Document:

Exhibit 10.70

 

THIRD SUPPLEMENTAL SECURITY AGREEMENT

 

THIS
THIRD SUPPLEMENTAL SECURITY AGREEMENT (this “Security Agreement”), dated as of June 30,
2009, is made by ML MACADAMIA ORCHARDS, L.P., a Delaware limited partnership,
and ML RESOURCES, INC., a Hawaii corporation (“Grantor”), in favor of AMERICAN
AGCREDIT, PCA as successor in interest to PACIFIC COAST FARM CREDIT SERVICES,
PCA, (“Lender”).

 

RECITALS

 

A.            Pursuant to that certain Third Amended and Restated
Credit Agreement dated as of June 30, 2009 
(the “Third Amended Credit Agreement”) by and among Grantor, as
borrower, and Lender, Lender is agreeing to extend financial accommodations to
Borrower on the terms set forth therein (the “Loan”).  Lender is willing to do so, but only upon the
condition, among others, that Grantor shall execute this Security Agreement.

 

B.            Pursuant to that certain Credit Agreement dated as
of May 1, 2000 (the “Original Credit Agreement”), by and among Grantor, as
borrower, and Pacific Coast Farm Credit Services, PCA, Lender extended certain
financial accommodations to Borrower conditioned upon, among other things, the
execution of a Security Agreement dated as of May 1, 2000 (the “Original
Security Agreement”).   In addition,
pursuant to that certain Amended and Restated Credit Agreement dated as of May 1,
2004 (the “First Amended Credit Agreement”), by and among Borrower and Lender,
Lender extended certain further financial accommodations to Borrower
conditioned upon, among other things, the execution of a Supplemental Security
Agreement dated as of May 1, 2004 (the “Supplemental Security Agreement”).  In addition, pursuant to that certain Second
Amended and Restated Credit Agreement dated as of July 8, 2008 (the “Second
Amended Credit Agreement”) by and among Borrower and Lender, Lender extended
certain further financial accommodations to Borrower conditioned upon, among
other things, the execution of a Second Supplemental Security Agreement dated
as of July 8, 2008 (the “Second Supplemental Security Agreement”) It is
the intent of the parties hereto that this Security Agreement supplement both
the Original Security Agreement, the Supplemental Security Agreement and the
Second Supplemental Security Agreement, all of which are to remain in full
force and effect.

 

NOW THEREFORE, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
and in order to induce Lender to enter into the Third Amended Credit Agreement,
Grantor agrees, for the benefit of Lender, as follows:

 

 

AGREEMENT

 

1.             Defined Terms.  Unless otherwise defined herein, (i) terms
defined in the Third Amended Credit Agreement are used herein as therein
defined except that the defined terms that refer to the “Borrower” shall refer
herein to Grantor, and (ii) the following terms shall have the following
meanings (such meanings being equally applicable to both the singular and
plural forms of the terms defined):

 

“Account Debtor”
means any “account debtor,” as such term is defined in the UCC.

 

“Accounts” has the
meaning assigned to it in Exhibit A hereto.

 

“Chattel Paper”
has the meaning assigned to it in Exhibit A hereto.

 

“Collateral” has the
meaning assigned to it in Section 2 of this Security Agreement.

 

“Contracts” has the
meaning assigned to it in Exhibit A hereto.

 

“Documents” has the
meaning assigned to it in Exhibit A hereto.

 

“Equipment” has the
meaning assigned to it in Exhibit A hereto.

 

“Farm Products” has
the meaning assigned to it in Exhibit A hereto.

 

“Fixtures” has the
meaning assigned to it in Exhibit A hereto.

 

“General Intangibles”
has the meaning assigned to it in Exhibit A hereto.

 

“Grantor” means ML
Macadamia Orchards, L.P., a Delaware limited partnership, and ML Resources, Inc.,
a Hawaii corporation.

 

“Hereby,” “herein,” “hereof,”
and “hereunder” and words of similar import refer to this Security
Agreement as a whole (including any amendments, attachments, and schedules
hereto) and not merely to the specific section, paragraph or clause in which
the respective word appears.

 

“Instruments” has the
meaning assigned to it in Exhibit A hereto.

 

“Inventory” has the
meaning assigned to it in Exhibit A hereto.

 

“Investment Property”
has the meaning assigned to it in Exhibit A hereto.

 

“Lender” has the
meaning assigned to them in the preamble hereto.

 

 

“License” means any
Patent License, Trademark License or other license of rights or interests now
held or hereafter acquired by Grantor.

 

“Loan” has the
meaning assigned to it in Recital A.

 

“Original Credit
Agreement” has the meaning assigned to it in Recital B.

 

“Patent License”
means rights under any written agreement now owned or hereafter acquired by
Grantor granting any right with respect to any invention on which a Patent is
in existence.

 

“Patents” means all
of the following in which Grantor now holds or hereafter acquires any interest:
(i) all letters patent of the United States or any other country, all
registrations and recordings thereof, and all applications for letters patent
of the United States or any other country, including registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State or Territory thereof,
or any other country, and (ii) all reissues, continuations,
continuations-in-part or extensions thereof.

 

“Proceeds” has the
meaning assigned to it in Exhibit A hereto.

 

“Second Amended Credit
Agreement” has the meaning assigned to it in Recital B.

 

“Secured Obligations” shall mean any and all loans, advances,
obligations, covenants, and duties owing to Lender by Grantor of any kind or
nature, absolute or contingent, due or to become due, whether now existing or
hereafter arising, whether or not evidenced by any note, guaranty, non-recourse
guaranty or other instrument, agreement or writing, including, without limitation,
the Original Credit Agreement, the First Amended Credit Agreement, the
Second Amended Credit Agreement, the Third Amended Credit Agreement, all interest,
charges, fees, attorneys’ fees, expenses, and any other sum chargeable by
Lender to Grantor under this or any other agreement.

 

“Security Agreement”
means this Security Agreement, as the same may from time to time be amended,
modified or supplemented.

 

“Third Amended Credit Agreement” has
the meaning assigned to it in Recital A.

 

“Trademark License”
means rights under any written agreement now owned or hereafter acquired by
Grantor granting any right to use any Trademark or Trademark registration.

 

“Trademarks” means
all of the following now owned or hereafter acquired by Grantor:  (i) all trademarks, trade names,
corporate names, business names, trade styles, service marks, logos, other
source or business identifiers, prints and labels on which any of the foregoing
have appeared or appear, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof, and 

 

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all applications in connection therewith,
including registrations, recordings and applications in the United States Patent
and Trademark Office or in any similar office or agency of the United States,
any State or Territory thereof, or any other country or any political
subdivision thereof, and (ii) all reissues, extensions or renewals
thereof.

 

“UCC” means the
Uniform Commercial Code as the same may, from time to time, be in effect in the
State of California; provided, however, in the event that, by
reason of mandatory provisions of law, any or all of the attachment, perfection
or priority of Lender’s security interest in any Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than the State of
California, the term “UCC” shall mean the Uniform Commercial Code as in effect
in such other jurisdiction for purposes of the provisions hereof relating to
such attachment, perfection or priority and for purposes of definitions related
to such provisions.

 

2.             Grant of Security Interest.

 

a.             To secure the prompt and
complete payment and performance when due (whether at stated maturity, by
acceleration or otherwise) of all the Secured Obligations, and to induce Lender
to enter into the Third Amended Credit Agreement and to make the Loan in
accordance with the terms thereof, Grantor hereby grants to Lender, a lien on
and security interest in all of the property described on Exhibit A
hereto, whether now owned by or owing to, or hereafter acquired by or arising
in favor of Grantor (including under any trade names, styles or divisions
thereof), and whether owned or consigned by, or leased to Grantor, and
regardless of where located, together with any and all replacements, remedies,
or accessions thereto and all proceeds and products thereof (all of which being
hereinafter collectively referred to as the “Collateral”); provided, however,
that notwithstanding any provision to the contrary contained in this Security
Agreement, Grantor does not grant, and Lender has not taken, a lien against or
security interest in (i) any Hazardous Materials in which Grantor may now
or hereafter acquire any interest, or which Grantor may now or hereafter
possess, manage or control, any (ii) any of Grantor’s governmental
licenses and permits that if included in the Collateral would violate any
mandatory requirements of such licenses and permits or applicable law
prohibiting the creation of security interests therein.

 

b.             In addition, to secure the
prompt and complete payment when due of the Secured Obligations and in order to
induce Lender to enter into the Third Amended Credit Agreement and to make the
Loan in accordance with the terms thereof, Grantor hereby grants to Lender a
security interest in all other personal property of Grantor, including all
property of every description now or hereafter in the possession or custody of,
or in transit to, Lender for any purpose, including safekeeping, collection or
pledge, for the account of Grantor, or as to which Grantor may have any right
or power.

 

3.             Lender’s Rights; Limitations
on Lender’s Obligations.

 

a.             Grantor Remains Liable Under
Contracts and Licenses. 
Grantor agrees that, anything herein to the contrary notwithstanding,
Grantor shall remain liable under each of its Contracts and each of its
Licenses to observe and perform all the conditions and obligations to be
observed and performed by it thereunder and Grantor shall perform all of its 

 

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duties and obligations thereunder, all in
accordance with and pursuant to the terms and provisions of each such Contract
or License.  Lender shall not have any
obligation or liability under any Contract or License by reason of or arising
out of this Security Agreement or the granting herein of a security interest
therein or the receipt by Lender of any payment relating to any Contract or
License pursuant hereto, nor shall Lender be required or obligated in any
manner to perform or fulfill any of the obligations of Grantor under or
pursuant to any Contract or License, or to make any payment, or to make any
inquiry as to the nature or the sufficiency of any payment received by it or
the sufficiency of any performance by any party under any Contract or License,
or to present or file any claim, or to take any action to collect or enforce
any performance or the payment of any amounts which may have been assigned to
it or to which it may be entitled at any time or times.

 

b.             Notice of Assignment of
Collateral to Lender.  Lender may
at any time after the occurrence and during the continuance of an Event of
Default notify Account Debtors of Grantor, parties to the Contracts of Grantor,
and obligors in respect of Instruments and Investment Property of Grantor that
the Accounts and the right, title and interest of Grantor in and under such
Contracts, Instruments, and Investment Property have been assigned to Lender
and that payments shall be made directly to Lender.  Upon the request of Lender, Grantor shall so
notify such Account Debtors, parties to such Contracts, and obligors in respect
of such Instruments and Investment Property. 
Lender may at any time after the occurrence and during the continuance of
an Event of Default notify obligors in respect of Chattel Paper of Grantor that
the right, title and interest of Grantor in and under such Chattel Paper has
been assigned to Lender and that payments shall be made directly to Lender.

 

c.             Verification of Collateral.  Upon reasonable prior notice to Grantor
(unless an Event of Default has occurred and is continuing, in which case no
notice is necessary), Lender shall have the right to make test verifications of
the Accounts and physical verifications and appraisals of the Inventory and
other Collateral in any manner and through any medium that it considers
advisable, and Grantor agrees to furnish all such assistance and information as
Lender may require in connection therewith.

 

4.             Representations and Warranties.  Grantor hereby represents and warrants that:

 

a.             Authority; Execution.  Grantor has the right and power and is duly
authorized and empowered to enter into, execute, deliver and perform this
Security Agreement, and any other agreements, documents or instruments executed
in connection herewith or therewith. 
Grantor’s execution and performance of this Security Agreement will not
constitute, cause or result in any breach or violation of any provision of the
partnership agreement, articles of incorporation or by-laws of Grantor, any law
or any contractual obligation of Grantor and does not conflict with, constitute
a default or require any consent under (other than consents that if not
obtained would not have a material adverse effect) or result in the creation of
any Lien upon any property or assets of Grantor pursuant to any contractual
obligation of Grantor.  Upon execution,
this Security Agreement will constitute a valid, binding obligation of Grantor
to Lender that is enforceable according to its terms, except as the
enforceability of this Security Agreement may be subject to or limited by
bankruptcy, insolvency, reorganization, arrangement, moratorium or other
similar laws relating to or affecting the rights of creditors generally and
except as the 

 

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availability of equitable remedies are subject to the application of
equitable principles.  No further
consent, ratification or approval is required for this Security Agreement to be
effective.

 

b.             Title to Collateral.  Except for the security interest granted to
Lender under this Security Agreement, Grantor is the sole owner of each item of
the Collateral in which it purports to grant a security interest hereunder,
having good and marketable title thereto free and clear of any and all liens,
security interests or other encumbrances.

 

c.             No Other Liens.  No effective security agreement, financing
statement, equivalent security or lien instrument or continuation statement
covering all or any part of the Collateral is on file or of record in any
public office, except such as may have been filed by Grantor in favor of Lender
pursuant to this Security Agreement or such as relate to protective filings
with respect to equipment leases.

 

d.             Perfection and Priority of
Security Interest in the Collateral.  The security interest granted to Lender in
the Collateral under this Security Agreement is a duly perfected security
interest in favor of Lender to secure the Secured Obligations, and is senior in
priority to all other Liens against and security interests in all or any part
of the Collateral.

 

e.             Accounts.  Subject to reasonable reserves therefore on
the books of Grantor, each Account of Grantor is, or when it comes into
existence will be, a statement of an indebtedness incurred by the obligor
thereunder to Grantor in the amount shown thereon.  All Accounts are, or will be when they come
into existence, bona fide transactions completed in accordance with the terms
and provisions contained in any documents related thereto.

 

f.              Change of Name.  Grantor did not and has not done within the
last five years business under any trade name or style other than as disclosed
on Exhibit C hereto.

 

g.             Locations of Offices and
Collateral; Federal Taxpayer Identification.  Grantor’s chief executive office, principal
place of business, corporate offices, all warehouses and premises within which
Collateral is stored or located, and the locations of all of its records
concerning the Collateral are set forth on Exhibit C hereto, and Grantor
shall not change such chief executive office, principal place of business,
corporate offices, or warehouses or Collateral premises, or remove such records
unless it has taken such action as is necessary to cause the Lien of Lender in
the Collateral to continue to be perfected. 
Grantor shall not change its chief executive office, principal place of
business, corporate offices, or warehouses or Collateral premises, or the
location of its records concerning the Collateral, or its federal taxpayer
identification number, without giving thirty (30) days’ prior written notice
thereof to Lender.  Grantor’s federal
taxpayer identification number is  as
set forth on Exhibit C hereto.

 

h.             Registered Patents,
Trademarks, and Copyrights.  Grantor does not own or have any interest in
any Patents, Trademarks, or Copyrights that have been registered or otherwise
recorded with any governmental office, except as set forth on Exhibit C
hereto.

 

i.              Farming Operations.  Grantor does not own or have any interest in
any real property other than the real property described in Exhibit B
hereto.

 

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5.             Covenants.  Grantor covenants and agrees with Lender that
from and after the date of this Security Agreement and until the Secured Obligations are
fully satisfied:

 

a.             Further Assurances; Pledge
of Instruments.  At any time
and from time to time, upon the written request of Lender, and at the sole
expense of Grantor, Grantor shall promptly and duly execute and deliver any and
all such further instruments and documents and take such further action as
Lender may reasonably deem desirable to obtain the full benefits of this
Security Agreement and of the rights and powers herein granted, including (i) filing
any financing or continuation statements under the UCC with respect to the
liens and security interests granted hereunder or under any other Loan Document
and (ii) transferring Collateral to Lender’s possession (if such
Collateral consists of Chattel Paper or if a security interest in such Collateral
can be perfected only by possession, or, if requested by Lender).  Grantor also hereby authorizes Lender to file
any such financing or continuation statement without the signature of Grantor
to the extent permitted by applicable law. 
If any amount payable under or in connection with any of the Collateral
is or shall become evidenced by any Instrument, such Instrument, other than
checks and notes received in the ordinary course of business, shall be duly
endorsed in a manner satisfactory to Lender and delivered to Lender immediately
upon Grantor’s receipt thereof.

 

b.             Maintenance of Records.  Grantor shall keep and maintain, at its own
cost and expense, satisfactory and complete records of the Collateral,
including a record of any and all payments received and any and all credits
granted with respect to the Collateral and all other dealings with the
Collateral.  Upon the request of Lender,
Grantor shall mark its books and records pertaining to the Collateral to
evidence this Security Agreement and the security interests granted
hereby.  All Chattel Paper shall be
marked with the following legend:  “This
writing and the obligations evidenced or secured hereby are subject to the
security interest of American AgCredit, PCA.” 
For Lender’s further security, Grantor agrees that Lender shall have a
special property interest in all of Grantor’s books and records pertaining to
the Collateral and, upon the occurrence and during the continuation of any
Event of Default, Grantor shall deliver and turn over any such books and
records to Lender or to its representatives at any time on demand of
Lender.  Prior to the occurrence of an
Event of Default and upon reasonable notice from Lender, Grantor shall permit
any representative of Lender to inspect such books and records and shall
provide photocopies thereof to Lender as more specifically set forth in Section 5(i) below.

 

c.             Delivery of Notes, Documents and Chattel
Paper.  Grantor shall deliver to
Lender or its designee all now existing or hereafter created or arising (i) original
promissory notes payable to Grantor, assigned to Grantor, pledged to Grantor or
otherwise held by Grantor, together with all corresponding documents including
deeds of trust, security agreements and title insurance policies, with such
endorsements thereto as Lender may reasonably require, (ii) Instruments
(except for checks which are deposited in the ordinary course of Grantor’s
business), (iii) negotiable warehouse receipts, and (iv) Chattel
Paper, promptly upon the execution of this Security Agreement or Grantor’s
receipt of any such item, as the case may be.

 

d.             Further Identification of
Collateral.  Grantor
shall, if so requested by Lender, furnish to Lender, as often as Lender
reasonably requests, statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as Lender may reasonably request, all in reasonable detail.

 

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e.             Limitation on Liens on
Collateral.  Grantor
shall not create, permit or suffer to exist, and shall defend the Collateral
against and take such other action as is necessary to remove, any Lien on the
Collateral.  Grantor shall further defend
the right, title and interest of Lender in and to any of Grantor’s rights under
the Collateral, including, the Accounts, Chattel Paper, Contracts, Documents,
Equipment, Farm Products, Fixtures, General Intangibles, Instruments,
Investment Property, and Inventory and in and to the Proceeds thereof against
the claims and demands of all Persons whomsoever.

 

f.              Notices.  Grantor shall advise Lender, in reasonable
detail, promptly, within five (5) Business Days of after it becomes aware
of: (i) any material Lien, attaching to or asserted against any of the
Collateral, (ii) any material change in the composition of the Collateral (iii) any
destruction of or substantial damage to any of the Collateral in excess of
$100,000 and (iv) the occurrence of any other event which would have a
Material Adverse Effect upon the Collateral and/or Lender’s Lien.

 

g.             Limitations on Modifications
of Accounts.  Subject to
the terms of the Third Amended Credit Agreement, upon the occurrence and during
the continuation of any Event of Default, Grantor shall not, without Lender’s
prior written consent, (i) grant any extension of the time of payment of
any of the Accounts, Chattel Paper, Instruments or amounts due under any
Contract; (ii) compromise or settle the same for less than the full amount
thereof; (iii) release, in whole or in part, any Person liable for the
payment thereof; or (iv) allow any credit or discount whatsoever thereon
other than trade discounts granted in the ordinary course of business of
Grantor.

 

h.             Continuous Perfection.  Grantor shall not change its name, identity
or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of section 9-402(7) of the UCC or any other then applicable
provision of the UCC unless Grantor shall have given Lender at least thirty
(30) days’ prior written notice thereof and shall have taken all action (or
made arrangements to take such action substantially simultaneously with such
change if it is impossible to take such action in advance) necessary or reasonably
requested by Lender to amend such financing statement or continuation statement
so that it is not seriously misleading.

 

i.              Right of Inspection.  Upon reasonable notice to Grantor (unless an
Event of Default has occurred and is continuing, in which case no notice is
necessary), Lender shall at all times have full and free access during normal
business hours to all the books and records and correspondence of Grantor, and
Lender or its representatives may examine the same, take extracts therefrom and
make photocopies thereof, and Grantor agrees to render to Lender, at Grantor’s
cost and expense, such clerical and other assistance as may be reasonably
requested with regard thereto.  Upon
reasonable notice to Grantor (unless an Event of Default has occurred and is
continuing, in which case no notice is necessary), Lender and its
representatives shall also have the right to enter into and upon any premises
where any of the Inventory is located for the purpose of inspecting the same,
observing its use or otherwise protectings Lender’s interests in the
Collateral.

 

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j.              Indemnification.  In any suit, proceeding or action brought by
Lender relating to any Account, Chattel Paper, Contract, General Intangible, Instrument
or Document for any sum owing thereunder, or to enforce any provision of any
Account, Chattel Paper, Contract, General Intangible, Instrument, or Document,
Grantor shall save, indemnify and keep Lender harmless from and against all
expense, loss or damage suffered by reason of any defense, setoff,
counterclaim, recoupment or reduction of liability whatsoever of the obligor
thereunder arising out of a breach by Grantor of any obligation thereunder or
arising out of any other agreement, indebtedness or liability at any time owing
to, or in favor of, such obligor or its successors from Grantor, and all such
obligations of Grantor shall be and remain enforceable against, and only
against, Grantor and shall not be enforceable against Lender.

 

k.             Compliance with Terms of
Accounts, etc.  In all
material respects, Grantor shall perform and comply with all obligations in
respect of (i) Accounts, (ii) material Chattel Paper, Contracts,
Licenses, Instruments and Documents, and (iii) all other material agreements
to which it is a party or by which it is bound.

 

l.              Notification Prior to
Registration of Patents, Trademarks, and Copyrights.  Grantor shall not register any interest in
any Patents, Trademarks, or Copyrights nor shall Grantor permit any in any
Patents, Trademarks, or Copyrights in which Grantor has an interest to become
registered with any governmental office, unless Grantor has provided Lender
with fifteen (15) days prior notice of Grantor’s intent to do so and Grantor
shall provide Lender prior to effecting or permitting any such registration
with such additional security documents as Lender shall request.

 

m.            Farming Operations.  Grantor shall not undertake any farming
operations on any real property other than the property listed on Exhibit B
hereto unless Grantor shall have provided Lender with thirty (30) days prior
notice of Grantor’s intent to do so, which notice shall be accompanied by a
detailed description of the real property on which the crops are grown, and
Grantor shall have provided Lender with a supplement to this Security Agreement
and such financing statement amendments and other documents as Lender shall
request.

 

6.             Lender’s Appointment as
Attorney-in-Fact.

 

a.             Grantor hereby irrevocably
constitutes and appoints Lender and any officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Grantor and in the
name of Grantor or in its own name, and hereby grants to Lender, in Lender’s
discretion, the power and right, on behalf of Grantor, without notice to or
assent by Grantor, and at any time prior to or after the occurrence of an Event
of Default, to do the following:

 

(i) 
to take any and all appropriate action and to execute and deliver any and all
documents and instruments which may be necessary or desirable to continue any
insurance existing pursuant to the terms of the Third Amended Credit Agreement,
and pay all or any part of the premiums therefore and the costs thereof; and

 

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(ii)  to file any
financing or continuation statements under the UCC with respect to the Liens
and security interests granted hereunder or under any other Loan Document.

 

b.             Grantor hereby irrevocably
constitutes and appoints Lender and any officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Grantor and in the
name of Grantor or in its own name, from time to time in Lender’s discretion,
for the purpose of carrying out the terms of this Security Agreement, to take
any and all appropriate action and to execute and deliver any and all documents
and instruments which may be necessary or desirable to accomplish the purposes
of this Security Agreement and, without limiting the generality of the
foregoing, hereby grants to Lender the power and right, on behalf of Grantor,
without notice to or assent by Grantor, upon the occurrence and during the
continuation of an Event of Default, to do the following:

 

(i)  ask, demand,
collect, receive and give acquittances and receipts for any and all money due
or to become due under any Collateral, and take ownership and control of any
and all lock boxes and other depository accounts by written notice to any bank
or other institution maintaining such lock boxes or other depository accounts;

 

(ii)  in the name of
Grantor, in its own name or otherwise, endorse and receive payment of any
checks, drafts, notes, acceptances, or other Instruments for the payment of
monies due under any Collateral;

 

(iii)  receive payment of any and all
monies, claims, and other amounts due or to become due at any time arising out
of or in respect of any Collateral;

 

(iv)  pay or discharge taxes, liens,
security interest, or other encumbrances levied or placed on or threatened
against the Collateral;

 

(v)  effect any repairs
or obtain any insurance called for by the terms of this Security Agreement and
pay all or any part of the premiums therefore and costs thereof;

 

(vi) 
direct any party liable for any payment under or in respect of any of the
Collateral to make payment of any and all monies due or to become due
thereunder, directly to Lender or as Lender shall direct;

 

(vii)  sign and endorse
any invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications, and notices in
connection with accounts and other documents constituting or related to the
Collateral;

 

(viii)  settle,
compromise or adjust any suit, action, or proceeding described above and, in
connection therewith, give such discharges or releases as Lender may deem
appropriate;

 

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(ix)  file any claim or
take or commence any other action or proceeding in any court of law or equity
or otherwise deemed appropriate by Lender for the purpose of collecting any and
all such monies due under any Collateral whenever payable;

 

(x)  commence and
prosecute any suits, actions or proceedings of law or equity in any court of
competent jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral;

 

(xi)  defend any suit, action or proceeding brought
against Grantor with respect to any Collateral if Grantor does not defend such
suit, action or proceeding or if Lender believes that Grantor is not pursuing
such defense in a manner that will maximize the recovery with respect to such
Collateral;

 

(xii)  license or, to the extent permitted by an
applicable license, sublicense whether general, specific or otherwise, and
whether on an exclusive or non-exclusive basis, any Patent or Trademark
throughout the world for such term or terms on such conditions and in such
manner as Lender shall, in its sole discretion, determine;

 

(xiii)  sell, transfer, pledge, make any agreement
with respect to, or otherwise deal with any of the Collateral as fully and
completely as though Lender were the absolute owner thereof for all purposes,
and to do, at Lender’s option and Grantor’s expense, at any time, or from time
to time, all acts and things which Lender reasonably deems necessary to
perfect, preserve, or realize upon the Collateral and Lender’s Lien therein in
order to effect the intent of this Security Agreement, all as fully and
effectively as Grantor might do; and

 

(xiv) contact, make any
agreement with, or otherwise deal with any governmental or regulatory agency in
connection with the operation of Grantor’s business or the possession or
liquidation of any or all of the Collateral.

 

c.             Grantor hereby ratifies, to
the extent permitted by law, all that said attorneys shall lawfully do or cause
to be done by virtue hereof.  The power
of attorney granted pursuant to this Section 6 is a power coupled with an
interest and shall be irrevocable until the Secured Obligations are paid or
otherwise satisfied in full.

 

d.             The powers conferred on
Lender hereunder are solely to protect Lender’s interests in the Collateral and
shall not impose any duty upon Lender to exercise any such powers.  Lender shall be accountable only for amounts
that it actually receives as a result of the exercise of such powers and
neither it nor any of its officers, directors, employees, agents or representatives
shall be responsible to Grantor for any act or failure to act, except for their
own gross negligence or willful misconduct.

 

e.             Grantor also authorizes
Lender to execute, in connection with the sale provided for in Section 8
hereof, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.

 

11

 

7.             Performance by Lender of
Grantor’s Obligation.  If Grantor
fails to perform or comply with any of its agreements contained herein or in
any other Loan Document, and Lender, as provided for by the terms of this
Security Agreement, or in any other Loan Document, shall itself perform or
comply, or otherwise cause performance of or compliance with such agreement,
the reasonable expenses, including attorneys’ fees, of Lender incurred in
connection with such performance or compliance, together with interest thereon
at the Base Rate then in effect in respect of the Revolving Loan, shall be
payable by Grantor to Lender on demand and shall constitute Secured Obligations
secured hereby.

 

8.             Remedies, Rights Upon
Default.

 

a.             If any Event of Default
shall occur and be continuing, Lender may exercise in addition to all other
rights and remedies granted to it under this Security Agreement, the Original
Credit Agreement, the First Amended Credit Agreement, the Second Amended Credit
Agreement, the Third Amended Credit Agreement or any of the other Documents
evidencing any loan obligations from Grantor to Lender, or agreement securing,
evidencing or relating to the Secured Obligations, all rights and remedies of a
secured party under the UCC.  Without
limiting the generality of the foregoing, Grantor expressly agrees that in any such
event Lender, without demand of performance or other demand, advertisement or
notice of any kind (except the notice specified below of time and place of
public or private sale) to or upon Grantor or any other Person (all and each of
which demands, advertisements and notices are hereby expressly waived to the
maximum extent permitted by the UCC and other applicable law), may forthwith
enter upon the premises of Grantor where any Collateral is located through
self-help, without judicial process, without first obtaining a final judgment
or giving Grantor notice and opportunity for a hearing on Lender’s claim or
action, and without paying rent to Grantor, and collect, receive, assemble,
process, appropriate and realize upon the Collateral, or any part thereof, and
may forthwith sell, lease, assign, give an option or options to purchase, or
sell or otherwise dispose of and deliver said Collateral (or contract to do
so), or any part thereof, in one or more parcels at public or private sale or
sales, at any exchange or broker’s board or at any of Lender’s offices or
elsewhere at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk.  Lender shall have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase for the benefit of Lender the whole or any
part of said Collateral so sold, free of any right or equity of redemption,
which equity of redemption Grantor hereby releases.  Such sales may be adjourned and continued from
time to time with or without notice. 
Lender shall have the right to conduct such sales on Grantor’s premises
or elsewhere and shall have the right to use Grantor’s premises without charge
for such sales for such time or times as Lender deems necessary or advisable.

 

b.             Grantor further agrees, at Lender’s request, to
assemble the Collateral and make it available to Lender at places which Lender
shall reasonably select, whether at Grantor’s premises or elsewhere.  Until Lender is able to effect a sale, lease,
or other disposition of Collateral, Lender shall have the right to use or
operate Collateral on behalf of Lender, or any part thereof, to the extent that
it deems appropriate for the purpose of preserving Collateral or its value or
for any other purpose deemed appropriate by Lender.  Lender shall have no obligation to Grantor to
maintain or preserve the rights of Grantor as against third parties with
respect to Collateral while Collateral is in the possession of Lender.  Lender may, if it so elects, 

 

12

 

seek the appointment of a receiver or keeper to take possession of
Collateral and to enforce any of Lender’s remedies with respect to such
appointment without prior notice or hearing. 
Lender shall apply the net proceeds of any such collection, recovery,
receipt, appropriation, realization or sale, as provided in Section 8(e) hereof,
such Grantor remaining liable for any deficiency remaining unpaid after such
application, and only after so paying over such net proceeds and after the
payment by Lender of any other amount required by any provision of law,
including section 9-504(1)(c) of the UCC (but only after Lender has
received what Lender considers reasonable proof of a subordinate party’s
security interest), need Lender account for the surplus, if any, to
Grantor.  To the maximum extent permitted
by applicable law, Grantor waives all claims, damages, and demands against
Lender arising out of the repossession, retention or sale of the Collateral
except such as arise out of the gross negligence or willful misconduct of such
party.  Grantor agrees that five (5) days’
prior notice by Lender of the time and place of any public sale or of the time
after which a private sale may take place is reasonable notification of such
matters.  Grantor shall remain liable for
any deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Lender is entitled, Grantor also being
liable for any attorneys’ fees incurred by Lender to collect such deficiency.

 

c.             Grantor agrees to pay any
and all costs of Lender, including, reasonable attorneys’ fees, incurred in
connection with the enforcement of any of its rights and remedies hereunder.

 

d.             Except as otherwise
specifically provided herein, Grantor hereby waives presentment, demand,
protest or any notice (to the maximum extent permitted by applicable law) of
any kind in connection with this Security Agreement or any Collateral.

 

e.             The proceeds of any sale,
disposition or other realization upon all or any part of the Collateral shall
be distributed by Lender, upon receipt, in accordance with the provisions of
the Third Amended Credit Agreement.

 

f.              From and after the
occurrence and during the continuation of an Event of Default, Lender may, at
its sole discretion, contact any and all Federal, state, or other governmental
or regulatory agencies with any jurisdiction over Grantor, with respect to the
possibility that Lender may take over the operation of any Grantor’s business,
or the possibility that Lender may take possession of or liquidate any or all
of the Collateral.

 

g.             Grantor acknowledges that Lender shall be entitled
to independently, but without duplication, exercise the rights and remedies of
Lender exercisable for their benefit under this Security Agreement.

 

9.             Indemnity and Expenses.

 

a.             Grantor agrees to indemnify Lender from and against
any and all claims, losses and liabilities growing out of or resulting from
this Security Agreement (including, enforcement of this Security Agreement),
except claims, losses or liabilities resulting from such indemnified party’s
gross negligence or willful misconduct.

 

13

 

b.             Grantor will upon demand pay to Lender the amount of
any and all reasonable out-of-pocket expenses, including the reasonable fees
and disbursements of counsel and of any experts and agents, which Lender may
incur in connection with (i) the administration of this Security
Agreement, (ii) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of Lender hereunder, or (iv) the
failure by Grantor to perform or observe any of the provisions hereof.

 

10.           Grant of License to Use
Patent and Trademark Collateral.  For the purpose of enabling Lender to
exercise rights and remedies under Section 8 hereof (including, without
limiting the terms of Section 8 hereof, in order to take possession of,
hold, preserve, process, assemble, prepare for sale, market for sale, sell or
otherwise dispose of Collateral) at such time as Lender shall be lawfully
entitled to exercise such rights and remedies, Grantor hereby grants to Lender
an irrevocable, non-exclusive license (exercisable without payment of royalty
or other compensation to Grantor) to use, transfer, license or sublicense any
Patent, Trademark, trade secret, or copyright now owned or hereafter acquired
by Grantor, and wherever the same may be located, and including in such license
reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer and automatic machinery software and
programs used for the compilation or printout thereof.

 

11.           Limitation on Lender’s Duty
in Respect of Collateral. 
Lender shall use reasonable care with respect to the Collateral in its
possession or under its control.  Lender
shall have no other duty as to any Collateral in its possession or control or
in the possession or control of any agent or nominee of such party, or any
income thereon or as to the preservation of rights against prior parties or any
other rights pertaining thereto.

 

14

 

12.           Reinstatement.  This Security Agreement shall remain in full
force and effect and continue to be effective should any petition be filed by
or against Grantor for liquidation or reorganization, should Grantor become
insolvent or make an assignment for the benefit of creditors or should a receiver
or trustee be appointed for all or any significant part of Grantor’s assets,
and shall continue to be effective or be reinstated, as the case may be, if at
any time payment and performance of the Secured Obligations, or any part
thereof, is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by any obligee of the Secured
Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or
otherwise, all as though such payment or performance had not been made.  In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Secured Obligations
shall be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.

 

13.           Notices.  Except as otherwise provided herein, whenever
it is provided herein that any notice, demand, request, consent, approval,
declaration, or other communication shall or may be given or delivered to or
served upon any of the parties by another, or whenever any of the parties
desires to give or deliver or serve upon another any communication with respect
to this Security Agreement, each such notice, demand, request, consent,
approval, declaration, or other communication shall be in writing, shall be addressed
to the addresses set forth below, or such other or additional address as the
parties may notify each other of in writing, and shall be deemed to have been
sent, delivered, or given and received upon the earlier of:  (a) if by facsimile, upon transmission
if transmission occurs between 8:00 a.m. and 5:00 p.m. on any
Business Day; (b) if by Federal Express or other overnight or one-day mail
or delivery service, on the next Business Day following deposit with such
delivery service; (c) if by personal delivery, upon completion of
delivery; or (d) if by mail, three (3) Business Days after deposit in
the U.S. Mail, first class, postage prepaid:

 

(a)  If to American AgCredit, at:

 

American AgCredit, PCA

5560 South Broadway

Eureka, California  95503

Attention: 
Account Officer — ML Macadamia Orchards

Facsimile: 
(707) 442-1268

 

American AgCredit, PCA

200 Concourse Blvd.

P.O. Box 1120

Santa Rosa, CA 95402-1120

Attn: Account Officer —ML
Macadamia Orchards

Facsimile: (707) 521-6105

 

15

 

(b)  If to Grantor, at:

 

ML Macadamia Orchards, L.P.

ML Resources, Inc.

26-238 Hawaii Belt Road

Hilo, Hawaii  96720

Attention: Mr.  Dennis
J. Simonis

Facsimile: (808) 969-8152

 

or at such other address as may be
substituted by notice given as herein provided. 
The giving of any notice required hereunder may be waived in writing by
the party entitled to receive such notice. 
Failure or delay in delivering copies of any notice, demand, request,
consent, approval, declaration, or other communication to the persons
designated above to receive copies shall in no way adversely affect the
effectiveness of such notice, demand, request, consent, approval, declaration,
or other communication.

 

14.           Severability.  Any provision of this Security Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.

 

15.           No Waiver; Cumulative
Remedies.  Lender
shall not by any act, delay, omission or otherwise be deemed to have waived any
of its rights or remedies hereunder, and no waiver shall be valid unless in
writing, signed by Lender, and then only to the extent therein set forth.  A waiver by Lender of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which Lender would otherwise have had on any future occasion.  No failure to exercise nor any delay in
exercising on the part of Lender, any right, power or privilege hereunder,
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or future exercise
thereof or the exercise of any other right, power or privilege.  The rights and remedies hereunder provided
are cumulative and may be exercised singly or concurrently, and are not
exclusive of any rights and remedies provided by law.  None of the terms or provisions of this
Security Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by Lender and Grantor affected by such
waiver.

 

16.           Limitation by Law.  All rights, remedies and powers provided in
this Security Agreement may be exercised only to the extent that the exercise
thereof does not violate any applicable provision of law, and all the
provisions of this Security Agreement are intended to be subject to all
applicable mandatory provisions of law that may be controlling and to be
limited to the extent necessary so that they shall not render this Security
Agreement invalid, unenforceable, in whole or in part, or not entitled to be
recorded, registered, or filed under the provisions of any applicable law.

 

16

 

17.           Termination of this Security
Agreement.  Subject to Section 12
hereof, this Security Agreement shall terminate upon full and final payment and
performance of all of the Secured Obligations.

 

18.           Successor and Assigns.  This Security Agreement and all obligations
of Grantor hereunder shall be binding upon the successors and assigns of
Grantor, and shall, together with the rights and remedies of Lender hereunder,
inure to the benefit of Lender and its successors and assigns, as permitted
pursuant to the terms of the Original Credit Agreement, the First Amended
Credit Agreement, the Second Amended Credit Agreement and the Third Amended
Credit Agreement.  No sales of
participations, other sales, assignments, transfers or other dispositions of
any agreement governing or instrument evidencing the Secured Obligations or any
portion thereof or interest therein, as permitted pursuant to the terms of the
Third Amended Credit Agreement, shall in any manner affect the security
interest granted to Lender hereunder. 
Grantor may not assign, sell or otherwise transfer an interest in this
Security Agreement except as provided by the Original Credit Agreement, the
First Amended Credit Agreement, the Second Amended Credit Agreement or the
Third Amended Credit Agreement.

 

19.           Further Indemnification.  Grantor agrees to pay, and to hold Lender
harmless from, any and all liabilities with respect to, or resulting from any
delay in paying, any and all excise, sales, or other similar taxes which may be
payable or determined to be payable with respect to any of the Collateral or in
connection with any of the transactions contemplated by this Security
Agreement.

 

20.           Entire Agreement.  The execution of this Security Agreement
supersedes all the negotiations or stipulations concerning matters thereof
which preceded or accompanied the execution and delivery of this Security
Agreement.  This Security Agreement is
intended by the parties hereto to be a complete and exclusive statement of the
terms and conditions hereof.

 

21.          GOVERNING
LAW.  EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS
OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF
REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA.  GRANTOR HEREBY CONSENTS AND
AGREES THAT THE SUPERIOR COURTS OF SAN FRANCISCO COUNTY, CALIFORNIA, OR, AT
LENDERS OPTION, THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
CALIFORNIA, SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN GRANTOR AND LENDER PERTAINING TO THIS SECURITY
AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS SECURITY
AGREEMENT.  GRANTOR EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND GRANTOR HEREBY WAIVES ANY OBJECTION WHICH GRANTOR MAY HAVE
BASED UPON LACK OF 

 

17

 

PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM  NON
CONVENIENS AND HEREBY CONSENTS TO THE GRANTING FOR SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.  GRANTOR HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT, AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE
MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO GRANTOR AT THE ADDRESS SET
FORTH IN SECTION 13 OF THIS SECURITY AGREEMENT AND THAT SERVICE SO MADE
SHALL BE DEEMED COMPLETED UPON THE EARLIER OF GRANTOR’S ACTUAL RECEIPT THEREOF
OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE
PREPAID.  NOTHING IN THIS SECURITY
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER OR GRANTOR FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION.

 

22.          MUTUAL
WAIVER OF JURY TRIAL.  BECAUSE
DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST
QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE
PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN
ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. 
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE
JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY
RIGHTS OR REMEDIES UNDER THIS SECURITY AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS.

 

23.           Amendments; etc.  No amendment to or waiver of any provision of
this Security Agreement nor consent to any departure by Grantor from any
provision of the Security Agreement, shall in any event be effective unless the
same shall be in writing and signed by Lender, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.

 

24.           Interpretation.  No provision of this Security Agreement shall
be construed against or interpreted to the disadvantage of any party hereto by
any court or other governmental or judicial authority by reason of such party’s
having or being deemed to have structured, drafted or dictated such provision.

 

25.           Section Titles.  The section titles contained in this Security
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.

 

26.           Counterparts.  This Security Agreement may be executed in
any number of identical counterparts, each of which shall be an original, but
all of which shall constitute one and the same agreement.  This Security Agreement shall become
effective when Lender shall have received all original executed counterparts.

 

18

 

27.           Further Assurances.  Grantor agrees, upon the written request of
Lender, to execute and deliver to Lender, from time to time, any additional
instruments or documents reasonably considered necessary by Lender to cause
this Security Agreement and the Secured Obligations to be, become, or remain
valid and effective, and to cause Lender’s security interest in the pledged
Collateral to be, become, or remain duly perfected.

 

IN WITNESS WHEREOF, each of the parties hereto has caused this Security
Agreement to be executed and delivered by its duly authorized officer on the
date first set forth above.

 

	
   

  	
  ML MACADAMIA ORCHARDS,
  L.P., a Delaware limited partnership

  
	
   

  	
   

  
	
   

  	
  By:

  	
  ML RESOURCES, INC., a
  Hawaii corporation, its managing general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Dennis J. Simonis

  
	
   

  	
   

  	
  Name:

  	
  Dennis J. Simonis

  
	
   

  	
   

  	
  Title:

  	
  CEO and President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ML RESOURCES, INC., a
  Hawaii corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dennis J. Simonis

  
	
   

  	
  Name:

  	
  Dennis J. Simonis

  
	
   

  	
  Title:

  	
  CEO and President

  
					

 

 

ACCEPTED:

 

AMERICAN AGCREDIT, PCA

 

	
  By:

  	
  /s/ Sean O’Day

  	
   

  
	
  Name:

  	
  Sean O’Day

  
	
  Title:

  	
  Senior Vice President

  

 

19

 

EXHIBIT A

 

DESCRIPTION
OF COLLATERAL

 

TO

 

UNIFORM COMMERCIAL
CODE FINANCING STATEMENTS

 

AND

 

SECURITY
AGREEMENT

 

Debtor
and Grantor:             ML Macadamia Orchards, L.P.,
a Delaware limited partnership

ML Resources, Inc., a Hawaii corporation

 

Secured Party:  American AgCredit, PCA, successor in interest
to Pacific Coast Farm Credit Services, PCA

 

All of the Debtor’s and the Grantor’s now existing and hereafter
arising interest in the following collateral:

 

A.            “Accounts” — all accounts as such term is
defined in the Uniform Commercial Code including, accounts receivable, other
receivables, book debts and other forms of obligations (other than forms of
obligations evidenced by chattel paper, documents or instruments) now owned or
hereafter received or acquired by or belonging or owing to Grantor, whether
arising out of goods sold or services rendered by Grantor or from any other
transaction, including,

 

(1)           All rights in, to and under all purchase orders or
receipts now owned or hereafter acquired by Grantor for goods or services;

 

(2)           All rights to any goods represented by any of the
foregoing (including, without limitation, an unpaid seller’s rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods);

 

(3)           All monies due or to become due under all purchase
orders and contracts for the sale of goods or the performance of services or
both by Grantor or in connection with any other transaction (whether or not yet
earned by performance on the part of Grantor) now or hereafter in existence,
including, without limitation, the right to receive the proceeds of said
purchase orders and contracts; and

 

(4)           All collateral security and guaranties of any kind,
now or hereafter in existence, given by any person or entity with respect to
any of the foregoing;

 

B.            “Chattel Paper” — all chattel paper as
defined in the Uniform Commercial Code;

 

C.            “Contracts” — all contracts, undertakings, or
agreements (other than rights evidenced by chattel paper, documents or
instruments) in or under which Grantor may now or hereafter have any right,
title or interest, including, any agreement relating to the terms of payment or
the terms of performance of any account of Grantor;

 

20

 

D.            “Documents” — all documents as defined in the
Uniform Commercial Code, including, without limitation, all bills of lading,
dock warrants, dock receipts, warehouse receipts, or other documents of title;

 

E.             “Equipment” — all equipment as defined in the
Uniform Commercial Code, including, without limitation, all machinery,
equipment, furnishings, vehicles and computers and other electronic
data-processing and other office equipment, and any and all additions,
substitutions and replacements of any of the foregoing, together with all
attachments, components, parts, equipment, and accessories installed on or
affixed to any of the foregoing;

 

F.             “Farm Products” — all farm products as
defined in the Uniform Commercial Code, wherever located, including, without
limitation, all crops growing or to be grown on the real property described in Exhibit B
hereto and all other crops, including macadamia nuts and products thereof.

 

G.            “Fixtures” — all fixtures as defined in the
Uniform Commercial Code, including, without limitation, all of the fixtures,
systems, machinery, apparatus, equipment and fittings of every kind and nature
whatsoever and all appurtenances and additions thereto and substitutions
therefor or replacements thereof, now or hereafter attached or affixed to or
constituting a part of, or located in or upon, real property wherever located
(including, without limitation, all heating, electrical, mechanical, lighting,
lifting, plumbing, ventilating, air-conditioning and air cooling,
refrigerating, incinerating and power, loading and unloading, signs,
escalators, elevators, boilers, communication, switchboards, sprinkler and
other fire prevention and extinguishing fixtures, systems, machinery, apparatus
and equipment, and all engines, motors, dynamos, machinery, pipes, pumps,
tanks, conduits and ducts constituting a part of any of the foregoing, together
with all extensions, improvements, betterments, renewals, substitutes, and
replacements of, and all additions and appurtenances to any of the foregoing
property);

 

H.            “General Intangibles” — all general
intangibles as defined in the Uniform Commercial Code, including, without
limitation, all right, title and interest which Grantor may now or hereafter
have in or under any contracts, customer lists, trademarks, patents, service
marks, trade names, business names, corporate names, trade styles, logos and
other source or business identifiers, and all applications therefor and
reissues, extensions or renewals thereof, rights in intellectual property,
interests in and rights to distributions from partnerships, joint ventures and
other business associations, licenses, permits, copyrights, trade secrets,
proprietary or confidential information, inventions (whether or not patented or
patentable), technical information, procedures, designs, knowledge, know-how,
software, data bases, data, skill, expertise, experience, processes, models,
drawings, materials and records, goodwill (including, without limitation, the
goodwill associated with any trademark, trademark registration or trademark
licensed under any trademark license), all rights and claims in or under
insurance policies (including, without limitation, insurance for fire, damage,
loss, and casualty, whether covering personal property, real property, tangible
rights or intangible rights, all liability, life, key person, and business
interruption insurance, and all unearned premiums), uncertificated securities,
choses in action, deposit accounts and other bank accounts, rights to receive
tax refunds, and other payments and rights of indemnification;

 

21

 

I.              “Instruments” — all instruments as defined in
the Uniform Commercial Code, including, without limitation, all certificated
and uncertificated securities, all certificates of deposit, and all notes and
other evidences of indebtedness, other than instruments that constitute, or are
a part of a group of writings that constitute, chattel paper;

 

J.             “Inventory” — all inventory as defined in the
Uniform Commercial Code, wherever located, including, without limitation,
inventory, macadamia nuts, merchandise, goods and other personal property which
are held by or on behalf of Grantor for sale or lease or are furnished or are
to be furnished under a contract of service or which constitute raw materials,
work in process or materials used or consumed or to be used or consumed in
Grantor’s business or in the processing, production, packaging, promotion,
delivery or shipping of the same, including, without limitation, all finished
goods, and goods held by Grantor on a consignment basis;

 

K.            “Money” — all money, cash or cash equivalents
of Grantor;

 

L.             “Books and Records” — all books and records
(including, without limitation, customer lists, credit files, computer
programs, printouts, and other computer materials and records) of Grantor
pertaining to any of the foregoing;

 

M.           “Governmental Program Payments” — all right
to receive any payment under any government program, including, set aside,
price support, deficiency, or disaster relief payments.

 

N.            “Investment Property” — all investment
property as defined in the Uniform Commercial Code, including, without
limitation, all securities, whether certificated or uncertificated, all
security entitlements, all security accounts, all commodity contracts and all
commodity accounts;

 

O.            “Other Personal Property” — all other goods
and personal property of Grantor, whether tangible or intangible and whether
now or hereafter owned or existing, leased, consigned by or to, or acquired by
Grantor, and wherever located; and

 

P.             “Proceeds” — to the extent not otherwise
included, all proceeds of the foregoing, in any form (including, without
limitation, any insurance proceeds, and all claims by Grantor against third
parties for loss or damage to, or destruction of, or otherwise relating to any
or all of the foregoing) and all accessions to, substitutions and replacements
for, and rents, profits and products of, each of the foregoing.

 

22

 

EXHIBIT
B

 

TO

 

SECURITY
AGREEMENT

 

Debtor
and Grantor:             ML Macadamia
Orchards, L.P., a Delaware limited partnership

ML Resources, Inc., a Hawaii corporation

 

Secured Party:  American AgCredit, PCA, successor in interest
to Pacific Coast Farm Credit Services, PCA

 

See
attached for property description.

 

23

 

EXHIBIT
C

 

TO

 

SECURITY
AGREEMENT

 

Debtor
and Grantor:             ML Macadamia
Orchards, L.P., a Delaware limited partnership

ML Resources, Inc., a Hawaii corporation

 

Secured Party:  American AgCredit, PCA, successor in interest
to Pacific Coast Farm Credit Services, PCA

 

(1)           List of Any Names Under Which Grantor Has Done
Business During Last Five Years.

 

Mauna Loa Macadamia Partners, L.P.

 

(2)           Locations.

 

(a)           Chief executive office:

 

26-238 Hawaii Belt Road

Hilo, Hawaii   96720

 

(b)           Principal place of business:

 

Kau, HA

 

(c)           Other locations where Collateral located:

 

Keaau and Mauna Kea, HA

 

(3)           Grantor’s
federal taxpayer identification number.

 

99-0248088

 

(4)           List of
Registered Patents, Trademarks, and Copyrights.

 

None.

 

24United States Securities & Exchange Commission EDGAR Filing

Exhibit 10.1

LOAN AND SECURITY AGREEMENT

(ALL ASSETS)

This Loan Agreement ("Agreement") is entered into February 20, 2009, by and between Thermodynetics, Inc. ("Lender") a Nevada corporation with its principal executive offices at 651 Day Hill Road, Windsor, Connecticut 06095 and Tower Structures, Inc. ("Borrower") a Connecticut corporation with its principal executive offices at 370 South Main Street, Terryville, Connecticut 06786.  

RECITALS:

A.

This Agreement applies to the loan or loans made by Lender to Borrower (individually and collectively, the "Loan") evidenced by one or more promissory notes of even date herewith or other notes subject hereto, as modified from time to time (whethr one or more, the "Note") and all Loan Documents.  The terms "Loan Documents" and "Obligations," as used in this Agreement, are defined in the Note.

B.

The aggregate principal amount to be loaned by Lender shall be a maximum of three hundred thousand ($300,000) dollars and may be loaned in separate tranches.

C.

The Loan will be secured by all of the assets of Borrower.

D.

Lender shall have the right to appoint one member to the Board of Directors of Borrower for so long as either the Loan is outstanding or Lender holds at least one (1%) percent of the common stock of Borrower or Borrower's future United Kingdom parent corporation.  

E.

Borrower is required to be 100% acquired by American Modular Holdings, Ltd. (“AMH-UK”), a United Kingdom corporation as Borrower's anticipated and intended future parent corporation, in a stock-for-stock exchange on terms to be determined (the "Acquisition").

F.

Borrower shall not have more than three directors on its Board of Directors.  However the Board of Directors of Borrower and/or Borrower's UK parent may be expanded to five members upon the successful completion of Borrower's intended UK parent’s initial public offering (“IPO”), and of the five members two may be required to be UK based as may be required by Weavering Corporate Finance, 3 Queen Street, Mayfair, London, England, a UK finance company, engaged under the terms of the letter dated September 19, 2008.

G.

Borrower will issue to and register in the name of Thermodynetics, Inc. an aggregate number of shares of convertible preferred stock at the closing of this Loan; such shares shall be convertible into six (6%) percent of the issued and outstanding capital stock on a post initial public offering basis of the publicly traded entity being either Borrower or Borrower's future United Kingdom parent corporation. 

H.

Certain shareholders of Borrower shall, as additional security, pledge to Lender all of their common stock of Borrower subject to a maximum collection equal to

forty-five 

(45%) percent of the outstanding capital stock of Borrower, and subject to a continuing pledge upon the acquisition of Borrower by its intended UK parent on a share for share exchange basis.  

I.

The chief executive officer of Borrower shall be Robert A. Lerman.

J.

Borrower will issue to and register in the name of Robert A. Lerman an aggregate of 500 shares of its outstanding common stock at the closing of this Loan.

K.

In addition to the shares of stock issued to Robert Lerman and Thermodynetics, Inc. on a pre-IPO basis which is intended to equal such 5% and 6% interests, they will have a warrant or right exercisable at $.0001 per share to purchase up to their respective 5% and 6% interests in AMH-UK on a post-IPO basis in the event there is a differential; in no event shall this right alone provide a right to purchase, pursuant to this transaction, more than 5% and 6% holdings by Robert Lerman and Thermodynetics, Inc., respectively.  This right is in addition to the pledge of 45% of the stock of Borrower by certain shareholders of Borrower.

THEREFORE, FOR ONE DOLLAR or other good and valuable consideration mutually exchanged, the receipt and adequacy of which is acknowledged, including but not limited to relying upon the covenants, agreements, representations and warranties contained in this Agreement, Lender is willing to extend credit to Borrower and Borrower desires to borrow monies upon the terms and subject to the conditions set forth herein, and Lender and Borrower agree as follows:

1.

SECURITY INTEREST.  Borrower for valuable consideration, receipt whereof is hereby acknowledged, hereby grants to Lender a continuing security interest in and to, and assigns to Lender, all assets of the Borrower, wherever located and whether now owned or hereafter acquired, including, without limitation, the following:

(a)

all inventory, including all goods, merchandise, raw materials and work in process, finished goods, and other tangible personal property now owned or hereafter acquired and held for sale or lease or furnished or to be furnished under contracts of service or used or consumed in Borrower's business (all hereinafter called the "Inventory");

(b)

all accounts (as defined in Article 9 of the Uniform Commercial Code, hereinafter "Accounts"), contracts, contract rights, notes, bills, drafts, acceptances, general intangibles (including without limitation registered and unregistered tradenames, copyrights, customer lists, goodwill, computer programs, computer records, computer software, computer data, trade secrets, trademarks, patents, ledger sheets, files, records, data processing records relating to any Accounts and all tax refunds of every kind and nature to which Borrower is now or hereafter may become entitled to, no matter how arising), instruments, documents, chattel paper (whether tangible or electronic) deposit accounts, letter of credit rights (whether or not the letter of credit is evidenced by a writing), securities, security entitlements, security accounts, investment property, supporting obligations, choses in action, commercial tort claims, and all other debts, obligations and liabilities in whatever form, owing to Borrower from any person, firm or corporation or any other legal entity, whether now existing or hereafter arising, now or hereafter received by or belonging or owing to Borrower, for goods sold by it or for services rendered by it, or however otherwise same may have been established or created, all guarantees and securities therefor, all right, title and interest of Borrower in the merchandise or services which gave rise thereto, including the rights of reclamation and stoppage in transit, all rights to replevy goods, and all rights of an unpaid seller of merchandise or services (all  hereinafter called the "Receivables");

(c)

all machinery, equipment, fixtures and other goods (as defined in Article 9 of the Uniform Commercial Code) whether now owned or hereafter acquired by Borrower and wherever located, all replacements and substitutions therefor or accessions thereto and all proceeds thereof (all hereinafter called the "Equipment"); and

(d)

all proceeds and products of all of the foregoing in any form, including, without limitation, all proceeds of credit, fire or other insurance, and also including, without limitation, rents and profits resulting from the temporary use of any of the foregoing (which, with Inventory, Receivables and Equipment are all hereinafter called "Collateral").

2.

OBLIGATIONS SECURED.  The security interest granted hereby is to secure payment and performance of all debts, liabilities and obligations of Borrower to Lender hereunder, including but not limited to the Loan, and also any and all other debts, liabilities and obligations of Borrower to Lender of every kind and description, direct or indirect, absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising, whether or not such obligations are related to the transactions described in this Agreement, by class, or kind, or whether or not contemplated by the parties at the time of the granting of this security interest, regardless of how they arise or by what agreement or instrument they may be evidenced or whether evidenced by any agreement or instrument, and includes obligations to perform acts and refrain from taking action as well as obligations to pay money including, without limitation, all interest, fees, charges, expenses and overdrafts, and also including, without limitation, all obligations and liabilities which Lender may incur or become liable for, on account of, or as a result of, any transactions between Lender and Borrower including any which may arise out of any letter of credit, acceptance or similar instrument or obligation issued or caused to be issued for the account of Borrower (all hereinafter called "Obligations").

3.

BORROWER'S PLACES OF BUSINESS, INVENTORY LOCATIONS AND RETURNS POLICY.  Borrower warrants that Borrower has no places of business other than that shown at the end of this Agreement, unless other places of business are listed on Schedule "A", annexed hereto, in which event Borrower represents that it has additional places of business at those locations set forth on Schedule "A".

Borrower's principal executive office and the office where Borrower keeps its records concerning its accounts, contract rights and other property, is that shown at the end of this Agreement.  All Inventory presently owned by Borrower is stored at the locations set forth on Schedule "A".

Borrower shall promptly notify Lender in writing of any change in the location of any place of business or the location of any Inventory or the establishment of any new place of business or location of Inventory or office where its records are kept which would be shown in this Agreement if it were executed after such change.

Borrower represents and warrants that it has described its returns policy in writing to Lender and that it does now, and will continue to, apply such policy consistently in the conduct of its business and agrees that it shall notify Lender in writing before changing its policy or the application thereof.

4.

BORROWER'S ADDITIONAL REPRESENTATIONS AND WARRANTIES.  Borrower represents and warrants that:

(a)

Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Connecticut and shall hereafter remain in good standing as a corporation in that state, and is duly qualified and in good standing in every other state in which it is doing business, and shall hereafter remain duly qualified and in good standing in every other state in which the failure to qualify or become licensed could have a material adverse effect on the financial condition, business or operations of Borrower.

(b)

Borrower's exact legal name is as set forth in this Agreement.

(c)

The organizational and tax identification numbers of the Borrower is as set forth on Schedule "A" annexed hereto.

(d)

The execution, delivery and performance of this Agreement, and any other document executed in connection herewith, are within Borrower's corporate powers, have been duly authorized, are not in contravention of law or the terms of Borrower's charter, by!laws or other incorporation papers, or of any indenture, agreement or undertaking to which Borrower is a party or by which it or any of its properties may be bound.

(e)

All Articles or Certificates of Incorporation, Articles of Organization and all amendments thereto of Borrower have been duly filed and are in proper order, and copies of which have all been submitted to Lender.  All capital stock issued by Borrower and outstanding was and is properly issued and all books and records of Borrower, including but not limited to its minute books, by!laws and books of account, are accurate and up to date and will be so maintained.

(f)

Borrower owns all of the assets reflected in the most recent of Borrower's financial statements or schedule of assets to be acquired (“Assets”) provided to Lender, except assets sold or otherwise disposed of in the ordinary course of business since the date thereof, and such assets together with any assets acquired since such date, including without limitation the Collateral, are free and clear of any lien, pledge, security interest, charge, mortgage or encumbrance of any nature whatsoever, except (i) the security interests and other encumbrances (if any) listed on Schedule "B" annexed hereto, (ii) those leases of personal property set forth on Schedule "C" annexed hereto, (iii) those liens permitted pursuant to Section 15(h) of this Agreement, or (iv) liens and security interests in favor of Lender.  All sales or transfers of the Assets have complied with all bankruptcy laws, bulk sales laws, and/or insolvency laws applicable to the sellers thereof.  Borrower has duly, validly and lawfully acquired or shall acquire its Assets and all right, title and interest thereto without claim of or from any of the sellers’ creditors, government taxing authorities, or other persons or entities.  

(g)

Borrower has made or filed all tax returns, reports and declarations relating to any material tax liability required by any jurisdiction to which it is subject (any tax liability which may result in a lien on any Collateral being hereby deemed material); has paid all taxes shown or determined to be due thereon except those being contested in good faith and which Borrower has, prior to the date of such contest, identified in writing to Lender as being contested; and has made adequate provision for the payment of all taxes so contested, so that no lien will encumber any Collateral, and in respect of subsequent periods.

(h)

Borrower (i) is subject to no charter, corporate or other legal restriction, or any judgment, award, decree, order, governmental rule or regulation or contractual restriction which could have a material adverse effect on its financial condition, business or prospects, and (ii) is in compliance with its charter documents and by!laws, all contractual requirements by which it or any of its properties may be bound and all applicable laws, rules and regulations (including without limitation those relating to environmental protection) other than laws, rules or regulations the validity or applicability of which it is contesting in good faith or provisions of any of the foregoing the failure to comply with which cannot reasonably be expected to materially adversely affect its financial condition, business or prospects or the value of any Collateral.

(i)

There is no action, suit, proceeding or investigation pending or, to Borrower's knowledge, threatened against or affecting it or any of its assets before or by any court or other governmental authority which, if determined adversely to it, would have a material adverse effect on its financial condition, business or prospects or the value of any Collateral.

 

(j)

Borrower is in compliance with ERISA; no Reportable Event has occurred and is continuing with respect to any Plan; and it has no unfunded vested liability under any Plan.  The word "Plan" as used in this Agreement means any employee plan subject to Title IV of the Employee Retirement Income Security Act of 1974 ("ERISA") maintained for employees of Borrower, any subsidiary of Borrower or any other trade or business under common control with Borrower within the meaning of Section 414(c) of the Internal Revenue Code of 1986 or any regulations thereunder.

(k)

Conflicts of Interest: Robert A. Lerman.  (i) Borrower has engaged Robert A. Lerman as its chief executive officer pursuant to that certain letter agreement dated October 16, 2008.  (ii) Separately, Mr. Lerman will serve as a director on the Board of Directors of Borrower.  (iii) As part of his CEO compensation under the letter, prior to the issuance of the Loan, Mr. Lerman will be issued common stock of Borrower to equal 5% of Borrower; such issuance will have antidilution protection such that it will equal a 5% interest in Borrower's future United Kingdom parent corporation after the completion of Borrower's or Borrower's parent’s initial public offering.  (iv) Further, Mr. Lerman will be paid $10,000 per month as compensation as CEO on a part time basis.  

(l)

Conflicts of Interest: Lender and Robert A. Lerman.  Borrower and Lender acknowledge Mr. Lerman is also the Chief Executive Officer, President and a director on the Board of Directors of Lender.  Mr. Lerman owns approximately 27% of Lender and is its largest single shareholder.  Borrower and Lender have been and are each hereby notified that conflicts of interest exist with respect to Mr. Lerman's dual CEO positions.  In the event Borrower defaults on any loan or loans secured hereunder, it is understood and agreed that Mr. Lerman will act on behalf of Lender, and that he will abstain from advising or working with Borrower; and that Mr. Lerman shall resign from any and all of his officer and director positions of Borrower so that he can assist Lender, without further conflict of interest, in pursuing its remedies.  

(m)

Conflicts of Interest:  Tower Acquisitions, Ltd., CMP and Robert A. Lerman.  Robert A. Lerman is the manager and sole principal of Capital Management Partners, LLC ("CMP").  CMP, along with Messrs. Mark O’Callaghan ("MO") and Irving Goldstein ("IG"), have a consulting relationship with Borrower pursuant to that engagement letter dated August, 2008 (the “CMP Letter”).  CMP, MO and IG are paid or to be paid collectively a total of $5,000 per month. 

(n)

Borrower acknowledges and affirms its obligations under the CMP Letter that upon admission of Borrower to the AIM or PLUS markets of the London capital markets and/or the raising of additional funding through a pre-IPO/reverse merger financing (individually or collectively the "Transaction") Borrower will pay to Tower Acquisitions Ltd. (“Tower Acquisitions"): 

(i) a transaction fee of 5% in cash and 5% in free trading stock in the case of an IPO or simultaneous IPO/reverse merger, or 

(ii) 10% of funds raised in the case of a reverse merger without a simultaneous IPO, or 

(iii) 10% of funds raised in the case of a private placement or financing other than a loan from Lender.  

Borrower has indemnified CMP, MO and IG of up to a maximum of $150,000.  Mr. Lerman, IG, MO are principles along with Lender of Tower Acquisitions.  Robert A. Lerman is the manager and sole principal of CMP.  

Tower Acquisitions is a business that provides business services to companies seeking financing and also makes acquisitions for its own portfolio.  Tower Acquisitions is owned by IG, MO, Mr. Lerman, Lender and other persons.  

(o)

Borrower acknowledges and affirms its obligations under the CMP Letter that Borrower shall pay CMP a transaction fee of 10% of funds raised in the case of a pre-IPO financing arranged by CMP including monies committed to Borrower under this Loan.  

(p)

Licenses and Permits.  Borrower possesses, or is in the process of obtaining, all licenses and permits necessary to operate its business as presently contemplated.  

5.

LOANS AND OTHER FINANCIAL ACCOMMODATIONS.

(a)

Subject to the terms and provisions of this Agreement, Lender hereby establishes a tranche-funded loan in Borrower's favor in an amount not to exceed the Credit Limit (as defined below).  The amount of each tranche shall be determined by Lender from time to time hereafter.  Lender may make such loans to Borrower, based upon such facts and circumstances existing at the time of the request, as from time to time Lender elects to make which are secured by Borrower's Inventory, Accounts and all other Collateral and the proceeds thereof.  Without limiting the discretionary nature of Lender's decision to make loans hereunder, or the term or demand feature of any loans that Lender may make hereunder, Borrower agrees that the aggregate principal of all loans outstanding at any one time shall not exceed the Borrowing Base (as defined below).

(b)

All loans made by Lender pursuant to this Section 5 shall bear interest and, at the option of Lender, shall be evidenced by and repayable in accordance with a note or notes drawn to the order of Lender substantially the form of Exhibit 1 hereto (individually or collectively the "Note"), as the same may hereafter be amended, supplemented or restated from time to time and any note or notes issued in substitution therefor, but in the absence of the Note shall be conclusively evidenced by Lender's records of loans and repayments and shall be payable immediately upon completion and consummation of an initial public offering and/or in accordance with their terms.  

(c)

The term "Credit Limit" as used herein shall mean an amount equal to Three Hundred Thousand ($300,000.00) Dollars.

(d)

Borrower hereby authorizes and directs Lender, in Lender's sole discretion (provided, however, Lender shall have no obligation to do so): (i) to pay accrued interest as the same becomes due and payable pursuant to this Agreement or pursuant to any note or other agreement between Borrower and Lender, and to treat the same as a loan to Borrower, which shall be added to Borrower's loan balance pursuant to this Agreement; (ii) to charge any of Borrower's accounts under the control of Lender; or (iii) apply the proceeds of Collateral, including, without limitation, payments on Accounts and other payments from sales or lease of Inventory and any other funds to the payment of such items.  Lender shall promptly notify Borrower of any such charges or applications.

(e)

The Borrowing Base formula set forth above is intended solely for monitoring purposes.  The making of loans, advances, and credits by Lender to Borrower in excess of the above described Borrowing Base formula is for the benefit of Borrower and does not affect the obligations of Borrower hereunder; all such loans constitute Obligations and must be repaid by Borrower in accordance with the terms of this Agreement.

(f)

Borrower acknowledges its obligations to Robert A. Lerman as its chief executive officer pursuant to that certain letter agreement dated October 16, 2008, principally that Mr. Lerman will be issued common stock of Borrower to equal 5% of Borrower and such amount shall be equal to 5% of the outstanding capital stock of Borrower's future United Kingdom parent corporation immediately after the completion of the initial public offering.  Further, Mr. Lerman will be paid $10,000 per month as compensation as CEO on a part time basis.  

(g)

Borrower acknowledges its obligations to CMP, MO and IG under the CMP Letter, principally that CMP, MO and IG are paid or to be paid collectively a total of $5,000 per month through the month in which a Transaction is consummated.

(h)

Borrower acknowledges and affirms its obligations under the CMP Letter that upon admission of Borrower to the AIM or PLUS markets of the London capital markets and/or the raising of additional funding through a pre-IPO/reverse merger financing (individually or collectively the "Transaction") Borrower will pay to Tower Acquisitions a transaction fee of 5% in cash and 5% in free trading stock in the case of an IPO or simultaneous IPO/reverse merger, or 10% of funds raised in the case of a reverse merger without a simultaneous IPO or in the case of a private placement.  Mr. Lerman, IG, MO are principals along with Lender of Tower Acquisitions.  

(i)

Loan Fee.  Borrower hereby agrees that upon successful completion of a Transaction Borrower shall pay to Lender a loan commitment fee equal to $60,000, but if no Transaction closes on or before August 31, 2009, then such commitment fee shall be due and paid in 12 equal monthly installments commencing September 1, 2009.  

(j)

Usury.  If at any time the effective interest rate under the Loan would, but for this paragraph, exceed the maximum lawful rate, the effective interest rate under the Loan shall be the maximum lawful rate, and any amount received by Lender in excess of such rate shall be applied to principal and then to fees and expenses, or, if no such amounts are owing, returned to Borrower.

6.

Intentionally omitted.

7.

LENDER'S REPORTS.  After the end of each month, Lender shall render to Borrower a statement of Borrower's loan account with Lender hereunder, showing all applicable credits and debits.  Each statement shall be considered correct and to have been accepted by Borrower and shall be conclusively binding upon Borrower in respect of all charges, debits and credits of whatsoever nature contained therein under or pursuant to this Agreement, and the closing balance shown therein, unless Borrower notifies Lender in writing of any discrepancy within twenty (20) days from the mailing by Lender to Borrower of any such statement.

8.

CONDITIONS OF LENDING. 

(a)

The willingness of Lender to consider making the initial loan advance hereunder, further advances hereunder shall be subject to the condition precedent that Lender shall have received all of the following, each in form and substance satisfactory to Lender:

(i)

This Agreement, properly executed on behalf of Borrower.

(ii)

The Note drawn to the order of Lender in the face amount of the interim funding amount, in the form substantially as set forth on Schedule E.

(iii)

Evidence that Borrower has entered into a real estate lease for the lease of its principal offices and manufacturing facilities located at 367 and 370 South Main Street, Terryville, Connecticut in form and substance satisfactory to Lender.

(iv)

A true and correct copy of any and all leases pursuant to which Borrower is leasing any real property, together with a landlord's consent and waiver with respect to such real property.  All leases shall be satisfactory to Lender; the real estate lease must, at a minimum satisfy the conditions set forth in the letter of interest dated February 6, 2009 and signed by Lender and Borrower.  

(v)

Evidence that Borrower has entered into equipment purchase contract(s) and/or equipment lease(s) satisfactory to Lender.

(vi)

Evidence that Borrower has entered into inventory purchase contract(s) satisfactory to Lender.

(vii)

Evidence that Borrower has employed or engaged for employment and continues or will continue to employ a sufficient staff of employees to operate its manufacturing facility including adequate management and supervisory personnel.

(viii)

Current searches of appropriate filing offices showing that (A) no state or federal tax liens have been filed and remain in effect against Borrower, (B) no financing statements have been filed and remain in effect against Borrower, except those financing statements relating to liens set forth on Schedule "B", the liens of the secured lender to be paid with the proceeds of the initial loan and those financing statements filed by Lender, and (C) Lender has duly filed all financing statements necessary to perfect the security interests granted hereunder, to the extent the security interests are capable of being perfected by filing.

(ix)

As to the first advance only, a certificate of the Secretary or an Assistant Secretary of Borrower, certifying as to (A) the resolutions of the directors and, if required, the shareholders of Borrower, authorizing the execution, delivery and performance of this Agreement and related documents, (B) the Certificate of Incorporation or Articles of Organization and By-Laws of Borrower, and (C) the signatures of the officers or agents of Borrower authorized to execute and deliver this Agreement and other instruments, agreements and certificates, including loan requests, on behalf of Borrower; an update certificate may be required by Lender upon further advances.

(x)

As to the first advance only, a current certificate issued by the Secretary of State of the state of Borrower's incorporation, certifying that Borrower is in existence and in compliance with all corporate organizational requirements of such state; an updated certificate may be required by Lender for subsequent advances in the event the previously issued certificate was issued more than 120 days prior.

(xi)

As to the first advance only, evidence that Borrower is duly licensed or qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary; updated evidence may be required by Lender for subsequent advances in the event the previously supplied evidence was issued or generated more than 120 days prior.

(xii)

As to the first advance only, an opinion of counsel to Borrower, addressed to Lender with respect to the Loan and the business operations of Borrower; an updated opinion may be required by Lender for subsequent advances in the event the previously issued opinion was issued more than 180 days prior or unless material events and the operations of Borrower have occurred in which case Lender may require a legal opinion upon any further advance.

(xiii)

Certificates of the insurance required hereunder, with all hazard insurance containing a lender's loss payable endorsement in favor of Lender and all credit insurance naming Lender as co-insured.

(xiv)

As to the first advance only, a subordination agreement, properly executed by each of the subordinating creditors, if any, in form and substance satisfactory to Lender.

(xv)

An opinion of counsel of each guarantor which is not an individual, addressed to Lender.  A list of guarantors is attached hereto at Schedule “D”; currently there are no guarantors.

(xvi)

Payment of the fees due through the date of the initial loan, or such further interim advance loan, and expenses incurred by Lender through such date required to be paid by Borrower pursuant to this Agreement.

(xvii)

Such other documents, instruments and agreements as Lender in its sole discretion may require.

(xviii)

Certain shareholders of Borrower, namely:  John Leader and Nicholas Ververis, shall, as additional security, pledge to Lender 3,274 and 1,226 shares, respectively, of common stock of Borrower being equal to forty-five (45%) percent of the issued and outstanding shares of common stock of Borrower.  Upon the acquisition of Borrower by AMH-UK, the Pledged Collateral shall be exchanged for their holdings equal to forty-five (45%) percent of AMH-UK, defined below, issued and outstanding ordinary shares of its capital stock; continued to be defined as “Pledged Collateral” and shall bear a continuing pledged security interest in favor of Lender.  The Pledged Collateral will remain subject to the pledge until the Loan is paid in full, or until the IPO is completed and the Loan is paid in full.  In any event, upon payment in full of the Loan and the fees and charges thereunder, the security interest for the Pledged Collateral will be released and said stock shall be returned to the respective pledgors.  

(b)

Lender will not consider a request for any loan advance unless on the date thereof:

(i)

the representations and warranties contained in Sections 3 and 4 hereof are correct on and as of the date of such loan as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date; and

(ii)

no event has occurred and is continuing, or would result from such loan which constitutes an Event of Default or which, with notice or the passage of time or both, would constitute an Event of Default.

9.

CAPITAL ADEQUACY.  

(a)

If Lender shall determine that, after the date hereof, that Borrower fails to have adequate capital to pay its operational expenses, Lender shall have no obligation to make any further loan advances whether or not Borrower has borrowed up to the Credit Limit hereunder.

10.

COLLECTIONS; SET OFF; DEPOSIT ACCOUNTS; LOCKBOX; NOTICE OF ASSIGNMENT; EXPENSES; POWER OF ATTORNEY.  

(a)

In the event of a default, Borrower shall immediately, upon receipt of all checks, drafts, cash and other remittances in payment of any Inventory sold or in payment or on account of Borrower's accounts, contracts, contract rights, notes, bills, drafts, acceptances, general intangibles, choses in action and all other forms of obligations, deliver the same to Lender accompanied by a remittance report in form specified by Lender.  Said proceeds shall be delivered to Lender in the same form received except for the endorsement of Borrower where necessary to permit collection of items, which endorsement Borrower agrees to make.  Lender shall deposit any and all monies in the lockbox account of Borrower provided for in this §11.  (i) Upon final collection of such monies, Lender shall distribute from such lockbox account 66.6% of such monies to Borrower's operating checking account; and (ii) further, upon final collection of such monies, Lender shall distribute from such lockbox account 33.3% of such monies to 

Lender's operating checking account as payments against the principal or interest of any loans secured hereby; (iii) however, in the event of a default then the distributions from the lockbox shall be governed by §18 hereof; provided, however, for the purpose of computing interest, any items requiring clearance or payment shall not be considered to have been credited against any loans secured hereby until three (3) business days after receipt by Lender of any such items. The order and method of such application shall be in the sole discretion of Lender and any portion of such funds which Lender elects not to so apply shall be paid over from time to time by Lender to Borrower.  

(b)

In the event of a default, Lender will at all times thereafter have the right to require Borrower to enter into a lockbox arrangement with Lender for the collection of such remittances and payments at a financial institution which has agreed to accept drafts under a written depository transfer agreement with Lender and to block Borrower's account and waive its rights as against such account.  

(c)

As used in this Agreement, "business day(s)" shall mean any day which is neither a Saturday, Sunday nor a holiday on which commercial lenders are authorized or required to be closed in Hartford, Connecticut.

(d)

Lender has no duty to protect, insure, collect or realize upon the accounts or other collateral or preserve rights in them.  Borrower releases Lender from any liability for any act or omission relating to the collection of the Obligations, the accounts or other collateral or this Agreement, except as a result of` Lender's willful misconduct or gross negligence.  

(e)

Borrower and any guarantor hereby grants to Lender a lien, security interest and right of setoff as security for all liabilities and Obligations to Lender, whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Lender or any entity in the control of Citizens Financial Group, Inc., or in transit to any of them.  At any time, without demand or notice, Lender may set off the same or any part thereof and apply the same to any liability or Obligation of Borrower and any guarantor even though unmatured and regardless of the adequacy of any other collateral securing the Obligations.  ANY AND ALL RIGHTS TO REQUIRE LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

(f)

Borrower shall pay to Lender on demand any and all reasonable counsel fees and/or legal fees, and other expenses incurred by Lender in connection with the preparation, interpretation, enforcement, administration or amendment of this Agreement, or of any documents relating thereto, and any and all expenses, including, but not limited to, a collection charge on all Accounts collected, all reasonable attorneys' fees and expenses, and all other expenses of like or unlike nature which may be expended by Lender to obtain or enforce payment of any Account either as against the account debtor, Borrower, or any guarantor or surety of Borrower or in the prosecution or defense of any action or concerning any matter growing out of or connected with the subject matter of this Agreement, the Obligations or the Collateral or any of Lender's rights or interests therein or thereto, including, without limiting the generality of the foregoing, any counsel fees or expenses incurred in any bankruptcy or insolvency proceedings and all costs and expenses incurred or paid by Lender in connection with the administration, supervision, protection or realization on any security held by Lender for the debt secured hereby, whether such security was granted by Borrower or by any other person primarily or secondarily liable (with or without recourse) with respect to such debt, and all costs and expenses incurred by Lender in connection with the defense, settlement or satisfaction of any action, claim or demand asserted against Lender in connection therewith, which amounts shall be considered advances to protect Lender's security, and shall be secured hereby.  At its option, and without limiting any other rights or remedies, Lender may at any time pay or discharge any 

taxes, liens, security interests or other encumbrances at any time levied against or placed on any of the Collateral, and may procure and pay any premiums on any insurance required to be carried by Borrower, and provide for the maintenance and preservation of any of the Collateral, and otherwise take any action reasonably deemed necessary by Lender to protect its security, and all amounts expended by Lender in connection with any of the foregoing matters, including reasonable attorneys' fees, shall be considered obligations of Borrower and shall be secured hereby.  

(g)

Borrower shall not pay or be liable for its own counsel fees and/or legal fees associated with the Loan and its closing; Messrs. John Leader and Nicholas Ververis and/or American Modular Corporation, LLC shall be responsible for Borrower's costs associated with the Loan closing.  

(h)

Borrower does hereby make, constitute and appoint any officer or agent of Lender as Borrower's true and lawful attorney!-in-!fact, with power to endorse the name of Borrower or any of Borrower's officers or agents upon any notes, checks, drafts, money orders, or other instruments of payment (including payments payable under any policy of insurance on the Collateral) or Collateral that may come into possession of Lender in full or part payment of any amounts owing to Lender; to sign and endorse the name of Borrower or any of Borrower's officers or agents upon any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with Accounts, and any instrument or documents relating thereto or to Borrower's rights therein; to give written notice to such office and officials of the United States Post Office to effect such change or changes of address so that all mail addressed to Borrower may be delivered directly to Lender; granting upon Borrower's said attorney full power to do any and all things necessary to be done in and about the premises as fully and effectually as Borrower might or could do, and hereby ratifying all that said attorney shall lawfully do or cause to be done by virtue hereof.  Neither Lender nor the attorney shall be liable for any acts or omissions nor for any error of judgment or mistake, except for their gross negligence or willful misconduct.  This power of attorney shall be irrevocable for the term of this Agreement and all transactions hereunder and thereafter as long as Borrower may be indebted to Lender, but shall terminate at such time as Borrower is not indebted to Lender.

11.

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

(II)

Upon payment in full of the Obligations, Lender shall promptly release any and all security interests granted to Lender.  

12.

BORROWER'S REPORTS.

(a)

Borrower shall deliver to Lender, monthly, a schedule in form and content satisfactory to Lender describing the invoices issued by Borrower since the last schedule submitted to Lender.  The schedules to be provided under this subsection are solely for the convenience of Lender in administering this Agreement and maintaining records of the Collateral.  Borrower's failure to provide Lender with any such schedule shall not affect the security interest of Lender in such Accounts.  

(b)

Borrower shall cause all of its invoices, including the copies thereof, to be printed and to bear consecutive numbers and shall prepare and issue its invoices in such consecutive numerical order.  If requested by Lender, all copies of invoices not previously delivered to Lender shall be delivered to Lender with each schedule of Accounts.  Copies of all invoices which are voided or canceled or which for any other reason do not evidence an Account shall be included in such delivery.  If any invoice or copy thereof is lost, destroyed or otherwise unavailable, Borrower shall account in writing, in form satisfactory to Lender, for such missing invoice.  

(c)

Within fifteen (15) calendar days after the end of each month or on such other more frequent basis as may be required by Lender from time to time, Borrower shall submit to Lender an aging report in form satisfactory to Lender showing the amounts due and owing on all Accounts according to Borrower's records as of the close of such month or such shorter period as may be required by Lender from time to time, together with such other information as Lender may require.  If Borrower's monthly aging reports are prepared by an accounting service or other agent, Borrower hereby authorizes such service or agent to deliver such aging reports and any other related documents to Lender.

(d)

Within fifteen (15) calendar days after the end of each month or on such other basis as may be required by Lender from time to time, Borrower shall submit to Lender an accounts payable aging report in form satisfactory to Lender showing the amounts due and owing on all accounts payable according to Borrower's records as of the close of such month or such shorter period as may be required by Lender from time to time, together with such other information as Lender may require.  If Borrower's monthly accounts payable aging reports are prepared by an accounting service or other agent, Borrower hereby authorizes such service or agent to deliver such accounts payable aging reports and any other related documents to Lender.

(e)

Within fifteen (15) calendar days after the end of each month or on such other more frequent basis as may be required by Lender from time to time, Borrower shall furnish to Lender a certificate describing all of Borrower's Inventory by value based on the lower of cost or market value, listing all Inventory by nature, quantity and location, together with such other information as Lender may require.

(f)

Commencing on June 1, 2009, Borrower shall deliver to Lender all documents, as frequently as indicated below, or at such other times as Lender may  request, and all other documents and information requested by  Lender:

			
	 
	DOCUMENT

	FREQUENCY DUE

	1.

	A Certificate, including cash receipts, credit memos, sales, debit memos, the unpaid loan balance, new borrowing requests and the adjusted loan balance. 

	On the 15th and last day of each month.  [See §9(xvi)] 

	2.

	List of names and addresses of account debtors to whom Borrower has made sales during the previous fiscal year. 

	Annually, within sixty (60) days after the end of each fiscal year of Borrower.

	3.

	Reconciliation report, in form satisfactory to Lender, showing all accounts, collections, payments, credits, and extensions since the preceding report. 

	Monthly.

	4.

	Projections of Borrower's balance sheet, statement of profit and loss and cash flow for the next succeeding fiscal year broken down on a month to month basis. 

	Annually, at least thirty (30) days before the beginning of each fiscal year of Borrower.

	5.

	A listing of the names and addresses of all suppliers and vendors from whom Borrower has made purchases during the previous fiscal year, together with a listing  of any other suppliers or vendors from whom Borrower expects to make purchases during the succeeding fiscal year. 

	Annually, within sixty (60) days after the end of each fiscal year of Borrower. 

	6.

	Notice of noncompliance with the provisions of this Agreement. 

	Immediately upon learning of such noncompliance, or if any representation or warranty contained herein is no longer true or accurate.  

	7.

	Compliance Certificate in the form annexed hereto as Exhibit 12-f-7.  

	As soon as available and in any event within twenty (20) days after the close of each monthly period of Borrower's fiscal year.  

(g)

Borrower shall furnish Lender as soon as available, and in any event within twenty (20) days after the close of each monthly period of its fiscal year, a balance sheet as of the end of such period, and a statement of income and retained earnings for the period commencing at the end of the previous fiscal year and ending with the end of such period, and a statement of cash flows of Borrower for the portion of the fiscal year ended with the last day of such period, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the previous fiscal year, and all prepared in accordance with generally accepted accounting principles consistently applied, certified by the chief financial officer of Borrower (subject to year-end adjustment).

(h)

Borrower shall furnish Lender, annually, as soon as available, and in any event within ninety (90) days after the end of each fiscal year of Borrower, a balance sheet as of the end of such fiscal year, and a statement of income and retained earnings for such fiscal year, and a statement of cash flows for such fiscal year, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior fiscal year, and all prepared in accordance with generally accepted accounting principles consistently applied, accompanied by an opinion thereon acceptable to Lender by independent public accountants selected by Borrower and acceptable to Lender.

(i)

Borrower shall promptly, upon receipt thereof, deliver to Lender, copies of any reports submitted to Borrower by Borrower's independent public accountants in connection with the examination of the financial statements of Borrower made by such accountants (the so-called "Management Letter").

(j)

In addition to the foregoing, Borrower promptly shall provide Lender with such other and additional information concerning Borrower, the Collateral, the operation of Borrower's business, and Borrower's financial condition, including financial reports and statements, as Lender may from time to time request from Borrower.  All financial information provided Lender by Borrower shall be prepared in accordance with generally accepted accounting or auditing principles (as applicable) applied consistently in the preparation thereof and with prior periods to fairly reflect the financial conditions of Borrower at the close of, and its results of operations for, the periods in question.

13.

GENERAL AGREEMENTS OF BORROWER.

(a)

Borrower agrees to keep all the Collateral insured with coverage and in amounts not less than that usually carried by one engaged in a like business and in any event not less than that required by Lender with loss payable to Lender and Borrower, as their interests may appear, hereby appointing Lender as attorney for Borrower in obtaining, adjusting, settling and canceling such insurance and endorsing any drafts.  As further assurance for the payment and performance of the Obligations, Borrower hereby assigns to Lender all sums, including returns of unearned premiums, which may become payable under any policy of insurance on the Collateral and Borrower hereby directs each insurance company issuing any such policy to make payment of such sums directly to Lender.

(b)

Lender or its agents have the right during normal business hours to inspect the Collateral and all records pertaining thereto at intervals to be determined by Lender and without hindrance or delay.  Lender shall also have the right to obtain from time to time at the sole cost and expense of Borrower an appraisal of the Collateral by an appraiser acceptable to Lender.

(c)

Borrower shall at all times keep accurate and complete records of Borrower's Inventory, Accounts and other Collateral, and Lender, or any of its agents, shall have the right to call at Borrower's place or places of business during normal business hours at intervals to be determined by Lender but not more than twice annually unless there is an event of default, and without hindrance or delay, to inspect, audit, check, and make extracts from any copies of the books, records, journals, orders, receipts, correspondence which relate to Borrower's Accounts, and other Collateral or other transactions, between the parties thereto and the general financial condition of Borrower and Lender may remove any of such records temporarily for the purpose of having copies made thereof. Borrower shall pay the costs of the audit.

(d)

Borrower shall maintain a standard and modern system of accounting which enables Borrower to produce financial statements in accordance with generally accepted accounting principles and maintain records pertaining to the Collateral that contain information as from time to time may be requested by Lender.

(e)

Borrower shall maintain its corporate existence along with all of its licenses and permits in good standing and comply with all laws and regulations of the United States or of any state or states thereof or of any political subdivision thereof, or of any governmental authority which may be applicable to it or to its business.  

(f)

Borrower shall pay all real and personal property taxes, assessments and charges and all franchises, income, unemployment, old age benefits, withholding, sales and other taxes assessed against it, or payable by it at such times and in such manner as to prevent any penalty from accruing or any lien or charge from attaching to its property.

(g)

Lender may in its own name or in the name of others communicate with account debtors in order to verify with them to Lender's satisfaction the existence, amount and terms of any Accounts. 

(h)

This Agreement may but need not be supplemented by separate assignments of Accounts and if such assignments are given the rights and security interests given thereby shall be in addition to and not in limitation of the rights and security interests given by this Agreement.

(i)

If any of Borrower's Accounts arise out of contracts with the United States or any department, agency, or instrumentality thereof, Borrower shall immediately notify Lender thereof in writing and execute any instruments and take any steps required by Lender in order that all monies due and to become due under such contracts shall be assigned to Lender and notice thereof given to the Government under the Federal Assignment of Claims Act.

(j)

If any of Borrower's Accounts should be evidenced by promissory notes, trade acceptances, or other instruments for the payment of money, Borrower shall immediately deliver same to Lender, appropriately endorsed to Lender's order and, regardless of the form of such endorsement, Borrower hereby waives presentment, demand, notice of dishonor, protest and notice of protest and all other notices with respect thereto.

(k)

If any goods are at any time in the possession of a bailee, Borrower shall promptly notify Lender thereof and, if requested by Lender, shall promptly obtain an acknowledgment from the bailee, in form and substance satisfactory to Lender, that the bailee holds such Collateral for the benefit of Lender and shall act upon the instructions of Lender, without the further consent of Borrower.  Lender agrees with Borrower that Lender shall not give any such instructions unless an Event of Default has occurred and is continuing or would occur after taking into account any action by Borrower with respect to the bailee.

(l)

If Borrower is at any time a beneficiary under a letter of credit now or hereafter issued in favor of Borrower, Borrower shall promptly notify Lender thereof and, at the request and option of Lender, Borrower shall, pursuant to an agreement in form and substance satisfactory to Lender, either (i) arrange for the issuer and any confirmer of such letter of credit to consent to an assignment to Lender of the proceeds of any drawing under the letter of credit, or (ii) arrange for Lender to become the transferee beneficiary of the letter of credit, with Lender agreeing, in each case, that the proceeds of any drawing under the letter of credit are to be applied  in the same manner as any other payment on an Account.  

(m)

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

(n)

Borrower shall promptly pay when due all taxes and assessments upon the Collateral or for its use or operation or upon this Agreement, or upon any note or notes evidencing the Obligations, and will, at the request of Lender, promptly furnish Lender the receipted bills therefor.  At its option, Lender may discharge taxes, liens or security interests or other encumbrances at any time levied or placed on the Collateral, may pay for insurance on the Collateral and may pay for the maintenance and preservation of the Collateral.  Borrower agrees to reimburse Lender on demand for any payments made, or any expenses incurred by Lender pursuant to the foregoing authorization, and upon failure of Borrower so to reimburse Lender, any such sums paid or advanced by Lender shall be deemed secured by the Collateral and constitute part of the Obligations.

(o)

Borrower shall immediately notify Lender upon receipt of notification of any potential or known release or threat of release of hazardous materials, hazardous waste, hazardous or toxic substance or oil from any site operated by Borrower or of the incurrence of any expense or loss in connection therewith or with Borrower's obtaining knowledge of any investigation, action or the incurrence of any expense or loss by any governmental authority in connection with the assessment, containment or removal of any hazardous material or oil for which expense or loss Borrower may be liable.  As used herein, the terms “hazardous waste,” “hazardous or toxic substance,” “hazardous material” or “oil” shall have the same meanings as defined and used in any of the following (the "Acts"): the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 USC Sections 9601-9657, as amended by the Superfund Accounts and Reauthorization Act of 1986; the Federal Resource Conservation and Recovery Act, 42 USC Sections 6901 et seq.; the Hazardous Materials Transportation Act, 49 USC Sections 1801 et seq.; the Toxic Substances Control Act, 15 USC Sections 2601 et seq.; the Federal Water Pollution Control Act, 33 USC Sections 1251 et seq.; the Clean Air Act, 42 USC Sections 741 et seq.; the Clean Water Act, 33 USC Section 701; the Safe Drinking Water Act, 42 USC Sections 300(f)-300(j); any other federal, state, local or governmental state regulation, law or ordinance dealing with the protection of human health and the environment; and/or the regulations adopted and publications promulgated pursuant to any of the Acts, as the same may be amended from time to time.

(p)

Except for Lender's gross negligence or willful misconduct, Borrower shall indemnify and save Lender harmless from all loss, costs, damage, liability or expenses (including, without limitation, court costs and reasonable attorneys' fees) that Lender may sustain or incur by reason of defending or protecting this security interest or the priority thereof or enforcing the Obligations, or in the prosecution or defense of any action or proceeding concerning any matter growing out of or in connection with this Agreement and/or any other documents now or hereafter executed in connection with this Agreement and/or the Obligations and/or the Collateral.  This indemnity shall survive the repayment of the Obligations and the termination of Lender's agreement to make loans available to Borrower and the termination of this Agreement.

(q)

At the option of Lender, Borrower shall furnish to Lender, from time to time, within five (5) days after the accrual in accordance with applicable law of Borrower's obligation to make deposits for F.I.C.A. and withholding taxes and/or sales taxes, proof satisfactory to Lender that such deposits have been made as required.

(r)

Should Borrower fail to make any of such deposits or furnish such proof then Lender may, in its sole and absolute discretion, (a) make any of such deposits or any part thereof, (b) pay such taxes, or any part thereof, or (c) set! up such reserves as Lender, in its judgment, shall deem necessary to satisfy the liability for such taxes.  Each amount so deposited or paid shall constitute an advance under the terms hereof, repayable on demand with interest, as provided herein, and secured by all Collateral and any other property at any time pledged by Borrower with Lender.  Nothing herein shall be deemed to obligate Lender to make any such deposit or payment or set! up such reserve and the making of one or more of such deposits or payments or the setting! up of such reserve shall not constitute (i) an agreement on Lender's part to take any further or similar action, or (ii) a waiver of any default by Borrower under the terms hereof.

(s)

All advances by Lender to Borrower under this Agreement and under any other agreement constitute one general revolving fluctuating loan, and all indebtedness of Borrower to Lender under this and under any other agreement constitute one general Obligation.  Each advance to Borrower hereunder or otherwise shall be made upon the security of all of the Collateral held and to be held by Lender.  It is distinctly understood and agreed that all of the rights of Lender contained in this Agreement shall likewise apply, insofar as applicable, to any modification of or supplement to this Agreement and to any other agreements between Lender and Borrower.  Any default of this Agreement by Borrower shall constitute, likewise, a default by Borrower of any other existing agreement with Lender, and any default by Borrower of any 

other agreement with Lender shall constitute a default of this Agreement.  The entire Obligation of Borrower to Lender shall become due and payable upon termination of this Agreement.  

(t)

Borrower hereby grants to Lender for a term to commence on the date of this Agreement and continuing thereafter until all debts and Obligations of any kind or character owing from Borrower to Lender are fully paid and discharged, the right to use all premises or places of business which Borrower presently has or may hereafter have and where any of the Collateral may be located, at a total rental for the entire period of $1.00.  Lender agrees not to exercise the rights granted in this paragraph unless and until Lender determines to exercise its rights against the Collateral.

(u)

Borrower shall, at its expense, upon request of Lender promptly and duly execute and deliver such documents and assurances and take such actions as may be necessary or desirable or as Lender may reasonably request in order to correct any defect, error or omission which may at any time be discovered or to more effectively carry out the intent and purpose of this Agreement and to establish, perfect and protect Lender's security interest, rights and remedies created or intended to be created hereunder.  Without limiting the generality of the above, Borrower shall join with Lender in executing financing and continuation statements pursuant to the Uniform Commercial Code or other notices appropriate under applicable Federal or state law in form satisfactory to Lender and filing the same in all public offices and jurisdictions wherever and whenever requested by Lender.

(v)

Borrower shall perform any and all further steps requested by Lender to perfect Lender's security interest in Inventory, such as leasing warehouses to Lender or its designee, placing and maintaining signs, appointing custodians, maintaining stock records and transferring Inventory to warehouses.  A physical listing of all Inventory, wherever located, shall be taken by Borrower at least annually and whenever requested by Lender if one or more of the Events of Default exist.

(w)

Borrower hereby grants to Lender for a term to commence on the date of this Agreement and continuing thereafter until all debts and Obligations of any kind or character owed to Lender are fully paid and discharged, a non!-exclusive irrevocable royalty!-free license in connection with Lender's exercise of its rights hereunder, to use, apply or affix any trademark, trade name logo or the like and to use any patents, in which Borrower now or hereafter has rights, which license may be used by Lender upon and after the occurrence of any one or more of the Events of Default, provided, however, that such use by Lender shall be suspended if such Events of Default are cured.  This license shall be in addition to, and not in lieu of, the inclusion of all of Borrower's trademarks, service-marks, trade-names, logos, goodwill, patents, franchises and licenses in the Collateral; in addition to the right to use said Collateral as provided in this paragraph, Lender shall have full right to exercise any and all of its other rights regarding Collateral with respect to such trademarks, service-marks, trade-names, logos, goodwill, patents, franchises and licenses.

(x)

Use of Proceeds.  Borrower shall use the proceeds of the Loan for the commercial purposes of Borrower, as follows:  to acquire machinery, equipment and tools, and for working capital purposes.  

14.

SPECIFIC AGREEMENTS OF BORROWER.  

Borrower shall amend its certificate of incorporation to provide, and Borrower hereby agrees: 

(a)

Appointee to Board of Directors.  Lender shall have the right to appoint one (1) member to the Board of Directors of Borrower for so long as either the Loan is outstanding or Lender holds that least one (1%) percent of the capital stock (ordinary shares, common stock or preferred stock) of Borrower or Borrower's future United Kingdom parent corporation.  

(b)

Board of Directors Limitations.  Borrower shall not have more than three directors on its Board of Directors.  However the Board of Directors of Borrower's UK parent may be expanded to five members upon the successful completion of its initial public offering, and of the five members two may be required to be UK based as may be required by Weavering Corporate Finance, 3 Queen Street, Mayfair, London, England, the UK finance company.  

(c)

Equity Consideration to Lender.  Borrower shall issue to and register in the name of Thermodynetics, Inc., the Lender, an aggregate of 600 shares of its outstanding common stock at the closing of this Loan; such shares shall be convertible into six (6%) percent of the issued and outstanding capital stock (ordinary shares) on a post initial public offering basis of the publicly traded entity being either Borrower or Borrower's future United Kingdom parent corporation.  Lender, but not its assigns, shall have anti-dilution rights up to said 6% which anti-dilution rights shall expire immediately upon the completion of the initial public offering, provided that said issued shares equal 6% of the issued and outstanding stock on a post initial public offering basis of said publicly traded entity.  As a means to provide the antidilution protection to Lender, Lender will have a warrant or right exercisable at $.0001 per share to purchase up to is 6% interest in AMH-UK on a post-IPO basis in the event there is a differential; in no event shall this right alone provide a right to purchase more than 6% in holdings by Lender.  

(d)

Chief Executive Officer.  The chief executive officer of Borrower shall be Robert A. Lerman for so long as the Loan is outstanding.  

(e)

Equity Consideration to Robert A. Lerman.  Prior to the issuance of the Loan as a part of the CEO compensation package, Borrower or Borrower's UK based parent corporation shall issue to and register in the name of Robert A. Lerman five (5%) percent of the issued and outstanding capital stock (ordinary shares, common stock or preferred stock) on a post initial public offering basis of the publicly traded entity being either Borrower or Borrower's future United Kingdom parent corporation.  Mr. Lerman, but not his assigns, shall have anti-dilution rights up to said 5% interest which anti-dilution rights shall expire immediately upon the completion of the initial public offering, provided that said issued shares equal 5% of the issued and outstanding stock on a post initial public offering basis of said publicly traded entity.  As a means to provide the antidilution protection to Robert A. Lerman, he will have a warrant or right exercisable at $.0001 per share to purchase up to is 5% interest in AMH-UK on a post-IPO basis in the event there is a differential; in no event shall this right alone provide a right to purchase more than 5% in holdings by Robert A. Lerman.  

15.

BORROWER'S NEGATIVE COVENANTS.  Borrower shall not at any time:

(a)

(Subchapter S Corporation) if Borrower is a Subchapter S corporation, make distributions to its shareholders during any fiscal year of Borrower in an aggregate amount at least equal to the amount necessary to pay federal and state income taxes upon Borrower's undistributed income for such year;

(b)

(Disposition of Collateral) sell, assign, exchange or otherwise dispose of any of the Collateral, other than Inventory consisting of (i) scrap, waste, defective goods and the like; (ii) obsolete goods; (iii) finished goods sold in the ordinary course of business or any interest therein to any individual, partnership, trust or other corporation; and (iv) Equipment which is no longer required or deemed necessary for the conduct of Borrower's business, so long as Borrower receives therefor a sum substantially equal to such Equipment's fair value, remits such sum to Lender in accordance with the terms of this Agreement or replaces such Equipment with other equipment of similar value which is subject to a first security interest in Lender's favor; 

(c)

(Liens) create, permit to be created or suffer to exist any lien, encumbrance or security interest of any kind ("Lien") upon any of the Collateral or any other property of Borrower, now owned or hereafter acquired, except: (i) landlords', carriers', warehousemen's, material-man's, mechanics' and other similar liens arising by operation of law in the ordinary course of Borrower's business; (ii) arising out of pledge or deposits under worker's compensation, unemployment insurance, old age pension, social security, retirement benefits or other similar legislation; (iii) purchase money Liens arising in the ordinary course of business for the purchase of equipment (so long as the indebtedness secured thereby does not exceed the lesser of the cost or fair market value of the property subject thereto, and such Lien extends to no other property); (iv) Liens for unpaid taxes that are either (x) not yet due and payable, or (y) are subject of permitted protests; (v) Liens which are the subject of permitted protests; (vi) those Liens, encumbrances and leases set forth on Schedule "B" and Schedule "C" annexed hereto; and (vii) in favor of Lender; the term "permitted protests" as used herein means the right of Borrower to protest any Lien (other than a Lien that secures the Obligations), tax (other than payroll taxes or taxes that are the subject of a federal or state tax lien) or rental payment, provided that (x) a reserve with respect to such liability is established on the books of Borrower in an amount that is reasonably satisfactory to Lender, (y) any such protest is instituted and diligently prosecuted by Borrower in good faith, and (z) Lender is satisfied that, while such protest is pending, there will be no impairment of the enforceability, validity or priority of any of the Liens of Lender in and to the Collateral;

(d)

(Dividends or Distributions) pay any dividends on or make any distribution on account of (except, if Borrower is a Subchapter S corporation, consistent with paragraph (b) above) any class of Borrower's capital stock in cash or in property (other than additional shares of such stock), or redeem, purchase or otherwise acquire, directly or indirectly, any of such stock;

(e)

(Loans) make any loans or advances to any individual, limited liability company, partnership, trust, corporation or other entity, including without limitation Borrower's directors, officers and employees, except advances to officers or employees with respect to expenses not exceeding 1% of their salary and incurred by them in the ordinary course of their duties which are properly reimbursable by Borrower; 

(f)

(Guarantees) assume, guaranty, endorse or otherwise become directly or contingently liable in respect of (including without limitation by way of agreement, contingent or otherwise, to purchase, provide funds to or otherwise invest in a debtor or otherwise to assure a creditor against loss), any indebtedness (except guarantees by endorsement of instruments for deposit or collection in the ordinary course of business and guarantees in favor of Lender) of any individual, partnership, trust or other corporation;

(g)

(Investments) (i) use any loan proceeds to purchase or carry any "margin stock" (as defined in Regulation U of the Board of Governors of the Federal Reserve System) or (ii) invest in or purchase any stock or securities of any individual, partnership, trust or other corporation except (x) readily marketable direct obligations of, or obligations guaranteed by, the United States of America or any agency thereof or (y) time deposits with or certificates of deposit issued by Lender; 

(h)

(Transactions with Affiliates) enter into any lease or other transaction with any shareholder, officer or affiliate on terms any less favorable than those which might be obtained at the time from persons who (or entities which) are not such a shareholder, officer or affiliate;

(i)

(Subsidiaries) sell, transfer or otherwise dispose of any stock or ownership of any subsidiary of Borrower; 

(j)

(Mergers, Consolidations or Sales) (i) merge or consolidate with or into any corporation; (ii) enter into any joint venture or partnership with any person, firm or corporation; (iii) convey, lease or sell all or any material portion of its property or assets or business to any 

other person, firm or corporation, except for the sale of Inventory in the ordinary course of its business; or (iv) convey, lease or sell any of its assets to any person, firm or corporation for less than the fair market value thereof; or

(k)

(Change in Legal Status) (i) Change its name, its place of business or, if more than one, chief executive office, or its mailing address or organizational identification number if it has one, and (ii) change its type of organization, jurisdiction or organization or other legal structure.  If the Borrower does not have an organizational identification number and later obtains one, the Borrower shall forthwith notify the Lender of such organizational identification number.

For purposes of this section: 

"affiliate" shall mean any person or entity (i) which directly or indirectly controls, or is controlled by or is under common control with the Borrower or a subsidiary, (ii) which directly or indirectly beneficially holds or owns five (5%) percent or more of any class of voting stock of the Borrower or any subsidiary, or (iii) five (5%) percent or more of the voting stock of which is directly or indirectly beneficially owned or held by the Borrower or a subsidiary; 

"capital assets" shall mean assets that, in accordance with generally accepted accounting principles, are required or permitted to be depreciated or amortized on the Borrower's balance sheet; 

"control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of any person or entity, whether through the ownership of voting securities, by contract or otherwise; 

"indebtedness" shall mean (i) all liabilities for borrowed money, for the deferred purchase price of property or services, and under leases which are or should be, under generally accepted accounting principles, recorded as capital leases, in respect of which a person or entity is directly or indirectly, absolutely or contingently liable as obligor, guarantor, endorser or otherwise, or in respect of which such person or entity otherwise assures a creditor against loss, (ii) all liabilities of the type described in (i) above which are secured by (or for which the holder has an existing right, contingent or otherwise, to be secured by) any lien upon property owned by such person or entity, whether or not such person or entity has assumed or become liable for the payment thereof, and (iii) all other liabilities or obligations which would, in accordance with generally accepted accounting principles, be classified as liabilities of such person or entity; 

"interest" shall mean, for the applicable period, all interest paid or payable, including, but not limited to, interest paid or payable on indebtedness and on capital leases, determined in accordance with generally accepted accounting principles; 

"senior indebtedness" shall mean any indebtedness which is not subordinated indebtedness; and 

"subordinated indebtedness" shall mean indebtedness which is expressly stated to be subordinated or junior in right of payment to Borrower's Obligations to Lender in a manner and in a form which is satisfactory to Lender.

16.

FINANCIAL SOLVENCY. Both before and after giving effect to all of the transactions contemplated in this Agreement and the related documents, none of the Borrower or its affiliates:

(a)

was or will be insolvent, as that term is used and defined in Section 101(32) of the United States Bankruptcy Code and Section 2 of the Uniform Fraudulent Transfer Act;

(b)

has unreasonably small capital or is engaged or about to engage in a business or a transaction for which any remaining assets of Borrower or such affiliate are unreasonably small;

(c)

by executing, delivering or performing its obligations under this Agreement or other documents to which it is a party or by taking any action with respect thereto, intends to, nor believes that it will, incur debts beyond its ability to pay them as they mature;

(d)

by executing, delivering or performing its obligations under this Agreement or other documents to which it is a party or by taking any action with respect thereto, intends to hinder, delay or defraud either its present or future creditors; and

(e)

at this time contemplates filing a petition in bankruptcy or for an arrangement or reorganization or similar proceeding under any law any jurisdiction, nor, to the best knowledge of Borrower, is the subject of any actual, pending or threatened bankruptcy, insolvency or similar proceedings under any law of any jurisdiction.

17.

DEFAULT; RIGHTS AND REMEDIES UPON DEFAULT.  

(a)

Upon the occurrence of any one or more of the following events (herein, "Events of Default"), any and all Obligations of Borrower to Lender shall become immediately due and payable, at the option of Lender and without notice or demand.  The occurrence of any such Event of Default shall also constitute, without notice or demand, a default under all other agreements between Lender and Borrower and instruments and papers given Lender by Borrower, whether such agreements, instruments, or papers now exist or hereafter arise, namely:

(i)

The failure by Borrower to pay upon demand (or when due, if not payable on demand) any amount due under this Agreement.

(ii)

The failure by Borrower to pay upon demand (or when due, if not payable on demand) any other Obligations. 

(iii)

The failure by Borrower to promptly, punctually and faithfully perform, or observe any term, covenant or agreement on its part to be performed or observed pursuant to any of the provisions of this Agreement.

(iv)

The determination by Lender that any material representation or warranty heretofore, now or hereafter made by Borrower to Lender, in any documents, instrument, agreement, or paper was not true or accurate when given.

(v)

The occurrence of any event such that any indebtedness of Borrower from any lender other than Lender could be accelerated, notwithstanding that such acceleration has not taken place.

(vi)

The occurrence of any event which would cause a lien creditor, as that term is defined in Section 9!102 of the Code, to take priority over advances made by Lender.

(vii)

A filing against or relating to Borrower of (A) a federal tax lien in favor of the United States of America or any political subdivision of the United States of America, or (B) a state tax lien in favor of any state of the United States of America or any political subdivision of any such state and the failure of such lien to be released within sixty (60) days.

(viii)

The occurrence of any event of default under any agreement between Lender and Borrower or instrument or paper given Lender by Borrower, whether such agreement, instrument, or paper now exists or hereafter arises (notwithstanding that Lender may not have exercised its rights upon default under any such other agreement, instrument or paper).

(ix)

Any act by, against, or relating to Borrower, or its property or assets, which act constitutes the application for, consent to, or sufferance of the appointment of a receiver, trustee or other person, pursuant to court action or otherwise, over all, or any part of Borrower's property.

(x)

The granting of any trust mortgage or execution of an assignment for the benefit of the creditors of Borrower, or the occurrence of any other voluntary or involuntary liquidation or extension of debt agreement for Borrower; the failure by Borrower to generally pay the debts of Borrower as they mature; adjudication of bankruptcy or insolvency relative to Borrower; the entry of an order for relief or similar order with respect to Borrower in any proceeding pursuant to Title 11 of the United States Code entitled "Bankruptcy" (the "Bankruptcy Code") or any other federal bankruptcy law; the filing of any complaint, application, or petition by or against Borrower initiating any matter in which Borrower is or may be granted any relief from the debts of Borrower pursuant to the Bankruptcy Code or any other insolvency statute or procedure; the calling or sufferance of a meeting of creditors of Borrower; the meeting by Borrower of a formal or informal creditor's committee; the offering by or entering into by Borrower of any composition, extension or any other arrangement seeking relief or extension for the debts of Borrower, or the initiation of any other judicial or non!judicial proceeding or agreement by, against or including Borrower which seeks or intends to accomplish a reorganization or arrangement with creditors.

(xi)

The entry of any judgment against Borrower, which judgment is not satisfied or appealed from (with execution or similar process stayed) within thirty (30) days of its entry.

(xii)

The occurrence of any event or circumstance with respect to Borrower such that Lender shall believe in good faith that the prospect of payment of all or any part of the Obligations or the performance by Borrower under this Agreement or any other agreement between Lender and Borrower is materially impaired or there shall occur any material adverse change in the business or financial condition of Borrower.

(xiii)

The entry of any court order which enjoins, restrains or in any way prevents Borrower from conducting all or any part of its business affairs in the ordinary course of business.

(xiv)

The service of any process upon Lender seeking to attach by trustee process any funds of Borrower on deposit with Lender.

(xv)

Any change in the identity, authority or responsibilities of any person having management or policy authority with respect to Borrower and/or any direct or indirect change in the ownership of the capital stock of Borrower from that existing at the execution of this Agreement.

(xvi)

The occurrence of any uninsured loss, theft, damage or destruction to any material asset(s) of Borrower.

(xvii)

Any act by or against, or relating to Borrower or its assets pursuant to which any creditor of Borrower seeks to reclaim or repossess or reclaims or repossesses all or a portion of Borrower's assets.

(xviii)

The death, termination of existence, dissolution, or liquidation of Borrower or the ceasing to carry on actively any substantial part of Borrower's proposed business, or the failure to commence Borrower's proposed business operations within ninety (90) days of the initial funding of the Loan.

(xix)

This Agreement shall, at any time after its execution and delivery and for any reason, cease (A) to create a valid and perfected first priority security interest in and to the property purported to be subject to this Agreement; or (B) to be in full force and effect or shall be declared null and void, or the validity or enforceability hereof shall be contested by Borrower or any guarantor of Borrower denies it has any further liability or obligation hereunder.

(xx)

Any of the following events occur or exist with respect to Borrower or any ERISA affiliate: (A) any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Internal Revenue Code) involving any Plan; (B) any "reportable event" (as defined in Section 4043 of ERISA and the regulations issued under such Section) shall occur with respect to any Plan; (C) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (D) any event or circumstance exists which might constitute grounds entitling the Pension Benefit Guaranty Corporation (PBGC) to institute proceedings under Section 4042 of ERISA for the termination of, or for the appointment of a trustee to administer, any Plan, or the institution by the PBGC of any such proceedings; (E) or partial withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan or the reorganization, insolvency, or termination of any Multiemployer Plan; and in each case above, such event or condition, together with all other events or conditions, if any, could in the opinion of Lender subject Borrower to any tax, penalty, or other liability to a Plan, a Multiemployer Plan, the PBGC, or otherwise.

 

(xxi)

The occurrence of any of the foregoing Events of Default with respect to any guarantor, endorser, or surety to Lender of the Obligations, as if such guarantor, endorser or surety, were the "Borrower" described therein.

(xxii)

The termination of any guaranty by any guarantor of the Obligations.

(xxiii)

The termination for any reason of Lender's nominee as a director on the Board of Directors of Borrower.

(xxiv)

The termination for any reason of Robert A. Lerman as the chief executive officer of Borrower, unless Mr. Lerman is at that time no longer the chief executive officer of Lender.

Upon the occurrence of an Event of Default, Lender may declare any obligation Lender may have hereunder to be cancelled, declare all Obligations of Borrower to be due and payable and proceed to enforce payment of the Obligations and to exercise any and all of the rights and remedies afforded to Lender by the Uniform Commercial Code or under the terms of this Agreement or otherwise.  In addition, upon the occurrence of an Event of Default, if Lender proceeds to enforce payment of the Obligations, Borrower shall be obligated to deliver to Lender cash collateral in an amount equal to the aggregate amounts then undrawn on all outstanding Letters of Credit or acceptances issued or guaranteed by Lender for the account of Borrower, and Lender may proceed to enforce payment of the same and to exercise all rights and remedies afforded to Lender by the Uniform Commercial Code or under the terms of this Agreement or otherwise. Upon the occurrence of, and during the continuance of, an Event of Default, Borrower, as additional compensation to Lender for its increased credit risk, promises to pay interest on all Obligations (including, without limitation, principal, whether or not past due, past due interest and any other amounts past due under this Agreement) at a default rate per annum rate of six (6%) percent greater than the rate of interest then specified in Section 5 of this Agreement.

(b)

Any sale or other disposition of the Collateral may be at public or private sale upon such terms and in such manner as Lender deems advisable, having due regard to compliance with any statute or regulation which might affect, limit or apply to Lender's disposition of the Collateral.  Lender may conduct any such sale or other disposition of the Collateral upon Borrower's premises.  Unless the Collateral is perishable or threatens to decline speedily in value, or is of a type customarily sold on a recognized market (in which event Lender shall provide Borrower with such notice as may be practicable under the circumstances), Lender shall give Borrower at least the greater of the minimum notice required by law or seven (7) days prior written notice of the date, time and place of any proposed public sale, and of the date after 

which any private sale or other disposition of the Collateral may be made.  Lender may purchase the Collateral, or any portion of it at any public sale.

(c)

If the Lender sells any of the Collateral on credit, the Borrower will be credited only with payments actually made by the purchaser of such Collateral and received by the Lender.  If the purchaser fails to pay for the Collateral, the Lender may re-sell the Collateral and the Borrower shall be credited with the proceeds of the sale.

(d)

In connection with Lender's exercise of Lender's rights under this Agreement, Lender may enter upon, occupy and use any premises owned or occupied by Borrower, and may exclude Borrower from such premises or portion thereof as may have been so entered upon, occupied, or used by Lender.  Lender shall not be required to remove any of the Collateral from any such premises upon Lender's taking possession thereof, and may render any Collateral unusable to Borrower.  In no event shall Lender be liable to Borrower for use or occupancy by Lender of any premises pursuant to this Agreement.

(e)

Upon the occurrence of any Event of Default, Lender may require Borrower to assemble the Collateral and make it available to Lender at Borrower's sole risk and expense at a place or places which are reasonably convenient to both Lender and Borrower.

(f)

Lender may at any time notify account debtors that Collateral has been assigned to Lender and that payments shall be made directly to Lender.  Upon request of Lender at any time, Borrower shall so notify such account debtors and shall indicate on all billings to such account debtors that their Accounts must be paid to Lender.  Lender shall have full power to collect, compromise, endorse, sell or otherwise deal with the Collateral or proceeds thereof in its own name or in the name of Borrower.  

18.

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

section shall be construed to grant any rights to Borrower or to impose any duties on Lender that would not have been granted or imposed by this Agreement or by applicable law in the absence of this section.  

19.

PROCESSING AND SALES OF INVENTORY.  So long as Borrower is not in default hereunder, Borrower shall have the right, in the regular course of business, to process and sell Borrower's Inventory.  A sale in the ordinary course of business shall not include a transfer in total or partial satisfaction of a debt.

20.

WAIVER OF JURY TRIAL.  BORROWER AND LENDER EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE OR HEREAFTER HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.  Borrower hereby certifies that neither Lender nor any of its representatives, agents or counsel has represented, expressly or otherwise, that Lender would not, in the event of any such suit, action or proceeding, seek to enforce this waiver of right to trial by jury.  Borrower acknowledges that Lender has been induced to enter into this Agreement by, among other things, this waiver.  Borrower acknowledges that it has read the provisions of this Agreement and in particular, this section; has consulted legal counsel; understands the right it is granting in this Agreement and is waiving in this section in particular; and makes the above waiver knowingly, voluntarily and intentionally.

21.

CONNECTICUT PREJUDGMENT REMEDY WAIVER.  EACH BORROWER ACKNOWLEDGES THAT THE TRANSACTIONS REPRESENTED BY THIS AGREEMENT ARE COMMERCIAL TRANSACTIONS AND HEREBY VOLUNTARILY AND KNOWINGLY WAIVES ANY RIGHTS TO NOTICE OF AND HEARING ON PREJUDGMENT REMEDIES UNDER CHAPTER 903A OF THE CONNECTICUT GENERAL STATUTES OR OTHER STATUTES AFFECTING PREJUDGMENT REMEDIES, AND AUTHORIZES THE LENDER'S ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT COURT ORDER, PROVIDED THE COMPLAINT SHALL SET FORTH A COPY OF THIS WAIVER. 

22.

CONSENT TO JURISDICTION.  Borrower and Lender agree that any action or proceeding to enforce or arising out of this Agreement may be commenced in any court of the State of Connecticut sitting in the County of Hartford, or in the District Court of the United States for the District of Connecticut, and Borrower waives personal service of process and agrees that a summons and complaint commencing an action or proceeding in any such court shall be properly served and confer personal jurisdiction if served by registered or certified mail to Borrower, or as otherwise provided by the laws of the State of Connecticut or the United States of America.

23.

TERMINATION.  This Agreement may be terminated at any time by either party giving written notice of termination to the other party; provided, however, that unless and until all loans made by Lender to Borrower hereunder and all other Obligations or commitments of Lender under which an Obligation could arise, outstanding as of the time of giving or receipt as the case may be, of such notice by Lender have been paid in full, such termination shall in no way affect the security interest or other rights and powers herein granted to Lender, and until such payment in full the security interest of Lender in all Inventory, Accounts and other Collateral of Borrower, whether existing as of the time of such termination or thereafter arising, and all rights and powers herein granted to Lender in respect thereof shall remain in full force and effect.  Until all of the Obligations of Borrower to Lender have been fully paid and satisfied and all commitments of Lender under which an Obligation could arise have expired, Borrower shall continue to assign Accounts to Lender, turn over all collections to Lender in kind and otherwise fully comply with the terms and conditions of this Agreement as herein provided.  Prior to such payment in full of all of the Obligations of Borrower to Lender, this Agreement shall be a continuing agreement in every respect.  

24.

MISCELLANEOUS.

(a)

No delay or omission on the part of Lender in exercising any rights shall operate as a waiver of such right or any other right. Waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion.  All Lender's rights and remedies, whether evidenced hereby or by any other agreement, instrument or paper, shall be cumulative and may be exercised singularly or concurrently. 

(b)

Lender is authorized to make loans under the terms of this Agreement upon the request, either written or oral, in the name of Borrower or any authorized person whose name appears at the end of this Agreement or of any of the following named person, or persons, from time to time, holding the following offices of Borrower, President, Treasurer and such other officers and authorized signatories as may from time to time be set forth in separate resolutions. 

(c)

This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties hereto; provided, however, that Borrower may not assign this Agreement or any rights or duties hereunder without Lender's prior written consent and any prohibited assignment shall be absolutely void.  No consent to an assignment by Lender shall release Borrower from its Obligations.  Lender may assign this Agreement and its rights and duties hereunder and no consent or approval by Borrower is required in connection with any such assignment.  Lender reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in Lender's rights and benefits hereunder.  In connection with any assignment or participation, Lender may disclose all documents and information which Lender now or hereafter may have relating to Borrower or Borrower's business.  To the extent that Lender assigns its rights and obligations hereunder to another party, Lender thereafter shall be released from such assigned obligations to Borrower and such assignment shall effect a novation between Borrower and such other party.

(d)

Borrower agrees that any and all loans made by Lender to Borrower or for its account under this Agreement shall be conclusively deemed to have been authorized by Borrower and to have been made pursuant to duly authorized requests therefor on its behalf.

(e)

Unless otherwise defined in this Agreement, capitalized words shall have the meanings set forth in the Uniform Commercial Code as in effect in the State of Connecticut as of the date of this Agreement.

(f)

Paragraph and section headings used in this Agreement are for convenience only, and shall not effect the construction of this Agreement.  If one or more provisions of this Agreement (or the application thereof) shall be invalid, illegal or unenforceable in any respect in any jurisdiction, the same shall not, invalidate or render illegal or unenforceable such provision (or its application) in any other jurisdiction or any other provision of this Agreement (or its application).  This Agreement is the entire agreement of the parties with respect to the subject matter hereof and supersedes any prior written or verbal communications or instruments relating thereto.

(g)

Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other loan document shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt requested ), or overnight courier to Borrower or to Lender, as the case may be, at its address set forth below:

If to Lender:

Thermodynetics, Inc. 

651 Day Hill Road

Windsor, Connecticut 06095

Attn:

Robert A. Lerman, President and

Chief Executive Officer 

Telephone:

(860) 683-2005

Telecopier:

(860) 285-0139

And a copy to:

Kenneth B. Lerman, P.C.

651 Day Hill Road

Windsor, Connecticut 06095

If to Borrower two copies separately delivered:

Tower Structures, Inc. 

370 South Main Street

Terryville, Connecticut 06786

Attn:

John Leader, Chairman 

and 

Attn:

Robert A. Lerman, President and

Chief Executive Officer 

Telephone:

(860) 585-8224

Telecopier:

(860) _______

And a copy to:

Aaron Gersten, Esquire

Gersten & Gersten

234 Pearl Street

Hartford, Connecticut 06103

The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.  All notices or demand sent in accordance with this section shall be deemed received on the earlier of the date of actual receipt or three (3) days after the deposit thereof in the mail.

(h)

Lender shall have no obligation to maintain any electronic records or any documents, schedules, invoices, agings or any other paper delivered to Lender by Borrower in connection with this Agreement or any other agreement for more than four (4) months after receipt of the same by Lender.

(i)

Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Lender or Borrower, whether under any rule of construction or otherwise.  On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto.

(j)

Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.

(k)

This Agreement, together with the other documents and instruments executed concurrently herewith represent the entire and final understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by evidence of any prior, contemporaneous or subsequent other agreement, oral or written, before the date hereof.

(l)

This Agreement can only be amended by a writing signed by both Lender and Borrower.

(m)

The laws of Connecticut shall govern the construction of this Agreement and the rights and duties of the parties hereto.  This Agreement shall take effect as a sealed instrument.

			
	                                                          

	BORROWER:

	 
	 
	 

	 
	Tower Structures, Inc. 

	 
	 
	 

	 
	 
	 

	 
	 
	 

	 
	By: 

	 

	 
	 
	John Leader, Vice President 

	 
	 
	Duly authorized by its Board of Directors

	 
	 
	 

	 
	 
	 

	 
	LENDER:

	 
	 
	 

	 
	Thermodynetics, Inc. 

	 
	 
	 

	 
	 
	 

	 
	 
	 

	 
	By:

	 

	 
	 
	John F. Ferraro, Chairman

	 
	 
	Duly authorized by its Board of Directors

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