Document:

Exhibit 10.2 to Lenox Group Inc. Form 8-K dated April 1, 2007

EXHIBIT 10.2

 

WAIVER TO 

TERM LOAN CREDIT AGREEMENT

 

This Waiver, dated as of April 3, 2007 (this “Waiver”), is executed and delivered by D 56, INC., a Minnesota corporation (“D 56”), LENOX RETAIL, INC., a Minnesota corporation (“Lenox Retail”), LENOX, INCORPORATED, a New Jersey corporation (“Lenox” and, together with D 56 and Lenox Retail, “Borrowers” and each individually, a “Borrower”), the Term Loan Lenders party hereto and UBS AG, Stamford Branch, as administrative agent (in such capacity, the “Administrative Agent”). 

 

RECITALS

WHEREAS, Borrowers, the financial institutions party thereto as lenders (the “Term Loan Lenders”) and the Administrative Agent are parties to that certain Term Loan Credit Agreement, dated as of September 1, 2005, as amended by that certain First Amendment thereto, dated as of January 23, 2006, by that certain Second Amendment thereto, dated as of April 27, 2006, and by that certain Waiver and Third Amendment thereto, dated as of February 9, 2007 (as such agreement may be further amended, modified or supplemented from time to time, the “Credit Agreement”);  

WHEREAS, Administrative Agent and Term Loan Lenders are willing to consent to a waiver of the requirement to comply with the provisions of Section 6.08(d) of the Credit Agreement, as and to the extent set forth in this Waiver and subject to the terms and conditions set forth herein; 

WHEREAS, this document shall constitute a Loan Document and these Recitals shall be construed as part of this Waiver;

NOW THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1.            Definitions. Except to the extent otherwise specified herein, capitalized terms used in this Waiver shall have the same meanings ascribed to them in the Credit Agreement.

2.            Waiver. Administrative Agent and Term Loan Lenders hereby waive the requirement to comply with the provisions of Section 6.08(d) of the Credit Agreement solely for the time period ending on April 30, 2007 (the “Waiver Termination Date”). On the earlier of the Waiver Termination Date or the occurrence of any other Event of Default under the Credit Agreement, the foregoing waiver shall automatically terminate and the Borrowers shall be required to comply with the provisions of Section 6.08(d) of the Credit Agreement at all times thereafter.

3.            Conditions Precedent to Effectiveness. The effectiveness of this Waiver is subject to the satisfaction of each of the following conditions precedent in a manner acceptable to Administrative Agent:

3.1.         Administrative Agent’s receipt of counterparts of this Waiver, duly executed by Borrowers, each of the other Loan Parties, the Administrative Agent and Required Lenders.

3.2.        The required lenders under the Revolving Credit Agreement shall have waived the requirement to comply with the provisions of Section 6.08(d) of the Revolving Credit Agreement until the Waiver Termination Date.

	
            4.
 	
            Reference to and Effect Upon the Credit Agreement and other Loan Documents.
 

4.1.        The Credit Agreement and each other Loan Document shall remain in full force and effect and each is hereby ratified and confirmed by Borrowers and each other Loan Party. Without limiting the foregoing, the Liens granted pursuant to the Security Documents shall continue in full force and effect and the guaranties of each of the Guarantors shall continue in full force and effect.

4.2.        The effect of this Waiver shall be limited precisely as written and, except as expressly set forth herein, shall not be deemed to be a consent to any waiver of any term or condition or to any amendment or modification of any term or condition of the Credit Agreement or any other Loan Document. 

4.3.         Each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or any other word or words of similar import shall mean and be a reference to the Credit Agreement as modified hereby, and each reference in any other Loan Document to the Credit Agreement or any word or words of similar import shall be and mean a reference to the Credit Agreement as modified hereby.

5.            Counterparts. This Waiver may be executed in any number of counterparts, each of which when so executed shall be deemed an original but all such counterparts shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Waiver by telecopier or email transmission shall be as effective as delivery of a manually executed counterpart signature page to this Waiver. 

6.            Costs and Expenses. As provided in Section 11.03 of the Credit Agreement, Borrowers shall pay the fees, costs and expenses incurred by Administrative Agent in connection with the preparation, execution and delivery of this Waiver (including, without limitation, reasonable attorneys’ fees).

7.            Governing Law. This Waiver shall be construed in accordance with and governed by the law of the State of New York, without regard to conflicts of law principles that would require the application of the laws of another jurisdiction.

8.            Headings. Section headings in this Waiver are included herein for convenience of reference only and shall not constitute a part of this Waiver for any other purpose.

 

2

[Signature Pages Follow]

 

 

3

IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement as of the date first written above. 

 

	
             
 	
             
 	
            BORROWERS:

D 56, INC.

LENOX RETAIL, INC.

LENOX, INCORPORATED
 
	
             
 	
             
 	
             
 
	
              
 	
             
 	
            By: 
 	
            
 /s/ Timothy J. Schugel
 
	
             
 	
             
 	
            Name:
 	
            Timothy J. Schugel
 
	
             
 	
             
 	
            Title:
 	
            Chief Operating and Financial Officer
 

 

 

 

	
             
 	
             
 	
            GUARANTORS:

 

LENOX GROUP INC. (formerly Department 56, Inc.)

LENOX SALES, INC.

FL 56 INTERMEDIATE CORP.
 
	
             
 	
             
 	
             
 
	
              
 	
             
 	
            By: 
 	
            
 /s/ Timothy J. Schugel
 
	
             
 	
             
 	
            Name:
 	
            Timothy J. Schugel
 
	
             
 	
             
 	
            Title:
 	
            Chief Operating and Financial Officer
 

 

 

LENOX/D 56 WAIVER (TERM LOAN CREDIT AGREEMENT)

	
             
 	
             
 	
            UBS AG, STAMFORD BRANCH,
 as Administrative Agent
 
	
             
 	
             
 	
             
 
	
              
 	
             
 	
            By: 
 	
            
 /s/ Mary E. Evans
 
	
             
 	
             
 	
            Name:
 	
            Mary E. Evans
 
	
             
 	
             
 	
            Title:
 	
            Associate Director
 

 

	
              
 	
             
 	
            By: 
 	
            
 /s/ Irja R. Otsa
 
	
             
 	
             
 	
            Name:
 	
            Irja R. Otsa
 
	
             
 	
             
 	
            Title:
 	
            Associate Director
 

 

	
             
 	
             
 	
            UBS LOAN FINANCE LLC,
 as a Term Loan Lender
 
	
             
 	
             
 	
             
 
	
              
 	
             
 	
            By: 
 	
            
 /s/ Mary E. Evans
 
	
             
 	
             
 	
            Name:
 	
            Mary E. Evans
 
	
             
 	
             
 	
            Title:
 	
            Associate Director
 

 

	
              
 	
             
 	
            By: 
 	
            
 /s/ Irja R. Otsa
 
	
             
 	
             
 	
            Name:
 	
            Irja R. Otsa
 
	
             
 	
             
 	
            Title:
 	
            Associate Director
 

 

 

LENOX/D 56 WAIVER (TERM LOAN CREDIT AGREEMENT)

	 	Dinosaur SPIRET Loan Trust

By:  Wilmington Trust Company,
not in its individual capacity but solely as trustee, 
as a Term Loan Lender 
	 
	    	By:    	/s/   Rachel L. Simpson 
	 	 	Name:   Rachel L. Simpson
Title:     Sr. Financial Services Officer
	 
	    	By:    	/s/   Ian P. Monigle
	 	 	Name:   Ian P. Monigle
Title:     Administrative Account Manager

              Authorized Signer
	 

LENOX/D 56 WAIVER (TERM LOAN CREDIT AGREEMENT) 

	 	Greyrock CDO Ltd,
By:  Aladdin Capital Management,
as Manager, as a Term Loan Lender 
	 
	    	By:    	/s/   John J. D’Angelo 
	 	 	Name:   John J. D’Angelo
Title:     Authorized Signatory
	 

LENOX/D 56 WAIVER (TERM LOAN CREDIT AGREEMENT) 

	 	Landmark CDO Limited,
By:  Aladdin Capital Management,
as Manager, as a Term Loan Lender 
	 
	    	By:    	/s/   John J. D’Angelo 
	 	 	Name:   John J. D’Angelo
Title:     Authorized Signatory
	 

LENOX/D 56 WAIVER (TERM LOAN CREDIT AGREEMENT) 

	 	Landmark II CDO Limited,
By:  Aladdin Capital Management,
as Manager, as a Term Loan Lender 
	 
	    	By:    	/s/   John J. D’Angelo 
	 	 	Name:   John J. D’Angelo
Title:     Authorized Signatory
	 

LENOX/D 56 WAIVER (TERM LOAN CREDIT AGREEMENT) 

	 	Landmark III CDO Limited,
By:  Aladdin Capital Management,
as Manager, as a Term Loan Lender 
	 
	    	By:    	/s/   John J. D’Angelo 
	 	 	Name:   John J. D’Angelo
Title:     Authorized Signatory
	 

LENOX/D 56 WAIVER (TERM LOAN CREDIT AGREEMENT) 

	 	Landmark IV CDO Limited,
By:  Aladdin Capital Management,
as Manager, as a Term Loan Lender 
	 
	    	By:    	/s/   John J. D’Angelo 
	 	 	Name:   John J. D’Angelo
Title:     Authorized Signatory
	 

LENOX/D 56 WAIVER (TERM LOAN CREDIT AGREEMENT) 

	 	Landmark V CDO Limited,
By:  Aladdin Capital Management,
as Manager, as a Term Loan Lender 
	 
	    	By:    	/s/   John J. D’Angelo 
	 	 	Name:   John J. D’Angelo
Title:     Authorized Signatory
	 

LENOX/D 56 WAIVER (TERM LOAN CREDIT AGREEMENT) 

	 	Landmark VI CDO Limited,
By:  Aladdin Capital Management,
as Manager, as a Term Loan Lender 
	 
	    	By:    	/s/   John J. D’Angelo 
	 	 	Name:   John J. D’Angelo
Title:     Authorized Signatory
	 

LENOX/D 56 WAIVER (TERM LOAN CREDIT AGREEMENT) 

	 	Barclays Bank PLC
as a Term Loan Lender  
	 
	    	By:    	/s/   Marc Berg 
	 	 	Name:   Marc Berg
Title:     Director 
	 
	 
	 	If second signature is necessary: 
	 
	    	By:    	 
	 	 	Name:   
Title:      

LENOX/D 56 WAIVER (TERM LOAN CREDIT AGREEMENT) 

	 	HARCH CLO II, LTD
as a Term Loan Lender  
	 
	    	By:    	/s/   Michael E. Lewitt 
	 	 	Name:   Michael E. Lewitt
Title:     AUTHORIZED SIGNATORY
	 
	 
	 	If second signature is necessary: 
	 
	    	By:    	 
	 	 	Name:   
Title:      

LENOX/D 56 WAIVER (TERM LOAN CREDIT AGREEMENT) 

	 	Nationwide Life Insurance Company

[                                                                   ],

as a Term Loan Lender 
	 
	    	By:    	/s/   Thomas M. Powers 
	 	 	Name:   THOMAS M. POWERS
Title:     AUTHORIZED SIGNATORY
	 
	 
	 	If second signature is necessary: 
	 
	    	By:    	 
	 	 	Name:   
Title:      

LENOX/D 56 WAIVER (TERM LOAN CREDIT AGREEMENT) 

	 	Nationwide Mutual Insurance Company

[                                                                   ],

as a Term Loan Lender 
	 
	    	By:    	/s/   Thomas M. Powers 
	 	 	Name:   THOMAS M. POWERS
Title:     AUTHORIZED SIGNATORY
	 
	 
	 	If second signature is necessary: 
	 
	    	By:    	 
	 	 	Name:   
Title:      

LENOX/D 56 WAIVER (TERM LOAN CREDIT AGREEMENT) 

	 	Rivendell CBNA Funding LLC, for itself as agent for Rivendell CFPI Loan Funding LLC
as a Term Loan Lender 
	 
	    	By:    	/s/   Richard Newcomb
	 	 	Name:   Richard Newcomb
Title:     Attorney-In-Fact
	 
	 
	 	If second signature is necessary: 
	 
	    	By:    	N/A
	 	 	Name:   
Title:      

LENOX/D 56 WAIVER (TERM LOAN CREDIT AGREEMENT) 

	 	RCG Carpathia Master Fund, Ltd.,
as a Term Loan Lender 
	 
	    	By:    	/s/   Marc Baum
	 	 	Name:   Marc Baum
Title:     Authorized Signatory
	 
	 
	 	If second signature is necessary: 
	 
	    	By:    	 
	 	 	Name:   
Title:      

LENOX/D 56 WAIVER (TERM LOAN CREDIT AGREEMENT) 

	 	WELLS FARGO FOOTHILL LLC,
as a Term Loan Lender 
	 
	    	By:    	/s/   Patrick McCormack
	 	 	Name:   Patrick McCormack
Title:     Vice President 

LENOX/D 56 WAIVER (TERM LOAN CREDIT AGREEMENT)Ex 10.1 Term Loan & Security Agreemernt

    
      

    

    Exhibit
      10.1

    

    

    

    

    

    

    

    

    TERM
      LOAN AND SECURITY AGREEMENT

    

    

    

    

    By
      and between

    

    

    NEW
      WORLD BRANDS, INC.

    

    as
      Borrower

    ______________________

    

    

    P
      & S SPIRIT, LLC

    

    as
      Lender

    

    

    March
      30,
      2007

    

    

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    

    TERM
      LOAN AND SECURITY AGREEMENT

    

    THIS
      TERM LOAN AND SECURITY AGREEMENT
      is
      entered into as of March 30,
      2007, between NEW WORLD BRANDS, INC. a
      Delaware corporation
      (“Borrower”), and
      P & S SPIRIT, LLC,
      a
      Nevada limited liability company (“Lender”).

     

    Background

     

    WHEREAS,
      Borrower wish to obtain a term loan from Lender, and upon the terms and subject
      to the conditions set forth herein, Lender is willing to make the term loan
      to
      Borrower.

     

    NOW,
      THEREFORE, Borrower and Lender, intending to be legally bound hereby, agree
      as
      follows:

     

    ARTICLE
      I   DEFINITIONS

     

    1.1. General
      Definitions.

     

    As
      used
      herein, the following terms shall have the meanings herein
      specified:

     

    “Accounts”
shall
      mean all of Borrower’s “accounts” (as defined in the UCC), whether now existing
      or existing in the future, including, without limitation, all accounts
      receivable and all accounts created by or arising from all sales of goods or
      rendition of services made under Borrower’s legal name or Borrower’s trade names
      or styles or through Borrower’s divisions. 

     

    “Affiliate”
shall
      mean any entity which directly or indirectly controls, is controlled by, or
      is
      under common control with, Borrower. For purposes of this definition, “control”
shall mean the possession, directly or indirectly, of the power to (i) vote
      20%
      or more of the securities having ordinary voting power for the election of
      directors of such Person, or (ii) direct or cause the direction of management
      and policies of a business, whether through the ownership of voting securities,
      by contract or otherwise and either alone or in conjunction with others or
      any
      group.

     

    “Anti-Terrorism
      Laws”
shall
      mean any statute, treaty, law (including common law), ordinance, regulation,
      rule, order, opinion, release, injunction, writ, decree or award of any Official
      Body relating to terrorism or money laundering, including Executive Order No.
      13224 and the USA Patriot Act.

     

    “Asset
      Disposition”
shall
      mean any disposition (other than a disposition of Inventory in the ordinary
      course of Borrower’s business) of any existing or future Property of Borrower.

     

    “Business
      Day”
shall
      mean any day other than a Saturday, a Sunday, a legal holiday or a day on which
      banking institutions are authorized or required by law or other governmental
      action to

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    close
      in
      Baltimore, Maryland.

     

    “Capital
      Stock”
shall
      mean (i) in the case of a corporation, capital stock, (ii) in the case of an
      association or business entity, any and all shares, interests, participations,
      rights or other equivalents (however designated) of capital stock, (iii) in
      the
      case of a partnership, partnership interests (whether general or limited),
      (iv)
      in the case of a limited liability company, membership interests and
      (v) any other equity interest or participation that confers on a Person the
      right to receive a share of the profits and losses of, or distributions of
      assets of, the issuing Person.

     

    “Casualty
      Loss”
shall
      have the meaning given to such term in Section
      7.7.

     

    “Closing”
shall
      mean the consummation of the making of the Loan by Lender to Borrower under
      this
      Agreement.

     

    “Closing
      Date”
shall
      mean the date on which the Closing occurs.

     

    “Collateral”
shall
      mean any and all rights and interests in or to Property (including leasehold
      improvements) of Borrower, whether now owned or hereafter acquired, pledged
      from
      time to time as security for the Obligations pursuant to this Agreement or
      any
      of the other Loan Documents.

     

    “Contractual
      Obligations”
shall
      mean, with respect to any Person, any term or provision of any securities issued
      by such Person, or any indenture, mortgage, deed of trust, contract,
      undertaking, document, instrument or other agreement to which such Person is
      a
      party or by which it or any of its properties is bound or to which it or any
      of
      its properties is subject.

     

    “Control
      Agreement”
shall
      mean an agreement, in form and substance satisfactory to Lender, among Borrower,
      a Depository Institution and Lender pursuant to which such Depository
      Institution agrees, inter alia,
      to
      transfer all funds of Borrower maintained in any deposit account with that
      Depository Institution to the control of Lender.

     

    “Default”
shall
      mean an event, condition or default which, with the giving of notice, the
      passage of time or both would be an Event of Default.

     

    “Depository
      Institution
      shall
      mean each depository institution where Borrower maintains a bank account and
      which institutions are set forth on Schedule
      6.26,
      along
      with the numbers and title of each account maintained by Borrower at such
      institution.

     

    “Event(s)
      of Default”
shall
      have the meaning provided for in Article
      XI.

     

    “Executive
      Order No. 13224”
shall
      mean the Executive Order No. 13224 on Terrorist Financing, effective September
      24, 2001, as the same has been, or shall hereafter be, renewed, extended,
      amended or replaced.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    “Expenses”
shall
      have the meaning given to such term in Section
      13.6.

     

    “Excluded
      Taxes”
shall
      meaning given to such term in Section
      2.7(a).

     

    “Financials”
shall
      have the meaning given to such term in Section
      6.5.

     

    “Financial
      Statements”
shall
      mean the Financial Statements Borrower are obligated to deliver pursuant to
      Section
      7.1
      of this
      Agreement.

     

    “GAAP”
shall
      mean generally accepted accounting principles in the United States of America,
      as in effect on the date hereof and applied on a consistent basis with the
      Financials.

     

    “Governmental
      Authority”
      shall
      mean any federal, state, local or foreign court or governmental agency,
      authority, instrumentality or regulatory body.

     

    “Guarantor”
shall
      mean M. David Kamrat, Qualmax, Inc., and any other Person who may hereafter
      guarantee payment or performance of the whole or any part of the Obligations;
      “Guarantors” means collectively all such Persons.

     

    “Guaranty”
shall
      mean any guaranty of the obligations of Borrowers executed by a Guarantor in
      favor of Agent for its benefit and for the ratable benefit of
      Lender.

     

    “Highest
      Lawful Rate”
shall
      mean, at any given time during which any Obligations shall be outstanding
      hereunder, the maximum nonusurious interest rate, if any, that at any time
      or
      from time to time may be contracted for, taken, reserved, charged or received
      on
      the indebtedness under this Agreement, under the laws of the State of Maryland
      (or the law of any other jurisdiction whose laws may, by order of court, be
      mandatorily applicable notwithstanding other provisions of this Agreement and
      the other Loan Documents), in any case after taking into account, to the extent
      permitted by applicable law, any and all relevant payments or charges under
      this
      Agreement and any other Loan Documents executed in connection herewith, and
      any
      available exemptions, exceptions and exclusions.

     

    "Indebtedness"
      of a
      Person at a particular date shall mean all obligations of such Person which
      in
      accordance with GAAP would be classified upon a balance sheet as liabilities
      (except capital stock and surplus earned or otherwise) and in any event, without
      limitation by reason of enumeration, shall include all indebtedness, debt and
      other similar monetary obligations of such Person whether direct or guaranteed,
      and all premiums, if any, due at the required prepayment dates of such
      indebtedness, and all indebtedness secured by a Lien on assets owned by such
      Person, whether or not such indebtedness actually shall have been created,
      assumed or incurred by such Person. Any indebtedness of such Person resulting
      from the acquisition by such Person of any assets subject to any Lien shall
      be
      deemed, for the purposes hereof, to be the equivalent of the creation,
      assumption and incurring of the indebtedness secured thereby, whether or not
      actually so created, assumed or incurred.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “Inventory”
shall
      mean all of Borrower’s inventory, including without limitation, (i) all raw
      materials, work in process, parts, components, assemblies, supplies and
      materials used or consumed in Borrower’s business; (ii) all goods, wares and
      merchandise, finished or unfinished, held for sale or lease or leased or
      furnished or to be furnished under contracts of service; and (iii) all goods
      returned to or repossessed by Borrower. 

     

    “Investment”
in
      any
      Person shall mean (i) the acquisition (whether for cash, property, services,
      assumption of Indebtedness, securities or otherwise, but exclusive of the
      acquisition of inventory, supplies, equipment and other property or assets
      used
      or consumed in the ordinary course of business of the applicable Borrower and
      Capital Expenditures not otherwise prohibited hereunder) of assets, shares
      of
      Capital Stock, bonds, notes, debentures, partnership, joint ventures or other
      ownership interests or other securities of such Person, or (ii) any other
      capital contribution to or investment in such Person. In determining the
      aggregate amount of Investments outstanding at any particular time,
      (a) there shall be deducted in respect of each such Investment any amount
      received as a return of capital (but only by repurchase, redemption, retirement,
      repayment, liquidating dividend or liquidating distribution); (b) there shall
      be
      deducted in respect of any Investment any cash amounts received as earnings
      on
      such Investment, whether as dividends, interest or otherwise; and (c) there
      shall not be deducted from or included in, as applicable, the aggregate amount
      of Investments any decrease or increase, as applicable, in the market value
      thereof.

     

    “Lien(s)”
shall
      mean any lien, charge, trust, pledge, security interest, deed of trust,
      mortgage, assignment or other claim or encumbrance of any kind or nature upon
      any interest in Property.

     

    “Loan”
shall
      mean the Term Loan provided for in Section
      2.1
      of this
      Agreement.

     

    “Loan
      Documents”
shall
      mean, collectively, this Agreement, the Note, the Guarantees, the Security
      Documents and all other documents, agreements, instruments, opinions and
      certificates executed and delivered in connection herewith or therewith, as
      the
      same may be modified, amended, extended, restated or supplemented from time
      to
      time.

     

    “Lockbox
      Account”
shall
      have the meaning given to such term in Section
      2.5(b).

     

    “Material
      Adverse Change”
shall
      mean a material adverse change in (a) the business, operations, results of
      operations, assets, liabilities or condition (financial or otherwise) of
      Borrower, (b) the Collateral, (c) Borrower’s ability to perform its obligations
      under the Loan Documents, or (d) the validity, enforceability or availability
      of
      rights and remedies of Lender hereunder, in each case as determined by Lender
      in
      its sole but reasonable discretion.

     

    “Material
      Adverse Effect”
shall
      mean a material adverse effect on (a) the business, operations, results of
      operations, assets, liabilities or condition (financial or otherwise) of
      Borrower, (b) the Collateral, (c) Borrower’s ability to perform its
      respective obligations under the Loan Documents, or (d) the validity,
      enforceability or availability of rights and remedies of Lender

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    hereunder,
      in each case as determined by Lender in its sole but reasonable
      discretion.

     

    “Material
      Contract”
shall
      mean any contract or other arrangement, whether written or oral, to which a
      Borrower is a party as to which the breach, nonperformance, cancellation or
      failure to renew by any party thereto could reasonably be expected to have
      a
      Material Adverse Effect.

     

    “Maturity
      Date”
shall
      mean January 2, 2009.

     

    “Net
      Cash Proceeds”
shall
      mean the aggregate cash proceeds received by Borrower in respect of any Asset
      Disposition, net of (a) direct costs (including, without limitation, legal,
      accounting and investment banking fees, and sales commissions) and (b) taxes
      paid or payable as a result thereof; it being understood that “Net Cash
      Proceeds” shall include, without limitation, any cash received upon the sale or
      other disposition of any non-cash consideration received by Borrower in any
      Asset Disposition.

     

    “Note”
shall
      mean the Term Note payable to the order of Lender, evidencing the Loan.

     

    “Obligations”
shall
      mean the Loan, any other loans and advances or extensions of credit made or
      to
      be made at any time by Lender to Borrower, or to others for Borrower’s account
      in each case pursuant to the terms and provisions of this Agreement, or any
      other Loan Document, together with interest thereon (including interest which
      may accrue as post-petition interest in connection with any bankruptcy or
      similar proceeding) and, expenses, liabilities and obligations of every kind
      or
      nature which may at any time be owing by Borrower to Lender pursuant to this
      Agreement, any other Loan Document or otherwise, whether now in existence,
      hereafter arising or incurred from time to time by Borrower, and all expenses
      incurred at any time by Lender, as well as expenditures to protect, preserve
      or
      defend any Collateral and Lender’s rights hereunder or in the Collateral, all of
      the foregoing, whether unsecured or secured, due or to become due, absolute
      or
      contingent, joint or several, matured or unmatured, direct or indirect, related
      or unrelated and whether Borrower is liable to Lender for such indebtedness
      as
      principal, surety, endorser, guarantor or otherwise. 

     

    “Official
      Body”
shall
      mean any national, federal, state, local or other government or political
      subdivision or any agency, authority, bureau, central bank, commission,
      department or instrumentality of either, or any court, tribunal, grand jury
      or
      arbitrator, in each case whether domestic or foreign.

     

    “Permitted
      Indebtedness”
shall
      mean the Indebtedness scheduled on Schedule
      1.1 to
      this
      Agreement.

     

    “Permitted
      Investments”
shall
      mean:

     

    (i) interest-bearing
      demand or time deposits (including certificates of deposit) which are insured
      by
      the Federal Deposit Insurance Corporation (“FDIC”) or a similar federal
      insurance program; provided,
      however,
      that
      Borrower may, in the ordinary course of their business,

     

    
      
        
        

      

      
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    maintain
      in their disbursement account from time to time amounts in excess of then
      applicable FDIC or other program insurance limits;

     

    (ii) Investments
      existing on the Closing Date and set forth on Schedule 1.2
      attached
      hereto;

     

    (iii) marketable,
      direct obligations of the United States of America, its agencies and
      instrumentalities maturing within 365 days of the date of purchase;

     

    (iv) commercial
      paper issued by corporations, each of which shall have a net worth of at least
      $100,000,000, and each of which conducts a substantial part of its business
      in
      the United States of America, maturing within 270 days from the date of the
      original issue thereof, and which at the time of acquisition has the highest
      rating by Moody’s Investors Service, Inc. or Standard and Poor’s
      Corporation;

     

    (v) bankers’
      acceptances, and certificates of deposit maturing within 365 days of the date
      of
      purchase which are issued by, or time deposits maintained with, an eligible
      institution having capital, surplus and undivided profits totaling more than
      $100,000,000 and which have the highest rating by Moody’s Investors Service,
      Inc. or Standard and Poor’s Corporation; and

     

    (vi) money
      market or similar funds that invest primarily in the types of investments
      referred to in clauses (i), (iii), (iv) and (v) above.

     

    “Permitted
      Liens”
shall
      mean:

     

    (i)
       Liens
      set
      forth on Schedule
      1.3
      attached
      hereto;

     

    (ii) Liens
      on
      fixed assets securing Indebtedness (including Capital Leases and purchase money
      Indebtedness); provided
      that (A)
      any such Lien attaches only to the assets to be financed and (B) a description
      of the assets so financed is furnished to Lender;

     

    (iii) Liens
      of
      warehousemen, mechanics, materialmen, workers, repairmen, fillers, packagers,
      processors, common carriers, landlords and other similar Liens arising by
      operation of law or otherwise, not waived in connection herewith, for amounts
      that are not yet due and payable or which are being diligently contested in
      good
      faith by Borrower by appropriate proceedings, provided
      that in
      any such case an adequate reserve is being maintained by Borrower for the
      payment of same;

     

    (iv) Liens
      for
      taxes, assessments or other governmental charges not yet due and payable or
      which are being diligently contested in good faith by Borrower by appropriate
      proceedings, provided
      that in
      any such case an adequate reserve is being maintained by Borrower for the
      payment of same in accordance with GAAP; and

     

    (v) deposits
      or pledges to secure obligations under workmen’s compensation,

     

    
      
        
        

      

      
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    social
      security or similar laws, or under unemployment insurance.

     

    “Person”
shall
      mean any individual, sole proprietorship, partnership, joint venture, limited
      liability entity, trust, unincorporated organization, association, corporation,
      institution, entity, or government (including any division, agency or department
      thereof), and, as applicable, the successors, heirs and assigns of
      each.

     

    “Prime
      Rate”
shall
      mean the U.S. Prime Rate as published in the Money Rates section of The
      Wall Street Journal
      as in
      effect from time to time. The Prime Rate is a reference rate and does not
      necessarily represent the lowest or best rate actually charged to any
      borrower.

     

    “Property”
shall
      mean all personal and real property of every kind and description (whether
      tangible or intangible) in which a Person has any right, title or interest.
      

     

    “Proprietary
      Rights”
shall
      have the meaning given to such term in Section
      6.13.

     

    “Security
      Documents”
shall
      mean any existing or future agreement or document granting, creating or
      conferring any Lien in favor of Lender securing all or any portion of the
      Obligations, including, without limitation, the Stock Pledge
      Agreement.

     

    “Stock
      Pledge Agreement”
shall
      mean that certain Stock Pledge Agreement of even date herewith from Qualmax,
      Inc. to Lender, pledging and granting to Lender a security interest and Lien
      in
      all shares of Capital Stock of Borrower held by Qualmax, Inc.

     

    “Subordinated
      Debt”
shall
      mean existing Indebtedness, if any, set forth and indicated as subordinated
      set
      forth on Schedule
      1.1(e)
      hereto
      and unsecured Indebtedness hereafter incurred by Borrower, which, in each case,
      is expressly subordinated and made junior to the payment and performance in
      full
      of the Obligations and under a written agreement acceptable to
      Lender.

     

    “Subordination
      Agreements”
shall
      mean the agreements entered into from time to time by and among Borrower,
      Lender, and a third party creditor of Borrower providing for the subordination
      of such third party creditor’s claims to those of Lender on terms and conditions
      satisfactory to Lender.

     

    “Subsidiary”
shall
      mean, as to any Person, (a) any corporation more than 50% of whose Capital
      Stock
      of any class or classes having by the terms thereof ordinary voting power to
      elect a majority of the directors of such corporation (irrespective of whether
      or not at the time, any class or classes of such corporation shall have or
      might
      have voting power by reason of the happening of any contingency) is at the
      time
      owned by such Person directly or indirectly through Subsidiaries, (b) any
      partnership, association, joint venture or other entity in which such Person
      directly or indirectly through Subsidiaries has more than a 50% interest in
      the
      total capital, total income and/or total ownership interests of such entity
      at
      any time and (c) any partnership in which such Person is a general
      partner.

     

    
      
        
        

      

      
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    “Tangible
      Net Worth”
shall
      mean the value of Borrower’s total assets (including leaseholds and leasehold
      and reserves against assets but excluding goodwill, patents, trademarks, trade
      names, organization expense, unamortized debt discount and expense, capitalized
      or deferred research and development costs, deferred marketing expenses,, and
      other like intangibles, and monies due from affiliates, officers, directors,
      employees, shareholders, members or managers of Borrower) less total
      liabilities, including but not limited to accrued and deferred income taxes,
      but
      excluding the non-current portion of Subordinated Debt. 

     

    “Taxes”
shall
      mean any federal, state, local or foreign income, sales, use, transfer, payroll,
      personal, property, occupancy, franchise or other tax, levy, impost, fee,
      imposition, assessment or similar charge, together with any interest or
      penalties thereon.

     

    “Third-Party
      Loan”
shall
      mean any loan, advance, deposit or extension of credit made or granted by
      Borrower to any other Person.

     

    “UCC”
shall
      mean the Uniform Commercial Code as in effect from time to time in the State
      of
      Maryland.

     

    “USA
      Patriot Act”
shall
      mean the Uniting and Strengthening America by Providing Appropriate Tools
      Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56,
      as
      the same has been, or shall hereafter be, renewed, extended, amended or
      replaced.

     

    “Voting
      Stock”
shall
      mean, with respect to any Person, Capital Stock issued by such Person the
      holders of which are ordinarily, in the absence of contingencies, entitled
      to
      vote for the election of directors (or persons performing similar functions)
      of
      such Person, even though the right so to vote has been suspended by the
      happening of such a contingency.

     

    1.2. Accounting
      Terms.
      Unless
      otherwise defined or specified herein, all accounting terms shall be construed
      herein and all accounting determinations for purposes of determining compliance
      with Article IX hereof and otherwise to be made under this Agreement shall
      be
      made in accordance with GAAP applied on a basis consistent in all material
      respects with the Financials. All Financial Statements required to be delivered
      hereunder from and after the Closing Date and all financial records shall be
      maintained in accordance with GAAP as in effect as of the date of the
      Financials. If GAAP shall change from the basis used in preparing the
      Financials, the certificates required to be delivered pursuant to
      Section 7.1(c) demonstrating compliance with the covenants contained herein
      shall include calculations setting forth the adjustments necessary to
      demonstrate how Borrower are in compliance with the financial covenants based
      upon GAAP as in effect on the Closing Date. If Borrower shall change their
      method of inventory accounting, all calculations necessary to determine
      compliance with the covenants contained herein shall be made as if such method
      of inventory accounting had not been so changed.

     

    1.3. Other
      Definitional Terms.
      Terms
      not otherwise defined herein which are defined in the UCC shall have the
      meanings given them in the UCC. It is the specific intent of Borrower
      and

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    Lender
      that references to terms defined in the UCC shall mean the definitions set
      forth
      in the UCC as the UCC is in effect from time to time. The term “on the date
      hereof” shall mean the date of this Agreement. The words “hereof”, “herein” and
“hereunder” and words of similar import when used in this Agreement shall refer
      to the Agreement as a whole and not to any particular provision of this
      Agreement, unless otherwise specifically provided. References in this Agreement
      to “Articles”, “Sections”, “Schedules” or “Exhibits” shall be to Articles,
      Sections, Schedules or Exhibits of or to this Agreement unless otherwise
      specifically provided. Any of the terms defined in Section 1.1 may, unless
      the
      context otherwise requires, be used in the singular or plural depending on
      the
      reference. “Include”, “includes” and “including” shall be deemed to be followed
      by “without limitation” whether or not they are in fact followed by such words
      or words of like import. “Writing”, “written” and comparable terms refer to
      printing, typing, computer disk, e-mail and other means of reproducing words
      in
      a visible form. References to any agreement or contract are to such agreement
      or
      contract as amended, modified or supplemented from time to time in accordance
      with the terms hereof and thereof. References to any Person include the
      successors and permitted assigns of such Person. References “from” or “through”
any date mean, unless otherwise specified, “from and including” or “through and
      including”, respectively. References to any times herein shall refer to the
      applicable time in Baltimore, Maryland.

     

    ARTICLE
      II   LOAN

     

    2.1. Term
      Loan. Subject to the terms and conditions of this Agreement, Lender will
      make a Term Loan to Borrower in the sum of One Million Dollars ($1,000,000.00)
      .
      The Term Loan shall be advanced on the Closing Date and shall be evidenced
      by
      the Note in substantially the form attached hereto as Exhibit A.

     

    2.2. Repayment
      of Loan. The Loan shall be due and payable on or before the Maturity Date,
      subject to mandatory prepayments or acceleration as herein provided. Borrower
      shall pay principal, interest, and all other amounts payable hereunder without
      any deduction whatsoever, including, but not limited to, any deduction for
      any
      setoff or counterclaim, all of which are hereby waived. 

     

    2.3. Use
      of
      Proceeds. Borrower shall apply the proceeds of Advances to (i) repay
      existing Indebtedness owed by Borrower’s parent, Qualmax, Inc., to Bank of
      America, N.A., and (ii) pay fees and expenses relating to this
      transaction.

     

    2.4. Mandatory
      Prepayments.

     

    (a) Casualty
      Loss.
      To the
      extent of cash proceeds received in connection with a Casualty Loss, Borrower
      shall (immediately upon receipt of any such proceeds) prepay the Loan in an
      amount equal to 100% of such cash proceeds if Lender shall have elected, at
      its
      option, to apply the proceeds realized from such Casualty Loss to the prepayment
      of the Loan.

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    (b)
      Asset Dispositions and Collections.
      Contemporaneously with the occurrence of any Asset Disposition, Borrower shall,
      at Lender’s option, prepay the Loan in an aggregate amount equal to the net cash
      proceeds.

     

    2.5. Payments
      and Computations.
      

     

    (a) Borrower
      shall make each payment hereunder and under the Note not later than 2:00 P.M.
      on
      the day when due. Any payment received after 2:00 P.M. (including any
      payment in full of the Obligations) shall be deemed received on the immediately
      following Business Day. All prepayments of every kind on account of the Loan
      shall be first applied to accrued and unpaid interest and then to the principal
      balance thereof. 

     

    (b) At
      Lender’s request, all proceeds of Collateral shall be deposited by Borrower into
      either (i) a lockbox account or a blocked account (“Lockbox Account”)
      established at a Depository Institution, pursuant to a Control Agreement. Lender
      assumes no responsibility for such blocked account arrangement, including any
      claim or accord and satisfaction or release with respect to deposits accepted
      by
      any Depository Institution thereunder. Borrower hereby agrees to execute such
      agreements as Lender may require to establish the Lockbox Account. 

     

    ARTICLE
      III   INTEREST AND FEES

     

    3.1. Interest
      on Loans. Interest on the Loan shall be paid in arrears on the first day of
      each calendar month commencing May 1, 2007, at the interest rate equal to the
      Prime Rate plus two percent (2%) per annum (subject to adjustment in the manner
      provided herein and in the Note).

     

    3.2. Interest
      After Event of Default. Interest on the amount of principal under the Loan
      outstanding as of the date an Event of Default occurs, and at all times
      thereafter until the earlier of the date upon which (a) all Obligations have
      been paid and satisfied in full or (b) such Event of Default shall have
      been cured or waived, shall be payable on demand at a rate equal to the rate
      or
      rates at which the Loan is then bearing interest, plus 200 basis points. In
      the
      event of any change in said applicable interest rate, the rate hereunder shall
      change, effective as of the day the applicable interest rate changes, so as
      to
      remain 200 basis points above the then applicable interest rate. To the extent
      permitted by applicable law, interest shall accrue at the applicable contract
      rate(s) provided for in this Agreement notwithstanding the occurrence of any
      Event of Default, acceleration of the Obligations, the entry of any judgment,
      or
      the commencement of any bankruptcy, reorganization, receivership or other
      proceedings.

     

    ARTICLE
      IV    COLLATERAL

     

    4.1. Description.
      As security for the payment of the Obligations, and satisfaction by Borrower
      of
      all covenants and undertakings contained in this Agreement and the other Loan
      Documents, Borrower hereby assigns and grants to Lender a continuing first
      (subject only to any Permitted Liens, if any) Lien on and security interest
      in,
      upon and to all of Borrower’s personal

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    property,
      including, without limitation, all of the following personal
      property:

     

    (a) Accounts
      - All of
      Borrower’s now owned and hereafter acquired, created, or arising
      Accounts;

     

    (b) Inventory
      - All of
      Borrower’s now owned or hereafter acquired Inventory of every nature and kind,
      wherever located; 

     

    (c) General
      Intangibles
      - All of
      Borrower’s now owned and hereafter acquired, created or arising General
      Intangibles of every kind and description, including, without limitation,
      customer lists, choses in action, claims, books, records, goodwill, patents
      and
      patent applications, copyrights, trademarks, tradenames, service marks,
      tradestyles, trademark applications, trade secrets, contracts, contract rights,
      royalties, licenses, franchises, deposits, license, franchise and royalty
      agreements, formulae, tax and any other types of refunds, returned and unearned
      insurance premiums, rights and claims under insurance policies including without
      limitation, credit insurance and key man life insurance policies, and computer
      informa-tion, software, records and data;

     

    (d) Equipment
      - All of
      Borrower’s now owned and hereafter acquired Equipment, including, without
      limitation, machinery, vehicles, furniture and Fixtures, wherever located,
      and
      all replacements, parts, accessories, substitutions and additions thereto;
      

     

    (e) Deposit
      Accounts
      - All of
      Borrower’s now existing and hereafter acquired or arising Deposit Accounts,
      reserves and credit balances of every nature, wherever located, and all
      documents and records associated therewith;

     

    (f) Property
      in Lender’s Possession
      - All
      personal property of Borrower, now or hereafter in the possession of Lender;
      

     

    (g) Investment
      Property
      - All of
      Borrower’s now owned or hereafter acquired Investment Property of every
      kind;

     

    (h) Letter
      of Credit Rights
      - All of
      Borrower’s now owned or hereafter acquired Letter of Credit Rights;

     

    (i) Commercial
      Tort Claims
      - All of
      Borrower’s now owned or hereafter acquired Commercial Tort Claims;

     

    (j) Other
      Property
      - All of
      Borrower’s now owned or hereafter acquired or created Instruments and other
      notes receivable, Goods, Chattel Paper, Documents (including bills of lading,
      warehouse receipts and other documents of title), Payment Intangibles,
      guarantees, Supporting Obligations, letters of credit, rights of rescission,
      stoppage in transit, replevin, and reclamation, and returned, reclaimed and
      repossessed goods; and

     

    (k) Proceeds
      - The
      Proceeds (including, without limitation, insurance proceeds),

     

     

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    whether
      cash or non-cash, of all of the foregoing personal property and interests in
      personal property.

     

    4.2. Lien
      Documents. At Closing, and thereafter from time to time as Lender deems
      necessary, Borrower shall execute and/or deliver to Lender or authorize, as
      applicable, the following (all in form and substance satisfactory to
      Lender): 

     

    (a) Financing
      Statements
      -
      Financing statements, which Lender may file in any jurisdiction where any
      Collateral is or may be located and in any other jurisdiction that Lender deems
      appropriate; and

     

    (b) Other
      Agreements
      - Any
      other agreements, documents, instruments and writings, including, without
      limitation, trademark , patent and/or copyright security agreements and
      amendments or supplements thereto, as may be required by Lender to evidence,
      create, perfect or protect Lender’s Liens and security interests in the
      Collateral.

     

    4.3. Other
      Actions. Borrower will defend the Collateral against all Liens (other than
      Permitted Liens), claims and demands of all Persons at any time claiming the
      same or any interest therein. Borrower agrees to comply with the requirements
      of
      all state and federal laws and requests of Lender in order for Lender to have
      and maintain a valid and perfected first security interest (subject only to
      Permitted Liens, if any) in the Collateral including, without limitation,
      executing such documents as Lender may require to obtain Control (as defined
      in
      the UCC) over all Letter of Credit Rights, Deposit Accounts and Investment
      Property. Lender is hereby authorized by Borrower to file any financing
      statements covering the Collateral or an amendment that adds collateral covered
      by a financing statement or an amendment that adds a debtor to a financing
      statement, in each case whether or not Borrower’s signature appears thereon.
      Borrower hereby authorizes Lender to file financing statements and amendments
      to
      financing statements describing the Collateral in any filing office as Lender,
      in its reasonable discretion, may determine, including financing statements
      listing “All Assets” in the collateral description therein, as well as language
      indicating that the acquisition by a third party of any right, title or interest
      in or to the Collateral without Lender’s consent, shall be a violation of
      Lender’s rights. In addition to the foregoing, Borrower shall perform all
      further acts that may be lawfully and reasonably required by Lender to secure
      Lender and effectuate the intentions and objects of this Agreement, including,
      but not limited to, the execution and delivery of continuation statements,
      amendments to financing statements, security agreements, contracts and any
      other
      documents required hereunder. Borrower shall use commercially reasonable efforts
      to obtain acknowledgment and waiver agreements from the owner or lessor of
      any
      warehouse or distribution location and Borrower shall endeavor to obtain
      acknowledgment and waiver agreements from the owner or lessor of each showroom
      location. At Lender’s request, Borrower shall immediately deliver to Lender all
      documents or items for which Lender must receive possession to obtain and/or
      maintain perfected security interests, including without limitation, all notes,
      letters of credit, certificates and documents of title, chattel paper, warehouse
      receipts, instruments, and any other similar Collateral. 

     

     

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    4.4 
      Searches and Certificates.
      

     

    Borrower
      shall, prior to or at Closing, and thereafter as Lender may determine from
      time
      to time, at Borrower’s expense, obtain (and Lender may also do so, at its
      option, but at Borrower’s expense from time to time) the following searches (the
      results of which are to be consistent with the warranties made by Borrower
      in
      this Agreement in any other Loan Document):

     

    (a) UCC
      searches with the Secretary of State of Borrower’s jurisdiction of
      organization;

     

    (b) Judgment,
      federal tax lien and state tax lien searches, in Borrower’s jurisdiction of
      organization and each state or other jurisdiction where Borrower maintains
      its
      executive office, a place of business, or any Property; and

     

    (c) Searches
      of ownership and Lien status of intellectual property in the appropriate
      governmental offices.

     

    ARTICLE
      V    CONDITIONS PRECEDENT

     

    The
      obligation of Lender to extend the Loan shall be subject to the satisfaction,
      on
      or prior to the Closing Date, of the following conditions precedent (all
      agreements and documents from Borrower or any other Person to be in form and
      substance acceptable to Lender, in its sole discretion):

     

    (a) Executed
      Loan Documents.
      Receipt
      by Lender of duly executed copies of: this Agreement, the Note, the Security
      Documents, and all other Loan Documents.

     

    (b) Organizational
      Documents.
      Receipt
      by Lender of the following:

     

    (i) Charter
      Documents.
      Copies
      of the articles or certificates of incorporation or other charter documents
      of
      Borrower certified to be true and complete as of a recent date by the
      appropriate Governmental Authority of the state or other jurisdiction of its
      incorporation and certified by a secretary or assistant secretary of Borrower
      to
      be true and correct as of the Closing Date.

     

    (ii) Bylaws/Operating
      Agreement.
      A copy
      of the bylaws or operating agreement, as applicable, of Borrower certified
      by a
      secretary or assistant secretary of Borrower to be true and correct as of the
      Closing Date.

     

    (iii) Resolutions.
      Copies
      of resolutions or unanimous written consent of the board of directors or
      members, as applicable, of Borrower approving and adopting the Loan Documents,
      the transactions contemplated therein and authorizing execution and delivery
      thereof, certified by a secretary or assistant secretary of Borrower to be
      true
      and correct and in force and effect as of the Closing Date.

     

     

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    (iv)
      Good Standing.
      Copies
      of a certificate of good standing, existence or its equivalent with respect
      to
      Borrower certified as of a recent date by the appropriate Governmental
      Authorities of the state or other jurisdiction of organization and each other
      jurisdiction in which the failure to so qualify and be in good standing could
      reasonably be expected to have a Material Adverse Effect.

     

    (v) Incumbency.
      An
      incumbency certificate of Borrower certified by a secretary or assistant
      secretary of Borrower to be true and correct as of the Closing
      Date.

     

    (c) Financial
      Statements.
      Receipt
      by Lender of Borrower’s preliminary, unaudited Financial Statements for the
      fiscal year ending December 31, 2006 and such other information relating to
      Borrower as Lender may reasonably require.

     

    (d) Opinions
      of Counsel.
      Receipt
      by Lender of an opinion, or opinions (which shall cover, among other things,
      authority, legality, validity, binding effect, enforceability, absence of
      conflict with laws, organizational documents, and attachment and perfection
      of
      liens), satisfactory to Lender, addressed to Lender and dated the Closing Date,
      from legal counsel to Borrower.

     

    (e) Personal
      Property Collateral.
      Lender
      shall have received duly authorized or, if required executed, UCC financing
      statements and other lien documents for filing including all necessary documents
      (including lien termination documents by any existing lender) to perfect
      Lender’s security interest in the Collateral, all as may be required by Lender.

     

    (f) Priority
      of Liens.
      Lender
      shall have received satisfactory evidence that (i) Lender holds a perfected
      Lien on all Collateral and (ii) none of the Collateral is subject to any other
      Liens other than Permitted Liens.

     

    (g) Evidence
      of Insurance.
      Receipt
      by Lender of copies of insurance policies or certificates of insurance (on
      Acord
      form 27) of Borrower evidencing liability and casualty insurance meeting the
      requirements set forth in the Loan Documents, including, without limitation,
      naming Lender as loss payee (as to property and casualty coverage) and as
      additional insured (as to liability coverage).

     

    (h) Consents.
      Receipt
      by Lender of evidence that all governmental, shareholder, member and third
      party
      consents and approvals required in connection with the transactions contemplated
      hereby and expiration of all applicable waiting periods without any action
      being
      taken by any authority that could restrain, prevent or impose any material
      adverse conditions on such transactions or that could seek or threaten any
      of
      the foregoing, and no law or regulation shall be applicable which in the
      judgment of Lender could have such effect.

     

    (i) Fees
      and Expenses.
      Payment
      by Borrower of all fees and Expenses owed to Lender.

     

     

    
      
        
        

      

      
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    (j)
      Other.
      Receipt
      by Lender of such other documents, instruments, agreements or information as
      are
      required to be provided herein or under any other Loan Documents or as may
      otherwise be or have been requested by Lender.

     

    ARTICLE
      VI    REPRESENTATIONS AND WARRANTIES

     

    In
      order
      to induce Lender to enter into this Agreement and to make available the Loan
      contemplated hereby, Borrower hereby represents and warrants to
      Lender.

     

    6.1. Organization
      and Qualification.
      Borrower
      (i) is a corporation duly organized, validly existing and in good standing
      under
      the laws of the state of its incorporation or organization, (ii) has the power
      and authority to own its Property and assets and to transact the businesses
      in
      which it is presently, or proposes to be, engaged, and (iii) is duly
      qualified and is authorized to do business and is in good standing in every
      jurisdiction in which the failure to be so qualified could reasonably be
      expected to have a Material Adverse Effect. 

     

    6.2. Liens.
      There are no Liens in favor of any Person with respect to any Property of
      Borrower other than Permitted Liens. 

     

    6.3. No
      Conflict. The execution and delivery by Borrower of this Agreement and each
      of the other Loan Documents executed and delivered in connection herewith and
      the performance of the obligations of Borrower hereunder and thereunder and
      the
      consummation by Borrower of the transactions contemplated hereby and thereby:
      (i) are within the powers of Borrower; (ii) are duly authorized by the
      Board of Directors of Borrower and, if necessary, its stockholders or members;
      (iii) are not in contravention of the terms of the articles or certificate
      of incorporation or bylaws of Borrower or of any Contractual Obligations;
      (iv) do not require the consent, registration or approval of any
      Governmental Authority or any other Person; (v) do not contravene any
      statute, law, ordinance regulation, rule, order or other governmental
      restriction applicable to or binding upon Borrower; and (vi) will not,
      except as contemplated herein for the benefit of Lender, result in the
      imposition of any Liens upon any Property of Borrower under any existing
      indenture, mortgage, deed of trust, loan or agreement or other material
      agreement or instrument to which Borrower is a party or by which it or any
      of
      its Property may be bound or affected.

     

    6.4. Enforceability.
      The Agreement and all of the other Loan Documents are the legal, valid and
      binding obligations of Borrower, and are enforceable against Borrower in
      accordance with their terms.

     

    6.5. Financial
      Data. Borrower shall have furnished to Lender and Lender the following
      Financial Statements (the “Financials”): (i) the consolidated balance sheet of
      Borrower as of, and statements of income, retained earnings and changes in
      financial position for the fiscal year ended December 31, 2005, audited by
      independent certified public accountants, and (ii) the unaudited consolidated
      and consolidating balance sheet of Borrower as of, and statement of income,
      and
      retained earnings for the fiscal year ending December 31, 2006, prepared by
      the
      chief financial

     

     

     

    
      
        
        

      

      
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    officer
      of Borrower. The Financials are in accordance with the books and records of
      Borrower and fairly present the financial condition of Borrower at the dates
      thereof and the results of operations for the periods indicated (subject, in
      the
      case of unaudited Financial Statements, to normal year end adjustments), and
      such Financial Statements have been prepared in conformity with GAAP
      consistently applied throughout the periods involved. Since December 31, 2006,
      there have been no changes in the condition, financial or otherwise, of Borrower
      as shown on the respective balance sheets of Borrower described above, except
      (a) as contemplated herein and (b) for changes which individually or in the
      aggregate do not constitute a Material Adverse Change.

     

    6.6. Locations
      of Offices, Records and Inventory. Borrower’s chief executive office and all
      other places of business (with a separate itemization for warehouse locations)
      are set forth in Schedule 6.6 hereto, and the books and records of Borrower
      and all chattel paper and all records of accounts are located at the chief
      executive offices of Borrower. There is no address in which Borrower has any
      Collateral other than the addresses as set forth on Schedule 6.6. Schedule
      6.6
      also contains a true, correct and complete list of (i) the legal names and
      addresses of each landlord, warehouseman, filler, processor and packer at which
      Inventory is stored, or equipment is located. None of the receipts received
      by
      Borrower from any warehouseman, filler, processor or packer states that the
      goods covered thereby are to be delivered to bearer or to the order of a named
      person or to a named person and such named person’s assigns.

     

    6.7. Business
      Names. Borrower has not used any legal or fictitious name during the five
      (5) years preceding the date hereof, other than the legal name shown on its
      Articles or Certificate of Incorporation or Articles, as it may be amended
      to
      the date hereof, delivered to Lender and those names as set forth on Schedule
      6.7.

     

    6.8. Affiliates
      and Subsidiaries. There are no Affiliates or direct or indirect Subsidiaries
      of Borrower except as set forth on Schedule 6.8. No Borrower is a party to
      any partnership or joint venture except as set forth on
      Schedule 6.8. 

     

    6.9. Judgments
      or Litigation. Except as set forth on Schedule 6.9, there is no material (a)
      judgment, order, writ or decree outstanding against Borrower or (b) pending
      or,
      to the best of Borrower’s knowledge, threatened litigation, contested claim,
      governmental, administrative or regulatory investigation, arbitration, or
      governmental audit (for taxes or otherwise) or proceeding by or against
      Borrower. No judgment, order, writ, decree, pending or threatened litigation,
      contested claim, investigation, arbitration and governmental proceeding
      pertaining to Borrower (individually or in the aggregate) could reasonably
      be
      expected to have a Material Adverse Effect.

     

    6.10. Defaults.
      Borrower is not in default under any Contractual Obligations which default
      could
      reasonably be expected to have a Material Adverse Effect.

     

    6.11. Compliance
      with Law. Borrower has not violated or failed to comply with (including
      without limitation in the ownership and use of its Property and the conduct
      of
      its business) any statute, law, ordinance, regulation, rule or order of any
      foreign, federal, state or local government, or

     

     

     

    
      
        
        

      

      
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    any
      other
      Governmental Authority or any self regulatory organization, or any judgment,
      decree or order of any court, applicable to its business or operations which
      failure or violation could reasonably be expected to have a Material Adverse
      Effect. Borrower has not received any notice to the effect that, or otherwise
      been advised that, it is not in compliance with, and Borrower has no reason
      to
      anticipate that any currently existing circumstances are likely to result in
      the
      violation of any such statute, law, ordinance, regulation, rule, judgment,
      decree or order which failure or violation could reasonably be expected to
      have
      a Material Adverse Effect.

     

    6.12. Compliance
      with Environmental Laws. The operations of Borrower materially comply with
      all applicable federal, state or local environmental, health and safety
      statutes, regulations, directions, ordinances, criteria or guidelines; and
      none
      of the operations of Borrower are the subject of any material judicial or
      administrative proceeding alleging the violation of any federal, state or local
      environmental, health or safety statute, regulation, direction, ordinance,
      criteria or guidelines. None of the operations of Borrower are the subject
      of
      any federal or state investigation evaluating whether Borrower disposed any
      hazardous or toxic waste, substance or constituent or other substance at any
      site that may require remedial action, or any federal or state investigation
      evaluating whether any remedial action is needed to respond to a release of
      any
      hazardous or toxic waste, substance or constituent, or other substance into
      the
      environment. Borrower has not filed or received any notice under any federal
      or
      state law indicating past or present treatment, storage or disposal of a
      hazardous waste or reporting a spill or release of a hazardous or toxic waste,
      substance or constituent, or other substance into the environment. Borrower
      has
      no contingent liability of which Borrower have knowledge or reasonably should
      have knowledge in connection with any release of any hazardous or toxic waste,
      substance or constituent, or other substance into the environment, nor has
      Borrower received any notice, letter or other indication of potential liability
      arising from the disposal of any hazardous or toxic waste, substance or
      constituent or other substance into the environment.

     

    6.13. Intellectual
      Property. Borrower possesses adequate licenses, patents, patent
      applications, copyrights, service marks, trademarks and tradenames to continue
      to conduct its business as heretofore conducted by it. Schedule 6.13
      attached hereto sets forth (a) all of the federal, state and foreign
      registrations of trademarks, service marks and other marks, trade names or
      other
      trade rights of Borrower, and all pending applications for any such
      registrations, (b) all of the registered patents and copyrights of Borrower
      and
      all pending applications therefore and (c) all other registered trademarks,
      service marks and other marks, trade names and other trade rights used by
      Borrower in connection with their business (collectively, the “Proprietary
      Rights”). Borrower are the owner of each of the Proprietary Rights set forth on
      Schedule 6.13 as indicated on such schedule, and except as set forth on
      Schedule 6.13 no other Person has the right to use any of such Proprietary
      Rights. Each of the Proprietary Rights set forth on Schedule 6.13 is federally
      registered, having the registration number and issue date set forth on
      Schedule 6.13. The Proprietary Rights set forth on Schedule 6.13 are all
      those used in the businesses of Borrower. Except as set forth on Schedule 6.13,
      no Person has a right to receive any royalty or similar payment in respect
      of
      any Proprietary Rights pursuant to any contractual arrangements entered into
      by
      Borrower, and no

     

     

     

    
      
        
        

      

      
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    Person
      otherwise has a right to receive any royalty or similar payment in respect
      of
      any such Proprietary Rights except as set forth on Schedule 6.13. Borrower
      has
      not granted any license or sold or otherwise transferred any interest in any
      of
      the Proprietary Rights to any other Person. The use of each of the Proprietary
      Rights by Borrower is not infringing upon or otherwise violating the rights
      of
      any third party in or to such Proprietary Rights, and no proceeding has been
      instituted against or notice received by Borrower that are presently outstanding
      alleging that the use of any of the Proprietary Rights infringes upon or
      otherwise violates the rights of any third party in or to any of the Proprietary
      Rights. Borrower has not given notice to any Person that it is infringing on
      any
      of the Proprietary Rights and to the best of Borrower’s knowledge, no Person is
      infringing on any of the Proprietary Rights. All of the Proprietary Rights
      of
      Borrower are valid and enforceable rights of Borrower and will not cease to
      be
      valid and in full force and effect by reason of the execution and delivery
      of
      this Agreement or the Loan Documents or the consummation of the transactions
      contemplated hereby or thereby.

     

    6.14. Licenses
      and Permits. Borrower has obtained and holds in full force and effect all
      material franchises, licenses, leases, permits, certificates, authorizations,
      qualifications, easements, rights of way and other rights and approvals which
      are necessary or appropriate for the operation of its business as presently
      conducted and as proposed to be conducted. Borrower is not in violation of
      the
      terms of any such franchise, license, lease, permit, certificate, authorization,
      qualification, easement, right of way, right or approval which in any such
      case
      could reasonably be expected to have a Material Adverse Effect.

     

    6.15. Title
      to Property. Borrower has (i) valid leasehold interests in all of the real
      property it occupies as a tenant, (all such real property and the nature of
      Borrower’s interest therein is set forth on Schedule 6.15) and
      (ii) good, marketable and exclusive title to all of the other Property it
      purports to own (including without limitation, all real and personal Property
      in
      each case as reflected in the Financial Statements delivered to Lender
      hereunder), other than, with respect to Property described in clause (ii)
      above, properties disposed of in the ordinary course of business or in any
      manner otherwise permitted under this Agreement since the date of the most
      recent audited balance sheet of Borrower, and in each case subject to no claims,
      options, rights or interests of any other Person. Borrower enjoys peaceful
      and
      undisturbed possession of all its real property, and there is no pending or,
      to
      the best of its knowledge, threatened condemnation proceeding relating to any
      such real property. The leases with respect to the leased property, together
      with any leases of real property entered into by Borrower after the date hereof,
      are referred to collectively as the “Leases”. None of the Leases contains
      provisions which have or could reasonably be expected to have a Material Adverse
      Effect. No material default exists under any Lease. 

     

    6.16. Labor
      Matters. Borrower is not engaged in any unfair labor practice. There is (a)
      no material unfair labor practice complaint pending against Borrower or, to
      the
      best knowledge of Borrower, threatened against Borrower, before the National
      Labor Relations Board, and no grievance or arbitration proceeding with any
      employee, or group or committee representing any employees, or arising out
      of or
      under collective bargaining agreements that has or could reasonably be expected
      to have a Material Adverse Effect is so pending against Borrower or, to the
      best

     

     

     

    
      
        
        

      

      
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    knowledge
      of Borrower, threatened against Borrower, (b) no strike, labor dispute, slowdown
      or stoppage pending or, to the best knowledge of Borrower, threatened against
      Borrower, and (c) no union representation questions with respect to the
      employees of Borrower and no union organizing activities.

     

    6.17. Investment
      Company. Borrower is not (a) an “investment company” or a company
“controlled” by an “investment company” within the meaning of the Investment
      Company Act of 1940, as amended, (b) a “holding company” or a “subsidiary
      company” of a “holding company,” or an “affiliate” of a “holding company” or of
      a “subsidiary company” of a “holding company,” within the meaning of the Public
      Utility Holding Company Act of 1935, as amended, or (c) subject to any other
      law
      which purports to regulate or restrict its ability to borrow money or to
      consummate the transactions contemplated by this Agreement or the other Loan
      Documents or to perform its obligations hereunder or thereunder.

     

    6.18. Margin
      Security. Borrower does not own any margin stock and no portion of the
      proceeds of the Loan shall be used by Borrower for the purpose of purchasing
      or
      carrying any “margin stock” (as defined in Regulation U of the Board of
      Governors of the Federal Reserve System) or for any other purpose which violates
      the provisions or Regulation U, T, or X of said Board of Governors or for any
      other purpose in violation of any applicable statute or regulation, or of the
      terms and conditions of this Agreement.

     

    6.19. Taxes
      and Tax Returns. 

     

    (a) Borrower
      has timely filed (inclusive of any permitted extensions) with the appropriate
      taxing authorities all returns (including, without limitation, information
      returns and other material information) in respect of Taxes required to be
      filed
      through the date hereof and will timely file (inclusive of any permitted
      extensions) any such returns required to be filed on and after the date hereof
      except where the failure to file could not reasonably be expected to have a
      Material Adverse Effect. The information filed is complete and accurate in
      all
      material respects. 

     

    (b) (i)
      All
      Taxes, in respect of periods beginning prior to the date hereof, have been
      timely paid, or will be timely paid, or an adequate reserve has been established
      therefore, as set forth in the Financial Statements, and (ii) Borrower has
      no
      material liability for such Taxes for such periods in excess of the amounts
      so
      paid or reserves so established. No material deficiencies for Taxes have been
      claimed, proposed or assessed by any taxing or other Governmental Authority
      against Borrower except those that are paid or contested within the time limits
      designated by law or the applicable Governmental Authority and no material
      tax
      Liens have been filed. 

     

    6.20. Status
      of Accounts. Each Account is based on an actual and bona fide sale and
      delivery of goods or rendition of services to customers, made by Borrower in
      the
      ordinary course of its business; the goods and Inventory being sold and the
      Accounts created are Borrower’s exclusive property and are not and shall not be
      subject to any Lien, consignment arrangement, encumbrance, security interest
      or
      financing statement whatsoever, and Borrower’s customers have accepted
      the

     

     

     

    
      
        
        

      

      
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    goods
      or
      services, owe and are obligated to pay the full amounts stated in the invoices
      according to their terms, without any dispute, offset, defense, counterclaim
      or
      contra. Borrower confirms to Lender that any and all taxes or fees relating
      to
      its business, its sales, the Accounts or the goods relating thereto, are its
      sole responsibility and that same will be paid by Borrower when due (unless
      duly
      contested and adequately reserved for) and that none of said taxes or fees
      is or
      will become a lien on or claim against the Accounts.

     

    6.21. Material
      Contracts. Schedule 6.21 sets forth a true, correct and complete list of all
      the Material Contracts currently in effect on the date hereof. None of the
      Material Contracts contains provisions which have or could reasonably be
      expected to have a Material Adverse Effect. All of the Material Contracts are
      in
      full force and effect, and no material defaults currently exist
      thereunder.

     

    6.22. Accuracy
      and Completeness of Information. All factual information heretofore,
      contemporaneously or hereafter furnished by or on behalf of Borrower in writing
      to Lender, and Lender or the Independent Accountant for purposes of or in
      connection with this Agreement or any Loan Documents, or any transaction
      contemplated hereby or thereby is or will be true and accurate in all material
      respects on the date as of which such information is dated or certified and
      not
      incomplete by omitting to state any material fact necessary to make such
      information not misleading at such time. There is no fact now known to any
      officer of Borrower which has, or would have, a Material Adverse Effect which
      fact has not been set forth herein, in the Financials, or any certificate,
      opinion or other written statement made or furnished by Borrower to
      Lender.

     

    6.23. Solvency.
      After giving effect to the transactions contemplated under this Agreement,
      Borrower is able to pay its respective debts as they become due, and has capital
      sufficient to carry on its respective business and all businesses in which
      it is
      about to engage, and now owns Property having a value both at fair valuation
      and
      at present fair salable value greater than the amount required to pay Borrower’s
      debts. Borrower will not be rendered insolvent by the execution and delivery
      of
      this Agreement or any of the other Loan Documents executed in connection with
      this Agreement or by the transactions contemplated hereunder or
      thereunder.

     

    6.24. Commercial
      Tort Claims. Borrower has no Commercial Tort Claims except as set forth on
      Schedule 6.24 attached hereto and made a part hereof.

     

    6.25. Letter
      of Credit Rights. Borrower has no Letter of Credit Rights except as set
      forth on Schedule 6.25 attached hereto and made a part hereof.

     

    6.26. Deposit
      Accounts. All Deposit Accounts of Borrower and each Depository Institution
      are set forth on Schedule 6.26 attached hereto and made a part
      hereof.

     

    6.27. Anti-Terrorism
      Law.

     

    (a) General.
      Neither
      Borrower nor any Affiliate of Borrower is in violation of

     

     

     

    
      
        
        

      

      
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    any
      Anti-Terrorism Law or engages in or conspires to engage in any transaction
      that
      evades or avoids, or has the purpose of evading or avoiding, or attempts to
      violate, any of the prohibitions set forth in any Anti-Terrorism
      Law.

     

    (b) Executive
      Order No. 13224
      Neither
      Borrower nor any Affiliate of Borrower, or to Borrower’s knowledge, any of their
      respective agents acting or benefiting in any capacity in connection with the
      Loan or other transactions hereunder, is any of the following (each a “Blocked
      Person”):

     

    (i) a
      Person
      that is listed in the annex to, or is otherwise subject to the provisions of,
      the Executive Order No. 13224;

     

    (ii) a
      Person
      owned or controlled by, or acting for or on behalf of, any Person that is listed
      in the annex to, or is otherwise subject to the provisions of, the Executive
      Order No. 13224;

     

    (iii) a
      Person
      with which Lender is prohibited from dealing or otherwise engaging in any
      transaction by any Anti-Terrorism Law;

     

    (iv) a
      Person
      that commits, threatens or conspires to commit or supports “terrorism” as
      defined in the Executive Order No. 13224;

     

    (v) a
      Person
      that is named as a “specially designated national” on the most current list
      published by the U.S. Treasury Department Office of Foreign Asset Control at
      its
      official website or any replacement website or other replacement official
      publication of such list; or

     

    (vi) a
      Person
      who is affiliated with a Person listed above.

     

    6.28. Survival
      of Representations. All representations made by Borrower in this Agreement
      and in any other Loan Document shall survive the execution and delivery hereof
      and thereof.

     

    

    ARTICLE
      VII     AFFIRMATIVE COVENANTS

     

    Until
      termination of this Agreement and the payment and satisfaction of all
      Obligations, Borrower covenants and agrees as follows:

    

    7.1. Financial
      Information  
      Borrower
      will furnish to Lender the following information within the following time
      periods:

     

    (a) within
      120 days after the close of each fiscal year of Borrower, the consolidated
      and
      consolidating audited balance sheets and statements of income and retained
      earnings and of changes in cash flow of Borrower, for such year, each in
      reasonable detail, each

     

     

     

    
      
        
        

      

      
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    setting
      forth in comparative form the corresponding figures for the preceding year,
      prepared in accordance with GAAP, and accompanied by a report and unqualified
      opinion of an Independent Accountant selected by Borrower and acceptable to
      Lender and concurrently with the delivery of such financial statements, a
      consolidated and consolidating unaudited balance sheet of Borrower for such
      year, in reasonable detail, setting forth in comparative form the corresponding
      figures from the preceding year, prepared in accordance with GAAP;

     

    (b) within
      45
      days after the end of each fiscal quarter of Borrower, consolidated and
      consolidating unaudited Financial Statements and divisional operating income
      analyses similar to those required by clause (a) above as of the end of such
      period and for such period then ended and for the period from the beginning
      of
      the current fiscal year to the end of such period, setting forth in comparative
      form the corresponding figures for the comparable period in the preceding fiscal
      year, prepared in accordance with GAAP (except that such quarterly statements
      need not include footnotes) and certified by an Authorized Person described
      in
      paragraph (c) below; and

     

    (c) at
      the
      time of submission of the quarterly Financial Statements (for the first three
      fiscal quarters in any fiscal year) and the annual Financial Statement of
      Borrower, a certificate executed by an Authorized Person, certifying that,
      following a review of the Agreement, no Event of Default is outstanding and
      demonstrating compliance with the financial covenants contained in Article
      VII
      by calculation thereof as of the end of each such fiscal quarter.

     

    (d) Such
      other reports, certificates, schedules, documents, data or information
      concerning Borrower’s finances and Property as Lender may reasonably request
      from time to time.

     

    7.2. Existence.
      Borrower (a) will maintain its corporate existence, (b) will maintain in full
      force and effect all material licenses, bonds, franchise, leases, trademarks
      and
      qualifications to do business, (c) will obtain or maintain patents, contracts
      and other rights necessary or desirable to the profitable conduct of its
      business, (d) will continue in, and limit its operations to, the same general
      lines of business as that presently conducted by it and (e) will comply with
      all
      applicable laws, rules and regulations of any federal, state or local
      Governmental Authority, except in the case of (b), (c) and (e) where
      noncompliance could not reasonably be expected to have a Material Adverse
      Effect.

    

    7.3. Environmental
      Matters.
      Borrower will conduct its business so as to comply in all material respects with
      all environmental laws, regulations, directions, ordinances, criteria and
      guidelines in all jurisdictions in which any of them is or may at any time
      be
      doing business including, without limitation, environmental land use,
      occupational safety or health laws, regulations, directions, ordinances,
      criteria, guidelines, requirements or permits in all jurisdictions in which
      it
      is or may at any time be doing business, except to the extent that Borrower
      is
      contesting, in good faith by appropriate legal proceedings, any such law,
      regulation, direction, ordinance, criteria, guideline, or interpretation thereof
      or application thereof; provided, further, that Borrower will comply with the
      order of any court or other governmental body of the applicable jurisdiction
      relating to such laws unless Borrower shall currently be prosecuting an appeal
      or proceedings for review and shall have

     

     

     

    
      
        
        

      

      
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    secured
      a
      stay of enforcement or execution or other arrangement postponing enforcement
      or
      execution pending such appeal or proceedings for review. If Borrower shall
      (a)
      receive notice that any violation of any federal, state or local environmental
      law, regulation, direction, ordinance, criteria or guideline may have been
      committed or is about to be committed by Borrower, (b) receive notice that
      any
      administrative or judicial complaint or order has been filed or is about to
      be
      filed against Borrower alleging violations of any federal, state or local
      environmental law, regulation, direction, ordinance, criteria or guideline
      or
      requiring Borrower to take any action in connection with the release of toxic
      or
      hazardous substances into the environment or (c) receive any notice from a
      federal, state, or local governmental agency or private party alleging that
      Borrower may be liable or responsible for costs associated with a response
      to or
      cleanup of a release of a toxic or hazardous substance into the environment
      or
      any damages caused thereby, Borrower will provide Lender with a copy of such
      notice within 5 days after the receipt thereof. 

     

    

    7.4. Books
      and Records. Borrower will maintain books and records pertaining to the
      Collateral in such detail, form and scope as is consistent with good business
      practice. Borrower agrees that Lender or its agent may, upon prior notice,
      enter
      upon the premises of Borrower, during normal business hours, for the purpose
      of
      (a) enabling Lender’s auditors to conduct (at Borrower’s expense) field
      examinations, (b) inspecting and verifying the Collateral,
      (c) inspecting and/or copying (at Borrower’s expense) any and all records
      pertaining thereto, and (d) discussing the affairs, finances and business of
      Borrower or with any officers, employees and directors of Borrower with the
      Independent Accountant. 

     

    7.5. Collateral
      Records. Borrower will execute and deliver to Lender, from time to time,
      solely for Lender’s convenience in maintaining a record of the Collateral, such
      written statements and schedules as Lender may reasonably require.

     

    7.6. Changes
      in Locations. Borrower
      agrees to afford Lender 30 days prior written notice of any change in Borrower’s
      jurisdiction of organization or the location of any Collateral (other than
      Inventory held for shipment by third Persons, Inventory in transit, or Inventory
      held for processing by third Persons) or in the location of its chief executive
      office or place of business. 

     

    7.7. Insurance;
      Casualty Loss. Borrower will maintain public liability insurance, third
      party property damage insurance and replacement value insurance on the
      Collateral under such policies of insurance, with such insurance companies,
      in
      such amounts and covering such risks as are at all times customary for
      businesses of this type and satisfactory to Lender in its commercially
      reasonable judgment. All policies covering the Collateral are to name Lender
      as
      an additional insured (as to liability coverage) and lender’s loss payee (as to
      casualty and property coverage), as its interests may appear, and are to contain
      such other provisions as Lender may reasonably require to fully protect Lender’s
      interest in the Collateral and to any payments to be made under such policies.
      True copies of all original insurance policies or certificates of insurance
      evidencing such insurance covering the Collateral are to be delivered to Lender
      on or prior to the Closing Date, with such premiums paid in accordance with
      each
      insurance carrier’s requirements with the lender’s loss

     

     

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    payable
      endorsement in Lender’s favor, and shall provide for not less than 30 days prior
      written notice to Lender, of the exercise of any right of cancellation. In
      the
      event Borrower fail to respond in a timely and appropriate manner (as determined
      by Lender in its sole but reasonable discretion) with respect to collecting
      under any insurance policies required to be maintained hereunder, Lender shall
      have the right, in the name of Lender or Borrower, to file claims under such
      insurance policies, to receive and give acquittance for any payments that may
      be
      payable thereunder, and to execute any and all endorsements, receipts, releases,
      assignments, reassignments or other documents that may be necessary to effect
      the collection, compromise or settlement of any claims under any such insurance
      policies. Borrower will provide written notice to Lender of the occurrence
      of
      any of the following events within 5 Business Days after the occurrence of
      such
      event: any Property owned or used by Borrower is (i) materially damaged or
      destroyed, or suffers any other loss which is in excess of $25,000 or
      (ii) is condemned, confiscated or otherwise taken, in whole or in part, or
      the use thereof is otherwise diminished so as to render impracticable or
      unreasonable the use of such asset or property for the purpose to which such
      asset or property were used immediately prior to such condemnation, confiscation
      or taking, by exercise of the powers of condemnation or eminent domain or
      otherwise, and in either case the amount of the damage, destruction, loss or
      diminution in value of the Collateral which is in excess of $25,000
      (collectively, a “Casualty Loss”). Borrower will diligently file and prosecute
      its claim or claims for any award or payment in connection with a Casualty
      Loss.
      In the event of a Casualty Loss, Borrower will pay to Lender, promptly upon
      receipt thereof, any and all insurance proceeds and payments received by
      Borrower on account of damage, destruction or loss of all or any portion of
      the
      Collateral. Lender may, at its election and in its sole discretion, either
      (a) apply the proceeds realized from Casualty Losses to payment of accrued
      and unpaid interest or outstanding principal of the Loans or (b) pay such
      proceeds to Borrower to be used to repair, replace or rebuild the Property
      or
      portion thereof that was the subject of the Casualty Loss. After the occurrence
      and during the continuance of an Event of Default, (i) no settlement on
      account of any such Casualty Loss shall be made without the consent of Lender
      and (ii) Lender may participate in any such proceedings and Borrower will
      deliver to Lender such documents as may be requested by Lender to permit such
      participation and will consult with Lender, its attorneys and Lender in the
      making and prosecution of such claim or claims. Borrower hereby irrevocably
      authorizes and appoints Lender its attorney-in-fact, to collect and receive
      for
      any such award or payment and to file and prosecute such claim or claims, which
      power of attorney shall be irrevocable and shall be deemed to be coupled with
      an
      interest, and Borrower shall, upon demand of Lender, make, execute and deliver
      any and all assignments and other instruments sufficient for the purpose of
      assigning any such award or payment to Lender free and clear of any encumbrances
      of any kind or nature whatsoever. 

     

    7.8. Taxes. Borrower
      will pay, when due and in any event prior to delinquency, all Taxes lawfully
      levied or assessed against Borrower or any of the Collateral; provided, however,
      that unless such Taxes have become a federal tax or ERISA Lien on any of the
      assets of Borrower, no such Tax need be paid if the same is being contested
      in
      good faith, by appropriate proceedings promptly instituted and diligently
      conducted and if an adequate reserve or other appropriate provision
      shall

     

     

     

    
      
        
        

      

      
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    have
      been
      made therefore as required in order to be in conformity with GAAP.

     

    7.9. Compliance
      With Laws. Borrower will comply with all acts, rules, regulations, orders,
      directions and ordinances of any legislative, administrative or judicial body
      or
      official applicable to the Collateral or any part thereof, and to the operation
      of its business except where the failure to so comply could not reasonably
      be
      expected to have a Material Adverse Effect.

     

    7.10. Fiscal
      Year. Borrower agrees that it will not change its fiscal year from a year
      ending December 31 unless required by law, in which case Borrower will give
      Lender at least 30 days prior written notice thereof.

     

    7.11. Notification
      of Certain Events. Borrower agrees that it will promptly notify Lender in
      writing of the occurrence of any of the following events (but in no event shall
      such notice from Borrower be received by Lender later than 5 Business Days
      after
      the occurrence of any such event): 

     

    (a) any
      Material Contract of Borrower is terminated or amended in any material respect
      or any new Material Contract is entered into (in which event Borrower shall
      provide Lender with a copy of such Material Contract);

     

    (b) the
      institution of any litigation, proceeding(s) or investigation against Borrower
      in any federal, state, local or foreign court or before any commission or other
      regulatory body (federal, state, local or foreign) in which a claim of at least
      $25,000 or claims in the aggregate of $100,000 has been or is reasonably likely
      to be asserted against Borrower; 

     

    (c) any
      notification of violation of any material law or regulation shall have been
      received by Borrower from any local, state, federal or foreign Governmental
      Authority or agency accompanied by a copy of any such notice;

     

    7.12. Collection
      of Accounts. Unless an Event of Default is outstanding, Borrower may and
      will (subject to their reasonable business discretion) enforce and collect
      all
      amounts owing on the Accounts, for Lender’ benefit and on Lender behalf but at
      Borrower’s expense; such privilege shall terminate at Lender’s option, without
      notice to Borrower, which is hereby expressly waived by Borrower, upon the
      occurrence of any Event of Default which has not otherwise been waived by
      Lender. At Lender’s request, before or after the occurrence of any Event of
      Default, any checks, cash, notes or other instruments or property received
      by
      Borrower with respect to any Accounts shall be held by Borrower in trust for
      the
      benefit of Lender, separate from Borrower’s own property and funds, and
      immediately turned over to Lender with proper assignments or endorsements.
      Checks, drafts or other instruments received by Lender shall not constitute
      final payment unless and until such instruments have actually been
      collected.
      Nothing
      contained in this Section 7.12 shall be construed to limit or affect the
      provisions of Section 2.5 of this Agreement.

     

    7.13. Trademarks.
      Borrower will do and cause to be done all things necessary (as determined in
      their reasonable business judgment) to preserve and keep in full force and
      effect all

     

     

     

    
      
        
        

      

      
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    registrations
      of trademarks, service marks and other marks, trade names or other trade
      rights.

     

    7.14. Maintenance
      of Property. Borrower will keep all property useful and necessary to its
      business in good working order and condition (ordinary wear and tear excepted)
      in accordance with its past operating practices and not to commit or suffer
      any
      waste with respect to any of its properties, except for properties which either
      individually or in the aggregate are not material.

     

    7.15. Commercial
      Tort Claims. Borrower shall provide written notice to Lender within 30 days
      of the date it shall arise any such Commercial Tort Claim to which Borrower
      is
      or becomes a party or which otherwise inures to the benefit of Borrower. Such
      notice shall contain a sufficient description of the Commercial Tort Claim
      including the parties, the court in which the claim was commenced (if
      applicable), the docket number assigned to the case (if applicable) and a
      detailed explanation of the events giving rise to such claim. Borrower shall
      grant Lender a security interest in such Commercial Tort Claim to secure payment
      of the Obligations. Borrower shall execute and deliver such instruments,
      documents and agreements as Lender may reasonably require in order to obtain
      and
      perfect such security interest including, without limitation, a security
      agreement or amendment to this Agreement all in form and substance satisfactory
      to Lender. Borrower authorize Lender to file (without Borrower’s signature),
      financing statements or amendments to existing financing statements as Lender
      deems necessary to perfect the security interest.

     

    7.16. Letter
      of Credit Rights. Borrower shall provide written notice to Lender within 30
      days of the date it shall arise of any Letters of Credit for which Borrower
      is
      the beneficiary. Borrower shall execute and deliver such instruments, documents
      and agreements and take such actions as Lender reasonably may require in order
      to obtain and perfect its security interest in such Letter of Credit
      Rights.

     

    ARTICLE
      VIII    FINANCIAL COVENANTS

     

    Until
      termination of this Agreement and payment and satisfaction of all Obligations
      due or to become due hereunder, Borrower further covenant and agree as
      follows:

     

    8.1. Current
      Ratio. Borrower shall cause to be maintained on a consolidated basis a ratio
      of current assets to current liabilities of not less than 1.2 to 1.

     

    8.2. Debt
      to Worth Ratio. Borrower shall cause to be maintained on a consolidated
      basis a ratio of total Indebtedness (excluding the current portion of
      Subordinated Debt) to Tangible Net Worth of not greater than 2.5 to
      1. 

     

    ARTICLE
      IX    NEGATIVE COVENANTS

     

    Until
      termination of this Agreement and payment and satisfaction of all Obligations,
      Borrower agrees that, unless otherwise agreed in writing by Lender, it will
      not:

    9.1.
      Liens. Mortgage, assign, pledge, transfer or otherwise permit any Lien of
      any kind to exist at any time on any of its Property, except for Permitted
      Liens.

     

     

     

    
      
        
        

      

      
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    9.2. Indebtedness.
      Incur, create or be liable for any Indebtedness other than Permitted
      Indebtedness.

     

    9.3. Sale
      of Assets. Sell, lease, assign, transfer or otherwise dispose of any
      Property other than (a) sales of Inventory in the ordinary course of
      business, (b) sales or other dispositions in the ordinary course of business
      of
      equipment that is obsolete or that is no longer used or useful in the conduct
      of
      Borrower’s business, (c) sales in the ordinary course of business of Property
      used in Borrower’s business that is worn out or in need of replacement and that
      is replaced with Property of reasonably equivalent value or utility, and
      (d) other sales of fixed assets, the net proceeds of which, shall not
      exceed $100,000 in the aggregate in any fiscal year of Borrower.

     

    9.4. Organizational
      Changes. Merge or consolidate with any Person, alter or modify Borrower’s
      Articles or Certificate of Incorporation change Borrower’s jurisdiction of
      organization or formation, without at least thirty (30) days’ prior written
      notice to Lender alter or modify any legal names, mailing addresses, principal
      places of business, without at least thirty (30) days prior written notice
      to
      Lender alter or modify Borrower’s corporate structure, status or existence, or
      enter into or engage in any business, operation or activity materially different
      from that presently being conducted by Borrower.

     

    9.5. Guarantees.
      Except for Permitted Indebtedness, assume, guarantee, endorse, or otherwise
      become liable upon the obligations of any other Person, except by the
      endorsement of negotiable instruments in the ordinary course of business and
      guarantees of Permitted Indebtedness of another Borrower.

     

    9.6. Investments.
      Make any Investment other than Permitted Investments.

     

    9.7. Affiliate
      Transactions. Except as permitted by this Agreement, enter into any
      transaction with, including, without limitation, the purchase, sale or exchange
      of property or the rendering of any service to an Affiliate of Borrower except
      in the ordinary course of and pursuant to the reasonable requirements of
      Borrower’s business and upon fair and reasonable terms no less favorable to
      Borrower than could be obtained in a comparable arm’s-length transaction with an
      unaffiliated Person.

     

    9.8. Third
      Party Loans. Make any Third
      Party Loan.

     

    9.9. Issuance
      of Stock. Without not less than fifteen (15) days prior written notice to
      Lender, issue or distribute any Capital Stock or other securities for
      consideration or otherwise.

     

    9.10. Amendments
      of Material Contracts. Amend, modify, cancel or terminate or permit the
      amendment, modification, cancellation or termination of any Material
      Contract.

    9.11.
      Subordinated Debt. Effect or permit any change in or amendment to any
      document

     

     

    
      
        
        

      

      
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    or
      instrument pertaining to the subordination, terms of payment or other terms
      or
      provisions of any Subordinated Debt, give any notice of optional redemption
      or
      optional prepayment or offer to repurchase under any such document or
      instrument, or, directly or indirectly, make any payment of principal of or
      interest on or in redemption, retirement or repurchase of any Subordinated
      Debt.

     

    9.12. Licenses,
      Etc. Enter into licenses of, or otherwise restrict the use of, any patents,
      trademarks or copyrights which would prevent Borrower from selling,
      transferring, encumbering or otherwise disposing of any such patent, trademark
      or copyright.

     

    9.13. Anti-Terrorism
      Laws. Borrower and their respective agents shall not knowingly (i) conduct
      any business or engage in any transaction or dealing with any Blocked Person,
      including making or receiving any contribution of funds, goods or services
      to or
      for the benefit of any Blocked Person, (ii) deal in, or otherwise engage in
      any
      transaction relating to, any property or interests in property blocked pursuant
      to the Executive Order No. 13224; or (iii) engage in or conspire to engage
      in
      any transaction that evades or avoids, or has the purpose of evading or
      avoiding, or attempts to violate, any of the prohibitions set forth in the
      Executive Order No. 13224 or the USA Patriot Act. Borrower shall deliver to
      Lender any certification or other evidence reasonably requested from time to
      time by Lender in its sole discretion, confirming Borrower’s compliance with
      this Section 9.13.

     

    

    ARTICLE
      X    APPOINTMENT AS ATTORNEY-IN-FACT

     

    Borrower
      hereby irrevocably authorizes and appoints Lender, or any Person as Lender
      may
      designate, as Borrower’s attorney-in-fact, at Borrower’s cost and expense, to
      exercise all of the following powers upon the occurrence of an Event of Default,
      which being coupled with an interest, shall be irrevocable until all of the
      Obligations to Lender have been paid and satisfied in full:

    

    10.1. To
      receive, take, endorse, sign, assign and deliver, all in the name of Lender,
      Lender or Borrower, as the case may be, any and all checks, notes, drafts,
      and
      other documents or instruments relating to the Collateral and to apply such
      amount to the Obligations in accordance with this Agreement;

     

    10.2. To
      receive, open and dispose of all mail addressed to Borrower in connection with
      a
      Lockbox and upon the occurrence of an Event of Default to notify postal
      authorities to change the address for delivery thereof to such address as Lender
      may designate;

     

    10.3. To
      request periodically from customers indebted on Accounts, in the name of
      Borrower or a third party designee of Lender, information concerning the
      Accounts and the amounts owing thereon;

     

     

    
      
        
        

      

      
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    10.4.
      To
      give
      customers indebted on Accounts notice of Lender’s interest therein, and/or to
      instruct such customers to make payment directly to Lender for Borrower’s
      account;

     

    10.5. To
      take
      or bring, in the name of Lender or Borrower, all steps, actions, suits or
      proceedings deemed by Lender necessary or desirable to enforce or effect
      collection of the Accounts; and

     

    10.6. To
      file
      financing statements in any office deemed appropriate by Lender for such purpose
      and execute, file, record and register any or all of Lender’s security interest
      in any intellectual property of Borrower with the United States Patent and
      Trademark Office; and

     

    10.7. To
      do all
      other acts and things as Lender may deem reasonable to protect or preserve
      Lender’s interest under this Agreement or to fulfill Borrower’s obligations
      under this Agreement. 

     

    ARTICLE
      XI    EVENTS OF DEFAULT AND REMEDIES

     

    11.1. Events
      of
      Default.
      The
      occurrence of any of the following events shall constitute an “Event of Default”
hereunder:

     

    (a) failure
      of Borrower to pay (i) any interest or fees when due hereunder, in each case
      whether at stated maturity, by acceleration, or otherwise, (ii) any principal
      of
      the Loan when due, whether at stated maturity, by acceleration or otherwise
      or
      (iii) any Expenses hereunder within 5 Business Days after receipt by Borrower
      from Lender or any applicable Lender of notice that such Expenses are
      payable;

     

    (b) any
      representation or warranty, contained in this Agreement, the other Loan
      Documents or any other agreement, document, instrument or certificate between
      Borrower and Lender or executed by Borrower in favor of Lender shall prove
      untrue in any material respect on or as of the date it was made or was deemed
      to
      have been made;

     

    (c) failure
      of Borrower to perform, comply with or observe any term, covenant or agreement
      applicable to it contained in Article IX, or Sections 7.1, 7.2, 7.6, 7.7, 7.8,
      7.11, 7.15, 7.16, or 13.6.. 

     

    (d) failure
      of Borrower to comply with any other covenant contained in this Agreement,
      the
      other Loan Documents or any other agreement, document, instrument or certificate
      between Borrower and Lender or executed by Borrower in favor of Lender and,
      in
      the event such breach or failure to comply is capable of cure, such breach
      or
      failure to comply is not cured within 10 days of its occurrence;

     

    (e) dissolution,
      liquidation, winding up or cessation of the business (or any material portion
      of
      the business) of Borrower, or the failure of Borrower to meet its debts
      generally as they mature, or the calling of a meeting of Borrower’s creditors
      for purposes of compromising

     

     

    
      
        
        

      

      
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    Borrower’s
      debts;

     

    (f) the
      commencement by or against Borrower of any bankruptcy, insolvency, arrangement,
      reorganization, receivership or similar proceedings with respect to it under
      any
      federal or state law and, in the event any such proceeding is commenced against
      Borrower, such proceeding is not dismissed within 60 days;

     

    (g) the
      occurrence of a default or event of default (in each case which shall continue
      beyond the expiration of any applicable grace periods) under, or the occurrence
      of any event that results in or would permit the acceleration of the maturity
      of
      any note, agreement or instrument evidencing (i) any Subordinated Debt or
      (ii) any other Indebtedness of Borrower and the aggregate principal amount
      of
      all such Indebtedness with respect to which a default or an event of default
      has
      occurred, or the maturity of which is accelerated or permitted to be
      accelerated, exceeds $100,000;

     

    (h) any
      party
      (other than Lender) to any Loan Document shall deny or disaffirm its obligations
      under any of the Loan Documents, or an Event of Default shall have occurred
      or a
      Default shall occurred and not been cured within any contractual cure period
      under any other Loan Document, or any Loan Document shall be canceled,
      terminated, revoked or rescinded without the express prior written consent
      of
      Lender, or any action or proceeding shall have been commenced by any Person
      (other than Lender) seeking to invalidate, declare unenforceable, cancel,
      revoke, rescind or disaffirm the obligations of any party to any Loan Document;
      

     

    (i) (i)
      any
      holder of Subordinated Debt alleges (or any Governmental Authority with
      applicable jurisdiction determines) that the Subordinated Debt is not
      subordinated to any of the Obligations or (ii) the subordination provisions
      in
      any agreement relating to Subordinated Debt shall, in whole or in part,
      terminate, cease to be effective or cease to be legally valid, binding and
      enforceable as to any holder of the Subordinated Debt;

     

    (j) one
      or
      more judgments or decrees shall be entered against Borrower involving a
      liability of $25,000 or more individually or in the aggregate (to the extent
      not
      paid or covered by insurance (i) provided by a carrier who has acknowledged
      coverage and has the ability to perform or (ii) as determined by Lender in
      its reasonable discretion) and any such judgments or decrees shall not have
      been
      vacated, satisfied, discharged or stayed or bonded pending appeal within 30
      days
      from the entry thereof; 

     

    (k) a
      Material Adverse Change occurs; or

     

    (l) Borrower
      is indicted or convicted of the commission of a crime or any proceeding of
      any
      kind is pending or threatened which would reasonably be likely to result in
      the
      forfeiture of any material portion of the Property of Borrower to any
      Governmental Authority.

     

     

     

    
      
        
        

      

      
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    11.2
      Rights and Remedies upon a Default or an Event of Default.

     

    (a) Upon
      the
      occurrence of any Event of Default, Lender may take any or all of the following
      actions: declare all Obligations to be immediately due and payable (except
      with
      respect to any Event of Default set forth in Section
      11.1(f)
      in which
      case all Obligations shall automatically become immediately due and payable
      without the necessity of any action, decision, notice or demand) without
      presentment, demand, protest or any other action or obligation of Lender.

     

    (b) Upon
      acceleration of the Obligations, Lender may at any time, and from time to time,
      take any and all such action as Lender may elect to enforce any and all rights
      and interests created and existing under the Loan Documents, or arising under
      applicable law, including without limitation, all rights and remedies existing
      under the Security Documents, all rights of setoff and the following rights
      (the
      enumeration of any such rights not intended to be exhaustive and the exercise
      of
      any right shall not preclude the exercise of any other rights):

     

    (i) The
      right
      to take possession of, send notices regarding and collect directly the
      Collateral, with or without judicial process (including, without limitation,
      the
      right to notify the United States postal authorities to redirect mail addressed
      to Borrower or to an address designated by Lender); or

     

    (ii) By
      its
      own means or with judicial assistance, enter any or all of Borrower’s premises
      and take possession of the Collateral, or render it unusable, or dispose of
      the
      Collateral on such premises, without any liability to Borrower for rent,
      storage, utilities or other sums, and Borrower shall not resist or interfere
      with such action; or

     

    (iii) Require
      Borrower at Borrower’s expense to assemble all or any part of the Collateral and
      make it available to Lender at any place designated by Lender.

     

    (c) Borrower
      agrees that a notice received by it at least 10 days before the time of any
      intended public sale or of the time, after which any private sale or other
      disposition of the Collateral is to be made, shall be deemed to be reasonable
      notice of such sale or other disposition. If permitted by applicable law, any
      perishable Inventory or other Collateral which threatens to speedily decline
      in
      value or which is sold on a recognized market may be sold immediately by Lender
      without prior notice to Borrower. Borrower covenants and agrees not to interfere
      with or impose any obstacle to Lender’s exercise of its rights and remedies
      hereunder with respect to the Collateral. Lender shall have no obligation to
      clean up or prepare the Collateral for sale except as is required by applicable
      law. If Lender sells any of the Collateral upon credit, Borrower will only
      be
      credited with payments actually made by the purchaser that are received by
      Lender and applied to the Obligations. Lender may in connection with any sale
      of
      the Collateral specifically disclaim any warranties of title or the
      like.

     

    11.3. Nature
      of Remedies. All rights and remedies granted Lender hereunder and under the
      other Loan Documents, or otherwise available at law or in equity, shall be
      deemed concurrent

     

     

     

    
      
        
        

      

      
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    and
      cumulative, and not alternative remedies, and Lender may proceed with any number
      of remedies at the same time or at different times until all Obligations are
      satisfied in full. The exercise of any one right or remedy shall not be deemed
      a
      waiver or release of any other right or remedy, and Lender, upon or at any
      time
      after the occurrence of an Event of Default, may proceed against Borrower,
      any
      Guarantor, or their Property at any time, under any agreement, with any
      available remedy and in any order. Nothing contained in this Agreement or the
      other Loan Documents shall be deemed to compel Lender at any time to accept
      a
      cure of any Event of Default hereunder. In no event shall prior recourse to
      any
      Collateral be a prerequisite to Lender’s right to demand payment of any
      Obligation from Borrower or any Guarantor upon the occurrence and during the
      continuance of any Event of Default. 

     

    11.4. Application
      of Proceeds. The proceeds from the sale or disposition of any Collateral
      shall be applied first to Expenses incurred by Lender and then to the
      Obligations that are then due and payable, in such order or manner as Lender
      may
      determine in the reasonable exercise of discretion.

     

    ARTICLE
      XII     TERMINATION

     

    The
      Term
      Loan made hereunder shall automatically become due and payable in full on the
      Maturity Date. All of Lender’s rights, liens and security interests in and to
      Borrower’s Property shall continue after any termination until (a) all
      Obligations have been indefeasibly paid and satisfied in full unless otherwise
      prohibited under any applicable federal or state law, (b) Lender shall have
      received a written agreement (in form and substance acceptable to Lender in
      its
      sole and absolute discretion) executed by Borrower and by a Person whose loans
      or advances to Borrower are used in whole or in part to satisfy the Obligations,
      indemnifying Lender from any loss or damage, or (c) Lender shall have retained
      such monetary reserves necessary to pay in full all Obligations for such period
      of time, in its reasonable discretion. 

     

    ARTICLE
      XIII       MISCELLANEOUS

     

    13.1. Waivers.
      Except as is otherwise provided herein, Borrower hereby waive due diligence,
      demand, presentment and protest and any notices thereof as well as notice of
      nonpayment. No delay or omission of Lender to exercise any right or remedy
      hereunder, whether before or after the happening of any Event of Default, shall
      impair any such right or shall operate as a waiver thereof or as a waiver of
      any
      such Event of Default. No single or partial exercise by Lender of any right
      or
      remedy shall preclude any other or further exercise thereof, or preclude any
      other right or remedy.

     

    13.2. JURY
      TRIAL. TO THE EXTENT ANY DISPUTE IS NOT SUBJECT TO ARBITRATION, LENDER AND
      BORROWER EACH HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
      PROCEEDING ARISING OUT OF THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY OTHER
      AGREEMENTS OR

     

     

     

    
      
        
        

      

      
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    TRANSACTIONS
      RELATED HERETO OR THERETO.

     

    13.3. GOVERNING
      LAW; SUBMISSION TO JURISDICTION; VENUE 

     

    (a) THIS
      AGREEMENT AND THE OTHER LOAN DOCUMENTSAND THE RIGHTS AND OBLIGATIONS OF THE
      PARTIES HEREUNDER AND THEREUNDER, AND ALL MATTERS ARISING HEREUNDER OR
      THEREUNDER OR RELATED HERETO OR THERETO, SHALL BE GOVERNED BY AND CONSTRUED
      AND
      INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND. Any legal
      action or proceeding with respect to this Agreement or any other Loan Document
      shall be brought in the courts of the State of Maryland or of the United States
      District Court for the District of Maryland, and, by execution and delivery
      of
      this Agreement, Borrower, and Lender hereby irrevocably accept for themselves
      and in respect of their property, generally and unconditionally, the
      nonexclusive jurisdiction of such courts. Borrower further irrevocably consents
      to the service of process out of any of the aforementioned courts in any such
      action or proceeding by the mailing of copies thereof by registered or certified
      mail return receipt requested, postage prepaid, or by nationally recognized
      overnight courier to it at the address set out for notices pursuant to
Section
      13.4,
      such service to become effective 3 days (or 1 day if sent by such courier)
      after
      such mailing. Nothing herein shall affect the right of any party hereto to
      serve
      process in any other manner permitted by law or to commence legal proceedings
      or
      to otherwise proceed against a party hereto in any other
      jurisdiction.

     

    (b) Borrower
      hereby irrevocably waive any objection which it may now or hereafter have to
      the
      laying of venue of any of the aforesaid actions or proceedings arising out
      of or
      in connection with this Agreement or any other Loan Document brought in the
      courts referred to in subsection (a) above and hereby further irrevocably waives
      and agrees not to plead or claim in any such court that any such action or
      proceeding brought in any such court has been brought in an inconvenient
      forum.

     

    13.4. Notices.
      Except as otherwise provided herein, all notices and correspondences hereunder
      shall be in writing and sent by certified or registered mail return receipt
      requested, by overnight delivery service, with all charges prepaid, or by
      facsimile (with transmission certification), if to Lender or Borrower to the
      addresses or by facsimile transmission set forth on the signature hereto. All
      such notices and correspondence shall be deemed given (i) if sent by certified
      or registered mail, 3 Business Days after being postmarked, (ii) if sent by
      overnight delivery service, when received at the above stated addresses or
      when
      delivery is refused and (iii) if sent by facsimile transmission, when receipt
      of
      such transmission is acknowledged; provided that all notices to Lender shall
      not
      be effective until actually received.

     

    13.5. Assignability.
      Borrower shall not have the right to assign or delegate their obligations and
      duties under this Agreement or any other Loan Documents or any interest therein
      except with the prior written consent of Lender. 

     

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

     

    13.6. Payment
      of Expenses. Borrower agrees to: (a) pay on demand all out-of-pocket costs
      and expenses (whether paid or incurred) of Lender in connection with (i) the
      negotiation, preparation, execution and delivery and, to the extent customarily
      charged to its customers, administration of this Agreement and the other Loan
      Documents and the documents and instruments referred to therein (including,
      without limitation, the reasonable fees and expenses of counsel to Lender);
      (ii)
      searches, title examinations, filings and recordings (including, without
      limitation, all stamp or recording taxes or charges), and all other actions
      pertaining to the Collateral; (iii) any amendment, waiver or consent relating
      hereto and thereto including, without limitation, any such amendments, waivers
      or consents resulting from or related to any work-out, re-negotiation or
      restructure relating to the performance by Borrower under this Agreement; and
      (iv) the defense of all claims, cross-claims or counterclaims asserted at any
      time by Borrower or any other Person in connection with the rights, claims,
      liens and/or interests of Lender under this Agreement or the other Loan
      Documents or the Loan described herein and (b) upon demand, pay to Lender all
      costs and expenses (including the reasonable fees and disbursements of counsel
      and other professionals) paid or incurred by Lender in (i) enforcing,
      protecting, preserving or defending its rights under or in respect of this
      Agreement, the other Loan Documents or any other document or instrument now
      or
      hereafter executed and delivered in connection herewith; (ii) in collecting
      the Loan following the occurrence of an Event of Default; (iii) in foreclosing
      or otherwise collecting upon the Collateral or any part thereof; and
      (iv) obtaining any legal, accounting or other advice in connection with any
      of the foregoing. Borrower’s obligations under this Section 13.6 shall survive
      any termination of this Agreement and the other Loan Documents and the payment
      in full of the Obligations, and are in addition to, and not in substitution
      of,
      any other of their Obligations set forth in this Agreement. All such costs
      and
      expenses described in this Section 13.6 are referred to collectively as
“Expenses.” 

     

    13.7. Indemnification.
      Borrower shall indemnify, defend and hold harmless Lender, its directors,
      officers, agents, employees and counsel from and against (a) any and all
      losses, claims, damages, liabilities, deficiencies, judgments or expenses
      incurred by any of them (except to the extent that it is finally judicially
      determined to have resulted from their own gross negligence or willful
      misconduct) arising out of or by reason of any litigation, investigation, claim
      or proceeding which arises out of or is in any way related to (i) this
      Agreement, the other Loan Documents, the Collateral or the transactions
      contemplated thereby, (ii) any actual or proposed use by Borrower of the
      proceeds of the Loan, (iii) Lender entering into, performing under or enforcing
      this Agreement, the other Loan Documents or any other agreements and documents
      relating hereto, including, without limitation, amounts paid in settlement,
      court costs and the fees and disbursements of counsel incurred in connection
      with any such litigation, investigation, claim or proceeding or any advice
      rendered in connection with any of the foregoing, or (iv) the breach by
      Borrower of any warranty, undertaking or covenant made at any time hereunder
      or
      under any other Loan Document and (b) any such losses, claims, damages,
      liabilities, deficiencies, judgments or expenses incurred in connection with
      any
      remedial or other action taken by Borrower or Lender in connection with
      compliance by Borrower with any federal, state or local environmental laws,
      acts, rules, regulations,

     

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

     

    orders,
      directions, ordinances, criteria or guidelines. If and to the extent that the
      obligations of Borrower hereunder are unenforceable for any reason, Borrower
      hereby agrees to make the maximum contribution to the payment and satisfaction
      of such obligations which is permissible under applicable law. Borrower’s
      obligations under this Section 13.7 shall survive any termination of this
      Agreement and the other Loan Documents and the payment in full of the
      Obligations, and are in addition to, and not in substitution of, any other
      of
      their Obligations set forth in this Agreement.

     

    13.8. Entire
      Agreement, Successors and Assigns. This Agreement along with the other Loan
      Documents constitutes the entire agreement between Borrower and Lender regarding
      the subject matter hereof, supersedes any prior agreements among them, and
      shall
      bind and benefit Borrower and Lender and their respective successors and
      permitted assigns. No rights are intended to be created hereunder or under
      any
      other Loan Documents for the benefit of any Person not a signatory hereto or
      thereto.

     

    13.9. Amendments.
      Neither the amendment or waiver of any provision of this Agreement or any other
      Loan Document, nor the consent to any departure by Borrower therefrom, shall
      in
      any event be effective unless the same shall be in writing and signed by Lender
      and each such amendment, waiver or consent shall be effective only in the
      specific instance and for the specific purpose for which given.

     

    13.10. Non-Agency
      of Lender. The relationship between Borrower on the one hand and Lender on
      the other hand shall be solely that of Borrower and Lender. Lender shall not
      have any fiduciary responsibilities to Borrower or be deemed to have entered
      into any partnership or joint venture with Borrower. Lender shall not undertake
      any responsibility to Borrower to review, evaluate or inform Borrower of any
      matter in connection with any phase of Borrower’s business or
      operations.

     

    13.11. Counterparts.
      This Agreement may be executed in any number of counterparts and by the
      different parties hereto in separate counterparts, each of which when so
      executed and delivered shall be an original, but all of which shall together
      constitute one and the same instrument. Signature by facsimile shall bind the
      parties hereto.

     

    13.12. Effectiveness.
      This Agreement shall become effective on the date on which all of the conditions
      to effectiveness contained herein have been satisfied (as determined by Lender
      in its sole and absolute discretion) and all of the parties have signed a copy
      hereof (whether the same or different copies) and Lender shall have received
      executed originals of this Agreement and the other Loan Documents.

     

    13.13. Severability.
      In case any provision in or obligation under this Agreement or the Note or
      the
      other Loan Documents shall be invalid, illegal or unenforceable in any
      jurisdiction, the validity, legality and enforceability of the remaining
      provisions or obligations, or of such provision or obligation in any other
      jurisdiction, shall not in any way be affected or impaired thereby.

     

     

    
      
        
        

      

      
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    13.14. Headings
      Descriptive. The headings of the several sections and subsections of this
      Agreement, and the Table of Contents, are inserted for convenience only and
      shall not in any way affect the meaning or construction of any provision of
      this
      Agreement.

     

    13.15. Maximum
      Rate. Notwithstanding anything to the contrary contained elsewhere in this
      Agreement or in any other Loan Document, Borrower and Lender hereby agree that
      all agreements among them under this Agreement and the other Loan Documents,
      whether now existing or hereafter arising and whether written or oral, are
      expressly limited so that in no contingency or event whatsoever shall the amount
      paid, or agreed to be paid, to Lender for the use, forbearance, or detention
      of
      the money loaned to Borrower and evidenced hereby or thereby or for the
      performance or payment of any covenant or obligation contained herein or
      therein, exceed the Highest Lawful Rate. If due to any circumstance whatsoever,
      fulfillment of any provisions of this Agreement or any of the other Loan
      Documents at the time performance of such provision shall be due shall exceed
      the Highest Lawful Rate, then, automatically, the obligation to be fulfilled
      shall be modified or reduced to the extent necessary to limit such interest
      to
      the Highest Lawful Rate, and if from any such circumstance any Lender should
      ever receive anything of value deemed interest by applicable law which would
      exceed the Highest Lawful Rate, such excessive interest shall be applied (as
      determined by Lender) to the reduction of the principal amount then outstanding
      hereunder or on account of any other then outstanding Obligations and not to
      the
      payment of interest, or if such excessive interest exceeds the principal unpaid
      balance then outstanding hereunder and such other then outstanding Obligations,
      such excess shall be refunded to Borrower. All sums paid or agreed to be paid
      to
      Lender for the use, forbearance, or detention of the Obligations and other
      indebtedness of Borrower to Lender shall, to the extent permitted by applicable
      law, be amortized, prorated, allocated and spread throughout the full term
      of
      such indebtedness until payment in full so that the actual rate of interest
      on
      account of all such indebtedness does not exceed the Highest Lawful Rate
      throughout the entire term of such indebtedness. The terms and provisions of
      this Section shall control every other provision of this Agreement and all
      agreements between Borrower and Lender.

     

    13.16. Information.
      At Borrower’s written request, Lender agrees to keep confidential any
      information furnished or made available to it by Borrower pursuant to this
      Agreement; provided that nothing herein shall prevent Lender from disclosing
      such information (a) to any other Person if reasonably incidental to the
      administration of the credit facility provided herein, (b) as required by
      any law, rule, or regulation, (c) upon the order of any court or
      administrative agency; provided, however, if allowed by applicable law, rule,
      regulation or order, Lender shall use commercially reasonable efforts to notify
      Borrower of such order to allow Borrower to seek court relief to block or limit
      such disclosure, (d) upon the request or demand of any regulatory agency or
      authority; provided, however, if allowed by applicable law, rule, regulation
      or
      order, Lender shall use commercially reasonable efforts to notify Borrower
      of
      such order to allow Borrower to seek court relief to block or limit such
      disclosure, (e) that is or becomes available to the public or that is or
      becomes available to Lender other than as a result of a disclosure by Lender
      prohibited by this Agreement, (f) in connection with any litigation to
      which Lender or any of its Affiliates may be a

     

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

     

     

    party
      relating to this Agreement or the transactions contemplated hereunder,
      (g) to the extent necessary in connection with the exercise of any remedy
      under this Agreement or any other Loan Document, and (h) any information with
      respect to the U.S. federal income tax treatment and U.S. federal income tax
      structure of the transactions contemplated hereby and all materials of any
      kind
      (including opinions or other tax analyses) that are provided to Lender relating
      to such tax treatment and tax structure.

     

    13.17. SPECIAL
      OREGON NOTICE:

     

    (a) UNDER
      OREGON LAW ORAL AGREEMENTS OR ORAL COMMITMENTS TO (1) LOAN MONEY, (2) EXTEND
      CREDIT, (3) MODIFY OR AMEND ANY TERMS OF LOAN DOCUMENTS, (4) RELEASE ANY
      GUARANTOR, (5) FOREBEAR FROM ENFORCING REPAYMENT OF ANY LOAN OR THE EXERCISE
      OF
      ANY REMEDY UNDER LOAN DOCUMENTS, OR (6) MAKE ANY OTHER FINANCIAL ACCOMMODATION
      PERTAINING TO ANY LOAN ARE ALL UNENFORCEABLE.

     

    

    [REMAINDER
      OF PAGE LEFT INTENTIONALLY BLANK]

    

    

     

    
      
        
        

      

      
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    Dated
      the
      date and year first written above.

     

    
      	
              BORROWER:

            	
              NEW
                WORLD BRANDS, INC.

               

              By:
                /s/ Noah Kamrat 

                          , President

              Name:
                Noah Kamrat

              Title:
                President

              340
                W. 5th
                Avenue

              Eugene,
                Oregon 97401

               

            
	
              LENDER:

            	
              P
                & S SPIRIT, LLC

               

              By:
                /s/ Dr. Selvin Passen

              Name:
                Dr. Selvin Passen

              Title:
                Manager

              2700
                Lighthouse Point East

              Suite
                626

              Baltimore,
                Maryland 21224

            

    

    

     

     

     

     

     

     

    [SIGNATURE
      PAGE TO LOAN AND SECURITY AGREEMENT]

    
 

    
      
        
        

      

      
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    SCHEDULE
      6.6

    

    Location
      1 (no warehouse space, computer and office equipment only):

    

    Leased
      commercial premises at:

    340
      W.
      5th
      Avenue

    Eugene,
      OR 97401

    Landlord:
      Tim and Jean Clancy (individuals, as TBTE)

    Landlord
      address: 350 W. 5th
      Avenue,
      Eugene, OR 97401

    

    Location
      2 (warehouse, computer and office equipment, including telecom computer
      equipment):

    

    Leased
      commercial premises at:

    488
      Lincoln Street

    Eugene,
      OR 97401

    Landlord:
      Simons Investment Properties, LLC (an Oregon limited liability
      company)

    Landlord
      address: 215 W. 5th
      Avenue,
      Eugene, OR 97401

     

    
 

    
      
        
        

      

      
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    SCHEDULE
      6.7

    

    Names
      currently in use:

    

    New
      World
      Brands, Inc.

    IP
      Gear

    IP
      Gear
      Connect

    Qualmax,
      Inc.

    

    Names
      no
      longer in use, but used within past 5 years:

    

    Qualmax
      Professional Services, LLC

    Rent
      IT
      Telecom, LLC

    iNode
      Corporation

     

    
 

    
      
        
        

      

      
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    SCHEDULE
      6.8

    

    Non-subsidiary
      affiliates:

    Qualmax,
      Inc. (holder of approximately 76% voting control)

    

    Subsidiaries:

    IP
      Gear,
      Ltd., an Israel company (wholly owned subsidiary of Borrower)

    

     

     

    
 

    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

    SCHEDULE
      6.9

    

    From
      our
      current (as of 3-23-07) draft form 10-KSB for year ending 12-31-06:

    

    The
      Singer Litigation.
      

    

    We
      are a
      defendant in a lawsuit filed by a former employee, who has made claims for
      unpaid salary and for certain previously granted stock options. Via mediation
      in
      January, 2006, we have settled this lawsuit, and as part of the settlement
      we
      have agreed that Mr. Singer holds options to purchase up to 70,000 shares of
      the
      Company’s common stock at a price of $0.10 per share, which options were issued
      to Mr. Singer during his association with the Company prior to 2002. However,
      as
      of the time of filing we have not received final documentation dismissing the
      lawsuit and settling and releasing claims. We expect to conclude final
      documentation within a matter of weeks.

    

    The
      MPI Litigation. 

    

    As
      a
      result of the Reverse Acquisition the Company assumed the liabilities of
      Qualmax. Qualmax was named as a defendant in certain litigation filed in France
      before the Trade Tribunal of Nanterre against B.O.S. Better Online Systems,
      Ltd.
      (“BOS”) by a former distributor of BOS, Media Partners International (“MPI,” and
      the “MPI Litigation”), whose contract with BOS allegedly related to certain
      distribution rights for the product division Qualmax purchased from BOS on
      December 31, 2005. Pursuant to the asset purchase agreement between Qualmax
      and
      BOS, BOS agreed to indemnify and hold harmless Qualmax from liability, without
      limitation, arising from the claims raised in the MPI Litigation, and BOS has
      undertaken defense of Qualmax at BOS’s expense. The litigation is in its early
      stages, and at last report from counsel the French court had not yet made
      definitive rulings as to venue and jurisdiction (whether the matter is properly
      before the French court, or whether it should be subject to Israeli
      jurisdiction). We believe that no action has been taken in this matter since
      November, 2006. At present, based upon the limited progress in the matter and
      without the benefit of completion of factual discovery, management believes
      this
      litigation does not pose a financial risk to the Company.

    

    The
      Blackstone Litigation.  

    

    Qualmax
      was named as a defendant a lawsuit entitled Capital Securities, LLC and
      Blackstone Communications Company v. Carlos Bertonnatti, Worldwide PIN Payment
      Corp. and Qualmax, Inc., Case No. 2006-15824-CA-01, in the Circuit Court of
      the
      11th
      Judicial
      Circuit in and for Miami-Dade County, Florida (the “Blackstone Litigation”),
      filed August 10, 2006. The facts underlying the proceeding relate to a contract
      between defendant Worldwide PIN Payment Corp. and plaintiffs, and a third party,
      to plaintiff’s allegations of misappropriation of trade secrets and corporate
      opportunity, and to claims that defendants, or some of them, tortiously
      interfered with plaintiffs’ contract with a third party. Plaintiffs seek
      monetary damages. Management believes it is not entirely clear from the
      pleadings filed to date whether plaintiff’s claim that Qualmax misappropriated
      trade secrets, or tortiously interfered with a third party contract, or whether
      Qualmax is alleged to be liable under some other theory. No formal discovery
      requests have been made of the Company, and the Company has not yet filed any
      responsive pleadings. Co-defendants have answered and filed

     

     

    
      
        
        

      

      
        43

        
          

        

      

      
        
        

      

    

     

     

    counterclaims
      and third party claims, but none of the claims of co-defendants are against
      Qualmax nor do they allege wrongdoing by Qualmax as a defense to claims against
      them by plaintiffs. The Company is still investigating the claims against it,
      and the facts surrounding the claims against co-defendants, but that
      investigation is in its early stages and is incomplete. Further, it is not
      yet
      clear how aggressively plaintiffs will pursue Qualmax as a defendant, and to
      date plaintiffs have not pursued Qualmax vigorously. Based on the limited
      information available to management at this point, management does not believe
      Qualmax or the Company is liable for any wrongdoing, act or omission, in
      relation to the litigation, and management believes that Qualmax is not properly
      a party to the litigation. However, management does not have sufficient
      information to provide a meaningful assessment of all the facts and
      circumstances relating to the claims against Qualmax and co-defendants nor
      to
      determine how costly and time-consuming defense of the matter may be regardless
      of the merits of the Company’s defense. In addition, the Company believes it has
      viable claims for indemnification and damages against co-defendants but has
      not
      yet formally raised those claims or made a full determination of their value
      or
      role in the litigation.

     

     

     

    
 

    
      
        
        

      

      
        44

        
          

        

      

      
        
        

      

    

    SCHEDULE
      6.13

    

    Our
      wholly owned Israeli subsidiary is subject to a royalty payable to the Israel
      Office of the Chief Scientist (“OCS”), as consideration for sums previously
      advanced to the company’s predecessor in interest in relation to development of
      our Claro software. The OCS obligation is a royalty, paid at the rate of 3.5%
      of
      gross sales of the Claro product line.  The total royalty is capped at
      $2,183,647 and as of end of 2006 we had paid a total of $802,836, leaving
      $1,380,822 open balance.

    

    Pending
      trademark registration applications (or common law trademark
      rights):

    

    IP
      Gear

    IP
      Gear
      Connect

    Claro

    Better
      VoIP, Better Business

     

    
 

    

    
      
        
        

      

      
        45

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      6.15

    

    See
      Schedule 6.6 for description of leased premises. We own no real
      property.

     

     

    
 

    
      
        
        

      

      
        46

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      6.21

    

    To
      follow
      no later than April 15, 2007.

    

     

     

    
 

    
      
        
        

      

      
        47

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      6.24

    

    See
      Schedule 6.9.

     

     

     

     

     

     

    
 

     

     

    48

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