Document:

Precision Aerospace Components, Inc. Exhibit 10.10                                                                    

EXHIBIT 10.10

LOAN AND SECURITY AGREEMENT

BETWEEN

ISRAEL DISCOUNT BANK OF NEW YORK

AND

FREUNDLICH SUPPLY COMPANY, INC.

March  6, 2008

This LOAN AND SECURITY AGREEMENT (“Agreement”) is entered
into as of March __, 2008, and is by and among FREUNDLICH SUPPLY
COMPANY, INC., as borrower, PRECISION AEROSPACE COMPONENTS, INC., as
guarantor, and ISRAEL DISCOUNT BANK OF NEW YORK, as lender.

Section 1

DEFINITIONS.

Section 1.1

All terms used herein which are defined in Article 1 or Article 9
of the Uniform Commercial Code ("UCC"), as amended from time to time, shall have
the meanings given therein, unless otherwise defined in this Agreement and all
references to the plural herein shall also mean the singular.

Section 1.2

“Acceptance Margin” shall mean three and three quarter percent
(3.75%) or three hundred and seventy five basis points (375 bps).  

Section 1.3

“Acceptance Rate” shall mean annual interest rate applicable to
Bankers Acceptances which shall be the sum of: (a) the rate set forth in Column
II of the Bank’s internally prepared Discount Rate for Acceptance Financing (as
determined and updated from time to time by the Bank) for the selected Term;
plus (b) the Acceptance Margin.

Section 1.4

“Account Debtor” shall mean each debtor or obligor in any way
obligated on or in connection with any Account.

Section 1.5

“Accounts” shall mean all of the Borrower’s present and future
accounts, contract rights, general intangibles, chattel paper (whether tangible
or electronic), documents and instruments (including promissory notes), as such
terms are defined in the UCC, including, without limitation, all obligations for
the payment of money arising out of the Borrower’s sale, lease or other
disposition of goods or other property or rendering of services.

Section 1.6

“Advance” shall mean any increase in the Total Outstandings under
the Loan, whether such increase is through a Bank Acceptance, Credit Advance or
an L/C Advance.      

Section 1.7

       “Advance Request” shall
mean a request by the Borrower for an Advance in connection with the Loan.

Section 1.8

       “Advance Request Notice”
shall mean that certain notice prepared and issued by the Borrower to the Bank
in the form annexed hereto as Exhibit B, or such other form as designated
or acceptable to the Bank.

Section 1.9

        “Agreement” shall
mean this Loan and Security Agreement.

Section 1.10

“BA Term Limitation” shall mean a total of one hundred and eighty
days from the date of the initial Advance in connection with a Bankers
Acceptance.  The BA Term Limitation may not be increased or extended.

Section 1.11

        “Bank” shall mean
Israel Discount Bank of New York, a banking corporation organized and existing
under the laws of the State of New York, and its subsidiaries, affiliates and
successors and assigns.

Section 1.12

“Bankers Acceptance” shall mean an Advance for the purpose of
paying the Borrower’s Obligations as the applicant of a Letter of Credit
drawing.

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Section 1.13

“Bankers Acceptance Obligations” shall mean the aggregate amount
of all outstanding Bankers Acceptances, inclusive of principal, interest and
other fees or charges.

Section 1.14

“Borrower” shall mean Freundlich Supply Company, Inc., a
corporation organized and existing under the laws of the State of Delaware,
having offices at 2200 Arthur Kill Road, Staten Island, New York 10309 and
assigned tax identification number 20-5199557.

Section 1.15

     “Borrowing Base” shall mean, without
duplication, an amount consisting of the sum of up to: (i) seventy five percent
(75%) of Eligible Accounts, plus (ii) fifty percent (50%) of Eligible
Inventory Amount; minus Reserves.  

Section 1.16

     “Business Day” means any day other
than a Saturday, Sunday or other day on which commercial banks are authorized to
close under the laws of, or are in fact closed in, New York.

Section 1.17

     “Capitals Funds” shall mean
shareholder equity plus subordinated debt, in form satisfactory to the
Bank, less intangibles, investments in other companies and loans to
officers and affiliates.

Section 1.18

     “Checking Account” shall
collectively mean the Borrower’s demand deposit accounts opened and maintained
by the Borrower with the Bank, as set forth in further detail on Schedule
1.18.

Section 1.19

     “Closing Date” shall mean the first
date all of the conditions precedent described in this Agreement are satisfied
or waived in writing by the Bank.

Section 1.20

“Closing Fee” shall have the meaning set forth in Section 3, and
in the amount set forth in Schedule 1.35.

Section 1.21

“Closing Legal Fee” shall have the meaning set forth in Section 3,
and in the amount set forth in Schedule 1.35.

Section 1.22

     “Collateral” shall have the meaning
set forth in Section 4.1 hereof.

Section 1.23

“Coverage Amount” shall be the minimum amount of insurance
required, as specified in Schedule 5.1.

Section 1.24

     “Credit Advance” shall mean an
Advance in which the Bank delivered to the Borrower or at the Borrower’s
direction immediately available funds in the Currency pursuant to Section 2.

Section 1.25

“Credit Advance Obligations” shall mean the aggregate amount of
all outstanding Credit Advances, inclusive of principal, interest and other fees
and charges.

Section 1.26

     “Currency” means United States
Dollars, the currency of the United States of America.

Section 1.27

“Default” shall mean any event or condition which constitutes an
Event of Default or which upon notice, lapse of time or both would, unless cured
or waived, become an Event of Default.

Section 1.28

“Default Rate” shall mean the rate of interest per annum
applicable to the principal amount of the Total Borrowings upon the occurrence
of an Event of Default and shall, be for each Bank Acceptance and Credit
Advance, the Rate then in effect plus five percent (Rate + 5%) per annum.
 The Default Rate immediately shall become effective upon the occurrence of
an Event of Default, but in no event shall the Default Rate be in excess of the
maximum rate of interest allowed by law to be charged.  In the event that
the Default Rate, based upon the formula set forth above, exceeds the maximum
rate of interest 

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allowed to be charged by law, the Default Rate shall be adjusted
and reduced to the maximum rate allowed to be charged by law. 

Section 1.29

“Delinquent Account” shall mean an Account that remains
uncollected for more than one hundred and twenty (120) days from its due
date.

Section 1.30

  

“EBITDA” shall mean without duplication on a consolidated basis
for such period: (a) net income (excluding (i) income of persons in which the
Borrower has an ownership interest (other than cash distributions from such
persons), (ii) after tax gains attributable to fixed asset dispositions and
(iii) any other after tax extraordinary or non-cash gains); plus (b) any
provision for (or less any benefit from) income or franchise taxes included in
determining net income; plus (c) interest expense deducted in determining
net income; plus (d) amortization and depreciation expense deducted in
determining net income; plus (e) non-cash compensation expense required
by GAAP to be deducted in determining net income, all determined on a
consolidated basis for Borrower and its subsidiaries.   

Section 1.31

 

“Eligible Accounts” shall mean, at any time of determination
thereof, each Account created in the ordinary course of the Borrower’s business
arising out of the Borrower’s sale of goods or rendition of services, which are
and at all times shall continue to be acceptable to the Bank in all respects.
 To be eligible an Account (i) must be invoiced to, and represent a bona
fide amount due to the Borrower from, the Account Debtor, as the purchaser of
goods or services, in each case originated in the ordinary course of the
Borrower’s business and (ii) is not ineligible for inclusion in the calculation
of the Borrowing Base pursuant to any of clauses (a) through (w) below. Without
limiting the generality of the foregoing, to qualify as an Eligible Account, an
Account shall (x) indicate no other party other than the Borrower as payee or
remittance party, (y) be subject to a binding unconditional agreement between
the Borrower and such Account Debtor, and (z) be due and payable on a date
certain.  Unless otherwise approved from time to time by the Bank, no
Account shall be an Eligible Account if, without duplication (and unless
otherwise agreed to in writing by the Bank):

(a)

it is a Delinquent Account;

(b)

it is a Government Account, unless the Borrower assigns its right
to payment of such Account exclusively to the Bank pursuant to the Assignment of
Claims Act of 1940, as amended, and has caused all other assignments, as
applicable, of such Account to be released and terminated, or otherwise has
complied with other applicable statutes or ordinances;

(c)

it is due from an Account Debtor as to which twenty-five percent
(25%) or more of the aggregate dollar amount of all outstanding Accounts
Receivable owing from such Account Debtor are Delinquent Accounts (“Cross-Age
Accounts”);

(d)

it is owed by an Account Debtor or any affiliate of such Account
Debtor to which the Borrower is indebted;

(e)

it is owed by any Affiliate, employee, officer, director, agent or
stockholder of the Borrower;

(f)

  it is not subject to the Bank’s first priority
perfected security interest;

(g)

  it is subject to any lien other than (i) the Bank’s
lien; and (ii) which arises by operation of law, and not by grant, and which is
not subordinate to the Bank’s lien;

(h)

it has been written off of the Borrower’s books, reserved against,
discounted or otherwise designated as uncollectible;

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(i)

the total amount of Accounts owing by an individual Account Debtor
exceeding the Permitted Account Debtor Sublimit, in which case the Eligible
Accounts allocable to such Account Debtor shall be reduced to the Permitted
Account Debtor Sublimit;

(j)

   it is owed by an Account Debtor for which any
Accounts have, at any time, been deemed ineligible under clause (h) above;

(k)

any covenant, representation, or warranty contained in this
Agreement or in any other Loan Document with respect to such Account has been
breached in any material respect;

(l)

it: (i) does not arise from the sale of goods or performance of
services in the ordinary course of the Borrower’s business, (ii) is not
evidenced by an Invoice or other documentation satisfactory to the Bank that was
sent to or acknowledged by the Account Debtor, (iii) represents a progress
billing, (iv) is contingent upon the Borrower’s completion of any further
performance, (v) represents a sale on a bill-and-hold, guaranteed sale,
sale-and-return, sale on approval, consignment, cash-on-delivery or any other
repurchase or return basis or (vi) relates to payments of interest; 

(m)

 the services or goods giving rise to such Account have not
been performed or delivered by the Borrower;

(n)

 it is owed by an Account Debtor which has (i) applied for,
suffered, or consented to the appointment of any receiver, custodian, trustee,
or liquidator of its assets, (ii) has had possession of all or a material part
of its property taken by any receiver, custodian, trustee or liquidator, (iii)
filed, or had filed against it, any request or petition for liquidation,
reorganization, arrangement, adjustment of debts, adjudication as bankrupt,
winding-up, or voluntary or involuntary case under any state or federal
bankruptcy laws (other than post-petition accounts payable of an Account Debtor
that is a debtor-in-possession under the Bankruptcy Code and reasonably
acceptable to Lender), (iv) has admitted in writing its inability, or is
generally unable to, pay its debts as they become due, (v) become insolvent, or
(vi) ceased operation of its business and such fact has been made known to
Borrower; 

(o)

it is owed by any Account Debtor which has sold all or a
substantially all of its assets;

(p)

 it is owed by an Account Debtor which (i) does not maintain
an office for business within the U.S.; (ii) is not organized under applicable
law of the U.S., any state of the U.S., unless, in either case, such Account is
backed by a letter of credit or credit insurance reasonably acceptable to
Lender; or (iii) causes the Bank, in good faith and sole discretion, to
determine or suspect that such Account Debtor is, operates or transacts with, or
for the benefit of, any sanctioned individual, institution or country, as
designated by the United States government;

(q)

it is owed in any currency other than the Currency;

(r)

it is subject to any counterclaim, deduction, defense, setoff or
dispute, but only to the extent of any such counterclaim, deduction, defense,
setoff or dispute;

(s)

it is evidenced by any promissory note, chattel paper, or
instrument;

(t)

it is subject to a partial or total refund, but only to the extent
and amount of such refund;

(u)

it is subject to any agreement between the Borrower and the
Account Debtor for a reduction of such Account, other than discounts and
adjustments given in the ordinary course of the Borrower’s business, or any
Account which was partially paid and the Borrower has created a new receivable

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for the unpaid portion of such Account or any portion of such
Account classified by the Borrower as chargeback;

(v)

the Account is owed by an Account Debtor located in any state
denying creditors access to its courts in the absence of a Notice of Business
Activities Report or other similar filing, unless Borrower is incorporated under
the laws of such state or has either qualified as a foreign corporation
authorized to transact business is such state or has filed a Notice of Business
Activities Report or similar filing with the applicable state agency for the
then current year; and 

(w)

it is not otherwise acceptable to the Bank in the Bank’s
commercially reasonable discretion.

Section 1.32

     “Eligible Inventory Amount” shall
mean the lesser of: (a) Five Million Dollars ($5,000,000.00); or (b) the
Borrower’s Inventory determined at the lower cost of market value; plus
(ii) face amount of Letters of Credit issued by Lender for the account of
Borrower for Inventory which has been purchased from Borrower’s supplier and not
yet delivered; (iii) minus work in progress that is categorized as
Inventory; and (iv) minus slow moving inventory, as determined by the
Bank in its reasonable discretion.  The Bank reserves the right to make
reasonable modifications and adjustments to the Eligible Inventory Amount from
time to time in its sole discretion based
on the most recent account, field and/or Collateral examinations obtained or
received by the Bank. 

Section 1.33

“Equipment” shall mean all equipment, machinery, computers and
computer hardware, vehicles, tools, dies, jigs, furniture, trade fixtures and
fixtures; all attachments, accessions and property now or hereafter affixed
thereto or used in connection therewith, substitutions and replacements thereof,
wherever located, whether now owned or hereafter acquired by the Borrower.

Section 1.34

“Events of Default” shall have the meaning set forth in Section
9.

Section 1.35

“Exam Fees” shall have the meaning set forth in Section 3, and in
the amount set forth in Schedule 1.35.

Section 1.36

“Fee” or “Fees” individually and collectively shall mean each of
the fees and charges set forth on Schedule 1.35.    

Section 1.37

    “GAAP” shall mean generally accepted
accounting principles in the United States of America set forth in the opinions
and pronouncements of the Accounting Principles Board and the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board, consistently applied.

Section 1.38

“Government Account” shall mean an account due from an Account
Debtor which is a national, federal, state or municipal government, including,
without limitation, any instrumentality, division, agency, body or department
thereof.

Section 1.39

“Guarantor” collectively shall mean Precision Aerospace
Components, Inc., a Delaware corporation having an address at having offices at
2200 Arthur Kill Road, Staten Island, New York 10309.

Section 1.40

“Guaranty” collectively shall mean the Obligations of each
Guarantor under this Agreement, as further specified in Section 7 of this
Agreement.

Section 1.41

“Guaranty Obligation” shall mean the Guaranty of each Guarantor of
the payment of the Obligations.  

6

Section 1.42

“Instruction Agreement” shall mean that certain Instruction
Agreement in the form annexed hereto as Exhibit E.

Section 1.43

“Inventory” shall have the meaning set forth in the UCC.

Section 1.44

     “Invoice” shall mean an invoice,
bill or similar document issued substantially contemporaneously with, but in no
event prior to, the delivery of goods and/or rendering of services by the
Borrower to an Account Debtor.

Section 1.45

“L/C Advance” shall mean an Advance requested by the Borrower for
the purpose of issuing a Letter of Credit.

Section 1.46

“L/C Credit Extension” means, with respect to any Letter of
Credit, the issuance or extension of the expiry date thereof, or the increase of
the amount thereof.

Section 1.47

“L/C Fees” shall mean the fees as set forth on Schedule
1.47.

Section 1.48

“L/C Obligations” shall mean, as at any date of determination, the
aggregate undrawn amount of all outstanding Letters of Credit.  For all
purposes of this Agreement, if on any date of determination a Letter of Credit
has expired by its terms but an amount may still be drawn thereunder, such
Letter of Credit shall be deemed to be “outstanding” in the amount so remaining
available to be drawn.

Section 1.49

“L/C Sublimit” shall mean an amount equal to Five Hundred Thousand
dollars ($500,000).  The L/C Sublimit is part of, and not in addition to,
the Maximum Credit available under the Loan.

Section 1.50

“Late Payment Premium” shall have the meaning set forth in Section
3.

Section 1.51

     “Lender” shall mean the Bank. 

Section 1.52

     “Letters of Credit” shall mean
individually an irrevocable standby and/or documentary letter of credit and
collectively all irrevocable standby and/or documentary letters of credit issued
by the Bank at the request and benefit of the Borrower.

Section 1.53

“LIBOR” shall mean the London interbank offered rate of interest,
as determined by the Bank two business days before the beginning of each
interest period, or as otherwise determined from time to time by the Bank.
 If LIBOR cannot be reasonably determined by the Bank, due to circumstances
affecting the London interbank market, the LIBOR rate utilized by the Bank which
is then in effect shall be continued until the Bank shall determine that
adequate and reasonable means exist for ascertaining LIBOR.  LIBOR shall be
set forth and determined from the Bank’s internal LIBOR rate sheet.

Section 1.54

“LIBOR Advance” shall mean a Credit Advance under which the
Borrower elects the LIBOR Advance Rate.

Section 1.55

“LIBOR Advance Rate” shall mean the annual rate of interest
applicable to each LIBOR Advance, depending upon the Term selected, and shall be
the sum of the applicable LIBOR rate for the selected Term plus the LIBOR
Margin.

Section 1.56

“LIBOR Margin” shall mean three and three quarter percent (3.75%)
or three hundred and seventy five basis points (375 bps).

Section 1.57

“Line Fee” shall have the meaning set forth in Section 3, and in
the amount set forth in Schedule 1.35.

7

Section 1.58

“Loan” shall mean the subject revolving credit facility, as
further described in Section 2.

Section 1.59

“Loan Account” shall have the meaning set forth in Section 2.16
(Loan Account; Bank’s Records).

Section 1.60

“Loan Documents” shall mean each and every loan agreement, credit
agreement, including this Agreement, promissory note, security agreement, pledge
agreement, financing statement, assignment, mortgage, guaranty, opinion letters
and agreements and any other document heretofore, now or hereafter executed by
any of the Obligors and/or the Bank, together with all modifications, extensions
and/or renewals thereof in connection with the extension of credit, including
but not limited to this Agreement, and each and every other document executed by
the Obligors in connection with the Loans and the Obligations, all as amended,
restated, extended, renewed, supplemented, modified or replaced from time to
time.

Section 1.61

“Loan Term” shall mean the period from the Closing Date through to
the Maturity Date, except upon the occurrence of an Event of Default, in which
case the period shall be shortened to, in the Bank’s sole and absolute
discretion, the earlier of the occurrence of the Event of Default or declaration
of default by the Bank.

Section 1.62

     “Material Adverse Change”
 shall mean any event or condition that (a) has a material adverse effect
on the business, assets, properties, performance, operations or condition
(financial or otherwise) of the Obligors, (b) materially impairs the ability of
the Obligors taken as a whole to perform their obligations under any of the Loan
Documents related to the line of credit herein, or (c) materially and adversely
affects the lien granted to the Bank under any security document or materially
impairs the validity or enforceability of, or materially impairs the rights,
remedies or benefits available to the Bank under any Loan Document.

Section 1.63

     “Maturity Date” shall mean January
31, 2009, unless accelerated as a result of the occurrence of an Event of
Default.

Section 1.64

     “Maximum Credit” shall mean the
lesser of (i) Three Million Dollars ($3,000,000.00), or (ii) the Borrowing
Base.

Section 1.65

  

“Note” shall mean the Revolving Credit Note in the principal
amount of Three Million Dollars ($3,000,000.00) dated as of the date hereof, in
the form attached as Exhibit A, as amended, extended, renewed or modified
from time to time.

Section 1.66

      “Obligation” or “Obligations”
collectively shall mean all indebtedness, obligations and liabilities of the
Obligors, collectively and individually, to the Bank of every kind and
description, direct or indirect, secured or unsecured, joint or several,
absolute or contingent, due or to become due, whether for payment or
performance, now existing or hereafter arising, whether presently contemplated
or not, regardless of how the same arise, including, but not limited to, the
Loan(s) (including modifications, renewals or extensions of such Loan(s)) and
all indebtedness including any arising from any interest rate hedging
transactions, liabilities or obligations owing from the Obligors, collectively
and individually, to others which the Lender may have obtained by purchase,
negotiation, discount, assignment or otherwise; and all interest, taxes, fees,
charges, expenses and attorney’s fees (whether or not such attorney is a
regularly salaried employee of the Lender, any parent corporation or any
subsidiary or affiliate thereof, whether now existing or hereafter created)
chargeable to the Obligors or incurred by the Lender under the Loan Documents,
this Agreement, or any other document or instrument delivered in connection with
the Loan(s) or related to the extension of credit.

8

Section 1.67

      “Obligor” or “Obligors”
collectively shall mean each and every Borrower and Guarantor.

Section 1.68

“Overadvance” shall mean the amount by which the Total
Outstandings exceed the Maximum Credit on any given date.

Section 1.69

      “Permitted Account Debtor
Sublimit” shall mean the amount equal to twenty five percent (25%) of the
aggregate of all Accounts that otherwise would be deemed Eligible Accounts
pursuant to the definition of “Eligible Accounts”, excluding subsection (i)
thereof.

Section 1.70

“Permitted Liens” shall mean with respect to the property of any
person, (a) deposits or pledges of cash to secure obligations under workmen’s
compensation, social security or similar laws, or under unemployment insurance;
(b) deposits or pledges of cash to secure bids, tenders, contracts (other than
contracts for the payment of money or the deferred purchase price of property or
services), leases, statutory obligations, surety and appeal bonds and other
obligations of like nature arising in the ordinary the Borrower of business; (c)
carrier’s, warehousemen’s, mechanic’s, workmen’s, materialmen’s or other like
liens arising in the ordinary course of the Borrower’s business with respect to
obligations which are not due, or which are being properly contested pursuant to
appropriate proceedings and for which adequate reserves have been established;
(d) liens for taxes or other governmental charges not at the time delinquent or
thereafter payable without penalty or which are being properly contested
pursuant to appropriate proceedings and for which adequate reserves have been
established; (e) judgment liens the existence of which would not constitute an
Event of Default under this Agreement; and (f) any lien on any equipment
securing any indebtedness incurred in connection with the purchase of such
equipment permitted under this Agreement.  All Permitted Liens are set
forth on Schedule 1.70.

Section 1.71

“Prime Advance” shall mean a Credit Advance under which the
Borrower elects the Prime Advance Rate.  

Section 1.72

“Prime Advance Rate” shall mean the annual rate of interest
applicable to each Prime Advance and shall be the sum of the Prime Rate plus the
Prime Margin.

Section 1.73

“Prime Margin” shall mean one percent (1%).

Section 1.74

     “Prime Rate” shall mean for any day
a fluctuating rate per annum equal to the rate of interest in effect for such
day as publicly announced from time to time by the Bank as its “prime rate”.
 The “prime rate” is a rate set by the Bank based upon various factors
including the Bank’s costs and desired return, general economic conditions and
other factors, and is used as a reference point for pricing some loans, which
may be priced at, above, or below such announced rate.  Any change in such
rate announced by the Bank shall take effect at the opening of business on the
day specified in the public announcement of such change.

Section 1.75

“Rate” collectively shall mean the annual rate of interest
applicable to all outstanding principal due and owing under the Loan (Total
Borrowings) and shall be calculated on the basis of a 360-day year and
actual number of days elapsed during the interest period (but in no event shall
be in excess of the maximum rate permitted by applicable law).  In the
event that the Rate exceeds the maximum rate allowed by law, the Rate shall be
reduced to be the maximum rate of interest per annum allowed by law).  The
Rate applicable to the Credit Advances shall be elected by the Borrower at the
time of each Advance Requests and shall be either of the following: (a) LIBOR
Advance Rate; or (b) the Prime Advance Rate.  The Rate applicable to Bank
Acceptances shall be the Bank Acceptance Rate.  Upon the occurrence of an
Event of Default, the Rate shall immediately become the Default Rate.

Section 1.76

“Rate Type” shall mean either the LIBOR Advance Rate or the Prime
Advance Rate.  

9

Section 1.77

“Records” shall have the meaning set forth in Section 4.l.

Section 1.78

“Refinanced Creditor” shall mean Greater Bay Business Funding, a
division of Greater Bay Bank, N.A., 3006 Northup Way #103, Bellevue, Washington
98004, and its successors and/or assigns, as their interests may appear.
   

Section 1.79

“Reserves” shall mean 

all Obligations then chargeable to any account of Borrower, as
well as Obligations which may, in Bank’s sole and absolute discretion, be
chargeable to Borrower thereafter, by reason of or in connection with any of the
following: Accounts which are not Eligible Accounts; Inventory which is not
Eligible Inventory; disputed items; deductions; allowances; credits; bill and
hold sales; consignment sales; acceptances; Letters of Credit; offsets asserted
by or granted to Account Debtors; sales calling for payment in currencies other
than the Currency; to adjust for audit and or examination of Borrower’s accounts
or for any documentation correction; and such additional reserves as the Bank in
its discretion, reasonably exercised, deems appropriate, including, but not
limited to, to adjust for any condition or prospect of Borrower or Borrower’s
industry.  The Reserves shall include the full amount in dispute pursuant
to Section 2.16.

Section 1.80

     “Responsible Officer” shall mean the
chief executive officer, president, chief financial officer, treasurer or
assistant treasurer of the Borrower.  Any document delivered hereunder that
is signed by a Responsible Officer of the Borrower shall be conclusively
presumed to have been authorized by all necessary corporate and/or other action
on the part of the Borrower and such Responsible Officer shall be conclusively
presumed to have acted on behalf of the Borrower.

Section 1.81

“Subordinated Creditor” means Nightwind Corp.

Section 1.82

“Subordinated Loan” means that certain loan by Subordinated
Creditor to the Borrower, which is being subordinated to the Loan pursuant to
the terms and conditions of the Subordination Agreement, in the form annexed
hereto as Exhibit F or such other form as may be acceptable to the Bank in its
sole discretion.

Section 1.83

“Subordination Agreement” means that certain Subordination
Agreement, in the form annexed hereto as Exhibit F or such other form as may be
acceptable to the Bank in its sole discretion.  

Section 1.84

“Term” shall mean the following time periods or terms elected by
the Borrower: (a) for LIBOR Advances, a term of (i) one, (ii) three or (iii) six
months; and (b) for Bank Acceptances, a term of (i) one to thirty (1-30) days,
(ii) thirty-one to sixty (31-60) days, (iii) sixty-one to ninety (61-90) days,
(iv) ninety-one to one hundred and twenty (91-120) days, (v) one hundred and
twenty-one to one hundred and fifty (121-150) days, or (vi) one hundred and
fifty-one to one hundred and eighty (151-180) days.  In the event that the
Borrower does not select a Term, the Bank shall apply the shortest Term
available for such Advance.  The selection of any Term beyond the Maturity
Date shall have no effect on extending, altering or adjusting the Maturity Date.
 No Term may be selected which would result in the Term expiring after the
Maturity Date.

Section 1.85

“Total Borrowings” shall mean the sum of the aggregate amount of
(a) Credit Advance Obligations, plus (b) all Bank Acceptance Obligations,
plus (c) all drawn Letters of Credit for which the Bank has not received
payment.

Section 1.86

     “Total Outstandings” means the sum
of Total Borrowings plus L/C Obligations.

Section 1.87

“Unused Line Fee” shall have the meaning set forth in Section 3,
and as set forth in Schedule 1.35.

10

Section 1.88

“U.S.” shall mean the United States of America.

Section 2

LOAN.

Section 2.1

Background.  The Borrower is a stocking distributor of
aerospace quality, internally threaded fasteners.  The Borrower has
requested that the Lender extend credit to the Borrower a Loan in the form of a
revolving commercial credit facility having an available principal amount up to
a limit of the Maximum Credit.  The Obligations shall be evidenced by the
Loan Documents, including the Note, in the form attached hereto as Exhibit
A.

Section 2.2

Purpose.  The Loan and other financial accommodations
extended by the Bank to the Borrower shall be for permitted general corporate
and business purposes, including working capital.

Section 2.3

       Advances.
 Subject to the Borrower’s compliance of the terms and conditions set forth
in this Agreement and the Loan Documents, the Bank shall, upon receipt of the
Borrower’s Advance Requests, each of which shall be irrevocable, binding and in
the form of an Advance Request Notice annexed as Exhibit B, make Advances
provided that the Total Outstandings do not exceed the Maximum Credit.  The
Borrower may repay and re-borrow amounts under the Loan, provided that such
Advances occur during the Loan Term and the Borrower is otherwise in compliance
with the terms and conditions of the Loan Documents.

Section 2.4

Interest Elections; Interest Periods.  In connection
with each Credit Advance, the Borrower shall specify the Rate Type.  For
each Bank Acceptance and LIBOR Advance, the Borrower shall also select a Term.
 In the event that the Borrower does not select a Term, the Term shall be
the shortest Term available for such Advance.  Provided that the Borrower
is otherwise in compliance with the terms of this Agreement, any LIBOR Advance
may be extended by the Borrower by selecting a new Term upon the expiration of
the Term then applicable to such LIBOR Advance, provided that such new Term does
not continue beyond the Maturity Date.  For Bank Acceptances, the Borrower
may extend the Term of such Advances provided that the total Term of such Banker
Acceptance does not exceed one hundred and eighty (180) days from the date of
the original Advance.

Section 2.5

       Advance Request
Procedures.  Advance Requests shall be made as follows:

(a)

  The Borrower shall provide irrevocable notice to the
Bank, which may be in the manner permitted under the Instruction Agreement.
 The Bank shall be entitled to rely upon such telephonic notice and the
Borrower agrees to indemnify the Bank against any and all claims, liabilities,
losses and expenses ensuing from such reliance in accordance with the terms of
the Instruction Agreement;

(b)

  Each Advance Request must be received by the Bank no
later than: (i) for Bankers Acceptances, no later than 1:00 p.m. on the Business
Day on which the presented Letter of Credit is presented and/or is to be paid by
the Bank; (ii) for Credit Advances, 1:00 p.m. on the Business Day before the
requested date of any Advance; and (iii) for Letters of Credit, 1:00 p.m. two
Business Days before the requested date for issuance of the Letter of
Credit;

(c)

  Each telephonic notice by the Borrower pursuant to
this section must be confirmed promptly (no later than 2:00 p.m. on the same day
of such telephone notice) by delivering to the Bank the written Advance Request
Notice (along with the Letter of Credit application, for L/C Advances)
appropriately completed and signed by a Responsible Officer of the Borrower;

(d)

  Each Advance Request shall be in a principal amount
of: (i) for Bankers Acceptances, the amount of the presented Letter of Credit
plus any L/C Fees; (ii) for Credit Advances, One 

11

Hundred Thousand Dollars ($100,000) or a whole multiple of Ten
Thousand Dollars ($10,000) in excess thereof; and (iii) for L/C Advances, in an
initial face amount of not less than One Thousand Dollars ($1,000).

(e)

  Each Advance Request Notice shall specify: (i) the
requested date of the Advance (which shall be a Business Day); (ii) the
principal amount of Advance to be borrowed; (iii) the nature of the Advance
(i.e., Bankers Acceptance, Credit Advance or L/C Advance); (iv) for
Credit Advances, the Rate Type; (v) for Bankers Acceptances or LIBOR Advances,
the Term; and (vi) for Bankers Acceptances, identifying information related to
the Letter of Credit, including the amount, the beneficiary, the Letter of
Credit number, if applicable, and such other information requested by the
Bank.

Section 2.6

Funding of Bankers Acceptances.  For Bankers
Acceptances, following the: (a) receipt of an Advance Request Notice, (b) the
proper presentment of a Letter of Credit by the stated beneficiary to the Bank,
(c) the determination by the Bank that the presented Letter of Credit is payable
by the Bank and further provided that (d) the Total Outstandings do not exceed
the Maximum Credit, the Bank shall pay the amount of the presented Letter of
Credit, including any related charges and fees which amount shall become a
Bankers Acceptance, and shall increase the Total Borrowings under the Loan for
such Advances.  Notwithstanding the foregoing, the Bank may pay a properly
presented Letter of Credit and such amount shall become a valid Obligation of
the Borrower as a Bankers Acceptance in the full amount of such Advance (w) with
or without the Borrower’s consent, (x) with or without the Bank having received
an Advance Request Notice, (y) even if such Advance results in an Overadvance
and/or (z) even if such Advance causes the Total Outstandings or Total
Borrowings to exceed the Maximum Credit.  Barring the selection of a Term
by the Borrower, the Term shall be the shortest Term available for Bankers
Acceptances.

Section 2.7

Funding of Credit Advances.  For Credit Advances,
following receipt of an Advance Request Notice, and provided that (a) the sum of
the Total Outstandings plus the amount of the Advance Request does not exceed
the Maximum Credit, and (b) the Borrower is otherwise in compliance with the
Loan Documents, the Bank shall make available to the Borrower: (x) immediately
available funds in the amount in the Currency, pursuant to the information
described in the Advance Request Notice by crediting the Checking Account of the
Borrower; or (y) by remitting such amount in accordance with other instructions
(which shall be reasonably acceptable to the Bank) set forth and provided by the
Borrower to the Bank in the Advance Request Notice (which remittance shall be
subject to the Bank’s fee schedule then in effect, as may be amended from time
to time, for such services).  The amount of the Credit Advances, including
any related charges and fees, shall increase the Total Borrowings under the
Loan.  For LIBOR Advances, barring a selection of a Term by the Borrower,
the Term shall be the shortest Term available for LIBOR Advances.
 Notwithstanding any provision to the contrary in this Agreement, the
Borrower may not request a LIBOR Advance which, if made, would result in an
aggregate of more than ten (10) outstanding LIBOR Advances being outstanding
hereunder at any one time.  For purposes of the foregoing, LIBOR Advances
having Terms commencing or ending on different days shall be considered separate
LIBOR Advances.

Section 2.8

        Letters of
Credit.  Subject to the terms and conditions set forth herein, the Bank
may (a) from time to time on any Business Day from the Closing Date until the
Maturity Date, issue Letters of Credit at the request and for the account of the
Borrower, and to amend Letters of Credit previously issued by it, in accordance
with the requirements of this section set forth below, and (b) honor drawings
under the Letters of Credit which, unless paid by the Borrower from available
funds in its Checking Account, shall become a Bankers Acceptances thereby
increasing the Total Borrowings and reducing the L/C Advances by an amount equal
to the drawing under the Letter of Credit and L/C Fees; provided that
after giving effect to any proposed L/C Advance (i.e.. adding the amount
of the proposed L/C Advance to the Total Outstandings), (y) the L/C Obligations
do not exceed the L/C Sublimit, and (z) the Total Outstandings shall not exceed
the Maximum Credit.  Each request by the Borrower for an L/C Credit
Extension shall be deemed to be a representation by the Borrower that such L/C
Credit Extension requested complies with the conditions set forth in the
preceding sentence.  Within the foregoing limits, and subject to the terms
and conditions hereof, 

12

the Borrower’s ability to obtain Letters of Credit shall be fully
revolving, and the Borrower may, during the foregoing period, obtain Letters of
Credit to replace Letters of Credit that have expired or that have been drawn
upon and reimbursed, except in the following circumstances which apply to all
L/C Advances and L/C Credit Extensions:

(a)

the expiry date of such requested Letter of Credit would occur
more than twelve months after the date of issuance;

(b)

the expiry date of such requested Letter of Credit would occur on
or after the Maturity Date;

(c)

any order, judgment or decree of any governmental authority or
arbitrator shall, by its terms, purport to enjoin or restrain the Bank from
issuing the requested Letter of Credit, or any law applicable to the Bank or any
request or directive (whether or not having the force of law) from any
governmental authority with jurisdiction over the Bank shall prohibit, or
request that the Bank refrain from, the issuance of letters of credit generally
or such Letter of Credit in particular or shall impose upon the Bank with
respect to such Letter of Credit any restriction, reserve or capital requirement
(for which the Bank is not otherwise compensated hereunder) not in effect on the
Closing Date, or shall impose upon the Bank any unreimbursed loss, cost or
expense which was not applicable on the Closing Date and which the Bank in good
faith deems material;

(d)

the issuance of such Letter of Credit would violate one or more
policies of the Bank;  

(e)

unless otherwise agreed to by the Bank, such Letter of Credit is
in an initial face amount less than One Thousand Dollars ($1,000);

(f)

such Letter of Credit is to be denominated in a currency other
than the Currency;

(g)

an Event of Default exists hereunder;

or

(h)

the beneficiary of such Letter of Credit does not accept the
proposed amendment to such Letter of Credit, in the event of an L/C Credit
Extension.

Section 2.9

       Information; Initial
Letter of Credit Applications.  In the case of a request for the
initial issuance of a Letter of Credit, in addition to the information contained
in the Advance Request Notice, the Letter of Credit application shall specify in
form and detail satisfactory to the Bank the following information:

(a)

  the proposed issuance date of the requested Letter of
Credit (which shall be a Business Day);

(b)

the amount of the Letter of Credit;

(c)

the expiry date thereof (which shall be prior to the Maturity
Date);

(d)

the name and address of the beneficiary;

(e)

the documents to be presented by such beneficiary in case of any
drawing thereunder;

(f)

the full text of any certificate to be presented by such
beneficiary in case of any drawing thereunder; and

13

(g)

such other matters as the Bank may require.

Section 2.10

       Information;
Amendments to Letters of Credit.  In the case of a request for an
amendment of any outstanding Letter of Credit, such Letter of Credit Application
shall specify in form and detail satisfactory to the Bank the following
information:

(a)

  a detailed description of the Letter of Credit to be
amended;

(b)

the proposed date of amendment (which shall be a Business
Day);

(c)

the nature of the proposed amendment;

(d)

such other matters as the Bank may reasonably require.

Section 2.11

      Initial Issuances and
Amendments to Letters of Credit.  Provided that the
Borrower has satisfied the terms and conditions of this Agreement, the Bank will
issue a Letter of Credit for the account of the Borrower or enter into the
applicable amendment, as the case may be, in each case in accordance with the
Bank’s usual and customary business practices.

Section 2.12

Conditions Precedent to All Requests to Increase Total
Outstandings.  The request by the Borrower to increase the Total
Outstandings shall, unless otherwise waived by the Bank in advance and in
writing, constitute a representation by the Borrower that (a) no Default or
Event of Default shall have occurred and be continuing; and (b) all
representations and warranties made by any Obligor contained herein or in any
Loan Document shall be true and correct in all material respects with the same
effect as though such representations and warranties had been made on and as of
the date of such request (unless earlier corrected upon written notice to the
Bank in accordance with the terms hereof).

Section 2.13

Break Funding Payments.  In the event of (a) the
payment of any principal of any LIBOR Advance other than on the last day of the
Term applicable thereto (including as a result of the acceleration of the
Obligations upon the occurrence of an Event of Default or at the Maturity Date,
or (b) the requested and permitted conversion of any LIBOR Advance to a Prime
Advance other than on the last day of the Term applicable to such LIBOR Advance,
then, in such event, the Borrower shall compensate the Bank for the loss, costs
and expense attributable to such event.  Such loss, cost or expense to the
Bank shall be deemed to include an amount determined by the Bank to be the
excess, if any, of (i) the amount of interest which would have accrued on the
principal amount of the LIBOR Advance at the applicable LIBOR Advance Rate had
such event not occurred for the period from the date of such event to the last
day of the applicable Term for such LIBOR Advance, over (ii) the amount of
interest which would accrue on such period for dollar deposits of a comparable
amount and period from other banks in the eurodollar market.  A certificate
of any bank setting forth any amount or amounts that the Bank is entitled to
receive pursuant to this section shall be delivered to the Borrower and shall be
conclusive absent manifest error.  The Borrower shall pay the Bank the
amount shown as due on any such certificate within ten (10) days after
receipt.

Section 2.14

Limitations; Overadances.  Notwithstanding anything in
this Agreement to the contrary, the Bank shall be under no obligation to make
any advances which would result in the Total Outstandings exceeding the Maximum
Credit or following the occurrence of an Event of Default.  Without
limiting the Bank’s right to demand payment of the Obligations, or any portion
thereof, in accordance with any other terms of this Agreement, or any supplement
hereto, in the event that the Total Outstandings exceed the Maximum Credit, the
Borrower nonetheless shall remain liable for all Obligations, including
resulting Overadvances which amount shall be immediately due and payable, plus
interest at the Rate or, upon the occurrence of an Event of Default, the Default
Rate.

14

Section 2.15

Payment from Checking Account.  At the Bank’s option,
all principal, interest, fees, commissions, costs, expenses or other charges
with respect to the Loan Documents, this Agreement or any supplements thereof
(all of which shall be cumulative and not exclusive) and any and all loans and
advances made by the Bank to the Borrower may be charged directly to the
Borrower’s Checking Account maintained with the Bank at any time on or after the
date any such amount is due and payable in accordance with the terms of this
Agreement and the other Loan Documents (including upon maturity or acceleration
thereof in accordance herewith and therewith).

Section 2.16

     Loan Account; Bank’s Records.
 The Total Borrowings shall be charged to a loan account in the Borrower’s
name on the Bank’s bookkeeping system (the “Loan Account”).  The Bank shall
render to the Borrower monthly statements of the Borrower’s Loan Account which
shall be considered correct and deemed accepted by, and conclusively binding
upon the Borrower absent manifest error as an account stated, or upon receipt by
the Bank of the Borrower’s written protest or written objection to the statement
of the Loan Account within sixty (60) days from the Bank’s issuance of such
statement.  Upon receipt of such written protest or written objection,
without affecting the Obligors’ Obligations to the Bank, the Bank shall until
the disputed amount is resolved, reduce the amount eligible to be borrowed by
the amount in dispute.

Section 3

 INTEREST, FEES AND PAYMENTS.

Section 3.1

Rate.  The annual interest accruing on Credit Advances
shall be payable at the Rate, which shall be determined by the Borrower’s
selection of the Rate Type at the time of each Advance and, in with regard to
LIBOR Advances, Term.  The annual interest accruing on Bankers Acceptances
shall be payable at the Rate, which shall be determined by the Borrower’s
selection of the Term.  At the time of execution of this Agreement, the
Borrower shall execute the Note attached hereto as Exhibit A.

Section 3.2

Interest on the Loan.  Subject to the provisions of
Section 3.6 (Default Rate Interest), the Borrower shall pay interest on
the Loan in accordance with the terms of the Note and this Section:

(a)

Interest on the principal amount of each outstanding Credit
Advance and Bankers Acceptance shall accrue from day to day from the date of the
Advance, be prorated on the basis of a 360-day year for the actual number of
days in the month that such amounts are outstanding and be payable in arrears on
the first day of the month immediately following the end of the preceding month
for which the interest is being paid.

(b)

The Borrower shall pay interest on the principal amount of the
Total Borrowings, which shall be the aggregation of all interest accruing at the
Rate and applicable to each Advance under the Loan.

Section 3.3

Interest Rate Types; Terms; Elections.  Provided that
the Borrower is in compliance with the terms and conditions of this Agreement
and the Loan Documents and no Event of Default exists (which shall be subject to
any written notice requirements and/or right to cure), the Borrower shall, as
applicable, be permitted to select the Rate Type and Term as follows:

(a)

  

Bankers Acceptances.  Bankers Acceptances shall bear
interest at the Acceptance Rate based upon the Term selected.  Provided
that no Event of Default exists and the Obligors are otherwise in compliance
with the terms of the Loan Documents, the Borrower may, at the expiration of any
selected Term, select another Term, provided that the aggregate Term, including
all extensions from the date of the initial Advance, shall not exceed the BA
Term Limitation.  Upon the expiration of a Term or in the event that the
total length of the Term, including all permitted extensions, is equal to (or
exceeds) the BA Term Limitation, such Bankers Acceptance must be paid in full,
which payment may be made from the Borrower’s funds, available funds in the
Checking Account or through a Credit Advance in accordance with the terms and
conditions of this Agreement, provided that the Borrower is in compliance with
this Agreement and the 

15

Loan Documents and the Total Outstandings do not exceed the
Maximum Credit.  In the event that the Bankers Acceptance is equal to or
exceeds the BA Term Limitation and the Borrower has not paid the Bankers
Acceptance from available funds or through a Credit Advance, the Bank may pay
the Bankers Acceptance in full through an Advance under the Loan (with a Rate
Type and, as applicable, Term to be selected by the Bank, in its discretion) (w)
with or without the Borrower’s consent, (x) with or without the Bank having
received an Advance Request Notice, (y) even if such Advance results in an
Overadvance and/or (z) even if such Advance causes the Total Outstandings or
Total Borrowings to exceed the Maximum Credit.

(b)

Prime Advances.  Prime Advances shall bear interest at
the Prime Advance Rate until the earlier of the Maturity Date or the date on
which each such Credit Advance is paid in full.  Prime Advances do not have
a Term selection requirement.  For any Prime Advance, provided that no
Event of Default exists and the Obligors are otherwise in compliance with the
terms of the Loan Documents, the Borrower may, at any time, select another Rate
Type and, if applicable, a permitted Term available for such Rate Type.

(c)

LIBOR Advances.  LIBOR Advances shall bear interest at
the LIBOR Advance Rate based upon and for the Term selected until the earlier of
the Maturity Date or the date on which each such Credit Advance is paid in full.
 Provided that no Event of Default exists and the Obligors are otherwise in
compliance with the terms of the Loan Documents, the Borrower may, at the
expiration of any selected Term, select another Rate Type and, if applicable, a
permitted Term available for such Rate Type.  If the Term expires without
selection of a new Term, the Term shall be the shortest permitted Term available
for LIBOR Advances.  It is understood by all parties to the Agreement that
the continuation, through a new Terms, or conversion of any LIBOR Advance to a
Prime Advance does not and shall not constitute a payment or repayment and is
solely a mechanism for determining the Rate applicable to such Advance.

Section 3.4

Repayment of Loans.  The Borrower unconditionally
promises to pay the Bank the full amount of the Total Outstandings applicable to
the Loan on the Maturity Date.  The entries made in the Loan Account
maintained by the Bank shall be prima facie evidence of the
existence and amounts of the Obligations recorded therein; provided that any
failure by the Bank to maintain such accounts or any error therein shall not
affect the Obligations of the Obligors to repay the Loan and the Obligations in
accordance with the terms of this Agreement and the Loan Documents.

Section 3.5

Late Payment Premium.  If any portion of any payments
of interest or principal is paid more than ten (10) days after the date that
such payment is due, Borrower shall pay to the Bank a late payment premium
(“Late Payment Premium”), which shall be in an amount equal to the lesser of
five percent (5%) of the amount of such payment or the maximum amount permitted
under applicable law in order to defray the expenses incurred by the Bank in
handling and processing such delinquent payment and to compensate the Bank for
the loss of the use of such delinquent payment.  Any such amounts due under
this section shall be secured by a security interest in the Collateral pursuant
to Section 4 (Security Interests).  The acceptance by the Bank of a
late payment or the Late Payment Premium shall not constitute a waiver of any
Default or Event of Default then existing or arising thereafter pursuant to any
Loan Document.  The Bank’s failure to collect a Late Payment Premium at any
time shall not constitute a waiver of the Bank’s right thereafter, at any time
and from time to time (including without limitation, upon acceleration of the
Note or upon payment in full of the Loan), to collect such previously
uncollected Late Payment Premiums or to collect subsequently accruing Late
Payment Premiums.

Section 3.6

Default Rate Interest.  Upon the occurrence of an
Event of Default (and subject to any written notice requirements and/or right to
cure) or upon the termination of this Agreement, interest on all outstanding
unpaid Obligations shall accrue at a rate equal to five percent (5%) per annum
in excess of the pre-default Rate from the date of such Event of Default,
termination or non-renewal to the date of payment 

16

in full of all Obligations.  All interest accruing hereunder
shall thereafter be payable on demand.  Any such amounts due under this
section shall be secured by a security interest in the Collateral pursuant to
Section 4 (Security Interests).

Section 3.7

 

Calculation; Payment.  Interest shall be calculated as
set forth above and shall be included and set forth in each monthly statement
issued in connection with the Borrower’s Loan Account.  Provided that
sufficient funds are available on deposit, the Bank shall have the right, at the
Bank’s option, to charge all interest to any of the Borrower’s accounts,
including the Checking Account, maintained with the Bank on the first day of
each month, or such other day as the Bank may charge thereafter, and such
interest shall be deemed to be paid by the first amounts subsequently credited
thereto, or as otherwise determined in the Bank’s sole discretion.  Any
such amounts due under this section shall be secured by a security interest in
the Collateral pursuant to Section 4 (Security Interests).

Section 3.8

Limitation.  In no event shall charges constituting of
interest, payable by the Borrower under this Agreement, exceed the rate
permitted under any applicable law or regulation, and if any part or provision
of this Agreement is in contravention of any such law or regulation, such part
or provision shall be deemed amended and the Rate reduced to the maximum allowed
by law for any such interest period.

Section 3.9

Unused Line of Credit Fee.  So long as no Event of
Default exists, the Borrower shall pay to the Bank on a monthly basis during the
period from the Closing Date to the Maturity Date, an unused line of credit fee
(“Unused Line Fee”) in an amount set forth on Schedule 1.35.

Section 3.10

Closing Fee; Closing Legal Fee.  No later than the
Closing Date the Borrower shall pay to the Bank: (a) a closing fee of (“Closing
Fee”); and (ii) legal fees (whether in-house or outside counsel) and costs of
incurred in connection with the negotiation, documentation, execution and
delivery of the loan documentation with regard to this line of credit (the
“Closing Legal Fee”) in the amounts set forth on Schedule 1.35.

Section 3.11

Exam Fees.  The Borrower agrees to pay to the Bank:
(a) monthly fees in connection with the Bank’s monitoring of the Collateral; and
(b) all fees and costs incurred by the Bank in connection with periodic
examinations of the Borrower’s books and records and inspections of the
Collateral pursuant to Sections 4 and 6 (collectively, “Exam Fees”), which
amounts shall, absent an Event of Default, be in the amounts set forth in
Schedule 1.35.

Section 3.12

Line Fees.  In connection with the administration of
the Loan, the Borrower shall pay to the Bank an annual line fee (“Line Fee”) in
the amount set forth in Schedule 1.35.

Section 3.13

Letter of Credit and Collection Fees.  For each Letter
of Credit issued and associated services provided by the Bank in connection
therewith, the Borrower shall pay to the Bank the L/C Fees set forth in
Schedule 1.47.  Upon the Maturity Date, or the occurrence and
continuation of a Default or Event of Default, or on any date that this
Agreement is terminated, the Obligors shall cause cash, in the Currency, to be
deposited and maintained with the Bank, as additional cash collateral, in an
amount equal to one hundred  percent (100%) of the L/C Obligations and the
Borrower irrevocably authorizes the Bank to place a hold on any amounts in the
Checking Accounts to cover such additional cash collateral required.  The
Borrower may not withdraw any amounts described above except upon the payment
and performance in full of all Obligations and termination of this
Agreement.

Section 3.14

Place for Remittance of Payments; Promissory Notes.
 All payments shall be payable at the Bank’s office specified above or at
such other place as the Bank may hereafter designate from time to time and, at
the Bank’s option and upon the Bank’s request, the Borrower shall execute and
deliver to the Bank one or more promissory notes in form and substance
satisfactory to the Bank to further evidence such Advances.
   

17

Section 3.15

Other Fees.  The fees described above relate directly
to the administration of the Loan and are intended to supplement, and not limit,
the various fees related to the Bank’s other financial services and products,
which are reflected on schedules that may be updated and amended from time to
time as determined by the Bank.  Further, the described fees do not include
those additional and other fees, costs and charges that shall be due and owing
upon an Event of Default., such as (without limitation to other such fees, costs
and charges) legal fees.  The Bank shall have the right, at the Bank’s
option, to charge any of the Borrower’s accounts, including the Checking
Account, maintained with the Bank on or after its due date for any of the fees
or charges described in this Section 3.

Section 4

SECURITY INTEREST.

Section 4.1

Collateral.  As security for the prompt performance,
observance and payment in full of all Obligations, the Borrower hereby grants to
the Bank a continuing security interest in, a lien upon and a right of setoff
against, and the Borrower hereby assign, transfer, pledge and set over to the
Bank the following (which together with any of the Borrower’s other property in
which the Bank may at any time have a security interest or lien, whether
pursuant to this Agreement or any supplement hereto, or otherwise, are herein
collectively referred to as the “Collateral”): All of the Borrower’s right,
title and interest in and to all personal property, tangible and intangible,
wherever located or situated and whether now owned, presently existing or
hereafter acquired or created, including, but not limited to all: (a) Accounts;
 (b) Equipment; (c) Inventory; (d) financial assets and investment
property; (e) moneys, securities and other property and the proceeds thereof,
now or hereafter held or received by, or in transit to, the Bank from or for the
Borrower, whether for safekeeping, pledge, custody, transmission, collection or
otherwise, and all of the Borrower’s deposits (general or special), balances,
sums and credits with or in the control of the Bank at any time existing; (f)
rights, remedies, security and liens, in, to and in respect of the Accounts and
other Collateral, including, without limitation, rights of stoppage in transit,
replevin, repossession and reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, guaranties or other contracts of
suretyship with respect to the Accounts and other Collateral, deposits or other
security for the obligation of any Account Debtor, and credit and other
insurance; (g) goods relating to, or which by sale have resulted in, Accounts
including, without limitation, all goods described in invoices, documents,
contracts or instruments with respect to, or otherwise representing or
evidencing, any Accounts or other Collateral, including without limitation, all
returned, reclaimed or repossessed goods; (h) Deposit Accounts (whether or not
maintained with the Bank); (i) books, records (whether paper, computer or
electronic), data, tapes, discs, other media, ledger cards, computer and
software programs, files, access codes, records and procedure manuals relating
thereto, together with all computer or other data processing equipment on which
any of the foregoing is stored, and other property and general intangibles
evidencing or relating to the Accounts, Equipment, Inventory and any other
Collateral or any Account Debtor, together with the file cabinets or containers
in which the foregoing are stored (“Records”); (j) general intangibles of every
kind and description, including without limitation, trade names and trademarks,
and the goodwill of the business symbolized thereby, patents, copyrights,
licenses and federal, state and local tax refund claims of all kinds; (k) letter
of credit rights; (l) commercial tort claims; and (m) supporting obligations and
products and proceeds of the foregoing, in any form, including, without
limitation, insurance proceeds and any claims against third parties for loss or
damage to or destruction of any or all of the foregoing.

Section 4.2

Records.  The Borrower shall keep and maintain, at the
Borrower’s cost and expense, satisfactory and complete books and records of all
Accounts, all payments received or credits granted thereon, and all other
dealings therewith.  At such times as the Bank may request, the Borrower
shall deliver to the Bank copies of all documents evidencing the sale and
delivery of goods or the performance of services which created any Accounts,
including but not limited to all original contracts, orders, invoices, bills of
lading, warehouse receipts, delivery tickets and shipping receipts, and after
the occurrence and during the continuance of any Event of Default, the Borrower
shall at such times as the Bank may request deliver to the Bank the originals of
all such documents, together with schedules describing the Accounts and/or
written 

18

confirmatory assignments to the Bank of each Account, in form and
substance satisfactory to the Bank and duly executed by the Borrower, together
with such other information as the Bank may request.  In no event shall the
making or the failure to make or the content of any schedule or assignment or
the Borrower’s failure to comply with the provisions hereof be deemed or
construed as a waiver, limitation or modification of the Bank’s security
interest in, lien upon and assignment of the Collateral or the Borrower’s
representations, warranties or covenants under this Agreement or any supplement
hereto.

Section 4.3

Further Acts.  To insure the attachment, perfection
and first priority of, and the Bank’s ability to enforce, the Bank’s security
interest in the Collateral, the Borrower agrees, in each case at the Borrower’s
own expense, to take the following actions with respect to the following
Collateral:

(a)

If the Borrower shall at any time hold or acquire any instruments,
promissory notes, documents (common to a business using an outside distribution
center) or tangible chattel paper, the Borrower 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.
 The Borrower will not create any tangible chattel paper without placing a
legend on the chattel paper acceptable to the Bank indicating that the Bank have
a security interest in the chattel paper.

(b)

For each deposit account that the Borrower at any time open or
maintain, the Borrower 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 the Borrower’s further consent.
 Notwithstanding anything to the contrary contained in the foregoing or in
any such agreement with any depositary bank, the Bank agrees that the Bank shall
not give any instructions to any such depositary bank concerning the disposition
of funds in any such account, or instructing any such depositary bank to cease
complying with instructions that the Borrower may provide regarding the
disposition of funds in any such account, unless an Event of Default shall have
occurred and remain continuing hereunder or an event which would result in a
Material Adverse Change.  The provisions of this Section shall not apply to
(i) any deposit account for which the Borrower, the depositary bank and the Bank
have entered into a cash collateral agreement specially negotiated among the
Borrower, 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 Borrower’s
salaried employees.

(c)

If the Borrower shall at any time hold or acquire any certificated
securities, the Borrower 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 Borrower are uncertificated and are issued to
the Borrower or the Borrower’s nominee directly by the issuer thereof, the
Borrower 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, cause the issuer to agree to comply with instructions from the Bank as to
such securities, without the Borrower’s further consent or the consent of such
nominee. Notwithstanding anything to the contrary contained in the foregoing or
in any such agreement with such issuer, the Bank agrees that the Bank shall not
give any instructions as to any such securities unless an Event of Default shall
have occurred and remain continuing hereunder or an event which would result in
a Material Adverse Change.  If any securities, whether certificated or
uncertificated, for unsecured assets or other investment property now or
hereafter acquired by the Borrower are held by the Borrower or the Borrower’s
nominee through a securities intermediary or commodity intermediary, the
Borrower 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, 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, 

19

financial assets 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 the
Borrower’s further consent or the consent of such nominee.  Notwithstanding
anything to the contrary contained in the foregoing or in any such agreement
with any such securities intermediary or (as the case may be) commodity
intermediary, the Bank agrees that the Bank shall not give any entitlement
orders or other instructions to any such securities intermediary or (as the case
may be) commodity intermediary unless an Event of Default shall have occurred
and remain continuing hereunder or an event which would result in a Material
Adverse Change.   The provisions of this paragraph shall not apply to
any financial assets credited to a securities account for which the Bank and/or
its affiliate are the securities intermediary.

(d)

If any goods are at any time in the possession of a bailee, the
Borrower 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 Bank’s
benefit (but not as an agent of the Bank) and shall act upon the Bank’s
instructions, without the Borrower’s further consent.

(e)

If the Borrower 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 Section 16 of the Uniform Electronic Transactions Act as in
effect in any relevant jurisdiction, the Borrower shall promptly notify the Bank
thereof and, at  the Bank’s request, shall take such action as the Bank may
reasonably request to vest in  the Bank’s control, under the UCC, 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, Section
16 of the Uniform Electronic Transactions Act, as so in effect in such
jurisdiction, of such transferable record.

(f)

If the Borrower is at any time a beneficiary under a letter of
credit now or hereafter issued in the Borrower’s favor, the Borrower shall
promptly notify the Bank thereof and, at the Bank’s request and option following
the occurrence and continuation of a Default, the Borrower shall, pursuant to an
agreement in form and substance satisfactory to the Bank, either arrange for the
issuer and any confirmer 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
 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 in reduction of the Obligations, or
to be held as Collateral, as the Bank in its sole discretion shall deem
appropriate.

(g)

 

If the Borrower shall at any time hold or acquire a commercial
tort claim, the Borrower shall immediately notify the Bank in a writing signed
by the Borrower 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.

Section 5

CLOSING AND CONDITIONS PRECEDENT.

Section 5.1

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

(a)

Delivery of Documents.  The Borrower shall have
delivered, or caused to be delivered, to the Bank the following:

(i)

this Agreement, the Note and each of the other Loan Documents all
properly executed by Responsible Officers of the Obligors;

20

(ii)

certified copies of (A) resolutions of the Borrower’s board of
director’s (or equivalent governing body) authorizing the execution, delivery
and performance of this Agreement, the Note to be issued hereunder and each of
the other Loan Documents required to be delivered by any Section hereof, (B) the
Borrower’s articles of incorporation and by-laws and (C) the Borrower’s
certification of good standing issued by the Secretary of State of the
jurisdiction of its incorporation which shall be dated no earlier than sixty
(60) days from the Closing Date;

(iii)

an incumbency certificate identifying all persons authorized to
sign on the Borrower’s behalf, with specimen signatures;

(iv)

such financial statements, reports, certifications and other
operational information as the Bank may reasonably require, satisfactory in all
respects to the Bank, including but not limited to the most recent: (A)
quarterly accounts receivable aging report, (B) quarterly inventory report, (C)
internally prepared quarterly financial statement, (D) audited financial
statement for the prior year and (E) field examination report;

(v)

payment by the Borrower of all fees including, without limitation,
associated with the Loan;

(vi)

a fully executed pay-off letter, confirming that the repayment in
full of, and the termination of any commitments to make extensions of credit
under, all of the outstanding indebtedness owing to the Refinanced Lender,
including satisfactory language that upon payment of the amount listed therein
that the Refinanced Lender shall terminate or grant necessary authority to
terminate and release all of its financings statements, mortgages, assignments
of leases and rents, security interests in all assets and other instruments in
order to release all of the assets of the Borrower, including the
Collateral;

(vii)

subordination agreement in the form attached hereto as Exhibit
F providing for the subordination of the outstanding loan by the Borrower to
the referenced subordinating creditor;

(viii)

 

searches and certificates required under Section 4; and

(ix)

 

such other documents reasonably required by the Bank.

(b)

As of the Closing Date, no Default or Event of Default under the
Loan Documents, which includes this Agreement, shall have occurred or be
continuing.

(c)

The Bank shall have received and be satisfied in all respects with
the field examination of the Borrower’s books and records.

(d)

A financing statement and any necessary assignments of Government
Accounts having been filed and acknowledged by the U.S. within a reasonable
period of time following the Closing Date.  

(e)

The warranties and representations contained in Section 6 as well
as any other Section of this Agreement shall be true and correct in all respects
on the Closing Date with the same effect as 

21

though made on and as of that date.  The Borrower shall not
have taken any action or permitted any condition to exist which would have been
prohibited by any Section of this Agreement.

(f)

  The Borrower shall have performed and complied with
all agreements, covenants and conditions contained herein including, without
limitation, the provisions of Section 6 hereof, which are required to be
performed or complied with by the Borrower before or at the Closing Date.

(g)

  The Bank shall have completed and be satisfied in all
respects with a due diligence investigation of the Borrower’s business.

(h)

  In accordance with the language in Section 6
applicable to insurance, the Bank shall have received evidence of insurance
coverage for the Borrower’s inventory, which shall be in an amount of no less
than the Coverage Amount, and shall be issued from an acceptable insurer and in
form, scope and substance satisfactory to the Bank and either (i) the Bank shall
be named as the loss payee or sole beneficiary under such policy, or (ii) the
Borrower shall have provided the Bank with evidence that no less than the
Coverage Amount of the proceeds of such policy shall have been collaterally
assigned to the Bank pursuant to the insurer’s standard form of collateral
assignment.  The Borrower consents to the Bank contacting the insurer to
confirm, in its discretion, the foregoing.

(i)

  The Bank shall not have become aware prior to the
Closing Date of any material adverse condition or Material Adverse Change in or
affecting the Borrower’s business, operations, property or condition (financial
or otherwise).

(j)

Except for financing statements described and identified in
connection with Permitted Liens, no financing statement or assignments pursuant
to the Assignment of Claims Act of 1940, as amended, covering any of the
Collateral or any proceeds thereof is on file in any public office.

Section 5.2

The making of Advances under this Agreement in any form following
the Closing Date is subject to the following conditions precedent (all
instruments, documents and agreements to be in form and substance satisfactory
to Lender and its counsel) following the Closing Date:

(a)

This Agreement and each of the other Loan Documents shall be
effective;

(b)

No event or condition shall have occurred or become known to the
Borrower since the Closing Date, or would result from the making of any
requested Advance, which could have a material adverse effect;

(c)

No Default or Event of Default then exists or after giving effect
to the making of the Advance would exist;

(d)

Each Advance is within and complies with the terms and conditions
of this Agreement including; and

(e)

Each representation and warranty set forth in Section 6 and any
other Loan Document in effect at such time (as amended or modified from time to
time) is then true and correct in all material respects as if made on and as of
such date except to the extent such representations and warranties are made only
as of a specific earlier date.

Section 6

 REPRESENTATIONS, WARRANTIES AND COVENANTS.

Section 6.1

The Borrower represents, warrants and covenants to the Bank the
following (which shall survive the execution and delivery of this Agreement),
the truth and accuracy of which, or compliance 

22

with, being a continuing condition of the making of the Loan
hereunder by the Bank or under any supplement hereto:

(a)

Perfection Certificate.  The Borrower have delivered
to the Bank a certificate signed by the Borrower and entitled "Perfection
Certificate" (the "Perfection Certificate") annexed hereto as Exhibit C.
 The Borrower represent and warrant to the Bank as follows:
 the Borrower’s exact legal name is that indicated on the Perfection
Certificate and on the first and signature pages hereof;  the Borrower is
 an organization of the type and organized in the jurisdiction set forth in
the Perfection Certificate;  the Perfection Certificate accurately sets
forth the Borrower’s organizational identification number or accurately states
that the Borrower have none;  the Perfection Certificate accurately sets
forth the Borrower’s place of business or, if more than one, the Borrower’s
chief executive office as well as the Borrower’s mailing address if different;
 the Perfection Certificate accurately sets forth the location of all
Collateral; and  all other information set forth in the Perfection
Certificate pertaining to the Borrower is accurate and complete.  The
Borrower shall promptly notify the Bank in writing if any of the information set
forth in the Perfection Certificate has changed and the nature of such
change.

(b)

  Name; Address; Organization.  Without the
prior written notice to and consent from the Bank, the Borrower will not: (i)
change the Borrower’s name, the Borrower’s place of business or, if more than
one, chief executive office; (ii) change the Borrower’s mailing address or
organizational identification number if it has one; and (iii) the Borrower will
not change the Borrower’s type of organization, jurisdiction of organization or
other legal structure.  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.

(c)

  Collateral.  The Borrower is the owner of
the Collateral, which shall be free from any lien following funding and payment
of such indebtedness secured by prior liens on the Closing Date, security
interest or other encumbrance, except for the security interest created by this
Agreement, set forth in the Perfection Certificate or any Permitted Lien set
forth on Schedule 1.70; none of the Collateral constitutes, or is the
proceeds of, "farm products" as defined under the UCC; none of the
Account Debtors or other persons obligated on any of the Collateral is a
governmental authority subject to the Federal Assignment of Claims Act or like
federal, state or local statute or rule in respect of such Collateral; the
Borrower hold no commercial tort claim, except as indicated in the Perfection
Certificate; the Borrower have at all times operated the Borrower’s business in
compliance with all applicable provisions of the federal Fair Labor Standards
Act, as amended, and with all applicable provisions of federal, state and local
statutes and ordinances dealing with the control, shipment, storage or disposal
of hazardous materials or substances; and  all other information set forth
in the Perfection Certificate pertaining to the Collateral is accurate and
complete.  The Borrower shall, upon the Bank’s request, cause the holder of
any security interest (except for any Permitted Liens) other than the Bank to
terminate same or enter into a subordination agreement acceptable to the
Bank.

(d)

Access to Collateral; Records.  The Borrower agrees
that so long as any Obligations to the Bank remain outstanding the Bank or the
Borrower’s representatives shall have free access to and right of inspection of
the Collateral and have full access to and the right to examine and make copies
of the Borrower’s Records, to confirm and verify all Accounts, to perform
general examinations and to do whatever else the Bank deems necessary to protect
the Bank’s interests.  The Borrower further agrees that the Bank may at any
time after the occurrence and during the continuation of an Event of Default or
an event which would result in a Material Adverse Change remove from the
Borrower’s premises or require the Borrower or any accountants and auditors
employed by the Borrower to deliver any Records and the Bank may, without cost
or expense to the Bank, be provided with access to the Borrower’s personnel,
supplies, computer equipment and space at the Borrower’s places.

23

(e)

  Collateral Location.  The Collateral, to
the extent not delivered to the Bank pursuant to Section 4.3, will be kept at
those locations listed on the Perfection Certificate and the Borrower will not,
except in the ordinary course of business, remove the Collateral from such
locations, without providing at least thirty (30) days’ prior written notice to
the Bank; except for the security interest herein granted, the Borrower
shall be the owner of the Collateral free from any lien, security
interest or other encumbrance, except for the security interest created by this
Agreement or as set forth in the Perfection Certificate or any Permitted Lien,
and the Borrower shall defend the same against all claims and demands of all
persons at any time claiming the same or any interests therein adverse to the
Bank;  the Borrower shall not pledge, mortgage or create, or suffer to
exist a security interest in the Collateral in favor of any person other than
the Bank;  the Borrower will keep the Collateral in good order and
repair, ordinary wear and tear excepted, and will not use the same in violation
of law or any policy of insurance thereon; the Borrower will pay promptly when
due all taxes, assessments, governmental charges and levies upon the Collateral
or incurred in connection with the use or operation of such Collateral or
incurred in connection with this Agreement; the Borrower will continue to
operate the Borrower’s business in material compliance with all applicable
provisions of the federal Fair Labor Standards Act, as amended, and with all
applicable provisions of federal, state and local statutes and ordinances
dealing with the control, shipment, storage or disposal of hazardous materials
or substances;  the Borrower will not sell or otherwise dispose, or offer
to sell or otherwise dispose, of the Collateral or any interest therein, except
for (i) sales of inventory in the ordinary course of the Borrower’s business and
(ii) sales of Borrower’s obsolete or worn-out  equipment or equipment that
has been fully depreciated and which in any such case is no longer needed or
useful in the conduct of the Borrower’s business; the Borrower will permit the
Bank’s representatives, upon reasonable notice (and at any time following the
occurrence of an Event of Default or the Maturity Date) to inspect the tangible
Collateral and to review and make copies of the Borrower’s Records pertaining to
the Collateral, all at the Borrower’s expense, which shall be deemed part of the
Obligations; and  the Borrower agrees, upon the Bank’s demand after (i) an
Event of Default shall have occurred and remain continuing hereunder, or (ii) an
event which would result in a Material Adverse Change in the Collateral, to
deliver to the Bank additional Collateral satisfactory to the Bank and/or to
make such payment on account of the Obligations as will be satisfactory to the
Bank, in the event the market value of any of the Collateral declines and/or any
change occurs in the marketability thereof and/or any of the Collateral shall,
for any reason, be deemed unsatisfactory to the Bank.
     

(f)

Location of Records.  The Borrower’s Records and chief
executive office are maintained at the address referred to in the Perfection
Certificate.  The Borrower shall not change such location without providing
prior written notice to and receiving written consent from the Bank prior
to making any such change.  The Borrower further agrees to execute any
additional documents and consent to the filing of financing statements or other
documents or notices which the Bank may require.

(g)

Maintenance of Records.  The Borrower shall maintain
the Borrower’s Records, which shall include but not be limited to shipping
forms, invoices and other related documents in a form satisfactory and the
books, records and accounts, in accordance with generally accepted accounting
principles consistently applied.

(h)

Financial Reporting.  The Borrower agrees to furnish
the Bank the following financial information: 

(1)

  audited financial statements for the Guarantor
and its subsidiaries, including the Borrower, on a consolidated basis on an
annual basis audited by independent public accountants. Such statements shall be
without material exception or qualification. All such statements and information
shall fairly present in all material respects the Guarantor’s and Borrower’s
financial condition as of the dates and the results of the Guarantor’s and
Borrower’s operations for the periods, for which the same are furnished and
shall be delivered to the Bank as soon as available and in any 

24

event within: (a) one hundred and twenty (120) days after the
Guarantor’s and Borrower’s fiscal year end; and internally prepared statements
observed by independent public accountants (b) sixty (60) days following the end
of each fiscal quarter ;

(2)

  within twenty (20) days after each month quarter end,
monthly accounts receivable reports with agings;

(3)

within ten (10) days after each month end, a current Borrowing
Base and Certificate in the form attached hereto as Exhibit D, executed
by a Responsible Person denoting Eligible Accounts and Eligible Inventory Amount
along with an accounts receivable aging;

(4)

copies of the Borrower’s annual tax return within sixty (60) days
of filing;  and

(5)

  at any time or from time to time with such other
information regarding the Borrower’s business affairs and financial condition as
the Bank may reasonably request, including, without limitation, balance sheets,
statements of profit and loss, financial statements, cash flow and other
projections, earnings forecasts, schedules, agings and reports.  The
Borrower hereby irrevocably authorizes and directs (and agrees to indemnify such
parties for their reliance upon this section) all accountants, auditors or other
third parties to deliver to the Bank, at the Borrower’s expense, copies of the
Borrower’s financial statements, papers related thereto, and other accounting
records of any nature in their possession and to disclose to the Bank any
information they may have regarding the Borrower’s business affairs and
financial conditions.   Any documents, schedules, invoices or other
papers delivered to the Bank may, in the Bank’s sole discretion, be destroyed or
otherwise disposed of by the Bank in accordance with its record retention
policies or practices.  

(i)

Eligible Accounts.  Each of the Eligible Accounts
represents a valid and legally enforceable indebtedness based upon an actual and
bona fide sale and delivery of goods or rendition of services in the ordinary
course of the Borrower’s business which has been finally accepted by the Account
Debtor and for which the Account Debtor is unconditionally liable to make
payment of the amount stated in each invoice, document or instrument evidencing
the Eligible Account in accordance with the terms thereof, without offset,
defense or counterclaim and will be paid in full at maturity.  All
statements made and all unpaid balances appearing in the invoices, documents and
instruments evidencing each Eligible Account are true and correct and are in all
respects what they purport to be and all signatures and endorsements that appear
thereon are genuine and all signatories and endorsers have full capacity to
contract and each Account Debtor is solvent and financially able to pay in full
the Eligible Account when it matures.  None of the transactions underlying
or giving rise to any Account shall violate any state or federal laws or
regulations, and all documents relating to the Accounts shall be legally
sufficient under such laws or regulations and shall be legally enforceable in
accordance with their terms and all recording, filing and other requirements of
giving public notice under any applicable law have been duly complied with.

(j)

Insurance.  The Borrower shall at all times maintain,
with financially sound and reputable insurers, casualty and hazard insurance
with respect to the Collateral for not less than its full market value and
against all risks to which it may be exposed.  All such insurance policies
shall be in such form, substance, amounts and coverage as may be satisfactory to
the Bank and shall provide for ten (10) days minimum prior cancellation notice
in writing to the Bank.  At any time after the occurrence and during the
continuance of an Event of Default hereunder or an event which would result in a
Material Adverse Change, the Bank may act as attorney for the Borrower in
obtaining, adjusting, settling, amending and canceling such 

25

insurance.  The Borrower shall promptly (a) obtain
endorsements to all existing and future insurance policies with respect to the
Collateral specifying that the proceeds of such insurance shall be payable to
the Bank and the Borrower as the Borrower’s interests may appear and further
specifying that the Bank shall be paid regardless of any act, omission or breach
of warranty by the Borrower, (b) deliver to the Bank an original executed copy
of the certificate of the insurance carrier with respect to such endorsement
and, at the Bank’s request, the original or a certified duplicate copy of the
underlying insurance policy, and (c) deliver to the Bank such other evidence
which is satisfactory to the Bank of compliance with the provisions hereof.

(k)

Notification of Loss, Damages or Claims.  The Borrower
shall promptly notify the Bank in writing of the details of any loss, damage,
investigation, action, suit, proceeding or claim relating to the Collateral
resulting in a loss or damage to the Collateral or seeking damages in excess of
$250,000.00 or which would result in any Material Adverse Change in the
Borrower’s business, properties, assets, goodwill or condition, financial or
otherwise.

(l)

Application of Insurance Proceeds.  At the Bank’s
option, the Bank may apply any insurance monies received at any time to the cost
of repairs to or replacement of the Collateral and/or to payment of any of the
Obligations, whether or not due, in any order and in such manner as the Bank, in
the Bank’s sole discretion, may determine, provided that, in the case of any
insurance monies received in connection with any one casualty event that do not
exceed $250,000.00 and further provided that an Event of Default does not exist,
the Bank shall return any such insurance moneys to the Borrower and the Borrower
will use such moneys to repair or replace the Collateral that was the subject of
such casualty event.

(m)

Periodic Collateral Examinations.

  The Borrower shall deliver to the Bank each year, or
upon the Bank’s request, at any time and from time to time, if an Event of
Default shall have occurred and remain continuing hereunder or a Material
Adverse Change shall have occurred, an
examination report of the Collateral from an independent examiner selected by
the Bank and paid by the Borrower, provided that nothing contained in the
foregoing shall limit the Bank’s rights to obtain an appraisal of the value of
the Collateral the Bank’s own cost and expense from time to time and at any
time.

Section 6.2

Equipment; Maintenance; Use; Prohibitions.  The
Borrower shall, at the Borrower’s own expense, keep the Equipment in first class
order, repair, running and marketable condition ordinary wear and tear excepted.
 The Borrower shall (a) use, store and maintain the Equipment with all
reasonable care and caution, and (b) use the Equipment for lawful purposes only
and in conformity with applicable laws, ordinances and regulations.  The
Equipment is and shall be used in the Borrower’s business and not for personal,
family, household or farming use.  The Equipment is now and shall remain
personal property and the Borrower shall not permit any of the Equipment to be
or become a part of or affixed to real property without (a) prior written notice
to the Bank and  the Bank’s written consent and (b) first making all
arrangements, and delivering or causing to be delivered to the Bank, such
agreements and other documentation requested by the Bank for the protection and
preservation of the Bank’s security interests and liens, in form and
satisfactory to the Bank, including, without limitation, waivers and
subordination agreements by any landlords or mortgagees of statutory and
non-statutory liens and rights of distraint.  The Borrower assumes all
responsibility and liability arising from or relating to the use, sale or other
disposition of the Equipment.

Section 6.3

Payment of Taxes, Assessments, Charges.  The Borrower
shall duly pay and discharge all taxes, assessments, contributions and
governmental charges upon or against the Borrower or the Borrower’s properties
or assets prior to the date on which penalties attach thereto unless such taxes,
assessments, contributions or charges are being properly contested pursuant to
appropriate proceedings and for which adequate reserves have been established.
 The Borrower shall be liable for any tax or penalty imposed upon any
transaction under this Agreement or any supplement hereto or giving rise to the
Accounts or any other Collateral or which the Bank may be required to withhold
or pay for any reason and the Borrower agrees to 

26

indemnify and hold the Bank harmless with respect thereto, and to
repay to the Bank on demand the amount thereof, and until paid by the Borrower
such amount shall be added to and deemed part of the Obligations owed to the
Bank by the Borrower.

Section 6.4

Investigations, Actions, Proceedings and Claims.
 Except as otherwise disclosed to the Bank in writing, there is no
present investigation by any governmental agency pending or threatened against
the Borrower and there is no action, suit, proceeding or claim pending or
threatened against the Borrower or the Borrower’s assets or goodwill, or
affecting any transactions contemplated by this Agreement, or any supplement
hereto, or any agreements, instruments or documents delivered in connection
herewith or therewith before any court, tribunal, arbitrator, or governmental or
administrative body or agency which if adversely determined with respect to the
Borrower would result in any Material Adverse Change in the Borrower’s business,
properties, assets, goodwill, or condition, financial or otherwise.

Section 6.5

Authorization; Compliance with Laws.  The execution,
delivery and performance of this Agreement, any supplement hereto, or any
agreements, instruments and documents executed and delivered in connection
herewith, are within the Borrower’s powers, have been duly authorized, are not
in contravention of law or the terms of the Borrower’s Charter, By-Laws,
Certificate of Formation, Operating Agreement, or other
incorporation/organizational papers, or of any indenture, agreement or
undertaking to which the Borrower are a party or by which the Borrower are
bound.

Section 6.6

Determination that LIBOR Rate Lending Unlawful.  If
the Bank shall determine (which determination shall, upon notice to the Obligors
be conclusive and binding on the Obligors) that the introduction of or any
change in or in the interpretation of any law, rule, regulation or guideline
(whether or not having the force of law) makes it unlawful, or any central bank
or other governmental authority assets that it is unlawful, for the Bank to
make, continue or maintain any LIBOR Loan as, or to convert any loan into, a
LIBOR Loan of a certain duration, (a) the Bank promptly shall given written
notice of such circumstance to the Borrower (which notice may be withdrawn
whenever such circumstances no longer exist), (b) the obligations of the Bank to
make, continue, maintain or convert into any such LIBOR Loans shall, upon such
determination, be suspended until the Bank shall notify the Borrower that the
circumstances causing such suspension no longer exist, and (c) upon such notice,
all LIBOR Advances shall automatically convert into Prime Advances at the end of
the then current Term for each such Advance or sooner, if required by law or as
determined by the Bank, in its discretion.

Section 6.7

Further Acts.  The Borrower shall, at the Borrower’s
expense, duly execute and deliver, or shall cause to be duly executed and
delivered, such further agreements, instruments and documents, including,
without limitation, additional security agreements, mortgages, deeds of trust,
deeds to secure debt, collateral assignments, Uniform Commercial Code financing
statements or amendments or continuations thereof, landlord's or mortgagee's
waivers of liens and consents to the exercise by the Bank of all the Bank’s
rights and remedies hereunder, under any supplement hereto or applicable law
with respect to the Collateral, and do or cause to be done such further acts as
may be necessary or proper in the Bank’s opinion to evidence, perfect, maintain
and enforce the Bank’s security interest and the priority thereof in the
Collateral and to otherwise effectuate the provisions or purposes of this
Agreement or any supplement hereto.  Where permitted by law, the Borrower
hereby authorizes the Bank to execute and file one or more financing statements
and amendments thereto signed only by the Bank.

Section 6.8

Minimum Capital Funds.  The Borrower agrees that so
long as any Obligations to the Bank remain outstanding to maintain minimum
Capital Funds of not less than Two Million Two Hundred Thousand Dollars
($2,200,000.00).

Section 6.9

 

Omitted.

27

Section 6.10

Leverage Ratio.  The Borrower agrees that, so long as
any Obligations to the Bank remain outstanding, total unsubordinated liabilities
divided by tangible capital funds (defined as net worth plus subordinated debt
minus intangible assets) shall at no time exceed 2.0:1

Section 6.11

Additional Indebtedness; Investments or Loans to Affiliates.
 The Borrower agrees that so long as any Obligations to the Bank remain
outstanding that the Borrower shall not, without the Bank’s prior written
consent (which consent will not be unreasonably withheld), incur additional
indebtedness other than (i) for the purchase of equipment in the normal course
of the Borrower’s business, (ii) invest or extend loans in or to affiliated
companies, subsidiaries, and/or officers, directors or shareholders or (iii)
other than for the business operations of the Guarantor.  The Borrower
represents and warrants that, other than the Obligations contemplated by this
Agreement, the outstanding indebtedness owing by the Borrower and its affiliated
companies and subsidiaries is set forth on Schedule 6.11.

Section 6.12

Net Loss.  The Borrower agrees that so long as any
Obligations to the Bank remain outstanding that the Borrower shall not incur a
net loss (on a combined basis) in any fiscal year determined for Borrower and
its subsidiaries on a consolidated basis.

Section 6.13

Other Investments.  The Borrower agrees that so long
as any Obligations to the Bank remain outstanding that the Borrower shall not,
without the Bank’s prior written consent, make, or allow to remain outstanding
any investment (whether such investment shall be of character of investment in
shares of stock, evidences of indebtedness or other securities or otherwise) in,
or any loans or advances to, any individual or entity.

Section 6.14

Checking Accounts.  The Borrower agrees that so long
as any Obligations to the Bank remain outstanding that  the Borrower shall
(i) maintain with the Bank the Checking Account, and (ii) not maintain any bank
accounts at financial institutions (other than with the Bank) without the Bank’s
prior written approval and, in the case where the Bank grants such prior written
approval, subject to such financial institution entering into a Deposit Account
Control Agreement in form and substance satisfactory to the Bank in its sole
absolute discretion.

Section 6.15

Dividends; Distributions.  The Borrower agrees that,
so long as any Obligations to the Bank remain outstanding, commencing with
fiscal year 2008 the Borrower shall not pay, declare, make or become obligated
to make any dividend or distribution to any of the Borrower’s subsidiaries,
parent or shareholders, except that the Borrower may: (i) continue to repay the
quarterly installments of $75,000.00 to Subordinated Creditor in connection with
the Subordinated Loan and (ii) payment of the Guarantor’s presently existing
convertible debt and Guarantor’s income taxes plus such other payments that are
no greater than $50,000 per item and $500,000 per fiscal year in the aggregate,
provided that with regard to the payments described in subsections as noted on
Schedule 6.11 (i) and (ii): (x) no uncured or Event of Default exists;
(y) the Borrower is in compliance with the minimum capital funds requirement set
forth in Section 6.8;

Section 6.16

Prohibited Transactions.  The Borrower agrees that so
long as any of the Obligations to the Bank remain outstanding that the Borrower
shall not without the Bank’s prior written consent, which consent shall not be
unreasonably withheld, (i) acquire all or a material portion of the shares,
interests, participations or other equivalents (however designated) of capital
stock of a corporation, or any and all other ownership interests in an entity
(other than a corporation) in any one transaction or series of related
transactions or enter into any sale and leaseback transaction, or (ii) merge or
consolidate with any other entity or commence a dissolution or liquidation.

Section 6.17

No Material Adverse Change.  The Borrower represents
and warrants that there has been no Material Adverse Change with respect to the
business, operations, performance, assets, properties, condition (financial or
otherwise) or prospects of the business of Borrower.  Both before and after
making the Loan hereunder, the Borrower will be solvent, able to pay the
Borrower’s debts as they mature, the 

28

Borrower will have capital sufficient to carry on the Borrower’s
business and all businesses in which the Borrower is engaged, and both as of and
subsequent to the Closing Date, the fair present saleable value of the
Borrower’s assets, calculated on a going concern basis, is in excess of the
amount of the Borrower’s liabilities.

Section 6.18

Regulations T, U and X.  The Borrower is not engaged
principally, or as one of the Borrower’s important activities, in the business
of extending credit for the purpose of purchasing or carrying any margin stock.
 No part of the proceeds of the Loan will be used, directly or indirectly,
whether immediately, incidentally or ultimately (a) to purchase or carry any
margin stock or to extend credit to others for the purpose, in each case,
violative of or inconsistent with any of the provisions of any regulation of the
Board of Governors of the Federal Reserve System, including, with out
limitation, Regulations T, U and X.

Section 6.19

The Borrower is not, nor will the Borrower during the term of this
 Agreement be, (a) an “investment company”, within the meaning of the
Investment Company Act of 1940, as amended, or (b) subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act or any
foreign, federal or local stature or any other applicable law of the United
States of America or any other jurisdiction, in each case limiting its ability
to incur indebtedness for money borrowed as contemplated hereby or by any other
Loan Document.

Section 6.20

The Borrower represents that neither the Borrower nor any
shareholder of the Borrower is (i) a person whose property or interest in
property is blocked or subject to blocking pursuant to section 1 of Executive
Order 13224 of September 23, 2001 Blocking Property and Prohibiting
Transactions With Persons Who Commit, Threaten to Commit or Support Terrorism
(66 Fed. Reg. 49079 (2001), (ii) engaged in any dealings or transactions
prohibited by section 2 of such executive order, or is otherwise associated with
any such person in any manner violative of section 2 of such executive order, or
(iii) a person on the list of Specially Designated Nationals and Blocked Persons
or subject to the limitations or prohibitions under any other U.S. Department of
Treasury’s Office of Foreign Assets Control regulation or executive order.

Section 6.21

The Borrower is not involved in any activity, directly or
indirectly, which would constitute a violation of applicable laws concerning
money laundering, the funding of terrorism or similar activities.  No part
of the proceeds of the Loan will be used to fund activities which would
constitute a violation of the United States Bank Secrecy Act, the United States
Money Laundering Control Act of 1986, the United States International Money
Laundering Abatement and Anti-terrorist Financing Act of 2001.

Section 7

GUARANTY.

Section 7.1

     Guaranty.  Each
Guarantor hereby, jointly and severally, irrevocably, absolutely and unconditionally guarantees to the Bank, its
successors, endorsees, transferees and assigns the prompt and complete payment
by the Borrower, as and when due and payable (whether at stated Maturity or by
required prepayment, acceleration, demand or otherwise), of all Obligations and
agrees to pay on demand any and all expenses (including counsel fees and
expenses, whether incurred by outside counsel or the equivalent market rate of
counsel that are employees of the Bank) which
may be paid or incurred by any Bank in connection with the administration
of the Loan, collecting any or all of the Obligations and/or enforcing any
rights under any of the Loan Documents or under the Obligations.

Section 7.2

Guarantor’s Guaranty Obligations Unconditional.

(a) Each Guarantor hereby guarantees that the Obligations will be
paid strictly in accordance with the terms of the Loan Documents, regardless of
any law now or hereafter in effect in any jurisdiction affecting any such terms
or, the rights of the Bank with respect thereto. The Obligations and liabilities
of each Guarantor under this Guaranty shall be to the extent permitted by
applicable law absolute and unconditional irrespective of: (i) any lack of
validity or enforceability of any of the Obligations, any Loan Documents, or any
agreement or instrument relating thereto; (ii) any change in the time, manner or
place of payment of, or in any 

29

other term in respect of, all or any of the Obligations, or any
other amendment or waiver of or consent to any departure from any Loan Documents
or any other documents or instruments executed in connection with or related to
the Obligations; (iii) any exchange or release of, or non-perfection of any Lien
on or in, any Collateral, or any release or amendment or waiver of or consent to
any departure from any other Guaranty, for all or any of the Obligations; or
(iv) any other circumstances which might otherwise constitute a defense (other
than indefeasible payment in full) available to, or a discharge of, Borrower or
any other Guarantor in respect of the Obligations of any Guarantor in respect of
this Guaranty.

(b) 

This Guaranty is a continuing guaranty and shall remain in full
force and effect until: (i) the payment in full of all the Obligations and the
termination of the Agreement; and (ii) the payment of the other expenses to be
paid by the Guarantors pursuant hereto. This Guaranty shall continue to be
effective or shall be reinstated, as the case may be, if, at any time, any
payment, or any part thereof, of any of the Obligations is rescinded or must
otherwise be returned by the Bank upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of Borrower and/or any Guarantor or otherwise, all
as though such payment had not been made, but in no event shall the Guaranty
continue beyond the later of four years from the last of any payments made
pursuant to subsections (i) or (ii) set forth immediately above.

(c) 

The Obligations and liabilities of each Guarantor under this
Guaranty shall not be conditioned or contingent upon the pursuit by the Bank or
any other person at any time of any right or remedy against Borrower or any
other Obligors which may be or become liable in respect of all or any part of
the Obligations or against any Collateral, security, Guaranty or right of setoff
with respect thereto.

(d)

Each Guarantor hereby consents that, without the necessity of any
reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Obligations made
by the Bank may be rescinded by the Bank and any of the Obligations continued
after such rescission.

Section 7.3

Waivers.

To the extent permitted by applicable law, each Guarantor hereby
waives: (a) promptness and diligence; (b) notice of or proof of reliance by the
Bank upon this Guaranty or acceptance of this Guaranty; (c) notice of the
incurrence of any Obligation by Borrower or the renewal, extension or accrual of
any Obligation; (d) notice of any actions taken by the Bank, Borrower, any
Obligor or any other party under any Loan
Document, or any other agreement or instrument relating to the
Obligations; (e) all other notices, demands and protests, and all other
formalities of every kind other than such as are provided for in the Loan
Documents in connection with the enforcement of the Obligations or of the
Guaranty Obligations of any Guarantor, the omission of or delay or which, but
for the provisions of this Section, might constitute grounds for relieving any
Guarantor of its obligations hereunder; and (f) any requirement that the Bank
protect, secure, perfect or insure any lien on any Collateral or property
subject thereto or exhaust any right or take any action against Borrower, any
Obligor, any other person or party or any Collateral.

Section 7.4

Subrogation; Subordination.

Each Guarantor agrees that it defers any rights which it may
acquire by way of subrogation under this Guaranty, whether acquired by any
payment made hereunder, by any setoff or application of funds of such Guarantor
by the Bank or otherwise until the Obligations have been paid in full.
 Further, each Guarantor agrees and acknowledges that any right to payment,
and any liens securing such payments, that such Guarantor has or shall have
against the Borrower and any other Guarantor shall be , at all times,
subordinate in all aspects, including extent, validity and priority, to the
rights of the Bank.

Section 8

SPECIFIC POWERS.

Section 8.1

The Borrower hereby constitutes the Bank and any agent or designee
of the Bank, as the Borrower’s attorney-in-fact, at the Borrower’s own cost and
expense, to exercise at any time all or any of the following powers (provided
that, in the case of the powers described in clauses (b), (d) and (e), such 

30

powers may only be exercised after the occurrence and during the
continuance of an Event of Default following notice to cure or an event which
would result in a Material Adverse Change) which, being coupled with an
interest, shall be irrevocable until all Obligations have been paid in full: (a)
to receive, take, endorse, assign, deliver, accept and deposit, in the Bank’s or
the Borrower’s name, any and all checks, notes, drafts, remittances and other
instruments and documents relating to the Collateral; (b) to receive, open and
dispose of all mail addressed to the Borrower and to notify postal authorities
to change the address for delivery thereof to such address as the Bank may
designate; (c) to transmit to Account Debtors notice of the Bank’s interest
therein and to request from such Account Debtors at any time, in the Bank’s or
the Borrower’s name or that of the Bank’s designee, information concerning the
Accounts and the amounts owing thereon; (d) to notify Account Debtors to make
payment directly to the Bank; (e) to take or bring, in the Bank’s or the
Borrower’s name, all steps, actions, suits or proceedings deemed by the Bank
necessary or desirable to effect collection of the Collateral; and (f) to
execute in the Borrower’s name and on the Borrower’s behalf and file any UCC
financing statements or amendments thereto, including without limitation UCC
financing statements with broader collateral description than that provided in
this Agreement, including a description of Collateral as “all assets” or words
of similar meaning.  The Borrower also ratifies the Borrower’s
authorization to the Bank to have filed one or more financing statements or
amendments thereto if filed prior to the date of this Agreement.  The
Borrower hereby releases the Bank and the Bank’s officers, employees, agents,
professionals and designees, from any liability arising from any act or acts
under this Agreement or in furtherance thereof, whether of omission or
commission, and whether based upon any error of judgment or mistake of law or
fact, except in the case of the Bank’s gross negligence or willful
misconduct.

Section 9

EVENTS OF DEFAULT AND REMEDIES.

Section 9.1

All Obligations shall be, at the Bank’s option, immediately due
and payable without notice or demand (notwithstanding any deferred or
installment payments allowed, if any, by any instrument evidencing or relating
to the Obligations) and any provision of this Agreement or any supplement
hereto, as to future loans and advances by the Bank shall, at the Bank’s option,
terminate forthwith, upon the termination or non-renewal of this Agreement or
upon the occurrence and continuation following written notice thereof by the
Bank to the Borrower of any one or more of the following ("Events of
Default"):

(a)

if the Borrower shall (i) fail to pay to the Bank when due any
amounts owing to the Bank under any Obligation, and in the case of any amount
other than an amount of principal or interest in respect of any Advance and any
such amounts remain unpaid for more than ten (10) days from the due date, (ii)
shall breach any of the terms, covenants, conditions or provisions of this
Agreement, any supplement hereto or any other Loan Document and such failure
shall continue for more than ten (10) days, or (iii) shall breach any of the
terms, covenants, conditions or provisions of any document evidencing or
governing any indebtedness between any other third person or entity and the
Borrower and as a result of such breach, such third party shall and has or shall
be entitled to accelerate such indebtedness and Borrower has not cured such
events, or (iv) Borrower shall breach any of the terms, covenants, conditions or
provisions of any other agreement between any other third person or entity and
the Borrower and as a result of such breach, such third party shall or shall be
entitled to terminate such agreement and the termination of such agreement would
result in a Material Adverse Change;

(b)

  the occurrence and continuation of an Overadvance for
more than ten (10) days following the Bank’s written notice to Borrower of such
Overadvance;

(c)

 

if any representation, warranty, or statement of fact made to the
Bank at any time by the Borrower or on the Borrower’s behalf is false or
misleading in any material respect;  

(d)

if (i) the Borrower or Guarantor shall become insolvent, fail to
meet the their debts as they mature, call a meeting of creditors or have a
creditors' committee appointed, make an assignment for the benefit of creditors,
commence or have commenced against the Borrower or them any 

31

action or proceeding for relief under any bankruptcy law (and, in
the case of any such action or proceeding commenced against the Borrower such
action or proceeding shall not be dismissed within 60 days), or (ii) a lien or
encumbrance of any type or nature attaches to the assets of the Borrower or the
Collateral and is not released or removed within fifteen (15) days; or (iii) a
judgment is rendered against the Borrower or Guarantor in excess of $250,000.00
that is not fully covered by insurance or which is not satisfied and paid within
thirty (30) days after entry thereof or the execution or other enforcement
thereof stayed, or (iv) the Borrower suspends or discontinues doing business for
any reason, or if a receiver, custodian or trustee of any kind is appointed for
the Borrower or any of the Borrower’s or assets or properties;

(e)

if there shall be a Material Adverse Change from the date hereof;
or

(f)

 if at any time the Bank shall, in the Bank’s commercially
reasonable discretion, consider the Obligations insecure or any part of the
Collateral unsafe, insecure or insufficient and the Borrower shall, on the
Bank’s demand, be unable to furnish other Collateral or make payment on account,
satisfactory to the Bank.

Section 9.2

Upon the occurrence and continuation of any Event of Default and
at any time thereafter during the continuance of such Event of Default, the Bank
shall have the right (in addition to any other rights the Bank may have under
this Agreement, any supplement hereto or otherwise available under applicable
law) without notice to the Borrower, at any time and from time to time, in the
Bank’s discretion, with or without judicial process or the aid or assistance or
others and without cost to the Bank to appropriate, set off and apply to the
payment of any or all of the Obligations, any or all Collateral, in such manner
as the Bank shall in the Bank’s sole discretion determine; to enforce payment of
any Collateral; to settle, compromise or release in whole or in part, any
amounts owing on the Collateral; to prosecute any action, suit or proceeding
with respect to the Collateral; to extend the time of payment of any and all
Collateral; to make allowances and adjustments with respect thereto; to issue
credits in the Bank’s or the Borrower’s name; to sell, assign and deliver the
Collateral (or any part thereof) at public or private sale, at broker's board,
for cash, upon credit or otherwise, at the Bank’s sole option and discretion,
and the Bank may bid or become purchaser at any such sale, if public, free from
any right of redemption which is hereby expressly waived; and, with respect to
the Inventory or Equipment, to enter upon any premises on or in which any of the
Inventory or Equipment may be located and, without resistance or interference by
the Borrower, take possession of the Inventory and the Equipment; to complete
processing, manufacturing and repair of all or any portion of the Inventory; to
sell, foreclose or otherwise dispose of any part or all of the Inventory and the
Equipment on or in any of the Borrower’s premises or premises of any other
party; to require the Borrower, at the Borrower’s expense, to assemble and make
available to the Bank any part or all of the Inventory and the Equipment at any
place and time designated by the Bank; and to remove any or all of the Inventory
and the Equipment from any premises on or in which the same may be located, for
the purpose of effecting the sale, foreclosure or other disposition thereof or
for any other purpose.

Section 9.3

In the event the Bank seeks to take possession of all or any
portion of the Collateral by judicial process, the Borrower irrevocably waive:
(a) the posting of any bond, surety or security with respect thereto which might
otherwise be required, (b) any demand for possession prior to the commencement
of any suit or action to recover the Collateral, and (c) any requirement that
the Bank retain possession and not dispose of any Collateral until after trial
or final judgment.

Section 9.4

If notice of the intended disposition of Collateral is required by
law, the Borrower agrees that the giving of seven (7) days notice by the Bank
(unless a shorter period of time is permitted under the UCC), sent by ordinary
mail, postage prepaid, to the Borrower’s address set forth herein, designating
the place and time of any public sale or of the time after which any private
sale or other intended disposition of the Collateral is to be made, shall be
deemed to be reasonable notice thereof and the Borrower waive any other notice
with respect thereto.

32

Section 9.5

The Bank shall have no obligation to clean-up or otherwise prepare
the Collateral for sale.

Section 9.6

  

The Bank may sell the Collateral without giving any warranties as
to the Collateral.  The Bank may disclaim any warranties of title or the
like.

Section 9.7

To the extent that applicable law imposes duties on the Bank to
exercise remedies in a commercially reasonable manner, the Borrower acknowledges
and agrees that it is not commercially unreasonable for the Bank (a) to fail to
incur expenses reasonably deemed significant by the Bank to prepare Collateral
for disposition or otherwise to complete raw material or work in process into
finished goods or other finished products for disposition, (b) to fail to obtain
third party consents for access to Collateral to be disposed of, or to obtain
or, if not required by other law, to fail to obtain governmental or third party
consents for the collection or disposition of Collateral to be collected or
disposed of, (c) to fail to exercise collection remedies against Account Debtors
or other persons obligated on Collateral or to remove liens or encumbrances on
or any adverse claims against Collateral, (d) to exercise collection remedies
against Account Debtors and other persons obligated on Collateral directly or
through the use of collection agencies and other collection specialists, (e) to
advertise dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (f) to
contact other persons, whether or not in the same business as the undersigned,
for expressions of interest in acquiring all or any portion of the Collateral,
(g) to hire one or more professional auctioneers to assist in the disposition of
Collateral, whether or not the Collateral is of a specialized nature, (h) to
dispose of Collateral by utilizing Internet sites that provide for the auction
of assets of the types included in the Collateral or that have the reasonable
capability of doing so, or that match buyers and sellers of assets, (i) to
dispose of assets in wholesale rather than retail markets, (j) to disclaim
disposition warranties, (k) to purchase insurance or credit enhancements to
insure the Bank against risks of loss, collection or disposition of Collateral
or to provide the Bank a guaranteed return from the collection or disposition of
Collateral, or (l) to the extent deemed appropriate by the Bank, to obtain the
services of other brokers, investment bankers, consultants and other
professionals to assist the Bank in the collection or disposition of any of the
Collateral. The Borrower acknowledges that the purpose of this Section is
to provide non-exhaustive indications of what actions or omissions by the Bank
would not be commercially unreasonable in the Bank’s exercise of remedies
against the Collateral and that other actions or omissions by the Bank shall not
be deemed commercially unreasonable solely on account of not being indicated in
this Section. Without limitation upon the foregoing, nothing contained in this
Section shall be construed to grant any rights to the Borrower or to impose any
duties on the Bank that would not have been granted or imposed by this Agreement
or by applicable law in the absence of this Section.

Section 9.8

The Bank shall not be required to marshal any present or future
collateral security (including but not limited to the Collateral) for, or other
assurances of payment of, the Obligations or any of them or to resort to such
collateral security or other assurances of payment in any particular order, and
all of its rights hereunder and in respect of such collateral security and other
assurances of payment shall be cumulative and in addition to all other rights,
however existing or arising. To the extent that the Borrower lawfully may, the
Borrower hereby agrees that the Borrower will not invoke any law relating to the
marshaling of collateral which might cause delay in or impede the enforcement of
the Bank’s rights under this Agreement or under any other instrument creating or
evidencing any of the Obligations or under which any of the Obligations is
outstanding or by which any of the Obligations is secured or payment thereof is
otherwise assured, and, to the extent that the Borrower lawfully may, the
Borrower hereby irrevocably waives the benefits of all such laws.

Section 9.9

The net cash proceeds resulting from the exercise of any of the
foregoing rights or remedies shall be applied by the Bank to the payment of the
Obligations in such order as the Bank may elect, and the Borrower shall remain
liable to the Bank for any deficiency.  Without limiting the generality of
the foregoing, if the Bank enters into any credit transaction, directly or
indirectly, in connection with the 

33

disposition of any Collateral, the Bank shall have the option, at
any time, in the Bank’s sole discretion, to reduce the Obligations by the
principal amount of such credit transaction or to defer the reduction thereof
until actual receipt by the Bank of cash or other immediately available funds in
connection therewith.

Section 9.10

  

The enumeration of the foregoing rights and remedies is not
intended to be exclusive, and such rights and remedies are in addition to and
not by way of limitation of any other rights or remedies the Bank may have under
the UCC or other applicable law.  The Bank shall have the right, in the
Bank’s sole discretion, to determine which rights and remedies, and in which
order any of the same, are to be exercised, and to determine which Collateral is
to be proceeded against and in which order, and the exercise of any right or
remedy shall not preclude the exercise of any others, all of which shall be
cumulative.

Section 9.11

No act (other than a waiver in writing), failure or delay by the
Bank shall constitute a waiver of any of the Bank’s rights and remedies.
 No single or partial waiver by the Bank of any provision of this Agreement
or any supplement hereto, or breach or default thereunder, or of any right or
remedy which the Bank may have shall operate as a waiver of any other provision,
breach, default, right or remedy or of the same provision, breach, default,
right or remedy on a future occasion.

Section 9.12

Upon the occurrence and continuation of an Event of Default and
following issuance by the Bank of a written notice with right to cure, all or
any one or more of the rights, powers, privileges and other remedies available
to the Bank against the Obligors under this Agreement or any of the other Loan
Documents executed and delivered by, or applicable to, the Obligors or at law,
equity or otherwise may be exercised by the Bank at any time and from time to
time, whether or not the Bank shall have commenced any foreclosure proceeding or
other action for the enforcement of its rights and remedies under any of the
Loan documents with respect to the Collateral.  Any such actions taken by
the Bank may be pursued independently, singly, successively, together or
otherwise, at such time and in such order as the Bank may determine in its sole
and absolute discretion, to the fullest extent permitted by law, without
impairing or otherwise affecting the other rights and remedies of the Bank
permitted by law, equity or contract or as set forth herein or in the other Loan
Documents.  Without limiting the generality of the foregoing, the Obligors
agree that if an Event of Default exists (a) the Bank is not subject to any “one
action” or “election of remedies” law or rule, and (b) all liens and other
rights, remedies or privileges provided to the Bank shall remain in full force
and effect until the Bank has exhausted all of its remedies resulting in the
satisfaction and payment in full of all Obligations.

Section 9.13

The Borrower waives presentment, notice of dishonor, protest and
notice of protest of all instruments included in or evidencing any of the
Obligations or the Collateral and any and all notices or demands whatsoever
(except as expressly provided herein).  The Bank may, at all times, proceed
directly against the Borrower to enforce payment of the Obligations and shall
not be required to take any action of any kind to preserve, collect or protect
the Bank’s or the Borrower’s rights in the Collateral.

Section 10

EFFECTIVE DATE; TERMINATION; COSTS.

Section 10.1

This Agreement shall become effective upon acceptance by the Bank
and shall continue in full force and effect until Maturity Date.  The Bank
shall have the right to terminate this Agreement immediately at any time upon
the occurrence of an Event of Default.  No termination of this Agreement,
however, shall relieve or discharge the Borrower of the Borrower’s duties,
Obligations and covenants hereunder until all Obligations have been paid in
full, and the Bank’s continuing security interest in the Collateral shall remain
in effect until such time that the Obligations have been fully discharged.

Section 10.2

This Agreement, any supplement hereto, and any agreements,
instruments or documents delivered or to be delivered in connection herewith
represent the Borrower’s entire agreement and understanding concerning the
subject matter hereof and thereof, and supersede all other prior and
contemporaneous agreements, understandings, negotiations and discussions,
representations, warranties, commitments, offers, contracts, whether oral or
written.

34

Section 10.3

No provision hereof shall be modified or amended orally or by the
Bank’s conduct but only by a written instrument expressly referring hereto
signed by both parties.

Section 10.4

Upon the Bank’s request, the Borrower shall pay to the Bank, or
reimburse the Bank for, all sums, costs and expenses which the Bank may pay or
incur in connection with or related to the negotiation, preparation,
consummation, administration and enforcement of this Agreement, any supplement
hereto, and all other agreements, instruments and documents in connection
herewith and therewith, and the transactions contemplated hereunder and
thereunder, together with any amendments, supplements, consents or modifications
which may be hereafter made or entered into in respect hereof or thereof, and
all efforts made to defend, protect or enforce the security interest granted
herein or therein or in enforcing payment of the Obligations, including without
limitation, appraisal fees, filing fees and taxes, title insurance premiums,
recording taxes, expenses for searches, expenses heretofore incurred by the Bank
and from time to time hereafter during the Bank’s periodic field examinations of
the Collateral and the Borrower’s operations, wire transfer fees, check dishonor
fees, the fees and disbursements of counsel to the Bank, all fees and expenses
for the service and filing of papers, premiums on bonds and undertakings, fees
of marshals, sheriffs, custodians, auctioneers and others, travel expenses and
all the Bank’s costs and collection charges, all of which shall be part of the
Obligations and shall accrue interest after demand thereof at a rate equal to
the highest rate then payable on any of the Obligations.

Section 11

 NOTICES.

Section 11.1

All notices, requests and demands to or upon the respective
parties hereto shall be given either by hand delivery, facsimile or by Federal
Express, UPS, DHL, Express Mail or any other recognized overnight delivery
service, and in any such case shall be deemed to have been given and received
(i) in the case of any notice given by hand delivery or overnight delivery
service, upon delivery thereof during normal business hours to the Borrower (or,
if after normal business hours of the Borrower, on the next business day) and
(ii) in the case of an notice given by facsimile, upon transmission thereof
confirmed by electronic confirmation from the sending facsimile machine during
normal business hours of the Borrower (or, if after normal business hours of the
Borrower, on the next business day).  All notices, requests and demands are
to be given or made to the respective parties at the address (or to such other
addresses as either party may designate by notice in accordance with the
provisions of this section) set forth herein.

Section 12

WAIVER OF JURY TRIAL; JURISDICTION; CHOICE OF LAW.

Section 12.1

JURY WAIVER.  THE BORROWER AND THE BANK EACH HEREBY
WAIVE ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND
ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND SUPPLEMENT HERETO, THE
OBLIGATIONS, THE COLLATERAL OR ANY SUCH OTHER TRANSACTION.

Section 12.2

Waiver of Setoff and Counterclaims.  The Borrower
hereby waives its rights to object to setoff and to interpose counterclaims in
the event of any litigation with respect to any matter connected with this
Agreement, any supplement hereto, the Obligations, the Collateral or any other
transaction between the parties.

Section 12.3

Consent to Non-Exclusive Jurisdiction.  The Borrower
hereby irrevocably consents and submits to the non-exclusive jurisdiction of the
Supreme Court of the State of New York, New York County and the United States
District Court for the Southern District of New York in connection with any
action or proceeding of any kind arising out of or relating to this Agreement,
any supplement hereto, the Obligations, the Collateral or any such other banking
transaction involving the Obligors and the Bank.

Section 12.4

Service.  With respect to any such action, proceeding
or claim the Borrower consents to accept service of process and any legal
summons, complaint or other process to be served upon the Borrower 

35

and consent that same may be served by mailing a copy by certified
mail directed to the Borrower at the Borrower’s address set forth below.
 Such mailing shall be deemed personal service upon the Borrower effective
on delivery thereof and shall be legal and binding upon the Borrower in any such
action, proceeding or claim.  Within thirty (30) days after such mailing,
the Borrower shall appear, answer, or otherwise move in respect of such summons,
complaint or other process.  If the Borrower fails to appear or answer
within the thirty (30) day period, the Borrower shall be deemed in default and
judgment may be entered by the Bank against the Borrower for the amount of the
claim and other relief requested therein.

Section 12.5

Applicable Law.  This Agreement and all transactions
thereunder shall be deemed to be consummated in the State of New York and shall
be governed by and interpreted in accordance with the internal laws of that
State.  If any part or provision of this Agreement is invalid or in
contravention of any applicable law or regulation, such part or provision shall
be severable without affecting the validity of any other part or provision of
this Agreement.

Section 13

 MISCELLANEOUS.

Section 13.1

This Agreement may be executed in several counterparts, each of
which shall constitute an original, but all of which taken together shall
constitute one and the same Agreement.

Section 13.2

Delivery of an executed counterpart of a signature page to this
Agreement by facsimile shall be effective as delivery of an executed counterpart
of this Agreement.

Section 13.3

     The USA Patriot Act of 2001 (Public
Law 107-56) and federal regulations issued with respect thereto require all
financial institutions to obtain, verify and record certain information that
identifies individuals or business entities which open an “account” with such
financial institution.  Consequently, the Bank, may from time-to-time
request, and Borrower shall provide to the Bank, Borrower’s name, address, tax
identification number and/or such other identification information as shall be
necessary for the Bank to comply with federal law.  An “account” for this
purpose may include, without limitation, a deposit account, cash management
service, a transaction or asset account, a credit account, a loan or other
extension of credit, and/or other financial services product.

[signatures on the following page]

36

IN WITNESS WHEREOF, the parties have duly executed this Agreement
on the day and year first written above.

BORROWER:

FREUNDLICH
SUPPLY COMPANY, INC.

By: ________________________________

Andrew Prince, President and Chief Executive Officer

GUARANTOR:

PRECISION AEROSPACE COMPONENTS, INC.

By: ________________________________

Andrew Prince, President and Chief Executive Officer

Accepted on this _____ day of _______________, 2008 

ISRAEL
DISCOUNT BANK OF NEW YORK

By:
 _____________________________________

Name:
 Leon Terrano

Title:

Senior
Vice President

By:
 _____________________________________

Name:

Title:

37

SCHEDULE 1.18

SCHEDULE OF CHECKING ACCOUNTS

		
	
Description of Account
	
Account No.

	
Signature
Bank – Lockbox Account
	
1500852638

	
Signature
Bank – Checking
	
1500852611

	
Wachovia
– Payroll
	
2000012549667

38

SCHEDULE 1.35

SCHEDULE OF LOAN FEES1

		
	
Description of Fee, Charge or Premium
	
Amount

	
 
	
 

	
Closing
Fee
	
$0.00

	
Closing
Legal Fee
	
$0.00

	
Field
Exam Fee (Daily) (to be paid directly to field examiner)
	
Actual Fees

	
Exam
Fee (Monthly Collateral monitoring fee)
	
$500.00

	
Late
Payment Premium
	
5% of Late Payment Amount

	
Line
Fee
	
$5,000.00

	
Unused
Line Fee
	
$0.00

	
 
	
 

1 

As
noted in Section 3, this Schedule of Fees is applicable to the subject Loan and
supplements all other schedules of fees and charges, as may be amended and
updated by the Bank from time to time, for financial services and products
offered by Bank.  The Schedule does not include additional fees that may
become due and payable upon a Default or Event of Default.

39

SCHEDULE 1.47

SCHEDULE OF LETTER OF CREDIT AND COLLECTION
CHARGES1

1 

As
noted in Section 3, this Schedule of Fees may be amended and updated by the Bank
from time to time.  This Schedule does not include additional fees that may
become due and payable upon a Default or Event of Default.

40

 SCHEDULE 1.70

SCHEDULE OF PERMITTED LIENS

Full
UCC Filing on assets of Borrower by Subordinated Creditor

41

SCHEDULE 5.1

SCHEDULE OF COVERAGE AMOUNT

No
less than $3,000,000.00

42

SCHEDULE 6.11

SCHEDULE OF OTHER INDEBTEDNESS

1.

$750,000
Note Payable to Subordinated Creditor, which had an outstanding principal
balance of $375,000.00 as of March 1, 2008

2.

$1,000,000
Unsecured Convertible Note Payable by Guarantor to Barron Partners

43

EXHIBIT A

PROMISSORY NOTE

		
	
$3,000,000.00
	
                 March
__ , 2008

FOR VALUE RECEIVED, the undersigned promises to pay to the order
of ISRAEL DISCOUNT BANK OF NEW YORK (“Bank”) at its principal office,
located at 511 Fifth Avenue, New York, NY 10017, the principal sum of THREE
MILLION ($3,000,000.00), or, if less, the aggregate unpaid principal amount of
all advances (including, but not limited to those  arising  out
 of  letters  of  credit issued by the Bank, acceptances and
other indebtedness, each an “Advance” and collectively, the “Advances”) made by
the Bank, in its sole discretion, to the undersigned from time to time, as set
forth on the Bank’s computer system on the Loan Enquiry Page(s) (“Loan Enquiry
Page(s)”) on the maturity date of each such Advance either as shown on the Loan
Enquiry Page(s) or by acceleration, or on demand. The undersigned shall also pay
to the Bank interest, fees and costs as set forth in that certain Loan and
Security Agreement (“Agreement”) executed by and between the Borrower and the
Bank contemporaneously herewith.

Each Advance hereunder shall bear interest on the unpaid principal
amount thereof for the interest period applicable thereto at the interest rate
(“Rate”) (as set forth and defined in the Agreement).

The undersigned shall provide the Bank with prior notification of
each Advance requested hereunder in accordance with the terms of Section 2 of
the Agreement.  All requests for Advances shall be irrevocable and shall be
in accordance with the terms and conditions set forth in the Agreement.

The Bank may act without liability upon the basis of telephonic
notice believed by the Bank in good faith to be from the undersigned.  The
undersigned shall immediately confirm to the Bank, in writing, each telephonic
notice.  All Advances are made in accordance with the Agreement and the
Bank, in accordance with the conditions of the Agreement and without notice to
the undersigned, may decline to make any Advance requested by the undersigned.
 The undersigned hereby expressly authorizes the Bank to record in its
computer system the amount and date of each Advance, the applicable rate of
interest, the applicable Term for each Advance, the maturity date, and each
payment of principal and interest thereon.  In the event of any discrepancy
between any such notation by the Bank and any records of the undersigned, the
records of the Bank shall be controlling and conclusive.

Interest shall be calculated on the basis of a 360-day year for
the actual number of days elapsed (but in no event in excess of the maximum rate
permitted by law).  Interest on Advances hereunder shall be payable in
accordance with the terms of the Agreement.  

 In accordance with the terms of the Agreement, the
undersigned authorizes the Bank to charge any of the undersigned’s deposit
accounts for payments of principal, interest or other amounts due and owing.
 Any payment of principal or interest payable hereunder, which is not paid
when due, shall be subject to a Late Payment Premium (as described in the
Agreement) and shall bear interest from the date due until paid in full at a
rate per annum equal to five percent (5%) above the interest rate in effect with
respect thereto.  Additional amounts may be due in accordance with the
Agreement.

Subject to the terms and conditions of the Agreement, the
undersigned may borrow, repay in whole or in part, and re-borrow on a revolving
basis up to the maximum amount of this Note. 

44

Any Advance may be prepaid in full or in part, on any Business
Day, upon five (5) days prior written notice to the Bank of such prepayment,
subject to a prepayment premium equal to the amount of interest which the Bank
would have earned on the principal amount so prepaid at the then current Rate
from the date of such prepayment to the last day of the then current Interest
Period for such Advance.  The Bank shall not be obligated to accept any
prepayment of an Advance unless it is accompanied by the prepayment premium.

If any amount payable on any Obligations (as defined in the
Agreement) of the undersigned to the Bank shall not be paid when due, then this
Note and the principal of and accrued interest on each Advance evidenced hereby
shall, unless the Bank shall otherwise elect, become forthwith due and payable
in full, without protest, presentment, notice or demand, all of which are
expressly waived by the undersigned.

As security for the payment of all the Obligations, the
undersigned has granted to the Bank a security interest in, and a general lien
upon and/or right of set-off of, the Collateral, as further described in the
Agreement.

The Bank, at its discretion, whether any Obligations be due may,
in its name or in the name of the undersigned or otherwise, demand, sue for,
collect or receive any money or property at any time payable or receivable on
account of or in exchange for, or make any compromise or settlement deemed
desirable with respect to, any of the Collateral, but shall be under no
obligation so to do, or the Bank may extend the time of payment, arrange for
payment in installments, or otherwise modify the terms of, or release, any of
the Collateral, without thereby incurring responsibility to, or discharging or
otherwise affect­ing any liability of, the undersigned.  The Bank shall
not be required to take any steps necessary to preserve any rights of prior
parties to any of the Collateral.  Upon default hereunder or in connection
with any of the Obligations (whether such default be that of the undersigned or
of any other party obligated thereon), the Bank shall have the rights and
remedies provided by law; and the Bank may sell or cause to be sold in such
places as it may determine, in its sole discretion, in one or more sales or
parcels, at such price as the Bank may deem best, and for cash or on credit or
for future delivery, without assumption of any credit risk, all or any of the
Collateral, at any brokers’ board or at public or private sale, without demand
of performance or notice of intention to sell or of time or place of sale
(except such notice as is required by applicable statute and cannot be waived),
and the Bank or anyone else may be the pur­chaser of any or all of the
Collateral so sold and thereafter hold the same, absolutely free from any claim
or right of whatsoever kind, including any equity of redemption, of the
undersigned, any such demand, notice or right and equity being hereby waived and
released.  The undersigned will pay to the Bank all reasonable out of
pocket expenses (including reasonable expense for legal services of every kind)
of, or incidental to, the enforcement of any of the provisions hereof or of any
of the Obligations, or any actual or attempted sale, or any exchange,
enforcement, collection, compromise or settlement of any of the Collateral or
receipt of the proceeds thereof, and for the care of the Collateral and
defending or asserting the rights and claims of the Bank in respect thereof, by
litigation or otherwise, including expense of insurance, and all such expenses
shall be indebtedness within the terms of this Note.  The Bank, at any
time, at its option, may apply the net cash receipts from the Collateral to the
payment of principal of and/or interest on any of the Obligations, whether or
not then due, making proper rebate of interest or discount.
 Notwithstanding that the Bank, whether in its own behalf and/or in behalf
of another and/or of others, may continue to hold Collateral and regardless of
the value thereof, the under­signed shall be and remain liable for the
payment in full, principal and interest, of any balance of the Obligations and
expenses at any time unpaid.

The undersigned represents and warrants that:  it is a
corporation duly organized and validly existing under the laws of the state of
its incorporation and is duly qualified to do business and is in good standing
in every state where the failure to qualify would materially and adversely
affect the financial condition of the undersigned, and the execution, issuance
and delivery of this Note by the undersigned are within its corporate powers and
have been duly authorized by all necessary corporate action, and this Note is
valid, binding and enforceable in accordance with its terms, and is not in
violation of law or of the terms of the undersigned's 

45

Articles or Certificate of Incorporation or By-Laws and does not
result in the breach of or constitute a default under any indenture, agreement
or undertaking to which the undersigned is a party or by which it or its
property may be bound or affected.

Upon the occurrence of any of the following specified events of
default (each an “Event of Default) set forth in the Agreement; THEN, in any
such event, and at any time thereafter, unless and to the extent that the Bank
shall otherwise elect, if any Event of Default shall then be continuing, the
principal and the accrued interest in respect of each Advance under this Note
shall become immediately due and payable, without presentment, demand, protest
or other notice of any kind, all of which are expressly waived by the
undersigned. 

Notwithstanding anything to the contrary contained elsewhere in
this Note, if any change after the date hereof in law, rule, regulation,
guideline or order or in the interpretation thereof by any governmental
authority charged with the administration thereof, shall make it unlawful for
the Bank to make or maintain any Advance based upon LIBOR, then, by written
notice to the undersigned, the Bank may require that such Advance be converted
to an Advance based on the Prime Rate, whereupon such Advance shall be
automatically converted as of the date of such notice to the undersigned.

In the event that any change in applicable law or regulation, or
in the interpretation thereof by any governmental authority charged with the
administration thereof, shall impose on or deem applicable to the Bank any
reserve requirements against this Note or impose upon the Bank any other costs
or assessments (the “Additional Costs”), the undersigned shall pay to the Bank,
on demand (which demand shall be in writing and which will set forth a
calculation of such Additional Costs), an amount sufficient to compensate the
Bank for the Additional Cost resulting from the maintenance or imposition of
such reserves, costs or assessments.  The calculation of amount of the
Additional Costs shall, absent manifest error, be presumed correct.

Any consents, agreements, instructions or requests pertaining to
any matter in connection with this Note, signed by any one of the undersigned,
shall be binding upon all of the undersigned. This Note shall not be assigned by
the undersigned without the Bank’s prior written consent.

THE UNDERSIGNED IN ANY LITIGATION (WHETHER OR NOT ARISING OUT OF
OR RELATING TO THIS NOTE OR ANY OTHER OBLIGATIONS OR LIABILITY OF THE
UNDERSIGNED TO THE BANK) IN WHICH THE BANK AND THE UNDERSIGNED SHALL BE ADVERSE
PARTIES, WAIVES TRIAL BY JURY AND THE RIGHT TO INTERPOSE ANY DEFENSE, SET-OFF OR
COUNTERCLAIM OF ANY NATURE OR DESCRIPTION.  THE UNDERSIGNED AGREES TO PAY
ON DEMAND ALL OF THE BANK'S ACTUAL COSTS AND EXPENSES, INCLUDING REASONABLE
COUNSEL FEES, IN CONNECTION WITH COLLECTION OF ANY AMOUNTS DUE TO THE BANK AND
ENFORCEMENT OF ITS RIGHTS UNDER THIS NOTE.

The undersigned agrees that the action, proceeding or claim
against it arising out of, or relating in any way to, this Note may be brought
and enforced in the courts of the State of New York or of the United States of
America for the Southern District of New York, and hereby irrevocably submits to
each such jurisdiction, which jurisdiction shall be non-exclusive.  With
respect to any such action, proceeding or claim, the undersigned consents to
accept service of process pursuant to the terms of the Agreement.

No modification or waiver of any provision of this note and no
consent by the Bank to any departure therefrom by the undersigned shall be
effective unless such modification or waiver shall be in writing and signed by a
duly authorized officer of the Bank, and the same shall then be effective only
for the period and 

46

on the conditions and for the specific instances specified in such
writing. No failure or delay by the Bank in exercising any right, power or
privilege hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other rights, power or
privilege.

The rights, remedies, and benefits herein expressly specified are
cumulative and not exclusive of any rights, remedies or benefits which the Bank
may otherwise have.  The undersigned hereby waives demand, presentment,
notice of dishonor and protest of all instruments included in or evidencing the
Note and any Obligations and any and all other notices.

The undersigned acknowledges that this Note is an instrument for
the payment of money only within the meaning of Section 3213 of the New York
Civil Practice Law & Rules.

In the event any one or more of the provisions in this Note should
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.

This Note and the provisions hereof are to be binding upon the
respective heirs, estate, administrators, executors, assigns or successors of
the undersigned; and they are to be construed according to and governed by the
internal laws of the State of New York.

FREUNDLICH
SUPPLY COMPANY, INC.

Attest:

By:
 ______________________________

_____________________________

Name:
Andrew Prince

Name:

Title:
President and Chief Executive Officer

Title:
Corporate Secretary

CORPORATE
ACKNOWLEDGMENT

(FREUNDLICH SUPPLY
COMPANY, INC.)

STATE OF NEW YORK

)

) ss.

COUNTY
OF
                 

)

I certify that on
the date set forth below, the duly appointed corporate officer of the referenced
corporation personally came before me, a notary public, and acknowledged under
oath, to my satisfaction, that s/he is an officer of the referenced corporation,
and that as such, being authorized to do so, executed the foregoing instrument
for the purposes therein contained by signing on behalf of the corporation and
that this document was signed and delivered by the corporation as its voluntary
and authorized act.

Signed and sworn to before me
on

this ______ day of March,
2008.

____________________________

Notary Public

Name:

My
Commission Expires ________

(seal)

47

EXHIBIT B

FORM OF ADVANCE REQUEST NOTICE

Date:  ___________, _____

To:

Israel Discount Bank of New York

Ladies and Gentlemen:

Reference is made to that certain Loan and Security Agreement (as
amended, restated, extended, supplemented or otherwise modified in writing from
time to time, the “Agreement;” the terms defined therein being used
herein as therein defined), among FREUNDLICH SUPPLY COMPANY, INC., a New York
corporation (the “Borrower”) and Israel Discount Bank of New York,
as lender (“Bank”).  The undersigned hereby requests (select one):

?_______  Advance of Funds (Prime Advance) 

?_______  Advance of Funds (LIBOR Advance)

(Select term: ?_______  1 month, ?_______  3 months or
?_______  6 months)

?_______  Extension of Prior LIBOR Advance: Amount $__________ Current Term Exp. Date ___ / ___ /
___ 

(Select extension term: ?_______  1 month, ?_______  3
months or ?_______  6 months)

?_______  Bankers Acceptance for Letter of Credit
No.__________________ dated issued ____ /____ /_____

Beneficiary________________ Original Amount ____________ Amount of
Draw ___________

(Select term: ?_______ 1-30 days, ?_______ 31-60 days, ?_______
61-90 days, ?_______ 91-120 days, ?_______ 121-150 days or ?_______ 121-150
days)

?_______  Bankers Acceptance Extension: Amount $____________ Bankers Acceptance Issue Date ___ /
___ / ___ 

(Select term: ?_______ 1-30 days, ?_______ 31-60 days, ?_______
61-90 days, ?_______ 91-120 days, ?_______ 121-150 days or ?_______ 121-150
days)

?_______
 Issuance of a Letter of Credit (Please
attached the necessary forms, including the Letter of Credit
Application)

Please take the requested action on ___________ (a Business
Day), in the amount of $________________.  The undersigned certifies
that the requested Advance will not cause the Total Outstandings to exceed the
Maximum Amount available under the Loan (as those terms are defined in the
Agreement).  The Borrower further certifies that it is in compliance with
the Agreement and no Event of Default exists.

FREUNDLICH SUPPLY COMPANY, INC.

By:  

Name:  

Title:  

48

EXHIBIT C

PERFECTION
CERTIFICATE

FREUNDLICH SUPPLY COMPANY, INC. ("Obligor"), by and through the
below named officer, hereby certifies, with reference to the attached Loan
Agreement (the "Loan Agreement") with Israel Discount Bank of New York
("Bank"), as follows: All capitalized terms not otherwise defined herein
shall have the meaning set forth in the Loan and Security Agreement.  

1.

Name.

The exact legal name of the Obligor as that name appears on its
Articles / Certificate of Incorporation  is as follows:

FREUNDLICH SUPPLY COMPANY, INC.

2.

Other Identifying Factors.

(a)

The following is the mailing address of the Obligor:

2200 Arthur Kill Road, Staten Island, New York 10309

(b)

If different from its mailing address, the Obligor's place of
business or, if more than one, its chief executive office is located at the
following address:

Address

County

State

Not applicable

(c)

The following is the type of organization of the Obligor:

Corporation

(d)

The following is the jurisdiction of the Obligor's
organization:

Delaware

(e)

The following are the Obligor's federal taxpayer identification
number and state issued organizational identification number [state
“None" if the state does not issue such a number]:

20-5199557

3.

Other Names, Etc.

49

(a)

The following is a list of all other names (including trade names
used by the Obligor), or any other business or organization to which the Obligor
became the successor by merger, consolidation, acquisition, change in form,
nature or jurisdiction of organization or otherwise, now or at any time during
the past five years:

None

4.

Other Current Locations.

(a)

The following are all other locations in the United States of
America in which the Obligor maintains any books or records relating to any of
the Collateral consisting of accounts, instruments, chattel paper, general
intangibles or mobile goods:

Address

County

State

None

(b)

The following are all other places of business of the Obligor in
the United States of America:

Address

County

State

None

(c)

The following are all other locations in the United States of
America where any of the Collateral consisting of inventory or equipment is
located:

Address

County

State

None

(d)

The following are the names and addresses of all persons or
entities other than the Obligor, such as lessees, consignees, warehousemen or
purchasers of chattel paper, which have possession or are intended to have
possession of any of the Collateral consisting of instruments, chattel paper,
inventory or equipment:

Name

Mailing Address

County

State

None

5.

Prior Locations.

(a)

Set forth below is the information required by §4(a) or (b) with
respect to each location or place of business previously maintained by the
Obligor at any time during the past five years in a state in which the Obligor
has previously maintained a location or place of business at any time during the
past four months:

Address

County

State

None

(b)

Set forth below is the information required by §4(c) or (d) with
respect to each other location at which, or other person or entity with which,
any of the Collateral consisting 

50

of inventory or equipment has been previously held at any time
during the past twelve months:

Address

County

State

None

6.

Existing Liens, If Any.

Collateral

Secured Party (name and address)

Greater Bay Business Funding, a division of Greater Bank, N.A.,
which shall be released simultaneously with funding under this facility

7.

Commercial
Tort Claims, If Any.  (brief description of claim and party)

None

IN WITNESS WHEREOF, we have hereunto signed this Certificate on
March _____, 2008.

FREUNDLICH
SUPPLY COMPANY, INC.

By:
 ______________________________

Andrew
Prince, President and Chief Executive Officer

51

EXHIBIT D

BORROWING BASE CERTIFICATE

Calculated as of ___________  _____, 200__

The
undersigned DOES HEREBY CERTIFY, pursuant to that certain Loan and Security
Agreement (as such agreement may be amended, restated, supplemented or otherwise
modified from time to time, the “Agreement”; capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned to such
terms in the Agreement), among FREUNDLICH SUPPLY COMPANY, INC. (the
“Borrower”) and ISRAEL DISCOUNT BANK OF NEW YORK (the “Bank”), as
follows:

(a)

attached
as Schedule 1 (or such other form as the Bank agrees to accept in
connection with this Agreement) hereto is a true and correct calculation of the
Borrowing Base as of the date set forth above; and

(b)

the
Borrower has no reason to believe that the sum of the Total Outstandings as of
the date hereof would exceed the Borrowing Base if such Borrowing Base was
computed as of the date of this certificate; and

(c)

as
of the date hereof, the Borrower has no knowledge of an Event of Default and
that no event that, with the giving of notice or lapse of time or both, will
constitute an Event of Default, has occurred and is continuing; and

(d)
      the representations and warranties contained
in the Agreement and in the other Loan Documents are true and correct in all
material respects on and as of the date hereof with the same effect as if made
on and as of the date hereof;

(e)

as
of the date hereof, the Borrower has no knowledge of a material adverse change
with respect to the business, operations, performance, assets, properties,
condition (financial or otherwise) or prospects (other than general economic
conditions).

IN
WITNESS WHEREOF, the undersigned has caused this Certificate to be executed this
______________ day of ____, 20___.

FREUNDLICH
SUPPLY COMPANY, INC.

By:
 ______________________________

Name:

Title:

52

SCHEDULE 1

BORROWING BASE CERTIFICATE

TO:

Israel
Discount Bank of New York

FROM:

FREUNDLICH
SUPPLY COMPANY, INC. ("Borrower")

This Collateral report as of
                                                  is
submitted pursuant to that certain Loan and Security Agreement between Borrower
and Israel Discount Bank of New York , the “Agreement”.

1.

Total
Eligible Receivables & Reconciliation: 

    Amount

a.
 Accounts Receivable (A/R) from prior aging dated  

$

b.
 Add A/R created since date of Prior Aging (Sales for the month)

+

$

c.
 Deduct reductions in A/R since Prior Aging:

i.

Collections

-

$

ii.

Credit
Memos

-

$

iii.

Discounts
and Allowances

-

$

iv.

Other
Adjustments

-

$

d.
  Total Current Receivables (Current A/R aging attached)

$

e.
 Less Ineligible Receivable

 Delinquent
Accounts (> 90 days from due date )

-

$

Cross-Aged

-

$

Affiliates

-

$

Foreign
A/R's

-

$

Bill
& Hold/ Pre-Billing (goods not get delivered)

-

$

Concentration
over 25%

-

$

Contras

-

$

 

All
other (chargebacks/disputes/insolvents/etc.)

-

$

COD
/ Return of Goods

-

$

Add:

 Unapplied
Credits (add back credits <90 days, capped at O/S >90)+

$

Less:

 Credits
in Prior (subtract credits in >90 days, capped at O/S <90)

-

$

f.
 Total Ineligible Receivables

-

$

g.
 Total Eligible Receivables ( 1d less 1f )

$

2.

Eligible
Inventory: 

    Amount

Total
Inventory (at the lower of cost or market value)

$

Add
back: 

Pre-Billed
Inventory (Cost Value)

+

$

Add:

Inventory
under L/C not yet paid

+

$

a.
 Total Inventory

$

b.
 Less Ineligible Inventory

WIP

-

$

 

Slow
Moving, Obsolete

-

$

Outside
the U.S.

-

$

Supplies,
other ineligibles

-

$

Inventory
Reserve

+

$

c.
 Total Ineligible Inventory

-

$

  

d.
 Total Eligible Inventory (2a less 2c)

$

3.

Availability:

a.
75% of line 1g.

-

$

b.
50% of line 2d (capped at $2,500,000)

+

$

c.
Total Availability (3a plus 3b) 

$

    (capped
at Maximum Credit of $3,000,000)

4.

Debt:

a.
Outstanding Revolving Loan Balance 

+

$

b.
Outstanding Letters of Credit

+

$

c.
Outstanding Standby Letters of Credit

+

$

d.
Total Debt (4a plus 4b plus 4c)

$

(capped
at Maximum Credit of $3,000,000)

5.

Net
Availability (3c minus 4d)

$

The
Borrower, by and through its officer signing on its behalf below, certifies
that:

1.
 The information set forth above as well as all representations and
warranties of Borrower to Lender set forth herein or in any of the Documents (as
defined in the Agreements) remain accurate and complete in all respects;

2.
 There does not now exist an Event of Default (as defined in the Agreement)
or an event or condition which, with the giving of notice of passage of time, or
both, would be or become an Event of Default.

FREUNDLICH
SUPPLY COMPANY, INC.

By:

                            

Name:

Title:

Dated:

                        

    

EXHIBIT E

AGREEMENT REGARDING INSTRUCTIONS GIVEN BY TELEPHONE,
 FACSIMILE, EMAIL, TELEX AND CABLE

Israel Discount Bank
of New York

511 Fifth Avenue

New York, NY
10017

From time to time in the course of its business and banking
relations, the undersigned borrower (“Borrower”), through its officers and
agents, may transmit to Israel Discount Bank of New York (“IDB Bank”)
instructions by telephone, facsimile, email, telex or cable (collectively, the
“Instructions”) regarding the Loan being extended contemporaneously herewith,
related loans and/or deposit accounts including, without limitation, (a) IDB
Bank’s acceptance or renewal of the time or savings deposits of the undersigned;
(b) the withdrawal or transfer of funds from deposit accounts of the Borrower;
(c) obtaining advances under the Loan or additional loans; and (d) requesting
issuance of letters of credit, including amendments or waivers of discrepancies
of such letters of credit.  With regard to all such Instructions, the
Borrower agrees, pursuant to this instructions agreement (“Instructions
Agreement”) as follows:

1.

IDB
Bank is under no obligation to accept such Instructions and, by accepting any
such Instructions in any instance, IDB Bank is under no obligation to accept
subsequent Instructions.

2.

IDB Bank is under no obligation to verify Instructions and IDB
Bank may act upon Instructions it believes to be given by anyone authorized to
give Instructions.  

3.

If after receiving Instructions, IDB Bank determines in its sole
judgment that (i) IDB Bank cannot for any reason comply with or fulfill the
Instructions, in whole or in part; or (ii) the request is unclear or additional
details or information is required in order for IDB Bank to comply with the
Instructions in whole or in part, then IDB Bank may, in its sole discretion: (A)
comply with or fulfill the Instructions in part only or not at all; (B) delay in
complying with or fulfilling the Instructions in whole or in part until
additional details or information are received by IDB Bank; (C) take such other
action as in IDB Bank’s sole discretion it may deem advisable in order to give
effect to the Instructions as IDB Bank understands them.

4.

Notwithstanding any oral acceptance by any of IDB Bank’s employees
of any Instructions, IDB Bank may nevertheless, for any reason, including but
not limited to commercial or policy considerations or changes, reject such
Instructions, in whole or in part, whereupon IDB Bank shall be entitled, in its
sole discretion, to comply with or fulfill such Instructions in part only or not
at all.

5.

IDB Bank shall not be liable for any damages (including special,
consequential or indirect damages) caused by any action taken or omitted to be
taken by IDB Bank in accordance with the terms of this Instructions Agreement,
regardless of the fact that such action or inaction arises from a
misunderstanding, incorrect transmission or multiple transmission of the same
Instructions, IDB Bank’s receipt of forged or fraudulent Instructions, or from
improper identification of the person giving the Instructions on the Borrower’s
behalf.  Further, IDB Bank shall not be liable for any damages caused by
the manner of taking such action, except for IDB Bank’s willful misconduct.

6.

The Borrower will indemnify and hold IDB Bank harmless from and
against all loss or damage to IDB Bank and any claims and actions against IDB
Bank arising out of or in connection with any Instructions given pursuant to
this Instructions Agreement, or any actions taken by IDB Bank or which IDB Bank
refrains from taking in connection therewith, and all costs and expenses,
including without limitation, attorney’s fees, incurred by IDB Bank in respect
thereof.

7.

If the undersigned comprises more than one person or entity, each
of the undersigned shall be jointly and severally liable hereunder.  This
Instructions Agreement shall be binding upon and shall inure to the benefit of
the Borrower and 

its successors and
assigns, and IDB Bank and its successors and assigns.

 8.

The Borrower acknowledges by signing below that the procedures
utilized and implemented in connection with this Instructions Agreement for
accepting the Instructions are reasonable and acceptable security procedures for
the types of activities contemplated.

9.

This Instructions Agreement shall be interpreted and all the
rights and obligations arising hereunder shall be determined, in accordance with
the laws of the State of New York, United States of America and the parties
agree that in any litigation in which they shall be adverse parties, to WAIVE
TRIAL BY JURY and that the exclusive location for jurisdiction and venue for the
resolution of any disputes arising hereunder shall be either the State or
Federal Court located in New York, NY.

Date:  March ____, 2008

FREUNDLICH SUPPLY COMPANY, INC.

By:  

Andrew Prince,
President and Chief Executive Officer

EXHIBIT F

SUBORDINATION AGREEMENT

THIS SUBORDINATION AGREEMENT (this “Agreement”) made this
_____ day of March, 2008 between FREUNDLICH SUPPLY COMPANY, INC., a New York
corporation (“Debtor”), and NIGHTWIND CORP., and its successors and
assigns (“Creditor” or “Creditors”), a corporation organized and
existing under the laws of the State of __________________________ and having
offices at
_____________________________________________________________________________.

In order to induce ISRAEL DISCOUNT BANK OF NEW YORK (hereinafter
called the “Bank”), from time to time, to extend credit to Debtor, and in
consideration of advances, loans, discounts, extensions of credit or renewals,
heretofore or hereafter made to or in reliance upon the obligations of, Debtor
by the Bank, and of the acquisition by the Bank, heretofore or hereafter, of
notes or other instruments for payment of money and any security agreements
relative thereto, or conditional contracts of sale, chattel mortgages, leases or
other liens or security agreements heretofore or hereafter made by Debtor, or an
interest or participation therein as the Bank may have deemed or may deem
advisable and for other good and valuable consideration, the parties do hereby
agree, jointly and severally, as follows:

1.

That all claims and demands and all interest accrued or that may
hereafter accrue thereon (except those representing bona fide claims for current
and future salaries due Creditors as an officer or employee of Debtor) which
Creditors now has or may hereafter have or acquire against Debtor (including the
Subordinated Loan described below) (the same being hereafter called
“Claims”) are hereby subordinated to any obligations (as hereinafter
defined) owed to the Bank and such Claims shall not be payable, and that no
payment on account thereof, nor any security therefore, shall be received,
accepted or retained by Creditors, unless and until Debtor has paid and
satisfied in full all of its obligations and liabilities to the Bank of every
kind and description, whether or not represented by negotiable instruments or
other writings, whether direct or indirect, absolute or contingent, due or not
due, secured or unsecured, original, renewed or extended, now in existence or
hereafter incurred, originally contracted with the Bank alone or with another or
others, and assigned or transferred to or otherwise acquired by the Bank, or in
which the Bank may acquire a participation, and whether contracted by Debtor
alone or jointly and/or severally with another or others (all of which are
hereafter referred to as “Obligations”).  Debtor agrees not to make
payment of, or give any security for, said Claims to Creditors.
 Notwithstanding the foregoing, until a default occurs under any of the
Obligations or until written notice from the Bank to Debtor, Debtor may pay and
Creditor may receive, accept and retain, the quarterly installments of
$75,000.00 owing to Creditor in connection with that certain subordinated loan
by Creditor to the Debtor (“Subordinated Loan”), provided that: (i) no Default
or Event of Default exists under the Loan and Security Agreement between the
Debtor and the Bank; (ii) the Borrower is in compliance with the minimum capital
funds requirement set forth in Section 6.8 of the Loan and Security Agreement;
and (iii) Creditor has entered into this Subordination Agreement.

2.

Should any payment or distribution or collateral security or
proceeds of any collateral security be received or collected by Creditors for or
on account of said Claims, prior to the 

satisfaction of all of said Obligations, Creditors will forthwith
deliver same to the Bank in precisely the form received (except for such
Creditor's endorsement where necessary), for application on account of said
Obligations, and Creditors agree that until so delivered, same shall be deemed
received by each Creditor as an agent for the Bank and shall be held in trust by
Creditors as the property of the Bank. In the event of the failure of any
Creditor to endorse any instrument for the payment of money so received by such
Creditor, payable to such Creditor’s order, the Bank, or any officer or employee
thereof, is hereby irrevocably constituted and appointed attorney in fact for
Creditors with full power to make any such endorsement and with full power of
substitution.

3.

Creditors represent and warrant to the Bank that each Creditor is
solvent and has granted no security interest in, and has made no prior transfer
or assignment of, said Claims, and the Creditors will grant no security interest
therein and will not transfer or assign said Claims (except to the Bank) unless
and until Debtor has paid and satisfied said Obligations.

4.

Creditors and Debtor represent to Bank that Debtor now owes each
Creditor the principal sum of Three Hundred and Seventy Five Thousand Dollars
($375,000.00), without counterclaim, defense or offset and that said
indebtedness is not represented by any negotiable instruments or other writings,
except such negotiable instruments or other writings, if any, as have been
endorsed and/or assigned and delivered by Creditor to the Bank simultaneously
with the execution of this agreement.  Creditors and Debtor further agree
that at no time hereafter will any part of said indebtedness be represented by
any negotiable instruments or other writings, except such negotiable instruments
or other writings, if any, as the Bank shall request to be executed and
delivered to it for the purpose of evidencing said indebtedness or any part
thereof, and in that case negotiable instruments or other writings shall either
be payable to the Bank or delivered to the Bank or, if payable to any Creditor,
shall be endorsed and/or assigned by such Creditor and delivered to the Bank.
 In the event of the failure of Creditors to endorse said negotiable
instruments or other writings, if payable to such Creditor or to Creditor's
order, the Bank, or any officer or employee thereof, is hereby irrevocably
constituted and appointed attorney in fact for Creditors with full power to make
such endorsement.

5.

Creditors waive any and all notice of the acceptance of this
Agreement and of the creation or accrual of any said Obligations, or of any
renewals or extensions thereof from time to time, or of the reliance of the Bank
on this Agreement, and consents that the liability of Debtor or of any other
party for or upon said Obligations may, from time to time, in whole or in part,
be renewed, extended, modified, accelerated, compromised, settled or released by
the Bank, and that any collateral security and liens for said Obligations may,
from time to time, in whole or in part, be renewed, extended, modified,
accelerated, compromised, settled or released by the Bank, and that any
collateral security and liens for said Obligations may, from time to time, in
whole or in part, be exchanged, sold, released or surrendered by the Bank, and
that any deposit balance or balances to the credit of Debtor with the Bank may,
from time to time, in whole or in part, be surrendered or released by the Bank,
all as the Bank may deem advisable, and all without impairing the subordination
contained in this Agreement.

6.

Creditors and Debtor agree that if, after the satisfaction of all
of said Obligations and prior to the termination of this Agreement as
hereinafter provided, Debtor thereafter becomes liable to the Bank on account of
any new Obligations, the Bank may presume that Claims have not been paid nor
reduced, nor has any Creditor received any security therefore, and this
Agreement of 

subordination and security agreement shall thereupon become
effective with respect to any Claims then in existence or thereafter created,
without the necessity of any further act, agreement or writing by or between
Creditors or Debtor or the Bank, the intent being that this be a continuing
agreement of subordination and security agreement.  Additionally, should
Creditors have received any payment or security on account and before the
termination of this Agreement as hereinafter provided, Creditors will notify the
Bank, in writing, of the receipt thereof.  In the event that Creditors fail
if a default occurs with respect to the payment or performance of any of the
terms of such new Obligations, Creditors will immediately pay to the Bank an
amount equivalent to any such payment or the value of such security
received.

7.

This Agreement shall continue in full force and effect
notwithstanding the death or incapacity of Creditors and shall be binding upon
each Creditor and such Creditor’s estate and the personal representatives, heirs
and successors and assigns of each Creditor, and the Bank may continue to act in
reliance upon this Agreement until actual receipt by the Bank of written notice
from such Creditor, or, in the event of Creditor’s death, from the legal
representative or representatives of such deceased Creditor, of the termination
of this Agreement.  Creditor or Creditor’s estate shall nevertheless remain
bound hereunder with respect to such obligations and any renewals, extensions or
liabilities arising out of same and this Agreement shall continue in full force
and effect and the Bank shall have all of the rights herein provided for as if
no such termination had occurred.

8.

Debtor hereby agrees that it will render to the Bank, upon demand,
from time to time, a statement of the account of each Creditor with Debtor; that
the Bank shall have access, from time to time, to its books and records in order
that the Bank may make full and free examination of the state of the accounts of
each Creditor with Debtor, (with the right to make copies thereof); and that
Debtor will duly comply with and perform each and every term of this
Agree­ment on its part required to be performed.  Debtor and Creditors
agree that their books and records will appropriately show that said Claims are
subject to this Agreement of subordination and security agreement.

9.

In the event of a breach by either Debtor or a Creditor in the
performance of any of the terms of this Agreement, all of said Obligations to
the Bank shall, without notice or demand, become immediately due and payable.
 Upon the happening of any such event and at any time thereafter, the Bank
shall have, in addition to all other rights and remedies, the remedies of a
secured party under the Uniform Commercial Code.

10.

It is understood and further agreed by all of the parties hereto
and by the Bank that this Agreement shall supersede and take the place of any
and all prior agreements of subordination and/or assignment relating to said
Claims executed by Debtor and Creditors in favor of the Bank.

11.

Creditors and Debtor, in any litigation (whether or not arising
out of or relating to said Claims or any of the matters contained in this
Agreement) in which the Bank and Creditors and/or Debtor shall be adverse
parties, WAIVE TRIAL BY JURY and Creditors and Debtor in addition, waive the
right to interpose any defense based upon any Statute of Limitations or any
claim of laches and any set-off or counterclaim of any nature or description.
 Creditors and Debtor agree that whenever any attorney is used to collect
or enforce Claims, or to enforce, declare or adjudicate any rights of
Obligations under this agreement, whether by suit or by any other means
whatsoever, an 

attorney’s fee of 15% of the principal and interest then due on
Claims shall be payable by each of Creditors or Debtor against whom this
agreement, or any Obligation or right hereunder, is sought to be enforced,
declared or adjudicated.

12.

The term “Debtor” or the terms “Creditor” or “Creditors” as used
throughout this instrument shall include the individual or individuals,
association, partnership or corporation named herein as Debtor or Creditors and
(a) any successor individual or individuals, associa­tion, partnership or
corporation to which all or substantially all of the business or assets of
either of them shall have been transferred; (b) in case of a partnership Debtor
or Creditors, any general or limited partnership which shall have been created
by reason of, or continued after dissolution, the admission of any new partner
or partners therein, or the death, resignation, or other withdrawal of any
partner, and (c) in the case of a corporate Debtor or Creditors, any other
corporation into or with which either Debtor or Creditors shall have been
merged, consolidated, reorganized or absorbed.

13.

No waiver shall be deemed to be made by the Bank of any of its
rights hereunder unless same shall be in writing, and each waiver, if any, shall
be a waiver only with respect to the specific instance involved, and no such
waiver shall be deemed to establish a course of conduct.

14.

This Agreement may not be changed orally and no executory
agreement shall be effective to change or modify or to discharge, in whole or in
part, this Agreement unless such executory agreement is in writing and is signed
by the Bank.

15.

Any notice to the Bank shall be deemed effective only if sent to
and received by the Bank at its address at 511 Fifth Avenue, New York, NY 10017.
 Any notice to Creditors or Debtor shall be deemed sufficient if sent to
Creditor or Debtor to the last known address of Creditors or Debtor, as the case
may be, appearing on the records of the Bank.

16.

Any provision hereof which may prove unenforceable under any law
shall not affect the validity of any other provision hereof.

17.

This Agreement shall be binding upon the undersigned and the legal
representatives, successors and assigns of the undersigned and shall be governed
by and construed in accordance with the laws of the State of New York.

IN WITNESS WHEREOF, each of the undersigned has caused these
presents to be properly executed in one or more counterparts the day and year
first above written, intending and declaring this to be a duly sealed
instrument.

DEBTOR:

CREDITOR:

FREUNDLICH
SUPPLY COMPANY, INC.

NIGHTWIND
CORP.

By:
____________________________________

By________________________

Andrew
Prince, President and Chief Executive Officer

Name:

Title:

ACCEPTED:

ISRAEL
DISCOUNT BANK OF NEW YORK

By:
_________________________________

Leon
Terrano, Senior Vice President

By:
_________________________________

Name:

Title:

ACKNOWLEDGMENT OF
DEBTOR

(Freundlich Supply
Company, Inc.)

STATE
OF NEW YORK

)

)
ss.:

COUNTY
OF 

 _______________

)

On the ______ day of ___________________, 2008, before me, the
undersigned, personally appeared _________________________________, personally
known to me or proved to me on the basis of satisfactory evidence to be the
individual(s) whose name(s) is (are) subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
capacity(ies), and that by his/her/their signature(s) on the instrument, the
individual(s), or the person(s) on behalf of which the individual(s) acted,
executed the instrument.

_____________________________

Name:

Address:

Notary Public, State of
____________

My Commission Expires ____ / _____
/ ____ 

ACKNOWLEDGMENT OF
CREDITOR

(Nightwind
Corp.)

STATE
OF NEW YORK

)

)
ss.:

COUNTY
OF 

 _______________

)

On the ______ day of ___________________, 2008, before me, the
undersigned, personally appeared _________________________________, personally
known to me or proved to me on the basis of satisfactory evidence to be the
individual(s) whose name(s) is (are) subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
capacity(ies), and that by his/her/their signature(s) on the instrument, the
individual(s), or the person(s) on behalf of which the individual(s) acted,
executed the instrument.

_____________________________

Name:

Address:

Notary Public, State of
____________

My Commission Expires ____ / _____
/ ____CC Filed by Filing Services Canada Inc. 403-717-3898

EXECUTIVE EMPLOYMENT CONTRACT effective as of January 1, 2008.

BETWEEN:

ALMADEN MINERALS LTD., a corporation duly

organized under the Business Corporations Act of B.C.,

and having its head office at 1103 – 750 West Pender St., 

Vancouver, B.C.  V6C 2T8

hereinafter “Corporation ”

AND:

DIONE BITZER of 2242 – 154th Street, Surrey, B.C.

V4A 4S7

hereinafter “Executive”

WHEREAS the Corporation is a mineral exploration and development company;

AND WHEREAS the Executive has provided the services of the Executive and has agreed to act as the Controller of the Corporation;

AND WHEREAS the Corporation  recognizes the valuable services that the Executive has provided and continues to provide to it and its subsidiaries and believes that it is reasonable and fair to the Corporation that the Executive receive fair treatment in the event of a Change of Control (as hereinafter defined) and the directors of the Corporation have determined that it is in the best interests of the Corporation to induce the Executive to remain in the employ of the Corporation and its subsidiaries by indicating that in the event of a Change of Control the Executive would have certain guaranteed rights. 

NOW THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS.

1.

Term

The term of this Agreement (the “Term”) shall be for 2 years commencing the Effective Date.  The Term of this Agreement shall expire at the end of the day which is the last day of the Term unless earlier terminated in accordance with the provisions of this Agreement.

2.

Renewal

The Term of this Agreement shall be extended for two additional successive terms of 24 months (each 24 month period being referred to as an “Extended Term”), unless written notice to terminate this Agreement is given by either party 90 days prior to the expiration of the Term or an Extended Term or an or unless earlier terminated in accordance with the provisions of this Agreement. 

3.

Remuneration

(a)

Base Salary

2

The Executive shall be entitled to receive from the Corporation remuneration in an amount of $60.00 per hour (“Base Salary”) subject to all requisite withholdings and deductions as may be required under applicable law, but exclusive of any bonuses, benefits or other compensation. Payment shall be made in monthly or such other increments as may be agreed upon between the parties.  The Base Salary shall be subject to annual review and increase but not reduction and shall be increased as may be agreed upon between the Executive and the Corporation. The annual reviews shall be conducted in the month preceding each anniversary of the commencement of the Term or an Extended Term. 

(b)

Other Benefits:

(i)

Indemnity including defraying of Expenses in any Proceedings which the Executive or any heirs or other personal representative of the Executive may be joined by reason of being or having been an officer or director of the Corporation or of an affiliate of the Corporation.  “Proceedings” shall include any legal proceeding or investigative action or proceeding whether current, threatened, pending or completed.  ”Indemnity” shall include indemnity for any judgement, penalty or fine awarded or imposed in or and amount paid in settlement of a Proceeding.  “Expenses” shall include costs, charges and expenses, including legal and other fees;

(ii)

participation in any health or other benefit plans that the Corporation now or hereafter may acquire and maintain that is comparable to those provided by the Corporation to other executives of the Corporation and the right to participate in any share option plan, compensation, share purchase plan, retirement or other similar plan offered by the Corporation from time to time to its senior executives and to the extent authorized by the board of directors of the Corporation; and

(iii)

reimbursement for all expenses reasonably incurred by the Executive, including entertainment, travel and other expenses incidental to the performance by the Executive of duties pursuant to the provisions of this agreement subject always to the Executive providing to the Corporation documentation authenticating such expenses as may from time to time be reasonably required by the Corporation.

4.

Responsibilities and Duties

The Executive shall serve the Corporation and any subsidiaries of the Corporation in such capacity or capacities and shall perform such duties and exercise such powers pertaining to the management and operations of the Corporation and any of its subsidiaries as may from time to time be determined by the board of directors of the Corporation consistent with the office of the Executive. Without limitation of the foregoing, the Executive shall hold the office of Controller.

The Executive shall:

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(a)

devote reasonable time and attention and best efforts during normal business hours to the business and affairs of the Corporation; and

(b)

perform those duties that may reasonably be assigned to the Executive diligently, faithfully and to the best of the Executive’s abilities and in the best interest of the Corporation without limiting the generality of the Executive shall assume the responsibilities and duties as described in Schedule “A”.

5.

Confidentiality

As a condition of this Agreement, all information acquired by the Executive relating to or connected with the business or corporate affairs of the Corporation shall be kept in strict confidence and shall not be disclosed to anyone, unless required pursuant to the securities legislation governing the Corporation or otherwise by law. 

6.

Termination

This Agreement will terminate or may be terminated for any one of the following reasons:

(a)

voluntary, upon at least three (3) months prior written notice of termination by the Executive to the Corporation; or

(b)

without Cause, as hereinafter defined in Section 9, upon at least three (3) months prior written notice of termination by the Corporation to the Executive; or

(c)

by the Corporation for Cause; or

(d)

upon the death or disability of the Executive, as hereinafter defined in Section 10; or

(e)

upon retirement by the Executive.

7.

Termination by the Executive Voluntarily or by the Corporation for Cause

If the Executive shall voluntarily terminate employment under this Agreement or if the employment of the Executive is terminated by the Corporation for Cause, then all compensation and benefits as heretofore provided shall terminate immediately upon the effective date of termination and no special severance compensation will be paid.

Cause to terminate the Executive’s employment shall mean:

(a)

the repeated and demonstrated failure by the Executive to perform the Executive’s material duties under this Agreement, after demand for substantial performance is delivered by the Corporation that specifically identifies the manner in which the Corporation believes the Executive has not substantially performed the Executive’s duties under this Agreement; or

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(b)

the willful engagement by the Executive in misconduct which is materially injurious to the Corporation, monetarily or otherwise; 

(c)

any other willful violation by the Executive of the provisions of this Agreement ;or

(d)

the Executive is convicted of a criminal offence involving fraud or dishonesty.

8.

Termination by the Corporation Without Cause

If the Corporation shall terminate the Executive’s employment under this Agreement for any reason except for Cause (as defined in paragraph 8) then, upon the effective date of termination, the Corporation shall pay the Executive in one lump sum an amount equal to two (2) times the Executive’s prior year’s Base Salary. All the benefits provided to the Executive shall be continued as if the Executive was still an Executive of the Corporation for a period of twelve (12) months from the date of termination or until equal or better benefits are provided by a new employer, whichever shall first occur.

9.

Termination by Death or Disability

If the Executive dies or becomes disabled before the Executive’s employment is otherwise terminated, the Corporation shall pay the Executive or the Executive’s estate, an amount of compensation equal to six (6) months of the Executive’s prior year’s Base Salary and all the Executive benefits theretofore provided to the Executive shall be continued, for a period of six (6) months from the date of Death or Disability as if the Executive were still the Executive of the Corporation.  If such termination is due to the Executive’s Death, payment shall be made in one lump sum to the Executive’s Designate. If no Executive’s Designate survives the Executive, the entire amount shall be paid to the Executive’s estate within sixty (60) days of the Executive’s death. If such termination is due to the Executive’s Disability, payment shall be made in one lump sum to the Executive within sixty (60) days of the Executive’s Disability.  The compensation provided under this paragraph shall be in addition to that payable from any insurance coverage providing compensation upon Death or Disability. 

10.

Termination Following Change in Control

(a)

For purposes of this Agreement, a Change in Control shall be deemed to have occurred if:

(i).

any person or any person and such person’s associates or affiliates, as such terms are defined in the Securities Act (British Columbia) (the “Act”), makes a tender, take-over or exchange offer, circulates a proxy to shareholders or takes other steps to effect a takeover of the control of the Corporation, whether by way of a reverse take-over, formal bid, causing the election or appointment of a majority of directors of the Corporation or otherwise in any manner whatsoever; or 

5

(ii).

during any period of eighteen (18) consecutive months (not including any period prior to the Effective Date), individuals who at the beginning of such period constituted on the Board of Directors and any new directors, whose appointment by the Board of Directors or nomination for election by the Corporation’s shareholders was approved by a vote of at least three quarters (3/4) of the Board of Directors then still in office who either were directors at the beginning of the period or whose appointment or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board of Directors; or 

(iii).

the acquisition by any person or by any person and such person’s affiliates or associates, as such terms are defined in the Act, and whether directly or indirectly, of common shares of the Corporation at the time held by such person and such person’s affiliates and associates, totals for the first time, twenty percent (20%) of more of the outstanding common shares of the Corporation.

(b)

Notwithstanding any other provisions in this Agreement regarding termination, if any of the events described above constituting a Change in Control shall have occurred during the Term or an Extended Term, upon the termination of the Executive’s employment (unless such termination is because of the Executive’s Death or Disability, by the Corporation for Cause or by the Executive other than for “Good Reason”, as defined below) the Executive shall be entitled to and will receive no later than the fifteenth (15th) day following the date of termination a lump sum severance payment equal to three (3) times the Executive’s prior year’s Base Salary. In addition, all benefits then applicable to the Executive shall be continued for a period of eighteen (18) months after the date of termination.

(c)

For purposes of this Agreement, “Good Reason” shall mean, without the Executive’s express written consent, any of the following:

(i).

the assignment of the Executive of any duties inconsistent with the status or authority of the Executive’s office, or the Executive’s removal from such position, or a substantial alteration in the nature or status of the Executive’s authorities or responsibilities from those in effect immediately prior to the Change in Control;

(ii).

a reduction by the Corporation in the Executive’s Base Salary as in effect on the date hereof or as the same may have been increased from time to time, or a failure by the Corporation to increase the Executive’s Base Salary as provided for herein or at a rate commensurate with that of other key executives of the Corporation;

(iii).

the relocation of the office of  the Corporation where the Executive is employed at the time of the Change in Control (the “CIC Location”) to a location more than fifty (50) miles away from the CIC Location, or the Corporation’s requiring the Executive to be based more than fifty (50) miles away from the CIC Location (except for requiring travel on the Corporation’s business to an extent substantially consistent with
the Executive’s business travel obligations prior to the Change in Control); 

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(iv).

the failure by the Corporation  to continue to provide the Executive with benefits at least as favourable as those enjoyed by the Executive prior to the Change in Control, the taking of any action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Corporation to provide the Executive with the number of entitled vacation days to which the Executive has earned on the basis of years of service with the Corporation ; or

(v).

the failure of the Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement or, if the business of the Corporation for which the Executive’s services are principally performed is sold within two (2) years after a Change in Control, the purchaser of such business shall fail to agree to provide the Executive with the same or a comparable position, duties, salary and benefits as provided to the Executive by the Corporation immediately prior to the Change in Control.

Following a Change in Control during the Term, or an Extended Term, the Executive shall be entitled to terminate the Executive’s employment for Good Reason.

(d)

In the event the Executive is entitled to a severance payment under this Agreement, then in addition to such severance payment, the Executive shall be entitled to employment search assistance to secure other comparable employment for a period not to exceed one (1) year or until such comparable employment is found, whichever is the sooner, with fees for such assistance to be paid by the Corporation.

The Executive’s right to receive the aforementioned payment and benefits is expressly contingent upon the signing of a waiver and release satisfactory to the Corporation which release the Corporation and its Affiliates from all claims and liabilities arising out of the Executive’s employment and termination and including confidentiality provisions, which waiver and release is satisfactory to the Corporation with the respect to form, substance and timeliness.

11.

Notice

(a)

Any notice, direction or other instrument required or permitted to be given hereunder shall be in writing and shall be delivered either by personal delivery, registered mail or fax and addressed; 

in the case of the Executive,

2242-154th Street

Surrey, B.C.  V4A 4S7

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in the case of the Corporation,

1103-750 West Pender Street

Vancouver, B.C. V6C 2T8

(b)

Any such notice, direction or other instrument will be deemed to have been given and received, if personally delivered, on the day it was delivered, and if by registered mail, on the third business day following the date of mailing, except in the event of disruption of the postal service in which event notice will be deemed to received only when actually received, and if by facsimile, on the date indicated on the facsimile transmission confirmation sheet.

13.

Governing Law

This Agreement shall be governed by the laws of the Province of British Columbia and shall be binding upon the successors and assigns of the Corporation and the Executive. Should there by a disagreement or a dispute between the parties hereto with respect to this Agreement or the interpretation thereof the matter or disagreement or dispute shall be attempted to be resolved by mediation failing which, the same shall be referred to a single arbitrator pursuant to the Arbitration Act of British Columbia, and the determination of such arbitrator shall be final and binding upon the parties hereto

14.

Independent Legal Advice

The Executive represents and warrants the Corporation and acknowledges and agrees that the Executive has had the opportunity to seek and was not prevented or discouraged by the Corporation from seeking independent legal advice with respect to the contents herein and the Executive fully understands the terms and legal effect of this Agreement.

15.

Severability

If any one or more of the provisions contained herein should be invalid, illegal or unenforceable in any respect in any jurisdiction, the validity, legality and enforceability of such provision shall not in any way be affected or impaired thereby in any other jurisdiction and the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.

16.

Only Agreement

This Agreement shall constitute the only agreement between the parties governing the employment of the Executive and shall supersede any and all prior agreements that may have existed between the parties.

17.

Successors

This Agreement is binding upon and enures to the benefit of the Corporation and its successors and the heirs, executors, and personal legal representatives of the Executive. The Executive may not assign, pledge or encumber the Executive’s 

8

interest in this agreement or assign any of the rights or duties of the Executive without the prior written consent of the Corporation. 

IN WITNESS WHEREOF the parties have executed this Agreement at Vancouver, British Columbia as of the day and year first above written.

ALMADEN MINERALS LTD.

Per:

 “Duane Poliquin”

Authorized Signatory

“Dione Bitzer”

Executive

SCHEDULE ‘A’

CONTROLLER 

Reports to :

The Chief Executive Officer, the Chief Operating Officer and the Chief Financial Officer

Responsibilities:

The Controller is responsible for:

assisting in developing, analyzing and reviewing financial data;

assisting in the reporting on financial performance;

assisting in the monitoring expenditures and costs;

assisting the CEO, COO and CFO in preparing budgets 

assisting in fulfilling the reporting requirements of the securities regulators, stock exchanges  and

   shareholders.

The Controller shall assist the CEO and CFO in establishing effective means of control and co-ordination of the operations and activities of the Company and identifying, in conjunction with the CEO, COO and CFO the key risks with respect to the Company and its business and reviewing with the CEO, COO and CFO the strategies for managing such risks and ensuring that the assets of the Company are adequately safeguarded and maintained

The Controller in conjunction with the CEO and CFO shall assist in design or supervise the design of and implement, maintain and periodically evaluate the effectiveness of internal controls to provide reasonable assurances that the financial statements of the Company are fairly presented in accordance with generally accepted accounting standards and principles and that disclosure controls are in place to provide reasonable assurance that material information relating to the financial performance of the Company is made known to the CEO, COO and CFO and that any deficiencies are made known to the Audit Committee.

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