Document:

Unassociated Document

    
      

      

    

     

    

    LOAN
      AND SECURITY AGREEMENT

    

    

    Dated
      as of May 30, 2008

    

    

    Between

    

    

    REED’S,
      INC.

    

    

    (Borrower)

    

    and

    

    

    FIRST
      CAPITAL WESTERN REGION, LLC

    

    

    (Lender)

     

     

    

    
      

    

    
      

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      TABLE
        OF CONTENTS

       

      
        
          	 	 	
                  Page

                
	 	 	 
	
                  1.

                	
                  Definitions

                	
                  1

                
	 	 	 
	
                  2.

                	
                  Borrowing

                	
                  8

                
	 	 	 
	
                  3.

                	
                  Interest
                    and Fees

                	
                  10

                
	 	 	 
	
                  4.

                	
                  Representations
                    and Warranties of Borrower

                	
                  12

                
	 	 	 
	
                  5.

                	
                  Collateral

                	
                  13

                
	 	 	 
	
                  6.

                	
                  Financial
                    Covenants

                	
                  14

                
	 	 	 
	
                  7.

                	
                  Collateral
                    Covenants

                	
                  14

                
	 	 	 
	
                  8.

                	
                  Negative
                    Covenants

                	
                  16

                
	 	 	 
	
                  9.

                	
                  Reporting
                    and Information

                	
                  18

                
	 	 	 
	
                  10.

                	
                  Inspection
                    Rights; Expenses; Etc

                	
                  19

                
	 	 	 
	
                  11.

                	
                  Rights
                    of Setoff, Application of Payments, Etc

                	
                  20

                
	 	 	 
	
                  12.

                	
                  Attorney-in-Fact

                	
                  20

                
	 	 	 
	
                  13.

                	
                  Defaults
                    and Remedies

                	
                  21

                
	 	 	 
	
                  14.

                	
                  Indemnification

                	
                  23

                
	 	 	 
	
                  15.

                	
                  General
                    Provisions

                	
                  24

                

        

      

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    TABLE
      OF CONTENTS

    (continued)

    

      
        	 	
                Page

              
	 	 
	
                Attachments:

                 

                Schedule

              	 
	
                Exhibit
                  A - Form of Borrowing Base Certificate

              	
                 

              
	
                Exhibit
                  B - Form of Compliance Certificate

              	
                 

              
	
                Exhibit
                  C - Form of Deed of Trust

              	
                 

              
	
                Exhibit
                  D - Real Property Description

              	
                 

              

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    LOAN
      AND SECURITY AGREEMENT

    

    

    This
      LOAN
      AND SECURITY AGREEMENT (this “Agreement”)
      is
      entered into as of this 30th day of May, 2008 between REED’S, INC., a Delaware
      corporation (“Borrower”),
      and
      FIRST CAPITAL WESTERN REGION, LLC (“Lender”).

    

    RECITALS:

    

    WHEREAS,
      Borrower has requested that Lender provide Borrower with a secured lending
      facility; and

    

    WHEREAS,
      Lender is willing to provide a secured lending facility to Borrower on the
      terms
      set forth in this Agreement.

    

    NOW,
      THEREFORE, Borrower and Lender hereby agree as follows:

     

    1. Definitions.
      For
      purposes of this Agreement:

    

    “Accounts”
means
      all presently existing or hereafter arising accounts (as that term is defined
      in
      the UCC) of Borrower, accounts receivable due to Borrower (including medical
      and
      health-care-insurance receivables), book debts, notes, drafts and acceptances
      and other forms of obligations now or hereafter owing to Borrower, including,
      without limitation, those arising from the sale or lease of goods or the
      rendition of services by Borrower, all of Borrower’s rights in, to and under all
      purchase orders now or hereafter received by Borrower for goods and services,
      all proceeds from the sale of Inventory, all monies due or to become due to
      Borrower under all contracts for the sale or lease of goods, the licensing
      of
      intellectual property or the rendition of services by Borrower (whether or
      not
      yet earned) (including the right to receive the proceeds of said purchase orders
      and contracts), all collateral security, guarantees and supporting obligations
      of any kind given by any obligor with respect to any of the foregoing, and
      all
      goods returned to or reclaimed by Borrower that correspond to any of the
      foregoing.

    

    “Affiliate”
means,
      with respect to a Person, (a) any family member, officer, director, employee
      or
      managing agent of such Person, and (b) any other Person (i) that, directly
      or
      indirectly, through one or more intermediaries, controls, or is controlled
      by,
      or is under common control with, such given Person, (ii) that, directly or
      indirectly beneficially owns or holds 10% or more of any class of voting stock
      or partnership or other interest of such Person or any subsidiary of such
      Person, or (iii) 10% or more of the voting stock, membership interests or
      partnership or other interest of which is directly or indirectly beneficially
      owned or held by such Person or a subsidiary of such Person. The term “control”
means the possession, directly or indirectly, of the power to direct or cause
      the direction of the management and policies of a Person, whether through
      ownership of voting securities or partnership or other interests, by contract
      or
      otherwise.

    

    “Agreement
      Date”
means
      the date as of which this Agreement is dated.

    

    “Borrowing
      Base”
has
      the
      meaning set forth in Item
      1 of the Schedule.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    “Borrowing
      Base Certificate”
means
      the certificate, substantially in the form of Exhibit A,
      with
      appropriate insertions, to be submitted to Lender by Borrower pursuant to this
      Agreement and certified as true and correct by the Chief Executive Officer
      or
      the Chief Financial Officer of Borrower.

    

    “Business
      Day”
      means
      any
      day excluding Saturday, Sunday, and any day which is a legal holiday under
      the
      laws of the State of California or which is a day on which Lender is otherwise
      closed for transacting business with the public.

    

    “Collateral”
has
      the
      meaning set forth in Section
      5(a).

    

    “Customer”
means
      any customer or accounts debtor who is obligated on an Account, chattel paper
      or
      a General Intangible.

    

    “Deed
      of Trust”
means
      that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture
      Filing, of even date herewith, substantially in the form of Exhibit
      C,
      executed by Borrower for the benefit of Lender. 

    

    “Default”
has
      the
      meaning set forth in Section
      13(a).

    

    “Dilution”
means,
      at the time it is being calculated, a percentage, based upon the experience
      of
      the immediately prior 30 days, that is the result of dividing the dollar amount
      of (a) bad debt write-downs, discounts, advertising allowances, credits, or
      other non-cash reductions with respect to the outstanding Accounts, by (b)
      the
      Accounts created by Borrower during such period.

    

    “Dilution
      Reserve”
means,
      as of any date of determination, an amount sufficient to reduce the advance
      rate
      against Eligible Accounts by two percentage points for each percentage point,
      calculated by rounding off partial percentage points using conventional rounding
      rules as determined by Lender, by which Dilution is in excess of
      10.00%.

    

    “Election
      Notice”
has
      the
      meaning set forth in Item 1(a)(ii)(B)
      of the Schedule.

    

    “Eligible
      Accounts”
means
      those Accounts arising from the sale of Inventory or performance of services
      in
      the ordinary course of Borrower’s business; provided,
      however,
      that
      Eligible Accounts shall
      not
      include
      the following:

    

    (a) any
      Account which has remained unpaid for more than the number of days specified
      in
Item 2(a)
      of the Schedule;

    

    (b) Accounts
      with respect to which the Customer is an Affiliate of Borrower;

    

    (c) Accounts
      with respect to which services or goods are placed on consignment, guaranteed
      sale, or other terms by reason of which the payment by the Customer may be
      conditional;

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (d) Accounts
      with respect to which the Customer (i) does not maintain its chief executive
      office in the United States, or (ii) is not organized under the laws of the
      United States of America or any state thereof; or (iii) is the government of
      any
      foreign country or of any state, province, municipality, or other political
      subdivision thereof; except to the extent that such Account is secured or
      payable by a letter of credit satisfactory to Lender in its
      discretion;

    

    (e) any
      and
      all Accounts as to which the perfection, enforceability, or validity of Lender’s
      Collateral or security interest in such Account, or Lender’s right or ability to
      obtain direct payment to Lender of the proceeds of such Account, is governed
      by
      any federal or state statutory requirements other than those of the Uniform
      Commercial Code, including any Account subject to the Federal Assignment of
      Claims Act of 1940; provided, however, that an Account shall not be deemed
      ineligible by reason of this clause (e) if Borrower has completed all of the
      steps necessary, in the discretion of Lender, to comply with the Federal
      Assignment of Claims Act of 1940 with respect to such Account;

    

    (f) Accounts
      with respect to which the Customer is any state of the United States or any
      city, town, municipality, county or division thereof;

    

    (g) Accounts
      which may be subject to offset or recoupment by the Customer, whether as the
      result of goods sold or services rendered by the Customer to Borrower, any
      contractual arrangement between the Customer and Borrower (including any lease)
      or otherwise;

    

    (h) those
      Accounts where Lender, in Lender’s discretion, has notified Borrower that the
      Account or Customer is not acceptable to Lender;

    

    (i) all
      of
      the Accounts owed by a Customer if the aggregate outstanding dollar amount
      of
      such Accounts not considered as Eligible Accounts under clause (a) above as
      a
      percentage of all outstanding accounts then owing by such Customer, is equal
      to
      or greater than the Cross Aging Percentage specified in Item 2(b)
      of the Schedule;

    

    (j) Accounts
      for which services have not yet been rendered to the Customer or the goods
      sold
      have not yet been delivered to the Customer (commonly referred to as “pre-billed
      accounts”);

    

    (k) Accounts
      owed by a Customer not previously approved in writing by Lender where the dollar
      value for the aggregate amount of outstanding Accounts then owing by such
      Customer as a percentage of the dollar value of all outstanding Accounts then
      owing to Borrower is greater than the Concentration Limit specified in
Item 2(c)
      of the Schedule,
      but
      only to the extent of such excess;

    

    (l) any
      Account with respect to all or part of which a check, promissory note, draft,
      trade acceptance, or other instrument for the payment of money has been
      received, presented for payment, and returned uncollected for any
      reason;

    

    (m) any
      Account with respect to which Borrower has extended the time for payment without
      the consent of Lender;

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (n) any
      Account with respect to which any one or more of the following events has
      occurred to the Customer on such Account: death or judicial declaration of
      incompetency of a Customer who is an individual; the filing by or against the
      Customer of a request or petition for liquidation, reorganization, arrangement,
      adjustment of debts, adjudication as a bankrupt, winding-up, or other relief
      under the bankruptcy, insolvency, or similar laws of the United States, any
      state or territory thereof, or any foreign jurisdiction, now or hereafter in
      effect; the making of any general assignment by the Customer for the benefit
      of
      creditors; the appointment of a receiver or trustee for the Customer or for
      any
      of the assets of the Customer, including, without limitation, the appointment
      of
      or taking possession by a “custodian,” as defined in the Bankruptcy Code; the
      institution by or against the Customer of any other type of insolvency
      proceeding (under the bankruptcy laws of the United States or otherwise) or
      of
      any formal or informal proceeding for the dissolution or liquidation of,
      settlement of claims against, or winding up of affairs of, the Customer; the
      sale, assignment, or transfer of all or any material part of the assets of
      the
      Customer; the nonpayment generally by the Customer of its debts as they become
      due; or the cessation of the business of the Customer as a going
      concern;

    

    (o) any
      Account which arises out of finance or similar charges;

    

    (p) any
      Account in which Lender does not have a duly perfected, first-priority security
      interest, subject to no other Lien;

    

    (q) any
      Account which arises under a contract or arrangement covered by a performance
      or
      surety bond on behalf of Borrower, unless the Person providing such performance
      or surety bond has delivered an acceptable Lien waiver to Lender;
      or

    

    (r) any
      Account which is evidenced by a note, draft, trade acceptance, or other
      instrument for the payment of money where such instrument, document, chattel
      paper, note, draft, trade acceptance or other instrument has not been endorsed
      and delivered by Borrower to Lender.

    

    “Eligible
      Inventory”
means
      and includes that Inventory (other than packaging materials, labels and
      supplies) located in the continental United States which Lender, in its
      discretion, deems to be Eligible Inventory. Without limiting the generality
      of
      the foregoing, no Inventory shall be Eligible Inventory unless:

    

    (a) it
      is raw
      materials or finished goods;

    

    (b) at
      all
      times it strictly complies with all of Borrower’s warranties, covenants and
      representations to Lender;

    

    (c) it
      is in
      good, new and salable condition;

    

    (d) it
      is not
      slow moving, obsolete or unmerchantable, in Lender’s discretion;

    

    (e) it
      meets
      all standards imposed by any governmental agency or authority;

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (f) it
      is at
      all times subject to Lender’s duly perfected, first-priority security interest
      and there exists no other Lien thereon;

    

    (g) it
      is in
      Borrower’s possession and control situated at a location disclosed to Lender in
      compliance with this Agreement, the Inventory is not in-transit, Borrower’s
      books reflect the Inventory, the Inventory is insured to the full value thereof,
      and the insurance policy lists Lender as lender loss payee;

    

    (h) it
      is not
      in the hands of any third party, including a warehouseman, finisher, consignee,
      bailor, or processor, unless such arrangement is fully disclosed to Lender
      in
      writing and Borrower shall have provided to Lender such waivers, acknowledgments
      and other items requested by Lender in its discretion;

    

    (i) it
      is not
      subject to any license or other agreement that limits, conditions, or restricts
      Borrower’s or Lender’s right to sell or otherwise dispose of such
      Inventory;

    

    (j) Borrower
      owns such Inventory and such Inventory is not in Borrower’s possession based
      upon any consignment, guaranteed sale, or similar basis; and

    

    (k) it
      is not
      of a type that Lender, in its discretion, has determined is not Eligible
      Inventory.

    

    “Equipment”
means
      all of Borrower’s presently owned and hereafter acquired machinery, apparatus,
      equipment, motor vehicles, tractors, trailers, rolling stock, fittings, fixtures
      and other tangible personal property of every kind and description, together
      with all parts, accessories and special tools and all increases and accessions
      thereto and substitutions and replacements therefor.

    

    “GAAP”
means
      generally accepted accounting principles set forth in the opinions and
      pronouncements of the Accounting Principles Board of the American Institute
      of
      Certified Public Accountants and statements and pronouncements of the Financial
      Accounting Standards Board that are applicable to the circumstances as of the
      date of determination and applied on a consistent basis.

    

    “General
      Intangibles”
means
      all of Borrower’s present and future general intangibles and all other presently
      owned or hereafter acquired intangible personal property of Borrower (including
      payment intangibles and any and all choses or things in action, goodwill,
      patents and patent applications, tradenames, servicemarks, trademarks and
      trademark applications, copyrights, blueprints, drawings, purchase orders,
      customer lists, monies due or recoverable from pension funds, route lists,
      infringement claims, software, computer programs, computer discs, computer
      tapes, literature, reports, catalogs, deposit accounts, tax refunds and tax
      refund claims) other than Goods and Accounts, and all supporting obligations
      relating to any of the foregoing, as well as Borrower’s books and records
      relating to any of the foregoing.

    

    “Goods”
means
      all of Borrower’s present and hereafter acquired goods, as defined in the UCC,
      wherever located, including imbedded software to the extent included in “goods”
as defined in the UCC, manufactured homes, and standing timber that is cut
      and
      removed for sale.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    “Guarantor”
means
      individually, and “Guarantors” means collectively, Christopher Reed and any
      other Person that has guaranteed all or any part of the
      Obligations.

    

    “Inventory”
means
      all present and future inventory (as defined in the UCC) of Borrower, including
      goods held for sale or lease or to be furnished under a contract of service
      and
      all of Borrower’s present and future raw materials, work in process, finished
      goods, shelving and racking upon which the inventory is stored and packing
      and
      shipping materials, wherever located, and any documents of title representing
      any of the above.

    

    “Lien”
means
      any security interest, security title, mortgage, deed to secure debt, deed
      of
      trust, lien, pledge, charge, conditional sale or other title retention
      agreement, or other encumbrance of any kind in respect of any property,
      including the interest of each lessor under any capitalized lease and the
      interest of any bondsman under any payment or performance bond, in, of or on
      any
      assets or properties of a Person, whether now owned or hereafter acquired and
      whether arising by agreement or operation of law.

    

    “Loan
      Documents”
means,
      collectively,
      this Agreement, the Deed of Trust, and each other agreements, instruments,
      certificates (including any Borrowing Base Certificate) or other documents
      entered into in connection with this Agreement, including collateral documents,
      letter of credit agreements, security agreements, pledges, guaranties,
      mortgages, deeds of trust, assignments and subordination agreements, and any
      other agreement executed by any Obligor or any Affiliate of any Obligor pursuant
      hereto or in connection herewith.

    

    “Maximum
      Credit Limit”
means
      $2,000,000.

    

    “Negotiable
      Collateral”
means
      all of Borrower’s present and future letters of credit, advises of credit,
      notes, drafts, instruments, and documents, including, without limitation, bills
      of lading, leases, and chattel paper, and Borrower’s books and records relating
      to any of the foregoing.

    

    “Obligations”
means
      all indebtedness, obligations and liabilities of Borrower to Lender and its
      Affiliates of every kind and description, direct or indirect, secured or
      unsecured, joint or several, absolute or contingent, due or to become due,
      including any overdrafts, whether for payment or performance, now existing
      or
      hereafter arising, whether presently contemplated or not, regardless of how
      the
      same arise, or by what instrument, agreement or book account they may be
      evidenced, or whether evidenced by any instrument, agreement or book account,
      including, but not limited to, all loans (including any loan by modification,
      renewal or extension), all indebtedness arising from any derivative
      transactions, all undertakings to take or refrain from taking any action, all
      indebtedness, liabilities or obligations owing from Borrower to others which
      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 Lender or
      any
      of its Affiliates) chargeable to Borrower or incurred by Lender under this
      Agreement or any other document or instrument delivered in connection
      herewith.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    “Obligor”
means
      Borrower, Guarantor, any validity guarantor or any other Person primarily or
      secondarily, directly or indirectly, liable on any of the
      Obligations.

    

    “Permitted
      Liens”
means
      (a) Liens or charges for current taxes, assessments or other governmental
      charges which are not delinquent or remain payable without any penalty, or
      the
      validity of which is contested in good faith by appropriate proceedings upon
      stay of execution of the enforcement thereof and for which appropriate reserves
      have been established in accordance with GAAP; (b) deposits or pledges to secure
      (i) statutory obligations, (ii) surety or appeal bonds, or (iii) bonds for
      release of attachment, stay of execution or injunction; (c) statutory Liens
      on
      property arising in the ordinary course of business which, in the aggregate,
      do
      not materially impair the use of such property or materially detract from the
      value of such property; (d) Liens existing on the Agreement Date and described
      on Item 3
      of the Schedule;
      (e)
      Liens on Equipment securing all or part of the purchase price of such Equipment;
      provided,
      however,
      that
      (i) such Lien is created contemporaneously with the acquisition of such
      Equipment, (ii) such Lien attaches only to the specific items of Equipment
      so
      acquired, and (iii) such Lien secures only the indebtedness incurred to acquire
      such Equipment; and (f) Liens in favor of Lender.

    

    “Person”
means
      an individual, corporation, partnership, limited liability company, association,
      trust, unincorporated organization, government or any agency or political
      subdivision thereof, or any other entity.

    

    “Real
      Property”
means
      that certain real property commonly referred to as 12930 and 13000 South Spring
      Street, Los Angeles, California 90061 and more specifically described in
Exhibit
      D.
      

    

    “Subordinated
      Debt”
means
      all of the indebtedness owed by Borrower to any other Person, the repayment
      of
      which is subordinated to the repayment of the Obligations pursuant to the terms
      of a subordination agreement approved by Lender in its discretion.

    

    “UCC”
means
      the Uniform Commercial Code, as in effect from time to time, of the State of
      California or of any other state the laws of which are required as a result
      thereof to be applied in connection with the issue of perfection of security
      interests; provided,
      however,
      that to
      the extent that the UCC is used to define any term herein or in any other
      documents and such term is defined differently in different Articles of the
      UCC,
      the definition of such term contained in Article 9 shall govern. As used
      herein, references to an Article of the UCC shall be deemed to be references
      to
      Division of the UCC of the State of California.

    

    Other
      Definitional Provisions.
      References to the “Schedule” or any “Section” or “Exhibit” refer to the Schedule
      or a section or exhibit, respectively, of this Agreement unless otherwise
      specifically provided. Any of the terms defined in Section 1
      may,
      unless the context otherwise requires, be used in the singular or the plural
      depending on the reference. In this Agreement: words importing any gender
      include the other genders; the words “including”, “includes” and “include” shall
      be deemed to be followed by the words “without limitation”; references to
      agreements and other contractual instruments shall be deemed to include
      subsequent amendments, assignments, and other modifications thereto, but only
      to
      the extent such amendments, assignments and other modifications are not
      prohibited by the terms of this Agreement; references to any Person includes
      their respective permitted successors and assigns or people succeeding to the
      relevant functions of such Persons; any and all terms which are defined in
      the
      UCC and are not defined herein shall be construed and defined in accordance
      with
      the definition of such terms under the UCC; all references to statutes and
      related regulations shall include any amendments of same and any successor
      statutes and regulations; and all references to time of day shall refer to
      Los
      Angeles, California time.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    2. Borrowing.

    

    (a) Amount
      Available to Be Borrowed.
      From
      time to time Borrower may request, and Lender will, subject to the other terms
      and conditions of this Agreement, lend to Borrower up to an amount equal to
      the
      Borrowing Base at any time. Borrowed amounts that are repaid may be reborrowed
      upon the terms and conditions of this Agreement.

    

    (b) Standards.
      Lender
      will determine eligibility and the loan value of Collateral, in its sole
      discretion, consistent with Lender’s experience, prudent business judgment and
      standards of commercial reasonableness applicable to asset-based credits and
      in
      good faith. Any loans requested by Borrower and made by Lender or at any time
      outstanding in excess of the Borrowing Base or any other limitation set forth
      in
      this Agreement will, nevertheless, be subject to the terms of this Agreement,
      will constitute Obligations for all purposes and be entitled to the benefits
      of
      the Collateral.

    

    (c) Persons
      Authorized to Request Loans.
      Borrower
      hereby authorizes and directs Lender to make loan advances to or for the benefit
      of Borrower upon receipt of instructions from any of the persons listed on
      Item 4
      of the Schedule.
      Lender
      shall have no liability whatsoever to Borrower or any other Person for acting
      upon any such instructions which Lender, in good faith, believes were given
      by
      any such person, and Lender shall have no duty to inquire as to the propriety
      of
      any disbursement. Lender is hereby authorized to make the loans provided for
      herein based on instructions received by facsimile, electronic mail, telephone
      or other method of communication from any of such persons. Although Lender
      shall
      make a reasonable effort to determine the person’s identity, Lender shall not be
      responsible for determining the authenticity of any such instructions, and
      Lender may act on the instructions of anyone it perceives to be one of the
      persons authorized to request loans hereunder. Lender shall have the right
      to
      accept the instructions of any of the foregoing persons unless and until Lender
      actually receives from Borrower (in accordance with the notice provisions of
      this Agreement) written notice of termination of the authority of that person.
      Borrower may change persons designated to give Lender borrowing instructions
      only by delivering to Lender written notice of such change. Borrower will ensure
      that each telephone instruction from any person designated in or pursuant to
      this section shall be followed by written confirmation of the request for
      disbursement in such form as Lender makes available to Borrower from time to
      time for such purpose; provided,
      however, that Borrower’s failure to provide written confirmation of any
      telephonic instruction shall not invalidate such telephonic
      instruction.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (d) Application
      of Remittances.
      Borrower will use only invoices in forms that Lender has approved, and
      Borrower’s billings on such invoices will be conclusive evidence of assignment
      and transfer hereunder to Lender of the Accounts represented thereby, whether
      or
      not Borrower executes any other instrument with regard to any specific Account.
      Borrower will cause the proceeds of Accounts to be forwarded by all Customers
      directly to a lockbox designated by Lender. Such lockbox shall be maintained
      by
      Wells Fargo Bank, N.A., and all payments received in such lockbox shall be
      deposited in a bank account in Lender’s name and owned by Lender at Wells Fargo
      Bank, N.A, for application to the Obligations. All checks or other remittances
      received by Borrower for application to Accounts will be received by Borrower
      in
      trust for Lender, and Borrower will turn over to Lender the identical
      remittances as speedily as possible, appropriately endorsed, if necessary.
      As
      compensation to Lender for delays in the collection and clearance of such
      checks, Borrower agrees to pay interest on each remittance, including wire
      transfers, from the date of Lender’s receipt thereof plus the number of days set
      forth on Item 5
      of the Schedule at
      the
      rate applicable to loans outstanding hereunder, as set forth in Section 3
      below.
      Borrower will account fully and faithfully for and promptly pay or turn over
      to
      Lender proceeds in whatever form received of the sale or other disposition
      of
      any Collateral, and Borrower agrees that the inclusion of proceeds in
“Collateral” will not be deemed to mean that Lender consents to Borrower’s
      disposition of Collateral other than in accordance with the terms of this
      Agreement.

    

    (e) Conditions
      to Obligation to Make Loans.
      Borrower acknowledges that Lender’s obligation to make loans to Borrower (or to
      issue or create or cause the issuance or creation by Lender or its Affiliates
      of
      letters of credit or acceptances for Borrower’s account) is subject to the
      following terms and conditions:

    

    (i) Lender
      has
      no
      obligation to make the initial loan to Borrower or to extend any other financial
      accommodation to Borrower unless and until each condition precedent specified
      on
Item 6
      of the Schedule
      has been
      fulfilled to Lender’s satisfaction.

    

    (ii) Lender’s
      obligation to make any loans to Borrower and extend other financial
      accommodations to Borrower (including the initial loans) is subject to the
      conditions that, as of the date of any such loan or other accommodation, no
      Default will have occurred and be continuing hereunder, there will have occurred
      no material adverse change in Borrower’s financial condition or operations or in
      Borrower’s business prospects as compared to the state of facts existing on the
      Agreement Date, and Borrower’s representations and warranties set forth in this
      Agreement (including any amendment, modification, supplement or extension
      hereof) will be true and correct as if made on and as of the date of each
      subsequent credit request. Each request for a borrowing or other financial
      accommodation by Borrower will be deemed to be a reaffirmation of each of
      Borrower’s warranties and representations hereunder.

    

    (f) Repayment
      of Loans.
      In the
      event of any breach by Borrower of any provision hereof or upon termination
      of
      this Agreement, Borrower will repay upon demand all of the Obligations. If
      no
      demand is earlier made, Borrower will repay all Obligations in full, without
      demand or notice, on the last day of the term of this Agreement (as provided
      in
      clause (g) below). If at any time for any reason, the aggregate outstanding
      principal amount of all loans exceeds the Borrowing Base or any other limitation
      on the amount available to be borrowed hereunder, Borrower will immediately,
      without notice or demand, repay the outstanding principal amount of the loans,
      together with accrued and unpaid interest on the amount repaid, in an amount
      equal to such excess. Borrower shall make each payment required hereunder or
      under any other Loan Document without setoff, deduction or
      counterclaim.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (g) Maturity.
      This
      Agreement will continue in full force and effect from the Agreement Date until
      the termination date provided for in Item 7
      of the Schedule.

    

    (h) Voluntary
      Termination.
      Following the first six (6) months of the initial term of this Agreement,
      Borrower may terminate this Agreement at any time upon at least 60 days’ prior
      written notice to Lender. On the date specified in such notice, termination
      will
      be effective, so long as Borrower has paid to Lender, in same day funds, an
      amount equal to the aggregate principal amount of all loans outstanding on
      such
      date, together with accrued interest thereon, the originals of all letters
      of
      credit and bankers acceptances, if any, issued, created or guaranteed by Lender
      or any of its Affiliates for Borrower’s account have been returned for
      cancellation or have been presented and paid by Borrower or other arrangements
      satisfactory to Lender have been made, all other Obligations outstanding and
      unpaid have been paid in full in cash, and Borrower has provided Lender an
      indemnification agreement satisfactory to Lender with respect to returned and
      dishonored items and such other matters as Lender shall require.

    

    (i) Termination
      on Default.
      Notwithstanding the foregoing, should a Default occur and be continuing, Lender
      will have the right to terminate this Agreement at any time without
      notice.

    

    (j) Survival.
      Notwithstanding termination, all the terms, conditions, and provisions hereof
      (including Lender’s security interest in the Collateral, but excluding any
      obligations of Lender hereunder) will continue to be fully operative until
      all
      Obligations have been fully disposed of, concluded, paid, satisfied, and
      liquidated.

    

    (k) Payments
      as Loans.
      Borrower’s failure to pay any amount due from Borrower under this Agreement or
      any other Loan Document, whether for principal, interest, fees, premiums, costs,
      expenses or otherwise, shall be deemed to be a request by Borrower for a loan
      hereunder, and Lender may charge Borrower’s loan account for any such amount.
      Additionally, if Lender determines in its discretion that extensions of credit
      are necessary to protect the Collateral, Lender is hereby authorized to make
      such extensions of credit and charge them to Borrower’s loan
      account.

     

    3. Interest
      and Fees.

    

    (a) Interest
      on Loans.
      Borrower will pay Lender or, at Lender’s option, Lender may charge Borrower’s
      loan account with, interest on the average daily net principal amount of loans
      outstanding hereunder, calculated monthly and payable on the first day of each
      calendar month, at a rate (computed on the basis of the actual number of days
      elapsed over a year of 360 days) equal to the interest margin specified in
      Item 8
      of the Schedule,
      plus
      the greater of (i) 2.0%, per annum and
      (ii)
      the LIBOR Rate. The “LIBOR
      Rate”
is,
      at
      any time, the rate of interest noted in The
      Wall Street Journal,
      Money
      Rates section, as the “30 day LIBOR Rate”. In the event that The
      Wall Street Journal
      quotes
      more than one rate, or a range of rates, as the LIBOR Rate, then the LIBOR
      Rate
      shall mean the average of the quoted rates. In the event that The
      Wall Street Journal
      ceases
      to publish a LIBOR Rate, then the LIBOR Rate shall be the commercial lending
      rate that most closely replaces the LIBOR Rate, as determined by Lender in
      its
      reasonable discretion. The “LIBOR Rate” may not be the lowest or best rate at
      which Lender calculates interest or extends credit. Any change in the LIBOR
      Rate
      shall be effective for purposes of calculating interest hereunder as of the
      date
      of such change.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (b) Default
      Interest.
      To the
      extent permitted by law and without limiting any other right or remedy of Lender
      hereunder, whenever there is a Default under this Agreement, the rate of
      interest on the unpaid principal balance of the Obligations shall, at the option
      of Lender, be increased by adding the default margin identified on Item 9
      of the Schedule
      to the
      interest rate otherwise in effect hereunder. Lender may charge such default
      interest rate retroactively beginning on the date the applicable Default first
      occurred or existed. Borrower acknowledges that: (i) such additional rate is
      a
      material inducement to Lender to make the loans described herein; (ii) Lender
      would not have made the loans in the absence of the agreement of Borrower to
      pay
      such additional rate; (iii) such additional rate represents compensation for
      increased risk to Lender that the loans will not be repaid; and (iv) such rate
      is not a penalty and represents a reasonable estimate of (A) the cost to Lender
      in allocating its resources (both personnel and financial) to the ongoing
      review, monitoring, administration and collection of the loans, and (B)
      compensation to Lender for losses that are difficult to ascertain. In the event
      of termination of this Agreement by either party hereto, Lender’s entitlement to
      this charge will continue until all Obligations are paid in full.

    

    (c) Fees.
      Borrower will pay to Lender the fees set forth in Item 10
      of the Schedule.

    

    (d) No
      Usury.
      Borrower acknowledges that Lender does not intend to reserve, charge or collect
      interest on money borrowed under this Agreement at any rate in excess of the
      rates permitted by applicable law and that, should any interest rate provided
      for in this Agreement exceed the legally permissible rate(s), the rate will
      automatically be reduced to the maximum rate permitted under applicable law.
      If
      Lender should collect any amount from Borrower which, if it were interest,
      would
      result in the interest rate charged hereunder exceeding the maximum rate
      permitted by applicable law, such amount will be applied to reduce principal
      of
      the Obligations or, if no Obligations remain outstanding, will be refunded
      to
      Borrower.

    

    (e) Monthly
      Statements. Lender
      will render a statement to Borrower each month for loans, payments, and other
      transactions pursuant to this Agreement, and such statement rendered by Lender
      will be binding upon Borrower unless Lender is notified in writing to the
      contrary within 30 days after the date such statement is rendered.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    4. Representations
      and Warranties of Borrower.

     

    (a) Authority,
      Compliance with Laws, Litigation, No Material Adverse Change,
      Etc.
      Borrower
      represents and warrants to Lender that: (i) Borrower’s exact legal name, type of
      organization, state of organization and organizational identification number
      are
      fully and accurately set forth on Item 11
      of the Schedule,
      and
      Borrower is duly organized and validly existing under the laws of such state
      of
      organization; (ii) the execution, delivery, and performance of this Agreement
      and the other Loan Documents are within Borrower’s corporate or other
      organizational powers, have been duly authorized, do not violate Borrower’s
      constituent documents, any law or regulation, including without limitation,
      any
      law or regulation relating to occupational health and safety or protection
      of
      the environment, applicable to Borrower, or any indenture, agreement, or
      undertaking to which Borrower is a party or by which Borrower or Borrower’s
      property is bound; (iii) this Agreement and the other Loan Documents to which
      Borrower is a party constitute valid, binding and enforceable obligations of
      Borrower in accordance with the terms hereof and thereof, except as
      enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance,
      moratorium or other similar laws applicable to creditors’ rights generally or by
      generally applicable equitable principles affecting the enforcement of
      creditors’ rights; (iv) Borrower has no subsidiaries or other investments in
      other Persons, except as set forth on Item 12
      of the Schedule;
      (v)
      Borrower is in compliance in all material respects with all laws, rules and
      regulations applicable to Borrower, including laws, rules or regulations
      concerning the environment, occupational health and safety and pensions or
      other
      employee benefits; (vi) except as set forth on Item 13
      of the Schedule,
      there
      is no litigation or investigation pending against Borrower (or, so far as
      Borrower is aware, threatened) which, if it were decided adversely to Borrower,
      could reasonably be expected to have a material adverse effect on Borrower,
      Borrower’s financial or operational condition or Borrower’s prospects (taking
      into account any insurance coverage that has been acknowledged by the insurer);
      (vii) other than debt that is to be repaid from the proceeds of the first
      advance hereunder, Borrower is not indebted to any other Person for money
      borrowed nor has Borrower issued any guaranty of payment or performance by
      any
      other Person, except as set forth on Item 14
      of the Schedule;
      (viii)
      since the date of the financial statements of Borrower most recently delivered
      to Lender, there has been no material adverse change in Borrower’s business,
      Borrower’s financial or operational condition or Borrower’s business prospects;
      and (ix) Borrower is, and after giving effect to the initial loans under this
      Agreement and the application of the proceeds of such loans Borrower will be,
      solvent and has sufficient revenues to pay Borrower’s obligations as they come
      due and adequate capital with which to conduct Borrower’s business.

    

    (b) Title
      to Assets, Other Collateral Matters.
      Borrower represents and warrants to Lender that: (i) Borrower has good and
      marketable title to the Collateral, free of all Liens except for Permitted
      Liens, and no financing statement, mortgage, notice of Lien, deed of trust,
      security agreement, or any other agreement or instrument creating or giving
      notice of any Lien against any of the Collateral has been signed, authorized
      or
      delivered by Borrower, except in Lender’s favor or with respect to Permitted
      Liens; (ii) with regard to each Account as it arises, except as set forth on
      a
      Borrowing Base Certificate including such Account: (A) Borrower will have made
      delivery of the goods or will have rendered the services ordered; (B) the
      Customer will have accepted the goods and/or services; and (C) no Customer
      dispute will exist in any respect, including, without limitation, disputes
      as to
      price, terms, warranties, quantity or quality, and claims of set-off, release
      from liability or defense based upon any act of God or a public enemy or war
      or
      because of the requirements of law or of rules, orders, or regulations having
      the force of law; (iii) all Inventory is in good condition, meets all applicable
      governmental standards and is currently usable or saleable in the ordinary
      course of Borrower’s business for a price approximating at least Borrower’s cost
      thereof; (iv) all Equipment is in good condition and state of repair, ordinary
      wear and tear excepted; (v) all Collateral meets applicable government
      standards; (vi) in the past five years, except as set forth on Item 15
      of the Schedule
      (A)
      Borrower has not used any other legal, trade or fictitious names, and (B)
      Borrower has not been a party to any merger or purchased assets from any other
      Person other than in the ordinary course of business; and (vii) each of
      Borrower’s chief executive office and principal place of business, all
      Inventory, all Equipment and all other Collateral is located at the addresses
      (including the county) set forth on Item 16
      of the Schedule and
      has
      not been located at any other location during the five year period prior to
      the
      Agreement Date.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (c) Ownership
      Structure. Borrower
      represents and warrants that (i) Item 17
      of the Schedule
      accurately describes the ownership of Borrower’s capital stock, membership
      interests or other equity interests, and (ii) the individual(s) listed on
Item 17
      of the Schedule
      have,
      directly or indirectly, voting and managerial control of Borrower. 

    

    (d) Additional
      Representations.
      Borrower represents and warrants to Lender that: (i) Borrower is not engaged
      as
      one of Borrower’s principal activities in owning, carrying or financing the
      purchase or ownership by others of “margin stock” (as defined in Regulation U of
      the Board of Governors of the Federal Reserve System); (ii) Borrower owns no
      real property and leases no real property other than as listed on Item 18
      of the Schedule;
      (iii) a
      true, correct and complete list of any warehousemen, processors, consignees
      or
      other bailees with possession or control of any Inventory is set forth on
Item 18
      of the Schedule;
      and
      (iv) a list and brief description of all bank accounts maintained by Borrower
      with any bank or financial institution is set forth on Item 19
      of the Schedule.

     

    5. Collateral.

    

    (a) Grant
      of Security Interest.
      To
      induce Lender to accept this Agreement and to make loans to Borrower from time
      to time pursuant to its terms, Borrower hereby grants to Lender, for itself
      and
      as agent for any Affiliate of Lender, a security interest in, and assigns,
      mortgages and pledges to Lender, for itself and as agent for any Affiliate
      of
      Lender, all of Borrower’s right, title and interest in and to all of Borrower’s
      property, whether real or personal, tangible or intangible, now owned or
      existing or hereafter acquired or arising, including all of the following
      (collectively, the “Collateral”):

    

    (i) all
      Accounts, Inventory,
      Equipment, Goods, General Intangibles and Negotiable Collateral;

    

    (ii) all
      investment property, securities and securities accounts and financial assets,
      as
      well as all bank and depository accounts;

    

    (iii) all
      chattel paper (whether tangible or electronic) and contract rights;

    

    (iv) all
      guaranties, collateral, Liens on real or personal property, leases, letters
      of
      credit, letter-of-credit rights, supporting obligations, and all other rights,
      agreements, and property securing or relating to payment of Accounts or any
      other Collateral;

    

    (v) all
      documents, books and records relating to any Collateral or to Borrower’s
      business;

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (vi) all
      other
      property of Borrower’s now or hereafter in the possession or control of Lender
      or any of Lender’s Affiliates (including cash, money, credits and balances of
      Borrower held by or on deposit with Lender or any Affiliate of
      Lender);

    

    (vii) all
      other
      assets of any Obligor in which Lender receives a security interest to secure
      all
      or part of the Obligations or which hereafter come into the possession, custody
      or control of Lender or any Affiliate of Lender;

    

    (viii) all
      of
      Borrower’s commercial tort claims listed on (A) Item 20
      of the Schedule
      (which
      Borrower represents and warrants is a true, accurate and complete list of all
      of
      Borrower’s commercial tort claims as of the Agreement Date) or (B) any other
      writing provided to Lender pursuant to Section 7(g);
      and

    

    (ix) all
      proceeds and products of all of the foregoing in any form, including amounts
      payable under any policies of insurance insuring all or any of the foregoing
      against loss or damage, all parts, accessories, attachments, special tools,
      additions, replacements, substitutions and accessions to or for all or any
      of
      the foregoing, all condemnation or requisition payments with respect to all
      or
      any of the foregoing and all increases and profits received from all or any
      of
      the foregoing.

    

    (b) Obligations.
      Such
      grant, assignment, mortgage and transfer is made for the purpose of securing
      and
      the Collateral secures and will continue to secure all of the
      Obligations.

     

    6. Financial
      Covenants.
      Borrower shall comply with each of the financial covenants set forth on
Item 21
      of the Schedule.

     

    7. Collateral
      Covenants.

    

    (a) Accounts.
      Borrower will notify Lender promptly of and settle all Customer disputes, but,
      if Lender so elects, Lender will have the right at all times to settle,
      compromise, adjust, or litigate all Customer disputes directly with the Customer
      or other complainant upon such terms and conditions as Lender deems advisable
      without incurring liability to Borrower for Lender’s performance of such acts.
      All of Borrower’s books and records concerning Accounts and a copy of Borrower’s
      general ledger will be maintained at the address of Borrower’s chief executive
      office set forth on Item 16
      of the Schedule.
      All
      Accounts included on any Borrowing Base Certificate will be, except as indicated
      on such Borrowing Base Certificate or subsequently in writing to Lender, bona
      fide and
      existing obligations of Customers arising out of the sale of goods and/or the
      rendering of services by Borrower in the ordinary course of Borrower’s business,
      owned by and owing to Borrower without defense, setoff or counterclaim, and
      will
      be subject to a perfected, first-priority security interest in Lender’s favor
      and will be free and clear of all other Liens.

    

    (b) Inventory.
      All
      Inventory will at all times be located at one of the Inventory locations set
      forth on Item 16
      of the Schedule
      as the
      current location of Borrower’s chief executive office or a current location of
      other Collateral, will be subject to a perfected, first-priority security
      interest in Lender’s favor and will be free and clear of all other Liens. Sales
      of Inventory will be made in compliance with all material requirements of
      applicable law.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    (c) Equipment.
      Borrower will maintain all Equipment used or useful in Borrower’s business in
      good and workable condition, ordinary wear and tear excepted, subject to a
      perfected, first-priority security interest in Lender’s favor and free and clear
      of all other Liens (other than Permitted Liens), at one of the locations set
      forth on Item 16
      of the Schedule
      as the
      current location of Borrower’s chief executive office or a current location of
      other Collateral.

    

    (d) Defense
      of Title.
      All
      Collateral will at all times be owned by Borrower, and Borrower will defend
      Borrower’s title to the Collateral against the claims of third parties. Borrower
      will at all times keep accurate and complete records of the
      Collateral.

    

    (e) Perfection;
      Further Assurances.
      Borrower will give Lender at least 30 days’ prior written notice of any change
      in Borrower’s name, state of organization or organizational identification
      number, any change in the location of Borrower’s principal place of business or
      chief executive office, any change in the locations of Borrower’s Inventory or
      Equipment and any acquisition by Borrower of any interest in real property.
      Borrower will, at Borrower’s expense, promptly execute and deliver from time to
      time at Lender’s request and pay the costs of filing such additional financing
      statements, mortgages, or other evidences of Liens as may be necessary or
      desirable to perfect or continue perfection of Lender’s security interest in
      Borrower’s property or, at Lender’s request, made in Lender’s sole and absolute
      discretion, to create and perfect a Lien on newly acquired personal or real
      property. Borrower will use all reasonable efforts to obtain from any landlord,
      warehouseman, processor or other third party operator of premises on which
      any
      Collateral is located an acceptable Lien waiver or subordination agreement
      in
      Lender’s favor with respect to such Collateral. Lender shall have the right to
      maintain rent reserves and other appropriate reserves against the availability
      under the Borrowing Base unless and until Lender has received all waivers or
      subordination agreements required by Lender and containing terms and conditions
      satisfactory to Lender in its sole discretion from such landlords, warehousemen,
      or other third party operators of premises where any Collateral is located.
      All
      Collateral is and will continue to be, except as expressly consented to by
      Lender, personal property and will not, by reason of attachment or connection
      to
      any realty, either become or be deemed to be a fixture or appurtenance to such
      realty and will at all times be readily removable without material damage to
      any
      realty. In the event that any Collateral, including proceeds, is evidenced
      by or
      consists of Negotiable Collateral, Borrower shall, immediately upon written
      request therefor from Lender, endorse and assign such Negotiable Collateral
      over
      to Lender and deliver actual physical possession of the Negotiable Collateral
      to
      Lender. Borrower shall at any time and from time to time take such steps as
      Lender may request for Lender (i) to obtain an acknowledgment, in form and
      substance satisfactory to Lender, of any bailee having possession of any of
      the
      Collateral that such bailee holds such Collateral for Lender, (ii) to obtain
      “control” of any investment property, deposit accounts, letter-of-credit rights
      or chattel paper (including electronic chattel paper) in accordance with Article
      9 of the UCC, with any agreements establishing control to be in form and
      substance satisfactory to Lender, and (iii) otherwise to insure the continued
      perfection and priority of Lender’s security interest in any of the Collateral
      and of the preservation of its rights therein.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (f) Insurance.
      Borrower will obtain and maintain in full force and effect insurance covering
      the Collateral against all risks to which the Collateral is exposed, including
      loss, damage, fire, theft, and all other such risks, in such amounts, with
      such
      companies, under such policies and in such form as will be satisfactory to
      Lender, which policies will name Lender as an additional insured and provide
      that loss thereunder will be payable to Lender as Lender’s interests may appear
      upon a loss payee endorsement acceptable to Lender. All proceeds of any such
      insurance will be paid over to Lender directly, and Lender may hold such
      proceeds as cash collateral, apply such proceeds to payment of the Obligations,
      whether or not due, in such order of application as Lender determines or, in
      Lender’s sole discretion, apply such proceeds, in whole or in part, to the
      replacement, restoration or rebuilding of the lost or damaged property. Borrower
      will provide to Lender from time to time certificates showing such coverage
      in
      effect and, at Lender’s request, the underlying policies.

    

    (g) Commercial
      Tort Claims.
      If
      Borrower shall at any time commence, assert or otherwise acquire a commercial
      tort claim, Borrower shall immediately notify Lender in a writing signed by
      Borrower of the details thereof and grant to Lender in such writing a security
      interest therein and in the proceeds thereof, all in accordance with and subject
      to the terms of this Agreement, with such writing to be in form and substance
      satisfactory to Lender.

    

    (h) Financing
      Statements.
      Lender
      may at any time and from time to time file financing statements, continuation
      statements and amendments thereto that describe the Collateral as “all assets”
of Borrower or words of similar effect and which contain any other information
      required by Part 5 of Article 9 of the UCC for the sufficiency or filing
      office acceptance of any financing statement, continuation statement or
      amendment, including whether Borrower is an organization, the type of
      organization and any organization identification number issued to Borrower.
      Borrower agrees to furnish any such information to Lender promptly upon request.
      Any such financing statements, continuation statements or amendments may be
      signed by Lender on behalf of Borrower or filed by Lender without the signature
      of Borrower and may be filed at any time in any jurisdiction. Borrower
      acknowledges that it is not authorized to file any financing statement or
      amendment or termination statement with respect to any financing statement
      naming Borrower as the debtor and Lender as the secured party without the prior
      written consent of Lender, and Borrower agrees that it shall not do so without
      the prior written consent of Lender.

     

    8. Negative
      Covenants.

    

    (a) No
      Merger.
      Borrower will not merge or consolidate with any other Person or sell, transfer,
      lease, abandon, or otherwise dispose of a substantial portion of Borrower’s
      assets or any of the Collateral or any interest therein, except that, so long
      as
      no Default has occurred and is continuing, Borrower may sell Inventory in the
      ordinary course of Borrower’s business.

    

    (b) No
      Debt or Liens; Taxes.
      Borrower will not obtain or attempt to obtain from any Person other than Lender
      any loans, advances, or other financial accommodations or indebtedness of any
      kind, nor will Borrower enter into any direct or indirect guaranty of any
      obligation of another Person, other than (i) Subordinated Debt, and (ii)
      indebtedness in connection with purchase money security interests constituting
      Permitted Liens (and capital leases) not to exceed, in aggregated principal
      amount, the amount set forth on Item 22
      of the Schedule
      at any
      one time outstanding. Borrower will not permit any of Borrower’s assets to be
      subject to any Lien other than Permitted Liens. Borrower shall pay when due
      (or
      before the expiration of any extension period) any tax or other assessment
      (including all required payments or deposits with respect to withholding taxes),
      and Borrower will, upon request by Lender, promptly furnish Lender with proof
      satisfactory to Lender that Borrower has made such payments and
      deposits.

     

    
      
        
        

      

      
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    (c) No
      Distributions.
      Borrower will not retire, repurchase or redeem any of Borrower’s capital stock
      or other ownership interest in Borrower, nor declare or pay any dividend in
      cash
      or other property (other than additional shares of capital stock or additional
      ownership interests) to any owner or holder of Borrower’s shares or other
      ownership interest.

    

    (d) No
      ERISA Liabilities.
      Borrower will make timely payments of all contributions required to meet the
      minimum funding standards for Borrower’s employee benefit plans subject to the
      Employee Retirement Income Security Act of 1974 (as amended, “ERISA”)
      and
      will promptly report to Lender the occurrence of any reportable event (as
      defined in ERISA) and any giving or receipt by Borrower of any governmental
      notice (other than routine requests for information) in respect of any such
      plan.

    

    (e) Transactions
      with Affiliates.
      Borrower will not engage in any transaction with any of Borrower’s officers,
      directors, employees, owners or other Affiliates, except for an “arms-length”
transaction on terms no less favorable to Borrower than would be granted to
      Borrower in a transaction with a Person who is not an Affiliate, which
      transaction shall be approved by Borrower’s disinterested directors and shall be
      disclosed in a timely manner to Lender prior to the consummation of the
      transaction.

    

    (f) Loans/Investments.
      Borrower will not make any loans or advances to or extend any credit to any
      Person except (i) the extension of trade credit in the ordinary course of
      business; and (ii) advances to employees not to exceed an aggregate outstanding
      amount of $10,000 at any one time outstanding for all employees. Borrower shall
      not purchase, acquire or otherwise invest in any Person except: (A) existing
      investments in Borrower’s subsidiaries described on Item 12
      of the Schedule;
      (B)
      direct obligations of the United States of America maturing within one year
      from
      the acquisition thereof; (C) certificates of deposit issued by, or investment
      accounts in, banks or financial institutions having a net worth of not less
      than
      $50,000,000; and (D) commercial paper rated A-1 by Standard & Poor’s Ratings
      Group or P-1 by Moody’s Investors Service, Inc. Upon the request of Lender,
      Borrower agrees to execute any agreement, endorsement, assignment, notice,
      or
      other document which Lender requires in order to perfect Lender’s security
      interest in the foregoing permitted investments. Without limiting the generality
      of the foregoing, Borrower shall not create any new subsidiary.

    

    (g) Capital
      Expenditures.
      Borrower shall not make or incur capital expenditures in excess of the amount
      set forth on Item 23
      of the Schedule
      during
      any fiscal year.

    

    (h) Compensation.
      Borrower shall not increase the total compensation paid to its officers or
      directors (or any of their relatives), including salaries, withdrawals, fees,
      bonuses, commissions, drawing accounts and other payments, whether directly
      or
      indirectly, in money or otherwise, during any fiscal year of Borrower during
      the
      term of this Agreement in an aggregate amount for all such officers and
      directors in excess of limit specified in Item 24
      of the Schedule.

     

    
      
        
        

      

      
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    (i) Amendments
      of Documents.
      Borrower shall not amend or modify any note, instrument or agreement in
      connection with any Subordinated Debt without the prior written consent of
      Lender.

    

    (j) Restricted
      Payments.
      Borrower shall not prepay any indebtedness or make any payments on Subordinated
      Debt; provided, however, that a Borrower may make payments that are specifically
      permitted under the applicable subordination agreement; provided further,
      however, that upon the occurrence of a Default and so long as it is continuing,
      Borrower shall not make any payment on Subordinated Debt.

     

    9. Reporting
      and Information.

    

    (a) Financial
      Statements.
      Borrower will submit to Lender as soon as available, and in any case not later
      than 30 days after the end of each month, a balance sheet, a detailed statement
      of profit and loss and a statement of cash flows, in each case prepared in
      accordance with GAAP and certified by Borrower’s chief financial or accounting
      officer as presenting fairly, in accordance with GAAP, Borrower’s financial
      condition as of the last day of such month and Borrower’s results of operations
      for such month and for the portion of Borrower’s fiscal year ending with such
      month. Borrower will also submit to Lender annual financial statements within
      90
      days after the end of each fiscal year, including a balance sheet, the related
      statement of profit and loss and stockholders’ equity and a statement of cash
      flows, in each case prepared in accordance with the requirements set forth
      on
Item 25
      of the Schedule.
      Borrower will also submit to Lender annually at least 60 days prior to
      Borrower’s fiscal year end forecasted financial statements for the upcoming
      fiscal year, containing a projected balance sheet and profit and loss statement.
      Together with each monthly and annual financial statement, Borrower will deliver
      to Lender the certification of Borrower’s chief financial or accounting officer
      in the form of Exhibit
      B
      attached
      hereto to the effect that Borrower is in compliance with the terms and
      conditions of this Agreement, and setting forth in detail the calculation of
      all
      financial covenants, or, if Borrower is not in compliance, describing the nature
      of any noncompliance and the steps Borrower is taking or proposes to take to
      remedy the same.

    

    (b) Collateral
      Reports.
      Concurrent with the execution of this Agreement by Borrower and concurrent
      with
      each request for a loan pursuant to Section 2(a),
      but no
      less frequently than as required by Item 26
      of the Schedule,
      Borrower shall deliver to Lender a fully completed Borrowing Base Certificate
      certified by the Chief Executive Officer or Chief Financial Officer of Borrower
      as being true and correct. Concurrent with the delivery of each such Borrowing
      Base Certificate, Borrower shall provide a written report to Lender of all
      materially significant returns, disputes and claims, together with sales and
      other reports relating to the Accounts and Inventory as required by Lender.
      Borrower shall deliver to Lender within ten (10) days after the end of each
      month a report, reflecting the status as of the end of each month and certified
      by the Chief Executive Officer or Chief Financial Officer of Borrower as being
      true and correct, containing (i) a current detailed aging, by total and by
      Customer, of Borrower’s Accounts, (ii) a current detailed aging, by total and by
      vendor, of Borrower’s accounts payable, and (iii) a detailed report of
      Borrower’s Inventory, setting forth the quantity, type and cost thereof, all of
      which shall be set forth in a form and shall contain such information as is
      acceptable to Lender. Borrower will also conduct a physical inventory count
      no
      less frequently than annually, adjust Borrower’s records to reflect the results
      of the count and deliver to Lender monthly a list of locations of Inventory
      and
      the types and values of Inventory at each such location, in such form as Lender
      may require. At Lender’s request, Borrower shall conduct such physical inventory
      counts and deliver such information more or less often than described above
      and
      such other information with respect to the Collateral, Borrower or Borrower’s
      business or financial condition as Lender may reasonably request.

     

    
      
        
        

      

      
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    (c) Obligor
      Financials.
      Within
      90 days after each fiscal year-end, Borrower will cause each Obligor (other
      than
      Borrower) to deliver to Lender a financial statement as of such year-end, in
      such form as Lender may reasonably request.

    

    (d) Other
      Information.
      Borrower will notify Lender as promptly as possible of any Default, any receipt
      by Borrower of notice from any governmental authority that Borrower has or
      may
      have violated any law, rule or regulation applicable to Borrower or the terms
      or
      conditions of any permit or license Borrower holds or is required to hold in
      connection with the conduct of Borrower’s business, any amendment to Borrower’s
      constituent documents and any change in Borrower’s management or ownership, and
      the commencement of any material litigation, claim or action against
      Borrower.

     

    10. Inspection
      Rights; Expenses; Etc.

    

    (a) Inspection.
      Lender
      may examine and make copies of Borrower’s records, the Collateral and all other
      assets of Borrower or any portion thereof, wherever located, and may enter
      upon
      Borrower’s premises for such purposes, without notice, during business hours.
      Borrower will assist Lender in whatever way necessary to make each such
      examination. Lender may discuss Borrower’s financial condition with Borrower’s
      independent accountants without liability to Lender or such
      accountants.

    

    (b) Performance
      by Lender.
      Lender
      may, from time to time at Lender’s option, perform any agreement of Borrower’s
      hereunder which Borrower fails to perform and take any other action which Lender
      deems necessary for the maintenance or preservation of any of the Collateral
      or
      Lender’s interest therein, and Borrower agrees to reimburse Lender immediately
      on demand for all of Lender’s expenses in connection with the foregoing
      (including, without being limited to, reasonable fees and expenses of legal
      counsel), together with interest thereon at the default rate of interest
      provided for herein from the date any such expense is incurred until reimbursed
      by Borrower.

    

    (c) Field
      Examinations; Inspections.
      Lender
      shall have the right without hindrance or delay to conduct field examinations
      to
      inspect the Collateral, Borrower’s books and records and all other aspects of
      Borrower’s business. Borrower agrees to pay for such examinations as more fully
      described on Item 27
      of the Schedule.
      Lender
      shall have full access to all records available to Borrower from any credit
      reporting service, bureau or similar service and shall have the right to examine
      and make copies of any such records. Lender may exhibit a copy of this Agreement
      to such service and such service shall be entitled to rely on the provisions
      hereof in providing access to Lender as provided herein.

     

    
      
        
        

      

      
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    11. Rights
      of Setoff, Application of Payments, Etc.
      Lender
      will be entitled to hold or set off all sums and all other property of Borrower
      at any time to Borrower’s credit or in Lender’s possession (or the possession of
      any of Lender’s Affiliates) by pledge or otherwise or upon or in which Lender
      may have a Lien, as security for any and all of the Obligations. Lender will
      have the right and is hereby irrevocably authorized and directed to charge
      to
      Borrower’s account the amounts of any and all such Obligations. Recourse to the
      Collateral or other security for the Obligations will not at any time be
      required and Borrower hereby waives any right of marshalling Borrower may have.
      Borrower’s obligation to pay or repay the Obligations is unconditional. Borrower
      agrees that Lender may take such action with regard to the custody and
      collection of Accounts assigned to Lender as Lender may deem necessary. Borrower
      agrees that failure to take any action with regard to any given Account will
      not
      be unreasonable until and unless Lender receives a written request for specific
      action from Borrower with regard thereto and fails to respond thereto within
      a
      commercially reasonable time. Borrower irrevocably waives the right to direct
      the application of any and all payments and collections at any time or times
      hereafter received by Lender from or on behalf of Borrower, and Borrower hereby
      irrevocably agrees that Lender shall have the continuing exclusive right to
      apply and reapply any and all such payments and collections received at any
      time
      or times hereafter by Lender or its agent against the Obligations, in such
      manner and in such order as Lender may deem advisable.

     

    12. Attorney-in-Fact.
      Borrower hereby appoints and constitutes Lender as Borrower’s attorney-in-fact:
      (a) at any time, (i) to endorse Borrower’s name upon any notes, acceptances,
      checks, drafts, money orders, and other evidences of payment that come into
      Lender’s possession and to deposit or otherwise collect the same; (ii) to send
      verifications of accounts to Customers; and (iii) to execute in Borrower’s name
      any financing statements, affidavits and notices with regard to any and all
      Lien
      rights; and (b) while any Default exists, (i) to receive, open, and dispose
      of
      all mail addressed to Borrower; (ii) to notify the postal authorities to change
      the address and delivery of mail addressed to Borrower to such address as Lender
      may designate; (iii) to sign Borrower’s name on any invoice or bill of lading
      relating to the Collateral, on drafts against Customers, and notices to
      Customers; and (iv) to do all other acts and things necessary to carry out
      this
      Agreement. All acts of said attorney-in-fact are hereby authorized, ratified
      and
      approved, and said attorney-in-fact will not be liable for any errors or mistake
      of fact or law unless caused solely by the gross negligence or willful
      misconduct of Lender. This power, being coupled with an interest, is irrevocable
      while any of the Obligations remain unpaid or Lender has any commitment to
      Borrower under this Agreement or otherwise.

     

    
      
        
        

      

      
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    13. Defaults
      and Remedies.

     

    (a) Defaults.
      For
      purposes of this Agreement, “Default”
means
      the occurrence of any of the following events: (i) non-payment when due of
      any
      amount payable on any of the Obligations or breach of any covenant or failure
      to
      perform any agreement or failure to meet any of Borrower’s or any other
      Obligor’s obligations contained herein, in any other Loan Document or in any
      other agreement out of which any of the Obligations arose; (ii) non-payment
      when
      due of the premium on any insurance policy required to be maintained hereunder;
      (iii) any statement, representation, or warranty made in writing in this
      Agreement or in any other writing or statement at any time furnished or made
      by
      Borrower or any other Obligor to Lender proves to have been untrue in any
      material respect as of the date furnished or made; (iv) Borrower’s default under
      any other agreement for borrowed money or any other agreement involving more
      than the amount set forth on Item 28
      of the Schedule;
      (v)
      suspension of the operation of Borrower’s present business; (vi) any Obligor
      becomes insolvent or unable to pay its debts as they mature, or admits in
      writing that it is insolvent or unable to pay its debts, makes an assignment
      for
      the benefit of creditors, makes a conveyance fraudulent as to creditors under
      any state or federal law, or a proceeding is instituted by or against any
      Obligor alleging that such Obligor is insolvent or unable to pay debts as they
      mature, or a petition under any provision of Title 11 of the United States
      Code,
      as amended, is filed by or against any Obligor, and in the case of any such
      involuntary proceeding, such proceeding continues undismissed or unstayed for
      30
      consecutive calendar days or any order granting the relief requested shall
      be
      entered; (vii) entry of any judgment in excess of the amount set forth on
Item 29
      of the Schedule
      against
      any Obligor or creation, assertion, or filing of any judgment or tax Lien
      against the property of any Obligor, in each case which remains undischarged
      for
      10 days after such entry or filing; (viii) death of any Obligor who was a
      natural person, or death or withdrawal of any partner of any Obligor which
      is a
      partnership, or dissolution, merger, or consolidation of any Obligor which
      is a
      corporation, partnership or limited liability company; (ix) transfer of a
      substantial part (determined by market value) of the property of any Obligor;
      (x) sale, transfer or exchange, either directly or indirectly, of a controlling
      stock or equity ownership interest of any Obligor (without limiting the
      generality of the foregoing, a Default shall exist if Christopher J. Reed shall
      cease to own, directly or indirectly, less than 25% of the capital stock or
      equity ownership interests of Borrower or cease to have direct or indirect
      voting control of Borrower); (xi) termination, unenforceability or withdrawal
      of
      any guaranty for the Obligations, or failure of any Obligor to perform any
      of
      its obligations under such a guaranty or assertion by any Obligor that it has
      no
      liability or obligation under such a guaranty; (xii) appointment of a receiver
      for the Collateral or for any other property in which Borrower has an interest;
      (xiii) seizure of any Collateral by any Person other than Lender; (xiv) any
      person identified on Item 30
      of the Schedule
      shall
      for any reason cease to hold the office of Borrower set forth opposite such
      person’s name on Item 30
      of the Schedule
      and a
      replacement satisfactory to Lender shall not be appointed within 60 days; (xv)
      the occurrence of any act, omission, event or circumstance which has or could
      reasonably be expected to have a materially adverse effect on Borrower or any
      other Obligor; (xvi) payment by Borrower on any Subordinated Debt in violation
      of the applicable subordination agreement; or (xvii) the Pension Benefit
      Guaranty Corporation or the Department of Labor commences proceedings under
      ERISA to terminate any of Borrower’s employee pension benefit
      plans.

    

    (b) Remedies.
      If a
      Default occurs and is continuing:

    

    (i) Lender
      may, without demand or notice to Borrower, terminate Lender’s commitment, if
      any, to make loans or to extend other financial accommodations to Borrower,
      and
      may declare the entire principal amount of all loans outstanding hereunder,
      all
      interest thereon, any unpaid fees (including prepayment fees due as a result
      of
      acceleration of the foregoing payment obligations) and all other Obligations
      of
      any kind or nature to be, and thereupon the same will immediately become, due
      and payable in full; and, in the event of a Default described under clause
      (vi)
      of Section 13(a),
      such
      termination and acceleration shall automatically occur without any notice,
      demand or presentment of any kind. Borrower agrees to deposit with Lender a
      cash
      sum equal to the amount of letters of credit and acceptances issued or
      guaranteed by Lender or any Affiliate of Lender which have not been drawn upon
      or matured, which funds will be used to reimburse Lender or such Affiliate
      of
      Lender upon drawing under any letter of credit or maturity of any
      acceptances.

     

    
      
        
        

      

      
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    (ii) Lender
      may decrease the advance rates set forth in the definition of “Borrowing Base”
in Lender’s discretion.

    

    (iii) Lender
      or
      Lender’s designee may notify Customers that the Accounts have been assigned to
      Lender and that Lender has a security interest therein, collect them directly,
      and charge the collection costs and expenses to Borrower’s loan
      account.

    

    (iv) Lender
      may (A) exercise any of its remedies under any other Loan Document, (B) apply
      any cash collateral to the Obligations (without limiting the foregoing, Lender
      may instruct any bank or other financial institution holding any cash,
      certificate of deposit or other Collateral to pay over such Collateral to
      Lender), and (C) draw on any letter of credit issued for the benefit of Lender
      in connection with this Agreement or any other Loan Document and apply the
      proceeds thereof to the Obligations, in each case without demand or notice
      to
      Borrower or any other Person.

    

    (v) Without
      notice to or demand upon Borrower or any other Person, Lender may make such
      payments and do such acts as Lender considers necessary or reasonable to protect
      its security interest in the Collateral. Borrower authorizes Lender to enter
      each premises where any Collateral is located, take and maintain possession
      of
      the Collateral, or any part of it, and to pay, purchase, contest or compromise
      any Lien which in Lender’s opinion appears to be prior or superior to its
      security interest and to pay all expenses incurred in connection
      therewith.

    

    (vi) Lender
      may ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
      advertise for sale and sell the Collateral. Any such sale may be either a public
      or private sale, or both, by way of one or more contracts or transactions,
      for
      cash or on terms. It is not necessary that the Collateral be present at any
      such
      sale.

    

    (vii) Lender
      may, without regard to any waste, adequacy of the security or solvency of
      Borrower, apply for the appointment of a receiver of the Collateral, to which
      appointment Borrower hereby consents, whether or not foreclosure proceedings
      have been commenced hereunder or under any other Loan Document and whether
      or
      not a foreclosure sale has occurred;

    

    (viii) Lender
      may, without notice to Borrower except as expressly provided herein, at Lender’s
      option, exercise any of the remedies available to Lender as a secured party
      under the Uniform Commercial Code as in effect in any applicable jurisdiction,
      or otherwise available to Lender under applicable law. Borrower agrees, upon
      Default, to cease the sale or other disposition of the Collateral, except with
      Lender’s prior written consent, and to assemble at Borrower’s expense all the
      Collateral at a convenient place acceptable to Lender. Lender may charge to
      Borrower’s loan account and Borrower will pay Lender upon demand all costs and
      expenses, including reasonable attorneys’ fees (including fees of attorneys that
      are regular salaried employees of Lender or any of its Affiliates), in
      connection with: (A) the liquidation of any Collateral; (B) obtaining or
      enforcing payment of the Obligations; (C) the settlement, adjustment,
      compromise, or litigation of Customer disputes; or (D) the prosecution or
      defense of any action or proceeding either against Lender or against Borrower
      concerning any matter growing out of or in connection with this Agreement and/or
      any Collateral and/or any Obligations. If at any time Lender pays any state,
      city, local, federal, or other tax or levy attributable to the Collateral,
      Borrower will repay to Lender the amount of tax so paid by Lender. Borrower
      agrees that Lender may apply any proceeds from disposition of the Collateral
      first to satisfy obligations secured by Liens prior to Lender’s security
      interest. Borrower will remain liable and will pay on demand any deficiencies
      arising upon the liquidation of any Collateral held by Lender.

     

    
      
        
        

      

      
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    (c) Notices.
      If any
      notice of intended disposition of the Collateral or of any other act by Lender
      is required by law and a specific time period is not stated therein, such
      notice, if given five days before such disposition or act, in accordance with
      the provisions of Section 15(a),
      will be
      deemed reasonably and properly given.

    

    (d) License.
      Borrower hereby grants to Lender a license or other right to use, without
      charge, Borrower’s labels, patents, copyrights, rights of use of any name, trade
      secrets, trade names, trademarks and advertising matter, or any property of
      a
      similar nature, as it pertains to the Collateral, in completing production
      of,
      advertising for sale and selling any Collateral and Borrower’s rights under all
      licenses, and all franchise agreements shall inure to Lender’s
      benefit.

    

    (e) Remedies
      Cumulative.
      Lender’s rights and remedies under this Agreement and all other Loan Documents
      shall be cumulative. Lender shall have all other rights and remedies not
      inconsistent herewith as provided under the UCC, by law, or in equity. No
      exercise by Lender of one right or remedy shall be deemed an election, and
      no
      waiver by Lender of any default on Borrower’s part shall be deemed a continuing
      waiver. No delay by Lender shall constitute a waiver, election or acquiescence
      by it.

     

    14. Indemnification.
      Borrower agrees to defend, indemnify, and hold harmless Lender and Lender’s
      directors, officers, employees, Affiliates, representatives, attorneys and
      agents (each an “Indemnified
      Person”)
      from
      and against any and all penalties, fines, liabilities, damages, costs, or
      expenses of whatever kind or nature asserted against any such Indemnified
      Person, arising out of, or in any way related to this Agreement or any other
      Loan Document, or the transactions contemplated hereby or thereby, including
      by
      reason of the violation of any law or regulation relating to the protection
      of
      the environment or the presence, generation, disposal, release, or threatened
      release of any hazardous materials in connection with Borrower’s business on, at
      or from any property at any time owned or operated by Borrower, including,
      without limitation, reasonable attorneys’ and consultants’ fees, investigation
      and laboratory fees, court costs, and litigation expenses actually incurred;
      provided,
      however,
      that
      the foregoing indemnity shall not apply to any penalties, fines, liabilities,
      damages, costs, or expenses that are caused solely by the gross negligence
      or
      willful misconduct of Lender. Without limiting the foregoing, Borrower
      represents and warrants that there has been no loan broker or investment banker
      involved in connection with the transactions contemplated hereby, and Borrower
      agrees to indemnify and hold Lender harmless from any claim of compensation
      payable to any loan broker or investment banker in connection with the
      transactions contemplated hereby.

     

    
      
        
        

      

      
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    15. General
      Provisions.

    

    (a) Notices.
      Except
      as specifically provided in this Agreement or in any of the other Loan
      Documents, all notices and communications hereunder and thereunder will be
      in
      writing or by telephone subsequently confirmed in writing. Notices in writing
      will be delivered personally or sent by overnight courier service, by certified
      or registered mail, postage pre-paid, or by facsimile transmission and will
      be
      deemed received, in the case of personal delivery, when delivered; in the case
      of overnight courier service, on the next Business Day after delivery to such
      service; in the case of mailing, on the fourth Business Day after mailing;
      and,
      in the case of facsimile transmission, upon transmittal if confirmed by the
      sender’s facsimile device; provided
      that in
      the case of notices to Lender, Lender will be charged with knowledge of the
      contents thereof only when such notice is actually received by Lender. A
      telephonic notice to Lender as understood by Lender will be deemed to be the
      controlling and proper notice in the event of a discrepancy with or failure
      to
      receive a confirming written notice. Notices to Lender or Borrower will be
      sent
      to the addresses set forth on Item 31
      of the Schedule,
      or any
      other address for either of Borrower or Lender of which the other is notified
      by
      like notice.

    

    (b) Governing
      Law.
      This
      Agreement will be governed by and construed and enforced according to the laws
      of the State of California.

    

    (c) No
      Waiver.
      No
      waiver hereunder will be valid unless in writing signed by Lender and then
      only
      to the extent therein stated. No delay or failure on Lender’s part in the
      exercise of any right or remedy hereunder will operate as a waiver thereof
      or of
      Lender’s right to exercise any other right or remedy.

    

    (d) Time
      of Essence.
      Time is
      of the essence of this Agreement.

    

    (e) Severability.
      Wherever possible, each provision of this Agreement will be interpreted in
      such
      manner as to be effective and valid under applicable law, but if any provision
      of this Agreement will be prohibited by or invalid under applicable law, such
      provision will be ineffective to the extent of such prohibition or invalidity,
      without invalidating the remainder of such provision or the remaining provisions
      of this Agreement.

    

    (f) Successors
      and Assigns.
      Borrower’s and Lender’s rights and obligations hereunder will inure to the
      benefit of Borrower’s and Lender’s respective successors and assigns,
provided
      that
      Borrower acknowledges and agrees that without Lender’s prior written consent,
      which may be withheld for any reason or no reason, Borrower may not assign
      Borrower’s rights or obligations or any part thereof hereunder to any other
      Person. Notwithstanding anything herein to the contrary, Lender may, without
      the
      consent of Borrower, grant a security interest in, sell or assign, grant or
      sell
      participations or otherwise transfer all or any portion of its rights and
      obligations hereunder to one or more Persons.

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    (g) Submission
      to Jurisdiction, Service, Etc. 

    

    (i) Borrower
      agrees that any suit, action or proceeding directly or indirectly arising out
      of
      or relating to this Agreement, any other Loan Documents, the Obligations, the
      relationship between Borrower and Lender created hereby, or arising out of
      any
      judgment against Borrower entered by any court or other tribunal of competent
      jurisdiction with respect to the enforcement of this Agreement, may be
      instituted in any state or federal court located in the County of Los Angeles,
      State of California or in any other court having subject matter jurisdiction,
      as
      Lender may select in Lender’s sole discretion. Borrower hereby expressly and
      irrevocably submits and consents to the non-exclusive jurisdiction of any such
      court in any such suit, action or proceeding, hereby waiving personal service
      of
      the summons and complaint, or other process or papers issued therein. Borrower
      hereby waives, to the fullest extent permitted by law, any objection Borrower
      may have to the venue of any such suit, action or proceeding. Further, Borrower
      hereby irrevocably waives, to the fullest extent Borrower may effectively do
      so,
      the defense of an inconvenient forum to the maintenance of such suit, action
      or
      proceeding. Borrower further agrees that a final judgment in any such suit,
      action or proceeding brought in any such court or tribunal will be conclusive
      and may be enforced in other jurisdictions by suit on the judgment or in any
      other manner provided by law.

    

    (ii) Borrower
      hereby agrees that service of process mailed or delivered to Borrower at
      Borrower’s address for notices provided herein will be deemed in every respect
      effective service of process upon Borrower in any such suit, action or
      proceeding in any such court or tribunal and will be taken and held to be valid,
      personal service on Borrower, irrespective of whether Borrower will then be
      doing, or at any time will have done, business within the State of
      California.

    

    (iii) Nothing
      in this Section
      15(g)
      will
      affect Lender’s right to serve legal process in any other manner permitted by
      law or affect Lender’s right to bring any action or proceeding against Borrower
      or Borrower’s property in the courts of any other jurisdiction.

    

    (h) Waiver
      of Jury Trial.
      TO THE
      FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND LENDER HEREBY
      IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION,
      PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE)
      ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, THE
      OBLIGATIONS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR EITHER
      PARTY’S ACTIONS IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT HEREOF OR
      THEREOF. EACH OF BORROWER AND LENDER ACKNOWLEDGES THAT SUCH WAIVER IS MADE
      WITH
      FULL KNOWLEDGE AND UNDERSTANDING OF THE NATURE OF THE RIGHTS AND BENEFITS WAIVED
      HEREBY, AND WITH THE BENEFIT OF ADVICE OF COUNSEL OF ITS CHOOSING.

    

    (i) Judicial
      Reference.
      

    

    (i) The
      parties prefer that any dispute between them be resolved in litigation subject
      to a Jury Trial Waiver as set forth in Section
      15(h)
      herein,
      but the California Supreme Court has held that such pre-dispute jury trial
      waivers are unenforceable. This Section will be applicable until: (i) the
      California Supreme Court holds that a pre-dispute jury trial waiver provision
      similar to that contained in Section
      15(h)
      herein
      is valid or enforceable; or (ii) the California Legislature passes legislation
      and the governor of the State of California signs into law a statute authorizing
      pre-dispute jury trial waivers and as a result such waivers become
      enforceable.

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    (ii) Other
      than the exercise of provisional remedies (any of which may be initiated
      pursuant to applicable law), any controversy, dispute or claim (each, a “Claim”)
      between the parties arising out of or relating to this Agreement will be
      resolved by a reference proceeding in California in accordance with the
      provisions of Section 638 et seq. of the California Code of Civil Procedure
      (“CCP”), or their successor sections, which shall constitute the exclusive
      remedy for the resolution of any Claim, including whether the Claim is subject
      to the reference proceeding. Venue for the reference proceeding will be in
      the
      Superior Court or Federal District Court in Los Angeles County, California
      (the
“Court”).

    

    (iii) The
      referee shall be a retired Judge or Justice selected by mutual written agreement
      of the parties. If the parties do not agree, the referee shall be selected
      by
      the Presiding Judge of the Court (or his or her representative). A request
      for
      appointment of a referee may be heard on an ex
      parte
      or
      expedited basis, and the parties agree that irreparable harm would result if
      ex
      parte
      relief
      is not granted. The referee shall be appointed to sit with all the powers
      provided by law. Pending appointment of the referee, the Court has power to
      issue temporary or provisional remedies.

    

    (iv) The
      parties agree that time is of the essence in conducting the reference
      proceedings. Accordingly, the referee shall be requested, subject to change
      in
      the time periods specified herein for good cause shown, to (a) set the matter
      for a status and trial-setting conference within forty-five (45) days after
      the
      date of selection of the referee, (b) if practicable, try all issues of law
      or
      fact within one hundred twenty (120) days after the date of the conference
      and
      (c) report a statement of decision within twenty (20) days after the matter
      has
      been submitted for decision.

    

    (v) The
      referee will have power to expand or limit the amount and duration of discovery.
      The referee may set or extend discovery deadlines or cutoffs for good cause,
      including a party’s failure to provide requested discovery for any reason
      whatsoever. Unless otherwise ordered based upon good cause shown, no party
      shall
      be entitled to “priority” in conducting discovery, depositions may be taken by
      either party upon ten (10) days written notice, and all other discovery shall
      be
      responded to within twenty (20) days after service. All disputes relating to
      discovery which cannot be resolved by the parties shall be submitted to the
      referee whose decision shall be final and binding.

    

    (vi) Except
      as
      expressly set forth in this Agreement, the referee shall determine the manner
      in
      which the reference proceeding is conducted including the time and place of
      hearings, the order of presentation of evidence, and all other questions that
      arise with respect to the course of the reference proceeding. All proceedings
      and hearings conducted before the referee, except for trial, shall be conducted
      without a court reporter, except that when any party so requests, a court
      reporter will be used at any hearing conducted before the referee, and the
      referee will be provided a courtesy copy of the transcript. The party making
      such a request shall have the obligation to arrange for and pay the court
      reporter. Subject to the referee’s power to award costs to the prevailing party,
      the parties will equally share the cost of the referee and the court reporter
      at
      trial.

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    (vii) The
      referee shall be required to determine all issues in accordance with existing
      case law and the statutory laws of the State of California. The rules of
      evidence applicable to proceedings at law in the State of California will be
      applicable to the reference proceeding. The referee shall be empowered to enter
      equitable as well as legal relief, provide all temporary or provisional
      remedies, enter equitable orders that will be binding on the parties and rule
      on
      any motion which would be authorized in a trial, including without limitation
      motions for summary judgment or summary adjudication. The referee shall issue
      a
      decision pursuant to CCP Section 644 the referee’s decision shall be entered by
      the Court as a judgment or an order in the same manner as if the action had
      been
      tried by the Court. The final judgment or order or from any appealable decision
      or order entered by the referee shall be fully appealable as provided by law.
      The parties reserve the right to findings of fact, conclusions of laws, a
      written statement of decision, and the right to move for a new trial or a
      different judgment, which new trial, if granted, is also to be a reference
      proceeding under this provision.

    

    (viii) If
      the
      enabling legislation which provides for appointment of a referee is repealed
      (and no successor statute is enacted), any dispute between the parties that
      would otherwise be determined by reference procedure will be resolved and
      determined by arbitration. The arbitration will be conducted by a retired judge
      or Justice, in accordance with the California Arbitration Act Section 1280
      through Section 1294.2 of the CCP as amended from time to time. The limitations
      with respect to discovery set forth above shall apply to any such arbitration
      proceeding.

    

    (ix) THE
      PARTIES RECOGNIZE AND AGREE THAT ALL DISPUTES RESOLVED UNDER THIS REFERENCE
      PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER CONSULTING
      (OR
      HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR OWN CHOICE, EACH
      PARTY KNOWINGLY AND VOLUNTARILY AND FOR THEIR MUTUAL BENEFIT AGREES THAT THIS
      REFERENCE PROVISION WILL APPLY TO ANY DISPUTE BETWEEN THEM WHICH ARISES OUT
      OF
      OR IS RELATED TO THIS AGREEMENT.

    

    (j) Waiver
      of Hearing.
      BORROWER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES ALL RIGHTS
      WHICH
      BORROWER HAS UNDER PROVISIONS OF APPLICABLE LAW TO NOTICE AND TO A JUDICIAL
      HEARING PRIOR TO THE ISSUANCE OF A WRIT OF POSSESSION ENTITLING LENDER, ITS
      SUCCESSORS AND ASSIGNS TO POSSESSION OF THE COLLATERAL UPON A DEFAULT. WITHOUT
      LIMITING THE GENERALITY OF THE FOREGOING AND WITHOUT LIMITING ANY OTHER RIGHT
      WHICH LENDER MAY HAVE, BORROWER CONSENTS THAT, IF LENDER FILES A PETITION FOR
      AN
      IMMEDIATE WRIT OF POSSESSION IN COMPLIANCE WITH APPLICABLE LAW AND THIS WAIVER
      OR A COPY HEREOF IS ALLEGED IN SUCH PETITION AND ATTACHED THERETO, THE COURT
      BEFORE WHICH SUCH PETITION IS FILED MAY DISPENSE WITH ALL RIGHTS AND PROCEDURES
      HEREIN WAIVED AND MAY ISSUE FORTHWITH AN IMMEDIATE WRIT OF POSSESSION IN
      ACCORDANCE WITH APPLICABLE LAW, WITHOUT THE NECESSITY OF AN ACCOMPANYING BOND
      AS
      MAY BE REQUIRED IN ACCORDANCE WITH ANY APPLICABLE LAW.

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    (k) Expenses.
      Borrower shall pay on demand all of Lender’s costs, fees (including the
      reasonable fees and out-of-pocket expenses of Lender’s counsel) and expenses in
      connection with this Agreement, the other Loan Documents, and the transaction
      contemplated by this Agreement and the other Loan Documents (in each case
      whether incurred on, prior or subsequent to the Agreement Date), including,
      but
      not limited to, costs, fees and expenses in connection with (i) underwriting
      and
      performing due diligence with respect to the transactions contemplated hereby,
      (ii) the preparation, reproduction, execution, delivery, administration and
      enforcement of this Agreement, any amendments, modifications or restatements
      of
      this Agreement or any of the other Loan Documents, (iii) auditing, inspecting
      and evaluating the Collateral and the Borrower’s business, and (iv) agreements
      between Lender and other Person which are related to the transactions
      contemplated by this Agreement. In addition, Borrowers shall pay any and all
      stamp and other taxes and recording and filing fees payable in connection with
      the execution and delivery of all other instruments and documents to be
      delivered hereunder. Such amounts may be charged by Lender to Borrower’s account
      as one or more loans hereunder. All provisions in this Agreement providing
      for
      the payment or reimbursement of Lender’s attorneys’ fees and expenses include,
      without limitation, such fees and expenses incurred pursuant to or in connection
      with proceedings brought under 11 U.S.C., the Federal Bankruptcy
      Code.

    

    (l) Execution
      in Counterparts; Execution by Fax; Waiver of Acceptance.
      This
      Agreement may be executed in separate counterparts, all of which shall
      constitute one and the same agreement. Delivery of an executed counterpart
      of
      this Agreement or any other Loan Document by facsimile shall be equally as
      effective as delivery of an original executed counterpart of this Agreement
      or
      such other Loan Document. Any party delivering an executed counterpart of this
      Agreement or any other Loan Document by facsimile also shall deliver an original
      executed counterpart of this Agreement or such other Loan Document, but the
      failure to deliver an original executed counterpart shall not affect the
      validity, enforceability, and binding effect of this Agreement or such other
      Loan Document. To the fullest extent permitted by applicable law, Borrower
      waives notice of Lender’s acceptance of this Agreement and the other Loan
      Documents.

    

    (m) Entire
      Agreement.
      This
      Agreement and the other Loan Documents embody the entire agreement and
      understanding between Lender and Borrower and supersede all prior agreements
      and
      understandings relating to the subject matter hereof.

    

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

    

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, Borrower and Lender have executed this Agreement as of the
      day
      and year first above written.

    
 

    
      	 	
              REED’S,
                INC.,

              a
                Delaware corporation

              

              /s/
                Chris Reed, CEO

              

              

              FCC,
                LLC, a Florida limited liability company doing business as FIRST
                CAPITAL
                WESTERN REGION, LLC

              

              

              /s/
                Robert Yasuda, Sr. Vice President

            

    

    

    
      
        
        

      

      
        
          S-1

          Loan and Security Agreement

        

        
          

        

      

      
        
        

      

    

    
       

    

    NOTARY
      JURAT FOR EXECUTION OF

    WRITTEN
      OBLIGATIONS TO PAY MONEY

    

    

    On
      this
      the ____ day of May, 2008, before me, the undersigned, a Notary Public in and
      for the State of _____________, County of _________________,
      ___________________________ personally appeared, who is personally known to
      me
      or proved to me on the basis of satisfactory evidence to be the
      _______________________________ of REED’S, INC., a Delaware corporation, who,
      being by me first duly sworn, stated that:

    

    
      	
              1.

            	
              He
                executed the foregoing Loan and Security Agreement on behalf of such
                corporation pursuant to its by-laws or a resolution of its board
                of
                directors, said execution taking place in the State of California,
                County
                of Los Angeles; and

            

    

    

    
      	
              2.

            	
              He
                has this day delivered the foregoing Loan and Security Agreement
                to FIRST
                CAPITAL WESTERN REGION, LLC, at Los Angeles County, California
                [via
                personal delivery] [via overnight
                courier].

            

    

     

    
      	 	Signature of Borrower’s
              Officer:	 
	 	 	 	 	 
	 	 	 	 	 
	 	By:	   
	 
	 	Name:	  	 

    

    

    State
      of
      California

    County
      of
      Los Angeles

    

    Subscribed
      and sworn to (or affirmed) before me on this ______________ day of May, 2008,
      by
      _____________________, personally known to me or proven to me on the basis
      on
      satisfactory evidence to be the person(s) who appeared before me.

    

    __________________________________

    Notary
      Signature

    

    My
      Commission Expires:

    

    _________________________________

    [Affix
      Notarial Seal]

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    AFFIDAVIT
      REGARDING DELIVERY

    

    

    I,
      _____________, have received delivery of the foregoing Loan and Security
      Agreement on behalf of FIRST CAPITAL WESTERN REGION, LLC.

     

    
      
        Date:
          May
          __, 2008

         

         

      

      
        	 	    
	 
	 	
                Signature
                  of Officer of FIRST CAPITAL 

                WESTERN
                  REGION, LLC

              	 

      

    

    

    

    State
      of
      California

    County
      of
      Los Angeles

    

    Subscribed
      and sworn to (or affirmed) before me on this _____ day of May, 2008, by
      __________, personally known to me or proven to me on the basis on satisfactory
      evidence to be the person(s) who appeared before me.

    

    __________________________________

    Notary
      Signature

    

    My
      Commission Expires:

    

    _________________________________

    [Affix
      Notarial Seal]

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SCHEDULE

    

    

    This
      Schedule is a part of the foregoing Loan and Security Agreement dated as of
      May
      30, 2008, between REED’S, INC., as borrower (“Borrower”), and FIRST CAPITAL
      WESTERN REGION, LLC, as lender (“Lender”).

    

    1. Borrowing
      Base

    

    “Borrowing
      Base” means, at any time, an amount equal to:

    

    
      	 	
              (a)

            	
              the
                lesser of:

            

    

    

    
      	 	
              (i)

            	
              Maximum
                Credit Limit, and

            

    

    

    
      	 	
              (ii)

            	
              the
                sum of:

            

    

    

    (A) 80%
      of
      the dollar amount of Eligible Accounts; plus

    

    (B) As
      of the
      Closing Date, Eligible Inventory shall not be included in the Borrowing Base
      and
      the amount under this clause (B) shall be zero dollars ($0). Following the
      Closing Date Lender may, in its sole and absolute discretion, elect to include
      Eligible Inventory in the Borrowing Base. If Lender makes such an election,
      then
      effective upon the issuance by Lender of a written notice to Borrower of such
      election (an “Election
      Notice”)
      and if
      the conditions subsequent in Item
      6.2(b) and (c)
      of this
      Schedule
      have
      been satisfied, the amount under this clause (B) shall be determined by Lender,
      which amount may be calculated based on a formula. If Lender issues to Borrower
      an Election Notice and such notice does not specify an amount or formula to
      determine the amount of the Borrowing Base to attribute to the Eligible
      Inventory, then the amount attributed to the Eligible Inventory shall be equal
      to the
      lesser of:

    

    
      	 	
              (1)

            	
              $1,000,000,
                and

            

    

    

    
      	 	
              (2)

            	
              50%
                of the dollar value (determined at the lower of cost or market value)
                of
                Eligible Inventory, 

            

    

    

    minus

    

    
      	 	
              (b)

            	
              the
                sum of:

            

    

    

    
      	 	
              (i)

            	
              the
                Dilution Reserve and such other reserves as Lender may establish
                from time
                to time in its discretion, including, but not limited to, reserves
                for
                excessive and slow-moving Inventory and reserves for inaccuracies
                in
                Borrower’s perpetual Inventory records,
                plus

            

    

    

    
      	 	
              (ii)

            	
              the
                amount available to be drawn under, plus the amount of any unreimbursed
                draws with respect to, any letters of credit or acceptances which
                have
                been issued, created or guaranteed by Lender or any Affiliate of
                Lender
                for Borrower’s account.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      2.
        Accounts
        Eligibility

    

    

    (a) Accounts
      Age:
      Any
      Account with respect to which more than 90 days have elapsed since the date
      of
      the original invoice therefor or which is more than 60 days past due shall
      not
      constitute an Eligible Account.

    

    (b) Cross-Aging
      Percentage:
      25%

    

    (c) Concentration
      Limit:
      15% for
      all Customers other than (i) United Natural Foods, Inc., for which the
      Concentration Limit is 40%, and (ii) Trader Joe’s, for which the Concentration
      Limit is 20%.

    

    
      3.
        Permitted
        Liens

    

    

    Existing
      Liens and financing statements: none

    

      
        	
                Financing
                  Statement Number,

                Jurisdiction
                  and Filing Date

              	
                Secured
                  Party

              	
                Collateral

              

      

    

    

    
      4.
        Persons
        Authorized to Request Loans

    

    

      
        	
                Name:

              	
                Title:

              
	
                Christopher
                  J. Reed

              	
                President

              
	
                Vicki
                  Rhoades

              	
                Accounts
                  Receivable

              

      

       

    

    
      5.
        Collection
        Days: 2
        Business Days

    

    

    
      6.
        Conditions
        To Initial Loans

    

     

    6.1
      Conditions
      Precedent.
      Items
      listed below are required to be delivered, in form and substance satisfactory
      to
      Lender in its sole discretion, as a condition to Lender’s obligation to fund the
      initial loan or extend the first financial accommodation to Borrower under
      this
      Agreement.

    

    
      	 	
              (a)

            	
              Certified
                copy of Borrower’s articles of incorporation

            

    

    

    
      	 	
              (b)

            	
              Certificate
                of Secretary of Borrower as to constituent documents, bylaws, authorizing
                action (e.g., corporate resolutions) and incumbency of officers/status
                and
                specimen signatures of authorized
                signers

            

    

    

    
      	 	
              (c)

            	
              Good
                Standing Certificate (States of Delaware and California and all other
                states in which Borrower is qualified to do
                business)

            

    

    

    
      	 	
              (d)

            	
              The
                Deed of Trust properly executed and
                notarized

            

    

    

    
      	 	
              (e)

            	
              A
                commitment from a title insurance company acceptable to Lender to
                issue an
                ALTA title insurance policy, with endorsements required by Lender,
                insuring the lien of the Deed of Trust in an amount not less than
                $2,000,000 and subject to only those exceptions that have been approved
                in
                writing by Lender 

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (f)

            	
              Lien
                search results confirming filing of UCC-1 in favor of Lender and
                priority
                of Lender’s security interest in the
                Collateral

            

    

    

    
      	 	
              (g)

            	
              Lien
                termination documents from Business Alliance Capital Company, Overnite
                Capital, LLC, and any other creditor whose filings are to be terminated,
                etc. 

            

    

    

    
      	 	
              (h)

            	
              Landlord,
                warehouseman or other bailee
                waivers

            

    

    

    
      	 	
              (i)

            	
              Unlimited
                Continuing Guaranty in favor of Lender by Christopher J. Reed and
                a
                validity guaranty in favor of Lender by the Chief Financial Officer
                of
                Borrower

            

    

    

    
      	 	
              (j)

            	
              [Intentionally
                omitted]

            

    

    

    
      	 	
              (k)

            	
              Lockbox,
                blocked account or agency account
                agreement(s)

            

    

    

    
      	 	
              (l)

            	
              Financial
                statements for Borrower including a pro forma statement certified
                by the
                Chief Financial Officer of Borrower demonstrating to the satisfaction
                of
                Lender that following the initial funding under this Agreement and
                the
                payment of all accounts payable past due beyond 90 days past the
                applicable due date, Borrower shall have unused borrowing availability,
                net of reserves, of not less than
                $500,000

            

    

    

    
      	 	
              (m)

            	
              Appraisal
                reports including an appraisal of the Real Property reflecting an
                equity
                value, net of Liens senior to the Lien of the Deed of Trust, of no
                less
                than $1,500,000

            

    

    

    
      	 	
              (n)

            	
              Borrowing
                Base Certificate, together with schedules of Accounts and Inventory
                and
                other supporting documentation, in each case as of a date acceptable
                to
                Lender

            

    

    

    
      	 	
              (o)

            	
              Evidence
                of the filing of Financing statements, including fixture filings
                regarding
                the Collateral

            

    

    

    
      	 	
              (p)

            	
              Officer’s
                certificate as to representations, warranties and no defaults issued
                by
                the Manager of Borrower

            

    

    

    
      	 	
              (q)

            	
              Solvency
                certificate with respect to
                Borrower

            

    

    

    
      	 	
              (r)

            	
              Opinion
                letter of Borrower’s legal counsel

            

    

    

    
      	 	
              (s)

            	
              All
                other items described on the Schedule of Closing Documents previously
                delivered by Lender or Lender’s counsel to Borrower or Borrower’s
                counsel

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    6.2 Conditions
      Subsequent.
      Items
      listed below are required to be delivered, in form and substance satisfactory
      to
      Lender in its sole discretion, as a condition subsequent to Lender’s obligation
      to fund the initial loan or extend the first financial accommodation to Borrower
      under this Agreement. If the items listed below are not delivered to Lender
      within the applicable time period, then a Default shall be deemed to have
      occurred under this Agreement.

    

    (a) Within
      30
      calendar days following the Agreement Date, a deposit account control agreement
      executed by City National Bank and Borrower

    

    (b) Within
      45
      calendar days following the Agreement Date, a mortgagee waiver and consent
      agreement executed by Lehman Brothers

    

    (c) Within
      45
      calendar days following the Agreement Date, an ALTA title insurance policy,
      with
      endorsements required by Lender, insuring the lien of the Deed of Trust in
      an
      amount not less than $2,000,000 and subject to only those exceptions that have
      been approved in writing by Lender

    

    7. Termination
      Date

    

    This
      Agreement will terminate on the second anniversary of the Agreement
      Date;
      provided,
      however, that this Agreement will be renewed for succeeding one-year periods
      thereafter unless written notice of termination is provided by either party
      to
      the other at least 60 days prior to the then-effective termination
      date.

    

    8. Interest
      Margin: 5.75%

    

    9. Default
      Margin: 5%

    

    10. Fees

    

    (a) Upon
      execution of this Agreement, in consideration of Lender’s structuring, approving
      and committing to this Agreement, but without affecting Borrower’s obligation to
      reimburse Lender for costs associated with this Agreement and the transactions
      contemplated hereby as provided elsewhere in this Agreement, Borrower agrees
      to
      pay Lender a fee in the amount of $15,000, which will be fully earned on the
      Agreement Date and non-refundable when paid.

    

    (b) On
      each
      anniversary of the Agreement Date, as an annual fee for providing of financial
      accommodations pursuant to the terms of this Agreement, but without affecting
      Borrower’s obligation to reimburse Lender for costs associated with this
      Agreement and the transactions contemplated hereby as provided elsewhere in
      this
      Agreement, Borrower shall pay to Lender a fee in the amount one-half percent
      (0.50%) of the then prevailing Maximum Credit Limit, which will be fully earned
      on each such anniversary date and non-refundable when paid.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (c) Lender
      shall be entitled to charge a monthly minimum interest charge for each calendar
      month during the term of this Agreement that the average outstanding principal
      balance of the advances made pursuant to Section 2(a) during such month was
      less
      than $1,000,000 (the “Minimum
      Average Monthly Loan Balance”);
      provided, however, that (i) if Lender has not issued an Election Notice and
      committed to provide a sublimit for advances against Eligible Inventory of
      not
      less than $300,000 within 60 calendar days following the Agreement Date, then
      effective on the 61st calendar day following the Agreement Date the Minimum
      Average Monthly Loan Balance shall be reduced to $700,000, and (ii) if the
      Minimum Average Monthly Loan Balance has been reduced to $700,000 pursuant
      to
      clause (i) and thereafter Lender issues an Election Notice and commits to
      provide a sublimit for advances against Eligible Inventory of not less than
      $300,000, then effective on the date Lender issues such Election Notice the
      Minimum Average Monthly Loan Balance shall be increased to $1,000,000. The
      monthly minimum interest charge shall be equal to the amount, if any, by which
      the interest charged for such month on the outstanding advances under Section
      2(a) was less than the amount of interest that would have been charged had
      the
      average outstanding principal balance for such month equaled the Minimum Average
      Monthly Loan Balance. The monthly minimum interest charge shall represent an
      unconditional payment to Lender in consideration of Lender’s agreement to extend
      financial accommodations to Borrower pursuant to this Agreement.

     

    (d) On
      the
      first day of each month during the term of this Agreement following the issuance
      of an Election Notice pursuant to this Agreement, an unused line fee in an
      amount equal to 0.50%, per annum, times the result of (i) the Maximum Credit
      Limit, less (ii) the average
      daily net principal amount of loans outstanding hereunder
      during
      the immediately preceding month.

    

    (e) In
      the
      event that Borrower terminates this Agreement (which termination shall be on
      not
      less than sixty (60) days prior written notice) for any reason after the date
      that is six months following the Agreement Date and termination is effective
      other than on a day which is the last day of the then current term of this
      Agreement, Borrower will pay to Lender on or prior to the effective date of
      such
      termination an early termination fee equal to: (i) if the date of termination
      is
      prior to the first anniversary of the Agreement Date, three
      percent (3%)
      of the
      amount set forth in Item
      1(a)(i)
      of this
      Schedule, and (ii) if the date of termination is after the first anniversary
      of
      the Agreement Date, two
      percent (2%)
      of the
      amount set forth in Item
      1(a)(i)
      of this
      Schedule, provided,
      however,
      that if
      (i) within 60 calendar days following the Agreement Date Lender has not issued
      an Election Notice and committed to provide a sublimit for advances against
      Eligible Inventory of not less than $300,000, or (ii) if Lender notifies
      Borrower in writing that Lender will not include Eligible Inventory in the
      Borrowing Base, then in either case so long as no Default has occurred and
      is
      continuing at the time Borrower terminates this Agreement, Borrower shall be
      obligated to pay Lender an early termination fee in connection with such
      termination equal to one-half
      percent (0.50%)
      of the
      amount set forth in Item
      1(a)(i)
      of this
      Schedule.

    

    All
      of
      the foregoing fees constitute compensation to Lender for services rendered
      and
      are not interest or a charge for the use of money. Each installment of such
      fees
      shall be fully earned when due and payable and shall not be subject to refund
      or
      rebate.

    

    
      11.
        Organizational
        Information

    

     

    
      
        	
                Exact
                  Legal Name of Borrower:

              	
                Reed’s,
                  Inc.

              
	
                State
                  of Organization:

              	
                Delaware

              
	
                Type
                  of Organization:

              	
                Corporation

              
	
                Organizational
                  Identification Number: 

              	
                3433903

              

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

    

    
      
        12.
          Subsidiaries
          and Investments in Other Persons:

      

    

     

    
      13.
        Pending
        Litigation:
        none

    

    

    
      14.
        Existing
        Debt and Guarantees:
        loan on building lehman brothers 1.7 million on real estate.

    

    

    
      15.
        Prior
        Legal Names:
        Original Beverage Corporation

    

    

    Prior
      or Current Trade or Fictitious Names:

    

    Mergers
      and Acquisitions:
      acquire Virgil’s Root Beer and China cola in two separate transactions in
      2000.

    

    
      16.
        Locations
        of Offices and Collateral

    

    

      
        	
                Current
                  Chief Executive Office:

              	
                1300
                  South Spring Street 

                Los
                  Angeles, California 90061

              

      

       

    

    Other
      Locations of Chief Executive Office in past five years:
      none

    

    Other
      Current Collateral Locations:
      none

    

    
      17.
        Ownership
        Structure:
        corporation common stock public shareholders symbol REED 8.9 million shares
        outstanding NASDAQ. 

    

    

    
      18.
        Owned
        Real Property:
        12930 and 13000 South Spring Street, Los Angeles, CA 90061.

    

    

    Leased
      Real Property (including legal name of landlord and monthly
      rent):
      none

    

    Warehousemen,
      processors, consignees or other bailees in possession or control of any
      Inventory (include name, address where Inventory is stored and description
      of
      the arrangement):

     

    
      	
              Warehouse

            	 	 	 	 	 	
              ext

            	 
	
              Valley
                Distribution

            	
              1
                Passin Dr.

            	
              Wilkes-Barre

            	
              PA

            	
              18702

            	
              570-654-2403

            	
              217

            	
              Kathey
                Engle

            
	
              Advanced
                Packing

            	
              660
                Spreckels Ave.

            	
              Manteca

            	
              CA

            	
              94587

            	
              209-825-7939

            	
              7792

            	
              Brandie
                Ramirez

            
	
              LaGrou
                

            	
              1800
                S. Wolf Rd.

            	
              Des
                Plaines

            	
              IL

            	
              60018

            	
              847-298-9185

            	
              227

            	
              Debbie
                Yingling

            
	
              United
                Warehouse

            	
              1750
                Occidental Ave.

            	
              Seattle

            	
              WA

            	
              98124

            	
              206-682-4535

            	
              210

            	
              Vicci
                

            
	
              Ronnybrook
                Farms

            	
              1
                Prospect Hill Rd.

            	
              Ancramdale

            	
              NY

            	
              12503

            	
              518-398-8000

            	
               

            	
              Kate

            
	
              United
                States Cold Storage

            	
              33400
                Dowe Ave.

            	
              Union
                City

            	
              CA

            	
              93718

            	
              510-489-8300

            	
               

            	
              Susan

            
	
              Cj
                Hendriks

            	
              Plimsollweg
                4 1042 AS

            	
              Amsterdam

            	
              NL

            	
               

            	
               

            	
               

            	
              Fred

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        19.
          Bank
          Accounts: [Intentionally
          omitted]

      

    

    

    
      20.
        Commercial
        Tort Claims:
        none

    

    

    
      21.
        Financial
        Covenants:

    

    

    (a) Commencing
      July 31, 2008, Borrower shall maintain, as of the last day of each month for
      three-month period then ended (but for the month ended July 31, 2008, for the
      one-month period then ended and for the month ended August 31, 2008, for the
      two-month period then ended), a ratio of Borrower’s (i) net income (excluding
      extraordinary gains) before provision for interest expense, taxes, depreciation
      and amortization, less cash taxes paid and unfinanced capital expenditures
      during such period, to (ii) interest expense, plus payments of principal
      actually made or scheduled to be made with respect to indebtedness (other than
      scheduled but unpaid payments on Subordinated Debt and principal payments on
      revolving loans under this Agreement), plus payments with respect to capitalized
      leases, plus dividends and distributions during such period, of at least 1.0
      to
      1.0.

    

    (b) As
      of
      June 30, 2008, Borrower shall have a Tangible Net Worth of at least $4,306,570.
      Thereafter, as of the last day of each month, Borrower’s required minimum
      Tangible Net Worth shall be increased by 50% of the Borrower’s net income for
      the calendar month then ended (without reduction for any losses during any
      such
      calendar month). As used herein, “Tangible
      Net Worth”
means,
      as of any date, the total assets of Borrower minus the total liabilities of
      Borrower calculated in conformity with GAAP, less all amounts due from
      Borrower’s Affiliates and the amount of all intangible items reflected
      therein.

    

    (c) The
      net
      loss from Borrower’s operations, as determined in accordance with GAAP, for the
      three month period ended June 30, 2008, shall not exceed $400,000.

    

    
      22.
        Permitted
        Purchase Money Debt: $450,000

    

    

    
      23.
        Permitted
        Capital Expenditures: $450,000
        during any fiscal year

    

     

    
      24.
        Maximum
        Annual Increase in Officers’ Compensation:
        Borrower
        represents and warrants to Lender that the aggregate compensation paid and
        to be
        paid to Borrower’s officers and directors for Borrower’s current fiscal year
        shall not be more than 110% of the aggregate amount paid during the fiscal
        year
        that ended December 31, 2007. Such compensation shall not increase by more
        than
        10% per fiscal year hereafter.

    

    

    
      25.
        Annual
        Financial Statements:
        To
        be
        audited by an independent practicing certified public accountant acceptable
        to
        Lender.

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      26.
        Borrowing
        Base Certificates:
        Borrower
        shall deliver to Lender a Borrowing Base Certificate no less frequently than
        weekly by 10:30 a.m. on the first Business Day of each week and determined
        as of the close of business on the last Business Day of the immediately
        preceding week.

    

    

    27. Field
      Examinations:
      In
      connection with the first four (4) field examinations during each consecutive
      twelve (12) month period during the term of this Agreement, as well as in
      connection with any field examinations conducted during a period that a Default
      exists and is continuing hereunder,
      Borrower agrees to pay to Lender Lender’s customary fees and disbursements,
      based upon prevailing market rates, relating to field examinations of the
      Collateral, of Borrower’s business and Borrower’s books and records, which, as
      of the Agreement Date, are $900 per examiner per day plus all of the
      out-of-pocket examination costs and travel and other expenses incurred by such
      examiners.

    

    28. Cross
      Default Amount: $100,000

    

    29. Judgment
      Cross Default Amount: $100,000

    

    30. Change
      of Management Default:

     

    
      	
              Name

            	
              Office

            
	
              Christopher
                J. Reed

            	
              President

            
	
              Christopher
                J. Reed

            	
              Chief
                Financial Officer

            

    

     

    31. Notice
      Addresses:

    

    
      	If
              to Borrower:	
              [Intentionally
                Omitted]

            

    

    

    
      	
              If
                to Lender: 

            	
              [Intentional
                Omitted]

            

    

    

    
      	
              With
                a copy to:

            	
              [Intentional
                Omitted]Exhibit
      10.1

    

    COMMON
      STOCK PURCHASE AGREEMENT

    

    COMMON
      STOCK PURCHASE AGREEMENT
      (the
“Agreement”), dated as of July 15, 2008, by and between UBID.COM
      HOLDINGS, INC.,
      a
      Delaware corporation (the “Company”), and FUSION
      CAPITAL FUND II, LLC,
      an
      Illinois limited liability company (the “Buyer”). Capitalized terms used herein
      and not otherwise defined herein are defined in Section 10 hereof. 

    

    WHEREAS:

    

    Subject
      to the terms and conditions set forth in this Agreement, the Company wishes
      to
      sell to the Buyer, and the Buyer wishes to buy from the Company, up to Ten
      Million Dollars ($10,000,000.00) of the Company's common stock, par value $0.001
      per share (the “Common Stock”). The shares of Common Stock to be purchased
      hereunder are referred to herein as the "Purchase Shares."

    

    NOW
      THEREFORE,
      the
      Company and the Buyer hereby agree as follows:

    

    1.
       PURCHASE
      OF COMMON STOCK. 

    

    Subject
      to the terms and conditions set forth in this Agreement, the Company has the
      right to sell to the Buyer, and the Buyer has the obligation to purchase from
      the Company, Purchase Shares as follows:

    

    (a) Commencement
      of Purchases of Common Stock.
      The
      purchase and sale of Purchase Shares hereunder shall occur from time to time
      upon written notices by the Company to the Buyer on the terms and conditions
      as
      set forth herein following the satisfaction of the conditions (the
“Commencement”) as set forth in Sections 6 and 7 below (the date of satisfaction
      of such conditions, the "Commencement Date"). 

    

    (b) The
      Company’s Right to Require Purchases.
      Any
      time on or after the Commencement Date, the Company shall have the right but
      not
      the obligation to direct the Buyer by its delivery to the Buyer of Base Purchase
      Notices from time to time to buy Purchase Shares (each such purchase a “Base
      Purchase”) in any amount up to Sixty Thousand Dollars ($60,000.00) per Base
      Purchase Notice (the “Base Purchase Amount”) at the Purchase Price on the
      Purchase Date. The Company may deliver multiple Base Purchase Notices to the
      Buyer so long as at least three (3) Business Days have passed since the most
      recent Base Purchase was completed. Notwithstanding the forgoing, any time
      on or
      after the Commencement Date, the Company shall also have the right but not
      the
      obligation by its delivery to the Buyer of Block Purchase Notices from time
      to
      time to direct the Buyer to buy Purchase Shares (each such purchase a “Block
      Purchase”) in any amount up to One Million Dollars ($1,000,000.00) per Block
      Purchase Notice at the Block Purchase Price on the Purchase Date as provided
      herein. For a Block Purchase Notice to be valid the following conditions must
      be
      met: (1) the Block Purchase Amount shall not exceed One Hundred Thousand Dollars
      ($100,000.00) per Block Purchase Notice, (2) the Company must deliver the
      Purchase Shares before 11:00 a.m. eastern time on the Purchase Date and (3)
      the
      Sale Price of the Common Stock must not be below $1.25 (subject to equitable
      adjustment for any reorganization, recapitalization, non-cash dividend, stock
      split or other similar transaction) during the Purchase Date, the date of the
      delivery of the Block Purchase Notice and during the Business Day prior to
      the
      delivery of the Block Purchase Notice. The Block Purchase Amount may be
      increased to up to Two Hundred Fifty Thousand Dollars ($250,000.00) per Block
      Purchase Notice if the Sale Price of the Common Stock is not below $2.25
      (subject to equitable adjustment for any reorganization, recapitalization,
      non-cash dividend, stock split or other similar transaction) during the Purchase
      Date, the date of the delivery of the Block Purchase Notice and during the
      Business Day prior to the delivery of the Block Purchase Notice. The Block
      Purchase Amount may be increased to up to Five Hundred Thousand Dollars
      ($500,000.00) per Block Purchase Notice if the Sale Price of the Common Stock
      is
      not below $4.50 (subject to equitable adjustment for any reorganization,
      recapitalization, non-cash dividend, stock split or other similar transaction)
      during the Purchase Date, the date of the delivery of the Block Purchase Notice
      and during the Business Day prior to the delivery of the Block Purchase Notice.
      The Block Purchase Amount may be increased to up to One Million Dollars
      ($1,000,000.00) per Block Purchase Notice if the Sale Price of the Common Stock
      is not below $9.00 (subject to equitable adjustment for any reorganization,
      recapitalization, non-cash dividend, stock split or other similar transaction)
      during the Purchase Date, the date of the delivery of the Block Purchase Notice
      and during the Business Day prior to the delivery of the Block Purchase Notice.
      As used herein, the term “Block Purchase Price” shall mean the lesser of (i) the
      lowest Sale Price of the Common Stock on the Purchase Date or (ii) the lowest
      Purchase Price during the previous ten (10) Business Days prior to the date
      that
      the valid Block Purchase Notice was received by the Buyer. However, if at any
      time during the Purchase Date, the date of the delivery of the Block Purchase
      Notice or during the Business Day prior to the delivery of the Block Purchase
      Notice, the Sale Price of the Common Stock is below the applicable Block
      Purchase threshold price, such Block Purchase shall be void and the Buyer’s
      obligations to buy Purchase Shares in respect of that Block Purchase Notice
      shall be terminated. Thereafter, the Company shall again have the right to
      submit a Block Purchase Notice as set forth herein by delivery of a new Block
      Purchase Notice only if the Sale Price of the Common Stock is above the
      applicable Block Purchase threshold price during the date of the delivery of
      the
      Block Purchase Notice and during the Business Day prior to the delivery of
      the
      Block Purchase Notice. The Company may deliver multiple Block Purchase Notices
      to the Buyer so long as at least two (2) Business Days have passed since the
      most recent Block Purchase was completed. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (c) Payment
      for Purchase Shares.
      The
      Buyer shall pay to the Company an amount equal to the Purchase Amount with
      respect to such Purchase Shares as full payment for such Purchase Shares via
      wire transfer of immediately available funds on the same Business Day that
      the
      Buyer receives such Purchase Shares if they are received by the Buyer before
      11:00 a.m. eastern time or if received by the Buyer after 11:00 a.m. eastern
      time, the next Business Day. The Company shall not issue any fraction of a
      share
      of Common Stock upon any purchase. If the issuance would result in the issuance
      of a fraction of a share of Common Stock, the Company shall round such fraction
      of a share of Common Stock up or down to the nearest whole share. All payments
      made under this Agreement shall be made in lawful money of the United States
      of
      America or wire transfer of immediately available funds to such account as
      the
      Company may from time to time designate by written notice in accordance with
      the
      provisions of this Agreement. Whenever any amount expressed to be due by the
      terms of this Agreement is due on any day that is not a Business Day, the same
      shall instead be due on the next succeeding day that is a Business Day.

     

    (d) Purchase
      Price Floor.
      The
      Company and the Buyer shall not effect any sales under this Agreement on any
      Purchase Date where the Purchase Price for any purchases of Purchase Shares
      would be less than the Floor Price. “Floor Price” means $0.75, which
shall
      be
      appropriately adjusted for any reorganization, recapitalization, non-cash
      dividend, stock split or other similar transaction.

    

    (e) Records
      of Purchases.
      The
      Buyer and the Company shall each maintain records showing the remaining
      Available Amount at any give time and the dates and Purchase Amounts for each
      purchase or shall use such other method, reasonably satisfactory to the Buyer
      and the Company.

    

    (f) Taxes.
      The
      Company shall pay any and all transfer, stamp or similar taxes that may be
      payable with respect to the issuance and delivery of any shares of Common Stock
      to the Buyer made under this Agreement.

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    2. BUYER'S
      REPRESENTATIONS AND WARRANTIES.

    

    The
      Buyer
      represents and warrants to the Company that as of the date hereof and as of
      the
      Commencement Date: 

    

    (a) Investment
      Purpose.
      The
      Buyer is entering into this Agreement and acquiring the Commitment Shares,
      (as
      defined in Section 4(e) hereof) and the Purchase Shares (collectively referred
      to herein as the "Securities"), for its own account for investment only and
      not
      with a view towards, or for resale in connection with, the public sale or
      distribution thereof; provided however, by making the representations herein,
      the Buyer does not agree to hold any of the Securities for any minimum or other
      specific term other than as set forth in Section 4(e) with respect to the
      Commitment Shares.

     

    (b) Accredited
      Investor Status.
      The
      Buyer is an "accredited investor" as that term is defined in Rule 501(a)(3)
      of
      Regulation D.

    

    (c) Reliance
      on Exemptions.
      The
      Buyer understands that the Securities are being offered and sold to it in
      reliance on specific exemptions from the registration requirements of United
      States federal and state securities laws and that the Company is relying in
      part
      upon the truth and accuracy of, and the Buyer's compliance with, the
      representations, warranties, agreements, acknowledgments and understandings
      of
      the Buyer set forth herein in order to determine the availability of such
      exemptions and the eligibility of the Buyer to acquire the
      Securities.

    

    (d) Information.
      The
      Buyer has been furnished with all materials relating to the business, finances
      and operations of the Company and materials relating to the offer and sale
      of
      the Securities that have been reasonably requested by the Buyer, including,
      without limitation, the SEC Documents (as defined in Section 3(f) hereof).
      The
      Buyer understands that its investment in the Securities involves a high degree
      of risk. The Buyer (i) is able to bear the economic risk of an investment in
      the
      Securities including a total loss, (ii) has such knowledge and experience in
      financial and business matters that it is capable of evaluating the merits
      and
      risks of the proposed investment in the Securities and (iii) has had an
      opportunity to ask questions of and receive answers from the officers of the
      Company concerning the financial condition and business of the Company and
      others matters related to an investment in the Securities. Neither such
      inquiries nor any other due diligence investigations conducted by the Buyer
      or
      its representatives shall modify, amend or affect the Buyer's right to rely
      on
      the Company's representations and warranties contained in Section 3 below.
      The
      Buyer has sought such accounting, legal and tax advice as it has considered
      necessary to make an informed investment decision with respect to its
      acquisition of the Securities.

    

    (e) No
      Governmental Review.
      The
      Buyer understands that no United States federal or state agency or any other
      government or governmental agency has passed on or made any recommendation
      or
      endorsement of the Securities or the fairness or suitability of the investment
      in the Securities nor have such authorities passed upon or endorsed the merits
      of the offering of the Securities.

    

    (f) Transfer
      or Sale.
      The
      Buyer understands that except as provided in the Registration Rights Agreement
      (as defined in Section 4(a) hereof): (i) the Securities have not been and are
      not being registered under the 1933 Act or any state securities laws, and may
      not be offered for sale, sold, assigned or transferred unless (A) subsequently
      registered thereunder or (B) an exemption exists permitting such Securities
      to
      be sold, assigned or transferred without such registration; (ii) any sale of
      the
      Securities made in reliance on Rule 144 may be made only in accordance with
      the
      terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
      the
      Securities under circumstances in which the seller (or the person through whom
      the sale is made) may be deemed to be an underwriter (as that term is defined
      in
      the 1933 Act) may require compliance with some other exemption under the 1933
      Act or the rules and regulations of the SEC thereunder; and (iii) neither the
      Company nor any other person is under any obligation to register the Securities
      under the 1933 Act or any state securities laws or to comply with the terms
      and
      conditions of any exemption thereunder.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (g) Validity;
      Enforcement.
      This
      Agreement has been duly and validly authorized, executed and delivered on behalf
      of the Buyer and is a valid and binding agreement of the Buyer enforceable
      against the Buyer in accordance with its terms, subject as to enforceability
      to
      general principles of equity and to applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation and other similar laws relating to,
      or
      affecting generally, the enforcement of applicable creditors' rights and
      remedies. 

    

    (h) Residency.
      The
      Buyer is a resident of the State of Illinois.

    

    (i) No
      Prior Short Selling.
      The
      Buyer represents and warrants to the Company that at no time prior to the date
      of this Agreement has any of the Buyer, its agents, representatives or
      affiliates engaged in or effected, in any manner whatsoever, directly or
      indirectly, any (i) "short sale" (as such term is defined in Section 242.200
      of
      Regulation SHO of the Securities Exchange Act of 1934, as amended (the "1934
      Act")) of the Common Stock or (ii) hedging transaction, which establishes a
      net
      short position with respect to the Common Stock.

    

    

    3. REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.

    

    The
      Company represents and warrants to the Buyer that as of the date hereof and as
      of the Commencement Date:

    

    (a) Organization
      and Qualification.
      The
      Company and its "Subsidiaries" (which for purposes of this Agreement means
      any
      entity in which the Company, directly or indirectly, owns 50% or more of the
      voting stock or capital stock or other similar equity interests) are
      corporations duly organized and validly existing in good standing under the
      laws
      of the jurisdiction in which they are incorporated, and have the requisite
      corporate power and authority to own their properties and to carry on their
      business as now being conducted. Each of the Company and its Subsidiaries is
      duly qualified as a foreign corporation to do business and is in good standing
      in every jurisdiction in which its ownership of property or the nature of the
      business conducted by it makes such qualification necessary, except to the
      extent that the failure to be so qualified or be in good standing could not
      reasonably be expected to have a Material Adverse Effect. As used in this
      Agreement, "Material Adverse Effect" means any material adverse effect on any
      of: (i) the business, properties, assets, operations, results of operations
      or
      financial condition of the Company and its Subsidiaries, if any, taken as a
      whole, or (ii) the authority or ability of the Company to perform its
      obligations under the Transaction Documents (as defined in Section 3(b) hereof).
      The Company has no Subsidiaries except as set forth on Schedule
      3(a).

    

    (b) Authorization;
      Enforcement; Validity.
      (i) The
      Company has the requisite corporate power and authority to enter into and
      perform its obligations under this Agreement, the Registration Rights Agreement
      and each of the other agreements entered into by the parties on the Commencement
      Date and attached hereto as exhibits to this Agreement (collectively, the
      "Transaction Documents"), and to issue the Securities in accordance with the
      terms hereof and thereof, (ii) the execution and delivery of the Transaction
      Documents by the Company and the consummation by it of the transactions
      contemplated hereby and thereby, including without limitation, the issuance
      of
      the Commitment Shares and the reservation for issuance and the issuance of
      the
      Purchase Shares issuable under this Agreement, have been duly authorized by
      the
      Company's Board of Directors and no further consent or authorization is required
      by the Company, its Board of Directors or its shareholders, (iii) this Agreement
      has been, and each other Transaction Document shall be on the Commencement
      Date,
      duly executed and delivered by the Company and (iv) this Agreement constitutes,
      and each other Transaction Document upon its execution on behalf of the Company,
      shall constitute, the valid and binding obligations of the Company enforceable
      against the Company in accordance with their terms, except as such
      enforceability may be limited by general principles of equity or applicable
      bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
      laws
      relating to, or affecting generally, the enforcement of creditors' rights and
      remedies. The Board of Directors of the Company has approved the resolutions
      (the “Signing Resolutions”) substantially in the form as set forth as
Exhibit
      C-1
      attached
      hereto to authorize this Agreement and the transactions contemplated hereby.
      The
      Signing Resolutions are valid, in full force and effect and have not been
      modified or supplemented in any respect other than by the resolutions set forth
      in Exhibit
      C-2
      attached
      hereto regarding the registration statement referred to in Section 4 hereof.
      The
      Company has delivered to the Buyer a true and correct copy of a unanimous
      written consent adopting the Signing Resolutions executed by all of the members
      of the Board of Directors of the Company. No other approvals or consents of
      the
      Company’s Board of Directors and/or shareholders is necessary under applicable
      laws and the Company’s Certificate of Incorporation and/or Bylaws to authorize
      the execution and delivery of this Agreement or any of the transactions
      contemplated hereby, including, but not limited to, the issuance of the
      Commitment Shares and the issuance of the Purchase Shares.

     

    
      
        
        

      

      
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    (c) Capitalization.
      As of
      the date hereof, the authorized capital stock of the Company consists of (i)
      200,000,000 shares of Common Stock, of which as of the date hereof, 18,197,783
      shares are issued and outstanding, 2,135,550 are held as treasury shares,
      2,500,000 shares are reserved for issuance pursuant to the Company's stock
      option plans of which only approximately 1,402,000 shares remain available
      for
      future grants and 3,232,939 shares are issuable and reserved for issuance
      pursuant to securities (other than stock options issued pursuant to the
      Company's stock option plans) exercisable or exchangeable for, or convertible
      into, shares of Common Stock and (ii) 25,000,000 shares of Preferred Stock,
      $0.001 par value, of which as of the date hereof no shares are issued and
      outstanding. All of such outstanding shares have been, or upon issuance will
      be,
      validly issued and are fully paid and nonassessable. Except as disclosed in
      Schedule 3(c), (i) no shares of the Company's capital stock are subject to
      preemptive rights or any other similar rights or any liens or encumbrances
      suffered or permitted by the Company, (ii) there are no outstanding debt
      securities, (iii) there are no outstanding options, warrants, scrip, rights
      to
      subscribe to, calls or commitments of any character whatsoever relating to,
      or
      securities or rights convertible into, any shares of capital stock of the
      Company or any of its Subsidiaries, or contracts, commitments, understandings
      or
      arrangements by which the Company or any of its Subsidiaries is or may become
      bound to issue additional shares of capital stock of the Company or any of
      its
      Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
      commitments of any character whatsoever relating to, or securities or rights
      convertible into, any shares of capital stock of the Company or any of its
      Subsidiaries, (iv) there are no agreements or arrangements under which the
      Company or any of its Subsidiaries is obligated to register the sale of any
      of
      their securities under the 1933 Act (except the Registration Rights Agreement),
      (v) there are no outstanding securities or instruments of the Company or any
      of
      its Subsidiaries which contain any redemption or similar provisions, and there
      are no contracts, commitments, understandings or arrangements by which the
      Company or any of its Subsidiaries is or may become bound to redeem a security
      of the Company or any of its Subsidiaries, (vi) there are no securities or
      instruments containing anti-dilution or similar provisions that will be
      triggered by the issuance of the Securities as described in this Agreement
      and
      (vii) the Company does not have any stock appreciation rights or "phantom stock"
      plans or agreements or any similar plan or agreement. The Company has furnished
      to the Buyer true and correct copies of the Company's Certificate of
      Incorporation, as amended and as in effect on the date hereof (the "Certificate
      of Incorporation"), and the Company's By-laws, as amended and as in effect
      on
      the date hereof (the "By-laws"), and summaries of the terms of all securities
      convertible into or exercisable for Common Stock, if any, and copies of any
      documents containing the material rights of the holders thereof in respect
      thereto.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (d) Issuance
      of Securities.
      The
      Commitment Shares have been duly authorized and, upon issuance in accordance
      with the terms hereof, the Commitment Shares shall be (i) validly issued, fully
      paid and non-assessable and (ii) free from all taxes, liens and charges with
      respect to the issue thereof. 2,000,000 shares of Common Stock have been duly
      authorized and reserved for issuance upon purchase under this Agreement. 230,074
      shares of Common Stock (subject to equitable adjustment for any reorganization,
      recapitalization, non-cash dividend, stock split or other similar transaction)
      have been duly authorized and reserved for issuance as Additional Commitment
      Shares in accordance with Section 4(e) this Agreement. Upon
      issuance and payment therefor in accordance with the terms and conditions of
      this Agreement, the Purchase Shares shall be validly issued, fully paid and
      nonassessable and free from all taxes, liens and charges with respect to the
      issue thereof, with the holders being entitled to all rights accorded to a
      holder of Common Stock.

    

    (e) No
      Conflicts.
      Except
      as disclosed in Schedule 3(e), the execution, delivery and performance of the
      Transaction Documents by the Company and the consummation by the Company of
      the
      transactions contemplated hereby and thereby (including, without limitation,
      the
      reservation for issuance and issuance of the Purchase Shares) will not (i)
      result in a violation of the Certificate of Incorporation, any Certificate
      of
      Designations, Preferences and Rights of any outstanding series of preferred
      stock of the Company or the By-laws or (ii) conflict with, or constitute a
      default (or an event which with notice or lapse of time or both would become
      a
      default) under, or give to others any rights of termination, amendment,
      acceleration or cancellation of, any agreement, indenture or instrument to
      which
      the Company or any of its Subsidiaries is a party, or result in a violation
      of
      any law, rule, regulation, order, judgment or decree (including federal and
      state securities laws and regulations and the rules and regulations of the
      Principal Market applicable to the Company or any of its Subsidiaries) or by
      which any property or asset of the Company or any of its Subsidiaries is bound
      or affected, except in the case of conflicts, defaults, terminations,
      amendments, accelerations, cancellations and violations under clause (ii),
      which
      could not reasonably be expected to result in a Material Adverse Effect. Except
      as disclosed in Schedule 3(e), neither the Company nor its Subsidiaries is
      in
      violation of any term of or in default under its Certificate of Incorporation,
      any Certificate of Designation, Preferences and Rights of any outstanding series
      of preferred stock of the Company or By-laws or their organizational charter
      or
      by-laws, respectively. Except as disclosed in Schedule 3(e), neither the Company
      nor any of its Subsidiaries is in violation of any term of or is in default
      under any material contract, agreement, mortgage, indebtedness, indenture,
      instrument, judgment, decree or order or any statute, rule or regulation
      applicable to the Company or its Subsidiaries, except for possible conflicts,
      defaults, terminations or amendments which could not reasonably be expected
      to
      have a Material Adverse Effect. The business of the Company and its Subsidiaries
      is not being conducted, and shall not be conducted, in violation of any law,
      ordinance, regulation of any governmental entity, except for possible
      violations, the sanctions for which either individually or in the aggregate
      could not reasonably be expected to have a Material Adverse Effect. Except
      as
      specifically contemplated by this Agreement and as required under the 1933
      Act
      or applicable state securities laws, the Company is not required to obtain
      any
      consent, authorization or order of, or make any filing or registration with,
      any
      court or governmental agency or any regulatory or self-regulatory agency in
      order for it to execute, deliver or perform any of its obligations under or
      contemplated by the Transaction Documents in accordance with the terms hereof
      or
      thereof. Except as disclosed in Schedule 3(e), all consents, authorizations,
      orders, filings and registrations which the Company is required to obtain
      pursuant to the preceding sentence shall be obtained or effected on or prior
      to
      the Commencement Date. Except as listed in Schedule 3(e), since January 1,
      2007,
      the Company has not received nor delivered any notices or correspondence from
      or
      to the Principal Market. The Principal Market has not commenced any delisting
      proceedings against the Company.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (f) SEC
      Documents; Financial Statements.
      Except
      as disclosed in Schedule 3(f), since January 1, 2007, the Company has timely
      filed all reports, schedules, forms, statements and other documents required
      to
      be filed by it with the SEC pursuant to the reporting requirements of the 1934
      Act (all of the foregoing filed prior to the date hereof and all exhibits
      included therein and financial statements and schedules thereto and documents
      incorporated by reference therein being hereinafter referred to as the "SEC
      Documents"). As of their respective dates (except as they have been correctly
      amended), the SEC Documents complied in all material respects with the
      requirements of the 1934 Act and the rules and regulations of the SEC
      promulgated thereunder applicable to the SEC Documents, and none of the SEC
      Documents, at the time they were filed with the SEC (except as they may have
      been properly amended), contained any untrue statement of a material fact or
      omitted to state a material fact required to be stated therein or necessary
      in
      order to make the statements therein, in light of the circumstances under which
      they were made, not misleading. As of their respective dates (except as they
      have been properly amended), the financial statements of the Company included
      in
      the SEC Documents complied as to form in all material respects with applicable
      accounting requirements and the published rules and regulations of the SEC
      with
      respect thereto. Such financial statements have been prepared in accordance
      with
      generally accepted accounting principles, consistently applied, during the
      periods involved (except (i) as may be otherwise indicated in such financial
      statements or the notes thereto or (ii) in the case of unaudited interim
      statements, to the extent they may exclude footnotes or may be condensed or
      summary statements) and fairly present in all material respects the financial
      position of the Company as of the dates thereof and the results of its
      operations and cash flows for the periods then ended (subject, in the case
      of
      unaudited statements, to normal year-end audit adjustments). Except as listed
      in
      Schedule 3(f), the Company has received no notices or correspondence from the
      SEC since January 1, 2007. The SEC has not commenced any enforcement proceedings
      against the Company or any of its subsidiaries.

    

    (g) Absence
      of Certain Changes.
      Except
      as disclosed in Schedule 3(g), since March 31, 2008, there has been no material
      adverse change in the business, properties, operations, financial condition
      or
      results of operations of the Company or its Subsidiaries. The Company has not
      taken any steps, and does not currently expect to take any steps, to seek
      protection pursuant to any Bankruptcy Law nor does the Company or any of its
      Subsidiaries have any knowledge or reason to believe that its creditors intend
      to initiate involuntary bankruptcy or
      insolvency proceedings. The Company is financially solvent and is generally
      able
      to pay its debts as they become due. 

    

    (h) Absence
      of Litigation.
      Except
      as disclosed on Schedule 3(h), there is no action, suit, proceeding, inquiry
      or
      investigation before or by any court, public board, government agency,
      self-regulatory organization or body pending or, to the knowledge of the Company
      or any of its Subsidiaries, threatened against or affecting the Company, the
      Common Stock or any of the Company's Subsidiaries or any of the Company's or
      the
      Company's Subsidiaries' officers or directors in their capacities as such,
      which
      could reasonably be expected to have a Material Adverse Effect. A description
      of
      each action, suit, proceeding, inquiry or investigation before or by any court,
      public board, government agency, self-regulatory organization or body which,
      as
      of the date of this Agreement, is pending or threatened in writing against
      or
      affecting the Company, the Common Stock or any of the Company's Subsidiaries
      or
      any of the Company's or the Company's Subsidiaries' officers or directors in
      their capacities as such, is set forth in Schedule 3(h).

    

    (i) Acknowledgment
      Regarding Buyer's Status.
      The
      Company acknowledges and agrees that the Buyer is acting solely in the capacity
      of arm's length purchaser with respect to the Transaction Documents and the
      transactions contemplated hereby and thereby. The Company further acknowledges
      that the Buyer is not acting as a financial advisor or fiduciary of the Company
      (or in any similar capacity) with respect to the Transaction Documents and
      the
      transactions contemplated hereby and thereby and any advice given by the Buyer
      or any of its representatives or agents in connection with the Transaction
      Documents and the transactions contemplated hereby and thereby is merely
      incidental to the Buyer's purchase of the Securities. The Company further
      represents to the Buyer that the Company's decision to enter into the
      Transaction Documents has been based solely on the independent evaluation by
      the
      Company and its representatives and advisors.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (j) No
      General Solicitation.
      Neither
      the Company, nor any of its affiliates, nor any person acting on its or their
      behalf, has engaged in any form of general solicitation or general advertising
      (within the meaning of Regulation D under the 1933 Act) in connection with
      the
      offer or sale of the Securities.

    

    (k) Intellectual
      Property Rights.
      To the
      knowledge of the Company and its Subsidiaries, the Company and its Subsidiaries
      own or possess adequate rights or licenses to use all material trademarks,
      trade
      names, service marks, service mark registrations, service names, patents, patent
      rights, copyrights, inventions, licenses, approvals, governmental
      authorizations, trade secrets and rights necessary to conduct their respective
      businesses as now conducted. Except as set forth on Schedule 3(k), none of
      the
      Company's material trademarks, trade names, service marks, service mark
      registrations, service names, patents, patent rights, copyrights, inventions,
      licenses, approvals, government authorizations, trade secrets or other
      intellectual property rights have expired or terminated, or, by the terms and
      conditions thereof, could expire or terminate within two years from the date
      of
      this Agreement. The Company and its Subsidiaries do not have any knowledge
      of
      any infringement by the Company or its Subsidiaries of any material trademark,
      trade name rights, patents, patent rights, copyrights, inventions, licenses,
      service names, service marks, service mark registrations, trade secret or other
      similar rights of others, or of any such development of similar or identical
      trade secrets or technical information by others and, except as set forth on
      Schedule 3(k), there is no claim, action or proceeding being made or brought
      against, or to the Company's knowledge, being threatened against, the Company
      or
      its Subsidiaries regarding trademark, trade name, patents, patent rights,
      invention, copyright, license, service names, service marks, service mark
      registrations, trade secret or other infringement, which could reasonably be
      expected to have a Material Adverse Effect.

    

    (l) Environmental
      Laws.
      To the
      knowledge of the Company and its Subsidiaries, the Company and its Subsidiaries
      (i) are in compliance with any and all applicable foreign, federal, state and
      local laws and regulations relating to the protection of human health and
      safety, the environment or hazardous or toxic substances or wastes, pollutants
      or contaminants (“Environmental Laws”), (ii) have received all permits, licenses
      or other approvals required of them under applicable Environmental Laws to
      conduct their respective businesses and (iii) are in compliance with all terms
      and conditions of any such permit, license or approval, except where, in each
      of
      the three foregoing clauses, the failure to so comply could not reasonably
      be
      expected to have, individually or in the aggregate, a Material Adverse
      Effect.

    

    (m) Title.
      The
      Company and its Subsidiaries have good and marketable title in fee simple to
      all
      real property and good and marketable title to all personal property owned
      by
      them which is material to the business of the Company and its Subsidiaries,
      in
      each case free and clear of all liens, encumbrances and defects except such
      as
      are described in Schedule 3(m) or such as do not materially affect the value
      of
      such property and do not interfere with the use made and proposed to be made
      of
      such property by the Company and any of its Subsidiaries. Any real property
      and
      facilities held under lease by the Company and any of its Subsidiaries are
      held
      by them under valid, subsisting and enforceable leases with such exceptions
      as
      are not material and do not interfere with the use made and proposed to be
      made
      of such property and buildings by the Company and its Subsidiaries.

    

    (n) Insurance.
      The
      Company and each of its Subsidiaries are insured by insurers of recognized
      financial responsibility against such losses and risks and in such amounts
      as
      management of the Company believes to be prudent and customary in the businesses
      in which the Company and its Subsidiaries are engaged. Neither the Company
      nor
      any such Subsidiary has been refused any insurance coverage sought or applied
      for and neither the Company nor any such Subsidiary has any reason to believe
      that it will not be able to renew its existing insurance coverage as and when
      such coverage expires or to obtain similar coverage from similar insurers as
      may
      be necessary to continue its business at a cost that would not materially and
      adversely affect the condition, financial or otherwise, or the earnings,
      business or operations of the Company and its Subsidiaries, taken as a
      whole.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (o) Regulatory
      Permits.
      To the
      knowledge of the Company and its Subsidiaries, the Company and its Subsidiaries
      possess all material certificates, authorizations and permits issued by the
      appropriate federal, state or foreign regulatory authorities necessary to
      conduct their respective businesses, and neither the Company nor any such
      Subsidiary has received any notice of proceedings relating to the revocation
      or
      modification of any such certificate, authorization or permit.

    

    (p) Tax
      Status.
      The
      Company and each of its Subsidiaries has made or filed all federal and state
      income and all other material tax returns, reports and declarations required
      by
      any jurisdiction to which it is subject (unless and only to the extent that
      the
      Company and each of its Subsidiaries has set aside on its books provisions
      reasonably adequate for the payment of all unpaid and unreported taxes) and
      has
      paid all taxes and other governmental assessments and charges that are material
      in amount, shown or determined to be due on such returns, reports and
      declarations, except those being contested in good faith and has set aside
      on
      its books provision reasonably adequate for the payment of all taxes for periods
      subsequent to the periods to which such returns, reports or declarations apply.
      There are no unpaid taxes in any material amount claimed to be due by the taxing
      authority of any jurisdiction, and the officers of the Company know of no basis
      for any such claim.

    

    (q) Transactions
      With Affiliates.
      Except
      as set forth on Schedule 3(q) and other than the grant or exercise of stock
      options disclosed on Schedule 3(c), none of the officers, directors, or
      employees of the Company is presently a party to any transaction with the
      Company or any of its Subsidiaries (other than for services as employees,
      officers and directors), including any contract, agreement or other arrangement
      providing for the furnishing of services to or by, providing for rental of
      real
      or personal property to or from, or otherwise requiring payments to or from
      any
      officer, director or such employee or, to the knowledge of the Company, any
      corporation, partnership, trust or other entity in which any officer, director,
      or any such employee has an interest or is an officer, director, trustee or
      partner.

    

    

    (r) Foreign
      Corrupt Practices.
      Neither
      the Company, nor any of its Subsidiaries, nor any director, officer, agent,
      employee or other person acting on behalf of the Company or any of its
      Subsidiaries has, in the course of its actions for, or on behalf of, the
      Company, used any corporate funds for any unlawful contribution, gift,
      entertainment or other unlawful expenses relating to political activity; made
      any direct or indirect unlawful payment to any foreign or domestic government
      official or employee from corporate funds; violated or is in violation of any
      provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or
      made
      any unlawful bribe, rebate, payoff, influence payment, kickback or other
      unlawful payment to any foreign or domestic government official or
      employee.

    

    4. COVENANTS.

    

    (a) Filing
      of Form 8-K and Registration Statement.
      The
      Company agrees that it shall, within the time required under the 1934 Act file
      a
      Report on Form 8-K disclosing this Agreement and the transaction contemplated
      hereby. The Company shall also file within twenty (20) Business Days from the
      date hereof a new registration statement covering only the sale of the
      Securities in accordance with the terms of the Registration Rights Agreement
      between the Company and the Buyer, dated as of the date hereof (“Registration
      Rights Agreement”). 

    

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    (b) Blue
      Sky.
      The
      Company shall take such action, if any, as is reasonably necessary in order
      to
      obtain an exemption for or to qualify (i) the initial sale of the Commitment
      Shares and any Purchase Shares to the Buyer under this Agreement and (ii) any
      subsequent sale of the Commitment Shares and any Purchase Shares by the Buyer,
      in each case, under applicable securities or "Blue Sky" laws of the states
      of
      the United States in such states as is reasonably requested by the Buyer from
      time to time, and shall provide evidence of any such action so taken to the
      Buyer.

    

    (c) Listing.
      The
      Company shall promptly secure the listing of all of the Purchase Shares and
      Commitment Shares upon each national securities exchange and automated quotation
      system, if any, upon which shares of Common Stock are then listed (subject
      to
      official notice of issuance) and shall maintain, so long as any other shares
      of
      Common Stock shall be so listed, such listing of all such securities from time
      to time issuable under the terms of the Transaction Documents. The Company
      shall
      maintain the Common Stock's authorization for quotation on the Principal Market.
      Neither the Company nor any of its Subsidiaries shall take any action that
      would
      be reasonably expected to result in the delisting or suspension of the Common
      Stock on the Principal Market. The Company shall promptly, and in no event
      later
      than the following Business Day, provide to the Buyer copies of any notices
      it
      receives from the Principal Market regarding the continued eligibility of the
      Common Stock for listing on such automated quotation system or securities
      exchange. The Company shall pay all fees and expenses in connection with
      satisfying its obligations under this Section.

    

    (d) Limitation
      on Short Sales and Hedging Transactions.
      The
      Buyer agrees that beginning on the date of this Agreement and ending on the
      date
      of termination of this Agreement as provided in Section 11(k), the Buyer and
      its
      agents, representatives and affiliates shall not in any manner whatsoever enter
      into or effect, directly or indirectly, any (i) "short sale" (as such term
      is
      defined in Section 242.200 of Regulation SHO of the 1934 Act) of the Common
      Stock or (ii) hedging transaction, which establishes a net short position with
      respect to the Common Stock. 

    

    (e) Issuance
      of Commitment Shares; Limitation on Sales of Commitment Shares.
      Immediately upon the execution of this Agreement, the Company shall issue to
      the
      Buyer as consideration for the Buyer entering into this Agreement 230,074 shares
      of Common Stock (the "Initial Commitment Shares"). In connection with each
      purchase of Purchase Shares hereunder, the Company agrees to issue to the Buyer
      a number of shares of Common Stock (the “Additional Commitment Shares” and
      together with the Initial Commitment Shares, the “Commitment Shares”) equal to
      the product of (x) 230,074 and (y) the Purchase Amount Fraction. The “Purchase
      Amount Fraction” shall mean a fraction, the numerator of which is the Purchase
      Amount purchased by the Buyer with respect to such purchase of Purchase Shares
      and the denominator of which is Ten Million Dollars ($10,000,000). The
      Additional Commitment Shares shall be equitably adjusted for any reorganization,
      recapitalization, non-cash dividend, stock split or other similar transaction.
      The Initial
      Commitment Shares shall be issued in certificated form and (subject to Section
      5
      hereof) shall bear only the following restrictive legend:

    

    THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
      SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
      SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
      STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
      OR
      APPLICABLE STATE SECURITIES LAWS, UNLESS SOLD PURSUANT TO: (1) RULE 144 UNDER
      THE SECURITIES ACT OF 1933, AS AMENDED, OR (2) AN OPINION OF HOLDER’S COUNSEL,
      IN A CUSTOMARY FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
      APPLICABLE STATE SECURITIES LAWS.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    The
      Buyer
      agrees that the Buyer shall not transfer or sell the Commitment Shares until
      the
      earlier of 480 Business Days (24 Monthly Periods) from the date hereof or the
      date on which this Agreement has been terminated, provided, however, that such
      restrictions shall not apply: (i) in connection with any transfers to or among
      affiliates (as defined in the 1934 Act), (ii) in the event that the Commencement
      does not occur on or before October 1, 2008, due to the failure of the Company
      to satisfy the conditions set forth in Section 7 or (iii) if an Event of Default
      has occurred, or any event which, after notice and/or lapse of time, would
      become an Event of Default, including any failure by the Company to timely
      issue
      Purchase Shares under this Agreement. Notwithstanding the forgoing, the Buyer
      may transfer Commitment Shares to a third party in order to settle a sale made
      by the Buyer where the Buyer reasonably expects the Company to deliver Purchase
      Shares to the Buyer under this Agreement so long as the Buyer maintains
      ownership of the same overall number of shares of Common Stock by "replacing"
      the Commitment Shares so transferred with Purchase Shares when the Purchase
      Shares are actually issued by the Company to the Buyer. 

    

    (g) Due
      Diligence.
      The
      Buyer shall have the right, from time to time as the Buyer may reasonably deem
      appropriate, to perform reasonable due diligence on the Company during normal
      business hours. The Company and its officers and employees shall provide
      information and reasonably cooperate with the Buyer in connection with any
      reasonable request by the Buyer related to the Buyer's due diligence of the
      Company, including, but not limited to, any such request made by the Buyer
      in
      connection with (i) the filing of the registration statement described in
      Section 4(a) hereof and (ii) the Commencement. Each party hereto agrees not
      to
      disclose any Confidential Information of the other party to any third party
      and
      shall not use the Confidential Information for any purpose other than in
      connection with, or in furtherance of, the transactions contemplated hereby.
      Each party hereto acknowledges that the Confidential Information shall remain
      the property of the disclosing party and agrees that it shall take all
      reasonable measures to protect the secrecy of any Confidential Information
      disclosed by the other party. 

    

    5. TRANSFER
      AGENT INSTRUCTIONS.

    

    Immediately
      upon the execution of this Agreement, the Company shall deliver to the Transfer
      Agent a letter in the form as set forth as Exhibit
      E
      attached
      hereto with respect to the issuance of the Initial Commitment
      Shares. On
      the
      Commencement Date, the Company shall cause any restrictive legend on the Initial
      Commitment Shares to be removed and all of the Purchase Shares and Additional
      Commitment Shares, to be issued under this Agreement shall be issued without
      any
      restrictive legend unless the Buyer expressly consents otherwise. The Company
      shall issue irrevocable instructions to the Transfer Agent, and any subsequent
      transfer agent, to issue Purchase Shares in the name of the Buyer for the
      Purchase Shares (the "Irrevocable Transfer Agent Instructions"). The Company
      warrants to the Buyer that no instruction other than the Irrevocable Transfer
      Agent Instructions referred to in this Section 5, will be given by the Company
      to the Transfer Agent with respect to the Purchase Shares and that the
      Commitment Shares and the Purchase Shares shall otherwise be freely transferable
      on the books and records of the Company as and to the extent provided in this
      Agreement and the Registration Rights Agreement subject to the provisions of
      Section 4(e) in the case of the Commitment Shares.

    

    
      
        
          	
                	6.	
                   CONDITIONS
                    TO THE COMPANY'S RIGHT TO COMMENCE SALES OF SHARES OF COMMON
                    STOCK UNDER
                    THIS
                    AGREEMENT.

                

        

      

    

    

    The
      right
      of the Company hereunder to commence sales of the Purchase Shares is subject
      to
      the satisfaction of each of the following conditions on or before the
      Commencement Date (the date that the Company may begin sales):

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    (a) The
      Buyer
      shall have executed each of the Transaction Documents and delivered the same
      to
      the Company; 

    

    (b) A
      registration statement covering the sale of all of the Commitment Shares and
      Purchase Shares shall have been declared effective under the 1933 Act by the
      SEC
      and no stop order with respect to the registration statement shall be pending
      or
      threatened by the SEC. 

    

    
      
        
          	
                	7.	
                   CONDITIONS
                    TO THE BUYER'S OBLIGATION TO MAKE PURCHASES
                    OF SHARES OF COMMON
                    STOCK.

                

        

      

    

    

    The
      obligation of the Buyer to buy Purchase Shares under this Agreement is subject
      to the satisfaction of each of the following conditions on or before the
      Commencement Date (the date that the Company may begin sales) and once such
      conditions have been initially satisfied, there shall not be any ongoing
      obligation to satisfy such conditions after the Commencement has
      occurred:

    

    (a) The
      Company shall have executed each of the Transaction Documents and delivered
      the
      same to the Buyer;

    

    (b) The
      Company shall have issued to the Buyer the Initial Commitment Shares and shall
      have removed the restrictive transfer legend from the certificate representing
      the Initial Commitment Shares; 

    

    (c) The
      Common Stock shall be authorized for quotation on the Principal Market, trading
      in the Common Stock shall not have been within the last 365 days suspended
      by
      the SEC or the Principal Market and the Purchase Shares and the Commitment
      Shares shall be approved for listing upon the Principal Market;

    

    (d) The
      Buyer
      shall have received the opinions of the Company's legal counsel dated as of
      the
      Commencement Date substantially in the form of Exhibit
      A
      attached
      hereto;

    

    (e) The
      representations and warranties of the Company shall be true and correct in
      all
      material respects (except to the extent that any of such representations and
      warranties is already qualified as to materiality in Section 3 above, in which
      case, such representations and warranties shall be true and correct without
      further qualification) as of the date when made and as of the Commencement
      Date
      as though made at that time (except for representations and warranties that
      speak as of a specific date) and the Company shall have performed, satisfied
      and
      complied with the covenants, agreements and conditions required by the
      Transaction Documents to be performed, satisfied or complied with by the Company
      at or prior to the Commencement Date. The Buyer shall have received a
      certificate, executed by the CEO, President or CFO of the Company, dated as
      of
      the Commencement Date, to the foregoing effect in the form attached hereto
      as
Exhibit
      B;

    

    (f) The
      Board
      of Directors of the Company shall have adopted resolutions in the form attached
      hereto as Exhibit
      C
      which
      shall be in full force and effect without any amendment or supplement thereto
      as
      of the Commencement Date; 

    

    (g) As
      of the
      Commencement Date, the Company shall have reserved out of its authorized and
      unissued Common Stock, (A) solely for the purpose of effecting purchases of
      Purchase Shares hereunder, 2,000,000 shares of Common Stock and (B) as
      Additional Commitment Shares in accordance with Section 4(e) hereof, 230,074
      shares of Common Stock;

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    (h) The
      Irrevocable Transfer Agent Instructions, in form acceptable to the Buyer shall
      have been delivered to and acknowledged in writing by the Company and the
      Company's Transfer Agent;

    

    (i) The
      Company shall have delivered to the Buyer a certificate evidencing the
      incorporation and good standing of the Company in the State of Delaware issued
      by the Secretary of State of the State of Delaware as of a date within ten
      (10)
      Business Days of the Commencement Date;

    

    (j) The
      Company shall have delivered to the Buyer a certified copy of the Certificate
      of
      Incorporation as certified by the Secretary of State of the State of Delaware
      within ten (10) Business Days of the Commencement Date;

    

    (k) The
      Company shall have delivered to the Buyer a secretary's certificate executed
      by
      the Secretary of the Company, dated as of the Commencement Date, in the form
      attached hereto as Exhibit
      D;

    

    (l) A
      registration statement covering the sale of all of the Commitment
      Shares and
      Purchase Shares shall have been declared effective under the 1933 Act by the
      SEC
      and no stop order with respect to the registration statement shall be pending
      or
      threatened by the SEC. The Company shall have prepared and delivered to the
      Buyer a final and complete form of prospectus, dated and current as of the
      Commencement Date, to be used by the Buyer in connection with any sales of
      any
      Commitment Shares, or any Purchase Shares, and to be filed by the Company one
      Business Day after the Commencement Date. The Company shall have made all
      filings under all applicable federal and state securities laws necessary to
      consummate the issuance of the Commitment Shares and
      the
      Purchase Shares pursuant to this Agreement in compliance with such
      laws;

    

    (m) No
      Event
      of Default has occurred, or any event which, after notice and/or lapse of time,
      would become an Event of Default has occurred;

    

    (n) The
      Company shall have provided the Buyer with the information requested by the
      Buyer in connection with its due diligence requests made prior to, or in
      connection with, the Commencement, in accordance with the terms of Section
      4(g)
      hereof.

    

    
      
        8.
          INDEMNIFICATION.
          

      

    

    

    In
      consideration of the Buyer's execution and delivery of the Transaction Documents
      and acquiring the Securities hereunder and in addition to all of the Company's
      other obligations under the Transaction Documents, the Company shall defend,
      protect, indemnify and hold harmless the Buyer and all of its affiliates,
      shareholders, officers, directors, employees and direct or indirect investors
      and any of the foregoing person's agents or other representatives (including,
      without limitation, those retained in connection with the transactions
      contemplated by this Agreement) (collectively, the "Indemnitees") from and
      against any and all actions, causes of action, suits, claims, losses, costs,
      penalties, fees, liabilities and damages, and expenses in connection therewith
      (irrespective of whether any such Indemnitee is a party to the action for which
      indemnification hereunder is sought), and including reasonable attorneys' fees
      and disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee
      as
      a result of, or arising out of, or relating to (a) any misrepresentation or
      breach of any representation or warranty made by the Company in the Transaction
      Documents or any other certificate, instrument or document contemplated hereby
      or thereby, (b) any breach of any covenant, agreement or obligation of the
      Company contained in the Transaction Documents or any other certificate,
      instrument or document contemplated hereby or thereby, or (c) any cause of
      action, suit or claim brought or made against such Indemnitee and arising out
      of
      or resulting from the execution, delivery, performance or enforcement of the
      Transaction Documents or any other certificate, instrument or document
      contemplated hereby or thereby, other than with respect to Indemnified
      Liabilities which directly and primarily result from the gross negligence or
      willful misconduct of the Indemnitee. To the extent that the foregoing
      undertaking by the Company may be unenforceable for any reason, the Company
      shall make the maximum contribution to the payment and satisfaction of each
      of
      the Indemnified Liabilities which is permissible under applicable
      law.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    9. EVENTS
      OF DEFAULT. 

    

    An
      "Event
      of Default" shall be deemed to have occurred at any time as any of the following
      events occurs:

    

    (a) while
      any
      registration statement is required to be maintained effective pursuant to the
      terms of the Registration Rights Agreement, the effectiveness of such
      registration statement lapses for any reason (including, without limitation,
      the
      issuance of a stop order) or is unavailable to the Buyer for sale of all of
      the
      Registrable Securities (as defined in the Registration Rights Agreement) in
      accordance with the terms of the Registration Rights Agreement, and such lapse
      or unavailability continues for a period of ten (10) consecutive Business Days
      or for more than an aggregate of thirty (30) Business Days in any 365-day
      period;

    

    (b) the
      suspension from trading or failure of the Common Stock to be listed on the
      Principal Market for a period of three (3) consecutive Business
      Days;

    

    (c) the
      delisting of the Company’s Common Stock from the Principal Market, provided,
      however, that the Common Stock is not immediately thereafter trading on the
      New
      York Stock Exchange, the Nasdaq Global Market, the Nasdaq Capital Market, or
      the
      American Stock Exchange;

    

    (d) the
      failure for any reason by the Transfer Agent to issue Purchase Shares to the
      Buyer within five (5) Business Days after the applicable Purchase Date which
      the
      Buyer is entitled to receive;

    

    (e) the
      Company breaches any representation, warranty, covenant or other term or
      condition under any Transaction Document if such breach could have a Material
      Adverse Effect and except, in the case of a breach of a covenant which is
      reasonably curable, only if such breach continues for a period of at least
      five
      (5) Business Days;

    

    (f) if
      any
      Person commences a proceeding against the Company pursuant to or within the
      meaning of any Bankruptcy Law; 

    

    (g) if
      the
      Company pursuant to or within the meaning of any Bankruptcy Law; (A) commences
      a
      voluntary case, (B) consents to the entry of an order for relief against it
      in
      an involuntary case, (C) consents to the appointment of a Custodian of it or
      for
      all or substantially all of its property, (D) makes a general assignment for
      the
      benefit of its creditors, (E) becomes insolvent, or (F) is generally unable
      to
      pay its debts as the same become due; or

    

    (h) a
      court
      of competent jurisdiction enters an order or decree under any Bankruptcy Law
      that (A) is for relief against the Company in an involuntary case, (B) appoints
      a Custodian of the Company or for all or substantially all of its property,
      or
      (C) orders the liquidation of the Company or any Subsidiary. 

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    In
      addition to any other rights and remedies under applicable law and this
      Agreement, including the Buyer termination rights under Section 11(k) hereof,
      so
      long as an Event of Default has occurred and is continuing, or if any event
      which, after notice and/or lapse of time, would become an Event of Default,
      has
      occurred and is continuing, or so long as the Purchase Price is below the
      Purchase Price Floor, the Buyer shall not be obligated to purchase any shares
      of
      Common Stock under this Agreement. If pursuant to or within the meaning of
      any
      Bankruptcy Law, the Company commences a voluntary case or any Person commences
      a
      proceeding against the Company, a Custodian is appointed for the Company or
      for
      all or substantially all of its property, or the Company makes a general
      assignment for the benefit of its creditors, (any of which would be an Event
      of
      Default as described in Sections 9(f), 9(g) and 9(h) hereof)
      this Agreement shall automatically terminate without any liability or payment
      to
      the Company without further action or notice by any Person. No such termination
      of this Agreement under Section 11(k)(i) shall affect the Company's or the
      Buyer's obligations under this Agreement with respect to pending purchases
      and
      the Company and the Buyer shall complete their respective obligations with
      respect to any pending purchases under this Agreement.

    

    10. CERTAIN
      DEFINED TERMS. 

    

    For
      purposes of this Agreement, the following terms shall have the following
      meanings:

    

    (a) “1933
      Act” means the Securities Act of 1933, as amended.

    

    (b) “Available
      Amount” means initially Ten Million Dollars ($10,000,000.00) in the aggregate
      which amount shall be reduced by the Purchase Amount each time the Buyer
      purchases shares of Common Stock pursuant to Section 1 hereof.

    

    (c) “Bankruptcy
      Law” means Title 11, U.S. Code, or any similar federal or state law for the
      relief of debtors. 

    

    (d)
       “Base
      Purchase Notice” shall mean an irrevocable written notice from the Company to
      the Buyer directing the Buyer to buy up to the Base Purchase Amount in Purchase
      Shares as specified by the Company therein at the applicable Purchase Price
      on
      the Purchase Date. 

    

    (e) “Block
      Purchase Amount” shall mean such Block Purchase Amount as specified by the
      Company in a Block Purchase Notice subject to Section 1(b) hereof.

     

    (f) “Block
      Purchase Notice” shall mean an irrevocable written notice from the Company to
      the Buyer directing the Buyer to buy the Block Purchase Amount in Purchase
      Shares as specified by the Company therein at the Block Purchase Price as of
      the
      Purchase Date subject to Section 1 hereof.

    

    (d) “Business
      Day” means any day on which the Principal Market is open for trading including
      any day on which the Principal Market is open for trading for a period of time
      less than the customary time. 

    

    (e) “Closing
      Sale Price” means, for any security as of any date, the last closing trade price
      for such security on the Principal Market as reported by the Principal Market,
      or, if the Principal Market is not the principal securities exchange or trading
      market for such security, the last closing trade price of such security on
      the
      principal securities exchange or trading market where such security is listed
      or
      traded as reported by the Principal Market. 

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    (f) “Confidential
      Information” means any information disclosed by either party to the other party,
      either directly or indirectly, in writing, orally or by inspection of tangible
      objects (including, without limitation, documents, prototypes, samples, plant
      and equipment), which is designated as "Confidential," "Proprietary" or some
      similar designation. Information communicated orally shall be considered
      Confidential Information if such information is confirmed in writing as being
      Confidential Information within ten (10) business days after the initial
      disclosure. Confidential Information may also include information disclosed
      to a
      disclosing party by third parties. Confidential Information shall not, however,
      include any information which (i) was publicly known and made generally
      available in the public domain prior to the time of disclosure by the disclosing
      party; (ii) becomes publicly known and made generally available after disclosure
      by the disclosing party to the receiving party through no action or inaction
      of
      the receiving party; (iii) is already in the possession of the receiving party
      at the time of disclosure by the disclosing party as shown by the receiving
      party’s files and records immediately prior to the time of disclosure; (iv) is
      obtained by the receiving party from a third party without a breach of such
      third party’s obligations of confidentiality; (v) is independently developed by
      the receiving party without use of or reference to the disclosing party’s
      Confidential Information, as shown by documents and other competent evidence
      in
      the receiving party’s possession; or (vi) is required by law to be disclosed by
      the receiving party, provided that the receiving party gives the disclosing
      party prompt written notice of such requirement prior to such disclosure and
      assistance in obtaining an order protecting the information from public
      disclosure. 

    

    (g) “Custodian”
      means any receiver, trustee, assignee, liquidator or similar official under
      any
      Bankruptcy Law. 

    

    (h) “Maturity
      Date” means the date that is 480 Business Days (24 Monthly Periods) from the
      Commencement Date. 

     

    (i) “Monthly
      Period” means each successive 20 Business Day period commencing with the
      Commencement Date. 

    

    (j) “Person”
      means an individual or entity including any limited liability company, a
      partnership, a joint venture, a corporation, a trust, an unincorporated
      organization and a government or any department or agency thereof. 

    

    (k) “Principal
      Market” means the OTC Bulletin Board; provided however, that in the event the
      Company’s Common Stock is ever listed or traded on the Nasdaq Global Market, the
      Nasdaq Capital Market, the New York Stock Exchange or the American Stock
      Exchange, than the “Principal Market” shall mean such other market or exchange
      on which the Company’s Common Stock is then listed or traded. 

    

    (l) “Purchase
      Amount” means, with respect to any particular purchase made hereunder, the
      portion of the Available Amount to be purchased by the Buyer pursuant to Section
      1 hereof as set forth in a valid Base Purchase Notice or a valid Block Purchase
      Notice which the Company delivers to the Buyer. 

    

    (m) “Purchase
      Date” means with respect to any particular purchase made hereunder, the Business
      Day after receipt by the Buyer of a valid Base Purchase Notice or a valid Block
      Purchase Notice that the Buyer is to buy Purchase Shares pursuant to Section
      1
      hereof. 

    

    (n) “Purchase
      Price” means the lower of the (A) the lowest Sale Price of the Common Stock on
      the Purchase Date and (B) the arithmetic average of the three (3) lowest Closing
      Sale Prices for the Common Stock during the twelve (12) consecutive Business
      Days ending on the Business Day immediately preceding such Purchase Date (to
      be
      appropriately adjusted for any reorganization, recapitalization, non-cash
      dividend, stock split or other similar transaction). 

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    (o) “Sale
      Price” means, any trade price for the shares of Common Stock on the Principal
      Market as reported by the Principal Market. 

    

    (q) “SEC”
      means the United States Securities and Exchange Commission. 

    

    (r) “Transfer
      Agent” means the transfer agent of the Company as set forth in Section 11(f)
      hereof or such other person who is then serving as the transfer agent for the
      Company in respect of the Common Stock.

    

    11. MISCELLANEOUS.

    

    (a) Governing
      Law; Jurisdiction; Jury Trial.
      The
      corporate laws of the State of Delaware shall govern all issues concerning
      the
      relative rights of the Company and its shareholders. All other questions
      concerning the construction, validity, enforcement and interpretation of this
      Agreement and the other Transaction Documents shall be governed by the internal
      laws of the State of Illinois, without giving effect to any choice of law or
      conflict of law provision or rule (whether of the State of Illinois or any
      other
      jurisdictions) that would cause the application of the laws of any jurisdictions
      other than the State of Illinois. Each party hereby irrevocably submits to
      the
      exclusive jurisdiction of the state and federal courts sitting in the City
      of
      Chicago, for the adjudication of any dispute hereunder or under the other
      Transaction Documents or in connection herewith or therewith, or with any
      transaction contemplated hereby or discussed herein, and hereby irrevocably
      waives, and agrees not to assert in any suit, action or proceeding, any claim
      that it is not personally subject to the jurisdiction of any such court, that
      such suit, action or proceeding is brought in an inconvenient forum or that
      the
      venue of such suit, action or proceeding is improper. Each party hereby
      irrevocably waives personal service of process and consents to process being
      served in any such suit, action or proceeding by mailing a copy thereof to
      such
      party at the address for such notices to it under this Agreement and agrees
      that
      such service shall constitute good and sufficient service of process and notice
      thereof. Nothing contained herein shall be deemed to limit in any way any right
      to serve process in any manner permitted by law. EACH
      PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
      REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
      CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
      CONTEMPLATED HEREBY.

    

    (b) Counterparts.
      This
      Agreement may be executed in two or more identical counterparts, all of which
      shall be considered one and the same agreement and shall become effective when
      counterparts have been signed by each party and delivered to the other party;
      provided that a facsimile signature shall be considered due execution and shall
      be binding upon the signatory thereto with the same force and effect as if
      the
      signature were an original, not a facsimile signature.

    

    (c) Headings.
      The
      headings of this Agreement are for convenience of reference and shall not form
      part of, or affect the interpretation of, this Agreement.

    

    (d) Severability.
      If any
      provision of this Agreement shall be invalid or unenforceable in any
      jurisdiction, such invalidity or unenforceability shall not affect the validity
      or enforceability of the remainder of this Agreement in that jurisdiction or
      the
      validity or enforceability of any provision of this Agreement in any other
      jurisdiction.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    (e) Entire
      Agreement.
      With
      the exception of the Mutual Nondisclosure Agreement between the parties dated
      as
      of July 3, 2008, this Agreement supersedes all other prior oral or written
      agreements between the Buyer, the Company, their affiliates and persons acting
      on their behalf with respect to the matters discussed herein, and this
      Agreement, the other Transaction Documents and the instruments referenced herein
      contain the entire understanding of the parties with respect to the matters
      covered herein and therein and, except as specifically set forth herein or
      therein, neither the Company nor the Buyer makes any representation, warranty,
      covenant or undertaking with respect to such matters. The Company acknowledges
      and agrees that is has not relied on, in any manner whatsoever, any
      representations or statements, written or oral, other than as expressly set
      forth in this Agreement.

    

    (f) Notices.
      Any
      notices, consents or other communications required or permitted to be given
      under the terms of this Agreement must be in writing and will be deemed to
      have
      been delivered: (i) upon receipt when delivered personally; (ii) upon receipt
      when sent by facsimile (provided confirmation of transmission is mechanically
      or
      electronically generated and kept on file by the sending party); or (iii) one
      Business Day after deposit with a nationally recognized overnight delivery
      service, in each case properly addressed to the party to receive the same.
      The
      addresses and facsimile numbers for such communications shall be:

    

    If
      to the
      Company:

     

    uBid.com
      Holdings, Inc.

     

    8725
      West
      Higgins Road, Suite 900

    Chicago,
      IL 60631

    Telephone: 773-272-5000

    Facsimile: 773-272-4030

    Attention: Miguel
      Martinez, Jr.

    

    With
      a
      copy to:

    Fredrikson
      and Byron, P.A.

    200
      South
      Sixth Street, Suite 4000

    Minneapolis,
      MN 55402-1425

    Telephone: 612-492-7338

    Facsimile: 
      612-492-7077

    Attention: 
      Thomas
      F. Steichen, Esq.

    

    If
      to the
      Buyer:

    Fusion
      Capital Fund II, LLC

    222
      Merchandise Mart Plaza, Suite 9-112

    Chicago,
      IL 60654

    Telephone: 312-644-6644

    Facsimile: 312-644-6244

    Attention: Steven
      G.
      Martin

    

    If
      to the
      Transfer Agent:

       Pacific
      Stock Transfer Company

    500
      East
      Warm Springs Road

    Las
      Vegas, NV 89119

    Telephone:
       702-361-3033

    Facsimile:
       702-433-1979

    Attention:
       Cindy
      Sylvester

    

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    or
      at
      such other address and/or facsimile number and/or to the attention of such
      other
      person as the recipient party has specified by written notice given to each
      other party three (3) Business Days prior to the effectiveness of such change.
      Written confirmation of receipt (A) given by the recipient of such notice,
      consent or other communication, (B) mechanically or electronically generated
      by
      the sender's facsimile machine containing the time, date, and recipient
      facsimile number or (C) provided by a nationally recognized overnight delivery
      service, shall be rebuttable evidence of personal service, receipt by facsimile
      or receipt from a nationally recognized overnight delivery service in accordance
      with clause (i), (ii) or (iii) above, respectively.

    

    (g) Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their respective successors and assigns. The Company shall not assign this
      Agreement or any rights or obligations hereunder without the prior written
      consent of the Buyer, including by merger or consolidation; provided that if
      the
      Company changes its corporate name, such name change will not be considered
      an
      assignment of this Agreement by the Company. The Buyer may not assign its rights
      or obligations under this Agreement.

    

    (h) No
      Third Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other person.

    

    (i) Publicity.
      The
      Buyer shall have the right to approve before issuance any press release, SEC
      filing or any other public disclosure made by or on behalf of the Company
      whatsoever with respect to, in any manner, the Buyer, its purchases hereunder
      or
      any aspect of this Agreement or the transactions contemplated hereby provided,
      however, that the Company shall be entitled, without the prior approval of
      the
      Buyer, to make any press release or other public disclosure (including any
      filings with the SEC) with respect to such transactions as is required by
      applicable law and regulations so long as the Company and its counsel provide
      the Buyer with a copy of such press release or other public disclosure at least
      one (1) Business Day prior to its release. The Company agrees and acknowledges
      that its failure to fully comply with this provision constitutes a material
      adverse effect on its ability to perform its obligations under this Agreement.
      

    

    (j) Further
      Assurances.
      Each
      party shall do and perform, or cause to be done and performed, all such further
      acts and things, and shall execute and deliver all such other agreements,
      certificates, instruments and documents, as the other party may reasonably
      request in order to carry out the intent and accomplish the purposes of this
      Agreement and the consummation of the transactions contemplated
      hereby.

    

    (k) Termination.
      This
      Agreement may be terminated only as follows: 

    

    (i) By
      the
      Buyer any time an Event of Default exists without any liability or payment
      to
      the Company. However, if pursuant to or within the meaning of any Bankruptcy
      Law, the Company commences a voluntary case or any Person commences a proceeding
      against the Company, a Custodian is appointed for the Company or for all or
      substantially all of its property, or the Company makes a general assignment
      for
      the benefit of its creditors, (any of which would be an Event of Default as
      described in Sections 9(f), 9(g) and 9(h) hereof) this Agreement shall
      automatically terminate without any liability or payment to the Company without
      further action or notice by any Person. No such termination of this Agreement
      under this Section 11(k)(i) shall affect the Company's or the Buyer's
      obligations under this Agreement with respect to pending purchases and the
      Company and the Buyer shall complete their respective obligations with respect
      to any pending purchases under this Agreement. 

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    (ii) In
      the
      event that the Commencement shall not have occurred, the Company shall have
      the
      option to terminate this Agreement for any reason or for no reason without
      any
      liability whatsoever of any party to any other party under this
      Agreement.

    

    (iii) In
      the
      event that the Commencement shall not have occurred on or before October 1,
      2008, due to the failure to satisfy the conditions set forth in Sections 6
      and 7
      above with respect to the Commencement, the nonbreaching party shall have the
      option to terminate this Agreement at the close of business on such date or
      thereafter without liability of any party to any other party. 

    

    

    (iv) 
      At any
      time after the Commencement Date, the Company shall have the option to terminate
      this Agreement for any reason or for no reason by delivering notice (a “Company
      Termination Notice”) to the Buyer electing to terminate this Agreement without
      any liability whatsoever of any party to any other party under this Agreement.
      The Company Termination Notice shall not be effective until one (1) Business
      Day
      after it has been received by the Buyer. 

    

    (v) This
      Agreement shall automatically terminate on the date that the Company sells
      and
      the Buyer purchases the full Available Amount as provided herein, without any
      action or notice on the part of any party and without any liability whatsoever
      of any party to any other party under this Agreement.

    

    (vi) If
      by the
      Maturity Date for any reason or for no reason the full Available Amount under
      this Agreement has not been purchased as provided for in Section 1 of this
      Agreement, this Agreement shall automatically terminate on the Maturity Date,
      without any action or notice on the part of any party and without any liability
      whatsoever of any party to any other party under this Agreement. 

    

    Except
      as
      set forth in Sections 11(k)(i) (in respect of an Event of Default under Sections
      9(f), 9(g) and 9(h)) and 11(k)(vi), any termination of this Agreement pursuant
      to this Section 11(k) shall be effected by written notice from the Company
      to
      the Buyer, or the Buyer to the Company, as the case may be, setting forth the
      basis for the termination hereof. The representations and warranties of the
      Company and the Buyer contained in Sections 2, 3 and 5 hereof, the
      indemnification provisions set forth in Section 8 hereof and the agreements
      and
      covenants set forth in Section 11,
      shall
      survive the Commencement and any termination of this Agreement. No termination
      of this Agreement shall affect the Company's or the Buyer's rights or
      obligations (i) under the Registration Rights Agreement which shall survive
      any
      such termination or (ii) under this Agreement with respect to pending purchases
      and the Company and the Buyer shall complete their respective obligations with
      respect to any pending purchases under this Agreement. 

    

    (l) No
      Financial Advisor, Placement Agent, Broker or Finder.
      The
      Company represents and warrants to the Buyer that it has not engaged any
      financial advisor, placement agent, broker or finder in connection with the
      transactions contemplated hereby. The Buyer represents and warrants to the
      Company that it has not engaged any financial advisor, placement agent, broker
      or finder in connection with the transactions contemplated hereby. The Company
      shall be responsible for the payment of any fees or commissions, if any, of
      any
      financial advisor, placement agent, broker or finder relating to or arising
      out
      of the transactions contemplated hereby. The Company shall pay, and hold the
      Buyer harmless against, any liability, loss or expense (including, without
      limitation, attorneys' fees and out of pocket expenses) arising in connection
      with any such claim.

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    (m) No
      Strict Construction.
      The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent, and no rules of strict construction
      will
      be applied against any party.

    

    (n) Remedies,
      Other Obligations, Breaches and Injunctive Relief.
      The
      Buyer’s remedies provided in this Agreement shall be cumulative and in addition
      to all other remedies available to the Buyer under this Agreement, at law or
      in
      equity (including a decree of specific performance and/or other injunctive
      relief), no remedy of the Buyer contained herein shall be deemed a waiver of
      compliance with the provisions giving rise to such remedy and nothing herein
      shall limit the Buyer's right to pursue actual damages for any failure by the
      Company to comply with the terms of this Agreement. The Company acknowledges
      that a breach by it of its obligations hereunder will cause irreparable harm
      to
      the Buyer and that the remedy at law for any such breach may be inadequate.
      The
      Company therefore agrees that, in the event of any such breach or threatened
      breach, the Buyer shall be entitled, in addition to all other available
      remedies, to an injunction restraining any breach, without the necessity of
      showing economic loss and without any bond or other security being
      required.

    

    (0) Enforcement
      Costs.
      If: (i)
      this Agreement is placed by the Buyer in the hands of an attorney for
      enforcement or is enforced by the Buyer through any legal proceeding; or (ii)
      an
      attorney is retained to represent the Buyer in any bankruptcy, reorganization,
      receivership or other proceedings affecting creditors' rights and involving
      a
      claim under this Agreement; or (iii) an attorney is retained to represent the
      Buyer in any other proceedings whatsoever in connection with this Agreement,
      then the Company shall pay to the Buyer, as incurred by the Buyer, all
      reasonable costs and expenses including attorneys' fees incurred in connection
      therewith, in addition to all other amounts due hereunder.

    

    (p) Failure
      or Indulgence Not Waiver.
      No
      failure or delay in the exercise of any power, right or privilege hereunder
      shall operate as a waiver thereof, nor shall any single or partial exercise
      of
      any such power, right or privilege preclude other or further exercise thereof
      or
      of any other right, power or privilege.

    

    *
      * * * *

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      the
      Buyer and the Company have caused this Common Stock Purchase Agreement to be
      duly executed as of the date first written above.

    

    
      	
              THE
                COMPANY:

            
	 
	
              UBID.COM
                HOLDINGS, INC.

            
	 	 
	
              By:

            	
              /s/
                Jeffrey D. Hoffman

            
	
              Name:
                Jeffrey D. Hoffman

            
	
              Title:
                Chief Executive Officer

            
	 	 
	 	 
	
              BUYER:

            
	 	 
	
              FUSION
                CAPITAL FUND II, LLC

            
	
              BY:
                FUSION CAPITAL PARTNERS, LLC

            
	
              BY:
                SGM HOLDINGS CORP.

            
	 	 
	
              By:

            	
              /s/
                Steven G. Martin

            
	
              Name:
                Steven G. Martin

            
	
              Title:
                President

            

    

    

    
      
        
        

      

      
        27

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