Document:

ex10_2.htm

    Exhibit
10.2

     

    AGREEMENT
OF SUBORDINATION & ASSIGNMENT

    

    This AGREEMENT OF SUBORDINATION &
ASSIGNMENT made and dated as of June 27, 2008, by

     

    JL DISTRIBUTORS, INC., a
corporation of the State of Delaware with its principal corporate place of
business at 10 East 40th Street, New York, New York 10016 (hereinafter referred
to as "CREDITOR")

    

    and

    

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

    

    and

    

    FIVE STAR PRODUCTS, INC., a
corporation of the State of Delaware with its principal corporate place of
business at 10 East 40th Street,
Suite 3110, New York, New York 10016 (hereinafter referred to as "GUARANTOR")

    

    in favor
of

    

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

    

    WITNESSES THAT:

    

    (1)           WHEREAS, BORROWER and LENDER
are parties to a certain Loan and Security Agreement dated even date herewith
(such certain Loan and Security Agreement and all extensions, modifications
(including without limitation modifications increasing or decreasing the amount
of the Revolving Loan described below), refinancings, renewals, substitutions,
replacements and/or redatings thereof being called the "Loan Agreement" in this
Agreement); and

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (2)           WHEREAS, pursuant to the Loan
Agreement, BORROWER has obtained the benefits of a $35,000,000 revolving loan
facility (called the "Revolving
Loan" in this Agreement and more fully defined in Article I of the Loan
Agreement) from LENDER; and

     

    (3)           WHEREAS, GUARANTORhas
guaranteed the obligations owed by BORROWER to LENDER under the Loan
Agreement;

     

    (4)           WHEREAS, it is a condition of
the obligation of LENDER to execute the Loan Agreement and to extend to BORROWER
the benefits of the Revolving Loan that this Agreement shall have been executed
and shall be in full force and effect; and

     

    (5)           WHEREAS, CREDITOR desires that
LENDER enter into the Loan Agreement and extend the Revolving Loan to BORROWER
as aforesaid and, as a result, executes this Agreement as an inducement to
LENDER to do so; and

     

    (6)           WHEREAS, in this Agreement
BORROWER and GUARANTOR are hereinafter jointly called “DEBTOR”;

     

    NOW, THEREFORE, in
consideration of the premises and other good and valuable consideration and in
order to induce LENDER from time to time to extend and/or to continue to extend
credit, advances or loans to BORROWER under the Loan Agreement, CREDITOR,
BORROWER and GUARANTOR all hereby agree as follows:

     

    (1)           (a)           (i)           Subject
to the provisions of subparagraph (b) and subparagraph (c) below, no “Claims” which CREDITOR now has
or may hereafter have or acquire against DEBTOR or any of its property or any of
its rights in any property can be paid unless and until BORROWER has paid and
satisfied in full all “Liabilities” which are owed by
BORROWER to LENDER.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (ii)           For
purposes of this Agreement, the term “Claims” means the
following:

     

    (A)           all
claims and demands (and all interest accrued or that may hereafter accrue
thereon) which CREDITOR now has or may hereafter have or acquire against
BORROWER or any of its property or any of its rights in any property which, in
each and all of the foregoing cases, arise out of BORROWER's obligations to
CREDITOR under that certain Asset Purchase Agreement dated August 31, 1998
between JL DISTRIBUTORS, INC. (as seller and then known as FIVE STAR GROUP,
INC.) and BORROWER (as buyer and then known as "FIVE STAR ACQUISITION CORP.")
relating to BORROWER’s purchase of the assets of said JL DISTRIBUTORS, INC.
(then known as FIVE STAR GROUP, INC.) and

     

    (B) all claims and demands (and all
interest accrued or that may hereafter accrue thereon) which CREDITOR now has or
may hereafter have or acquire against GUARANTOR or any of its property or any of
its rights in any property which, in each and all of the foregoing cases, arise
out of GUARANTOR's obligations to CREDITOR under GUARANTOR’s certain $2,800,000
note, dated June 10, 2005  (the “Subordinated Seller Note”), a
copy of which is attached hereto as Exhibit "A".

     

    (iii)           For
purposes of this Agreement, the term "Liabilities" shall have the
same meaning in this Agreement that it has in the Loan Agreement.

     

    (b)            Notwithstanding
the provisions of subparagraph (a) above, DEBTOR may pay and GUARANTOR may
receive payments of interest on the Subordinated Seller Note so long as no Event
of Default has occurred and is continuing under the Loan Agreement.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (c)           
Notwithstanding the provisions of subparagraph (a) above, GUARANTOR may pay and
CREDITOR may receive limited repayments of principal (each a “principal paydown”) on the
Subordinated Seller Note if the following conditions have been
satisfied:

     

    
      	
               
      

            	
              (i)

            	
              No
      Event of Default has occurred and is continuing under the Loan
      Agreement.

            

    

    

    
      	
               
      

            	
              (ii)

            	
              The
      amount of any permitted “principal paydown” will be calculated and paid
      once each year, after LENDER’s receipt and review of GUARANTOR’s audited
      fiscal year-end financial statements consolidated with BORROWER and
      prepared and submitted as required by the Loan
  Agreement.

            

    

    

    
      	
               
      

            	
              (iii)

            	
              The
      “principal paydown” for BORROWER’s 2008 fiscal year can be made no sooner
      than April 1, 2009 and cannot exceed the lesser of (A) $1,250,000 or (B)
      the sum of $1,000,000 plus 50% of BORROWER’s Net Income after taxes (as
      determined in accordance with the Loan Agreement based on generally
      accepted accounting principles, consistently applied over the period to
      which they relate) for BORROWER’s 2008 fiscal year  .The
      “principal paydown” for BORROWER’s 2009 fiscal year and for each fiscal
      year thereafter can be made no sooner than April 1 of the immediately
      following fiscal year [e.g., the “principal
      paydown” based on BORROWER’s 2009 fiscal year Net Income after taxes
      cannot be made until April 1, 2010] and cannot exceed the lesser of (A)
      $1,250,000 or (B) the sum of $1,000,000 plus 50% of BORROWER’s Net Income
      after taxes (as determined in accordance with the Loan Agreement based on
      generally accepted accounting principles, consistently applied over the
      period to which they relate) for the fiscal year immediately preceding the
      date of distribution [e.g., the “principal
      paydown” made by BORROWER in 2010 must be based on BORROWER’s 2009 Net
      Income after taxes].

            

    

     

    
      
        	
                 
      

              	
                (iv)

              	
                The
      full amount of the “principal paydown” made in any fiscal year, if treated
      as a scheduled payment in the year BORROWER’s Net Income after taxes was
      earned, will not cause the Fixed Charge Coverage (as determined in
      accordance with the Loan Agreement) to be less than 1.13 to 1.0 for the
      year in which such income was
earned.

              

      

       

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (v)

            	
              Immediately
      prior to the “principal paydown”, the Fixed Charge Coverage (as determined
      in accordance with the Loan Agreement) for the year in which BORROWER’s
      Net Income after taxes was earned must be greater than 1.25 to
      1.0.

            

    

     

    
      	
               
      

            	
              (vi)

            	
              If
      only the component of the “principal paydown” consisting of 50% of
      BORROWER’s Net Income after taxes for the year in which such income was
      earned is treated as a scheduled payment, the Fixed Charge Coverage (as
      determined in accordance with the Loan Agreement) for the year in which
      such income was earned must be at least 1.25 to
  1.0.

            

    

    

    
      	
               
      

            	
              (vii)

            	
              After
      giving effect to the “principal paydown”, the “loan value” of “Eligible Inventory” and
      “Eligible
      Receivables” must exceed the outstanding principal balance of the
      Revolving Loan by at least $1,500,000 (the terms “loan value”, “Eligible Inventory” and
      “Eligible
      Receivables” to have the same meaning herein that they have in the
      Loan Agreement).

            

    

    

    
      	
               
      

            	
              (viii)

            	
              The
      amount of the “principal paydown”, when deducted from BORROWER’s “Tangible
      Net Worth” (as determined in accordance with the Loan Agreement) will not
      cause such Tangible Net Worth to be less than
  $6,000,000.

            

    

    

    
      	
               
      

            	
              (ix)

            	
              The
      ratio of BORROWER’s “Total Debt to its Tangible Net Worth” (as determined
      in accordance with the Loan Agreement) will not, when the “principal
      paydown” is taken into account, cause such ratio of Total Debt to Tangible
      Net Worth to be more than 6.0 to
1.0.

            

    

    

    
      	
               
      

            	
              (x)

            	
              The
      average “loan
      value” of “Eligible Inventory” and
      “Eligible
      Receivables” during the three full calendar months preceding the
      date of the “principal paydown” must exceed by at least $2,500,000
      BORROWER’s average daily usage under the Revolving Loan during the same
      three month period (the terms “loan value”, “Eligible Inventory” and
      “Eligible
      Receivables” to have the same meaning herein that they have in the
      Loan Agreement).

            

    

    

    
      	
               
      

            	
              (xi)

            	
              Each
      allowed annual “principal paydown” is for one year only and is non
      cumulative so that any “principal paydown” which is not made in any year
      will not accrue to and cannot be used in future
  years.

            

    

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (xii)

            	
              The
      “principal paydown”, if treated for accounting purposes as made in the
      fiscal year from which the payment has been earned, cannot be made if the
      amount and effect of the payment would have given rise to a covenant
      default, if such “principal paydown” had in fact been made in such fiscal
      year.

            

    

    

    (d)            Notwithstanding
the provisions of paragraph (a) above, CREDITOR or ADDITIONAL CREDITOR (as
hereinafter defined) may exercise its right to convert the Subordinated Seller
Note into common stock of GUARANTOR in accordance with the terms of the
Subordinated Seller Note.  Upon the conversion of the Subordinated
Seller Note into common stock of GUARANTOR resulting in the full and complete
extinguishment of the debt represented by the Subordinated Seller Note, all
further rights and obligations under this Agreement as it relates to GUARANTOR
and the Subordinated Seller Note (and the common stock of GUARANTOR issued in
conversion thereof) shall be terminated and extinguished.

     

    (2)           In
all events, no collateral or other security may be given by DEBTOR to CREDITOR
to secure payment of any sum due on any of the Claims, and no such collateral or
other security shall be received, accepted or retained by CREDITOR unless and
until BORROWER has paid and satisfied in full all the Liabilities.

     

    (3)           CREDITOR
waives any and all notice of the acceptance of this Agreement and of the
creation, extension, modification (including without limitation any modification
increasing or decreasing the amount of the Liabilities), refinancing, renewal,
substitution, replacement, redating and/or accrual of any of the Liabilities or
of the reliance of LENDER upon this Agreement.

     

    (4)           CREDITOR
hereby consents that, without notice to or further assent by CREDITOR, and
without impairing the subordination contained in this Agreement (a) the
obligation of DEBTOR or of any other party for or upon any of the Liabilities
may, from time to time, in whole or in part, be renewed, extended, modified,
accelerated, compromised or released by LENDER, as it may deem advisable and
whether with or without consideration, (b) any collateral and/or liens securing
any of the Liabilities may, from time to time, in whole or in part, be
exchanged, sold, impaired, released, surrendered or otherwise disposed of by
LENDER, as it may deem advisable and whether with or without consideration, and
(c) any deposit balance or balances to the credit of DEBTOR may, from time to
time, in whole or in part, be paid out, surrendered, released or otherwise
disposed of by LENDER, as it in its discretion may deem advisable and whether
with or without consideration.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (5)           CREDITOR
hereby transfers and assigns to LENDER, as collateral security for any and all
of the Liabilities, all Claims of CREDITOR against DEBTOR, and hereby authorizes
AGENT, in its own name or in the name of CREDITOR, to collect and enforce said
Claims by suit, proof of debt in any proceeding under the Bankruptcy Act, or
amendments thereto, or any decedent's estate, insolvency or liquidation
proceeding, or otherwise.

     

    (6)           Should
any payment (except as set forth in Paragraph 1(b) and Paragraph 1(c) above) or
security or anything of any value whatsoever be received by CREDITOR for or on
account of said Claims (except as set forth in Paragraph 1(d) above), prior
to the payment and satisfaction in full of the Liabilities, CREDITOR agrees that
it will forthwith deliver the same to LENDER in precisely the form received,
except for CREDITOR's endorsement or assignment where necessary, for application
on account of the Liabilities, and that until so delivered, CREDITOR shall hold
the same in trust as the property of LENDER.

     

    (7)           CREDITOR
further agrees that, should any signature, endorsement, assignment or other form
of transfer be required to effect the transfer of any such payment, security or
other thing of value to LENDER, or in any other respect to carry out the terms
of this Agreement, to make and deliver all signatures, endorsements, transfers,
assignments and other instruments required by LENDER to effectuate the purposes
of this Agreement as herein expressed or reasonably implied; and in the event of
the failure of CREDITOR to do so within 15 days of written request by LENDER,
LENDER is hereby irrevocably constituted and appointed the agent and attorney in
fact of CREDITOR to do so, with full power of substitution in the
premises.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (8)           CREDITOR
and GUARANTOR represent to LENDER that GUARANTOR now owes CREDITOR the principal
sum of $2,800,000 and
that GUARANTOR's obligation to repay such sum is evidenced by the Subordinated
Seller Note, a copy of which is attached hereto as Exhibit "A".  Such
sum is owed without counterclaim, defense or offset and may be prepaid only as
so allowed by Paragraph 1(b)
and Paragraph
1(c) above or transferred to an ADDITIONAL CREDITOR or converted into
common stock of GUARANTOR only as so allowed by Paragraph 17 below and Paragraph 1 (d) above,
respectively.

     

    (9)           CREDITOR
and GUARANTOR further agree that, prior to the conversion permitted by Paragraph 1 (d) above, at no
time hereafter will any part of said indebtedness be represented by any other
negotiable instruments or writings, except the Subordinated Seller Note or such
other negotiable instruments or writings, if any, as LENDER shall request to be
executed and delivered to it for the purpose of evidencing said indebtedness or
any part thereof, and in that case said negotiable instruments or other writings
shall either be payable to LENDER or delivered to LENDER, or, if payable to
CREDITOR, shall be endorsed and/or assigned by CREDITOR and delivered to
LENDER.

     

    (10)           CREDITOR
and DEBTOR agree that the rights granted to LENDER hereunder shall continue in
full force and effect notwithstanding the fact that BORROWER's account may, from
time to time, be temporarily in a credit position and shall continue until the
Loan Agreement is terminated and all the Liabilities are paid in
full.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (11)           DEBTOR
hereby agrees that (a) it will render to LENDER upon demand, from time to time,
a statement of the account of CREDITOR with DEBTOR; (b) LENDER shall have
access, from time to time, to its books and records in order that LENDER may
make full and free examination of the state of the accounts of CREDITOR with
DEBTOR (with the right to make copies thereof); and (c) it will duly comply with
and perform each and every term of this Agreement on its part required to be
performed.

     

    (12)           DEBTOR
agrees that a breach by either DEBTOR or CREDITOR in the performance of any of
the terms of this Agreement shall be an Event of Default as that term is defined
in the Loan Agreement.

     

    (13)           The
term "DEBTOR" as used
throughout this Agreement shall include the corporation named herein as DEBTOR,
and shall also include, but not be limited to, (a) any successor individual or
individuals, association, partnership or corporation to which all or
substantially all of the business or assets of DEBTOR shall have been
transferred and (b) any other corporation into or with which DEBTOR shall have
been merged, consolidated, reorganized, or absorbed.

     

    (14)           No
waiver of any right or remedy, and no modification of this Agreement shall be
effective unless in writing signed by the party to be charged, and then only to
the extent therein set forth.

     

    (15)           The
rights and remedies of LENDER under this Agreement, shall be cumulative, and may
be exercised independently or concurrently with any other rights and remedies
LENDER may have, and such rights and remedies may be exercised from time to time
in whole or in part as LENDER in its sole discretion, may
determine.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (16)           No
delay on the part of LENDER in exercising any right, power or privilege
hereunder or elsewhere conferred shall operate as a waiver thereof.

     

    (17)           This
Agreement is binding upon the undersigned, and their respective heirs,
executors, administrators, successors or assigns, shall inure to the benefit of
LENDER and its successors and assigns, and shall be governed by, and construed
in accordance with the laws of the State of New Jersey. Notwithstanding any
other provisions of this Agreement, CREDITOR may transfer the Subordinated
Seller Note to a wholly-owned subsidiary of National Patent Development
Corporation (the “ADDITIONAL CREDITOR”); provided that the ADDITIONAL CREDITOR
agrees to become a “CREDITOR” under this Agreement pursuant to a written
instrument satisfactory to LENDER.

     

    (18)           CREDITOR
AND DEBTOR 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 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. THIS
WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR LENDER TO ENTER INTO THE LOAN
AGREEMENT AND MAKE THE REVOLVING LOAN.

     

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

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    IN WITNESS WHEREOF, each of the
undersigned has caused these presents to be properly executed as of the date
first above written.

     

     

    
      
        	
                WITNESS: 

              	
              	
                FIVE
      STAR GROUP, INC. 

                (BORROWER)

              
	 	 	 	 
	
                /s/ IRA
      SOBOTKO    

              	 	By: 	
                /s/
      JOHN BELKNAP 

              
	
                Ira Sobotko, Secretary  

              	 	 	John
      Belknap, Vice President
	 	 	 	 
	
                WITNESS:

              	 	

                FIVE STAR PRODUCTS,
      INC.

                (GUARANTOR)

              
	
                 

              	 	 	 
	/s/
      IRA SOBOTKO    	 	By: 	/s/
      JOHN BELKNAP
	
                Ira Sobotko,
      Secretary    

              	 	 	
                John
      Belknap, President

              
	
                 

              	 	 	 
	WITNESS:	 	JL DISTRIBUTORS,
      INC. 
(CREDITOR)
	 	 	 	 
	/s/ IRA
    SOBOTKO     	 	By:  	/s/
      JOHN BELKNAP 
	Ira Sobotko,
      Secretary      	 	 	John
      Belknap, President 

      

    

    

     

                                                             

     

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
"A"

    

    True copy
of Subordinated Seller Note

     

     

     

     

     

     

     

     

     

     

     

     

     

    12ex10_3.htm

  
    Exhibit
10.3

    

    GUARANTY AND PLEDGE
AGREEMENT

    

    

    This
GUARANTY made and dated
as of June 27, 2008, by

    
    

     

    
      	FIVE STAR PRODUCTS,
      INC., a corporation of the State of Delaware with its principal
      corporate place of business at 10 East 40th
      Street, Suite 3110, New York, New York 10016 (hereinafter referred to as
      "GUARANTOR")
	 
	
              in favor
      of

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

            

    

     

    WITNESSES THAT:

    

    (1)                      WHEREAS, FIVE STAR GROUP, INC., a
corporation of the State of Delaware with its principal corporate place of
business at 903 Murray Road, P.O. Box 1960, East Hanover, Morris County, New
Jersey (hereinafter referred to as "BORROWER") and LENDER are
parties to a certain Loan and Security Agreement dated even date herewith (such
certain Loan and Security Agreement being called the "Loan Agreement" in this
Guaranty and such term being more fully defined in Article I below);

     

    (2)                      WHEREAS, pursuant to the Loan
Agreement, BORROWER has obtained the benefits of a $35,000,000 revolving loan
facility (called the "Revolving
Loan" in this Guaranty and more fully defined in Article I below) from LENDER;
and

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    (3)                      WHEREAS, it is a condition of
the obligation of LENDER to execute the Loan Agreement and to extend to BORROWER
the benefits of the Revolving Loan that this Guaranty shall have been executed
and shall be in full force and effect; and

     

    (4)                      WHEREAS, GUARANTOR desires
that LENDER enter into the Loan Agreement and extend the Revolving Loan to
BORROWER as aforesaid and, as a result, executes this Guaranty as an inducement
to LENDER to do so;

     

    NOW, THEREFORE, in
consideration of the premises and other good and valuable consideration,
GUARANTOR does hereby covenant and warrant to LENDER as follows:

    

     

    ARTICLE
I

     

    DEFINITIONS

    

    Section
1.1        Definitions.

     

    (a)           The
terms "BORROWER", "GUARANTOR" and "LENDER" shall have the
meanings given those terms in the Preamble and Preliminary Statements of this
Guaranty.

     

    (b)           "Collateral" shall mean all
property, whether real, personal or mixed, or tangible or intangible, now or at
any time hereafter given to secure the Liabilities by GUARANTOR or by BORROWER.
In all cases, the term "Collateral" includes but is not limited to Collateral
(as defined in the Loan Agreement) and products and Proceeds (as defined in the
Uniform Commercial Code) thereof.

     

    (c)           "Loan Agreement" is a
collective term which means (1) that certain Loan and Security Agreement dated
even date herewith between LENDER and BORROWER and (2) all extensions,
modifications (including without limitation modifications increasing or
decreasing the amount of the Revolving Loan), refinancings, renewals,
substitutions, replacements and/or redatings of such certain Loan and Security
Agreement.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (d)           "Loan Documents" means this
Guaranty, the Loan Agreement, the Revolving Note, the Subordination Agreement,
UCC-1 financing statements and other documents required under the Loan Agreement
or related thereto and hereto and  all extensions, modifications,
refinancings, renewals, substitutions, replacements and/or redatings of any of
the foregoing.

     

    (e)           "Pledged Property" shall have
the meaning given that term in Section 3.1
below.

     

    (f)        
   The terms "Advances", “Lending Formula”, "Liabilities", "Materially Adverse Effect",
"Revolving Loan" and
"Revolving Note" and all
other capitalized words and terms not defined herein shall have the respective
meanings and shall be construed herein as provided in the Loan
Agreement.

     

    Section
1.2        Incorporation of Loan
Agreement.  Any reference to a provision of the Loan Agreement
shall be deemed to incorporate that provision herein.

     

    ARTICLE
II

     

    COVENANTS AND
AGREEMENTS

    

    Section
2.1        The Guaranty.

     

    (a)           GUARANTOR
hereby unconditionally and irrevocably guarantees to LENDER as a primary obligor
and not as a mere surety each and all of the following:

     

    
      	
               
      

            	
              (1)

            	
              BORROWER's
      aforementioned indebtedness in the principal sum of THIRTY-FIVE MILLION AND NO/100
      ($35,000,000.00) DOLLARS, lawful money of the United States, due
      under the Revolving Loan and the Revolving Note (including all Advances,
      re-Advances, borrowings and re-borrowings under the Revolving Loan and the
      Revolving Note), and  all extensions, modifications (including
      without limitation modifications increasing or decreasing the amount
      thereof), refinancings, renewals, substitutions, replacements and/or
      redatings thereof, to be repaid with interest thereon as provided in the
      Revolving Note;

            

    

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    
 

    
      	
               
      

            	
              (2)

            	
              the
      payment of Advances, re-Advances, borrowings and re-borrowings made from
      time to time by LENDER to BORROWER not in compliance with the Lending
      Formula described and defined in Article II of the Loan
      Agreement and/or not in compliance with the "loan value" requirements
      of Article II of
      the Loan Agreement, and the interest
thereon;

            

    

    

    
      	
               
      

            	
              (3)

            	
              the
      payment of Advances, re-Advances, borrowings and re-borrowings made from
      time to time by LENDER to BORROWER over and above any monetary limitation
      on the Revolving Loan and over and above any other lending limitation
      contained in the Loan Agreement, and the interest
  thereon;

            

    

    

    
      	
               
      

            	
              (4)

            	
              the
      payment of all Liabilities;

            

    

    

    
      	
               
      

            	
              (5)

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

            

    

    

    
      	
               
      

            	
              (6)

            	
              all
      other indebtedness, liabilities and obligations owing, arising, due and
      payable from BORROWER to LENDER of every kind or nature, whether absolute
      or contingent, due or to become due, joint or several, liquidated or
      unliquidated, matured or unmatured, primary or secondary, now existing or
      hereafter incurred, purchase money or nonpurchase money, arising under the
      Loan Agreement or any of the other Loan Documents, regardless of the form
      or purpose of such indebtedness, liabilities or obligations, including,
      without limitation, all interest, commissions, checking account
      overdrafts, bank overdrafts, charges, expenses, attorneys' fees and
      obligations which BORROWER may have (under contract or any applicable law)
      to reimburse LENDER in connection with any hedge contract, foreign
      exchange contract, letter of credit, indemnity or guaranty issued by
      LENDER to BORROWER or for BORROWER's benefit pursuant
    hereto;

            

    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (7)

            	
              the
      amount due upon any notes or other obligations given to, or received by,
      LENDER on account of any of the foregoing;
and

            

    

    

    
      	
               
      

            	
              (8)

            	
              the
      performance and fulfillment by BORROWER of all the terms, conditions,
      promises, covenants and provisions contained in the Loan Agreement and the
      other Loan Documents to which BORROWER is a party, whether now existing or
      hereafter arising or created.

            

    

    

    (b)           The
liability of GUARANTOR hereunder shall not be limited in any way. The continuing
liability of GUARANTOR shall not be affected by nor shall anything herein
contained be deemed to be a limitation on the nature or the amount of loans or
Advances now or hereafter made by LENDER to BORROWER.

     

    (c)           All
payments by GUARANTOR shall be paid in lawful money of the United States of
America.  Each and every default in payment of the principal of, and
premium, if any, and interest on the Revolving Loan and the other Liabilities
shall give rise to a separate cause of action hereunder, and separate suits may
be brought hereunder as each cause of action arises.

     

    (d)           The
obligations of GUARANTOR under this Guaranty shall be automatically reinstated
if and to the extent that for any reason any payment by or on behalf of BORROWER
in respect of the Liabilities is rescinded or must be otherwise restored by any
holder of any of the Liabilities, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise, and GUARANTOR agrees that it will
indemnify LENDER on demand for all reasonable costs and expenses (including,
without limitation, reasonable fees of counsel) incurred by LENDER in connection
with any such rescission or restoration, including any such costs and expenses
incurred in defending against any claim alleging that such payment constituted a
preference, fraudulent transfer or similar payment under any bankruptcy,
insolvency or similar law.  The provisions of this subsection shall
survive the termination of this Guaranty.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    Section
2.2        Unconditional Nature of
Guaranty.

     

    (a)           The
obligations of GUARANTOR under this Guaranty shall be absolute and unconditional
and shall remain in full force and effect until the entire principal of, and
premium, if any, and interest on the Revolving Loan and the other Liabilities
shall have been paid.

     

    (b)           The
aforesaid obligations shall not be affected, modified or impaired upon the
happening from time to time of any event, including without limitation any of
the following, whether or not with notice to, or consent of
GUARANTOR:

     

    
      	
               
      

            	
              (1)

            	
              the
      compromise, settlement, release, change, modification, amendment (whether
      material or otherwise) or termination of any or all of the obligations,
      duties, covenants or agreements of any party under the Loan
      Documents;

            

    

    

    
      	
               
      

            	
              (2)

            	
              the
      failure to give notice to GUARANTOR of the occurrence of an Event of
      Default under the terms and provisions of the Loan
    Documents;

            

    

    

    
      	
               
      

            	
              (3)

            	
              the
      waiver of the payment, performance or observance of any of the
      obligations, conditions, covenants or agreements contained in the Loan
      Documents;

            

    

    

    
      	
               
      

            	
              (4)

            	
              the
      extension of the time for any of the
following:

            

    

    

    
      	
               
      

            	
              (A)

            	
              the
      payment of the principal of, premium, if any, or interest due on the
      Revolving Loan; or

            

    

    

    
      	
               
      

            	
              (B)

            	
              the
      payment of any other Liabilities;
or

            

    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (C)

            	
              the
      performance of any other obligations, covenants or agreements of any
      person or entity under or arising out of the Loan
    Documents;

            

    

    

    
      	
               
      

            	
              (5)

            	
              the
      extension, modification (including without limitation any modification
      increasing or decreasing the amount of any debt), refinancing, renewal,
      substitution, replacement, and/or redating of any Loan Documents or the
      extension, renewal, modification or waiver of the performance of any
      obligation thereunder;

            

    

    

    
      	
               
      

            	
              (6)

            	
              the
      taking or the omission of any of the actions referred to in the Loan
      Documents;

            

    

    

    
      	
               
      

            	
              (7)

            	
              the
      release (whether with or without consideration), impairment, failure to
      perfect a security interest in, exchange, surrender, substitution or
      modification of any of the
Collateral;

            

    

    

    
      	
               
      

            	
              (8)

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

            

    

    

    
      	
               
      

            	
              (9)

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

            

    

    

    (A)           BORROWER;
or

    

    (B)           GUARANTOR;
or

    

    (C)           any
assets of the foregoing;

    

    
      	
               
      

            	
              (10)

            	
              any
      allegation of invalidity or any contest of the validity of any of the Loan
      Documents in any proceeding;

            

    

    

    
      	
               
      

            	
              (11)

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

            

    

     

    
      
        	
                 
      

              	
                (12)

              	
                any
      lack of validity or enforceability of any of the Loan
      Documents;

              

      

       

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (13)

            	
              any
      amendment or waiver of or any consent to departure from all or any of the
      Loan Documents;

            

    

    

    
      	
               
      

            	
              (14)

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

            

    

    

    
      	
               
      

            	
              (15)

            	
              any
      other circumstance or happening whatsoever, whether or not similar to any
      of the foregoing.

            

    

    

    Section
2.3        Events of
Default.  An "Event of Default" hereunder
shall exist if an Event of Default (as that term is defined in the Loan
Agreement) occurs under the Loan Agreement.

     

    Section
2.4        Remedies and
Actions.

     

    (a)           Upon
the occurrence of an Event of Default hereunder, LENDER may proceed directly
against GUARANTOR. This is a guaranty of payment and not a guaranty of
collection, and upon the occurrence of an Event of Default hereunder, this
Guaranty may be enforced directly against GUARANTOR (1) without first proceeding
against BORROWER or (2) without first proceeding against any collateral, pledged
or assigned as security for the payment of the principal of and interest on the
Liabilities (whether or not such collateral is pledged or assigned under the
Loan Agreement, under this Guaranty or otherwise) or (3) without first
proceeding against or exhausting any other remedies which LENDER may have or (4)
without first resorting to any other security held by LENDER, regardless of by
whomsoever given.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (b)           (1)           Upon
the occurrence of an Event of Default, LENDER may immediately, and without
notice or other action, set-off and apply against the Liabilities (A) the
balance of every deposit account, now or hereafter existing, of GUARANTOR with
LENDER, or any of LENDER's agents or any bank affiliated with LENDER or in
transit to any of them and/or (B) all money, instruments, securities, documents,
credits, claims, and other property of GUARANTOR, now or hereafter in the
possession or custody of LENDER, or any of LENDER's agents or in transit to any
of them and/or (C) any sum now or hereafter owed by LENDER, or any of LENDER's
agents in any capacity to GUARANTOR whether due or not and/or (D) all additions,
substitutions, replacements, and increments to the above-listed collateral, as
well as proceeds of all of the above-listed collateral in whatever form,
including cash, negotiable instruments and other instruments for the payment of
money, chattel paper, security agreements or other documents, insurance or
condemnation awards.

     

    (2)           ANY
AND ALL RIGHTS TO REQUIRE LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT
TO ANY OTHER COLLATERAL WHICH SECURES THE REVOLVING LOAN, PRIOR TO EXERCISING
ITS RIGHT OF SETOFF WITH RESPECT TO THE FOREGOING, ARE HEREBY KNOWINGLY,
VOLUNTARILY AND IRREVOCABLY WAIVED.  LENDER may do the foregoing even
though some or all of the Liabilities may be unmatured and regardless of the
adequacy of any other Collateral securing the Liabilities.  LENDER
shall be deemed to have exercised such right of set-off and to have made a
charge against any such sum immediately upon the occurrence of such Event of
Default, even though the actual book entries may be made at some time subsequent
thereto.

     

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

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    Section
2.5        Delay of Subrogation
Rights.

     

    (a)           GUARANTOR
shall not be subrogated, in whole or in part, to the rights of any person in the
Loan Documents until all of the Liabilities shall have first been paid in
full.

     

    (b)           GUARANTOR
shall not exercise rights (whether of contribution, indemnification or
otherwise) it may have against BORROWER until all of the Liabilities shall have
first been paid in full.

     

    Section
2.6        Waiver of Notice of Acceptance and
Reliance.  GUARANTOR hereby expressly waives notice of
acceptance and reliance on this Guaranty.

     

    Section
2.7        Waiver of Demand and
Notices.

     

    (a)           GUARANTOR
hereby expressly waives diligence, demand, presentment, protest, any requirement
that any right or power be exhausted or any action be taken against BORROWER or
against any Collateral.

     

    (b)           GUARANTOR
also waives the right to receive any and all notices (including but not limited
to notice of non-payment by BORROWER or by anyone else, and also including but
not limited to notice of dishonor, protest, or otherwise) with respect to the
Liabilities, unless such notice is specifically required herein.

     

    Section
2.8        Claims Against BORROWER and
LENDER.   No set-off, counter-claim, reduction, or
diminution of any obligation, or any defense of any kind or nature (other than
performance by GUARANTOR of its obligations hereunder) which GUARANTOR may have
or assert against BORROWER and/or against LENDER shall be available hereunder
to, or shall be asserted by, GUARANTOR against LENDER in any action arising out
of the transactions contemplated hereby or out of any of the documents or
instruments referred to herein.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    Section
2.9        Payment of
Costs.  GUARANTOR agrees to pay all reasonable costs, expenses
and fees, including all reasonable attorneys' fees, which may be incurred by
LENDER in enforcing or attempting to enforce this Guaranty following any default
on the part of GUARANTOR hereunder, whether the same shall be enforced by suit
or otherwise.

     

    ARTICLE
III

     

    SECURITY

    

    Section
3.1        Pledge of Stock.

     

    (a)           To
secure its obligations under this Guaranty, GUARANTOR hereby creates in favor of
LENDER and hereby grants to LENDER and hereby pledges to LENDER a continuing
first pledge and security interest in the entirety of GUARANTOR's interest in
each and all of the following (all the following being a part of the "Pledged Property" defined
below):

     

    (1)           100
shares of capital stock owned by GUARANTOR in BORROWER, a copy of the
certificate evidencing such shares being attached hereto as Exhibit "A";

     

    (2)           any
additional shares of capital stock in BORROWER that may hereafter be pledged by
GUARANTOR to LENDER;

     

    (3)           any
and all interest, stock rights, rights to subscribe, dividends, stock dividends,
dividends paid in stock, liquidating dividends, new securities, and other
property to which GUARANTOR may become entitled by reason of the ownership of
the properties described in the preceding subsections of this
Paragraph;

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (4)           any
stock dividends, reclassifications, adjustments, or other changes made during
the term of the Loan Agreement in the capital structure of BORROWER of any of
the property described in the foregoing provisions of this Paragraph (whether
such change in capital structure is by way of reorganization, recapitalization,
share split-up, combination of shares, merger, transfer, or consolidation),
together with all new, additional, or substituted shares for securities of
whatever class, issued with respect to any of the property described in the
foregoing provisions of this Paragraph by reason of such change;

     

    (5)           all
additions thereto and replacements and substitutes therefor, whether or not left
in the possession of LENDER and whether or not otherwise mortgaged or pledged to
LENDER;

     

    (6)           warrants,
options, or other rights with respect to any of the foregoing property described
in this Paragraph issued to GUARANTOR during the term of the Loan Agreement, as
from time to time extended or amended, and to the extent that GUARANTOR
exercises any such warrants, option, or right, all new stock or securities
received upon exercise thereof; and

     

    (7)           any
Proceeds of the Pledged Property.

     

    (b)           GUARANTOR
covenants and warrants that it will perform or cause to be performed any and all
reasonable steps requested by LENDER to create and maintain in LENDER's favor a
valid first lien on and first security interest in and pledge of the Pledged
Property, including, without limitation, the execution, delivery, filing and
recording of brokerage agreements, assignments of brokerage agreements, stock
transfer authorizations, stock transfer powers, financing statements and
continuation statements, supplemental security agreements, notes and any other
documents necessary, in the opinion of LENDER, for perfecting the liens and
security interests granted to LENDER hereunder, correcting any inadequate or
incorrect description of the Pledged Property or carrying out the intention of
or facilitating the performance of any term, covenant or condition
hereof.  In the event GUARANTOR fails to abide by this Section or in
the event that LENDER in its sole discretion believes time is of the essence,
LENDER may execute all of the above instruments on behalf of
GUARANTOR.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (c)           Not
in limitation of the foregoing, GUARANTOR agrees to deliver executed but undated
transfer powers (hereinafter the "Security Transfer
Authorizations", copies of which are attached hereto as Exhibit "B") relating to the
Pledged Property.

     

    (d)           Whenever
an Event of Default has occurred and is continuing, LENDER may do any or all of
the following at the same time or at different times:

     

    (1)           To
the extent LENDER has not already done so, LENDER may proceed with or without
judicial process to take immediate possession of the Pledged Property or any
part thereof not already in the possession of LENDER and wherever the same may
be found. GUARANTOR agrees to pay all costs and expenses of LENDER in the
collection of the Liabilities and enforcement of LENDER's rights hereunder,
including, without limitation, LENDER's reasonable attorney's fees. GUARANTOR
agrees that upon receipt of notice of LENDER's intention to take possession of
all or any part of the Pledged Property, GUARANTOR will do everything reasonably
necessary to make same available to LENDER.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (2)           To
the extent LENDER has not already done so, LENDER may transfer any and all
Pledged Property into its name or that of its nominee and may receive the income
and any distributions thereon and either hold the same as Collateral for the
Liabilities or apply the same to any defaulted one of the
Liabilities.

     

    (3)           (A)           LENDER
may, to the extent that it has not already done so, date and otherwise complete
the Security Transfer Authorizations.

     

    (B)           By
use of the executed Security Transfer Authorizations, LENDER may cause the
Pledged Property pledged hereunder to be transferred upon the books of BORROWER
or the books of the broker holding such Pledged Property in such manner as
LENDER, its nominees or its assigns may determine, and GUARANTOR hereby gives
full authority to such entity to make such transfers.

     

    (4)           LENDER
or its nominee may, but shall not be obligated to, demand, sue for, collect,
receive and hold as Pledged Property any or all interest, dividends and income
thereon. In addition, if any securities are held in the name of LENDER or its
nominee, LENDER may exercise all voting and other rights pertaining thereto as
if LENDER were the absolute owner thereof.

     

    (5)           Notwithstanding
the foregoing, LENDER shall not be obligated to demand payment of, protest, or
take any steps necessary to preserve any rights in the Pledged Property against
prior parties, or to take any action whatsoever in regard to the Pledged
Property, all of which GUARANTOR assumes and agrees to do.

     

    (6)           LENDER
may sell the Pledged Property in such commercially reasonable manner and for
such commercially reasonable price as LENDER deems appropriate without any
liability for any loss due to decrease in the market value of the Pledged
Property during the period held or due to decrease in value because of the terms
of sale.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    (7)           (A)           LENDER
shall have the right to purchase all or any part of the Pledged Property at a
public sale conducted in accordance with the provisions of the Uniform
Commercial Code or at a sale through a licensed broker.

     

    (B)           LENDER
shall give GUARANTOR prior notice of any such sale. Such notice shall be deemed
reasonable and properly given if it specifies the time, date and place of the
intended disposition and briefly describes the method of the intended
disposition and it is given to GUARANTOR in the manner specified in Section 6.2 at least 15 days
before any such disposition.

     

    (8)           (A)           GUARANTOR
recognizes and agrees that, because of the Securities Act of 1933, as amended
(hereinafter referred to as the "Securities Act"), or any other
law or regulation, and for other reasons, there may be legal and/or practical
restrictions or limitations affecting LENDER in any attempt to dispose of all or
certain portions of the Pledged Property and for enforcement of its rights. For
these reasons, LENDER is authorized by GUARANTOR, but not obligated, to sell all
or any part of the Pledged Property at private sale, subject to investment
letter, or in any other manner which will not require the Pledged Property, or
any part thereof, to be registered in accordance with the Securities Act of
1933, or the rules and regulations promulgated thereunder, or any other laws or
regulations, or which will permit the Pledged Property to be sold in a manner
which will not violate any applicable laws or regulations, at the best price
reasonably obtainable by LENDER at such private sale or other disposition in the
manner mentioned above.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (B)           GUARANTOR
understands that LENDER may, in its sole and absolute discretion, approach a
restricted number of potential purchasers and that a sale under such
circumstances may yield a lower price for the Pledged Property, or any part or
parts thereof, than that which would otherwise be obtainable if same were either
offered to a large number of potential purchasers, or registered and sold in the
open market.

     

    (C)           LENDER
agrees that such private sales shall be made in a commercially reasonable manner
and that LENDER has no obligation to delay sale of any Pledged Property to
permit the issuer thereof to register it for public sale under any applicable
federal or state securities law.

     

    (D)           No
sale of the Pledged Property shall be made hereunder without prior notice from
LENDER to GUARANTOR. Such notification shall be deemed reasonable and properly
given if it specifies the time, date and place of the intended disposition and
briefly describes the method of the intended disposition and it is given to
GUARANTOR in the manner specified in Section 6.2 at least 15 days before any
such disposition.

     

    (9)           If
any consent, approval or authorization of any state, municipal or other
governmental department, agency or authority should be necessary to effectuate
any sale or other disposition of all or any part of the Pledged Property,
GUARANTOR will execute all such applications and other instruments as may be
required in connection with securing any such consent, approval or
authorization, and will otherwise use its best efforts to secure the same and
otherwise cooperate with LENDER.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    (10)           In
the event that LENDER determines that a sale of the Pledged Property by private
sale, as more fully set forth above, is not in LENDER's best interest, then
GUARANTOR, at its own cost and expense, and the request of LENDER, shall use its
best efforts necessary on its own part or on the part of any officers of the
issuer of the Pledged Property, to execute or do any such actions as may
reasonably be required to permit LENDER to comply with the Securities Act, state
securities or "Blue Sky" laws, or any other federal, state or local law, statute
or regulation, necessary to permit the sale of the Pledged Property by
LENDER.  The laws, rules and regulations set forth above are by way of
example only and may not be limited, as to GUARANTOR's duties, in any
way.

     

    (11)           The
proceeds of any sale shall be applied in the following order:  first,
to pay all costs and expenses of every kind for care, safekeeping, collection,
sale, foreclosure, delivery, or otherwise respecting the Pledged Property
(including expenses incurred in the protection of LENDER's title to or lien upon
or right in any of the Pledged Property, reasonable expenses for legal services
of any kind in connection therewith or in making any such sale or sales,
insurance, commission for sale, and guaranty); then to the Liabilities in the
order selected by LENDER in its discretion and, to the extent any proceeds
remain after the full payment of all Liabilities, to GUARANTOR. If the proceeds
of any such sale or sales are insufficient to pay all Liabilities with interest,
GUARANTOR agrees to pay the balance thereof on demand.

     

    Section
3.2          Rights of LENDER in the
Collateral.  LENDER shall have all rights in the collateral
described in this Article as are set forth in the Uniform Commercial Code of the
State of New Jersey and are as otherwise available at law and in
equity.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    Section
3.3           Security Agreement. This
Guaranty shall constitute a security agreement under the Uniform Commercial Code
of the State of New Jersey.

     

    ARTICLE
IV

     

    REPRESENTATIONS AND
WARRANTIES

    

    In order to induce LENDER to enter into
the Loan Agreement and to perform its obligations thereunder, GUARANTOR makes
the following representations and warranties to LENDER, each and all of which
shall survive the execution and delivery of this Guaranty:

     

    Section
4.1

     

    (a)           GUARANTOR
is a corporation of the State of Delaware with its principal place of business
at 10 East 40th Street, Suite 3110, New York, New York, 10017.

     

    (b)           GUARANTOR's
correct legal name is "FIVE
STAR PRODUCTS, INC.”

     

    (c)           GUARANTOR
uses no trade names.

     

    (d)           GUARANTOR
owns no patents, trade names or trade marks.

     

    (e)           GUARANTOR
operates as a holding company and business directly related
thereto.

     

    (f)           The
stock of GUARANTOR is publicly traded.

     

    (g)           (1)           
BORROWER is GUARANTOR’s onlySubsidiary:

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    (2)           For
purposes of the foregoing, a "Subsidiary" means any
corporation more than a majority (by number of votes) of the common stock of
which is at the time owned or controlled by GUARANTOR or a Subsidiary of
GUARANTOR.

     

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

     

    Section
4.3        GUARANTOR is qualified to do
business and is in good standing in the State of New York and in each
jurisdiction where the nature of its business requires it to be so qualified
except where the failure to so qualify would not have a Materially Adverse
Effect with respect to GUARANTOR.

     

    Section
4.4        GUARANTOR has full power and
authority and has received all necessary corporate approvals (including Board of
Director approval) to execute, deliver and perform this Guaranty and each of the
other Loan Documents to which it is a party, and to perform and observe the
terms and provisions hereof and thereof.

     

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

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    Section
4.6        No consent or approval of any
trustee or holder of any indebtedness or obligation of GUARANTOR is necessary in
connection with the execution and delivery of this Guaranty or any of the other
Loan Documents to which it is a party, or any transaction contemplated hereby,
except as may have been obtained and certified copies of which have been
delivered to LENDER.

     

    Section
4.7        No consent, permission,
authorization, order or license of any governmental authority is necessary in
connection with the execution and delivery of this Guaranty or any of the other
Loan Documents to which it is a party, or any transaction contemplated hereby,
except as may have been obtained and certified copies of which have been
delivered to LENDER.

     

    Section
4.8        There is no provision of any
indenture or agreement, written or oral, to which GUARANTOR is a party or under
which GUARANTOR is obligated which would be contravened by the execution and
delivery of this Guaranty or any of the other Loan Documents to which it is a
party, or by the performance of any provision, condition, covenant or other term
hereof or thereof.

     

    Section
4.9        There is no statute, rule or
regulation, or any judgment, decree or order of any court or agency binding on
GUARANTOR which would be contravened by the execution and delivery of this
Guaranty or any of the other Loan Documents to which it is a party, or by the
performance of any provision, condition, covenant or other term hereof or
thereof.

     

    Section
4.10

     

    (a)           GUARANTOR
has timely filed all returns and information and other reports required of
GUARANTOR under all Federal, State, local and foreign tax laws to which
GUARANTOR is subject.

     

    
      
        
        

      

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

     

    (c)           There
are not now in effect any extensions of time in which to assess additional
taxes.

     

    (d)           GUARANTOR
has paid or made adequate provision for the full payment of all fees, taxes,
interest and penalties which have been incurred or are due and payable by
GUARANTOR or which have been asserted or proposed to be asserted against
GUARANTOR.

     

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

     

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

     

    (g)           No
present assessments are open against GUARANTOR by any taxing authority, nor is
any penalty or deficiency by any such authority currently
outstanding.

     

    Section
4.11      No action or proceeding which, if
adversely determined would likely have a Materially Adverse Effect, is now
pending or, to the knowledge of GUARANTOR, is threatened against GUARANTOR at
law, in equity or otherwise, before any court, board, commission, agency or
instrumentality of any federal, state or local government or of any agency or
subdivision thereof, or before any arbitrator or panel of arbitrators other than
claims fully covered by insurance.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    Section
4.12      All financial statements of GUARANTOR
and all written information and other written data furnished by GUARANTOR to
LENDER are complete and correct, and such financial statements have been
prepared in accordance with generally accepted accounting principles and
practices consistently applied and accurately and fairly represent the financial
condition of GUARANTOR as of such date.  Since such date there has
been no material change in GUARANTOR's financial condition sufficient to impair
GUARANTOR's ability to repay the Liabilities in accordance with the terms
thereof.  GUARANTOR has no contingent obligations, liabilities for
taxes or other outstanding financial obligations which are material in the
aggregate, except as disclosed in such statements, information and
data.

     

    Section
4.13

     

    (a)           No
employee benefit plan established or maintained, or to which contributions have
been made, by GUARANTOR which is subject to the Title I of the Employee
Retirement Income Security Act of 1974, as amended and in effect on the date
hereof ("ERISA"), had an
accumulated funding deficiency (as such term is defined in Section 302 of ERISA)
as of the last day of the fiscal year of such plan ended most recently prior to
the date hereof.  No material liability to the Pension Benefit
Guaranty Corporation (other than premiums payable to it) has been or is expected
by GUARANTOR to be incurred by GUARANTOR with respect to any such
plan.  The execution and delivery of this Guaranty will not involve
any prohibited transactions within the meaning of ERISA or Section 4975 of the
Internal Revenue Code.  As used in this Section, the term "employee benefit plan" shall
have the meaning assigned to such term in Section 3(2) of ERISA.

     

    
      
        
        

      

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
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    Section
4.14      GUARANTOR represents and warrants to
LENDER that GUARANTOR's execution of this Guaranty is in furtherance of its
corporate purposes and that LENDER’s extending the Revolving Loan to BORROWER
will inure to GUARANTOR's economic benefit.

     

    ARTICLE
V

     

    POSITIVE
COVENANTS

     

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

     

    (a)           GUARANTOR
will maintain, preserve and keep its properties and assets or cause the same to
be maintained, preserved and kept in good repair, working order and condition
excepting reasonable wear and tear; make or cause to be made all necessary and
proper repairs, replacements and renewals thereto as shall from time to time be
necessary; and make or cause to be made all necessary and proper substitutions,
additions, modifications and improvements as may be necessary to preserve (1)
the value of GUARANTOR's properties and assets, (2) their usefulness to
GUARANTOR and (3) their fitness for their intended purposes, provided that
nothing in this Section 5.1(a) shall prevent GUARANTOR from discontinuing the
operation and maintenance of any of its properties and disposing of same if in
the judgment of GUARANTOR such is desirable in the conduct of its business and
such discontinuance and disposition do not in the aggregate have a Materially
Adverse Effect with respect to GUARANTOR.

     

    (b)           GUARANTOR
will pay as they become due, all taxes (or will provide adequate reserves
therefor), assessments, levies and other governmental charges, by whatever name
called, that may at any time be lawfully assessed or levied against or with
respect to GUARANTOR and its assets (including, but not by way of limitation,
any tax, assessment or other governmental charge which, if not paid, will become
a lien or charge upon any such assets and will also pay all utilities and other
charges incurred in the operation, maintenance, use and upkeep of any such
assets.

     

    
      
        
        

      

      
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    (c)           GUARANTOR
agrees that in the event that the Collateral or any part thereof shall be
impaired by LENDER or damaged or partially or totally destroyed (1) there shall
be no abatement or reduction in the amounts payable hereunder and (2)
GUARANTOR's obligations hereunder shall continue in full force and
effect.

     

    (d)           GUARANTOR
will preserve and maintain GUARANTOR's corporate existence, maintain all of
GUARANTOR's rights, privileges and franchises necessary or desirable in the
normal conduct of GUARANTOR's business, conduct GUARANTOR's business in an
orderly and regular manner, not dissolve or otherwise dispose of all or a
substantial part of GUARANTOR's assets and not consolidate with or merge into
another corporation or permit one or more other corporations to consolidate with
or merge into GUARANTOR except that (1) GUARANTOR may merge with and into
BORROWER so long as BORROWER is the survivor and (2) GUARANTOR may merge into
(with GUARANTOR as the surviving corporation) a corporation which, immediately
prior to such merger, has no substantial assets other than shares of
GUARANTOR’s  common stock or no substantial liabilities other than
liabilities directly related to the purchase of said shares of GUARANTOR’s
common stock or directly related to the said merger transaction (the “Merger”),
with GUARANTOR in all the foregoing cases being a wholly-owned subsidiary of
National Patent Development Corporation immediately after the effectiveness of
the Merger.

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    (e)           At
any time or from time to time when in the reasonable opinion of LENDER or its
counsel it shall be necessary or desirable, GUARANTOR will execute, acknowledge
and deliver or cause to be executed, acknowledged and delivered any supplement
hereto or other document, instrument, agreement or other writing as may
reasonably be required for carrying out the intention of or facilitating the
performance of any term, covenant or condition of this Guaranty or the Loan
Agreement. In the event GUARANTOR fails to abide by this Section or in the event
that LENDER in its sole discretion believes time is of the essence, LENDER may
execute all the above instruments on behalf of GUARANTOR.

     

    (f)           (1)           GUARANTOR
understands that the Loan Agreement requires BORROWER to provide LENDER with
quarterly consolidated and annual consolidated and consolidating financial
statements for BORROWER and GUARANTOR.

     

    (2)           GUARANTOR
acknowledges that obligations and agrees to be bound thereby to the same extent
as if those obligations were set forth herein at length.

     

    (g)           GUARANTOR
will notify LENDER in writing within a reasonable time (which shall in no event
exceed ten business days) of the commencement or threat of any litigation
against GUARANTOR which, if determined adversely to GUARANTOR would result in
GUARANTOR's dissolution or liquidation, prevent or materially impair GUARANTOR
from conducting GUARANTOR's business substantially as now conducted, prevent or
materially impair GUARANTOR from repaying the Liabilities or otherwise
faithfully performing its obligations under this Guaranty or result in a
Materially Adverse Effect with respect to GUARANTOR.  Without
intending to limit the generality of the foregoing or constituting an admission
of the applicability of the standard set forth in the preceding sentence, any
litigation which seeks monetary damages (whether compensatory or punitive) from
GUARANTOR in an aggregate amount in excess of $50,000.00 which is not covered by
insurance shall be deemed to constitute litigation of a character which must be
reported to LENDER.

     

    
      
        
        

      

      
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    (h)           GUARANTOR
will at all times comply with, or cause to be complied with, all laws, statutes,
rules, regulations, orders and directions of any governmental authority having
jurisdiction over GUARANTOR and GUARANTOR's business except to the extent such
non-compliance would not have a Materially Adverse Effect with respect to
GUARANTOR.

     

    Section
5.2        LENDER shall have full access
to, and the right, through its officers, agents, attorneys or accountants and at
GUARANTOR's expense to: examine, check, inspect and make abstracts and copies
from GUARANTOR's books, records, audits, correspondence, and all other papers;
enter upon GUARANTOR's premises during business hours and from time to time, for
the foregoing purpose.

     

    Section
5.3       Nothing herein contained shall be
construed to constitute LENDER as GUARANTOR's agent for any purpose whatsoever
and LENDER shall not be responsible nor liable for any shortage, discrepancy,
damage, loss or destruction of any part of the Collateral wherever the same may
be located and regardless of the cause thereof. LENDER shall not, under any
circumstances, or in any event whatsoever, have any liability for any error or
omission or delay of any kind occurring in the settlement, collection or payment
of any of the Accounts Receivable or any instrument received in payment thereof
or for any damage resulting therefrom.  LENDER does not, by anything
herein or in any assignment or otherwise, assume any obligations of GUARANTOR
under any Account, contract or agreement assigned to LENDER, and LENDER shall
not be responsible in any way for the performance by GUARANTOR of any of the
terms and conditions thereof.

     

    
      
        
        

      

      
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    ARTICLE
VI

    SUITS,
ACTIONS AND PROCEEDINGS,

    NOTICE
AND SERVICE OF PROCESS,

    PLEADINGS
AND OTHER PAPERS

    

    Section
6.1        Consent to Service of
Process.  GUARANTOR irrevocably (a) agrees that any suit,
action or other legal proceeding arising out of this Guaranty may be brought in
the courts of record of the State of New Jersey or the courts of the United
States located in the State of New Jersey, (b) consents to the jurisdiction of
each such court in any such suit, action or proceeding, and (c) waives any
objection which GUARANTOR may have to the laying of venue of any such suit,
action or proceeding in any of such courts.

     

    Section
6.2        Notices.

     

    (a)           (1)           Any
communication given hereunder shall be addressed to GUARANTOR at the address set
forth in the preamble of this Guaranty.

     

    (2)           Any
communication given hereunder shall be addressed to LENDER in the manner set
forth in the Loan Agreement.

     

    (b)           All
notices shall be sent by hand delivery, by certified mail, return receipt
requested, postage prepaid or by a recognized overnight delivery
service.

     

    (c)           Notices
sent by hand delivery shall be deemed received when delivered to the address
and/or person set forth in subsection (a) above; notices sent by certified mail
shall be deemed received when accepted; and notices sent by overnight delivery
service shall be deemed received the next business day after entrustment of the
notice to the overnight delivery service.

     

    
      
        
        

      

      
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    Section
6.3       Actions and
Proceedings.  GUARANTOR HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN
RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS GUARANTY OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN
CONNECTION HEREWITH OR THEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY.  THIS
WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR LENDER TO ENTER INTO THE LOAN
AGREEMENT WITH BORROWER AND TO CONTINUE TO ADVANCE MONEY TO BORROWER
THEREUNDER.

     

    ARTICLE
VII

     

    MISCELLANEOUS

     

    Section
7.1        No Remedy Exclusive; Effect of
Waiver.  No remedy herein conferred upon or reserved to LENDER
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 this Guaranty or now or hereafter existing at law or in
equity.  No delay or omission to exercise any right or power accruing
upon any default, omission or failure of performance hereunder 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 LENDER to exercise any remedy reserved
to it in this Guaranty, it shall not be necessary to give any notice not
specifically provided for herein. In the event any provision contained in this
Guaranty should be breached by any party and thereafter duly waived by the other
party so empowered to act, such waiver shall be limited to the particular breach
so waived and shall not be deemed to waive any other breach
hereunder.  No waiver, amendment, release or modification of this
Guaranty shall be established by conduct, custom or course of dealing, but
solely by an instrument in writing duly executed by the party to be
charged.

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    Section
7.2        Lost Guaranty.  Upon
receipt of an affidavit of an officer of LENDER as to the loss, theft,
destruction or mutilation of this Guaranty, GUARANTOR will issue, in lieu
hereof, a replacement guaranty in the same principal amount thereof and
otherwise of like tenor. LENDER will indemnify GUARANTOR in the event that a
replacement Guaranty is issued and this Guaranty was not in fact lost, stolen,
destroyed or mutilated but was instead transferred by LENDER to a third party
making claim hereunder.

     

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

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    Section
7.4        Inconsistencies.  In
the event of an inconsistency between this Guaranty or any other documents
affording LENDER rights and remedies, such inconsistency shall be resolved by an
interpretation which expands the rights of LENDER rather than limits such
rights.

     

    Section
7.5        Definition of
Reasonableness.  Any requirement in this Guaranty that LENDER
shall act reasonably shall be broadly and liberally construed in favor of LENDER
bearing in mind the need of LENDER to protect its security interests and to
realize upon the Collateral.

     

    Section
7.6        Severability.  The
invalidity or unenforceability of any one or more phrases, sentences, clauses or
Sections contained in this Guaranty shall not affect the validity or
enforceability of the remaining portions of this Guaranty, or any part
thereof.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    Section
7.7        Survival of
Covenants.

     

    (a)           The
covenants (including GUARANTOR's guaranty to pay the Liabilities) made by
GUARANTOR in this Guaranty shall survive until the later to occur of (1) that
date which falls 180 days after LENDER receives notice from GUARANTOR that
GUARANTOR terminates GUARANTOR's obligations under this Guaranty or (2) that
date which falls 180 days after the termination of this Guaranty by operation of
law.

     

    (b)           Notwithstanding
the provisions of subsection (a) above, GUARANTOR's obligation to pay the
Liabilities which are in existence on the effective termination date of this
Guaranty shall continue in full force and effect past such termination date and
shall remain in full force until all those Liabilities are paid in
full.

     

    Section
7.8        Governing Law.  This
Guaranty shall be construed in accordance with and governed by the laws of the
State of New Jersey.

     

    Section
7.9        Successors and
Assigns.  This Guaranty shall be binding upon GUARANTOR and
GUARANTOR's successors and assigns, and shall inure to the benefit of LENDER and
its successors and assigns.

     

    Section
7.10      Joint and Several
Liability.  ALL OBLIGATIONS OF GUARANTOR ARE JOINT AND SEVERAL
WITH THE OBLIGATIONS OF ANY OTHER GUARANTOR.

     

    Section
7.11      Guaranty Referred to in Loan
Agreement. This Guaranty is the "Guaranty" referred to in the
Loan Agreement.

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    IN WITNESS WHEREOF, GUARANTOR
has caused this Guaranty to be executed by its duly authorized corporate
officers on date and year first above written.

    

    
    

    
      	
              WITNESS:

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

    

     

     

     

     

     

     

     

     

    
       

    

    
       

       

       

      33

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