nor will any of the
foregoing, whether or not arising in the ordinary course of business, have a
material adverse effect on the business, financial condition or results of
operations of the Debtor or the aggregate value of the Accounts Receivable. The
amount represented by the Debtor to the Bank as owing by each Account Debtor in
respect of the Accounts Receivable is the correct amount actually and
unconditionally owing by such Account Debtor thereunder.

    

    (b) The
address of the chief and principal executive office of Debtor is Debtor's
address set forth in this Agreement. All records pertaining to the Accounts
Receivable (including computer records) and all returns of Inventory are kept at
Debtor's address set forth in this Agreement, and Debtor will notify Bank no
later than 30 days prior to any change in address of the chief and principal
executive office of Debtor or of the change of the location where records
pertaining to Accounts Receivable or returns of Inventory are kept.

    

    (c)           All
books, records and documents relating to any of the Accounts Receivable
(including computer records) are and will be genuine and in all respects what
they purport to be; and the amount of each Account Receivable shown on the books
and records of Debtor is and will be the correct amount actually owing or to be
owing at maturity of such Account Receivable.

    

    (d)           The
Bank has the immediate absolute and unconditional right to all cash of the
Borrower arising from collections of Accounts Receivable, and all payments on
account of Accounts Receivable, however evidenced, wherever located, regardless
of who is in possession thereof or the form of collection.

    

    (e)           Debtor
shall notify Bank if any Accounts Receivable arise out of contracts with the
United States or other department, agency or instrumentality thereof, and upon
request from the Bank the Debtor shall execute any instruments and take any
steps to perfect the assignment of the rights of the Debtor to the Bank and to
insure that all money due or to become due under such contracts shall be
assigned and paid to the Bank, with proper notice having been given, all as
required under the Federal Assignment of Claims Act or any similar act or
regulation.

    

    
      
         

      

      
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    4.2           In
connection with Borrower's execution of a Lockbox Agreement, Borrower will
indicate on all invoices that payments shall be made directly to the Lockbox. At
any time following Default, and at the request of the Bank, Borrower shall
notify Account Debtors to the effect that the Accounts Receivable have been
assigned to the Bank and that payments shall be made directly to the Bank or as
the Bank shall otherwise direct. At any time following Default, the Bank may
notify Account Debtors to the effect that the Accounts Receivable have been
assigned to the Bank and that payments shall be made directly to the Bank or as
the Bank shall otherwise direct.

    

    4.3           The
Bank shall have the right to make test verifications of the Accounts Receivable
in any manner and through any medium that it considers advisable, and the Debtor
agrees to pay the reasonable costs thereof and to furnish all such assistance
and information as the Bank may require in connection therewith. The Bank may in
its own name or in the name of others communicate with Account Debtors in order
to verify with them to the Bank's satisfaction the existence, amount and terms
of any Accounts Receivable.

    

    4.4           The
Debtor shall hold its books and records relating to the Accounts Receivable
segregated from all of the Debtor's other books and records in a manner
satisfactory to the Bank; and shall deliver to the Bank promptly, on its
request, true and genuine copies of all invoices, original bills of lading,
documents of title, original contracts, chattel paper, instruments and any other
writings relating thereto and other writings or evidence of performance of
contracts or evidence of shipment or delivery of the merchandise sold or
services rendered in connection therewith; and deliver to the Bank, upon receipt
and without demand, any written obligations of Account Debtors to pay, such as
trade acceptances or promissory notes or the like, received by the Debtor; and
the Debtor will deliver to the Bank promptly at the Bank's request additional
copies of any or all of such papers or writings, and such other information with
respect to any Accounts Receivable as the Bank may in its sole and absolute
discretion deem to be necessary.

    

    4.5           The
Debtor shall promptly make, stamp or record such entries or legends on the
Debtor's books and records or on any of the Collateral, as the Bank shall
request, to indicate and disclose that the Collateral has been assigned to the
Bank or that the Bank has a security interest in such Collateral, and to
maintain in the Bank's favor a perfected first priority security interest in all
Accounts Receivable and other Collateral provided to the Bank.

    

    4.6           The
Debtor shall execute and deliver such written assignments of all its Accounts
Receivable as the Bank shall require; provided however that the failure to
execute and deliver such written assignments shall not affect or limit the
Bank's security interest or other rights in and to such Accounts
Receivable.

    

    4.7           Borrower
shall pay to Bank on demand the unpaid portion of any Account Receivable which
was formerly an Eligible Account Receivable or in which Bank otherwise has an
interest if any petition under the Bankruptcy Code or any similar federal or
state statute or a petition for receivership has been filed by or against the
Account Debtor or its property or if it has made an assignment for the benefit
of creditors, unless the unpaid portion of any former Eligible Account
Receivable has been replaced by Borrower and Borrower remains within the
limitation of Borrower's Availability.

    

    4.8           In
furtherance of the continuing security interest herein contained Debtor will,
upon the creation or acquisition of Collateral, or at such intervals as Bank
requires, provide Bank with confirmatory assignments in form satisfactory to
Bank, copies of invoices to customers, evidence of shipment and delivery, and
such further information and documentation as Bank may require and Debtor, at
Bank's request, shall deliver to Bank all documents and written instruments
constituting or relating to Collateral. Debtor will take any and all steps and
observe such formalities and will execute and deliver all papers and instruments
and do all things necessary to effectuate this Agreement and facilitate
liquidation of Collateral, including collection of Accounts Receivable. The
delivery of any information and documentation pursuant to this Agreement shall
be deemed to be a certification by Debtor that as of the date of such delivery,
such information and documentation is true and correct in all material respects
and does not omit any material fact required to be stated therein or necessary
in order to make such information and documentation not misleading and shall
also be deemed a certification that Debtor has no knowledge of any Default or
Event of Default under this Agreement.

    

    4.9           At
the time any Account Receivable becomes subject to a security interest in favor
of Bank: said Account Receivable shall be a good and valid account representing
an undisputed, unconditional bona fide indebtedness incurred by the Account
Debtor named therein for merchandise sold and delivered, or if so indicated in
the papers delivered to Bank sold and shipped, or sold and held subject to
delivery instructions, or for services theretofore fully performed by the Debtor
for said Account Debtor. There are and shall be no setoff counterclaims or
rights of recoupment against any such Account Receivable; no agreement under
which any deduction or discount may be claimed shall have been made with Debtor
on any such Account Receivable except as indicated in a written list, statement,
or invoice furnished to Bank; and Debtor shall be the lawful owner of each such
Account Receivable and shall have the right to subject the same to a first and
prior security interest in favor of Bank, without limitation by any agreement or
document to which Debtor is a party or by which it is bound. No such Account
Receivable shall have been or shall thereafter be sold, assigned or transferred
to any Person other than Bank or in any way encumbered except to Bank and no
other Person shall have proceeds claims thereto, and the Debtor shall defend the
same against the claims and demands of all persons.

    

    4.10                      Debtor
hereby constitutes Bank and each of its officers, agents or designees as
Debtor's attorney in fact, with power to endorse the name of Debtor upon any
notes acceptances, checks, drafts, money orders or other evidences of payment or
Collateral that may come into Bank's possession; to sign Debtor's name to any
invoice or bill of lading relating to any Collateral, drafts against Account
Debtors, assignments, verifications and notices to Account Debtors; to send
verifications of Collateral to any Account Debtor; to execute Debtor's name as
well as its own name and to file financing statements and other instruments or
documents; to do all other acts and things necessary to carry out this
Agreement; to receive open and dispose of all mail addressed to Debtor, and to
notify the post office authorities to change the address for delivery of mail
addressed to Debtor to such address as Bank may designate after Default. All
acts of said attorney or designee are hereby ratified and approved, and said
attorney or designee shall not be liable for any acts of commission or omission,
nor for any error of judgment or mistake of fact or law. This power, being
coupled with an interest, is irrevocable while any Obligations shall remain
unpaid. Debtor authorizes Bank to file in its own name as secured party any
financing statement under the Uniform Commercial Code which Secured Party deems
necessary or advisable to

    
      
         

      

      
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    perfect
the security interests which it is intended that Bank have under this Agreement.
The Debtor acknowledges that it is not authorized to file any financing
statement or amendment or termination statement without prior written consent of
the Bank and agrees that it will not do so without the prior written consent of
the Secured Party.

    

    4.11                      Debtor
subordinates to the payment of any Obligations due or to become due to Bank from
Account Debtors on Collateral, any and all sums then and thereafter due and
become due to Debtor from such Account Debtors, waiving and postponing all
rights with respect thereto until such Obligations to Bank shall have been fully
discharged.

    

    4.12                      Bank
may, without notice to or consent from Debtor, sue upon or otherwise collect,
extend the time of payment of, or compromise or settle for cash, credit or
otherwise, on any terms, any Accounts Receivable or any security or insurance
applicable thereto, which is hereby assigned to Bank, and release any Account
Debtor thereon, or accept the return of any merchandise, all without affecting
in any way the liability of Debtor hereunder.

    

    4.13                      Other
than in the ordinary course of business Debtor shall not without the consent of
Bank, compromise or adjust any Account Receivable (or extend the time for
payment thereof) grant any additional discounts, allowances or credits thereon,
or accept the return of any merchandise.

    

    4.14                      In
the event that any of the Collateral consists of chattel paper, notes and other
instruments and negotiable documents, the Debtor shall, at any time and from
time to time upon request by the Bank, endorse and deliver the same to the
Bank.

    

    4.15                      It
is expressly agreed that the Bank shall not have any responsibility or liability
under any contract in which the Bank has been granted an interest by reason of
or arising out of this Agreement or the receipt by the Bank of any payment
relating to any such contract pursuant hereto, nor shall the Bank be required or
obligated in any manner to perform or fulfill any of the responsibilities of any
other party under or pursuant to any such contract, or to make any payment, or
to make any inquiry as to the nature or the sufficiency of any payment received
by it or the sufficiency of any performance by any party under any such
contract, or to present or file any claim, or to take any action to collect or
enforce any performance or the payment of any amounts which may have been
assigned or pledged to it or to which it may be entitled at any
time.

    

    4.16                      Debtor
shall ensure that all real properties at which any Collateral is located remains
in compliance with all Environmental Laws and Debtor shall not place or permit
to be placed any hazardous substances (as defined by any Environmental Law) on
any such real property except as permitted by applicable law or appropriate
governmental authorities. Debtor shall defend and indemnify Bank and hold Bank
and its employees, agents, directors and officers harmless from and against all
loss, liability, damage and expense, claims, costs, fines and penalties,
including attorney's fees, suffered or incurred by Bank under or on account of
any Environmental Laws, including, without limitation, the assertion of any Lien
thereunder, with respect to any release of a reportable quantity of any
hazardous substances at the real property (any such event being hereinafter
referred to as a "Hazardous Discharge"), the presence of any hazardous
substances affecting the real property, whether or not the same originates or
emerges from the

    
      
         

      

      
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    real
property or any contiguous real estate, including any loss of value of the real
property as a result of the foregoing. Debtor's obligations hereunder shall
arise upon the discovery of the presence of any hazardous substances at the real
property, whether or not any federal, state, or local environmental agency has
taken or threatened any action in connection with the presence of any hazardous
substances. Debtor's obligation and the indemnifications hereunder shall survive
the termination of this Agreement or any Loan Facility. For purposes of this
Section, all references to real property shall be deemed to include all of
Debtor's right, title and interest in and to its owned and leased
premises.

    

    4.17                      
The Bank shall have full power, in its sole and absolute discretion and without
notice, to consent to the substitution, exchange, or release of all or any part
of the Collateral, whether or not other collateral, if any, received by the Bank
upon such substitution, exchange, or release shall be of the same or different
character or value than the Collateral so substituted, exchanged or released,
and whether or not the Bank receives any value for any such action.

    

    4.18                      Intellectual
Property Rights Licensed from Others. Schedule B reflects a complete list of all
agreements (“Intellectual Property Licenses”) under which the Borrower has
licensed Intellectual Property rights from another Person (“Licensor”) other
than readily available, non-negotiated licenses of computer software and other
intellectual property used solely for performing accounting, word processing and
similar administrative tasks. Upon request from the Bank, the Borrower shall
obtain an acknowledgment and agreement from each Licensor in favor of the Bank
permitting the Bank to exercise its rights and remedies against Inventory of the
Borrower affected by such Intellectual Property Licenses including the ability
of the Bank to sell, lease or otherwise dispose of Inventory if an Event of
Default occurs under this Agreement.

    

    SECTION
5.  REPRESENTATIONS AND WARRANTIES

    

    In order
to induce the Bank to enter into this Agreement and, among other things, make
Advances from the Loan Facility, the Borrower and each Guarantor, as the case
may be, hereby represents, warrants, covenants and agrees as
follows:

    

    5.1           Borrower
and Guarantor are each presently in a financial condition which will enable it
to fulfill all of its obligations under the Loan Documents.

    

    5.2           The
Borrower has previously delivered to the Bank a certificate signed by the
Borrower and entitled "Perfection Certificate" (the "Perfection Certificate").
The Borrower represents and warrants to the Bank as follows:(a) the Borrower's
exact legal name is that indicated on the Perfection Certificate and on the
signature page hereof, (b) the Borrower is an organization of the type and
organized in the jurisdiction set forth in the Perfection Certificate, (c) the
Perfection Certificate accurately sets forth the Borrower's organizational
identification number or accurately states that the Borrower has none, (d) the
Perfection Certificate accurately sets forth the Borrower's place of business
or, if more than one, its chief executive office as well as its mailing address
if different and (e) all other information set forth on the Perfection
Certificate pertaining to the Borrower is accurate and complete.

    

    
      
         

      

      
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    5.3           The
Borrower covenants with the Bank as follows: (a) without providing at least 30
days prior written notice to the Bank, the Borrower will not change its name,
its place of business or, if more than one, chief executive office, or its
mailing address or organizational identification number if it has one, (b) if
the Borrower does not have an organizational identification number and later
obtains one, the Borrower shall forthwith notify the Bank of such organizational
identification number, and (c) the Borrower will not change its type of
organization, jurisdiction of organization or other legal
structure.

    

    5.4           Individual
Guarantor's true domicile is set forth on page 1 of this Agreement.

    

    5.5           Borrower
was duly formed and is in good standing under the laws of the state of its
formation, and utilizes no names other than as set forth in this Agreement.
Borrower  has all requisite power and authority (i) to execute and
deliver the Loan Documents, and to consummate the transactions and perform its
obligations thereunder; (ii) to own and operate its properties and assets and to
carry on the business now conducted or as now contemplated; and (iii) is
qualified or authorized to do business and is in good standing in all
jurisdictions wherein the character of the property owned or the nature of the
business conducted by Borrower makes such qualification or authorization
necessary.

    

    5.6           Entity
Guarantor was duly formed and is in good standing under the laws of the state of
its formation, and utilizes no names other than as set forth in this Agreement.
Entity Guarantor has all requisite power and authority (i) to execute and
deliver the Loan Documents, and to consummate the transactions and perform its
obligations thereunder; (ii) to own and operate its properties and assets and to
carry on the business now conducted or as now contemplated; and (iii) is
qualified or authorized to do business and is in good standing in all
jurisdictions wherein the character of the property owned or the nature of the
business conducted by Entity Guarantor makes such qualification or authorization
necessary.

    

    5.7           Individual
Guarantor has full legal capacity to execute and deliver the Loan Documents, and
to consummate the transactions and perform his or her obligations
thereunder.

    

    5.8           The
execution and delivery of, and the consummation of the transactions contemplated
under, the Loan Documents have been duly authorized and approved and no other
actions or proceedings on the part of Borrower or any Guarantor are necessary or
required under the laws of the State of New York, the State of Florida and all
other jurisdictions which may have an effect on the validity and enforceability
of the Loan Documents.

    

    5.9           The
Loan Documents delivered or to be delivered by Borrower and Guarantors are
legal, valid and binding obligations of Borrower and Guarantors, enforceable
against Borrower and Guarantors in accordance with their respective
terms.

    

    
      
         

      

      
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    5.10                      The
execution, delivery and performance of the Loan Documents will not (i) violate
any provision of any existing law, statute, rule, regulation or ordinance, (ii)
conflict with, result in a breach of or constitute a default under (a) any
certificates of incorporation or by-laws of Borrower or Entity
Guarantor,  or (b) any order, judgment, award or decree of any court,
governmental authority, bureau or agency, (iii) result in the creation or
imposition of any Lien or encumbrance upon any of the property of Borrower or
Guarantor immediately, with the passage of time or with the giving of notice and
the passage of time, under any contract, agreement or instrument to which
Borrower or Guarantor is a party or by which Borrower or Guarantor is bound,
(iv) result in the acceleration of any obligation under any mortgage, lien,
lease, franchise, license, permit, agreement, instrument, order, award,
judgment, or decree, or in the termination of any license, franchise, lease, or
permit to which Borrower or Guarantor is a party or by which it is bound, or (v)
violate or conflict with any other restriction of any kind or character to which
Borrower or Guarantor is subject.

    

    5.11                      
There is no known claim, loss, contingency, investigation, whether or not
pending, threatened or imminent against or otherwise affecting Borrower or any
Guarantor that involves the possibility of any liability not fully covered by
insurance or that may result in a Material Adverse Effect in the business,
properties, or condition of Borrower or such Guarantor, or which may result in
an adverse change in the ability of Borrower or such Guarantor to fully perform
under the Loan Documents.

    

    5.12                      
There is no litigation, arbitration or proceeding before any court, arbitrator
or governmental authority currently pending, nor, to the knowledge of Borrower
or Guarantors, threatened, against the Borrower or any Guarantor or any of its
properties and revenues, which, if adversely determined, would materially
adversely affect the business, operations, financial condition or results of
operations of Borrower or such Guarantor. Borrower and each Guarantor shall
notify Bank in writing within 10 days of any claim, litigation, action,
proceeding or event which may result in a Material Adverse Effect in the
business, properties or condition of Borrower or any Guarantor.

    

    5.13                      
To the best of their knowledge, Borrower and each Guarantor has complied with
all applicable statutes, regulations, rules, ordinances, court decrees and other
directives of the United States of America, and all states, counties,
municipalities, agencies and governmental authorities having jurisdiction over
Borrower, Guarantor and/or its operations.

    

    5.14                      
Neither Borrower nor any Guarantor is in default in any material respect in the
payment or performance of any of its obligations or in the performance of any
mortgage, indenture, lease, contract or other agreement or undertaking to which
it is a party or by which it or any of its properties or assets may be bound,
and no default thereunder has occurred and is continuing.  Neither
Borrower nor any Guarantor is in default under any order, award or decree of any
court, arbitrator, or governmental authority binding upon or affecting it or by
which any of its properties or assets may be bound or affected, and no such
order, award or decree, if any, materially adversely affects the ability of
Borrower or Guarantor to carry on its business as presently conducted or to
perform its obligations under the Loan Documents.

    

    
      
         

      

      
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    5.15                      All
federal, state and other tax returns of Borrower and each Guarantor required by
law to be filed have been duly filed or extensions obtained. All federal, state
and other taxes, assessments and governmental charges or levies upon Borrower,
Guarantor or any of its properties, income, profits or assets which are due and
payable have been paid or provided for, except such tax returns the non-filing
of which, and such taxes the nonpayment of which, would not have a Material
Adverse Effect upon the business, assets, liabilities, financial condition,
results of operation or business prospects of Borrower or Guarantor and except
for such taxes and assessments which the Borrower or Guarantor is disputing in
good faith and for which Borrower and Guarantor has established adequate
reserves for the payment of such disputed taxes or assessments. Borrower and
each Guarantor shall cause all future tax returns to be timely filed or
extensions obtained therefor, and all future taxes and assessments to be paid
when due.

    

    5.16                      Where
financial statements have been given to the Bank, and are to be given in the
future, such financial statements shall be true, correct and complete in every
detail, prepared in accordance with GAAP (wherever GAAP can apply) consistently
applied, and fairly present the financial position and results of operations and
changes in cash flows of Borrower and Guarantor as the case may be on the date
and for the period involved. Such financial statements make full and adequate
provision for all obligations, liabilities and commitments, fixed and
contingent, of Borrower and Guarantor as of the date of the financial
statements.

    

    5.17                      All
property owned or utilized by Borrower, as well as all operations of Borrower,
is in compliance and will continue to be in compliance with all federal, state,
county, municipal and regulatory agency laws, rules, regulations, and ordinances
including, but not limited to, all Environmental Laws.

    

    5.18                      Without
the prior written consent of the Bank, Borrower shall not merge or consolidate
with or sell, assign, lease or otherwise dispose of all or substantially all of
its assets whether now owned or hereafter acquired; acquire all or substantially
all the assets or the business of any Person; effectuate a change in current
management; or exceed any Capital Expenditures or Capital Lease Obligations
limitations prescribed in this Agreement.

    

    5.19                      Borrower
is solvent, able to pay its debts as they mature, has capital sufficient to
carry on its business and all businesses in which it is about to engage, and (i)
as of the date of this Agreement, the fair present saleable value of its assets,
calculated on a going concern basis, is in excess of the amount of its
liabilities and (ii) subsequent to the date of this Agreement, the fair saleable
value of its assets (calculated on a going concern basis) will be in excess of
the amount of its liabilities.

    

    5.20                      Borrower
is in compliance in all respects with the applicable provisions of ERISA and all
regulations issued thereunder. As of the date hereof, no employee benefit plan
("Plan") as defined by ERISA, maintained by Borrower or under which Borrower
could have any liability under ERISA (i) has failed to meet minimum funding
standards established under ERISA, (ii) has failed to comply in a material
respect with all applicable requirements of ERISA and of the Internal Revenue
Code, including all applicable rulings and regulations thereunder, (iii) has
engaged in or been involved in a prohibited transaction under ERISA or the
Internal Revenue Code which would subject Borrower to any material liability, or
(iv) has been terminated if such termination would subject Borrower to any
material liability. Borrower has

    
      
         

      

      
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    timely
made all contributions when due, and no event has occurred triggering a claim
against Borrower for withdrawal liability with respect to any Plan.

    

    5.21                      Borrower
has obtained all Consents necessary to carry on its business, and is not
knowingly in violation of any applicable statute, regulation or ordinance in any
respect which could reasonably be expected to have a Material Adverse
Effect.

    

    5.22                      Bank
shall have the unrestricted right at any time and from time to time, and without
the consent of or notice to Borrower or any Guarantor, to grant to one or more
banks or other financial institutions (each, a "Participant") participating
interests in Bank's obligation to lend hereunder and/or any or all of the Loans
held by Bank hereunder. In the event of any such grant by Bank of a
participating interest to a Participant, whether or not upon notice to Borrower,
Bank shall remain responsible for the performance of its obligations hereunder
and Borrower shall continue to deal solely and directly with Bank in connection
with Bank's rights and obligations hereunder. Bank may furnish any information
concerning Borrower in its possession from time to time to prospective
Participants, provided that Bank shall require any such prospective Participant
to agree in writing to maintain the confidentiality of such
information.

    

    5.23                      Borrower
agrees that immediately upon becoming aware of any development or other
information outside the ordinary course of business and excluding matters of a
general economic, financial or political nature which would reasonably be
expected to have a Material Adverse Effect it shall give to Bank telephonic
notice specifying the nature of such development or information and such
anticipated effect. In addition, such verbal communication shall be confirmed by
written notice thereof to Bank on the same day such verbal communication is made
or the next Business Day thereafter.

    

    5.24                      Borrower
shall give thirty (30) days prior written notice to Bank of any changes in the
location of any of its respective places of business, of the places where
records concerning its Accounts or where its Inventory or other Collateral are
kept, or the establishment of any new, or the discontinuance of any existing
place of business or location, where Inventory or other Collateral is kept;
provided that Borrower may not establish any place of business outside of the
United States.

    

    5.25                      Borrower
shall not:

    

    (a)
Become liable upon the obligations of any Person by assumption, endorsement or
guaranty thereof or otherwise (other than to Bank) except the endorsement of
checks in the ordinary course of business; pledge Bank's credit on any purchases
or for any purpose whatsoever or use any portion of any Advance in or for any
business other than Borrower's business; make advances, loans or extensions of
credit to any Person, including without limitation, any parent, Subsidiary or
Affiliate;

    

    (b)
Substantially change the nature of the business in which it is presently
engaged, nor except as specifically permitted hereby, purchase or invest,
directly or indirectly, in any assets or property other than in the ordinary
course of business for assets or property which are useful in, necessary for and
are to be used in its business as presently conducted.

    

    (c)  Directly
or indirectly, purchase, acquire or lease any property from, or sell, transfer
or lease any property to, or otherwise deal with, any Affiliate, except
transactions in the ordinary course of business, on an arm's-length basis on
terms no less favorable than terms which would have been obtainable from a
Person other than an Affiliate.

    

    (d)  Change
its fiscal year or make any significant change (i) in accounting treatment and
reporting practices except as required by GAAP or (ii) in tax reporting
treatment except as required by law.

    

    (e)  If
a registered organization, change its jurisdiction of organization.

    

    (f)  Amend,
modify or waive any term or material provision of its Certificate of
Incorporation or By-Laws without the prior consent of the Bank.

    

    5.26                      All
information, reports and other papers and data furnished to the Bank were, at
the time the same were so furnished, complete and correct in all material
respects. No document furnished or statement made to the Bank in connection with
the negotiation, preparation or execution of the Loan Documents contains or will
contain any untrue statement of material fact or omits or will omit to state a
material fact necessary in order to make the statements contained therein not
misleading. No fact is known to Borrower or any Guarantor which has had or may
in the future have a materially adverse effect upon the Borrower's business,
assets, liabilities, condition, financial or otherwise, or results of operations
that has not been set forth in the financial statements furnished to the Bank or
other reports or other papers or data otherwise disclosed in writing to the
Bank.

    

    5.27                      All
patents, patent applications, trademarks, trademark applications, service marks,
service mark applications, copyrights, copyright applications, design rights,
tradenames, assumed names, trade secrets and licenses owned or utilized by
Borrower are set forth on Schedule B, are valid and have been duly registered or
filed with all appropriate governmental authorities and constitute all of the
Intellectual Property rights which are necessary for the operation of its
business; there is no objection to or pending challenge to the validity of any
such patent, trademark, copyright, design right, tradename, trade secret or
license and Borrower is not aware of any grounds for any challenge. Each patent,
patent application, patent license, trademark, trademark application, trademark
license, service mark, service mark application, service mark license, design
right, copyright, copyright application and copyright license owned or held by
Borrower and all trade secrets used by Borrower consist of original material or
property developed by Borrower or was lawfully acquired by Borrower from the
proper and lawful owner thereof. Each of such items has been maintained so as to
preserve the value thereof from the date of creation or acquisition thereof.
With respect to all software used by Borrower, such party is in possession of
all source and object codes related to each piece of software or is the
beneficiary of a source code escrow agreement.

    

    5.28                      Borrower
is not party to any contract or agreement the performance of which could have a
Material Adverse Effect. Borrower has not agreed or consented to cause or permit
in the future (upon the happening of a contingency or otherwise) any of its
property, whether now owned or hereafter acquired, to be subject to a Lien which
is not a Permitted Lien. Borrower is not involved in any labor dispute; there
are no strikes or walkouts or union organization of Borrower's employees
threatened or in existence and no labor

    
      
         

      

      
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    contract
is scheduled to expire during the term of this Agreement. Borrower is not
engaged, nor will it engage, principally or as one of its important activities,
in the business of extending credit for the purpose of "purchasing" or
"carrying" any "margin stock" within the respective meanings of each of the
quoted terms under Regulation U of the Board of Governors of the Federal Reserve
System as now and from time to time hereafter in effect. No part of the proceeds
of any Advance will be used for "purchasing" or "carrying" "margin stock" as
defined in Regulation U of such Board of Governors.

    

    5.29                      All
representations and warranties of Borrower and each Guarantor contained in this
Agreement and the other Loan Documents shall be true at the time of Borrower's
and such Guarantor's execution of this Agreement and the other Loan Documents,
and shall survive the execution, delivery and acceptance thereof by the parties
thereto and the closing of the transactions described therein or related
thereto.

    

    5.30                      In
the event that any change in applicable law, regulation, condition, directive or
interpretation occurs which (i) subjects the Bank to any tax with respect to any
amount paid or to be paid to the Bank under the Loan Documents or changes the
basis of taxation of payments to the Bank on any amounts payable under the Loan
Documents (other than any tax measured by or based upon the overall net income
of the Bank); or (ii) imposes, modifies or deems applicable any capital
adequacy, capital maintenance, reserve or deposit requirements against the
assets held by the Bank in connection with advances or payments to the Bank
pursuant to the Loan Documents; or (iii) imposes upon the Bank any other
condition with respect to any amounts paid or payable to or by the Bank; and the
result of any of the foregoing is to increase the cost to the Bank of making any
Loans or extensions of credit under the Loan Documents, or to reduce the rate of
return on the Bank's capital to a level below that which the Bank would have
achieved but for such event, then and in such event the Bank shall deliver to
the Borrower written notice of the happening of such event, and the Bank shall
be entitled to adjust the terms of the Loan Documents to make up any increased
cost or reduction of payment or return experienced by the Bank as a result of
such event. Such notice shall contain the statement of Bank with regard to any
such amount or amounts which shall, in the absence of manifest error, be binding
upon Borrower. In determining such amount, Bank may use any reasonable method of
averaging and attribution that it deems applicable.

    

    5.31                      Borrower
and each Guarantor, as the case may be, warrant and represent that all
information set forth on Schedule B annexed hereto and made a part hereof is
true and accurate as of the date hereof.

    

    5.32                      Anti-Terrorism
Laws.

    

    (a)           General.

    

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

    
      
         

      

      
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    (b)           Executive
Order No. 13224.

    

    Neither Borrower, nor any Guarantor,
nor any of their Affiliates or their respective agents acting or benefiting in
any capacity in connection with the Loans, Letters of Credit or other
transactions hereunder, is any of the following (each a “Blocked
Person”):

    

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

    

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

    

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

    

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

    

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

    

    (vi)                      a
Person or entity who is affiliated or associated with a person or entity listed
above.

    

    (c)           Blocked
Person or Transactions.  Neither Borrower, nor any Guarantor, nor to
Borrower’s knowledge any of their agents acting in any capacity in connection
with any Loans, Letters of Credit or other transactions hereunder (i) conducts
any business or engages in making or receiving any contribution of funds, goods
or services to or for the benefit of any Blocked Person, or (ii) deals in, or
otherwise engages in any transaction relating to, any property or interests in
property blocked pursuant to Executive Order No. 13224.

    

    (d)           Trading
with the Enemy.  Borrower has not engaged, nor does it intend to
engage, in any business or activity prohibited by the Trading with the Enemy
Act.

    

    SECTION
6.  ADDITIONAL CONDITIONS, COVENANTS AND REQUIREMENTS

    

    6.1  Field
Examinations. Borrower will permit the Bank and its agents and representatives,
at any time and from time to time during normal business hours and without undue
disruption to Borrower's business, to (i) visit and inspect the premises and the
properties of Borrower and the Collateral, (ii) inspect and make extracts from
the books and records of Borrower, and (iii) discuss with Borrower's officers,
employees and accountants any and all matters with respect to the business,
assets, liabilities, financial condition, results of operations and business
prospects of the Borrower. Such audits or field examinations are expressly
authorized by Borrower, and shall include, at a minimum, periodic field
examinations as directed by the Bank. The cost of any activities of the Bank
hereunder shall be paid by Borrower as

    
      
         

      

      
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    invoiced
by the Bank. The cost of all field examinations required by the Bank shall be
borne by the Borrower based on $850.00 per man per day plus out of town travel
and out of pocket expenses.

    

    6.2           Financial
Reporting Requirements and Statements. Borrower and Guarantors, as the case may
be, shall comply with the following requirements:

    

    6.2.1  Borrower
and Entity Guarantor shall provide to the Bank, within 90 days after the end of
each fiscal year of Borrower and Entity Guarantor a balance sheet as at the end
of such fiscal year, and a statement of income and retained earnings and
statement of cash flow for such fiscal year, prepared on a consolidated and
consolidating basis and audited in accordance with GAAP by independent certified
public accountants of recognized standing selected by Borrower and Entity
Guarantor and satisfactory to the Bank. Borrower shall submit with each
financial statement required hereunder, a certificate reflecting Borrower's
calculation of Borrower's compliance with all financial covenants required
hereunder together with a certification by the chief financial officer of
Borrower stating that there then exists no Default under the Loan Documents and
no event which, with the giving of notice or lapse of time, or both, would
constitute an event of default under any of the Loan Documents or any other
material agreement to which Borrower is a party ("Financial Statement
Calculation and Certification").

    

    6.2.2  Borrower
and Entity Guarantor shall provide to the Bank, within 60 days after the end of
each fiscal quarter period of Borrower and Entity Guarantor a balance sheet as
at the end of such fiscal quarter, and a statement of income and retained
earnings and statement of cash flow for such fiscal quarter, prepared on a
consolidated and consolidating basis in accordance with GAAP by Borrower's and
Entity Guarantor's management accompanied by an attestation of the chief
financial officer of Borrower and Entity Guarantor. Borrower shall submit a
Financial Statement Calculation and Certification with each financial statement
required hereunder.

    

    6.2.3                      Borrower
shall provide to the Bank, within 120 days after the end of each fiscal year of
Borrower, true and signed copies of federal tax returns, complete with all
schedules and attachments, filed by Borrower, except if filed earlier in which
case Bank shall be furnished with such copies within 30 days of filing. If
Borrower is on extension for the filing of any tax return, Bank shall be
furnished with, within 30 days of filing, a true copy of any such extension and,
thereafter, Bank shall be provided with a true and signed copy of each such
filed tax return, complete with all schedules and attachments within 10 days of
filing.

    

    6.2.4                      Entity
Guarantor shall provide to the Bank, within 120 days after the end of each
fiscal year of Entity Guarantor, true and signed copies of federal tax returns,
complete with all schedules and attachments, filed by Entity Guarantor, except
if filed earlier in which case Bank shall be furnished with such copies within
30 days of filing. If Entity Guarantor is on extension for the filing of any tax
return, Bank shall be furnished with, within 30 days of filing, a true copy of
any such extension and, thereafter, Bank shall be provided with a true and
signed copy of each such filed tax return, complete with all schedules and
attachments within 10 days of filing.

    

    
      
         

      

      
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    6.2.5                      Individual
Guarantor shall provide to the Bank, within 90 days of the fiscal year end of
the Borrower, the personal financial statement of such Guarantor, containing
such information as the Bank shall require and, if requested, on forms
prescribed by the Bank, all such statements to be executed by such
Guarantor.

    

    6.2.6  Individual
Guarantor Guarantor shall provide to the Bank, within 120 days after the end of
each fiscal year of Borrower, true and signed copies of federal tax returns,
complete with all schedules and attachments, filed by Guarantor, except if filed
earlier in which case Bank shall be furnished with such copies within 30 days of
filing. If Guarantor is on extension for the filing of any tax return, Bank
shall be furnished with, within 30 days of filing, a true copy of any such
extension and, thereafter, Bank shall be provided with a true and signed copy of
each such filed tax return, complete with all schedules and attachments within
10 days of filing.

    

    6.3           Other
Reporting Requirements. Borrower shall comply with the following
conditions:

    

    6.3.1  Borrower
shall provide to the Bank, within 15 days of the end of the previous month, a
detailed aging report setting forth the amount due and owing on each of
Borrower's Accounts Receivable on Borrower's books as of the close of the
preceding month on an invoice date basis, together with a reconciliation report
satisfactory to the Bank showing all sales, collections, payments and
adjustments to accounts receivable on Borrower's books as of the close of the
preceding month.

    

    6.3.2  Borrower
shall provide to the Bank, within 15 days of the end of the previous month, a
detailed aging report setting forth the amount due and owing on each of
Borrower's accounts payable on Borrower's books as of the close of the preceding
month.

    

    6.3.3  Borrower
shall provide to the Bank on a daily basis Borrower's sales journal, cash
receipts journal, credit memos and checks if any in kind
delivered.

    

    6.3.4  Borrower
shall provide to the Bank, within 15 days of the end of each month and at the
time of each request for an Advance, a Borrowing Base Certificate.

    

    6.3.5  Borrower
shall provide to the Bank, within 15 days of the end of the previous month, a
detailed listing and summary of the Inventory on Borrower's books as of the
close of the preceding month, and including quantities, values, and
location.

    

    6.3.6  Borrower
shall provide to the Bank prompt notice of any change in the status of an
Account Receivable from that which is Eligible to that which is not, and the
rejection of goods, delay in performance, or claims made in regard to Accounts
Receivable.

    

    6.4           Borrower
shall comply with the following financial covenants:

    

    6.4.1  Leverage;
Debt to Tangible Net Worth ratio: The Borrower will maintain a Debt to Tangible
Net Worth ratio as herein prescribed for the periods set forth hereafter:
(i)  as of fiscal year end December 31, 2007, the Borrower shall have
achieved a ratio of Debt to Tangible Net Worth in a proportion not to exceed
1.60 to 1; (ii) commencing with fiscal year 2008,

    
      
         

      

      
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    and for
each fiscal year thereafter, the Borrower shall maintain at all times a ratio of
Debt to Tangible Net Worth in a proportion not to exceed 1.60 to 1. In applying
this ratio, the term "Debt" as numerator in the ratio equation shall mean the
total liabilities of the Borrower whether demand, installment, contingent,
secured, unsecured, guaranteed, endorsed, or assumed all determined in
accordance with GAAP, less Subordinated Debt. The term "Tangible Net Worth" as
denominator in the ratio equation shall have the same meaning as set forth in
paragraph 6.4.2. This covenant shall be tested quarterly and at fiscal year
end.

    

    6.4.2   Minimum
Tangible Net Worth:  The Borrower will maintain Tangible Net Worth as
herein prescribed for the periods set forth hereafter: (i) as of fiscal year end
December 31, 2007, the Borrower shall have achieved a Tangible Net Worth of not
less than $825,000.00; (ii) commencing with fiscal year 2008, and for each
fiscal year thereafter, Borrower's minimum Tangible Net Worth requirement
hereunder shall increase by $50,000.00 per year. In applying this requirement,
the term "Tangible Net Worth" shall mean, as of the time of any determination
thereof, the Borrower's net worth as reported on Borrower's financial
statements, plus loans subordinated in favor of the Bank, less the total of
loans or advances to its officers and affiliated companies, goodwill, licenses,
patents, copyrights, trademarks, tradenames, unamortized debt discount and
expense, leasehold improvements or organizational expenses and other like
intangible assets and other items that would be characterized as intangible
assets in accordance with GAAP. This covenant shall be tested quarterly and at
fiscal year end.

    

    6.4.3  Net
Profit.  Commencing with fiscal year end December 31, 2008, and for
each fiscal year thereafter, Borrower shall reflect a net profit of not less
than $100,000.00 as reflected in Borrower's audited fiscal year end statement
for any such fiscal year.

    

    6.4.4  No
Year End Loss.  Commencing with Borrower's December 31, 2007 fiscal
year end and for each fiscal year thereafter, Borrower shall not experience a
loss as at any fiscal year end as reflected in Borrower's audited fiscal year
end statements required hereunder.

    

    6.4.5  Pre-tax
distributions. Borrower shall not declare, pay or make any dividend or
distribution on any shares of the common stock or preferred stock of Borrower
(other than dividends or distributions payable in its stock, or split-ups or
reclassifications of its stock) or apply any of its funds, property or assets to
the purchase, redemption or other retirement of any common or preferred stock,
or of any options to purchase or acquire any such shares of common or preferred
stock of Borrower except that so long as no Event of Default or Default shall
exist before or after the making of such distribution, Borrower may make
distributions equal to but not in excess of fifty percent (50%) of pre-tax
profits on an annual basis. Any increase beyond the 50% limitation hereunder
must be approved in writing in advance by the Bank.

    

    6.4.6  Employee
Loans. Borrower shall not make loans to employees in excess of the aggregate
amount of $25,000.00 in any fiscal year without the prior written consent of the
Bank in its sole discretion.

    

    6.4.7                      Limitations
on inter-company transactions. There shall be no inter-company transactions with
Affiliates or Subsidiaries in excess of $25,000.00 in any fiscal year. Existing
Subordinated Debt as set forth in Section 3.9 shall not be included when
applying this limitation.

    
      
         

      

      
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    In the
event that Borrower shall violate any of the aforesaid covenants, then for such
time period during which a covenant violation exists the Contract Rate hereunder
shall be increased by one percent (1.0%). Anything to the contrary
notwithstanding, the Bank reserves the right to declare that an Event of Default
under this Agreement has occurred attributable to any such covenant violation
irrespective of the increase in the Contract Rate hereunder.

    

    In the
event that a covenant violation occurs, and the Bank is requested to waive such
violation, Borrower shall be responsible to pay to the Bank a waiver fee of one
percent (1.0%) of the Maximum Revolving Advance Amount in effect at such time if
the Bank issues such waiver in its sole and absolute discretion. Payment shall
be made by the Borrower at the time of issuance of any such waiver.

    

    6.5           In
the event that working capital or other financial needs of Borrower arise after
execution of this Agreement beyond the limitations of the Loan Facility created
hereunder, such funds shall be contributed by stockholders of Borrower in the
form of equity or loans which shall be subordinated to the Obligations due the
Bank pursuant to subordinations agreements prepared by the Bank.

    

    6.6           Borrower
shall provide to the Bank immediately upon demand (i) certificates of insurance
for all policies of insurance to be maintained by Borrower pursuant to this
Agreement; (ii) an estoppel certificate executed by an authorized officer of
Borrower indicating that there then exists no Default under the Loan Documents
and no event which, with the giving of notice or lapse of time, or both, would
constitute an event of default under any agreement to which Borrower is a party;
(iii) all original and other documents evidencing right to payment, including
but not limited to invoices, original orders, shipping and delivery receipts;
and (iv) all information received by Borrower affecting the financial status or
condition of any Account Debtor.

    

    6.7           Borrower
and Guarantors shall promptly provide to the Bank such additional financial
information, data and documents, in form reasonably satisfactory to the Bank, as
may be reasonably requested from time to time by the Bank.

    

    6.8           Capital
Expenditures. There shall be no limitation with respect to Capital Expenditures
of the Borrower provided that no single or series of Capital Expenditures during
any fiscal year shall result in the violation of any financial covenant
prescribed in this Agreement or otherwise cause an Event of Default to
occur.

    

    6.9           Minimum
Deposit. The Borrower shall maintain with Bank average collected demand deposit
balances equal to $50,000.00 (the "Minimum Deposit"). Furthermore, if the
Borrower does not maintain the Minimum Deposit, Borrower shall pay to Bank, on a
quarterly basis, a deficiency fee equal to the Contract Rate plus three percent
(3.0%) multiplied by the difference between (i) Borrower's actual average
collected balances maintained with the Bank during such period and (ii) the
Minimum Deposit. The Borrower shall maintain its main operating account and all
other business accounts with the Bank.

    

    
      
         

      

      
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    6.10                      Collateral
Management Fee. The Borrower shall pay to the Bank a monthly collateral
management fee (the "Collateral Management Fee") in the amount of $500.00,
subject to adjustment in accordance with the operations experience, commencing
with the execution of this Agreement and for each successive month thereafter
until all Obligations have been paid in full and the Loan Facility has been
terminated under the Loan Documents.

    

    6.11                      Lockbox
Fee. The Borrower shall pay to the Bank a monthly lockbox fee (the "Lockbox
Fee") in the amount of $500.00 commencing with the execution of this Agreement
and for each successive month thereafter, subject to adjustment in accordance
with the operations experience and the Lockbox Agreement (as referenced herein)
until all Obligations have been paid in full and the Loan Facility has been
terminated under the Loan Documents. Borrower shall execute the Bank's form of
Lockbox Agreement, and shall comply with all requirements thereof.

    

    6.12                      
Prepayment Premium.  In the event that the Loan Facility is terminated
by the Borrower at any time prior to a Maturity Date, whether of the Initial
Term or any Renewal Term, or if the Loan Facility is terminated by the Bank as a
result of the occurrence of an Event of Default, whether of the Initial Term or
any Renewal Term, the Borrower shall pay to the Bank a prepayment premium upon
the occurrence of such event (a "Prepayment Event") equal to one percent (1.0%)
of the Maximum Revolving Advance Amount in effect at such time if the Prepayment
Event occurs in the first year of the Initial Term or any Renewal Term, and one
half of one percent (0.5%) of the Maximum Revolving Advance Amount in effect at
such time if the Prepayment Event occurs in the second year of the Initial Term
or any Renewal Term.

    

    6.13                      
Annual Loan Facility Fee.  On the yearly anniversary date of the
execution of this Agreement, Borrower shall pay to the Bank a facility fee
(“Facility Fee”) in the amount of 0.5% of the Maximum
Revolving Advance Amount then in effect.

    

    6.14                      Closing
Fee. At the time of execution of this Agreement, Borrower shall pay to the Bank
a closing fee ("Closing Fee") in the amount of $20,000.00.

    

    6.15                      
Overadvances. If at any time (either contrary to the Bank's intention, as the
result of Eligible Accounts Receivable thereafter becoming ineligible, or with
Bank's consent, as the result of Bank making additional advances in its
discretion that cause a temporary Overadvance, (as hereinafter defined), the
amount of Obligations exceeds Borrower's Availability (such excess being
hereinafter referred to as an "Overadvance"), Borrower shall (i) in the case of
an unintentional Overadvance, on notification of such fact by Bank, forthwith
pay to Bank such amount as will eliminate the Overadvance; and (ii) in the case
of an Overadvance with the Bank's consent, pay to the Bank, on the date
specified by the Bank, such amount as will eliminate the Overadvance. At the end
of any month in which any Overadvance has occurred, Borrower shall be charged an
Overadvance Fee equal to one percent (1.00%) of the maximum Overadvance
occurring during such month.

    

    6.16                      
Unused Line Fee.  N/A

    

    6.17                      Operating
Accounts.  Borrower agrees to maintain all bank accounts, including
all operating accounts, with the Bank.

    
      
         

      

      
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    6.18                      Neither
Borrower, nor any Guarantor, nor their agents shall (i) conduct any business or
engage in any transaction or dealing with any Blocked Person, including the
making or receiving any contribution of funds, goods or services to or for the
benefit of any Blocked Person, (ii) deal in, or otherwise engage in any
transaction relating to, any property or interests in property blocked pursuant
to Executive Order No. 13224; (iii) engage in or conspire to engage in any
transaction that evades or avoids, or has the purpose of evading or avoiding, or
attempts to violate, any of the prohibitions set forth in Executive Order No.
13224, the USA Patriot Act or any other Anti-Terrorism Law; or (iv) engage in
any business or activity in violation of the Trading with the Enemy
Act.  Borrower shall deliver to the Bank any certification or other
evidence requested from time to time by any lender in its sole discretion,
confirming Borrower’s compliance with this Section.

    

    SECTION
7. CLOSING AND CONDITIONS PRECEDENT TO ADVANCES

    

    Closing
under this Agreement is subject to the following conditions precedent (all
instruments, documents and agreements to be in form and substance satisfactory
to Bank and Bank's counsel):

    

    7.1           Resolutions,
Opinions, and Other Requirements: Borrower shall have delivered, or caused to be
delivered to Bank, or Bank shall have received the following:

    

    a.           this
Agreement, and each of the other Loan Documents all properly
executed;

    

    b.           any
other documents to be executed and/or delivered by Borrower or any other Person
pursuant to this Agreement;

    

    c.           certified
copies of (i) resolutions of Borrower's and Entity Guarantor's board of
directors authorizing the execution, delivery and performance of this Agreement,
and each of the other Loan Documents required to be delivered pursuant to this
Agreement and (ii) Borrower's articles or certificate of incorporation and
by-laws;

    

    d.           an
incumbency certificate for Borrower and Entity Guarantor identifying all
officers, with specimen signatures, authorized to execute the Loan
Documents;

    

    e.           insurance
certificates in form satisfactory to the Bank;

    

    f.           all
searches and certificates;

    

    g.           such
other documents reasonably required by Bank;

    

    h.           after
payment of all costs associated with Closing (including the payoff of existing
lender Indebtedness and other sums payable at Closing under the Loan Documents),
Borrower's Availability shall not be less than $500,000.00;

    

    
      
         

      

      
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    i.           Prior
to making any Advance from the Loan Facility, Borrower shall have delivered to
the Bank the final December 31, 2007 audited financial statement of Borrower,
the results of which must be consistent, in the sole opinion of the Bank, with
preliminary figures provided to the Bank by Borrower.

    

    7.2           Fees
at Closing: Borrower shall have paid at the time of execution of this Agreement
(the "Closing"), or shall at Closing authorize the payment by direct charge to
the Borrower's account with the Bank (subject to any credit for payments made to
the Bank prior to Closing), the following:

    

    (a)           the
Closing Fee;

    

    (b)           the
initial Collateral Management Fee;

    

    (c)           the
Bank's attorney's fee and disbursements, including fees for all searches,
certificates andfilings.

    

    7.3           Officer
Certification: By execution of this Agreement, the officer or manager signing
this Agreement on behalf of Borrower certifies to the Bank as follows as of the
date of this Agreement:

    

    a.  there
has not occurred any material adverse change in the operations and condition
(financial or otherwise) of Borrower since the date of the last financial
statement provided by such party to the Bank;

    

    b. all
warranties and representations contained in this Agreement are true and correct
in all respects on the date of this Agreement; and

    

    c. all
requirements on the part of Borrower and all Guarantors under the Loan Documents
as of the Closing Date have been satisfied.

    

    7.4           Waiver
of Rights:  By executing any of the Loan Documents, or by making
Advances hereunder, Bank does not thereby waive a breach of any warranty or
representation made by Borrower hereunder or under any agreement, document, or
instrument delivered to Bank or otherwise referred to herein, and any claims and
rights of Bank resulting from any breach or misrepresentation by Borrower are
specifically reserved by Bank.

    

    7.5           Post-Closing
Requirements: In addition to the ongoing requirements of the Loan Documents, the
following post-Closing actions shall be taken:

    

    (a)  Borrower
shall establish the Minimum Deposit required under this Agreement;

    

    (b)  The
Bank shall charge Borrower's account for the initial Lockbox Fee;

    

    (c)  The
Bank shall charge Borrower's account for the unpaid cost of any field
examination and appraisal.

    

    SECTION
8. DEFAULT AND REMEDIES

    

    8.1           Events
of Default.  Any one or more of the following events shall constitute
an Event of Default hereunder (all references to Borrower and Guarantor being
applicable to each Borrower and Guarantor):

    
      
         

      

      
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    (a)           Any
representation, warranty or statement made by or on behalf of Borrower or
Guarantor, or in any report, certificate, financial statement or other
instrument furnished to the Bank in connection with the Loan Documents shall
prove to be inaccurate, false or misleading in any material respect as of the
date with respect to which it was made or deemed to be made;

    

    (b)           Borrower
shall have failed to make any payment under the Loan Documents when
due;

    

    (c)           The
Borrower or any Guarantor shall have failed to duly observe or perform any
covenant, condition or agreement on the part of the Borrower or Guarantor to be
observed or performed pursuant to the terms of the Loan Documents;

    

    (d)           Borrower
or Guarantor shall have applied for or consented to the appointment of a
custodian, receiver, fiscal agent, trustee or liquidator of all or a substantial
part of its assets; shall have made an arrangement with, or an assignment for
the benefit of, its creditors; shall have filed a voluntary petition in
bankruptcy, or sought dissolution or reorganization under any law; or shall have
filed an answer admitting the material allegations of a bankruptcy or
reorganization petition;

    

    (e)           Borrower
or Guarantor shall have a custodian, receiver, fiscal agent, trustee or
liquidator appointed without its consent for all or a substantial part of its
assets; shall have an involuntary petition filed against it in bankruptcy for
dissolution or reorganization; or shall have been adjudicated a bankrupt or had
a plan of reorganization submitted by any creditor or committee approved;
provided, however, that such Event of Default shall be subject to cure by
Borrower or Guarantor within thirty (30) days of the occurrence of such Event of
Default if any such appointment, petition, adjudication or submission is
terminated,  dismissed, or withdrawn;

    

    (f)           Borrower
or Guarantor shall have transferred or caused the transfer of title to all or
any substantial part of its assets other than in the ordinary course of its
business for any reason without the prior written consent of the Bank, or if
Borrower or Guarantor shall have transferred or cause to be transferred all or
any part of any property constituting Collateral or in which the Bank has been
given an interest under the Loan Documents;

    

    (g)           A
writ of execution or attachment or any similar process shall be issued or levied
against all or any part of or interest in any of the properties or assets of
Borrower or Guarantor or any judgment involving monetary damages shall be
entered against Borrower or Guarantor which shall become a Lien on Borrower's or
Guarantor's properties or assets or any portion thereof or interest therein, and
within thirty (30) days (i) an appeal is not taken and actively prosecuted, or
(ii) any judgment involving monetary damages aggregating to more than $25,000.00
shall not have been released, bonded, satisfied, vacated or stayed;

    

    (h)           Seizure
or foreclosure of any of the properties or assets of Borrower or Guarantor
pursuant to process of law or by reason of legal self-help involving monetary
damages aggregating more than $25,000.00; provided, however, that such Event of
Default shall be subject to cure by Borrower within thirty (30) days of the
occurrence of such Event of Default if any such seizure or foreclosure is
terminated, dismissed, or withdrawn;

    

    (i)           Borrower
or Guarantor granting a security interest or Lien in any of the Collateral or
any other property in which the Bank has been given an interest without the
prior written consent of the Bank in its sole and absolute
discretion;

    

    (j)           If
an Event of Default as defined by the terms of any of the Loan Documents shall
have occurred and shall continue beyond any applicable cure period;

    

    (k)           If
Borrower dissolves, liquidates or ceases operations; if a Change of Control
occurs; if a Change of Ownership occurs; or if any Guarantor dies;

    

    (l)           If
Borrower or any Guarantor shall not be paying its debts as they become due in
the ordinary course of business; admits its inability to pay its debts as they
become due; becomes insolvent, however otherwise evidenced; or if Borrower
ceases to conduct business in the ordinary course;

    

    (m)           If,
in the reasonable opinion of the Bank, the value of the Collateral is
insufficient in relation to the Obligations;

    

    (n)           If
the Bank shall not be satisfied, in its sole and absolute discretion, with any
financial reporting documents required to be furnished to the Bank by Borrower
or Guarantor;

    

    (o)           If
any Material Adverse Effect has occurred, or if or Material Default With Third
Party has occurred, or if, in the reasonable opinion of the Bank, the Bank
concludes that the ability of Borrower or Guarantor to fully perform under the
Loan Documents is impaired; or if the Bank deems itself insecure;

    

    (p)           If
there shall occur any default by Borrower or Guarantor under any of the other
Loan Documents or under any other instrument, document or agreement executed by
Borrower or Guarantor in favor of the Bank at any time, now existing or
hereafter arising, or if there shall occur a default in any debt or other
obligation owed to the Bank by Borrower or Guarantor now existing or hereafter
arising, whether or not such instrument, document, agreement, debt or other
obligation arose from the Loan Documents.

    

    The
occurrence of an Event of Default under this Agreement and the continuance
thereof beyond any permitted cure period shall also constitute a default under
each of the Loan Documents and under any other instrument, document or agreement
executed at any time by Borrower or Guarantor in favor of the Bank, whether or
not such other instrument, document or agreement is related to the Loan
Documents, and whether or not cross-default language appears in any of the other
Loan Documents or in any such other instrument, document or
agreement.

    

    8.2           Remedies.  Upon
the occurrence of a Default, the Bank may take one or more of the following
remedial steps:

    

    (a)           Declare
the entire unpaid principal balance together with all accrued and unpaid
interest, charges and expenses under the Loan Documents to be due and payable
forthwith, whereupon the Loan Documents shall become forthwith due and payable
as to principal, interest, charges and expenses and all other sums due
thereunder, without presentment, demand,

    
      
         

      

      
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    protest,
or other notice of any kind, all of which are hereby expressly waived, anything
contained herein or in the Loan Documents or any note to the contrary
notwithstanding;

    

    (b)           The
Bank shall be authorized to collect interest on any overdue principal, interest
and other sums owing under the Loan Documents at the highest rate set forth in
the Loan Documents or at the Default Rate, at the option of the
Bank;

    

    (c)           Take
any action at law or in equity to collect the payments then due and thereafter
to become due under the Loan Documents or to enforce performance and observance
of any obligation, agreement or covenant of Borrower or Guarantor under the Loan
Documents;

    

    (d)           Exercise
any and all rights and remedies of a creditor under the Uniform Commercial Code
or other applicable law;

    

    (e)           Take
such action and institute such proceedings as are authorized by or permitted
under the Loan Documents;

    

    (f)           Immediately
and without prior notice to Borrower or  Guarantor, or any other
party, and without other acts, set-off against any deposit account maintained
with the Bank by Borrower or Guarantor any of the Obligations owed to the Bank,
and such right of set-off shall be deemed to have been exercised immediately
upon the occurrence of any Event of Default, even though the actual book entries
may be at some time subsequent thereto;

    

    (g)           Hold
as security for the payment of all Obligations any other property heretofore or
hereafter delivered into the custody, control or possession of the Bank for any
reason or purpose whatsoever by any person liable for the payment of the
Obligations to the Bank;

    

    (h)           Enter
upon the premises of Debtor where any property in which the Bank has an interest
is located, without any obligation to pay rent to Debtor or others, and remove
such property therefrom, it being the obligation of Debtor to assemble and make
available such property for removal by the Bank;

    

    (i)           Foreclose
upon any property pledged, assigned, mortgaged, hypothecated, or otherwise made
subject to a security interest or Lien in favor of the Bank;

    

    (j)           Sell
all or part of any of the assets of Borrower or Guarantor in which the Bank has
a security interest at public or private sale, with such notice, if any, as may
be required by law, all such notice being hereby waived to the extent permitted
by law;

    

    (k)           Borrower
and Guarantor shall be deemed to have waived presentment, demand, protest or any
notice of any kind in connection with this Agreement or any Collateral, all
rights to seek from any court any bond or security prior to the exercise by the
Bank of any remedy described herein, the benefit of all valuation, appraisement
and exemption laws, and all rights to demand or to have any marshaling of assets
upon any power of sale granted herein or pursuant to judicial proceedings or
upon any foreclosure or any enforcement of this Agreement;

    

    
      
         

      

      
        45

        
          

        

      

      
         

      

    

    (l)           Bank
shall be deemed constituted and appointed as true and lawful attorney-in-fact of
Borrower with full power to do any and all things necessary to exercise Bank's
rights and remedies as fully and effectually as Borrower might or could do
without Bank being liable for any acts or omissions or for any error of judgment
or mistake of fact or law in its capacity as such attorney-in-fact; this power
of attorney is coupled with an interest and shall be irrevocable so long as a
Default has occurred, and any Obligation remains outstanding;

    

    (m)           Upon
the institution of any action by the Bank, the Bank shall be entitled to the
appointment of a receiver for the assets and business of Borrower;

    

    (n)           Anything
to the contrary notwithstanding, the Bank shall be entitled to retain all sums
paid by or on behalf of Borrower pursuant to the terms of this Agreement and any
other agreement, document, or instrument executed in connection herewith despite
the filing of any insolvency proceeding under federal or state law, it being
acknowledged by Borrower that all such payments made to the Bank did not
constitute a preference, was given in exchange for contemporaneous value,
permitted Borrower to continue to operate, did not favor the Bank over other
creditors, and resulted in Borrower obtaining substantial value and
benefits.

    

    8.3           In
addition to the above remedies, if a Default under this Agreement has occurred,
the Bank shall have the right and remedy, without posting bonds or other
security, to have any provision of the Loan Documents specifically enforced by
any court having equity jurisdiction, it being acknowledged and agreed that any
such Default will cause irreparable injury to the Bank and that money damages
will not provide an adequate remedy thereto.

    

    8.4           No
remedy herein conferred or reserved to the Bank is intended to be exclusive of
any other available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under the Loan
Documents or now or hereafter existing at law or in equity or by
statute.  No delay or omission to exercise any right or power accruing
upon any default shall impair any such right or power or shall be construed to
be a waiver thereof, but any such right and power may be exercised from time to
time and as often as may be deemed expedient. In order to entitle the Bank to
exercise any remedy reserved to it, it shall not be necessary to give notice,
other than such notice as may be expressly required in the Loan
Documents.

    

    8.5           Prior
to Default, all payments shall be applied first to the payment of all fees,
expenses and other amounts due to the Bank (excluding principal and interest),
then to accrued interest, and the balance on account of outstanding principal.
After Default, the Bank shall be authorized in its sole and absolute
discretion to apply all proceeds received from the sale or other disposition of
any property or Collateral, from Borrower or Guarantor, or from any other
source, in the following order of priority:

    

    (1)           First,
to payment of all reasonable fees, costs and expenses (including reasonable
attorneys' fees and expenses) incurred in connection with the Bank's pursuit of
remedies authorized under the Loan Documents;

    

    
      
         

      

      
        46

        
          

        

      

      
         

      

    

    (2)           Next,
to the payment in full of accrued and unpaid interest, charges, expenses, unpaid
principal and other sums under the Loan Documents in any order determined by the
Bank;

    

    (3)           Next,
to any outstanding interest and principal of any Obligation of the Borrower to
the Bank not arising from the Loan Documents; and

    

    (4)           Next,
the balance, if any, of such proceeds to the Borrower or as a court of competent
jurisdiction may otherwise direct.

    

    8.6           In
the event Borrower or Guarantor should default under any of the provisions of
this Agreement or the other Loan Documents, and the Bank shall require and
employ attorneys or incur other expenses for the collection of payments due or
to become due or for the enforcement or performance or observance of any
obligation or agreement on the part of Borrower or Guarantor therein contained,
Borrower and Guarantor agree that it will on demand therefor pay to the Bank the
reasonable fees and disbursements of such attorneys and such other reasonable
expenses so incurred by the Bank.

    

    SECTION
9. MISCELLANEOUS

    

    9.1           Notices
under this Agreement shall be directed to the address set forth in this
Agreement, or such other address as shall be furnished to the other party by
notice (hereafter, the "notice address").  Notices under this
Agreement shall be effected in one or more of the following manners: (i)
personal delivery to the notice address, effective on delivery; (ii) mailing by
certified or registered mail, return receipt requested, by the U.S. Postal
Service to the notice address, effective on the second business day after the
day on which mailed; (iii) delivery by recognized overnight delivery service to
the notice address, effective on the second day after given to the delivery
service by the sender.

    

    9.2           All
covenants, agreements, representations and warranties made herein shall continue
in full force and effect so long as any part of the Obligations is
outstanding.  Whenever in this Agreement any of the parties hereto is
referred to, such reference shall be deemed to include the successors, assigns,
heirs, executors, administrators and representatives of such party; and all
covenants, promises and agreements by or on behalf of Borrower and Guarantor
which are contained in this Agreement shall bind the successors, assigns, heirs,
executors, administrators, and representatives of each, and shall inure to the
benefit of the successors and assigns of the Bank.

    

    9.3           This
Agreement and the rights and obligations of the parties hereunder shall be
construed and interpreted in accordance with the laws of the State of New York
(excluding the laws applicable to conflicts or choice of law). BORROWER AND ANY
GUARANTOR AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
OR ANY FEDERAL COURTS SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE
JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS OF ANY SUCH SUIT BEING MADE
UPON BORROWER AND ANY GUARANTOR BY MAIL AT THE ADDRESS SET FORTH IN THIS
AGREEMENT FOR SUCH PARTY, AND BORROWER AND ANY GUARANTOR HEREBY WAIVES ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY
SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT FORUM.

    

    
      
         

      

      
        47

        
          

        

      

      
         

      

    

    9.4           This
Agreement is intended by the parties as the final, complete and exclusive
statement of the transactions evidenced by this Agreement. All prior or
contemporaneous promises, agreements  and understandings, whether oral
or written, are deemed to be superseded by this Agreement, and no party is
relying on any promise, agreement or understanding not set forth in this
Agreement. No modification, amendment or waiver of any provision of this
Agreement, nor consent to any departure by Borrower or Guarantor from the terms
hereof, shall in any event be effective unless the same shall be in writing and
signed by the party granting such modification, amendment or waiver, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given. No notice to or demand on Borrower or Guarantor in
any case shall entitle Borrower or Guarantor to any other or further notice or
demand in the same circumstances.

    

    9.5           Neither
any failure nor any delay on the part of the Bank in exercising any right, power
or privilege under the Loan Documents shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or further
exercise of any other right, power or privilege.

    

    9.6           Bank
shall have the unrestricted right at any time or from time to time, and without
Borrower's or any Guarantor's consent, to assign all or any portion of its
rights and obligations hereunder to one or more banks or other financial
institutions (each, an "Assignee"), and Borrower and each Guarantor agrees that
it shall execute, or cause to be executed, such documents, including without
limitation, amendments to this Agreement and to any other documents, instruments
and agreements executed in connection herewith as Bank shall deem necessary to
effect the foregoing. In addition, at the request of Bank and any such Assignee,
Borrower shall issue one or more new promissory notes, as applicable, to any
such Assignee and, if Bank has retained any of its rights and obligations
hereunder following such assignment, to Bank which new promissory notes shall be
issued in replacement of, but not in discharge of, the liability evidenced by
the promissory note held by Bank prior to such assignment and shall reflect the
amount of the respective commitments and loans held by such Assignee and Bank
after giving effect to such assignment. Upon the execution and delivery of
appropriate assignment documentation, amendments and any other documentation
required by Bank in connection with such assignment, and the payment by Assignee
of the purchase price agreed to by Bank, and such Assignee, such Assignee shall
be a party to this Agreement and shall have all of the rights and obligations of
Bank hereunder (and under any and all other guaranties, documents, instruments
and agreements executed in connection herewith) to the extent that such rights
and obligations have been assigned by Bank pursuant to the assignment
documentation between Bank and such Assignee, and Bank shall be released from
its obligations hereunder and thereunder to a corresponding extent. Borrower may
furnish any information concerning Borrower in its possession from time to time
to prospective Assignees, provided that Bank shall require any such prospective
Assignees to agree in writing to maintain the confidentiality of such
information. The Loan Documents may be assigned by the Bank to any division,
Affiliate or Subsidiary of the Bank or to any successor or assign of the Bank,
and the Bank may offer participations in the Loan Documents, without any notice
to or consent from Borrower or Guarantor. There shall be no assignment of the
Loan Documents, or the rights arising therefrom, by Borrower or
Guarantor.

    

    
      
         

      

      
        48

        
          

        

      

      
         

      

    

    9.7           Borrower
and Guarantor agree that they will, from time to time, execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, such supplements
hereto and such further documents and instruments as may reasonably be required
for carrying out the intention of or facilitating the performance of this
Agreement or as requested by the Bank to perfect or preserve any interests or
Liens granted to it pursuant to the Loan Documents, and to pay the cost thereof
by check or bank account debit after the execution of the within
Agreement.

    

    9.8           Borrower
agrees to pay, reimburse, indemnify and hold harmless, the Bank, its directors,
officers, employees, agents and representatives from and against any and all
actions, costs, damages, disbursements, expenses (including reasonable
attorneys' fees), judgments, liabilities, losses, obligations, penalties and
suits of any kind or nature whatsoever with respect to: (i)
the  administration, enforcement, interpretation, amendment,
modification, waiver or consent of any of the Loan Documents; (ii) the exercise
of any right or remedy granted in any of the Loan Documents, the collection or
enforcement of any of the Obligations and the proof or allowability of any claim
arising under any of the Loan Documents, whether in any bankruptcy or
receivership proceeding or otherwise; and (iii) any claim of third parties, and
the prosecution or defense thereof, arising out of or in any way connected with
any of the Loan Documents or any Collateral.

    

    
      
         

      

      
        49

        
          

        

      

      
         

      

    

    9.9  BORROWER,
ANY GUARANTOR AND BANK MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS
CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT,
COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY
PARTY, INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
STATEMENTS OR ACTIONS OF BANK RELATING TO THE ADMINISTRATION OF THE LOAN OR
ENFORCEMENT OF THE LOAN DOCUMENTS, AND AGREE THAT NEITHER PARTY WILL SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED. EXCEPT AS PROHIBITED BY LAW, BORROWER AND ANY
GUARANTOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY
DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. BORROWER AND ANY
GUARANTOR CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF BANK HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT BANK WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER. THIS WAIVER CONSTITUTES A
MATERIAL INDUCEMENT FOR BANK TO ENTER INTO THIS AGREEMENT AND MAKE ANY
LOAN.

    

    9.10                      If,
at any time, the rate of interest, together with all amounts which constitute
interest and which are reserved, charged or taken by Bank as compensation for
fees, services or expenses incidental to the making, negotiating or collection
of the loan evidenced hereby, shall be deemed by any competent court of law,
governmental agency or tribunal to exceed the maximum rate of interest permitted
to be charged by Bank to Borrower under applicable law, then, during such time
as such rate of interest would be deemed excessive, that portion of each sum
paid attributable to that portion of such interest rate that exceeds the maximum
rate of interest so permitted shall be deemed a voluntary prepayment of
principal. As used herein, the term "applicable law" shall mean the law in
effect as of the date hereof provided, however, that in the event there is a
change in the law which results in a higher permissible rate of interest, then
this Agreement shall be governed by such new law as of its effective
date.

    

    
      
         

      

      
        50

        
          

        

      

      
         

      

    

    9.11                      No
portion of the proceeds of any loan shall be used, in whole or in part, for the
purpose of purchasing or carrying any "margin stock" as such term is defined in
Regulation U of the Board of Governors of the Federal Reserve
System.

    

    9.12  Upon
receipt of an affidavit of an officer of Bank as to the loss, theft, destruction
or mutilation of any Note, agreement or any other security document which is not
of public record, and in the case of any such loss, theft, destruction or
mutilation, upon cancellation of such Note or other agreement or security
document, Borrower will issue, in lieu thereof a replacement note, agreement or
other security document in the same principal amount thereof and otherwise of
like tenor.

    

    9.13                      The
parties hereto warrant and represent that they have been represented by, and
have consulted with, counsel of their own choosing; that they have been
counseled as to their rights and remedies; that they have
utilized such counsel to negotiate this Agreement; and that each party enters
into this Agreement and all agreements, documents and instruments executed in
connection herewith voluntarily and without duress of any kind. The parties
acknowledge and agree that they and their respective counsel have reviewed and
had an opportunity to make changes to this Agreement and that the normal rule of
construction, whereby ambiguities are construed against the drafting party,
shall be inapplicable to the Loan Documents.

    

    9.14  This
Agreement is solely for the benefit of the parties hereto and their respective
successors and assigns, and no other person shall have any right, benefit,
priority or interest in, under or because of the existence of, this
Agreement.

    

    9.15                      The
section headings contained herein are for reference purposes only and shall not
in any way affect the meaning or interpretation of this Agreement.

    

    9.16                      References
to "Borrower" and "Guarantor" throughout this Agreement includes each and every
Borrower and Guarantor, and all liability of all such parties to the Bank shall
be deemed joint and several unless otherwise expressly set forth to the
contrary.  References to the singular or plural, or to the masculine,
feminine, or neuter, shall be deemed to include the other where
appropriate.

    

    9.17                      In
the event any provision of this Agreement or the other Loan Documents shall be
held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision hereof
or thereof.

    

    9.18                      This
Agreement may be signed in any number of counterparts with the same effect as if
the signatures thereto and hereto were upon the same instrument.

    

    9.19  This
Agreement shall become effective upon the date set forth on page 1
hereof.

    

    
      
         

      

      
        51

        
          

        

      

      
         

      

    

    IN
WITNESS WHEREOF, the parties hereto have duly executed this agreement under seal
as of the day and year first above written.

    

    WITNESS
OR ATTEST:

    Borrower:

    

    CAPSTONE
INDUSTRIES, INC.

    

    

    
      	
               
      

            	
              By:_____________________             By:___________________________

            

    

    Name:                                Name:

    Title:                               Title:

    

    

    Guarantors

    

    CHDT
CORPORATION

    

    

    
      	
               
      

            	
              By:_____________________               By:___________________________

            

    

    Name:                                  Name:

    Title:                                 Title:

    

    

    

    ________________________                _________________________(L.S.)

    HOWARD
ULLMAN

    

    Bank:                          STERLING NATIONAL
BANK

    

    

    ________________________                   By___________________________

    Kenneth
G.
Poller                          Name:  John
McCormack

                                               Title:  Senior
Vice President

    

    

    
      
         

      

      
        52

        
          

        

      

      
         

      

    

    SCHEDULE
A

    

    "Collateral"
shall include all assets, personal and fixture property, of Debtor including the
following:

    (1)  Accounts;

    (2)  Certificated
Securities;

    (3)  Chattel
Paper;

    (4)  Computer
Hardware and Software and all rights with respect thereto, including, any and
all licenses, options, warranties, service contracts, program services, test
rights, maintenance rights, support rights, improvement rights, renewal rights
and indemnifications, and any substitutions, replacements, additions or model
conversions of any of the foregoing;

    (5)   Contract
Rights;

    (6)   Deposit
Accounts;

    (7)   Documents;

    (8)   Equipment;

    (9)   Financial
Assets;

    (10)
Fixtures;

    (11)
General Intangibles, including Payment Intangibles and Software;

    (12)
Goods

    (13)
Instruments;

    (14)
Intellectual Property;

    (15)
Inventory;

    (16)
Investment Property;

    (17)
Money (of every jurisdiction whatsoever);

    (18)
Letter-of-Credit Rights;

    (19)
Payment Intangibles;

    (20)
Security Entitlements;

    (21)
Supporting Obligations;

    (22)
Uncertificated Securities; and

    (23) to
the extent not included in the foregoing, all other personal property of any
kind or description; and all accessions, additions, attachments, improvements,
substitutions and replacements thereto and therefor; together with all books,
records, writings, data bases, information and other property relating to, used
or useful in connection with, or evidencing, embodying, incorporating or
referring to any of the foregoing, and all Proceeds, products, offspring, rents,
issues, profits and returns of and from any of the foregoing.

    
      
         

      

      
        53

        
          

        

      

      
         

      

    

    SCHEDULE
B

    

    

    1.           Permitted
Liens:

    

    NONE

    

    2.           Jurisdictions
for Filing of Financing Statements:

    

    Florida

    

    3.           Borrower's
Federal Tax Identification Number and State Organizational Identification Number
for UCC Purposes:

    

    Fed.
ID.                      65-0669702

    State DOC
No.                                           P96000041757

    

    4.           Leases
for Space at which records and/or Collateral are located:

    

    Principal
Office
Location:            Landlord:

    

    350 Jim
Moran Blvd., Suite 120        ExamSoft
Worldwide

    Deerfield
Beach, Florida 33442        350 Jim
Moran Blvd., Suite 120

                                                Deerfield
Beach, FL 33442

    

    Other
Locations:                      Landlord:

    

    

    5.           Places
where Borrower keeps or intends to keep Collateral (not otherwise listed in
Section 4):

    

    Price
Transfer, Inc.

    23011 So.
Wilmington Avenue

    Carson,
California 90745

    

    

    
      	
              6.

            	
              State
      and Jurisdictions where Borrower is Qualified to do
    Business:

            

    

    

    Florida

    

    

    7.           Owners
of Capital Stock of Borrower:

    

    CHDT
Corporation – 100%

    

    8.           Alternate
or Fictitious Names: None

    

    9.           Subsidiaries
or Affiliates: None

    

    10.           Trade
Names:  None

    

    
      	
              11.

            	
              Trade
      Marks, Service Marks, Patents, Copyrights, and Intellectual Property
      Rights Licensed from Others:

            

    

    

    (a)
Trademarks owned by
Capstone:           Timely
Reader

                                                      Page
Sitters

    
      
         

      

      
        54

        
          

        

      

      
         

      

    

                                                      Liqui-Lights

                                                      Siply
Comfort

    

    (b)
Trademarks licensed to
Capstone:        STPtools.com

    

    (c)  Patents:                               LiquiLights
Flashlight

    

    
      	
              12.

            	
              Exceptions
      to Ownership of Copyrights, Patents, Trade Marks, Service Marks, or Other
      Intellectual Property: None

            

    

    

    13.           Pending
Litigation:  None

    

    14.           Commercial
Tort Claims:  None

    

    15.           Environmental
Exceptions: None

    

    16.           Other
Associations: None

    

    17.           Letter
of Credit Rights:  None other than issued by Bank

    

    18.           Deposit
Accounts: None other than at Bank

    

    19.           Litigation:
______________________form8k050108ex10-2.htm

    EXHIBIT
10.2

    

    SUBORDINATION
AGREEMENT

    

    

    THIS SUBORDINATION AGREEMENT
made as of May 1, 2008, by HOWARD ULLMAN, residing at
5000 Thoroughbred Land, Southwest Ranches, Florida 33330, and with offices
located at 350 Jim Moran Blvd., Deerfield Beach, Florida 33442 (hereinafter
designated the "Undersigned" or "Subordinator"), in favor of STERLING NATIONAL BANK, a
national banking association, having an office located at 500 Seventh Avenue,
New York, New York 10018 (hereinafter designated the "Bank");

    

    For and
in consideration of the extension of credit and other financial accommodations
given, to be given or continued by the Bank to CAPSTONE INDUSTRIES, INC.
(hereinafter designated the "Borrower"), Undersigned hereby agree as
follows:

    

    1.           That
the Borrower is or will be indebted to the Bank as a result of instruments,
agreements, and/or documents (hereinafter referred to as the "Loan Documents")
executed or to be executed by the Borrower in favor of the Bank and/or by an
extension of credit made or to be made by the Bank to the Borrower (hereinafter
referred to as "Borrower's Bank Obligations").

    

    2.           That
the Borrower is indebted to the Undersigned in the amount of $109,741.48 (together with
all accrued and future interest thereon) (hereinafter referred to as the
"Subordinated Debt"); that the Undersigned has not subordinated all or any
portion of the Subordinated Debt to the debts or claims of any other creditor of
the Borrower by any agreement presently effective; and that the Undersigned has
not assigned the Subordinated Debt, or any part thereof, by any assignment
presently effective.

    

    3.           That,
until payment in full of Borrower's Bank Obligations, and subject to the
provisions of the Loan and Security Agreement executed by the Borrower and the
Undersigned in favor of the Bank as well as all extensions, modifications and
renewals thereof, the Undersigned will not receive from the Borrower any sum or
thing of value in full or partial satisfaction of, or as security for, the
Subordinated Debt regardless of the time when Borrower's Bank Obligations arose;
and all claims of the Undersigned against the Borrower, of every nature,
presently existing and hereaf­ter arising, shall be subordinated to the
Borrower's Bank Obligations ­to the end that the Borrower's Bank Obligations
shall be paid and discharged in full before any payment or security is received
by the Undersigned in part or full payment of, or as security for, the
Subordinated Debt­.

    

    4.           Until
payment in full of Borrower's Bank Obligations, to assign to the Bank all the
Subordinated Debt as security for the payment by the Borrower of the Borrower's
Bank Obligations, with full right in favor of the Bank to receive payment of
said Subordinated Debt, and to enforce and collect said Subordinated Debt by
suit, or by filing proof in any proceeding in bankruptcy, reorganization,
insolvency or other proceeding under state or federal law for an
adjust­ment, settlement, extension or composition of or other relief from
debts, or otherwise. If any payment is received by the

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    Undersigned
for or on account of the Subordinated Debt, the Undersigned will hold it in
trust for the Bank, and will deliver it to the Bank in the form in which it is
received, with endorsement where required, for credit against the Borrower's
Bank Obligations.  Any security interest or other lien in any property
of the Borrower granted to the Subordinator by the Borrower, including all
filings and recordings, are subordinate and inferior to the security interests
and liens granted to the Bank pursuant to the Loan Documents irrespective of the
time or order of filing and/recording. Anything to the contrary notwithstanding,
so long as there are outstanding any obligations of the Borrower to the Bank in
connection with the Bank's Loan Documents or any extension of credit made by the
Bank to the Borrower however evidenced, the Undersigned (i) will not exercise
any rights with respect to any of the property and assets of Borrower in which
the Bank or the Undersigned has a security interest or lien of any kind, all
agreements and filings to the contrary notwithstanding, (ii) will not exercise
any rights with respect to any other property or assets of Borrower, and (iii)
will not take any action against the Borrower which would impair or adversely
affect the Bank's ability to collect all of Borrower's Bank
Obligations.

    

    5.           In
the event of any receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, readjustment of indebtedness, composition, reorganization,
whether or not pursuant to bankruptcy laws, sale of all or substantially all of
the assets, dissolution, winding up, liquidation, or any other marshaling of the
assets and liabilities of Borrower, any payment or distribution of assets of
Borrower of any kind or character, whether in cash, securities or other
property, which would otherwise be payable to or deliverable upon or with
respect to any or all indebtedness of Borrower to the Undersigned up to the sum
of the Subordinated Debt shall be paid or delivered directly to Bank for
application on Borrower's Bank Obligations until same shall have been fully paid
and satisfied. Bank shall have the right to enforce, collect and receive every
such payment or distribution and give acquittance therefor, and Bank is hereby
authorized, as attor­ney-in-fact for the Undersigned, to vote and prove the
Subordinated Debt in any of the above described pro­ceedings or in any
meeting of creditors of Borrower relating thereto.

    

    6.           Not
to assign, transfer, hypothecate or dispose of any claim it has or may have
against Borrower while Borrower's Bank Obligations remain unpaid, without the
written consent of Bank.

    

    7.           Promptly
upon receipt, endorse and deliver to Bank all notes or other instruments now or
hereafter issued which evidence any indebtedness of Borrower to the Undersigned
up to the sum of the Subordinated Debt.

    

    8.           That
this is a continuing agreement of subordination and the Bank may, without notice
to the Undersigned, extend and continue to extend credit to the Borrower on the
faith hereof, until written notice of revocation hereof is received by the Bank.
Such revocation shall not affect this Subordination in respect to any of the
Borrower's Bank Obligations theretofore incurred, whether then due and payable
or thereafter to become due and payable, nor shall such revocation affect any
extensions or renewals of such Obligations, or any part thereof, after such
notice or revocation is

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    received
by the Bank, and, as to such Obligations, such revocation shall not become
effective until such Obligations are fully paid.

    

    9.           The
Bank may, without notice to and without the consent of the Undersigned, and
without impairing or in any way affecting this Subordination
Agreement:

    

    (a)
Exchange or surrender all or any part of any property or interest in property
held by the Bank by way of pledge, assignment, security agreement, mortgage,
hypothecation or otherwise, as security for the payment of Borrower's Bank
Obligations;

    

    (b)
Release or settle or compromise with any other guarantor or guarantors of, or
surety or sureties on, any of Borrower's Bank Obligations.

    

    10.           To
waive notice of the making of any extension of credit by the Bank to the
Borrower, and of notice of default by the Borrower in the payment of Borrower's
Bank Obligations.

    

    11.           Bank's
delay in or failure to exercise any right or remedy shall not be deemed a waiver
of any obligation of the Undersigned or right of Bank. This Subordination
Agreement may be modified, and any of Bank's rights hereunder waived, only by
agreement in writing signed by Bank.

    

    12.           All
of Borrower's Bank Obligations shall be deemed to have been made or incurred at
the request of Undersigned and in reliance upon this Subordination Agreement;
provided, however, that neither the foregoing provision nor any other provision
contained in this Subordination Agreement shall be deemed or construed to
constitute, either directly or by implication, a guaranty by Undersigned of
Borrower's Bank Obligations.

    

    13.           For
the purposes hereof:

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    (a) The
Bank will be deemed to have extended credit to the Borrower when it makes a loan
to the Borrower, or when it acquires an instrument for the payment of money upon
which the Borrower is liable as maker, drawer, endorser, surety, guarantor or
otherwise, or when it extends or renews any debt or instrument evidencing any
debt owing to it by the Borrower or any debt or instrument evidencing any debt
for the payment of which the Borrower is liable to the Bank as maker, drawer,
endorser, surety, guarantor or otherwise; and

    

    (b) The
"Borrower's Bank Obligations" includes every liability to the Bank which arises
when the Bank extends credit to the Borrower or otherwise including accrued
interest, and all expenses, fees and costs for which the Borrower is liable to
the Bank, or incurred by the Bank in connection with any indebtedness of the
Borrower to the Bank, or the collection thereof.

    

    14.           If
this document is signed by more than one person or entity, the word
"Undersigned," as used herein, includes all persons and entities so signing, and
the liability of each of them hereunder shall be joint and several.

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    15.           THE
UNDERSIGNED HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A
TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS DOCUMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE
EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING,
WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS OR
ACTIONS OF BANK RELATING TO THE ADMINISTRATION OF THE LOAN OR ENFORCEMENT OF THE
LOAN DOCUMENTS, AND AGREE THAT NO SUCH PARTY WILL SEEK TO CONSOLIDATE ANY SUCH
ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN
WAIVED. EXCEPT AS PROHIBITED BY LAW, THE UNDERSIGNED HEREBY WAIVES ANY RIGHT IT
MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE
OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES. THE UNDERSIGNED CERTIFIES THAT NO REPRESENTATIVE AGENT OR ATTORNEY OF
BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT BANK WOULD NOT, IN THE EVENT
OF LITIGATION SEEK TO ENFORCE THE FOREGOING WAIVER. THIS WAIVER CONSTITUTES a
MATERIAL INDUCEMENT FOR BANK TO ACCEPT THIS DOCUMENT AND MAKE ANY LOAN TO
BORROWER. THE UNDERSIGNED CONSENTS TO AND CONFERS PERSONAL JURISDICTION OVER
SUCH PARTY ON THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT
COURT FOR THE DISTRICT OF NEW YORK; EXPRESSLY WAIVES ANY OBJECTIONS AS TO VENUE
IN ANY OF SUCH STATE COURTS; EXPRESSLY WAIVES ANY RIGHT OF REMOVAL FROM SUCH
STATE COURTS; AND AGREES THAT ANY ACTION ARISING FROM THIS AGREEMENT OR ANY
TRANSACTION HEREUNDER MUST BE BROUGHT ONLY IN THE STATE OF NEW
YORK.

    

    16.           The
provisions hereof (1) shall be binding upon the Undersigned, his heirs,
executors, administrators, successors and assigns; (2) shall inure to the
benefit of the Bank, its successors and assigns; and (3) shall be governed by
and be construed according to the laws of the State of New York.

    

    17.           As
used herein, the singular number includes the plural, and the masculine gender
includes the feminine and the neuter.

    

    

    

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    IN WITNESS WHEREOF, the
Undersigned has duly executed this document on the day and year first above
written.

    

    WITNESS/ATTEST:

    

    

    

    ________________________                 ________________________(L.S.)

                                             HOWARD
ULLMAN

    

    

    AGREEMENT
OF BORROWER

    

    Receipt
of a copy of the foregoing Subordination Agreement is hereby acknowledged and
the contents thereof are hereby incorporated herein as if fully set forth. The
Borrower agrees that, for a breach in any term or provision contained in the
foregoing Subordination Agreement, or for any misrepresentation made therein,
the Bank may at its option, and without notice and without prejudice to any
other action it may take, declare all the debts and liabilities of the Borrower
to the Bank immediately due and payable.

    

    WITNESS
OR ATTEST:

    

    CAPSTONE
INDUSTRIES, INC.

    

    

    

    
      	
               
      

            	
              By:_____________________               By:___________________________

            

    

    Name:                                  Name:

    Title:
Secretary                       Title:
President

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