Document:

CONFIDENTIAL
      TREATMENT - Asterisked material has been omitted and filed separately with
      the
      Securities and Exchange Commission pursuant to a request for confidential
      treatment.

     

    DEVELOPMENT,
      MANUFACTURING AND SUPPLY AGREEMENT

    

    This
      Development, Manufacturing and Supply Agreement (the “Agreement”), dated this
      28th
      day of
      April, 2006, is made between Cure Therapeutics, Inc. ("CTI"), and Hercon
      Laboratories Corporation, a Delaware corporation ("Hercon"). 

    

    RECITALS

    

    
      	
              A.

            	
              CTI
                owns or has licensed certain patented technology (US Patent # * and
                # *,
                Applications # * and # * and PCT Application # *), relating to the
                use of
                * to treat overuse * (as defined below, the “Clinical Trial
                Products”).

            

    

    

    
      	
              B.

            	
              Hercon
                will perform development and related manufacturing services for CTI
                leading to the manufacture of Clinical Trial
                Products.

            

    

    

    In
      consideration of the foregoing premises, and the mutual covenants and
      obligations set forth herein, CTI and Hercon hereby agree as
      follows:

    

    ARTICLE
      1

    DEFINITIONS

    

    
      	
              1.1

            	
              “Affiliate”
                shall mean, with respect to any party, any person or entity which,
                directly or indirectly through one or more intermediaries, controls,
                is
                controlled by, or is under common control with, such party. A person
                or
                entity shall be deemed to control a corporation (or other entity)
                if such
                person or entity possesses, directly or indirectly, the power to
                direct or
                cause the direction of the management and policies of such corporation
                (or
                other entity) whether through the ownership of voting securities,
                by
                contract or otherwise.

            

    

    

    
      	
              1.2

            	
              “Nitroglycerin
                Adhesive Mixture”
                shall mean the adhesive mixture containing nitroglycerin as the active
                ingredient sourced from a third party base
                supplier.

            

    

    

    
      	
              1.3

            	
              “Clinical
                Trial Products”
                shall mean the formulations, and only such formulations as supplied
                by
                CTI, of Nitroglycerin Adhesive Mixture in such strengths as shall
                provide
                for delivery of * mg/hour to * mg/hour of GTN (glyceryl trinitrate)
                (and
                such other delivery strengths as the Parties may agree upon in writing)
                in
                patch form for transdermal administration to meet the Product
                Specifications.

            

    

    

    
      	
              1.4

            	
              “Product
                Specifications”
                shall mean the specifications for the Clinical Trial Products as
                shall be
                mutually agreed between the parties in writing and attached as Exhibit
                A
                hereto, and shall include (as applicable) statements of pharmaceutical
                manufacturing, filling, storage and quality control procedures, and
                labeling and packaging specifications (as such may be revised from
                time to
                time in accordance with the terms of this Agreement by written agreement
                executed by the parties).

            

    

    

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    
      	
              1.5

            	
              “Confidential
                Information”
                shall mean, with respect to a party, all information of any kind
                whatsoever (including without limitation, the Intellectual Property,
                data,
                compilations, formulae, models, patent disclosures, procedures, processes,
                projections, protocols, results of experimentation and testing,
                specifications, strategies and techniques), and all tangible and
                intangible embodiments thereof of any kind whatsoever (including
                without
                limitation, apparatus, compositions, documents, drawings, machinery,
                patent applications, records and reports), which is disclosed by
                such
                party to the other party and is marked, identified as or otherwise
                acknowledged in written or tangible form to be confidential at the
                time of
                disclosure to the other party. Notwithstanding the foregoing, Confidential
                Information of a party shall not include information which the other
                party
                can establish by written documentation (a) to have been publicly
                known
                prior to disclosure of such information by the disclosing party to
                the
                other party, (b) to have become publicly known, without fault on
                the part
                of the other party, subsequent to disclosure of such information
                by the
                disclosing party to the other party, (c) to have been received by
                the
                other party at any time from a source, other than the disclosing
                party,
                rightfully having possession of and the right to disclose such
                information, (d) to have been otherwise known by the other party
                prior to
                disclosure of such information by the disclosing party to the other
                party,
                or (e) to have been independently developed by employees or agents
                of the
                other party without the use of such information disclosed by the
                disclosing party to the other
                party.

            

    

    

    
      	
              1.6

            	
              “Drug
                Master File”
                shall mean the Drug Master File for manufacturing the active
                pharmaceutical ingredient or other raw materials used in the Clinical
                Trial Products, filed with the FDA, and the equivalent filing with
                any
                other country, as same may be amended from time to
                time.

            

    

    

    
      	
              1.7

            	
              “FDA”
                shall mean the United States Food and Drug Administration, and any
                successor agency thereto.

            

    

    

    
      	
              1.8

            	
              “GMP”
                shall mean current Good Manufacturing Practices promulgated by the
                FDA,
                and their equivalent promulgated by the governing health authority
                of any
                other country in which the Clinical Trial Products manufactured by
                Hercon
                under this Agreement are to be sold by CTI, as the same may be amended
                from time to time. 

            

    

    

    
      	
              1.9

            	
              “Intellectual
                Property”
                shall mean rights, including, without limitation, any licensed rights,
                existing as of the date hereof and as may be developed hereafter
                in and to
                all confidential or proprietary information, trade secrets, patent
                rights,
                technology, know-how, developments, improvements, techniques, data,
                methods, processes, instructions, formulae, recipes, drawings and
                specifications necessary to manufacture and supply the Clinical Trial
                Products hereunder.

            

    

    

    
      	
              1.10

            	
              “Label”,
                “Labeled”
                or “Labeling”
                shall mean (i) all labels and other written, printed or graphic matter
                upon the Clinical Trial Products or upon any container or wrapper
                utilized
                with the Clinical Trial Products, or (ii) any written material
                accompanying the Clinical Trial Products, including, without limitation,
                package inserts.

            

    

    

    

    
      
        
           

        

        
          2

          
            

          

        

        
           

        

      

    

    

    
      	
              1.11

            	
              “Limited
                Warranty”
                shall have the meaning defined in Section 4.4(c)
                hereof.

            

    

    
      	 	 

      	
              1.12

            	
              “Packaging”
                shall mean all primary containers, cartons, shipping cases or any
                other
                like matter used in packaging or accompanying the Clinical Trial
                Products.

            

    

    

    
      	
              1.13

            	
              “Parties”
                shall mean CTI and Hercon and their respective successors and assigns.
                

            

    

    

    
      	
              1.14

            	
              “Person”
                shall mean an individual, corporation, partnership, limited liability
                company, trust, business trust, association, joint stock company,
                joint
                venture, pool, syndicate, sole proprietorship, unincorporated
                organization, governmental authority or any other form of entity
                not
                specifically listed herein.

            

    

    

    
      	
              1.15

            	
              “Product
                NDA”
                shall mean the New Drug Application relating to the Clinical Trial
                Products as may be filed with the FDA by CTI, and any supplements
                thereto.

            

    

    

    
      	
              1.16

            	
              “Regulatory
                Dossiers”
                shall mean all registrations, permits, licenses, authorizations,
                approvals, presentations, notifications or filings (together with
                all
                applications therefor), if any, which are filed with or granted by
                the
                governing health authority of any country, including the FDA, and
                which
                are required to develop, make, use, sell, import or export the Clinical
                Trial Products, other than the Drug Master
                File.

            

    

    

    
      	
              1.17

            	
              “Territory”
                shall mean the United States of America (including all of its states,
                Puerto Rico, the District of Columbia, and all territories, dependencies,
                and possessions of the United States) and such additional countries
                as may
                be added from time to time by mutual written agreement of the parties
                hereto.

            

    

    

    
      	
              1.18

            	
              “Process”
                or “Processing”
                shall mean the act of manufacturing, handling, storing, analyzing,
                testing, filling, finishing, packaging, inspecting, labeling and
                preparing
                for shipment of Clinical Trial Products by Hercon pursuant to this
                Agreement and shall include, without limitation, optimization of
                the
                formulation of or process by which the Clinical Trial Products are
                made.
                Processing shall also include all tasks and services set forth on
                Exhibit
                B hereto.

            

    

    

    ARTICLE
      2

    OBLIGATIONS

    

    
      	
              2.1

            	
              Obligations
                of Hercon.
                Hercon shall perform all Processing, including all tasks and services
                set
                forth on Exhibit B hereto, in accordance with this Agreement. Without
                limiting the generality of the foregoing, Hercon’s obligations shall
                include the following: 

            

    

    

    
      	 	
              (a)

            	
              Regulatory
                Compliance.
                Promptly upon execution of this Agreement, Hercon shall apply for
                or
                extend, and throughout the term of this Agreement Hercon shall maintain
                and remain in compliance with, all Regulatory Dossiers required in
                the
                Territory for Hercon’s Processing of the Clinical Trial Products
                hereunder, including all necessary licenses, permits and approvals
                required by the FDA and/or other regulatory agencies in connection
                with
                the manufacture, filling, packaging, storage, and shipment of the
                Clinical
                Trial Products.

            

    

    

    

    
      
        
           

        

        
          3

          
            

          

        

        
           

        

      

    

    

    
      	 	
              (b)

            	
              Reporting.
                Hercon shall keep CTI fully informed of the status of the Processing
                of
                the Clinical Trial Products including providing written reports at
                reasonable frequencies to CTI upon request, stating in reasonable
                detail
                all efforts made and in process, and all significant progress achieved
                and
                material difficulties encountered in the Processing of the Clinical
                Trial
                Products since the last such report. In addition, verbal reporting
                can be
                regularized, such as every week or every other week, upon CTI’s request.
                Hercon shall (i) provide CTI with access to all technical information
                employed in or arising out of Hercon’s Processing of the Clinical Trial
                Products; and (ii) provide such other information concerning the
                Processing of Clinical Trial Products as CTI shall reasonably request.
                Hercon will designate a primary project contact with respect to the
                Clinical Trial Products throughout the performance of the Processing
                of
                the Clinical Trial Products pursuant to this Section 2.1 to answer
                any
                reasonable questions from CTI. 

            

    

    

    
      	 	
              (c)

            	
              Generation
                and Maintenance of Data and Records for Product NDA Filing and as
                Required
                by Law.
                Hercon shall be responsible for generation and maintenance of all
                product
                manufacturing related data required for the filing by CTI of the
                Product
                NDA with the FDA, including, without limitation, data relating to
                product
                specifications, analytical methods, stability data, process validation
                and
                manufacturing processes and instructions. Upon the reasonable request
                of
                CTI, Hercon promptly shall provide CTI with such information, samples
                and
                technical assistance, and otherwise cooperate with CTI, in connection
                with
                the preparation, prosecution and maintenance of the Product NDA.
                In
                addition, Hercon shall maintain, for a period of at least three (3)
                years
                from the manufacturing date or longer if required under applicable
                laws or
                regulations, complete, true and accurate books, records, test and
                laboratory data, reports and all other information relating to the
                services performed by Hercon under this Agreement, including technical
                records pertaining to the methods, facilities and equipment used
                for
                Processing of Clinical Trial Products, in accordance with all applicable
                laws and regulations.

            

    

     

    
      	2.2	
              Milestone
                Payments to Hercon.
                Subject to the achievement of the applicable milestones provided
                in
                Section 3.1, in consideration of technology transfer review, formulation
                optimization and scale-up work, Clinical Trial Products manufacture
                and
                other services to be performed by Hercon under this Agreement, CTI
                shall
                pay Hercon the milestone payments set forth in Section 3.1, provided
                the
                scope of the project with respect to the clinical supplies outlined
                in
                Exhibit C does not change.

            

    

    

    
      	
              2.3

            	
              Funding
                of the Safety and Efficacy Studies by CTI. CTI
                shall, at its own cost and expense, engage a contract research
                organization to conduct the safety and efficacy studies of Clinical
                Trial
                Products. In the event that the study fails to demonstrate the safety
                or
                the efficacy of the Clinical Trial Products, then CTI shall have
                the right
                to terminate this Agreement as provided in Section
                11.2.

            

    

    

    

    
      
        
           

        

        
          4

          
            

          

        

        
           

        

      

    

    

    
      	
              2.4

            	
              Filing
                of a Product NDA.
                Subject to Hercon’s assistance as set forth in Section 2.1 above, CTI
                shall, at its own cost and expense, prepare, file and prosecute the
                Product NDA with the FDA.

            

    

    

    ARTICLE
      3

    MILESTONE
      PAYMENTS; PRICE AND PAYMENT TERMS

    

    
      	
              3.1

            	
              Milestone
                Payments.
                For
                the services rendered to CTI by Hercon under this
                Agreement, CTI shall remit to Hercon the following milestone payments:
                

            

    

    
      	 	 
	
              MILESTONE

            	
              PAYMENT
                AMOUNT

            
	
              1
                A. 5
                days after the Execution of this Agreement 

            	
              $*

            
	
              1
                B. The
                latest date of completion of all of the following: Completion of
                conversion to Hercon methodology, order components, dedicated tooling,
                drawings, documentation records, testing/release; Completion of analytical
                validation; and Completion of full scale-up, including non-GMP run
                and
                testing, and commencement of informal stability testing

            	
              $*

            
	
              Subtotal
                for Stage 1

            	
              $*

            
	
              2
                A.  Initiation
                of clinical trial batch manufacture

            	
              $*

            
	
              2
                B.  Completion
                of Phase 2 dose-ranging study clinical trial batch manufacture, completion
                of testing/release, commencement of stability testing

            	
              $*

            
	
              2
                C.  Completion
                of 3 months accelerated and non-accelerated stability testing, with
                2 year
                room temperature testing ongoing

            	
              $*

            
	
              Subtotal
                for Stage 2

            	
              $*

            
	
              3
                A.  Initiation
                of clinical trial batch manufacture

            	
              $*

            
	
              3
                B.  Completion
                of Phase 3 pivotal study clinical trial batch manufacture, completion
                of
                testing/release, commencement of stability testing

            	
              $*

            
	
              Subtotal
                for Stage 3

            	
              $*

            
	
              TOTAL

            	
              $*

            

    

     

    
      	 	
              Milestone
                payments reflect the total cost of Nitroglycerin Adhesive Mixture,
                materials and effort to complete Processing of the Clinical Trial
                Products. Hercon recognizes that unexpected difficulties may arise
                during
                any stage of this work, and guarantees and agrees that the milestone
                payments will never exceed the payments specified in Section
                3.1.

            

    

    

    Each
      of
      the above-referenced milestone payments shall only be payable once no later
      than
      thirty (30) days from the date of invoices therefor issued to CTI by Hercon,
      with the exception of milestone 1 A above, which shall be payable once, no
      later
      than five (5) days from the date of the execution of this Agreement. A more
      detailed description of each milestone is set forth on Exhibit B hereto. Hercon
      shall not issue any invoice prior to the achievement of the applicable milestone
      above and the receipt of the milestone payments is expressly conditioned on
      Hercon providing CTI with such invoices and with all necessary documentation
      and
      data requested by CTI in order to determine the achievement of any such
      milestone. 

    

    

    
      
        
           

        

        
          5

          
            

          

        

        
           

        

      

    

    

    ARTICLE
      4

    MANUFACTURING
      CLINICAL TRIAL PRODUCTS

    

    
      	
              4.1

            	
              Clinical
                Trial Products Supply and Purchase Obligations.
                CTI understands and agrees that Hercon does not warrant or commit
                that the
                Clinical Trial Products will receive applicable regulatory approval
                or be
                successfully marketed and commercialized. For the life of the patents
                referenced in the Recitals to this Agreement, Hercon is precluded
                from
                manufacturing or supplying the Clinical Trial Products to any Person
                other
                than CTI or any licensee or transferee of CTI’s Intellectual
                Property.

            

    

    

    
      	4.2	
              Manufacturing
                Practices.

            

    

    

    
      	(a)	
              Clinical
                Trial Product Specifications.
                Hercon shall manufacture, fill, assemble, warehouse and otherwise
                Process
                (except for labeling) the Clinical Trial Products in conformity with
                the
                Product Specifications and in accordance with all applicable laws
                and
                regulations, including the U.S. Federal Food, Drug and Cosmetic
                Act,
                21 U.S.C. §301 et
                seq.
                and regulations promulgated thereunder.

            

    

    

    
      	
              (b)

            	
              GMP.
                Hercon shall manufacture the Clinical Trial Products in accordance
                with
                GMP. Hercon shall advise CTI in writing of any proposed process changes
                that have regulatory implications prior to their implementation by
                Hercon.
                CTI shall have the right, at its sole expense, to audit Hercon for
                compliance with GMP on reasonable notice during normal business hours
                at
                least once in each calendar year, and more often in CTI’s reasonable
                discretion.

            

    

    

    
      	
              (c)

            	
              Nitroglycerin
                Adhesive Mixture.
                Hercon shall supply and use the Nitroglycerin Adhesive Mixture by
                sourcing
                such ingredient from the third party base supplier set forth in the
                Product Specifications.

            

    

     

    
      	
              (d)

            	
              Certificates
                of Analysis.
                Hercon shall provide CTI with a certificate of analysis for each
                shipment
                of the Clinical Trial Products manufactured and supplied hereunder
                based
                upon a reference standard established by Hercon and reasonably acceptable
                to CTI. Such certificate of analysis shall, at a minimum, list the
                tests
                performed by or on behalf of Hercon, test specifications and test
                results.
                In addition, a statement will be made that the Clinical Trial Products
                were manufactured in accordance with
                GMP(s).

            

    

    

    
      	
              (e)

            	
              Quality
                Control Information.
                Hercon shall perform quality control tests to ensure that the Clinical
                Trial Products are produced in accordance with GMP and all applicable
                laws
                and regulations, including the U.S. Federal Food, Drug and Cosmetic
                Act,
                21 U.S.C. §301 et
                seq.
                and regulations promulgated thereunder, and
                conform to the Product Specifications. Upon the written request of
                CTI,
                Hercon shall provide CTI with the results of such quality control
                tests
                and such other information, including other analytical and manufacturing
                documentation, reasonably requested by CTI, regarding quality control
                of
                the Clinical Trial Products supplied hereunder. Hercon
                shall notify CTI as soon as practicable after Hercon identifies any
                manufacturing or testing deviations, and shall provide CTI with complete
                records of any investigations, reports and the like pertaining to
                such
                deviations.

            

    

    

    

    
      
        
           

        

        
          6

          
            

          

        

        
           

        

      

    

    

    
      	
              (f)

            	
              Packaging
                Control.
                In
                addition to its obligations pursuant to Sections 4.2 (d) and (e),
                Hercon
                will evaluate and inspect each batch of Clinical Trial Products in
                accordance with Packaging guidelines set forth in the Product
                Specifications and will provide CTI with a Clinical Trial Products
                lot
                release.

            

    

    

    
      	
              (g)

            	
              Compliance
                with Laws.
                Hercon shall develop and manufacture all Clinical Trial Products
                in
                accordance with the Product Specifications. All Clinical Trial Products
                shall be stored and packaged in accordance with the requirements
                of all
                applicable laws and the rules and regulations of the FDA or other
                regulatory authority promulgated thereunder. Clinical Trial Products
                shall, at the time of shipment and while in the custody and control
                of
                Hercon, not be adulterated, misbranded, misused, contaminated, tampered
                with or otherwise altered, mishandled, or subjected to negligence
                and
                shall conform to the Product
                Specifications.

            

    

    

    
      	
              (h)

            	
              Inspection.
                CTI, or its designee, may, at its own expense, with prior reasonable
                notice and during regular business hours, visit the facilities used
                by
                Hercon to manufacture, store or otherwise Process Clinical Trial
                Products
                to (i) review the Clinical Trial Products related records and the
                facilities, (ii) inspect, observe and audit the Processing of Clinical
                Trial Products, and (iii) examine the condition of the Clinical Trial
                Products and materials used in the
                Processing.

            

    

    

    
      	
              (i)

            	
              Sample
                Retention.
                Hercon shall retain samples of each batch of Clinical Trial Products
                at
                Hercon’s facility at no cost to CTI until the date that is three (3) years
                after completion of Processing of each such batch (or for such longer
                period as may be required by applicable regulatory authorities or
                applicable laws or regulations). 

            

    

    

    
      	4.3	
              Labeling
                and Packaging.

            

    

    

    
      	
              (a)

            	
              Labeling.
                The Clinical Trial Products will be labeled by a third party provider
                nominated by CTI. Hercon shall label corrugated cases and pain white
                cartons in regards to the dose, however Hercon will not be required
                to
                provide full labeling required for clinical trial purposes. Other
                than the
                labeling described in 4.3(a), Hercon shall have no liability for
                misbranding or otherwise arising out of or relating to the labeling
                of the
                Clinical Trial Products.

            

    

    

    
      	
              (b)

            	
              Packaging.
                Hercon shall supply Packaging which includes, at a minimum, plain
                white
                packaging and plain white cartons packaged in corrugated cases. Hercon
                shall supply Packaging for the Clinical Trial Products under this
                Agreement and such Packaging shall be in accordance with the Product
                Specifications as provided herein and all applicable laws and
                regulations.

            

    

    

    

    
      
        
           

        

        
          7

          
            

          

        

        
           

        

      

    

    

    
      	4.4	
              Delivery
                and Acceptance.

            

    

    

    
      	
              (a)

            	
              Delivery.
                All Clinical Trial Products supplied under this Agreement shall be
                shipped
                F.O.B. Emigsville, PA in such quantities, on such dates, with such
                carrier, to such designation, and in accordance with such other
                requirements as are specified by CTI in the applicable purchase order.
                CTI
                shall pay all freight, insurance charges, taxes, import and export
                duties,
                inspection fees and/or other charges applicable to the sale and transport
                of Clinical Trial Products purchased by CTI hereunder prior to delivery
                thereof by Hercon to such CTI designated location. Title and risk
                of loss
                and damages to Clinical Trial Products purchased by CTI hereunder
                shall
                pass to CTI upon delivery to CTI’s designated carrier F.O.B. Hercon’s
                facility in Emigsville, PA.

            

    

    

    
      	
              (b)

            	
              Rejection
                and Cure.
                If
                a shipment of Clinical Trial Products or any portion thereof (i)
                fails to
                conform to the applicable Product Specifications, (ii) was not Processed
                in accordance with applicable laws or regulations or GMP, or (iii)
                is
                delivered with a material shortage or any overage of Clinical Trial
                Products, then CTI shall have the right to reject such nonconforming
                shipment of Clinical Trial Products or the nonconforming portion
                thereof,
                as the case may be. CTI shall give written notice to Hercon of its
                rejection hereunder, within thirty (30) days after CTI’s receipt of such
                shipment, specifying the grounds for such rejection; provided, however,
                that in the event such defect is latent or was not obvious and could
                not
                be readily discovered from a physical inspection of the Clinical
                Trial
                Products shipment, CTI may give written notice to Hercon of its rejection
                of such shipment within sixty (60) days after CTI's discovery of
                such
                non-conformance. The nonconforming shipment of Clinical Trial Products,
                or
                the nonconforming portion thereof, shall be held for Hercon’s disposition,
                or shall be returned to Hercon, in each case at Hercon’s expense, as
                directed by Hercon. Hercon shall use its commercially reasonable
                efforts
                to replace each nonconforming shipment of Clinical Trial Products,
                or the
                nonconforming portion thereof, with conforming Clinical Trial Products
                as
                soon as reasonably practicable after receipt of notice of rejection
                thereof, and in any event shall do so within ninety (90) days after
                the
                receipt of replacement Nitroglycerin Adhesive Mixture which
                shall be ordered no later than thirty (30) days after receipt of
                notice of
                rejection thereof.

            

    

    

    In
      the
      event of a dispute regarding any non-conforming Clinical Trial Products which
      CTI and Hercon are unable to resolve, a sample of such Clinical Trial Products,
      together with mutually agreed upon questions, shall be submitted by CTI to
      an
      independent laboratory reasonably acceptable to both parties for testing against
      the Product Specifications, and the test results ("Test Results") obtained
      by
      such laboratory shall be final and binding upon the parties save for manifest
      error on the face of the laboratory’s report. The outside testing laboratory
      shall be required to enter into written undertakings of confidentiality at
      least
      as restrictive as those set forth herein. The fees and expenses of such
      laboratory testing, and all additional shipping and transportation costs
      incurred as a result of the dispute, shall be borne entirely by the party
      against whom such laboratory findings are made. In the event the Test Results
      indicate that the Clinical Trial Products in question do not conform to the
      Product Specifications, Hercon shall replace such Clinical Trial Products with
      conforming Clinical Trial Products in accordance with this Section.

    

    

    
      
        
           

        

        
          8

          
            

          

        

        
           

        

      

    

    

    Hercon
      shall reimburse CTI for all reasonable out-of-pocket charges that CTI incurred
      as a result of or relating to any nonconforming Clinical Trial Products,
      including, without limitation, costs for shipping, disposal, storage or cover,
      if applicable, of the nonconforming Clinical Trial Products. 

    

    
      	
              (c)

            	
              Warranty.
                Hercon warrants that (a) Clinical Trial Products manufactured
                hereunder shall conform with the Product Specifications; (b) Clinical
                Trial Products shall be manufactured hereunder in accordance with
                all
                applicable laws and regulations, GMP and the Regulatory Dossiers;
                (c) all
                raw materials, including, without limitation, the Nitroglycerin Adhesive
                Mixture, and all Clinical Trial Products will not be adulterated,
                misbranded, misused, contaminated, tampered with or otherwise altered,
                mishandled, or subjected to negligence while in the custody and control
                of
                Hercon or otherwise violate the rules and regulations of the FDA;
                (d)
                Hercon and its officers, directors, employees, Affiliates, contractors
                and
                agents have not been debarred or convicted of a crime which could
                lead to
                debarment, and Hercon will not use in any capacity the services of
                any
                Person debarred or convicted of a crime that could lead to debarment
                under
                Subsection 306(a) or (b) of the Generic Drug Enforcement Act of 1992,
                and
                neither Hercon nor its officers, directors, employees, Affiliates,
                contractors or agents or other Person used by Hercon in any services
                hereunder are or have been subject to any other penalty or sanction
                by the
                FDA; (e) Hercon will not transfer or supply any Clinical Trial Products
                to
                any Person other than CTI except as required by applicable law, regulation
                or legal process; and (f) the Process shall not infringe the patent
                rights
                of any Person or constitute a misappropriation of the trade secrets
                or
                other intellectual property rights of any Person, except for any
                such
                infringement or misappropriation arising directly from Hercon’s use of
                CTI’s Intellectual Property or any failure of CTI’s Intellectual Property
                to be fully valid or to fully protect the Clinical Trial Products
                from any
                such claim of infringement or misappropriation (collectively, parts
                (a),
                (b) and (c) above comprise the “Limited Warranty”).
                

            

    

    

    ARTICLE
      5

    FURTHER
      OBLIGATIONS OF THE PARTIES

    

    
      	
              5.1

            	
              Drug
                Master File, Regulatory Dossiers.
                Hercon shall provide CTI with such assistance as CTI shall reasonably
                request to obtain a right of reference to the Drug Master File of
                any
                third-party supplier of the Nitroglycerin Adhesive Mixture and other
                raw
                materials for the Clinical Trial Products designated from time to
                time by
                CTI. The Product NDA and all Regulatory Dossiers shall be owned by
                CTI and
                Hercon shall have no rights
                therein.

            

    

    

    

    
      
        
           

        

        
          9

          
            

          

        

        
           

        

      

    

    

    
      	
              5.2

            	
              Facility
                Qualification.
                In addition to Hercon’s responsibilities set forth hereunder, Hercon
                shall, at no cost to CTI, take all such actions to qualify (and thereafter
                to maintain qualification of) the facility (or facilities) at which
                Hercon
                Processes Clinical Trial Products hereunder, as required under applicable
                law and regulations in the United States and each other country in
                the
                Territory, to enable CTI to obtain and maintain all applicable Regulatory
                Dossiers for the Clinical Trial Products, including the Product NDA,
                consistent with the requirements of the FDA and other applicable
                regulatory authorities in the
                Territory.

            

    

    

    
      	
              5.3

            	
              Further
                Obligations of Hercon.
                During the term of this Agreement, Hercon
                shall:

            

    

    

    
      	 	
              5.3.1

            	
              At
                its own expense, promptly respond to all reasonable inquiries from
                CTI.

            

    

    

    
      	 	
              5.3.2

            	
              Without
                limiting the other provisions of this Agreement, use its commercially
                reasonable efforts at all times to minimize the development
                time.

            

    

    

    
      	 	
              5.3.3

            	
              Furnish
                or otherwise make available to CTI current copies of all issued master
                batch records, procedures, specifications and methods and standard
                operating procedures related to the Clinical Trial Products that
                are
                material to regulatory filings and submit to CTI prior to implementation
                any and all proposed changes to the same that are material to regulatory
                filings.

            

    

    

    
      	 	
              5.3.4

            	
              Furnish
                or otherwise make available to CTI prior to implementation any proposed
                manufacturing changes related to the Clinical Trial Products which
                may
                affect regulatory status, such as suppliers of raw material used
                in the
                Clinical Trial Products, containers, Packaging, Labeling, Product
                Specifications, manufacturing process, testing or the facilities
                which are
                related to the manufacturing of Clinical Trial Products. Notwithstanding
                anything to the contrary herein, no change in the Product Specifications,
                manufacturing processes, test methods, or other documentation or
                procedures relating to Processing of Clinical Trial Products shall
                be
                implemented by Hercon unless and until the Parties have executed
                a written
                agreement documenting such change.

            

    

    

    
      	 	
              5.3.5

            	
              Promptly
                notify CTI in writing of any comments, responses or notices received
                from
                the FDA, or other applicable regulatory authorities, which relate
                to or
                may impact the Clinical Trial Products or the manufacture of the
                Clinical
                Trial Products. Without limiting the foregoing, Hercon
                shall advise CTI no later than the next day that is not a Saturday,
                Sunday
                or federal or state holiday if an authorized agent of any regulatory
                authority plans to visit Hercon’s facility, and makes an inquiry regarding
                Hercon’s
                Processing of Clinical Trial Products or regarding any part of
                the
                facility that is used in Processing of Clinical Trial Products. CTI
                shall
                have the right to be present at any visit relating to the Clinical
                Trial
                Products and to review in advance and comment on any response by
                Hercon to
                the communication or investigation relating to Clinical Trial Products.
                Hercon shall provide to CTI copies of any Form 483s or equivalent
                documents delivered by such regulatory authority as a result of such
                visit
                and, at its own cost, obtain and maintain any and all Federal and
                state
                regulations and/or licenses with respect to Hercon's manufacture
                of the
                Clinical Trial Products. 

            

    

    

    

    
      
        
           

        

        
          10

          
            

          

        

        
           

        

      

    

    

    
      	 	
              5.3.6

            	
              Provide
                ongoing technical product support with respect to the Clinical Trial
                Products.

            

    

    

    ARTICLE
      6

    REPRESENTATIONS
      AND WARRANTIES

    

    
      	
              6.1

            	
              Representations
                and Warranties.
                Each party hereby represents and warrants to the other party as
                follows:

            

    

    

    
      	 	
              (a)

            	
              Corporate
                Existence.
                Such party is a corporation duly organized, validly existing and
                in good
                standing under the laws of the jurisdiction in which it is
                incorporated.

            

    

    

    
      	 	
              (b)

            	
              Authorization
                and Enforcement of Obligations.
                Such party (a) has the corporate power and authority and the legal
                right
                to enter into this Agreement and to perform its obligations hereunder,
                and
                (b) has taken all necessary corporate action on its part to authorize
                the
                execution and delivery of this Agreement and the performance of its
                obligations hereunder. This Agreement has been duly executed and
                delivered
                on behalf of such party, and constitutes a legal, valid, binding
                obligation, enforceable against such party in accordance with its
                terms.

            

    

    

    
      	 	
              (c)

            	
              Consents.
                All necessary consents, approvals and authorizations of and notices
                to all
                governmental authorities and other Persons required to be obtained
                or
                provided by such party in connection with its performance of this
                Agreement have been obtained or
                provided.

            

    

    

    
      	 	
              (d)

            	
              No
                Conflict.
                The execution and delivery of this Agreement and the performance
                of such
                party’s obligations hereunder (a) do not conflict with or violate any
                requirement of applicable laws or regulations, and (b) do not conflict
                with, or constitute a default under, any contractual obligation of
                such
                party.

            

    

    

    ARTICLE
      7

    INDEMNIFICATION;
      INSURANCE

    

    
      	
              7.1

            	
              Hercon’s
                Indemnity Obligations.
                Hercon shall defend, indemnify and hold harmless CTI, its Affiliates
                and
                their respective successors and permitted assigns (and the respective
                officers, directors, stockholders, partners and employees of each)
                from
                and against any and all losses, liabilities, claims, actions, proceedings,
                damages and expenses (including without limitation reasonable attorneys’
                fees and expenses) (herein “Damages”) relating to or arising from (a)
                Hercon's performance of or failure to perform its obligations under
                this
                Agreement, including, without limitation, all data and other information
                provided to CTI for use in the preparation and filing of the Product
                NDA,
                (b) any breach by Hercon or its Affiliates, subcontractors or agents
                of
                this Agreement, (c) the negligence or willful misconduct of any officers,
                directors, partners or employees of Hercon or its Affiliates,
                subcontractors or agents, or (d) any claims of infringement or
                misappropriation relating to any intellectual property used by Hercon
                (expressly excluding CTI’s Intellectual Property) in the fulfillment of
                its obligations under this Agreement, including, without limitation,
                any
                modifications to CTI’s Intellectual Property without CTI's prior written
                consent.

            

    

    

    

    
      
        
           

        

        
          11

          
            

          

        

        
           

        

      

    

     

    
      CTI’s
        Indemnity Obligations.
        CTI
        shall defend, indemnify and hold harmless Hercon, its Affiliates and their
        respective successors and permitted assigns (and the respective officers,
        directors, stockholders, partners and employees of each) from and against
        any
        and all Damages relating to or arising from (a) CTI's performance of or failure
        to perform its obligations under this Agreement, including, without limitation,
        all data and other information provided for use in the preparation and filing
        of
        the Product NDA, (b) any breach by CTI or its Affiliates, subcontractors
        or
        agents of this Agreement, (c) the negligence or willful misconduct of any
        officers, directors, stockholders, partners or employees of CTI or its
        Affiliates, subcontractors or agents, or (d) any third party claims of
        infringement or misappropriation relating to any CTI Intellectual Property
        used
        by Hercon in the fulfillment of its obligations under this
        Agreement.

    

    

    
      	
              7.2

            	
              Procedure.
                A
                party (the indemnitee) that intends to claim indemnification under
                this
                Article 7 shall notify the other party (the “indemnitor”) promptly in
                writing of any action, claim or liability in respect of which the
                indemnitee believes it is entitled to claim indemnification, provided
                that
                the failure to give timely notice to the indemnitor shall not release
                the
                indemnitor from any liability to the indemnitee except to the extent
                the
                indemnitor is prejudiced thereby. The indemnitor shall have the right,
                by
                written notice to the indemnitee, to assume the defense of any such
                action
                or claim within the fifteen (15) day period after the indemnitor’s receipt
                of notice of any action or claim with counsel of the indemnitor’s choice
                and at the sole cost of the indemnitor. If the indemnitor so assumes
                such
                defense, the indemnitee may participate therein through counsel of
                its
                choice, but at the sole cost of the indemnitee. The party not assuming
                the
                defense of any such claim shall render all reasonable assistance
                to the
                party assuming such defense, and all reasonable out-of-pocket costs
                of
                such assistance shall be for the account of the indemnitor. No such
                claim
                shall be settled other than by the party defending the same, and
                then only
                with the consent of the other party which shall not be unreasonably
                withheld; provided that the indemnitee shall have no obligation to
                consent
                to any settlement of any such action or claim which imposes on the
                indemnitee any liability or obligation which cannot be assumed and
                performed in full by the indemnitor, and the indemnitee shall have
                no
                right to withhold its consent to any settlement of any such action
                or
                claim if the settlement involves only the payment of money by the
                indemnitor or its insurer.

            

    

    

    
      	
              7.3

            	
              Insurance.
                Hercon shall obtain, at its expense, property, commercial and liability
                insurance covering its obligations hereunder, in each case in amounts
                appropriate to the conduct of its business. Without limiting the
                foregoing, Hercon shall use reasonable efforts to obtain and maintain
                in
                force at all times during the term of this Agreement third party
                liability
                insurance in reasonably prudent amounts in respect of the risks of
                which
                it is providing indemnity hereunder, with a reputable insurance carrier
                or
                by self-insurance. Hercon shall make available to CTI, at CTI’s request,
                evidence of its maintenance of insurance in satisfaction of its
                obligations under this Section 7.3.

            

    

    

    

    
      
        
           

        

        
          12

          
            

          

        

        
           

        

      

    

    

    ARTICLE
      8

    RELATIONSHIP
      BETWEEN THE PARTIES

    

    
      	
              8.1

            	
              Independent
                Contractor.
                The relationship between Hercon and CTI is solely that of buyer and
                seller, it being understood that each party is acting as an independent
                contractor for its own account and this Agreement does not establish
                a
                joint venture, agency, partnership or employer/employee relationship
                between the parties. Neither party shall have authority to conclude
                contracts or otherwise to act for or bind the other party in any
                manner,
                whatsoever, as agent or otherwise. Any and all contracts and agreements
                entered into by either party shall be for that party’s sole account and
                risk and shall not bind the other party in any
                respect.

            

    

    

    ARTICLE
      9

    CONFIDENTIALITY
      AND PUBLIC DISCLOSURE

    

    
      	
              9.1

            	
              Mutual
                Confidentiality.
                Except as may be required to obtain government approval to manufacture,
                sell or use the Clinical Trial Products, Hercon and CTI will treat
                as
                confidential the Confidential Information, and will take all necessary
                precautions to assure the confidentiality of such information. Each
                party
                agrees to return to the other upon the expiration or termination
                of this
                Agreement all Confidential Information acquired from the other except
                as
                to such information it may be required to retain under applicable
                law or
                regulation, and except for one copy of such information to be retained
                by
                the other party’s legal department or legal counsel. Neither party shall,
                during the period of this Agreement and for five (5) years thereafter,
                without the express prior written consent of the other party use
                or
                disclose any such Confidential Information for any purpose other
                than to
                carry out its obligations hereunder. Both parties, prior to disclosure
                of
                such Confidential Information to any employee, consultant or advisor
                shall
                ensure that such person is bound in writing to observe the confidentiality
                provisions of this Agreement. The obligations of confidentiality
                shall not
                apply to information that Hercon or CTI is required by law or regulation
                to disclose, provided however that the disclosing party shall so
                notify
                the other party in writing in advance of such required disclosure
                and
                shall cooperate with the other party on reasonable measures to protect
                the
                confidentiality of the information.

            

    

    

    
      	
              9.2

            	
              Public
                Disclosure.
                No announcement, news release, public statement, publication, or
                presentation relating to the existence of this Agreement, the subject
                matter hereof, or either party’s performance hereunder will be made
                without the other party’s prior written approval, which approval shall not
                be unreasonably withheld. The parties agree that they will use reasonable
                efforts to agree on the text, and to coordinate the release, of a
                press
                release relating to the existence of this Agreement so that such
                initial
                announcement or press release by each is made contemporaneously.
                

            

    

    

    

    
      
        
           

        

        
          13

          
            

          

        

        
           

        

      

    

    

    
      	
              9.3

            	
              Remedies.
                Because of the unique nature of the Confidential Information, the
                receiving party acknowledges and agrees that the disclosing party
                may
                suffer irreparable injury if the receiving party fails to comply
                with the
                obligations set forth in this Article 9, and that monetary damages
                may be
                inadequate to compensate the disclosing party for such breach.
                Accordingly, the receiving party agrees that, in addition to any
                other
                remedies available at law, in equity or otherwise, the disclosing
                party
                will be entitled to seek injunctive relief and/or specific performance,
                without the requirement of posting a bond or proving actual damages,
                to
                enforce the terms, or prevent or remedy the violation, of this Article
                9.
                This provision shall not constitute a waiver by either party of any
                rights
                to damages or other remedies which it may have pursuant to this Agreement
                or otherwise.

            

    

    

    ARTICLE
      10

    INVENTIONS
      AND WORK PRODUCT

    

    
      	
              10.1

            	
              Inventions.
                Hercon shall disclose in writing to CTI any invention, development,
                information or idea, whether patentable or not, made or conceived
                by
                Hercon or any of its employees or consultants, in the course of performing
                or that arise out of the performance of Hercon’s obligations hereunder,
                including those relating solely to the Clinical Trial Products, Processing
                of Clinical Trial Products or relating solely to or arising solely
                from
                the Confidential Information or Intellectual Property of CTI
                (collectively, the “Inventions”). Hercon shall make such disclosure to CTI
                promptly after the conception or reduction to practice of any Inventions.
                All Inventions shall be the sole and exclusive property of CTI and
                Hercon
                hereby expressly and irrevocably conveys and assigns, and shall cause
                its
                Affiliates and its and their employees and agents, as applicable,
                to so
                convey and assign, to CTI any and all rights, title and interest
                they may
                have in and to such Inventions. Assignment and transfer of all such
                Inventions shall occur instantly and automatically upon the development,
                making, conception or reduction to practice of such Inventions and
                shall
                not require any further deeds or documents to be exchanged between
                the
                Parties; provided, however, that upon CTI’s request, Hercon shall execute,
                acknowledge and deliver, and shall cause its employees and consultants
                to
                execute, acknowledge and deliver, all applications, assignments and
                other
                instruments which CTI (or its nominee) shall deem reasonably necessary
                to
                apply for, obtain, protect, perfect or enforce CTI’s ownership of all
                rights, title, and interest in the Inventions, including as necessary
                to
                apply for and obtain invention rights, patents, patent applications,
                letters patent, copyrights and reissues thereof (“Rights”) in the United
                States and foreign countries. Hercon shall execute, acknowledge and
                deliver, and shall cause its employees and consultants to execute,
                acknowledge and deliver, all such further papers as CTI may reasonably
                request to enable CTI (or its nominee) to publish or protect Inventions
                and render such further assistance as CTI may reasonably request
                in the
                prosecution of Rights and in any patent office proceeding or litigation
                involving Inventions. All Intellectual Property and know-how regardless
                of
                origin associated with the Clinical Trial Products shall be the sole
                and
                exclusive property of CTI and any inventions shall be duly assigned
                to
                CTI. 

            

    

    

    
      	
              10.2

            	
              Injunctive
                Relief.
                Hercon acknowledges and agrees that, because of the unique and
                extraordinary nature of the development obligations, any breach or
                threatened breach of the provisions of Section 10.1 hereof would
                cause
                irreparable injury and incalculable harm to CTI and CTI shall,
                accordingly, be entitled to injunctive and other equitable relief
                for such
                breach or threatened breach, without the requirement of posting a
                bond or
                proving actual damages, and that resort by CTI to sue for injunctive
                or
                other equitable relief shall not be deemed to waive or to limit in
                any
                respect any other right or remedy which CTI may have with respect
                to such
                breach or threatened breach. The parties agree that in the event
                of any
                action, suit or proceeding at law or in equity brought to enforce
                the
                covenants contained in Section 10.1 hereof, or to obtain money damages
                for
                breach thereof, the party prevailing in any such action, suit or
                proceeding shall be entitled upon demand to reimbursement from the
                other
                party for all expenses (including, without limitation, reasonable
                attorney’s fee and disbursements) incurred in connection
                therewith.

            

    

    

    

    
      
        
           

        

        
          14

          
            

          

        

        
           

        

      

    

    

    ARTICLE
      11

    TERM
      AND TERMINATION

    

    
      	
              11.1

            	
              Term.
                Unless terminated earlier pursuant to Section 11.2 below, the term of
                this Agreement (the “Term”) shall expire two (2) years from the date of
                this Agreement. 

            

    

    

    
      	11.2	
              Termination.

            

    

    

    By
      Either party or Both Parties.
      

    
      	 	
              (i)

            	
              This
                Agreement may be terminated immediately upon mutual written consent
                of
                both Parties upon mutually accepted terms;
                or

            

    

    
      	 	
              (ii)
                

            	
              Either
                party shall have the right to terminate this Agreement upon giving
                written
                notice of termination to the other party, after the breach of any
                material
                provision of this Agreement by the other party if the other party
                has not
                cured such breach within thirty (30) days after receipt of written
                notice
                thereof from the non-breaching party;
                or

            

    

    

    By
      CTI.
      

    
      	
            	(i)	
              CTI
                shall have the right to terminate this Agreement at any time for
                any
                reason upon giving written notice of termination to
                Hercon.

            

    

    

    11.3 Rights
      and Remedies Upon Expiration or Termination.

    

    Upon
      the
      expiration of the Term or the termination of this Agreement pursuant to Section
      11.2 hereof: (a) Hercon's obligations to develop the Clinical Trial Products
      for
      CTI and CTI's obligations under this Agreement shall terminate; (b) Hercon
      shall
      promptly deliver to CTI all manufactured Clinical Trial Products in its
      possession or control; (c) CTI shall pay to Hercon all unpaid milestone payments
      for which the corresponding milestones have been met at the date of termination
      as provided in Section 3.1 and Exhibit B; (d) all Confidential Information,
      including, without limitation, the Intellectual Property belonging to the
      disclosing party will remain the sole and exclusive property of the disclosing
      party and shall be returned to the disclosing party as provided in Section
      9.1;
      (e) all data obtained through Hercon’s performance of its services under this
      Agreement, including, without limitation, any and all test data, clinical study
      results, regulatory filings, reports, records and materials in Hercon's
      possession or control which are specifically exclusive to the manufacture of
      the
      Clinical Trial Products, and any intellectual property developed by Hercon
      relating exclusively to the Clinical Trial Products (which, as provided in
      Section 10.2 is and shall be the property of CTI), shall be promptly transferred
      to CTI by Hercon at CTI’s expense; and (f) any and all Clinical Trial Products
      paid for by CTI, that are in Hercon’s possession at the date of termination
      shall be promptly delivered to CTI; (g) the confidentiality obligations of
      the
      parties shall survive for the term specified in Section 9.1; and (h) the
      indemnity obligations of the parties shall survive termination for the period
      determined by the applicable statute of limitations relating to the claim for
      which indemnification is sought. Any and all payment obligations of the parties
      to one another accruing prior to termination shall survive termination and
      if
      significant progress has been made by Hercon toward the next milestone, CTI
      shall be obligated to make a pro-rated payment based on time, effort or another
      equitable arrangement as agreed upon by Hercon and CTI. 

    

    

    
      
        
           

        

        
          15

          
            

          

        

        
           

        

      

    

    

    Upon
      termination of this Agreement pursuant to Section 11.2, Hercon shall, for a
      period up to three months after such termination, transfer to CTI (or its
      designee) all unique manufacturing technology and know-how related specifically
      solely to the process of manufacturing Clinical Trials Products (“Technology
      Transfer”).
      A
      Technology Transfer shall include at least the following activities: (a) Hercon
      shall make available all pertinent know-how, technical data, and other
      information and documentation necessary or useful to Process the Clinical Trial
      Products in accordance with this Agreement and to support regulatory filings
      for
      the Clinical Trial Products; (b) Hercon shall provide training sessions and
      reasonable assistance and cooperation at manufacturing site(s) designated by
      CTI
      in order to enable CTI or its designee to Process Clinical Trial Products;
      and
      (c) Hercon shall allow CTI or its designee reasonable access to Hercon’s
      facility at reasonable times on business days for any reasonable purpose
      connected with such Technology Transfer. Should this Agreement be terminated
      as
      a result of Hercon’s default or breach, such Technology Transfer shall be
      provided at Hercon’s sole cost and expense; otherwise, Hercon may invoice and
      CTI shall pay for such Technology Transfer at Hercon’s then-current and
      reasonable rates.

    

    ARTICLE
      12

    NON-COMPETE

    

    Hercon
      shall not perform any services similar to the services provided by Hercon
      hereunder or related to Intellectual Property for any other Person with a
      product utilizing nitric oxide to treat musculoskeletal disease, painful
      conditions or vascular disease where such services would constitute or
      contribute to competition with CTI’s business as it relates to the Clinical
      Trial Products, unless Hercon obtains prior written approval from CTI to provide
      such other services.

     

    

    
      
        
           

        

        
          16

          
            

          

        

        
           

        

      

    

    

    ARTICLE
      13

    MISCELLANEOUS

    

    
      	
              13.1

            	
              Notices.
                All notices or other communications given pursuant hereto by one
                party
                hereto to the other party shall be in writing and deemed given (a)
                when
                delivered by messenger, (b) when sent by fax, (with receipt confirmed),
                (c) when received by the addressee, if sent by Express Mail, Federal
                Express or other express delivery service (receipt requested), or
                (d) five
                days after being mailed in the U.S., first-class postage prepaid,
                registered or certified, in each case to the appropriate addresses
                and fax
                numbers set forth below (or to such other addresses and fax numbers
                as a
                party may designate as to itself by notice to the other
                party):

            

    

    

    If
      to
      CTI, to it at:

    Cure
      Therapeutics, Inc.

    14
      West
      57th Street

    Suite
      3B

    New
      York,
      NY 10019

    Telephone:
      212-586-2226

    Fax:
      212-586-2246

    

    If
      to
      Hercon, to it at:

    Hercon
      Laboratories Corporation

    101
      Sinking Springs Lane

    Emigsville,
      PA 17318

    Telephone:
      (717) 764-1191

    Fax:
      (717) 764-5395

    

    
      	
              13.2

            	
              Assignment.
                Neither party shall, without the prior written consent of the other
                party
                (not to be unreasonably withheld or delayed), assign or transfer
                this
                Agreement to any Person, in whole or in part, provided that, each
                party
                may assign or transfer this Agreement to any Affiliate or to any
                successor in interest (whether by merger, acquisition, asset purchase
                or
                otherwise) to all or substantially all of its business to which this
                Agreement relates
                without the prior written consent of the other party hereto. All
                of the
                terms and provisions of this Agreement shall be binding upon and
                inure to
                the benefit of and be enforceable by the parties hereto and their
                respective permitted successors and
                assigns.

            

    

    

    
      	
              13.3

            	
              Severability.
                If any portion of this Agreement is held invalid by a court of competent
                jurisdiction, such portion shall be deemed to be of no force and
                effect
                and this Agreement shall continue in full force and effect without
                said
                portion(s), consistent with the intent of the Parties at the time
                of its
                execution, provided however, if the deletion of such provision materially
                impairs the commercial value of this Agreement to either party, the
                parties shall attempt to renegotiate such provision in good
                faith.

            

    

    

    
      	
              13.4

            	
              Entire
                Agreement.
                This Agreement and all Exhibits and Schedules attached hereto and
                thereto
                contain the sole and entire agreement and understanding of the parties
                hereto and their respective Affiliates and representatives related
                to the
                subject matter hereof and supersede all oral or written agreements
                concerning the subject matter made prior to the date of this Agreement.
                

            

    

     

    
      	
              13.5

            	
              Amendments,
                Waivers.
                This Agreement may not be amended, changed, modified or supplemented
                orally, and no amendment, change, modification or supplement of this
                Agreement shall be recognized nor have any effect, unless the writing
                in
                which it is set forth is signed by Hercon and CTI, nor shall any
                waiver of
                any of the provisions of this Agreement be effective unless in writing
                and
                signed by the party to be charged therewith. The failure of either
                party
                to enforce, at any time, or for any period of time, any provision
                hereof
                or the failure of either party to exercise any option herein shall
                not be
                construed as a waiver of such provision or option and shall in no
                way
                affect that party’s right to enforce such provision or exercise such
                option. No waiver of any provision hereof shall be deemed to be,
                or shall
                constitute, a waiver of any other provision, or with respect to any
                succeeding breach of the same
                provision.

            

    

    
      

      
        
          
             

          

          
            17

            
              

            

          

          
             

          

        

      

       

    

    
      	
              13.6

            	
              Governing
                Law, Dispute Resolution.
                This Agreement shall be governed by, and construed in accordance
                with, the
                laws of the State of Delaware and the United States, as though made
                and to
                be fully performed therein without regard to conflicts of laws and
                principles thereof.

            

    

    

    
      	 	
              The
                parties shall initially attempt in good faith to resolve any significant
                controversy, claim, allegation of breach or dispute arising out of
                or
                relating to this Agreement (hereinafter collectively referred to
                as a
                “Dispute”) through negotiations between senior executives of CTI and
                Hercon. If any Dispute is not resolved through such negotiations,
                each
                party irrevocably and unconditionally consents to the exclusive
                jurisdiction of the courts of general jurisdiction of the State of
                Delaware and the United States District Court for the District of
                Delaware
                for any action, suit or proceeding relating to a Dispute, and agrees
                not
                to commence any such action, suit or proceeding except in such courts.
                Each Party further irrevocably and unconditionally waives any claim
                that
                such action, suit or proceeding has been brought in an inconvenient
                forum
                or should be brought in any other venue to which such party may be
                entitled by virtue of domicile or
                otherwise.

            

    

    

    
      	
              13.7

            	
              Singular
                and Plural Forms.
                The use herein of the singular form shall also denote the plural
                form, and
                the use herein of the plural form shall denote the singular form,
                as in
                each case the context may require.

            

    

    

    
      	
              13.8

            	
              Headings.
                The headings contained in this Agreement are for convenience of reference
                only and shall not constitute a part hereof or define, limit or otherwise
                affect the meaning of any of the terms or provisions
                hereof.

            

    

    

    
      	
              13.9

            	
              Counterparts.
                This Agreement may be executed in one or more facsimile or original
                counterparts, each of which shall be deemed an original, but all
                of which,
                when taken together, shall constitute one and the same
                instrument.

            

    

    

    
      	
              13.10

            	
              Force
                Majeure.
                If either party is prevented from complying, either totally or in
                part,
                with any of the terms or provisions of this Agreement, by reason
                of force
                majeure, including, but not limited to, fire, flood, earthquake,
                explosion, storm, war, rebellion, acts of God and/or other causes
                or
                externally induced casualty beyond its reasonable control and without
                its
                negligence, whether similar to the foregoing matters or not, then,
                upon
                written notice by the party liable to perform to the other party,
                the
                requirements of this Agreement or such of its provisions as may be
                affected, and to the extent so affected, shall be suspended during
                the
                period of such disability; provided that the party asserting force
                majeure
                shall bear the burden of establishing the existence of such force
                majeure
                by clear and convincing evidence; and provided further, that the
                party
                prevented from complying shall use its best efforts to remove such
                disability within thirty (30) days and shall continue performance
                with the
                utmost dispatch whenever such causes are removed and shall notify
                the
                other party of the event not more than five (5) days from the time
                of the
                event. When such circumstances arise, the parties shall discuss what,
                if
                any, modifications to the terms of this Agreement may be required
                in order
                to arrive at an equitable solution. Notwithstanding the foregoing,
                in the
                event that a material event of force majeure shall continue for a
                period
                of longer than sixty (60) days, then the party unaffected by such
                event
                may terminate this Agreement by not less than fifteen (15) days'
                written
                notice of termination to the other party; provided that, if the force
                majeure event ceases within such fifteen day period, this Agreement
                shall
                remain in full force and effect.

            

    

    

    [Signatures
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    IN
      WITNESS WHEREOF, the parties have caused this Agreement to be executed by their
      respective duly authorized officers as of the date first above
      written.

    

    CURE
      THERAPEUTICS, INC.

    

    By:
       

    Name:
       

    Title:
       

    

    HERCON
      LABORATORIES CORPORATION

    

    By:
       

    Name:
       

    Title:
      

    

    
      
        
           

        

        
          19

          
            

          

        

        
           

        

      

    

    

    Exhibits
      A, B and C have been omitted and filed separately with the Securities and
      Exchange Commission pursuant to a request for confidential
      treatment.

    

    
      
         

      

        
        20LOAN
        AND SECURITY AGREEMENT

       

      This
        LOAN
        AND SECURITY AGREEMENT is entered into as of June 3, 2005 between BUSINESS
        ALLIANCE CAPITAL CORP., a Delaware corporation (BACC),
        with
        an office located at 800 Wilshire Boulevard, Suite 700,
        Los Angeles, California 90017 and REED’S, INC., a Delaware corporation
        (Borrower),
        with
        its chief executive office located at 13000 South Spring Street, Los Angeles,
        CA
        90061.

       

      The
        parties agree as follows

       

      1.  DEFINITIONS
        AND CONSTRUCTION

       

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

       

      Accounts
        means,
        in addition to the definition of accounts in the Code, all presently existing
        and hereafter arising accounts receivable, contract rights,
        health-care-insurance receivables, and all other forms of obligations owing
        to
        Borrower arising out of the sale, lease, license or assignment of goods or
        other
        property, or the rendition of services by Borrower, whether or not earned
        by
        performance, all credit insurance, guaranties, and other security therefor,
        as
        well as all merchandise returned to or reclaimed by Borrower and Borrower's
        Books relating to any of the foregoing.

       

      Advances
        means
        all loans, advances and other financial accommodations by BACC to or on account
        of the Borrower, including those under this Agreement.

       

      Agreement
        means
        collectively this Loan and Security Agreement, any concurrent or subsequent
        rider to this Loan and Security Agreement, and any extensions, supplements,
        amendments, addenda or modifications to or in connection with this Loan and
        Security Agreement or any such rider.

       

      Authorized
        Officer
        means
        any officer or other representative of Borrower authorized in a writing
        delivered to BACC to transact business with BACC.

       

      BACC
        means
        Business Alliance Capital Corp., its successors and assigns.

       

      BACC
        Expenses
        means
        all of the following: costs and expenses (whether taxes, assessments, insurance
        premiums or otherwise) required to be paid by Borrower under any of the Loan
        Documents which are paid or advanced by BACC; filing, recording, publication,
        appraisal and search fees paid or incurred by BACC in connection with BACC's
        transactions with Borrower; costs and expenses incurred by BACC in the
        disbursement or collection of funds to or from Borrower or its account debtors;
        charges resulting from the dishonor of checks; costs and expenses incurred
        by
        BACC to correct any default or enforce any provision of the Loan Documents,
        or
        in gaining possession of, maintaining, handling, preserving, storing, shipping,
        selling, preparing for sale, or advertising to sell the Collateral, or any
        portion thereof, irrespective of whether a sale is consummated; and costs
        and
        expenses incurred by BACC in enforcing or defending the Loan Documents,
        including, but not limited to, costs and expenses incurred in connection
        with
        any proceeding, suit, enforcement of judgment, or appeal; and BACC's reasonable
        attorneys' fees and expenses, including allocated fees of in-house counsel,
        incurred in advising, structuring, drafting, reviewing, administering, amending,
        modifying, terminating, enforcing, defending, or otherwise representing BACC
        concerning the Loan Documents or the Obligations.

       

      Borrower's
        Books
        means
        all of Borrower's books and records including all of the following: ledgers;
        records indicating, summarizing, or evidencing Borrower's assets or liabilities,
        or the Collateral; all information relating to Borrower's business operations
        or
        financial condition; and all computer programs, disk or tape files, printouts,
        runs, or other computer prepared information, and the facilities containing
        such
        information.

       

      
        
          
          

        

        
          1

          
            

          

        

         

      

       

      Business
        Day
        means
        any day which is not a Saturday, Sunday, or other day on which banks in the
        State of New Jersey are authorized or required to close.

       

      Chattel
        Paper
        shall
        have the same meaning ascribed to such term in the Code.

       

      Code
        means
        the California Uniform Commercial Code, as amended or revised from time to
        time.

       

      Collateral
        means
        all assets of the Borrower, whether now owned or existing, or hereafter acquired
        or arising, and wherever located, including, without limitation, all of the
        following assets, properties and interests in property of Borrower,: all
        Accounts; all Equipment; all Commercial Tort Claims; all General Intangibles;
        all Chattel Paper; all Inventory; all Negotiable Collateral; all Investment
        Property, all Financial Assets, all Letter of Credit Rights, all Supporting
        Obligations, all Deposit Accounts, all money or any assets of Borrower which
        hereafter come into the possession, custody, or control of BACC; all proceeds
        and products, whether tangible or intangible, of any of the foregoing, including
        proceeds of insurance covering any or all of the foregoing, and any and all
        tangible or intangible property resulting from the sale, lease, license or
        other
        disposition of the foregoing, or any portion thereof or interest therein,
        and
        all proceeds thereof, and any other assets of Borrower which may be subject
        to a
        lien in favor of BACC.

       

      Commercial
        Tort Claims
        shall
        have the meaning ascribed to such term in the Code.

       

      Daily
        Balance
        means
        the amount of the Obligations owed at the end of a given day.

       

      Deposit
        Account
        shall
        have the meaning ascribed to such term in the Code.

       

      Documents
        shall
        have the meaning ascribed to such term in the Code.

       

      Eligible
        Accounts
        means
        those Accounts created by Borrower in the ordinary course of business, which
        are
        and at all times shall continue to be acceptable to BACC in all respects;
        provided, however, that standards of eligibility may be fixed and revised
        from
        time to time by BACC in BACC's exclusive judgment. In determining such
        acceptability and standards of eligibility, BACC may, but need not, rely
        on
        agings, reports and schedules of Accounts furnished by Borrower, but reliance
        by
        BACC thereon from time to time shall not be deemed to limit BACC's right
        to
        revise standards of eligibility at any time as to both Borrower's present
        and
        future Accounts. In general, an Account shall not be deemed eligible unless:
        (1)
        the Account debtor on such Account is and at all times continues to be
        acceptable to BACC, and up to credit limits acceptable to BACC, and (2) such
        Account complies in all respects with the representations, covenants and
        warranties hereinafter set forth. Except in BACC's sole discretion, Eligible
        Accounts shall not include any of the following (a) Accounts which the Account
        debtor has failed to pay within ninety (90) days of invoice date, and all
        Accounts owed by any Account debtor that has failed to pay twenty-five percent
        (25%) or more of its Accounts owed to Borrower within ninety (90) days of
        invoice date; (b) Accounts with respect to which goods are sold on a bill
        and
        hold basis or placed on consignment or for a guaranteed sale, or which contain
        other terms by reason of which payment by the Account debtor may be conditional;
        (c) Accounts with respect to which the Account debtor is not a resident of
        the
        United States unless the Account is supported by foreign credit insurance
        or a
        letter of credit, in both instances satisfactory to and assigned to BACC;
        (d)
        Accounts with respect to which the Account debtor is the United States or
        any
        department, agency or instrumentality of the United States, any State of
        the
        United States or any city, town, municipality or division thereof unless
        all
        filings have been made under the Federal Assignment of Claims Act or comparable
        state or other statute; (e) Accounts with respect to which the Account debtor
        is
        an officer, employee or agent of, or subsidiary of, related to, affiliated
        with
        or has common shareholders, officers or directors with Borrower; (f) Accounts
        with respect to which Borrower is or may become liable to the Account debtor
        for
        goods sold or services rendered by the Account debtor to Borrower; (g) Accounts
        with respect to an Account debtor whose total obligations to Borrower exceed
        fifteen percent (15%) of all Accounts or such other percentage as BACC may
        agree
        to in writing as to a particular Account debtor (the applicable percentage,
        the
“Concentration Percentage”), to the extent such obligations exceed the
        applicable Concentration Percentage; (h) Accounts with respect to which the
        Account debtor disputes liability or makes any claim with respect thereto,
        or is
        subject to any insolvency proceeding, or becomes insolvent, fails or goes
        out of
        business; (i) the Account arises out of a contract or purchase order for
        which a
        surety bond was issued on behalf of Borrower; (j) Accounts in which BACC
        does
        not have first priority and exclusive perfected security interest; (k) Accounts
        where the Account Debtor is in a jurisdiction for which Borrower is required
        to
        file a notice of business activities or similar report and Borrower has not
        filed such report within the time period required by applicable law; (l)
        any
        Account as to which an invoice has not been issued to the Account debtor;
        or (m)
        any Account which represents a progress billing on a contract which has not
        been
        fully completed by Borrower.

       

      
        
          
          

        

        
          2

          
            

          

        

         

      

       

      Eligible
        Inventory means
        Inventory consisting of first quality finished goods held for sale in the
        ordinary course of Borrower’s business and raw materials for such finished goods
        which are located at Borrower’s premises and acceptable to BACC in all respects;
        provided, however that general criteria for Eligible Inventory may be
        established and revised from time to time by BACC in BACC’s exclusive judgment.
        In determining such acceptability and standards of eligibility, BACC may,
        but
        need not, rely on reports and schedules of Inventory furnished to BACC by
        Borrower, but reliance thereon by BACC from time to time shall not be deemed
        to
        limit BACC’s right to revise standards of eligibility at any time. In general,
        except in BACC’s sole discretion, Eligible Inventory shall not include work in
        process, components which are not part of finished goods, spare parts, packaging
        and shipping materials, materials used or consumed in Borrower’s business, goods
        returned to, repossessed by, or stopped in transit by Borrower, Inventory
        which
        is obsolete or slow moving, Inventory at the premises of third parties or
        subject to a security interest or lien in favor of any third party, bill
        and
        hold goods, Inventory which is not subject to a perfected security interest
        in
        favor of BACC, returned and/or defective goods, “seconds” and Inventory
        purchased on consignment, Inventory which contains any labels, trademarks,
        trade
        names or other identifying characteristics which are the properties of third
        parties unless the use of same by Borrower is under a valid license, royalty
        or
        similar agreement with the owner thereof, in form and substance satisfactory
        to
        BACC, and which remains in full force and effect, and has not been terminated,
        and such owner thereof has issued in favor of BACC an agreement, in form
        and
        substance satisfactory to BACC, allowing BACC to dispose of said items of
        Inventory upon the occurrence of an Event of Default. Eligible Inventory
        shall
        for the purposes of this Agreement be valued at the lower of cost or wholesale
        market value.

       

      Equipment
        means in
        addition to the definition of equipment in the Code, all of Borrower's present
        and hereafter acquired equipment, machinery, machine tools, motors, furniture,
        furnishings, fixtures, motor vehicles, rolling stock, processors, tools,
        pans,
        dies, jigs, goods (other than consumer goods or farm products) and any interest
        in any of the foregoing, and all attachments, accessories, accessions,
        replacements, substitutions, additions, and improvements to any of the
        foregoing, wherever located.

       

      ERISA
        means
        the Employee Retirement Income Security Act of 1974, as amended, and the
        regulations thereunder.

       

      ERISA
        Affiliate
        means
        each trade or business (whether or not incorporated and whether or not foreign)
        which is or may hereafter become a member of a group of which Borrower is
        a
        member and which is treated as a single employer under ERISA Section 4001(b)(
        1), or IRC Section 414.

       

      Event
        of Default
        means
        the events specified in Section 8, below.

       

      Financial
        Assets
        shall
        have the meaning ascribed to such term in the Code.

       

      General
        Intangibles
        means,
        in addition to the definition of general intangibles in the Code, all of
        Borrower's present and future general intangibles and other personal property
        (including choses or things in action, goodwill, patents, trade names;
        trademarks, service marks, copyrights, blueprints, drawings, purchase orders,
        customer lists, monies due or recoverable from pension funds, route lists,
        infringement claims, computer programs, computer discs, computer tapes,
        Borrower's Books, literature, reports, catalogs, deposit accounts, insurance
        premium rebates, tax refunds, and tax refund claims) other than goods and
        Accounts.

       

      Guarantor
        means
        each person or entity which guarantees the Obligations or issues a validity
        guaranty relating to the Collateral or pledges any assets to BACC as additional
        security for the Obligations.

       

      Insolvency
        Proceeding
        means
        any proceeding commenced by or against any person or entity under any provision
        of the federal Bankruptcy Code, as amended, or under any other state or federal
        insolvency law, including assignments for the benefit of creditors, formal
        or
        informal moratoria, compositions, or extensions generally with its
        creditors.

       

      
        
          
          

        

        
          3

          
            

          

        

         

      

       

      Instruments
        shall
        have the meaning ascribed to such term in the Code.

       

      Inventory
        means,
        in addition to the definition of inventory in the Code, all present and future
        inventory in which Borrower has any interest, including goods held for sale
        or
        lease or to be furnished under a contract of service, Borrower's present
        and
        future raw materials, work in process, finished goods, tangible property,
        stock
        in trade, wares, and materials used in or consumed in Borrower's business,
        goods
        which have been returned to, repossessed by, or stopped in transit by Borrower,
        packing and shipping materials, wherever located, any documents of title
        representing any of the above, and Borrower's Books relating to any of the
        foregoing.

       

      Investment
        Property
        shall
        have the meaning ascribed to such term in the Code.

       

      IRC
        means
        the Internal Revenue Code of 1986, as amended, and the regulations
        thereunder.

       

      Letter
        of Credit Rights
        shall
        have the meaning ascribed to such term in the Code.

       

      Loan
        Documents
        means,
        collectively, this Agreement, any Note or Notes, any security agreements,
        pledge
        agreements, mortgages, deeds of trust or other encumbrances or agreements
        which
        secure the Obligations, and any other agreement entered into between Borrower
        and BACC or by Borrower or a Guarantor in favor of BACC relating to or in
        connection with this Agreement or the Obligations, as each of same may be
        amended, modified, renewed, extended or substituted from time to
        time.

       

      Multiemployer
        Plan
        means a
        multiemployer plan as defined in ERISA Sections 3(37) or 4001(a)(3) or IRC
        Section 414(f).

       

      Negotiable
        Collateral
        means
        all of Borrower's present and future letters of credit, notes, drafts,
        Instruments, Documents, leases, and Chattel Paper.

       

      Note
        means
        any promissory note made by Borrower to the order of BACC concurrently herewith
        or at any time hereafter.

       

      Obligations
        means
        all loans, Advances, debts, liabilities (including all interest and amounts
        charged to the Obligations pursuant to any agreement authorizing BACC to
        charge
        the Obligations), obligations, lease payments, guaranties, covenants, and
        duties
        owing by Borrower to BACC of any kind and description (whether pursuant to
        or
        evidenced by the Loan Documents or by any other agreement between BACC and
        Borrower, and irrespective of whether for the payment of money), whether
        made or
        incurred prior to, on, or after the Termination Date, direct or indirect,
        absolute or contingent, due or to become due, now existing or hereafter arising,
        including any debt, liability or obligation owing from Borrower to others
        which
        BACC may obtain by assignment or otherwise, and all interest thereon and
        all
        BACC Expenses.

       

      Plan
        means
        any plan described in ERISA Section 3(2) maintained for employees of Borrower
        or
        any ERISA Affiliate, other than a Multiemployer Plan.

       

      Prime
        Rate
        means
        that rate designated by Wachovia Bank, National Association, or any successor
        thereof, from time to time as its prime rate, which shall not necessarily
        constitute its lowest available rate.

       

      Revolving
        Credit Facility
        means
        the revolving credit facility provided for in Section 2.1 hereof.

       

      Supporting
        Obligation
        shall
        have the same meaning ascribed to such term in the Code.

       

      
        
          
          

        

        
          4

          
            

          

        

         

      

       

      Term
        means
        the period from the date of the execution and delivery by BACC of this Agreement
        through and including the later of (a) the Termination Date and (b) the payment
        and performance in full of the Obligations.

       

      Termination
        Date means
        (a) June 30, 2006 (the period through such date the “Initial Term”), unless
        such date is extended pursuant to Sections 3.1 or 9.1 hereof, and if so extended
        on one or more occasions the last date of the last such extension, or (b)
        if
        earlier terminated by BACC pursuant to section 9.1 hereof, the date of such
        termination.

       

      1.2  Construction.
        Unless
        the context of this Agreement clearly requires otherwise, references to the
        plural include the singular and to the singular include the plural. The words
        hereof,
        herein, hereby, hereunder,
        and
        similar terms in this Agreement refer to this Agreement as a whole and not
        to
        any particular provision of this Agreement. Section, subsection, clause and
        exhibit references are to this Agreement unless otherwise specified. Words
        importing a particular gender mean and include every other gender.

       

      1.3  Accounting
        Terms.
        All
        accounting terms not specifically defined herein shall be construed in
        accordance with generally accepted accounting principles (GAAP) as in effect
        from time to time. When used herein, the term financial statements shall
        include
        the notes and schedules thereto.

       

      1.4  Exhibits.
        All of
        the exhibits, addenda or riders attached to this Agreement shall be deemed
        incorporated herein by reference.

       

      1.5  Code.
        Any
        terms used in this Agreement which are defined in the Code shall be construed
        and defined as set forth in the Code, unless otherwise defined
        herein.

       

      2.  ADVANCES
        AND TERMS OF PAYMENT

       

      2.1  Revolving
        Advances; Advance Limit.
        Upon
        the request of Borrower, made at any time from and after the date hereof
        until
        the Termination Date, and so long as no Event of Default has occurred, BACC
        may,
        in its sole and absolute discretion, make Advances in an amount up to (a)
        eighty
        percent (80%) of the aggregate outstanding amount of Eligible Accounts, plus
        (b)
        the lesser of (1) fifty percent (50%) of the aggregate value of the Eligible
        Inventory or (2) Six Hundred Thousand Dollars ($600,000) or (3) sixty percent
        (60%) of the aggregate outstanding principal amount of Advances under this
        Section 2.1; provided, however, that in no event shall the aggregate amount
        of
        the outstanding Advances under the Revolving Credit Facility be greater than,
        at
        any time, the amount of One Million Nine Hundred Ten Thousand Dollars
        ($1,910,000) (said dollar limit the Advance
        Limit).
        BACC
        may create reserves against, or reduce its advance percentages based on Eligible
        Accounts and Eligible Inventory without declaring an Event of Default if
        it
        determines, in its good faith discretion, that such reserves or reduction
        is
        necessary, including, without limitation, to protect its interest in the
        Collateral and/or against diminution in the value of the Collateral, and/or
        to
        insure the prospect of payment or performance by Borrower of its Obligations
        to
        BACC are not impaired. Borrower acknowledges it has requested that BACC enter
        into an indemnification agreement in favor of Bay Business Credit and agrees
        that any sums paid to Bay Business Credit thereunder shall be deemed to be
        Advances under this Section 2.1.

       

      2.2  Overadvances.
        All
        Advances shall be added to and be deemed part of the Obligations when made.
        If,
        at any time and for any reason, the aggregate amount of the outstanding Advances
        under the Revolving Credit Facility exceeds the dollar or percentage limitations
        contained in Section 2.1 (an Overadvance)
        then
        Borrower shall, upon demand by BACC, immediately pay to BACC, in cash, the
        amount of such Overadvance. Without affecting Borrower's obligation to
        immediately repay to BACC the amount of each Overadvance, Borrower shall
        pay
        BACC a fee (the Overadvance
        Fee)
        in an
        amount equal to two percent (2.0%) per month on the Overadvance amount for
        each
        day on Overadvance exists, but not less than $500 per occurrence of an
        Overadvance, plus interest on the Overadvance amount at the Default Rate
        set
        forth below.

       

      2.3  Authorization
        to Make Advances.
        BACC is
        hereby authorized to make the Advances based upon telephonic or other
        instructions received from anyone purporting to be an Authorized Officer,
        or, at
        the discretion of BACC, if such Advances are necessary to satisfy any
        Obligations. All requests for Advances shall specify the date on which such
        Advance is to be made (which day shall be a Business Day) and the amount
        of such
        Advance. Requests received after 10:30 a.m. Pacific time on any day shall
        be deemed to have been made as of the opening of business on the immediately
        following Business Day. All Advances made under this Agreement shall be
        conclusively presumed to have been made to, at the request of, and for the
        benefit of Borrower when deposited to the credit of Borrower or otherwise
        disbursed in accordance with the instructions of Borrower or in accordance
        with
        the terms and conditions of this Agreement. Unless otherwise requested by
        Borrower, all Advances shall be made by a wire transfer to the deposit account
        of Borrower designated on schedule 2.3 annexed hereto, or such other account
        as
        Borrower shall notify BACC in writing. Borrower shall pay to BACC a funds
        transfer fee of $25.00 for each Advance. Said fees shall be payable on the
        first
        day of each month of the Term for all Advances made during the preceding
        month.

       

      
        
          
          

        

        
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      2.4  Interest.

       

      A.  Except
        where specified to the contrary in the Loan Documents interest shall accrue
        on
        the Daily Balance of the Obligations at the per annum rate of two and three
        quarter percentage points (2.75%) above the Prime Rate, but not less than
        eight
        and one-half percentage points (8.5%). The Obligations shall, at the option
        of
        BACC, from and after the occurrence of an Event of Default, and without
        constituting a waiver of any such Event of Default, and if the Obligations
        are
        not paid in full by the Termination Date, and without waiving the maturity
        of
        the Obligations on the Termination Date, bear interest at the per annum rate
        of
        seven and three quarter percentage points (7.75%) above the Prime Rate (the
        “Default Rate”). All interest payable under the Loan Documents shall be computed
        on the basis of a three hundred sixty (360) day year for the actual number
        of
        days elapsed on the Daily Balance. Interest as provided for herein shall
        continue to accrue until the Obligations are paid in full.

       

      B.  The
        interest rate payable by Borrower under the terms of this Agreement shall
        be
        adjusted in accordance with any change in the Prime Rate from time to time
        on
        the date of any such change. All interest payable by Borrower shall be due
        and
        payable on the first day of each calendar month during the Term. BACC may,
        at
        its option, add such interest and all BACC Expenses to the Obligations, and
        such
        amount shall thereafter accrue interest at the rate then applicable under
        this
        Agreement. Notwithstanding anything to the contrary contained in the Loan
        Documents, the minimum monthly interest payable by Borrower on the Advances
        shall be Two Thousand Five Hundred Dollars ($2,500).

       

      C.  In
        no
        event shall interest on the Obligations exceed the highest lawful rate in
        effect
        from time to time. It is not the intention of the parties hereto to make
        an
        agreement which violates any applicable state or federal usury laws. In no
        event
        shall Borrower pay or BACC accept or charge any interest which, together
        with
        any other charges upon the principal or any portion thereof, exceeds the
        maximum
        lawful rate of interest allowable under any applicable state or federal usury
        laws. Should any provision of this Agreement or any existing or future Notes
        or
        Loan Documents between the parties be construed to require the payment of
        interest or any other fees or charges which could be construed as interest
        which, together with any other charges upon the principal or any portion
        thereof
        and any other fees or charges which could be construed as interest, exceeds
        the
        maximum lawful rate of interest, then any such excess shall be applied to
        the
        remaining principal balance of the Obligations, if any, and the remainder
        refunded to Borrower.

       

      D.  Notwithstanding
        the foregoing, for purposes of this Agreement, it is the intention of Borrower
        and BACC that “interest” shall mean, and be limited to, any payment to BACC
        which compensates it for extending credit to Borrower, for making available
        to
        Borrower a revolving credit facility during the term of this Agreement and
        for
        any default or breach by Borrower of a condition upon which credit was extended.
        Borrower and BACC agree that, for the sole purpose of calculating the “interest”
paid by Borrower to BACC, it is the intention of Borrower and BACC that interest
        shall mean and include, and be expressly limited to, any interest accrued
        on the
        aggregate outstanding balance of the Obligations during the term hereof pursuant
        to Sections 2.4(A) and 2.4(B); and any Overadvance Fee, Facility Fee, Equipment
        Fee and late fees charged to Borrower during the term hereof. Borrower and
        BACC
        further agree that it is their intention that the following fees shall not
        constitute “interest”: any Servicing Fees, any Examination Fees, any attorney
        fees incurred by BACC, any premiums or commissions attributable to insurance
        guaranteeing repayment, finders’ fees, credit report fees, appraisal fees or
        fees for document preparation or notarization. To the extent, however, that
        California law excludes from the calculation of “interest” any fees defined
        herein as interest, or includes as interest any fees or other sums which
        are
        intended not to constitute interest California law shall supersede and prevail
        and all such interest shall be subject to paragraph 2.4(C) above.

       

      
        
          
          

        

        
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      2.5  Collection
        of Accounts.
        Upon
        the occurrence of an Event of Default, BACC or a BACC designee may, at any
        time,
        with or without notice to Borrower, notify customers or Account debtors or
        other
        obligors that the Accounts or other Collateral have been assigned to BACC,
        and
        that BACC has a security interest in them and collect the Accounts and other
        Collateral directly, and add the collection costs and expenses to the
        Obligations, but, unless and until BACC does so or gives Borrower other written
        instructions, Borrower shall receive all payments and other proceeds on Accounts
        and other Collateral, including, without limitation, collections under credit
        card sales and cash, in trust for BACC and immediately deliver said payments
        to
        BACC in their original form as received from the Account debtor or other
        obligor, together with any necessary endorsements, and/or at the discretion
        of
        BACC deposit said payments into a deposit account designated and in the name
        of
        and under the exclusive control of BACC.

       

      2.6  Crediting
        Payments.
        The
        receipt of any item of payment by BACC shall, for the sole purpose of
        determining availability under the revolving credit facility provided for
        herein, subject to final payment of such item, be provisionally applied to
        reduce Obligations on the date of receipt of such item by BACC, but the receipt
        of such an item of payment shall for all other purposes in determining the
        Daily
        Balance, including without limitation for the purpose of calculation of interest
        on the Obligations and the calculation of the Servicing Fee, not be deemed
        to
        have been paid to BACC until four (4) Business Days after the date of BACC's
        actual receipt of such item of payment. Notwithstanding anything to the contrary
        contained herein, payments received by BACC after 11:00 a.m. Eastern time
        shall
        be deemed to have been received by BACC as of the opening of business on
        the
        immediately following Business Day.

       

      2.7  Facility
        Fee. In
        consideration of BACC’s entering into this Agreement, Borrower shall pay BACC a
        yearly facility fee (the Facility Fee) in an amount equal to one percent
        (1.0%)
        of the sum of the Advance Limit plus the original principal balance of any
        term
        loans and Advances other than under the Revolving Credit Facility, for each
        yearly period commencing from the execution hereof through the initial
        Termination Date of June 30, 2006, with all such amounts being fully earned
        upon
        the execution hereof and payable in advance of each year, unless earlier
        payable
        pursuant to the terms hereof. In the event the Termination Date is thereafter
        extended, on one or more occasions, beyond such initial Termination Date,
        Borrower shall pay BACC a Facility Fee for each yearly period of any extension
        in an amount equal to one percent (1.0%) of the sum of Advance Limit (in
        effect
        at the time of the extension) plus the then outstanding principal balance
        of any
        term loans and Advances other than under the Revolving Credit Facility, with
        all
        such amounts being fully earned upon the execution of any extension agreement,
        and payable in advance of each year, unless earlier payable pursuant to the
        terms hereof.

       

      2.8  Servicing
        Fee.
        Borrower shall pay BACC a fee (the Servicing
        Fee)
        in an
        amount equal to fifteen one hundredths of one percent (0.15%) of the daily
        average outstanding balance of the Advances during each month on or before
        the
        first (1st) day of each calendar month in respect of BACC's services for
        the
        preceding calendar month, during the Term, including each Renewal Term, or
        so
        long as the Obligations are outstanding. 

       

      2.9  Field
        Examination Fee.
        Borrower shall pay BACC a fee (the Field
        Examination Fee)
        in an
        amount equal to Seven Hundred Fifty Dollars ($750) per day per examiner,
        plus
        out-of-pocket expenses for each examination of Borrower's Books or the other
        Collateral performed by BACC or its designee.

       

      2.10  Late
        Reporting Fee.
        Borrower shall pay to BACC a fee in an amount equal to Fifty Dollars ($50.00)
        per document per day for each Business Day any report, financial statement
        or
        schedule required by this Agreement to be delivered to BACC is past
        due.

       

      2.11  Monthly
        Statements.
        BACC
        may render monthly statements to Borrower of all Obligations, including
        statements of all principal, interest and BACC Expenses, and Borrower shall
        have
        fully and irrevocably waived all objections to such statements and the contents
        thereof unless, within thirty (30) days after receipt, Borrower shall deliver
        to
        BACC, by registered, certified or overnight mail as set forth in Section
        12
        hereof, written objection to such statement specifying the error or errors,
        if
        any, contained therein.

       

      
        
          
          

        

        
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      2.12  Term
        Loans.
        

       

      A.
         Contemporaneous
        with the execution hereof BACC shall lend to Borrower the principal sum of
        One
        Hundred Ninety Thousand Dollars no/100 ($190,000) which sum, together with
        interest at the rate set forth below shall be paid in equal consecutive monthly
        installments of principal of Three Thousand One Sixty Seven and 00/100 Dollars
        ($3,167) each beginning on June 1, 2005 and continuing on the same day of
        each
        month thereafter until paid in full. Interest, at the rate set forth in Section
        2.4 hereof, shall be paid on the first day of each month hereafter and on
        the
        maturity date of said term loan. Notwithstanding the foregoing, the entire
        unpaid principal balance of said term loan, and all accrued and unpaid interest
        thereon, shall be due and payable in full on the Termination Date. If Borrower
        prepays, in whole or in part, the term loan other than in connection with
        a
        termination subject to subject to Section 3.2 below, contemporaneous with
        such
        prepayment Borrower shall pay BACC a prepayment premium equal to five percentage
        points (5.0%) of the amount so prepaid.

       

      B.
         Upon
        the
        request of Borrower, made at any time prior to March 31, 2006 and so long
        as (i)
        no Event of Default has occurred and is continuing, and (ii) provided that
        BACC
        has a first priority and only security interest in the Equipment to be financed
        under the Capital Expenditures Term Loan (as defined below), BACC may, in
        its
        sole and absolute discretion, make capital expenditure Advances in a total
        amount not to exceed the lesser of: (a) eighty-five percent (85%) of the
        cost of
        Equipment acquired by Borrower (after subtracting taxes, freight and
        installation charges) ("Equipment Advance"); and (b) One Hundred Fifty Thousand
        Dollars ($150,000) (the Capital
        Expenditures Term Loan);
        provided, however, each Equipment Advance shall be no less Ten Thousand Dollars
        ($10,000). The Capital Expenditures Term Loan shall be further evidenced
        by a
        Secured Term Promissory Note (Capital Expenditures).

       

      At
        the
        time of each new respective type of Advance hereunder (i.e. Equipment Advance),
        the aggregate of the then outstanding principal balance of the same type
        of
        Advances, if any, shall be added to the new Advance of the same type and
        the
        total aggregate balance of both shall be divided by the number of months
        remaining between the last day of the month in which such new Advance took
        place
        and the Applicable Maturity Date (as defined below) that applies to such
        type of
        Advances, and the resulting amount of said installments, rounded to the nearest
        One Hundred Dollars ($100), shall be payable in consecutive monthly payments
        (or
        earlier, as hereinafter referred to) on the first day of each month commencing
        on the first (1st) full calendar month following such new Advance hereunder
        and
        continuing on the first day of each succeeding month until the Applicable
        Maturity Date. The entire remaining unpaid principal balance of the Capital
        Expenditures Term Loan, plus any and all accrued and unpaid interest, shall
        be
        due and payable on the earlier of: (i) May 1, 2009 (unless an earlier Applicable
        Maturity Date, applies to all or a portion of the Capital Expenditures Term
        Loan), or (ii) the date this Agreement terminates by its terms or is terminated
        by either party in accordance with its terms. If Borrower prepays, in whole
        or
        in part, the term loan other than in connection with a termination subject
        to
        Section 3.2 below, contemporaneous with such prepayment Borrower shall pay
        BACC
        a prepayment premium equal to five percent (5.0%) of the amount so prepaid.
        Interest, at the rate set forth in Section 2.4 hereof, shall be payable monthly,
        in addition to the principal payments provided above, commencing on the due
        date
        of the first (1st) principal payments hereunder, and continuing on the first
        day
        of each succeeding month, with all accrued and unpaid interest due and payable
        in full on the Termination Date. As used herein, the "Applicable Maturity
        Date"
        means May 1, 2009 with respect to Equipment Advances.

       

      As
        a
        condition to the Capital Expenditures Term Loan, Borrower agrees to pay a
        fee
        (the Equipment
        Fee),
        which
        fee shall be immediately due and payable on the day of the Equipment Advance,
        in
        an amount equal to one-twelfth of one percent (0.00834%) of the Equipment
        Advances for the number of months between the date of the Equipment Advance
        and
        the Termination Date. 

       

      
        
          
          

        

        
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      3.  TERM

       

      3.1  Term
        and Renewal Date.
        This
        Agreement shall become effective upon execution by BACC and continue in full
        force through the Initial Term and from year to year thereafter (a “Renewal
        Term”) if BACC, at its option, in writing agrees to extend the Term for one (1)
        year from the then Termination Date, provided that Borrower has not exercised
        its termination right in accordance with this Section 3.1. Borrower may
        terminate the Term on the then Termination Date by giving BACC at least sixty
        (60) days prior written notice by registered or certified mail, return receipt
        requested. In addition, BACC shall have the right to terminate this Agreement
        immediately at any time upon the occurrence of an Event of Default. No such
        termination shall relieve or discharge Borrower of its duties, Obligations
        and
        covenants hereunder until all Obligations have been paid and performed in
        full,
        and BACC's continuing security interest in the Collateral shall remain in
        effect
        until the Obligations have been fully and irrevocably paid and satisfied
        in cash
        or cash equivalent. On the Termination Date of this Agreement, the Obligations
        shall be immediately due and payable in full. Expressly in addition to all
        rights and remedies available to BACC, if the term of this Agreement is not
        renewed and the Obligations are not paid in full by the Termination Date,
        then
        Borrower shall also pay to BACC, as part of the Obligations, a fee of two
        percent (2.0 %) of the Advance Limit plus the then outstanding principal
        balance
        of any term loans and Advances other than under the revolving credit facility
        provided for in Section 2.1 hereof.

       

      3.2  Early
        Termination Fee.
        If the
        Term is terminated by BACC upon the occurrence of an Event of Default, or
        is
        terminated by Borrower except as provided in Section 3.1, in view of the
        impracticability and extreme difficulty of ascertaining actual damages and
        by
        mutual agreement of the parties as to a reasonable calculation of BACC's
        lost
        profits as a result thereof, in addition to payment of all principal, interest,
        fees, expenses and other Obligations, Borrower shall pay BACC upon the effective
        date of such termination a fee in an amount equal to five percent (5%) of
        the
        Advance Limit plus the then outstanding principal balance of any term loans
        or
        Advances other than under the Revolving Credit Facility, if such termination
        occurs at any time including during a Renewal Term. Such fee shall be presumed
        to be the amount of damages sustained by BACC as the result of termination
        and
        Borrower acknowledges that it is reasonable under the circumstances currently
        existing. The fee provided for in this Section 3.2 shall be deemed included
        in
        the Obligations.

       

      4.  CREATION
        OF CONTINUING SECURITY INTEREST

       

      4.1  Grant
        of Continuing Security Interest.
        Borrower hereby grants to BACC a continuing security interest in all presently
        existing and hereafter acquired or arising Collateral in order to secure
        prompt
        repayment of the Obligations and in order to secure prompt performance by
        Borrower of each and all of its covenants and Obligations under the Loan
        Documents and otherwise. BACC's continuing security interest in the Collateral
        shall attach to all Collateral without further act on the part of BACC or
        Borrower.

       

      4.2  Negotiable
        Collateral.
        In the
        event that any Collateral, including proceeds, is evidenced by or consists
        of
        Negotiable Collateral, Borrower shall notify BACC and upon the request of
        BACC,
        immediately endorse and assign such Negotiable Collateral to BACC and deliver
        physical possession of such Negotiable Collateral to BACC.

       

      4.3  Delivery
        of Additional Documentation Required.
        Borrower shall execute and deliver to BACC concurrently with Borrower's
        execution and delivery of this Agreement and at any time thereafter at the
        request of BACC, all financing statements, continuation financing statements,
        fixture filings, security agreements, chattel mortgages, pledges, assignments,
        endorsements of certificates of title, applications for title, affidavits,
        reports, notices, schedules of accounts, letters of authority, and all other
        documents that BACC may request, in form satisfactory to BACC, to perfect
        and
        maintain perfected BACC's continuing security interests in the Collateral
        and in
        order to fully consummate all of the transactions contemplated under the
        Loan
        Documents and Borrower hereby authorizes BACC to file and/or record such
        financing statements and other documents as BACC deems necessary to perfect
        and
        maintain BACC's continuing security interest in the Collateral, and agrees
        any
        such financing statement may contain an “all asset” or “all property”
description of the Collateral, and Borrower hereby ratifies any such financing
        statement or other document heretofore filed by BACC.

       

      
        
          
          

        

        
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      4.4  Power
        of Attorney.
        Borrower hereby irrevocably makes, constitutes and appoints BACC (and any
        person
        designated by BACC) as Borrower's true and lawful attorney-in-fact with power
        to
        sign the name of Borrower on any of the above described documents or on any
        other similar documents to be executed, recorded or filed in order to perfect
        or
        continue perfected BACC's continuing security interest in the Collateral.
        In
        addition, Borrower hereby appoints BACC (and any person designated by BACC)
        as
        Borrower's attorney-in-fact with power to: (a) sign Borrower's name on
        verifications of Accounts and other Collateral, and on notices to Account
        debtors; (b) send requests for verification of Accounts and other Collateral;
        (c) endorse Borrower's name on any checks, notes, acceptances, money orders,
        drafts or other forms of payment or security that may come into BACC's
        possession; (d) notify the post office authorities to change the address
        for
        delivery of Borrower's mail to an address designated by BACC, to receive
        and
        open all mail addressed to Borrower, and to retain all mail relating to the
        Collateral and forward all other mail to Borrower; (e) make, settle and adjust
        all claims under Borrower's policies of insurance, endorse the name of Borrower
        on any check, draft, instrument or other item of payment for the proceeds
        of
        such policies of insurance and make all determinations and decisions with
        respect to such policies of insurance. The appointment of BACC as Borrower's
        attorney-in-fact and each and every one of BACC's rights and powers, being
        coupled with an interest, is irrevocable so long as any Accounts in which
        BACC
        has a continuing security interest remain unpaid and until all of the
        Obligations have been fully repaid and performed.

       

      4.5  Right
        To Inspect.
        BACC
        shall have the right at any time or times hereafter during Borrower's usual
        business hours, or during the usual business hours of any third party having
        control over Borrower's Books, to inspect Borrower's Books in order to verify
        the amount or condition of, or any other matter relating to, the Collateral
        or
        Borrower's financial condition. BACC also shall have the right at any time
        or
        times hereafter during Borrower's usual business hours to inspect, examine
        and
        appraise the Inventory, the Equipment and other Collateral and to check and
        test
        the same as to quality, quantity, value and condition.

       

      5.  REPRESENTATIONS
        AND WARRANTIES

       

      Borrower
        represents and warrants to BACC the following and acknowledges:

       

      5.1  No
        Prior Encumbrances; Security Interests.
        Borrower has good and marketable title to the Collateral, free and clear
        of
        liens, claims, security interests or encumbrances, except for the security
        interests to be satisfied from the proceeds of the first Advances hereunder,
        the
        continuing security interests granted to BACC by Borrower, and those disclosed
        on Schedule 5.1 annexed hereto. Other than those expressly permitted by this
        Agreement, Borrower will not create or permit to be created any security
        interest, lien, pledge, mortgage or encumbrance on any Collateral or any
        of its
        other assets.

       

      5.2  Bona
        Fide Accounts.
        All
        Accounts represent bona fide sales or leases of goods and/or services for
        which
        Borrower has an unconditional right to payment and as to which the goods
        have
        been delivered to the customer and/or the services rendered, as applicable.
        None
        of the Accounts are subject to any rights of offset, counterclaim, cancellation
        or contractual rights of return.

       

      5.3  Merchantable
        Inventory.
        All
        Inventory is now and at all times hereafter shall be of good and merchantable
        quality, free from defects.

       

      5.4  Location
        of Inventory and Equipment.
        The
        Inventory and Equipment is not now and shall not at any time or times hereafter
        be stored with a bailee, warehouseman, processor, or similar party. Borrower
        shall keep the Inventory and Equipment only at its address set forth on the
        first page hereof and at the following locations: 1) Valley Distributing
&
Storage, Co. - 1 Passan Drive, Wilkes-Barre, PA 18702, 2) Dart Advantage
        Warhousing, Inc. - 2755 Highway 55, Egan MN 55121, 3) Lagrou Des Plaines
        - 135
        S. Lasalle, Dept 2319, Chicago, IL 60674, 4) United Warehouse - 1750 Occidental
        Avenue, Seattle, WA 98124, 5) The Lion Brewery, Inc. 700 N Pennsylvania Avenue,
        Wilkes-Barre, PA 18705, 6) Prism Team Services - 33300 Dowe Avenue, Union
        City,
        CA 94587, 7) Ronnybrooke Farm Dairy, Inc. - 310 Prospect Hill Rd., Ancramdale,
        NY 12503, 8) HA Rider & Sons - 2482 Freedom Blvd, Watsonville, CA 95076, 9)
        Radex Distribution - 1430 S. Eastman Avenue, Los Angeles, CA 90023, 10) LNS
        Transport Services - 11321 Satellite Blvd, Suite C, Orlando, FL 32837, 11)
        US
        Cold Storage - 33400 Dowe Avenue, Union City, CA 94587, and 12) Gamse
        Lithographing Co., Inc. - 7413 Pulaski Highway, Baltimore, MD
        21237.

       

      
        
          
          

        

        
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      5.5  Inventory
        Records.
        Borrower now keeps and hereafter at all times shall keep correct and accurate
        records itemizing and describing the kind, type, quality and quantity of
        the
        Inventory and Borrower's cost of said items and none of Borrower’s Inventory
        contains any labels, trademarks, trade-names or other identifying
        characteristics which are the properties of third parties.

       

      5.6  Retail
        Accounts.
        No
        Accounts arise from the sale of goods or rendition of services for personal,
        family or household purposes.

       

      5.7  Relocation
        of Chief Executive Office.
        The
        chief executive office of Borrower and the location of all books and records
        of
        Borrower relating to the Collateral is at the address indicated on the first
        page of this Agreement and Borrower will not, without thirty (30) days' prior
        written notice to BACC and compliance with Section 4.3 hereof, relocate such
        office.

       

      5.8  Due
        Incorporation and Qualification.
        Borrower is, and shall at all times hereafter, be a corporation duly organized
        and existing under the laws of the state of its incorporation as set forth
        on
        the first page hereof, and Borrower is, and shall at all times hereafter
        be,
        qualified and licensed to do business and is in good standing in any state
        in
        which the conduct of its business or its ownership of assets requires that
        it be
        so qualified.

       

      5.9  Fictitious
        Name.
        Borrower's exact name is set forth on the first page hereof and Borrower
        has not
        changed its name in the last five (5) years. Borrower is conducting its business
        under the following trade or fictitious name(s) and no others: Virgil's,
        Virgil's Rootbeer and Cream Sodas, Reed's, Reed's Spiced Apple Ciders and
        Brews,
        Reed's Ginger Brew, Reed's Ginger Juice Brew, Reed's Original Ginger Brew,
        Reed's Ginger Candies, and China Cola. Borrower has complied with the fictitious
        name laws of all jurisdictions in which compliance is required in connection
        with its use of such name(s).

       

      5.10  Permits
        and Licenses.
        Borrower holds all licenses, permits, franchises, approvals and consents
        required for the conduct of its business and the ownership and operation
        of its
        assets.

       

      5.11  Due
        Authorization.
        Borrower has the right and power and is duly authorized to enter into the
        Loan
        Documents to which it is a party.

       

      5.12  Compliance
        with Articles; Bylaws.
        The
        execution by Borrower of the Loan Documents to which it is a party does not
        constitute a breach of any provision contained in Borrower's Certificate
        or
        Articles of Incorporation or its Bylaws, nor does it constitute an event
        of
        default under any material agreement to which Borrower is now or may hereafter
        become a party.

       

      5.13  Litigation.
        There
        are no actions, proceedings or claims pending by or against Borrower, whether
        or
        not before any court or administrative agency and Borrower has no knowledge
        or
        notice of any pending, threatened or imminent litigation, governmental
        investigations, or claims, complaints, actions, or prosecutions involving
        Borrower, except for ongoing collection matters in which Borrower is the
        plaintiff. If any such actions, proceedings or claims presently exist or
        arise
        during the Term, Borrower shall promptly notify BACC in writing and shall,
        from
        time to time, notify BACC of all materials events relating thereto.

       

      5.14  Accuracy
        of Information and No Material Adverse Change in Financial
        Statements.
        All
        information furnished by Borrower to BACC and all statements made by Borrower
        to
        BACC, including, without limitation, information set forth in a loan
        applications, is true, accurate and complete in all respects and does not
        contain any misstatement of fact or omit to state any facts necessary to
        make
        the statements or information contained therein not misleading. All financial
        statements relating to Borrower which have been or may hereafter be delivered
        to
        BACC (i) have been prepared in accordance with GAAP; (ii) fairly present
        Borrower's financial condition as of the date thereof and Borrower's results
        of
        operations for the period then ended; and (iii) disclose all contingent
        obligations of Borrower. In addition no material adverse change in the financial
        condition of Borrower has occurred since the date of the most recent of such
        financial statements.

       

      
        
          
          

        

        
          11

          
            

          

        

         

      

       

      5.15  Solvency.
        Borrower is now, and shall be at all times through the Term, solvent and
        able to
        pay its debts (including trade debts) as they mature.

       

      5.16  ERISA.
        Neither
        Borrower or any ERISA Affiliate, nor any Plan is or has been in violation
        of any
        of the provisions of ERISA, any of the qualification requirements of IRC
        Section
        401(a), or any of the published interpretations thereof. No lien upon the
        assets
        of Borrower has arisen with respect to any Plan. No prohibited
        transaction
        within
        the meaning of ERISA Section 406 or IRC Section 4975(c) has occurred with
        respect to any Plan. Neither Borrower nor any ERISA Affiliate has incurred
        any
        withdrawal liability with respect to any Multiemployer Plan. Borrower and
        each
        ERISA Affiliate have made all contributions required to be made by them to
        any
        Plan or Multiemployer Plan when due. There is no accumulated funding deficiency
        in any Plan, whether or not waived.

       

      5.17  Environmental
        Laws and Hazardous Materials.
        Borrower has complied, and at all times through the Term will comply, with
        all
        Environmental Laws. Borrower has not and will not cause or permit any Hazardous
        Materials to be located, incorporated, generated, stored, manufactured,
        transported to or from, released, disposed of, or used at, upon, under, or
        within any premises at which Borrower conducts its business, or in connection
        with Borrower's business. To the best of Borrower's knowledge, no prior owner
        or
        operator of any premises at which Borrower conducts its business has caused
        or
        permitted any of the above to occur at, upon, under, or within any of the
        premises. Borrower will not permit any lien to be filed against the Collateral
        or any part thereof under any Environmental Law, and will promptly notify
        BACC
        of any proceeding, inquiry or claim relating to any alleged violation of
        any
        Environmental Law, or any alleged loss, damage or injury resulting from any
        Hazardous Material. BACC shall have the right to join and participate in,
        as a
        party if it so elects, any legal or administrative proceeding initiated with
        respect to any Hazardous Material or in connection with any Environmental
        Law.
“Hazardous Material” includes without limitation any substance, material,
        emission, or waste which is or hereafter becomes regulated or classified
        as a
        hazardous substance, hazardous material, toxic substance or solid waste under
        any Environmental Law, asbestos, petroleum products, urea formaldehyde,
        polychlorinated biphenyls (PCBs), radon, and any other hazardous or toxic
        substance, material, emission or waste. Environmental Law means the
        Comprehensive Environmental Response, Compensation, and Liability Act of
        1980,
        as amended, the Resource Conservation and Recovery Act of 1976, the Hazardous
        Materials Transportation Act, the Toxic Substances Control Act, the regulations
        pertaining to such statutes, and any other safety, health or environmental
        statutes, laws, regulations or ordinances of the United States or of any
        state,
        county or municipality in which Borrower conducts its business or the Collateral
        is located.

       

      5.18  Tax
        Compliance.
        Borrower has filed all tax returns required to be filed by it and has paid
        all
        taxes due and payable on said returns and on any assessment made against
        it or
        its assets.

       

      5.19  Reliance
        by BACC; Cumulative.
        Each
        warranty, representation and agreement contained in this Agreement shall
        be
        automatically deemed repeated by Borrower with each request for an Advance
        and
        shall be conclusively presumed to have been relied on by BACC regardless
        of any
        investigation made or information possessed by BACC. The warranties,
        representations and agreements set forth herein shall be cumulative and in
        addition to any and all other warranties, representations and agreements
        which
        Borrower shall now or hereafter give, or cause to be given, to
        BACC.

       

      5.20  Use
        of Proceeds.
        The
        proceeds of the initial Advance will be used by Borrower for the purposes
        set
        forth on Schedule 5.20 annexed hereto.

       

      5.21  Motor
        Vehicles and Intellectual Property.
        Schedule
        5.21 annexed hereto identifies all motor vehicles, patents, patent applications,
        copyrights, trademarks, trade-names and other intellectual property, registered
        or unregistered, owned by Borrower. Borrower will promptly notify BACC of
        all
        motor vehicles or intellectual property hereafter owned by Borrower, and
        the
        status of all patent applications and the issuance of patents, and in accordance
        with Section 4.3 hereof, will cooperate with BACC in taking all actions required
        by BACC to have a perfected security interest or lien on such motor vehicles
        and
        intellectual property.

       

      5.22  Commercial
        Tort Claims.
        Borrower
        does not, as of the date hereof, have any commercial tort claims against
        any
        third parties. If Borrower does hereafter have any such commercial tort claims
        Borrower shall furnish BACC with prompt written notice thereof, and in
        accordance with Article 4 hereof, execute and deliver such supplemental
        documents and cooperate with BACC in taking all action required by BACC to
        have
        a perfected security interest or lien on such commercial tort
        claims.

       

      
        
          
          

        

        
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      6.  AFFIRMATIVE
        COVENANTS

       

      Borrower
        covenants and acknowledges that during the Term Borrower shall comply with
        all
        of the following:

       

      6.1  Collateral
        and Other Reports.
        Borrower shall on each Business Day report to BACC all sales and Accounts
        arising since its most recent report to BACC and shall provide copies of
        all
        invoices in excess of Four Thousand Dollars ($4,000) together with supporting
        shipping documentation acceptable to BACC. Borrower shall execute and deliver
        to
        BACC, no later than the fifteenth (15th) day of each month during the Term,
        a
        detailed aging of the Accounts, a reconciliation statement and a summary
        aging,
        by vendor, of all accounts payable of Borrower and any book overdraft. Borrower
        shall deliver to BACC, as BACC may from time to time require, collection
        reports, sales journals, invoices, original delivery receipts, customers'
        purchase orders, shipping instructions, bills of lading and other documentation
        respecting shipment arrangements. Absent such a request by BACC, copies of
        all
        such documentation shall be held by Borrower as custodian for BACC.

       

      6.2  Returns.
        Returns
        and allowances, if any, as between Borrower and any Account debtors, shall
        be
        permitted on the same basis and in accordance with the usual customary practices
        of Borrower as they exist at the date of the execution and delivery of this
        Agreement. If at any time prior to the occurrence of an Event of Default
        any
        Account debtor returns any Inventory to Borrower, Borrower shall promptly
        determine the reason for such return and, if Borrower accepts such return,
        issue
        a credit memorandum (with a copy to be sent to BACC) in the appropriate amount
        to such Account debtor. Borrower shall promptly notify BACC of all returns
        and
        recoveries and of all disputes and claims.

       

      6.3  Designation
        of Inventory.
        Borrower shall contemporaneous with the execution hereof and from time to
        time
        hereafter, but not less frequently than monthly by the fifteenth of each
        month,
        execute and deliver to BACC a designation of Inventory specifying the cost
        and
        the wholesale market value of Borrower's raw materials, work in process and
        finished goods, and further specifying such other information as BACC may
        reasonably request. Borrower shall promptly, in writing, notify BACC if any
        of
        Borrower’s Inventory contains any labels, trademarks, trade-names or other
        identifying characteristics which are the properties of third
        parties.

       

      6.4  Financial
        Statements, Reports, Certificates.
        Borrower shall deliver to BACC: (a) as soon as available, but in any event
        within thirty (30) days after the end of each month during the Term, a balance
        sheet and profit and loss statement prepared by Borrower covering Borrower's
        operations during such period; and (b) as soon as available, but in any event
        within ninety (90) days after the end of each of Borrower's fiscal years,
        financial statements of Borrower for each such fiscal period, reviewed or
        audited by independent certified public accountants acceptable to BACC. Such
        financial statements shall include a balance sheet and profit and loss
        statement, and the accountants' management letter, if any, and shall be prepared
        in accordance with GAAP. Together with the above, Borrower shall also deliver
        Borrower's Form 10-Qs, 10-Ks or 8-Ks, if any, as soon as the same become
        available, and any other report reasonably requested by BACC relating to
        the
        Collateral and the financial condition of Borrower and a certificate signed
        by
        its chief financial officer to the effect that all reports, statements or
        computer prepared information of any kind or nature delivered or caused to
        be
        delivered to BACC under this Section 6.4 fairly present its financial condition
        and that there exists on the date of delivery of such certificate to BACC
        no
        condition or event which constitutes an Event of Default.

       

      6.5  Tax
        Returns, Receipts.
        Borrower shall deliver to BACC copies of each of its future federal income
        tax
        returns, and any amendments thereto, within thirty (30) days of the filing
        thereof. Borrower further shall promptly deliver to BACC, upon request,
        satisfactory evidence of Borrower's payment of all withholding and other
        taxes
        required to be paid by it.

       

      
        
          
          

        

        
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      6.6  Guarantor
        Reports.
        Borrower agrees to cause each Guarantor to deliver its annual financial
        statements and copies of all federal income tax returns as soon as the same
        are
        available and in any event no later than thirty (30) days after the same
        are
        required to be filed by law.

       

      6.7  Title
        to Equipment.
        Upon
        BACC's request, Borrower shall immediately deliver to BACC, properly endorsed,
        any and all evidences of ownership of, certificates of title, or applications
        for title to any items of Equipment.

       

      6.8  Maintenance
        of Equipment.
        Borrower shall keep and maintain the Equipment in good operating condition
        and
        repair, and shall make all necessary replacements thereto so that its value
        and
        operating efficiency shall at all times be maintained and preserved. Borrower
        shall not permit any item of Equipment to become a fixture to real estate
        or an
        accession to other property, and the Equipment is now and shall at all times
        remain Borrower's personal property.

       

      6.9  Taxes.
        All
        Federal, state and local assessments and taxes, whether real, personal or
        otherwise, due or payable by, or imposed, levied or assessed against Borrower
        or
        any of its assets or in connection with Borrower's business shall hereafter
        be
        paid in full, before they become delinquent or before the expiration of any
        extension period. Borrower shall make due and timely payment or deposit of
        all
        federal, state and local taxes, assessments or contributions required of
        it by
        law, and will execute and deliver to BACC, on demand, appropriate certificates
        attesting to the payment or deposit thereof.

       

      6.10  Insurance.
        Borrower, at its expense, shall keep and maintain insurance to protect the
        Collateral against all risk of loss covered under a Special property form
        (If
        any of the tangible Collateral is located in a flood zone, Borrower must
        also
        have flood insurance. Borrowers with Collateral in California must also insure
        against the peril of earthquakes.) The coverage shall be written on a
        replacement cost basis. The property limit(s) shall be no less than those
        necessary to satisfy the coinsurance requirement contained in the insurance
        policy. The Borrower, at its expense, shall keep and maintain Business Income
        Coverage. The Business Income Coverage shall insure against loss covered
        under a
        Special policy form. The limit must contemplate a benefit period of no less
        than
        twelve months and meet the minimum limit needed to satisfy the coinsurance
        requirement contained in the policy. The Business Income coverage can be
        written
        on an agreed amount basis, or with a coinsurance percentage from 80% to 100%.
        All policies insurance business personal property and business income shall
        contain a Lender’s Loss Payable endorsement in a form satisfactory to BACC. All
        policies insuring real property on which BACC has a mortgage or other lien
        shall
        contain a Mortgagee endorsement in form satisfactory to BACC. Either, or
        both,
        form(s) shall contain a waiver of warranties. All proceeds payable under
        such
        policies shall be payable to BACC and applied to the Obligations. Borrower
        shall
        cause to be delivered to BACC a properly executed Evidence of Property Insurance
        form along with a copy of the Lender’s Loss Payable and/or Mortgagee
        endorsement(s) as applicable, in advance of the loan closing date and thereafter
        at least thirty (30) days prior to the expiration date(s) of the policy(ies).
        All Mortgagee and Lender’s Loss Payable endorsements shall contain the following
        address for notification purposes, or such other address as BACC may, from
        time
        to time, notify Borrower:

       

      Business
        Alliance Capital Corp.

      c/o
        Howe
        Insurance Group

      P.O.
        Box
        48

      Princeton,
        New Jersey 08542

       

      Borrower,
        at its expense, shall keep and maintain Commercial General Liability Coverage
        insuring against all risks relating to or arising from Borrower’s ownership and
        use of the Collateral and its other assets, its products, and its operations.
        BACC, its directors, officers and employees shall be named as additional
        insureds for Commercial General Liability on Borrower’s policy. Borrower shall
        cause to be delivered to BACC a properly executed Certificate of Insurance,
        containing the required additional insured wording, before the loan closing
        and
        thereafter at least thirty (30) days prior the expiration date of the policy.
        Along with the Certificate of Insurance, Borrower shall also deliver a copy
        of
        the General Liability endorsement whereby BACC, et. al., are added to the
        policy
        as additional insureds.

       

      
        
          
          

        

        
          14

          
            

          

        

         

      

       

      All
        required policies shall be in such form, with such companies and in such
        amounts
        as may be satisfactory to BACC. All policies shall contain a 30 day notice
        for
        cancellation or non-renewal. BACC reserves the right to change insurance
        specifications at any time.

       

      6.11  BACC
        Expenses.
        Borrower shall immediately and without demand reimburse BACC for all BACC
        Expenses and Borrower hereby authorizes the payment of such BACC
        Expenses.

       

      6.12  Compliance
        With Law.
        Borrower shall comply, in all material respects, with the requirements of
        all
        applicable laws, rules, regulations and orders of governmental authorities
        relating to Borrower and the conduct of its business.

       

      6.13  Accounting
        System.
        Borrower at all times hereafter shall maintain a standard and modern system
        of
        accounting in accordance with GAAP with ledger and account cards or computer
        tapes, disks, printouts and records pertaining to the Collateral containing
        such
        information as may from time to time be requested by BACC.

       

      6.14  Life
        Insurance.
        [Intentionally omitted.]

       

      7.  NEGATIVE
        COVENANTS

       

      Borrower
        covenants and acknowledges that during the Term Borrower shall not undertake
        any
        of the following:

       

      7.1  Extraordinary
        Transactions and Disposal of Assets.
        Enter
        into any transaction not in the ordinary and usual course of its business
        as
        conducted on the date hereof, including but not limited to the sale, lease,
        disposal, movement, relocation or transfer, whether by sale or otherwise,
        of any
        its assets other than sales of Inventory in the ordinary and usual course
        of its
        business as presently conducted; incur any indebtedness for borrowed money
        or
        purchase money indebtedness, or other indebtedness outside the ordinary and
        usual course of its business as conducted on the date hereof, except for
        renewals or extensions of existing debts permitted by BACC; make any advance
        or
        loan to any third party; or grant a lien on any of its assets except (a)
        in
        favor of BACC, or (b) the continuing security interests, if any, set forth
        on
        Schedule 5.1.

       

      7.2  Change
        Name, etc.
        Change
        its name, business structure, jurisdiction of incorporation or formation
        as
        applicable, or identity, or add any new fictitious name.

       

      7.3  Merge,
        Acquire.
        Merge,
        acquire, or consolidate with or into any other business
        organization.

       

      7.4  Guaranty.
        Guaranty or otherwise become in any way liable with respect to the obligations
        of any third party, except by endorsement of instruments or items of payment
        for
        deposit to the account of Borrower for negotiation and delivery to
        BACC.

       

      7.5  Restructure.
        Make
        any change in its financial structure or business operations.

       

      7.6  Prepayments.
        Except
        in
        accordance with Section 7.15, prepay
        any
        existing indebtedness owing to any third party other than trade
        payables.

       

      7.7  Change
        of Ownership.
        Cause,
        permit or suffer any change, direct or indirect, in the ownership of the
        capital
        stock of Borrower or enter into any agreement with any person or entity that
        provides for a payment to such person or entity based upon the income of
        Borrower. Notwithstanding the foregoing, BACC consents to that certain proposed
        initial public offering by Borrower as set forth in Form SB-2 filed with
        the
        Securities and Exchange Commission on April 28, 2005, provided that the actual
        initial public offering: (i) will be upon terms and conditions (including
        economic terms) that are materially consistent with the Form SB-2 and
        information previously provided to BACC, and (ii) following the consummation
        of
        the initial public offering that Christopher Reed’s ownership will be no less
        than 48% of the capital stock of Borrower.

       

      
        
          
          

        

        
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      7.8  Compensation.
        Except
        in
        accordance with Section 7.15, pay
        total
        compensation, including salaries, withdrawals, fees, bonuses, commissions,
        drawing accounts, management fees or other payments, whether direct or indirect,
        in money or otherwise, during any fiscal year to its executives, officers,
        shareholders, affiliates, and directors (or any relatives of the foregoing)
        in
        an aggregate amount in excess of one hundred ten percent (110%) of the total
        compensation paid in the prior fiscal year.

       

      7.9  Loans
        and Advances.
        Except
        in
        accordance with Section 7.15, make
        any
        loans, advances or extensions of credit to any officer, director, executive
        employee or shareholder of Borrower (or any relative of any of the foregoing),
        or to any entity which is a subsidiary of, related to, affiliated with or
        has
        common shareholders, officers or directors with Borrower.

       

      7.10  Capital
        Expenditures.
        Except
        in
        accordance with Section 7.15, make
        any
        plant or fixed capital expenditure, or any commitment therefore, or purchase
        or
        lease any real or personal assets or replacement Equipment in excess of Ten
        Thousand Dollars ($10,000.00) for any individual transaction or where the
        aggregate amount of such transactions in any fiscal year exceeds Twenty Five
        Thousand Dollars ($25,000.00).

       

      7.11  Consignments
        of Inventory.
        Consign
        any Inventory to any third party or obtain any Inventory on a consignment
        basis
        from any third party, other than Inventory disclosed by Borrower and considered
        ineligible by BACC.

       

      7.12  Distributions.
        Except
        in
        accordance with Section 7.15, make
        any
        distribution or declare or pay any dividends (in cash or in stock) on, or
        purchase, acquire, redeem or retire any of its capital stock, of any class,
        whether now or hereafter outstanding.

       

      7.13  Accounting
        Methods.
        Modify
        or change its method of accounting or enter into, modify or terminate any
        agreement presently existing or at any time hereafter entered into with any
        third party for the preparation or storage of Borrower's records of Accounts
        and
        financial condition without said party agreeing to provide BACC with information
        regarding the Collateral or Borrower's financial condition. Borrower waives
        the
        right to assert a confidential relationship, if any, it may have with any
        such
        third party in connection with any information requested by BACC hereunder,
        and
        agrees that BACC may contact any such party directly in order to obtain such
        information.

       

      7.14  Business
        Suspension.
        Suspend
        or go out of business.

       

      7.15  Payments
        from Cash Flow. 
        In
        addition to the amounts, if any, set forth in Sections 7.6, 7.8, 7.9, 7.10
        and 7.12, Borrower can make payments that, in aggregate, do not exceed
        Borrower's “cash flow” (defined as net after-tax profit plus depreciation and
        amortization expenses plus any net cash proceeds from the sale of stock pursuant
        to the initial public offering less the current portion of long term debt)
        for
        the fiscal year in which such payments are made so long as: (a) no Event of
        Default has occurred and is continuing, (b) Borrower is solvent and able to
        pay its debts (including trade debts) as they mature, and (c) Borrower has
        borrowing availability under Section 2.1 after the making of any such
        payment.

       

      8.  EVENTS
        OF DEFAULT

       

      The
        occurrence of any one or more of the following events shall constitute an
        Event
        of Default by Borrower hereunder:

       

      8.1  Failure
        to Pay.
        Borrower's failure to pay when due and payable, or when declared due and
        payable, any portion of the Obligations (whether principal, interest, taxes,
        BACC Expenses, or otherwise);

       

      
        
          
          

        

        
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      8.2  Failure
        to Perform.
        Borrower's or a Guarantor's failure to perform, keep or observe any term,
        provision, condition, representation, warranty, covenant or agreement contained
        in this Agreement, in any of the Loan Documents or in any other present or
        future agreement between Borrower, and/or a Guarantor and BACC;

       

      8.3  Misrepresentation.
        Any
        misstatement or misrepresentation now or hereafter exists in any warranty,
        representation, statement, aging or report made to BACC by, Borrower and/or
        a
        Guarantor or any officer, employee, agent or director thereof, or if any
        such
        warranty, representation, statement, aging or report is withdrawn by such
        person;

       

      8.4  Material
        Adverse Change.
        There
        is a material adverse change in Borrower's, or a Guarantor's, business or
        financial condition;

       

      8.5  Material
        Impairment.
        There
        is a material impairment of the prospect of repayment of the Obligations
        or a
        material impairment of BACC's continuing security interests in the
        Collateral;

       

      8.6  Levy
        or Attachment.
        Any
        material portion of Borrower's assets is attached, seized, subjected to a
        writ
        or distress warrant or is levied upon, or comes into the possession of any
        judicial officer or assignee;

       

      8.7  Insolvency
        by Borrower or Guarantor.
        An
        Insolvency Proceeding is commenced by Borrower or by a Guarantor;

       

      8.8  Insolvency
        Against Borrower.
        An
        Insolvency Proceeding is commenced against Borrower or a Guarantor;

       

      8.9  Injunction
        Against Borrower.
        Borrower is enjoined, restrained or in any way prevented by court order from
        continuing to conduct all or any material part of its business;

       

      8.10  Government
        Lien.
        A
        notice of lien, levy or assessment is filed of record with respect to any
        of
        Borrower's or a Guarantor's assets by the United States Government, or any
        department, agency or instrumentality thereof, or by any state, county,
        municipal or other governmental agency, or any taxes or debts owing at any
        time
        hereafter to any one or more of such entities becomes a lien, whether choate
        or
        otherwise, upon any of Borrower's or a Guarantor's assets and the same is
        not
        paid on the payment date thereof;

       

      8.11  Judgment.
        A
        judgment is entered against Borrower or a Guarantor;

       

      8.12  Default
        to Third Party.
        There
        is a default in any material agreement to which Borrower or a Guarantor is
        a
        party or by which binds Borrower or a Guarantor or any of their
        assets;

       

      8.13  Subordinated
        Debt Payments.
        Borrower makes any payment on account of indebtedness which has now or hereafter
        been subordinated to the Obligations, except to the extent such payment is
        allowed under any subordination agreement entered into with BACC;

       

      8.14  Termination
        of Guarantor.
        A
        Guarantor dies or terminates its guaranty;

       

      8.15  Change
        in Management.
        If
        Christopher Reed ceases to be actively engaged in the management of
        Borrower;

       

      8.16  ERISA
        Violation.
        A
prohibited
        transaction within
        the meaning of ERISA Section 406 or IRC Section 1975(c) shall occur with
        respect
        to a Plan which could have a material adverse effect on the financial condition
        of Borrower; any lien upon the assets of Borrower in connection with any
        Plan
        shall arise; Borrower or any ERISA Affiliate shall completely or partially
        withdraw from a Multiemployer Plan and such withdrawal could, in the opinion
        of
        BACC, have a material adverse effect on the financial condition of Borrower.
        Borrower or any of its ERISA Affiliates shall fail to make full payment when
        due
        of all amounts which Borrower or any of its ERISA Affiliates may be required
        to
        pay to any Plan or any Multiemployer Plan as one or more contributions thereto;
        Borrower or any of its ERISA Affiliates creates or permits the creation of
        any
        accumulated funding deficiency, whether or not waived; the voluntary or
        involuntary termination of any Plan which termination could, in the opinion
        of
        BACC, have a material adverse effect on the financial condition of Borrower
        or
        Borrower shall fail to notify BACC promptly and in any event within ten (l0)
        days of the occurrence of an event which constitutes an Event of Default
        under
        this clause or would constitute an Event of Default upon the exercise of
        BACC's
        judgment; or

       

      
        
          
          

        

        
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      8.17  Loss
        of License, etc.
        If any
        license, permit, distributor, franchise or similar agreement, necessary for
        the
        continue operation of Borrower’s ordinary course of business is revoked,
        suspended or terminated.

       

      Notwithstanding
        anything contained in this Section 8 to the contrary, BACC shall refrain
        from
        exercising its rights and remedies and an Event of Default shall not be deemed
        to have occurred by reason of the occurrence of any of the events set forth
        in
        Sections 8.6, 8.8, 8.10 or 8.11 hereof if, within ten (10) days from the
        date
        thereof, the same is released, discharged, dismissed, bonded against or
        satisfied; provided, however, BACC shall not be obligated to make Advances
        to
        Borrower during such period.

       

      9.  BACC'S
        RIGHTS AND REMEDIES

       

      9.1  Rights
        and Remedies.
        Upon
        the occurrence of an Event of Default, BACC may, at its election, without
        notice
        of such election and without demand, do any one or more of the
        following:

       

      (a)  Declare
        all Obligations, whether evidenced by the Loan Documents or otherwise,
        immediately due and payable in full:

       

      (b)  Cease
        advancing money or extending credit to or for the benefit of Borrower under
        the
        Loan Documents or under any other agreement between Borrower and
        BACC;

       

      (c)  Terminate
        this Agreement as to any future liability or obligation of BACC, but without
        affecting BACC's rights and security interest in the Collateral and without
        affecting the Obligations;

       

      (d)  Settle
        or
        adjust disputes and claims directly with Account debtors for amounts and
        upon
        terms which BACC considers advisable and, in such cases, BACC will credit
        the
        Obligations with the net amounts received by BACC in payment of such disputed
        Accounts, after deducting all BACC Expenses;

       

      (e)  Cause
        Borrower to hold all returned Inventory in trust for BACC, segregate all
        returned Inventory from all other property of Borrower or in Borrower's
        possession and conspicuously label said returned Inventory as the property
        of
        BACC;

       

      (f)  Without
        notice to or demand upon Borrower or a Guarantor, make such payments and
        do such
        acts as BACC considers necessary or reasonable to protect its security interest
        in the Collateral. Borrower shall assemble the Collateral if BACC so requires
        and deliver or make the Collateral available to BACC at a place designated
        by
        BACC. Borrower authorizes BACC to enter any premises where the Collateral
        is
        located, to take and maintain possession of the Collateral, or any part of
        it,
        and to pay, purchase, contest or compromise any encumbrance, charge or lien
        which in BACC's determination appears to be prior or superior to its security
        interest and to pay all expenses incurred in connection therewith;

       

      (g)  Ship,
        reclaim, recover, store, finish, maintain, repair, prepare for sale, lease,
        license or other disposition, advertise for sale, lease, license or other
        disposition, and sell, lease, license or otherwise dispose (in the manner
        provided for herein or in the Code) the Collateral. BACC is hereby granted
        a
        license or other right to use, without charge, Borrower's labels, patents,
        copyrights, rights of use of any name, trade secrets, trade names, trademarks,
        service marks, and advertising matter, or any asset of a similar nature,
        pertaining to the Collateral, in completing the production of, advertising
        for
        sale, lease, license or other disposition, and sale, lease, license or other
        disposition of the Collateral. Borrower's rights under all licenses and all
        franchise agreements shall inure to BACC's benefit;

       

      
        
          
          

        

        
          18

          
            

          

        

         

      

       

      (h)  Sell,
        lease, license or otherwise dispose of the Collateral at either a public
        or
        private proceeding, or both, by way of one or more contracts or transactions,
        for cash or on terms, in such manner and at such places (including Borrower's
        premises) as BACC determines is commercially reasonable. It is not necessary
        that the Collateral be present at any such sale;

       

      (i)  BACC
        shall give notice of the disposition of the Collateral as follows:

       

      (1) To
        Borrower and each holder of a security interest in the Collateral who has
        filed
        with BACC a written request for notice, a notice in writing of the time and
        place of public sale or other disposition or, if the sale or other disposition
        is a private sale or some other disposition other than a public sale is to
        be
        made, then the time on or after which the private sale or other disposition
        is
        to be made;

       

      (2) The
        notice hereunder shall be personally delivered or mailed, postage prepaid,
        to
        Borrower as provided in Section 12 hereof, at least ten (10) calendar days
        before the date fixed for the sale or other disposition, or at least ten
        (10)
        calendar days before the date on or after which the private sale or other
        disposition is to be made, unless the Collateral is perishable or threatens
        to
        decline speedily in value. Notice to persons other than Borrower claiming
        an
        interest in the Collateral shall be sent to such addresses as they have
        furnished to BACC;

       

      (j)  BACC
        may
        credit bid and purchase at any public sale:

       

      (k)  Any
        deficiency that exists after disposition of the Collateral, as provided herein,
        shall be immediately paid by Borrower. Any excess will be remitted without
        interest by BACC to the party or parties legally entitled to such excess;
        and

       

      (l)  In
        addition to the foregoing, BACC shall have all rights and remedies provided
        by
        law (including those set forth in the Code) and any rights and remedies
        contained in any Loan Documents and all such rights and remedies shall be
        cumulative.

       

      9.2  No
        Waiver.
        No
        delay on the part of BACC in exercising any right, power or privilege under
        any
        Loan Document shall operate as a waiver, nor shall any single or partial
        exercise of any right, power or privilege under such Loan Documents or
        otherwise, preclude other or further exercise of any such right, power or
        privilege.

       

      10.  TAXES
        AND EXPENSES REGARDING THE COLLATERAL.

       

      If
        Borrower fails to pay any monies (whether taxes, assessments, insurance premiums
        or otherwise) due to third persons or entities, or fails to make any deposits
        or
        furnish any required proof of payment or deposit, or fails to perform any
        of
        Borrower's other covenants under any of the Loan Documents, then in its
        discretion and without prior notice to Borrower, BACC may do any or all of
        the
        following: (a) make any payment which Borrower has failed to pay or any part
        thereof; (b) set up such reserves in Borrower's loan account as BACC deems
        necessary to protect BACC from the exposure created by such failure; (c)
        obtain
        and maintain insurance policies of the type described in Section 6.10 hereof
        and
        take any action with respect to such policies as BACC deems prudent; or (d)
        take
        any other action deemed necessary to preserve and protect its interests and
        rights under the Loan Documents. Any payments made by BACC shall not constitute:
        (a) an agreement by BACC to make similar payments in the future or (b) a
        waiver
        by BACC of any Event of Default. BACC need not inquire as to, or contest
        the
        validity of, any such expense, tax, security interest, encumbrance or lien
        and
        the receipt of notice for the payment thereof shall be conclusive evidence
        that
        the same was validly due and owing.

       

      11.  WAIVERS

       

      11.1  Demand,
        Protest.
        Borrower waives demand, protest, notice of protest, notice of default or
        dishonor, notice of payment and nonpayment, notice of any default, and notice
        of
        nonpayment at maturity and acknowledges that BACC may compromise, settle
        or
        release, without notice to Borrower, any Collateral and/or guaranties at
        any
        time held by BACC. Borrower hereby consents to any extensions of time of
        payment
        or partial payment at, before or after the Termination Date.

       

      
        
          
          

        

        
          19

          
            

          

        

         

      

       

      11.2  No
        Marshaling.
        Borrower, on its own behalf and on behalf of its successors and assigns hereby
        expressly waives all rights, if any, to require a marshaling of assets by
        BACC
        or to require that BACC first resort to some portion(s) of the Collateral
        before
        foreclosing upon, selling or otherwise realizing on any other portion
        thereof.

       

      11.3  BACC's
        Non-Liability for Inventory or Equipment or for Protection of
        Rights.
        So long
        as BACC complies with its obligations, if any, under Section 9-207 of the
        Code,
        BACC shall not in any way or manner be liable or responsible for: (a) the
        safekeeping of the Inventory or Equipment; (b) any loss or damage thereto
        occurring or arising in any manner or fashion from any cause; (c) any diminution
        in the value thereof; or (d) any act or default of any carrier, warehouseman,
        bailee, forwarding agency or other person whomsoever. All risk of loss, damage
        or destruction of the Inventory or Equipment shall be borne by Borrower.
        BACC
        shall have no obligation to protect any rights of Borrower against any person
        obligated on any Collateral.

       

      11.4  Limitation
        of Damages.
        In any
        action or other proceeding against BACC under this Agreement or relating
        to the
        transactions between BACC and Borrower, Borrower waives the right to seek
        any
        consequential or punitive damages.

       

      12.  NOTICES

       

      Unless
        otherwise provided herein, all consents, waivers, notices or demands by any
        party relating to the Loan Documents 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 telecopied (followed up by a
        mailing), personally delivered or sent by registered or certified mail, postage
        prepaid, return receipt requested, or by receipted overnight delivery service
        to
        Borrower or to BACC, as the case may be, at their addresses set forth
        below

       

      
        	 	 If to Borrower:  	 Reed’s, Inc.	 
	 	 	 13000 South Spring Street	 
	 	 	 Los Angeles, California 90061	 
	 	 	 Attn: Christopher Reed	 
	 	 	 Fax #  (310)
                217-9411	 
	 	 	 	 
	 	 If to BACC: 	 Business Alliance Capital
                Corp.	 
	 	 	 800 Wilshire Boulevard,
                Suite 700	 
	 	 	 Los Angeles, California 90071	 
	 	 	 Attn: Jeffrey B.
                Lizar, Senior Vice President	 
	 	 	 Fax # (213)
                624-9676	 

      

      

      Any
        party
        may change the address at which it is to receive notices hereunder by notice
        in
        writing in the foregoing manner given to the other. All notices or demands
        sent
        in accordance with this Section 12 shall be deemed received on the earlier
        of
        the date of actual receipt or five (5) calendar days after the deposit thereof
        in the mail or on the date telecommunicated if telecopied.

       

      13.  DESTRUCTION
        OF BORROWER'S DOCUMENTS

       

      All
        documents, schedules, invoices, agings or other papers delivered to BACC
        may be
        destroyed or otherwise disposed of by BACC four (4) months after they are
        delivered to or received by BACC, unless Borrower requests, in writing, the
        return of the said documents, schedules. invoices or other papers and makes
        arrangements, at Borrower's expense, for their return.

       

      
        
          
          

        

        
          20

          
            

          

        

         

      

       

      14.  GENERAL
        PROVISIONS

       

      14.1  Effectiveness.
        This
        Agreement shall be binding and deemed effective when executed by Borrower
        and
        executed and delivered by BACC.

       

      14.2  Successors
        and Assigns.
        This
        Agreement shall bind and inure to the benefit of the respective successors
        and
        assigns of each of the parties; provided, however, that Borrower may not
        assign
        this Agreement or any rights hereunder and any prohibited assignment shall
        be
        absolutely void. No consent to an assignment by BACC shall release Borrower
        from
        its Obligations. Without notice to or the consent of Borrower, BACC may assign
        this Agreement and its rights and duties hereunder and BACC reserves the
        right
        to sell, assign, transfer, negotiate or grant participations in all or any
        part
        of, or any interest in BACC's rights and benefits hereunder. In connection
        therewith, BACC may disclose all documents and information which BACC now
        or
        hereafter may have relating to Borrower or Borrower's business. Borrower
        hereby
        consents to, and authorizes BACC to, prepare and distribute a “tombstone”, to
        issue a press release, or otherwise disseminate information to newspapers,
        trade
        journals, and other sources, describing the nature of, and closing of the
        credit
        facilities provided for herein, which may include Borrower’s name as well as
        other general information about Borrower and the credit facilities. Borrower
        and
        BACC do not intend any of the benefits of the Loan Documents to inure to
        any
        third party, and no third party shall be a third party beneficiary hereof
        or
        thereof.

       

      14.3  Section
        Headings.
        Headings
        and numbers have been set forth herein for convenience only.

       

      14.4  Interpretation.
        Neither
        this Agreement nor any uncertainty or ambiguity herein shall be construed
        or
        resolved against BACC or Borrower, whether under any rule of construction
        or
        otherwise. On the contrary, this Agreement has been reviewed by each party
        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 the
        parties
        hereto.

       

      14.5  Severability
        of Provisions.
        Each
        provision of this Agreement shall be severable from every other provision
        of
        this Agreement for the purpose of determining the legal enforceability of
        such
        provision.

       

      14.6  Amendments
        in Writing.
        This
        Agreement cannot be changed or terminated orally. This Agreement is the entire
        agreement between the parties with respect to the matters contained herein.
        This
        Agreement supersedes all prior agreements, understandings and negotiations,
        if
        any, all of which are merged into this Agreement.

       

      14.7  Counterparts.
        This
        Agreement may be executed in any number of counterparts each of which, when
        executed and delivered, shall be deemed to be an original and all of which,
        when
        taken together, shall constitute but one and the same Agreement.

       

      14.8  Indemnification.
        Borrower
        hereby indemnifies, protects, defends and saves harmless BACC and any member,
        officer, director, official, agent, employee and attorney of BACC, and their
        respective heirs, successors and assigns (collectively, the “Indemnified
        Parties”), from and against any and all losses, damages, expenses or liabilities
        of any kind or nature and from any suits, claims or demands, including
        reasonable counsel fees incurred in investigating or defending such claim,
        suffered by any of them and caused by, relating to, arising out of, resulting
        from, or in any way connected with the Loan Documents and the transactions
        contemplated therein or the Collateral (unless caused by the gross negligence
        or
        willful misconduct of the Indemnified Parties) including, without limitation:
        (a) losses, damages, expenses or liabilities sustained by BACC in connection
        with any environmental cleanup or other remedy required or mandated by any
        Environmental Law; (b) any untrue statement of a material fact contained
        in
        information submitted to BACC by Borrower or a Guarantor or the omission
        of any
        material fact necessary to be stated therein in order to make such statement
        not
        misleading or incomplete; (c) the failure of Borrower or a Guarantor to perform
        any obligations required to be performed by Borrower or a Guarantor under
        the
        Loan Documents; and (d) the ownership, construction, occupancy, operations,
        use
        and maintenance of any of Borrower's or a Guarantor's assets. The provisions
        of
        this paragraph 14.8 shall survive termination of this Agreement and the other
        Loan Documents.

       

      
        
          
          

        

        
          21

          
            

          

        

         

      

       

      14.9  Joint
        and Several Obligations; Dealings with Multiple Borrowers.
        If more
        than one person or entity is named as Borrower hereunder, all Obligations,
        representations, warranties, covenants and indemnities set forth in the Loan
        Documents to which such person or entity is a party shall be joint and several.
        BACC shall have the right to deal with any individual of any Borrower with
        regard to all matters concerning the rights and obligations of BACC and Borrower
        hereunder and pursuant to applicable law with regard to the transactions
        contemplated under the Loan Documents. All actions or inactions of the officers,
        managers, members and/or agents of any Borrower with regard to the transactions
        contemplated under the Loan Documents shall be deemed with full authority
        and
        binding upon all Borrowers hereunder. Each Borrower hereby appoints each
        other
        Borrower as its true and lawful attorney-in-fact, with full right and power,
        for
        purposes of exercising all rights of such person hereunder and under applicable
        law with regard to the transactions contemplated under the Loan Documents.
        The
        foregoing is a material inducement to the agreement of BACC to enter into
        this
        Agreement and to consummate the transactions contemplated hereby. The Borrowers
        represents they are operated as part of one consolidated business entity
        and are
        directly dependent upon each other for an in connection with their respective
        business activities financial resources. Each Borrower will receive a direct
        economic and financial benefit from the Obligations incurred under this
        Agreement and the incurrence of such Obligations is in the best interests
        of
        each Borrower.

       

      15.  CHOICE
        OF LAW, VENUE AND JURY TRIAL WAIVER

       

      THE
        VALIDITY OF THE LOAN DOCUMENTS, THEIR CONSTRUCTION, INTERPRETATION, AND
        ENFORCEMENT AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER,
        GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
        OF
        CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE PARTIES
        AGREE
        THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THE LOAN DOCUMENTS
        SHALL BE TRIED AND LITIGATED ONLY IN THE STATE COURTS LOCATED IN THE COUNTY
        OF
        LOS ANGELES, STATE OF CALIFORNIA, THE FEDERAL COURTS WHOSE VENUE INCLUDES
        THE
        STATE OF CALIFORNIA, OR AT THE SOLE OPTION OF BACC, IN ANY OTHER COURT IN
        WHICH
        BACC SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT
        MATTER
        JURISDICTION OVER THE MATTER IN CONTROVERSY. BORROWER
        AND BACC EACH WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, THE RIGHT
        TO
        A TRIAL BY JURY
        IN ANY
        PROCEEDING UNDER THE LOAN DOCUMENTS OR RELATING TO THE DEALINGS OF BORROWER
        AND
        BACC AND ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF “FORUM NON
        CONVENIENS” OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
        ACCORDANCE WITH THIS SECTION 15.

       

      
        Borrower
          and BACC have executed and delivered this Agreement at BACC's place of
          business
          in Los Angeles, California as of the date first above written.

         

        REED’S,
          INC.

        a
          Delaware corporation

        

        

        Signed
          by: /s/ Christopher J.
          Reed                   

        Print
          Name: Christopher J.
          Reed                     
   

        Title/Capacity:
          Chief Executive
          Officer             

        

        BUSINESS
          ALLIANCE CAPITAL CORP.,

        a
          Delaware corporation

        

        

        Signed
          by: /s/ Jeffrey
          Lizar                               

        Print
          Name: Jeffrey
          Lizar                                    

        Title/Capacity:
          Senior Vice
          President              

      

      

        
          
            
            

          

          
            22

            
              

            

          

           

        

      

      
        AMENDMENT
          NUMBER ONE TO LOAN AND SECURITY AGREEMENT

         

        This
          Amendment Number One to Loan and Security Agreement (this "Amendment")
          is
          entered into as of June 29, 2006, by and between BUSINESS
          ALLIANCE CAPITAL COMPANY, division
          of Sovereign Bank, as successor by merger to Business Alliance Capital
          Corp.
          ("BACC"), and REED'S,
          INC.,
          a
          Delaware corporation ("Borrower," and collectively with BACC, the "Parties"),
          with respect to the following:

         

        RECITALS

         

        A.  Borrower
          and BACC have previously entered into that certain Loan and Security Agreement,
          dated as of June 3, 2005 (as previously and subsequently amended, restated,
          extended, renewed, replaced, or otherwise modified from time to time, the
          "Loan
          Agreement"), that certain Conditions Precedent Rider to Loan and Security
          Agreement, dated as of June 3, 2005 (as previously and subsequently amended,
          restated, extended, renewed, replaced, or otherwise modified from time
          to time,
          the "Conditions Precedent Rider, and collectively with the Loan Agreement,
          the
          "Agreement"), and certain documents related thereto (as defined in the
          Agreement, the "Loan Documents").

         

        B.  Borrower
          and BACC previously entered into that certain Term Loan Promissory Note,
          dated
          as of June 3, 2005, in the original principal amount of $190,000 (the "Existing
          Term Note"), which Existing Term Note has an outstanding principal balance
          of
          $152,000 as of the date this Note (the "Existing Term Loan"). Additionally,
          Maker and BACC previously entered into that certain Secured Term Promissory
          Note
          (Capital Expenditures), dated as of June 3, 2005, which provided Maker
          with the
          ability to borrow up to $150,000 for capital expenditures (the "Existing
          CapEx
          Note"), which Existing CapEx Note has an outstanding principal balance
          of
          $79,000 as of the date of this Note (the "Existing CapEx Loan"). Borrower
          and
          BACC desire to consolidate such Existing Term Loan and Existing CapEx Loan.
          

         

        C.  Borrower
          previously provided BACC with that certain Deed of Trust, Assignment of
          Rents,
          Security Agreement and Fixture Filing, dated as of June 3, 2005 (the "Deed
          of
          Trust"), which Deed of Trust BACC will release pursuant to the terms and
          conditions set forth below. Such Deed of Trust encumbers that certain real
          property located at 13000 South Spring Street, Los Angeles, California
          (the
          "Real Property").

         

        D.  The
          Parties desire to amend the Agreement and certain of the Loan Documents
          as
          provided for and on the conditions herein.

         

        NOW,
          THEREFORE, the Parties hereby amend and supplement the Agreement as
          follows:

         

        1.  DEFINITIONS.
          All
          initially capitalized terms used in this Amendment shall have the meanings
          ascribed to such terms in the Agreement unless specifically defined
          herein.

         

        2.  CONSOLIDATION
          OF EXISTING TERM LOANS.
          The
          outstanding principal balances of the Existing Term Loan and the Existing
          CapEx
          Loan are hereby consolidated and repayment of same shall be governed by
          the
          terms and conditions of Section 2.12 of the Agreement and by the terms
          of that
          certain Consolidated Term Loan Promissory Note being entered into concurrently
          herewith, with the Existing Term Note and Existing CapEx Loan to be of
          no
          further force and effect, and with Borrower no longer having the ability
          to
          obtain capital expenditure loans under the Existing CapEx Note.

         

        
          
            
            

          

          
            -1-

            
              

            

          

           

        

         

        3.  AMENDMENTS.

         

        (a) All
          references in the Agreement and the Loan Documents to "Business Alliance
          Capital
          Corp." shall be amended to read:

         

        "Business
          Alliance Capital Company, division of Sovereign Bank, a federal savings
          bank
          (successor by merger to Business Alliance Capital Corp., a Delaware
          corporation), and its successors and assigns."

         

        (b) All
          references in the Agreement and Loan Documents to "BACC" shall be amended
          to
          mean:

         

        "Business
          Alliance Capital Company, division of Sovereign Bank, a federal savings
          bank
          (successor by merger to Business Alliance Capital Corp., a Delaware
          corporation), and its successors and assigns."

         

        (c) Subparagraph
          (g) of the definition of "Eligible Accounts" set forth in Section 1.1 of
          the
          Agreement is amended to read as follows:

         

        "(g)
          Accounts with respect to an Account debtor whose total obligations to Borrower
          exceed fifteen percent (15%) of all Accounts or such other percentage as
          BACC
          may agree to in writing as to a particular Account debtor (the applicable
          percentage, the "Concentration Percentage"), to the extent such obligations
          exceed the applicable Concentration Percentage, with the Concentration
          Percentages for Account debtors United National Foods, Inc. (and related
          affiliates, subsidiaries and branches) and Trader Joe's, to be forty percent
          (40%) and twenty percent (20%), respectively;" 

         

        (d) A
          new
          definition of "Permitted IPO" is hereby added in alphabetical order to
          Section
          1.1 as follows:

         

        "Permitted
          IPO
          shall
          have the meaning attributed to same in Section 7.7 of the Agreement.

         

        (e)
           The
          definition of "Prime Rate" set forth in Section 1.1 of the Agreement is
          hereby
          amended in its entirety to read as follows:

         

        "Prime
          Rate
          means
          that rate designated by Sovereign Bank, a federal savings bank, or any
          successor
          thereof, from time to time as its prime rate, which shall not necessarily
          constitute its lowest available rate."

         

        (f) A
          new
          definition of "Qualifying IPO" is hereby added in alphabetical order to
          Section
          1.1 as follows:

         

        
          
            
            

          

          
            -2-

            
              

            

          

           

        

         

        "Qualifying
          IPO
          means
          the Permitted IPO, provided, that, the Permitted IPO raises at least $3,500,000,
          excluding any amounts raised from persons (including Christopher Reed's
          brothers) or entities affiliated with Borrower and its management. 

         

        (g) The
          definition of "Termination Date" set forth in Section 1.1 of the Agreement
          is
          hereby amended to extend the stated termination date set forth therein
          from June
          30, 2006 through June 30, 2007. The remainder of the definition of "Termination
          Date" remains unchanged and in full force and effect.

         

        Borrower
          acknowledges and agrees that as a result of the above extension of the
          Termination Date from June 30, 2006 through June 30, 2007, a facility fee
          in the
          amount of $16,315 is now fully earned, due and payable pursuant to Section
          2.7
          of the Agreement, and shall be paid concurrently with the execution of
          this
          Amendment.

         

        (h) Section
          2.1 of the Agreement is amended to decrease the Advance Limit from One
          Million
          Nine Hundred Ten Thousand Dollars ($1,910,000) to One Million Four Hundred
          Thousand Dollars ($1,400,000). The remainder of Section 2.1 remains unchanged
          and in full force and effect.

         

        (i) Section
          2.4(A.) of the Agreement is amended in its entirety to read as
          follows:

         

        "A. Except
          where specified to the contrary in the Loan Documents interest shall accrue
          on
          the Daily Balance of the Obligations at the per annum rate of four percentage
          points (4.00%)1 
          above
          the Prime Rate, but not less than eight and one-half percent (8.50%) (the
          foregoing, the "Non-Default Rate of Interest"). The Obligations shall,
          at the
          option of BACC, from and after the occurrence of an Event of Default, and
          without constituting a waiver of any such Event of Default, and if the
          Obligations are not paid in full by the Termination Date, and without waiving
          the maturity of the Obligations on the Termination Date, bear interest
          at the
          per annum rate of five percentage points (5.00%) in excess of the Non-Default
          Rate of Interest (the "Default Rate"). All interest payable under the Loan
          Documents shall be computed on the basis of a three hundred sixty (360)
          day year
          for the actual number of days elapsed on the Daily Balance. Interest as
          provided
          for herein shall continue to accrue until the Obligations are paid in
          full."

         

          
            

          

        

        1
          Commencing July 1, 2006, such interest rate shall be subject to decrease
          by
          three-quarters of one-percent (0.75%) upon the occurrence of a Qualifying
          IPO.
          In addition, commencing July 1, 2006, such interest rate shall be subject
          to a
          separate decrease of three-quarters of one-percent (0.75%) in the event
          that (y)
          all outstanding Eligible Inventory Advances (made pursuant to Section 2.1(b)
          of
          the Agreement)are repaid in full, and (z) the Eligible Inventory Advance
          facility (set forth in Section 2.1(b) of the Agreement) is permanently
          eliminated; with BACC agreeing to release the Deed of Trust upon the occurrence
          of (y) and (z). 

         

        
          
            
            

          

          
            -3-

            
              

            

          

          
            
            

          

        

         

        (j) The
          last
          sentence of Section 2.4(B.) of the Agreement is amended to increase the
          minimum
          monthly interest set forth therein from Two Thousand Five Hundred Dollars
          ($2,500) to Five Thousand Dollars ($5,000). The remainder of Section 2.4(B.)
          remains unchanged and in full force and effect.

         

        (k) Section
          2.8 of the Agreement is amended to increase the Servicing Fee set forth
          therein
          from fifteen-one hundredths of one percent (0.15%) to one-quarter of one
          percent
          (0.25%2 ).
          The
          remainder of Section 2.8 remains unchanged and in full force and
          effect.

         

        (l)
           Section
          2.10 of the Agreement is amended in its entirety to read as follows:
 

         

        "2.10 Delinquent
          Reporting Fees. 
          Borrower
          shall pay to BACC a fee in an amount equal to One Hundred Dollars ($100.00)
          per
          document per day for each Business Day any report, financial statement
          or
          schedule required by this Agreement to be delivered to BACC is past due,
          with
          the exception of an A/R Aging (as defined in Section 6.1) not provided
          in
          accordance with the terms of Section 6.1, with each failure to deliver
          an Daily
          A/R Aging pursuant to the terms of Section 6.1 to be subject to a fee of
          Two
          Hundred Fifty Dollars ($250.00) per occurrence."

         

        (m) Section
          2.12 of the Agreement is amended in its entirety to read as
          follows:

         

        “2.12 Consolidated
          Term Loan.
          BACC
          has loaned Borrower the principal sum of Two Hundred Thirty-One Thousand
          Four
          Hundred Ninety-Six Dollars and no/100 ($231,496) which sum, together with
          interest at the rate set forth below shall be paid in equal consecutive
          monthly
          installments of principal of Seven Thousand Five Hundred and 00/100 Dollars
          ($7,500.00) each beginning on July 1, 2006 and continuing on the same day
          of
          each month thereafter until paid in full. Interest, at the rate set forth
          in
          Section 2.4 hereof, shall be paid on the first day of each month hereafter
          and on the maturity date of said term loan. Notwithstanding the foregoing,
          the
          entire unpaid principal balance of said term loan, and all accrued and
          unpaid
          interest thereon, shall be due and payable in full on the Termination Date.
          If
          Borrower prepays, in whole or in part, the term loan other than with the
          proceeds of a Qualifying IPO or other than in connection with a termination
          subject to Section 3.2 above, contemporaneous with such prepayment Borrower
          shall pay BACC a prepayment premium equal to five percent (5.0%) of the
          amount
          so prepaid."

         

          
            

          

        

        2
          Such
          0.25% is subject to decrease to 0.15% following any 120-day period in which
          any
          and all reporting required under the Agreement from the date hereof is
          timely
          delivered to BACC pursuant to the terms of the Agreement. If, at anytime
          following the reduction of such percentage to 0.15%, Borrower does not
          timely
          deliver any reporting as required under the Agreement, such 0.15% shall
          permanently revert to 0.25%. 

         

        
          
            
            

          

          
            -4-

            
              

            

          

          
            
            

          

        

         

        (n) Section
          6.1 of the Agreement is hereby amended in its entirety to read as
          follows:

         

        "6.1 Collateral
          and Other Reports.
          Borrower
          shall on each Business Day report to BACC all sales and Accounts arising
          since
          its most recent report to BACC and shall provide: (a) copies of all invoices
          in
          excess of Four Thousand Dollars ($4,000) together with supporting shipping
          documentation acceptable to BACC; and (b) an Accounts aging report (an
          "Daily
          A/R Aging"). Borrower shall execute and deliver to BACC: (y) no later than
          the
          seventh (7th)
          day of
          each month during the Term, a detailed aging of the Accounts; and (z) no
          later
          than the fifteenth (15th)
          day of
          each month during the Term, a reconciliation statement and a summary aging,
          by
          vendor, of all accounts payable of Borrower and any book overdraft. Borrower
          shall deliver to BACC, as BACC may from time to time require, collection
          reports, sales journals, invoices, original delivery receipts, customers'
          purchase order, shipping instructions, bills of lading and other documentation
          respecting shipment arrangements. Absent such a request by BACC, copies
          of all
          such documentation shall be held by Borrower as custodian for
          BACC."

         

        (o) Section
          7.7 of the Agreement is amended in its entirety to read as follows:

         

        "7.7 Change
          of Ownership.
          Cause,
          permit or suffer any change, direct or indirect, in the ownership of the
          capital
          stock of Borrower or enter into any agreement with any person or entity
          that
          provides for a payment to such person or entity based upon the income of
          Borrower. Notwithstanding the foregoing, BACC prospectively consents to
          a
          proposed initial public offering by Borrower upon terms and conditions,
          including economic terms, that are materially consistent with documents
          and
          information (including the Form SB-2 filed with the Securities and Exchange
          Commission on April 28, 2005) previously provided to BACC (the "Permitted
          IPO").
          This prospective consent is expressly conditioned upon Christopher Reed's
          continued ownership of no less than 48% of the capital stock of Borrower
          at all
          times including following consummation of the Qualifying IPO."

         

        (p)
           The
          following new Section 16 is hereby added to the Agreement as
          follows:

         

        "16. REFERENCE
          PROVISION

         

        a. Borrower
          and BACC prefer that any dispute between them be resolved in litigation
          subject
          to a Jury Trial Waiver as set forth in the Loan Documents (defined below),
          but
          the California Supreme Court has held that pre-dispute Jury Trial Waivers
          not
          authorized by statute are unenforceable. This Reference Provision will
          be
          applicable until: (i) the California Supreme Court holds that a pre-dispute
          Jury Trial Waiver provision similar to that contained in the Loan Documents
          is
          valid or enforceable; or (ii) the California Legislature enacts a statute
          which becomes law, authorizing pre-dispute Jury Trial Waivers of the type
          in the
          Loan Documents and, as a result, such waivers become enforceable.

         

        
          
            
            

          

          
            -5-

            
              

            

          

           

        

         

        b. Other
          than (i) nonjudicial foreclosure of security interests in real or personal
          property, (ii) the appointment of a receiver or (iii) the exercise of
          other provisional remedies (any of which may be initiated pursuant to applicable
          law), any controversy, dispute or claim (each, a "Claim") between Borrower
          and
          BACC arising out of or relating to this Agreement or any other document,
          instrument or agreement between Borrower and BACC (collectively in this
          Section,
          the "Loan Documents"), will be resolved, notwithstanding anything to the
          contrary contained in the Loan Documents, by a reference proceeding in
          California in accordance with the provisions of Section 638 et seq. of the
          California Code of Civil Procedure ("CCP"), or their successor sections,
          which
          shall constitute the exclusive remedy for the resolution of any Claim,
          including
          whether the Claim is subject to the reference proceeding. Except as provided
          in
          Section 15 of this Agreement or as otherwise provided in the Loan
          Documents, venue for the reference proceeding will be in the Superior Court
          or
          Federal District Court in the County or District where the real property,
          if
          any, is located or in a County or District where venue is otherwise appropriate
          under applicable law (the "Court").

         

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

         

        d. Borrower
          and BACC agree that time is of the essence in conducting the reference
          proceedings. Accordingly, the referee shall be requested, subject to change
          in
          the time periods specified herein for good cause shown, to (a) set the
          matter for a status and trial-setting conference within fifteen (15) days
          after the date of selection of the referee, (b) if practicable, try all
          issues of law or fact within ninety (90) days after the date of the
          conference and (c) report a statement of decision within twenty (20)
          days after the matter has been submitted for decision.

         

        e. The
          referee will have power to expand or limit the amount and duration of discovery.
          The referee may set or extend discovery deadlines or cutoffs for good cause,
          including a party's failure to provide requested discovery for any reason
          whatsoever. Unless otherwise ordered based upon good cause shown, neither
          Borrower nor BACC shall be entitled to "priority" in conducting discovery,
          depositions may be taken by Borrower and BACC upon seven (7) days written
          notice, and all other discovery shall be responded to within fifteen (15)
          days after service. All disputes relating to discovery which cannot be
          resolved
          by Borrower and BACC shall be submitted to the referee whose decision shall
          be
          final and binding.

         

        
          
            
            

          

          
            -6-

            
              

            

          

           

        

         

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

         

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

         

        h. If
          the
          enabling legislation which provides for appointment of a referee is repealed
          (and no successor statute is enacted) or if a reference procedure is not
          available to the parties for any reason, any dispute between Borrower and
          BACC
          that would otherwise be determined by reference procedure will be resolved
          and
          determined by arbitration. The arbitration will be conducted by a retired
          judge
          or Justice, in accordance with the California Arbitration Act § 1280
          through § 1294.2 of the CCP as amended from time to time. The limitations
          with respect to discovery set forth above shall apply to any such arbitration
          proceeding.

         

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

         

        
          
            
            

          

          
            -7-

            
              

            

          

           

        

         

        4.  AGREEMENT
          TO PROVIDE APPRAISAL.
          No
          later
          than July 31, 2006, Borrower shall provide BACC with an appraisal of the
          Real
          Property, with the form and content of such appraisal, and the appraiser
          conducting same, to be satisfactory to BACC, and with such appraisal to
          evidence
          a value for the Real Property of at least One Million Five Hundred Thousand
          Dollars ($1,500,000). In the event (a) such appraisal is not provided to
          BACC on
          or prior to July 31, 2006, or (b) if such appraisal evidences a value for
          the
          Real Property less than $1,500,000, BACC may, in its sole discretion, (y)
          apply
          collections and other proceeds of Collateral to the permanent repayment
          of
          Eligible Inventory Advances (made pursuant to Section 2.1(b) of the Agreement,
          and/or (z) permanently reduce the advance rate (set forth in Section 2.1(b)
          of
          the Agreement) applicable to Eligible Inventory Advances. 

         

        5.  REPRESENTATIONS
          AND WARRANTIES.
          Borrower
          hereby affirms to BACC that all of Borrower’s representations and warranties set
          forth in the Agreement are true, complete and accurate in all respects
          as of the
          date hereof.

         

        6.  NO
          DEFAULTS.
          Borrower
          hereby affirms to BACC that no Event of Default has occurred and is continuing
          as of the date hereof.

         

        7.  CONDITIONS
          PRECEDENT.
          The
          effectiveness of this Amendment is expressly conditioned upon the
          following:

         

        (a)  Receipt
          by BACC of the $16,315 Facility Fee discussed above;

         

        (b)  Receipt
          by BACC of a fully executed copy of this Amendment;

         

        (c)  Receipt
          by BACC of a fully executed copy of that certain Amended and Restated Revolving
          Credit Master Promissory Note, of even date herewith; and

         

        (d)  Receipt
          by BACC of a fully executed copy of that certain Consolidated Term Loan
          Promissory Note, of even date herewith.

         

        8.  COSTS
          AND EXPENSES.
          Borrower
          shall pay to BACC all of BACC’s out-of-pocket costs and expenses (including,
          without limitation, the fees and expenses of its counsel, which counsel
          may
          include any local counsel deemed necessary, search fees, filing and recording
          fees, documentation fees, and other fees) arising in connection with the
          preparation, execution, and delivery of this Amendment and all related
          documents.

         

        9.  LIMITED
          EFFECT.
          In the
          event of a conflict between the terms and provisions of this Amendment
          and the
          terms and provisions of the Agreement, the terms and provisions of this
          Amendment shall govern. In all other respects, the Agreement, as amended
          and
          supplemented hereby, shall remain in full force and effect.

         

        
          
            
            

          

          
            -8-

            
              

            

          

           

        

         

        10.  REPRESENTATIONS.
          Borrower
          represents and warrants to BACC that (i) this Amendment has been duly
          authorized by its Board of Directors (or equivalent governing body),
          (ii) no consents are necessary from any third person for the execution,
          delivery or performance of this Amendment which have not already been obtained
          and a copy thereof delivered to BACC, and (iii) this Amendment constitutes
          its legal, valid and binding obligation enforceable against it in accordance
          with its terms, except to the extent that the enforceability thereof against
          it
          may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
          moratorium or similar laws affecting the enforceability of creditors’ rights
          generally or by equitable principles of general application (whether considered
          in an action at law or in equity).

         

        11.  UNDERSTANDING.
          All
          parties have read this Amendment carefully and fully understand the same,
          and
          this Amendment and the documents executed in connection herewith represent
          the
          entire agreement of the parties with respect to the matters set forth
          herein.

         

        12.  MODIFICATIONS.
          No
          modification or waiver of any provision of this Amendment, nor consent
          to any
          departure by Borrower herefrom, shall be effective unless the same shall
          be in
          writing signed by an authorized officer of BACC, and then only in the specific
          instance and for the purpose for which given.

         

        13.  GOVERNING
          LAW.
          This
          Amendment is made in the State of California and shall be governed by and
          construed in accordance with the internal laws of the State of California,
          without regard to principles of conflicts of law.

         

        14.  MULTIPLE
          COUNTERPARTS; EFFECTIVENESS.
          This
          Amendment may be executed in multiple counterparts, each of which constitute
          an
          original, but all of which taken together shall constitute but one in the
          same
          document. It shall not be necessary in making proof of this Amendment to
          produce
          or account for more than one counterpart signed by the party to be
          charged.

         

        15.  FACSIMILE
          OR TELECOPY.
          This
          Amendment, or a signature page thereto intended to be attached to a copy
          of this
          Amendment, signed and transmitted by facsimile machine or telecopier shall
          be
          deemed and treated as an original document. The signature of any person
          thereon,
          for purposes hereof, is to be considered as an original signature, and
          the
          document transmitted is to be considered to have the same binding effect
          as an
          original signature on an original document. At the request of any party
          hereto,
          any facsimile or telecopy document is to be re-executed in original form
          by the
          persons who executed the facsimile or telecopy document. No party hereto
          may
          raise the use of a facsimile machine or telecopier or the fact that any
          signature was transmitted through the use of a facsimile or telecopier
          machine
          as a defense to the enforcement of this Amendment.

         

        16.  BINDING
          AGREEMENT.
          It is
          understood and agreed that this Amendment shall be binding upon and shall
          inure
          to the benefit of BACC and Borrower, and their respective successors and
          assigns.

         

        17.  ENTIRE
          AGREEMENT.
          This
          Amendment represents the entire agreement and understanding concerning
          the
          subject matter hereof and thereof between the parties hereto, and supersedes
          all
          other prior agreements, understandings, negotiations and discussions concerning
          the subject matter hereof, whether oral or written.

         

        
          
            
            

          

          
            -9-

            
              

            

          

           

        

         

        IN
          WITNESS WHEREOF, the parties hereto have executed this Amendment as of
          the date
          first set forth above.

         

        
          	 	
                  REED'S,
                    INC.,

                  a
                    Delaware corporation

                   

                  By: 
                    /s/  Christopher J.
                    Reed                                                       
                    

                  Title: Chief
                    Executive
                    Officer                                                       
                    

                   

                
	 	
                  BUSINESS
                    ALLIANCE CAPITAL COMPANY, 

                  division
                    of Sovereign Bank, 

                  as
                    successor by merger to Business Alliance Capital Corp.

                   

                  By:
                    /s/ R. E. Hays,
                    Sr.                                                                  
                    

                  Title:
                    Vice
                    President                                                                    
                    

                
	 	 

        

        
          
            
            

          

          
            -10-

            
              

            

          

           

        

        ACKNOWLEDGEMENT
          BY GUARANTOR

         

        Dated
          as
          of June 29, 2006

         

        The
          undersigned, being a Guarantor ("Guarantor")
          under
          his respective Individual Guaranty made in favor of BACC (as previously
          or
          subsequently amended, modified or supplemented, the "Guaranty"),
          hereby acknowledges and agrees to the foregoing Amendment Number One to
          Loan and
          Security Agreement (the "Amendment")
          and
          confirms and agrees that his Guaranty is and shall continue to be, in full
          force
          and effect and is hereby ratified and confirmed in all respects except
          that,
          upon the effectiveness of, and on and after the date of the Amendment,
          each
          reference in such Guaranty to the Agreement (as defined in the Agreement),
          "thereunder", "thereof" or words of like import referring to the "Agreement",
          shall mean and be a reference to the Agreement as amended or modified by
          the
          Amendment. Although BACC has informed Guarantor of the matters set forth
          above,
          and Guarantor has acknowledged the same, Guarantor understands and agrees
          that
          BACC has no duty under the Agreement, the Guaranty or any other agreement
          with
          any Guarantor to so notify any Guarantor or to seek such an acknowledgement,
          and
          nothing contained herein is intended to or shall create such a duty as
          to any
          advances or transactions hereafter.

         

        
          	 	
                   

                  /s/
                    Christopher J.
                    Reed                                          
                    

                  Name:
                    Christopher Reed

                
	 	 

        

         

        
          
            
            

          

          
            -11-

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