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<SEC-DOCUMENT>0001003297-02-000197.txt : 20021001
<SEC-HEADER>0001003297-02-000197.hdr.sgml : 20021001
<ACCEPTANCE-DATETIME>20021001172642
ACCESSION NUMBER:		0001003297-02-000197
CONFORMED SUBMISSION TYPE:	10KSB
PUBLIC DOCUMENT COUNT:		7
CONFORMED PERIOD OF REPORT:	20020630
FILED AS OF DATE:		20021001

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			PRO DEX INC
		CENTRAL INDEX KEY:			0000788920
		STANDARD INDUSTRIAL CLASSIFICATION:	WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047]
		IRS NUMBER:				841261240
		STATE OF INCORPORATION:			CO
		FISCAL YEAR END:			0630

	FILING VALUES:
		FORM TYPE:		10KSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-14942
		FILM NUMBER:		02778873

	BUSINESS ADDRESS:	
		STREET 1:		650 S. TAYKOR AVENUE
		STREET 2:		SUITE 20-A
		CITY:			LOUISVILLE
		STATE:			CO
		ZIP:			80027
		BUSINESS PHONE:		3034438165

	MAIL ADDRESS:	
		STREET 1:		1401 WALNUT STREET
		STREET 2:		SUITE 540
		CITY:			BOULDER
		STATE:			CO
		ZIP:			80302
</SEC-HEADER>
<DOCUMENT>
<TYPE>10KSB
<SEQUENCE>1
<FILENAME>prodex10k1.htm
<DESCRIPTION>HTML DOCUMENT
<TEXT>
<html>

<head>

<title>Prepared by E-Services, LLC - www.edgar2.net </title>

</head>

<body>

  <p align=center><b>U.S. SECURITIES AND EXCHANGE COMMISSION <br>
  Washington, D.C. 20549 </b></p>
  <p align=center><b>________________
  </b></p>
  <p align=center><b>FORM 10-KSB </b></p>
  <p>[X]&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Annual Report Pursuant
  to Section 13 or 15(d) of the Securities Exchange Act of 1934 <br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; for the fiscal year
  ended June 30, 2002 </p>

  <p>[&nbsp; ]&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Transition
  Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
  <br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; for the transition period from ___ to ___</p>
  <p align="center"><b>&nbsp;Commission File Number 0-14942 </b></p>
  <p align=center><b>&nbsp;_______________________ </b></p>
  <p align=center><b>&nbsp;PRO-DEX,
  INC. <br>
  </b>(Name of small business issuer in its charter)</p>





<div align=center>

<table border=0 cellspacing=0 cellpadding=0>
 <tr>
  <td width=273 valign=top>
  <p align=center>Colorado </p>
  </td>
  <td width=211 valign=top>
  <p align=center>84-1261240 </p>
  </td>
  <td width=1 valign=top>
  <p align=center>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=273 valign=top>
  <p align=center>(State or other jurisdiction of </p>
  </td>
  <td width=211 valign=top>
  <p align=center>(I.R.S. Employer ID No.) </p>
  </td>
  <td width=1 valign=top>
  <p align=center>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=273 valign=top>
  <p align=center>incorporation or organization) </p>
  </td>
  <td width=211 valign=top>
  <p align=center>&nbsp;</p>
  </td>
  <td width=1 valign=top>
  <p align=center>&nbsp;</p>
  </td>
 </tr>
</table>

</div>



<p align=center>151 E. Columbine Avenue, Santa
Ana, California 92707 <br>
&nbsp;(Address of
principal executive offices) </p>

<p align=center><b>Issuer's telephone number: 714-241-4411 </b></p>

<p align=center><b>Securities registered under Section 12(b) of the Exchange Act: </b></p>

<div align=center>

<table border=0 cellspacing=0 cellpadding=0 width="395">
 <tr>
  <td width=167 valign=top>
  <p><b>&nbsp;</b></p>
  </td>
  <td width=176 valign=top>
  <p align=center><b>Name of each
  exchange </b></p>
  </td>
 </tr>
 <tr>
  <td width=167 valign=top>
  <p align=center><b><u>Title of
  each class </u></b></p>
  </td>
  <td width=176 valign=top>
  <p align=center><b><u>on which
  registered </u></b></p>
  </td>
 </tr>
 <tr>
  <td width=167 valign=top>
  <p align=center><b>None </b></p>
  </td>
  <td width=176 valign=top>
  <p align=center><b>None </b></p>
  </td>
 </tr>
</table>

</div>

<p align="center"><b>&nbsp;Securities
registered under Section 12(g) of the Exchange Act: </b></p>

<p align=center><b>Common stock,
no par value <br>
</b>(Title of class) </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Check whether
the issuer (1) has filed all reports required by Section 13 or 15(d) of the
Exchange Act during the past 12 months, and (2) has been subject to such filing
requirements for the past 90 days. </p>

<p align=center>Yes
[X]&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No&nbsp; [&nbsp; ]</p>

  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align="justify">&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; Check if there is no
disclosure of delinquent filers in response to Item 405 of Regulation S-B
contained in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]</p>



<p align="justify">&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; Issuer's revenues for its
most recent fiscal year were $10,526,000. </p>



<p align="justify">&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; The aggregate market value
of the voting stock held by non-affiliates computed by reference to the closing
price as of September 27, 2002 was $2,971,000. For the purpose of this
calculation, shares owned by officers, directors and 10% stockholders known to
the registrant have been deemed to be owned by affiliates. This determination
of affiliate status is not a determination for other purposes. </p>



<p align="justify">&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; The number of shares of
the Registrant's no par value common stock outstanding as of September 27, 2002
was 8,787,300. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; DOCUMENTS INCORPORATED
BY REFERENCE: Part III incorporates by reference certain information from the
registrant's definitive proxy statement (the &quot;Proxy Statement&quot;) for the 2002
Annual Meeting of Shareholders. Certain exhibits are set forth in the Exhibit
Index. The Exhibit Index begins on sequentially numbered page 47. </p>



<p align="justify">Transitional Small Business Disclosure Format (Check
One)&nbsp;&nbsp; <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u>Yes&nbsp; <u>&nbsp; &nbsp;X </u>&nbsp;No</p>

<p align="justify"><b>Cautionary
statement pursuant to safe harbor provisions of the Private Securities
Litigation reform act of 1995. </b></p>



<p align="justify">When used in this report on form 10-KSB, the words
&quot;expects, &quot;anticipates&quot;, &quot;estimates&quot;,
&quot;believes&quot;, &quot;hopes&quot;, &quot;intends&quot;,
&quot;forecasts&quot; and similar expressions are intended to identify
&quot;forward-looking statements&quot;. These statements which are not historical
or current facts are made pursuant to the safe harbor provisions of section 27a
of the securities act and section 21e of the 1934 act and the Company intends
that such forward looking statements be subject to those safe harbor provisions
for such statements. The Company wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the
date of this report. While forward-looking statements represent management's
best judgment as to what may occur in the future, they are subject to risks,
uncertainties and important factors beyond the control of the Company that
could cause actual results and events to differ materially from historical
results of operations and events as well as those presently anticipated or
projected. These factors include adverse economic conditions, entry of new and
stronger competitors, capital availability, unexpected costs, failure to capitalize upon access to new customers, and
exchange delisting. Other risks and uncertainties which may affect
forward-looking statements about the Company's business and prospects include,
but are not limited to, the ramifications of the continued industry
consolidation of dental dealers and distributors, managed health care,
increasingly limited acquisition opportunities, the Company's ability to
effectively integrate operations of acquired companies, dealer acceptance and
support of new products, maintaining favorable supplier relationships, the
inability to engage qualified human resources as needed, the ability to extend
the deadline of the exchange delisting, and general economic conditions. The
Company disclaims any obligations subsequently to revise any forward-looking
statements to reflect events or circumstances after the date of such statement
or to reflect the occurrence of anticipated or unanticipated events. </p>



<p align="justify">&nbsp;</p>



<p align="center">2</p>
  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>






<p align="center"><b>PART I</b></p>

<p align="justify"><b>Item 1.
Business </b></p>



<p align="justify"><b>General </b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Pro-Dex, Inc.
(or the &quot;Company&quot;) is a Colorado corporation, organized in 1978,
doing business through two wholly owned operating subsidiaries, Micro Motors,
Inc. (&quot;Micro&quot;) and Oregon Micro Systems, Inc. (&quot;OMS&quot;).
Micro, headquartered in Santa Ana, California, manufactures electric, air, and
battery driven rotary drive systems for the medical device industry, electric
and air handpieces for the dental industry, and miniature pneumatic motors for
industrial applications. OMS is headquartered in Beaverton, Oregon, where it
designs and manufactures motion controllers used to control the motion of servo
and stepper motors, predominantly for the semiconductor industries and medical
analysis equipment. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp; Over the course of the past three years,
the Company has evolved significantly in response to changing market conditions
and the demand for an increase in the return on investment in the Company.&nbsp; This evolution includes the strategic
refocusing of the Company's subsidiaries, the development of new products,
technologies and customer relationships, the re-casting of operational
infrastructure, the divestiture of segments of the Company's operations and the
consolidation of the Company's executive offices and staff.</p>



<p align="justify"><b>Micro Motors</b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp; Every aspect of the Micro subsidiary has
changed in the last three years.&nbsp;
Historically known as a precision manufacturer of dental handpieces,
Micro has shifted its focus to the development and exclusive supply of rotary
drive systems for strategic partners in the medical, dental and industrial
segments of the commercial marketplace.&nbsp;
This new approach to the market has proved to be very effective in
generating new revenue streams with gross margins significantly higher than
Micro's historical business.</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp; Internally, Micro has dramatically
consolidated its operations and reduced the expenses related to those
operations, while continuing to grow overall sales and develop new
products.&nbsp; This includes reducing its
workforce by 30% and consolidating into a 20,000 sq. ft. manufacturing
facility.&nbsp; At the same time, Micro has
increased the size of its Engineering and Product Development group, further
enabling it to respond to market demands for new products and new technologies.</p>



<p align="justify"><b>OMS</b></p>

<p align="justify"><b>&nbsp;</b>&nbsp;&nbsp;&nbsp;&nbsp; During the past three
years, OMS has both benefited and suffered from the rapidly changing environment
of the semiconductor industry, which is characterized by dramatic and sometimes
volatile changes in demand for products.&nbsp; While recording two of its best
operational performances in its fiscal year 2000 and fiscal year 2001 with
revenues in each year exceeding $7,000,000, OMS has been impacted severely by
the downturn in the semiconductor industry that began in November of 2000 and
continues to this day.</p>

<p align="justify">&nbsp;</p>

<p align="center">3</p>

  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>

<p align="justify">&nbsp;</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp; In response to the rapidly changing market
conditions, OMS also drastically reduced its number of employees, made deep
cuts in sales and marketing expenses and focused on maximizing the sales of
existing product to existing customers.&nbsp;
At the same time, OMS accelerated the development of a new generation of
motion control technology, based on the Power PC power chip.&nbsp; This new servo/stepper controller will be
available  early in fiscal year 2003 and will be expanded on to create a
full line of new products.&nbsp; OMS is also
developing new customer relationships with companies outside the semiconductor
industry.</p>



<p align="justify"><b>Pro-Dex</b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp; For the better part of the past three
years, Pro-Dex has investigated several opportunities with various potential
strategic investors.&nbsp; These activities
culminated in the divestiture of the Company's Biotrol and Challenge
subsidiaries in June of 2001.&nbsp; The
proceeds from that transaction were used to retire all of the Company's bank
debt, leaving the Company virtually debt free, as of June 30, 2001, but less than half in size.</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp; In response to the reduction in the
Company's operations, the Company's executive operations in Colorado were
consolidated into the Micro facilities in Santa Ana, California and the
executive staff was reduced to a single person at the year ended June 30, 2002.&nbsp; Early in
fiscal year 2003, all of the Company's stand-alone executive positions were
eliminated and those functions were integrated into existing operational
positions at Micro and OMS.&nbsp; This effort to reduce
corporate overhead is expected to save the Company approximately $1 million in
fiscal year 2003.</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company's
principal headquarters are located at 151 E. Columbine Avenue, Santa Ana,
California 92707. </p>



<p align="justify"><b>Description of
Business of the Subsidiaries </b></p>



<p align="justify"><b>Micro Motors </b></p>

<p align="justify"><b>&nbsp;</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Micro designs,
develops and manufactures pneumatic, electric and battery powered rotary drive
systems for use in the medical, dental and industrial markets. Micro
distributes its own line of pneumatic and electric dental handpieces sold under
the trademarks Dynatorq&trade;, Dynapro&trade;, Dynalite&trade;, Dynasurg&trade;, and Micro Handpiece&trade;,
as well as numerous lines of private label drive systems for use in dental,
cranial, spinal, arthroscopic and orthopedic surgery. Micro also designs and
manufactures miniature pneumatic motors for industrial applications in the
automotive, aerospace, apparel and entertainment industries. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Micro's dental
products are sold to original equipment manufacturers and dental product
distributors. Sixty-eight percent (68%) of Micro's sales in the year ended June
30, 2002 were accounted for by sales of dental products. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Products sold to
Micro's medical customers accounted for fifteen percent (15%) of Micro's sales
in the year ended June 30, 2002. Most of these sales represent the manufacture
of proprietary designs developed by Micro under exclusive design and supply
agreements. </p>



<p align="justify">&nbsp;</p>



<p align="center">4</p>

  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Approximately eleven
percent (11%) of Micro's sales in the year ended June 30, 2002 consisted of
sales of miniature pneumatic motors for industrial applications. Micro's
pneumatic motors are marketed directly to end-users as well as through an
independent distribution network.</p>



<p align="justify">Micro's customer base is
well diversified as its three largest customers account for only twenty-four
percent (24%) of its sales, with the largest of such customers accounting for
nine percent (9%) of sales. These relationships are well established. Micro has
no plans to discontinue the relationships, and has no knowledge that these
customers have any plans to discontinue their relationships with Micro,
although the relationships may change over time to reflect a different mix of
engineering and manufacturing.</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; All of the raw
materials used by Micro in the manufacture of its products are purchased from
various suppliers and are available from several sources. Precipart Corporation
and Hi-Tech Electronic Manufacturing Inc. are two of its key suppliers. Micro
considers its relationships with its various suppliers and manufacturers to be
good. Micro does not intend to terminate any relationship at this time, nor
does management have knowledge a supplier or manufacturer will terminate any
relationships with Micro. Micro has no exclusive arrangements with any of its
suppliers or manufacturers. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; At the present time,
Micro is generally able to fill orders within sixty (60) days.&nbsp; At June 30,
2002, Micro had a backlog of $173,000 and future orders of $2.1 million compared with a backlog of $266,000
and future orders of approximately $3 million at June 30, 2001. Micro expects
to fill all of its orders during the current fiscal year. Micro does not
typically experience seasonal fluctuations in its orders. </p>



<p align="justify"><b>OMS </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Oregon Micro
Systems, Inc. (OMS) designs, develops, manufactures, and markets multi-axis
embedded motion controllers. The OMS controllers are specifically designed for
the purpose of controlling servo and stepper motors to execute desired motion
specific to the customer's application. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; OMS' motion controllers are used in a
wide range of applications including semiconductor wafer handling equipment,
medical diagnostic equipment, photon accelerators and observatories. The OMS
controllers support a platform for PCI, VME, ISA, cPCI busses as well as other
embedded platforms.&nbsp; Other products
include motors, drivers, cables, software and a variety of accessories to meet
most any embedded motion requirement.</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; OMS sells into approximately 10 different
market segments. Revenue is derived from four predominate market segments,
including medical diagnostic equipment and instrumentation (30%), semiconductor
equipment (29%), distribution (24%), and government (6%).&nbsp; The semiconductor equipment markets have
accounted for up to 60% of OMS sales in recent years, however due to the
continued technology down cycle, other markets have emerged. </p>



<p align="justify">&nbsp;</p>



<p align="center">5</p>



  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; OMS distributes its product via direct
OEM sales and through a network of high technology distributors within the
United States.&nbsp; Internationally, OMS has
agreements with foreign distributors of electronic and motion control products.</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; OMS' largest customer accounts for
nineteen percent (19%) of its sales, with the second through fourth-largest
customers accounting for the next twenty-eight percent (28%) of sales. These
relationships are well established. OMS has no plans to discontinue the
relationships, and has no knowledge that these customers have any plans to
discontinue their relationships with OMS. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; OMS purchases raw printed circuit boards and
electronic components used to manufacture its products. OMS is a registered
ISO9001 company and uses only qualified assemblers, component manufactures and
distributors in the manufacture of its products.&nbsp; Two of OMS's key suppliers are Insight
Electronics, LLC and Avenet Electronics Marketing.&nbsp; These relationships are well established, and
OMS has no current plans to discontinue the relationships, and has no knowledge that
these suppliers have any plans to discontinue their relationship with OMS.&nbsp; OMS holds no franchises and has no exclusive
arrangements with any of its suppliers and manufacturers. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; At the
present time, OMS is generally able to fill orders within sixty (60) days.&nbsp; At June 30, 2002, OMS had no backlog and
future orders of $540,000 compared with no backlog and future orders of
$627,000 at June 30, 2001.&nbsp; OMS does not
typically experience seasonal fluctuations in its orders, although there are
significant fluctuations in the market demand of products in the industries it
serves. </p>



<p align="justify"><b>Competition</b>&nbsp; </p>

<p align="justify"><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;</i>The
markets for healthcare products and semiconductor industries are intensely
competitive, and the Company faces significant competition from a number of
different sources.&nbsp; Several of the
Company's competitors have significantly greater name recognition as well as
substantially greater financial, technical, product development and marketing
resources than the Company.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company competes in all of
its markets with other major healthcare and semiconductor related companies.
Competitive pressures and other factors, such as new product or new technology
introductions by the Company or its competitors, may result in price or market
share erosion that could have a material adverse effect on the Company's
business, results of operations and financial condition. Also, there can be no
assurance that the Company's products and services will achieve broad market
acceptance or will successfully compete with other products.</p>



<p align="justify"><b>Research and
Development </b></p>

<p align="justify"><b>&nbsp;</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company
maintains research and development programs in its two subsidiaries. The
Company considers these product development programs to be of importance in
both maintaining and improving its market position. The net amounts spent on
research and development activities in 2002 and 2001 were approximately $1.55 million
and $1.67 million, respectively. Micro's research and development effort
involves the design and manufacture of products that perform specific
applications for its customers.&nbsp; During
the year ended June 30, 2002,&nbsp; Micro
continued to target its research and development expenses to expanding its
customer base in the medical device industry. Micro was successful in
increasing the amounts of its research and development costs recovered by
billing its customers for non-recurring engineering expenses. The fees received
for non-recurring engineering expenses do not represent a significant portion
of Micro's revenue.&nbsp; OMS' research and
development investment in technical advances will begin producing revenue with
the release of the new MAX product scheduled in 2003, along with continued
enhancements of current product lines.&nbsp; OMS makes no specific billings for
their research and development efforts.</p>

<p align="justify">&nbsp;</p>

<p align="center">6</p>

  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>

<p align="justify"><b>Employees </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; At June 30,
2002, the Company had approximately 83 full and 3 part-time employees
(excluding independent contractors) compared to 86 full and 4 part-time
employees at June 30, 2001 a further reduction from 95 full and 5 part-time
employees at June 30, 2000.&nbsp; Micro
employed 66 persons, OMS employed 19 persons, and 1 full-time executive
employee was assigned to corporate headquarters. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; None of the
Company's employees are a party to any collective bargaining agreements with
the Company. The Company considers its relations with its employees to be good.
</p>

<p align="justify"><b>Government
Regulations </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The manufacture
and distribution of dental and medical devices such as the Micro products are
subject to a number of state and federal regulatory bodies, including state
dental boards and the Food and Drug Administration (&quot;FDA&quot;). The
statutes, regulations, administrative orders, and advisories that affect the
Company's businesses are complex and subject to diverse, often conflicting, interpretations.
While the management of each of the Company's
operating subsidiaries makes every effort to maintain full compliance with all
applicable laws and regulations, the Company is unable to eliminate an ongoing
risk that one or more of its activities may at some point be determined to have
been non-compliant. The penalties of non-compliance could range from an
administrative warning to termination of a portion of the Company's business.
Further, even if the Company is subsequently determined to have fully complied
with applicable law or regulation, its costs to achieve such a determination and
the intervening loss of business could adversely affect or even terminate a
portion of the Company's business. Further, a change in such laws or regulations
at any time may have an adverse effect on the Company's operations.
Notwithstanding the risks inherent in the Company's business sectors, management
believes that each of the Company's subsidiaries is in compliance
with applicable laws and regulations. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The FDA
regulates Micro's dental and medical handpieces as Class 1 medical
devices.&nbsp; The FDA has broad enforcement
powers to recall and prohibit the sale of products, which do not comply with
federal regulations, and to order the cessation of non-compliant processes. No
claim has been made to date by the FDA regarding any Micro products or
processes. Nevertheless, as is common in the industry, certain of Micro's
products and processes have been the subject of routine governmental reviews
and investigations. While the Company's management is confident that Micro's
products and processes fully comply with applicable laws and regulations, the
Company is unable to predict the outcome of any such investigation or review,
pending its completion. Management believes that Micro follows Good
Manufacturing Practices (GMP). </p>



<p align="justify">&nbsp;</p>



<p align="center">7</p>



  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Management
believes that OMS' business in the manufacture and distribution of multi-axis
circuit boards, including the processes and materials, is conducted in a manner
consistent with EPA regulations governing disposition of industrial waste
materials. Although the semiconductor and computer chip industries are
significantly impacted by EPA regulations applicable to the processes and
materials used in production of computer chips and computer chip components,
OMS' management has undertaken measures, where possible, to reduce OMS'
exposure to the risk of non-compliance. Most significantly, OMS acquires
pre-manufactured boards as platforms upon which to place OMS technology. While
the Company's management is confident that OMS products and processes fully
comply with applicable laws and regulations, the Company is unable to predict
the outcome of any investigation or review which may in the future be
undertaken respecting OMS or its products or processes. Management believes
that OMS follows GMP. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; All Pro-Dex
subsidiaries maintain ISO 9001 certified facilities. </p>

<p align="justify"><b>Patents,
Trademarks, and Licensing Agreements </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company
holds patents relating to the multi-axis motion controllers
manufactured by OMS. In addition, Micro holds patents relating to its
miniature pneumatic motor products. Patents held by the Company and Micro have
varying expiration dates, none of which will expire earlier than 2005.</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company
conducted a limited review of the patents acquired in connection with
the OMS and Micro acquisitions and believes that the use of such patent
is neither infringed upon by any third party, nor infringes on any prior art of
any third party. The Company is unable to assess the validity, scope, or
defensibility of its patent, and any challenge to or claim of
infringement relating to the Company's patents could materially and
adversely affect the Company's business and results of
operations. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company's
Micro subsidiary has certain trademarks relating to its miniature pneumatic
motor products, including Dynatorq&trade;, Dynapro&trade;, Dynalite&trade;, Dynasurg&trade;, and Micro
Handpiece&trade;. OMS has filed for federal trademark protection for OMS-EZ&trade;. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Except as noted
above, the Company has not entered into any licensing or franchising agreements
and has no present plans to do so.</p>



<p align="justify"><b>Divestiture</b></p>

<p align="justify"><b>&nbsp;&nbsp; </b>&nbsp;&nbsp;&nbsp;
On June 12, 2001, the Company sold substantially all of the assets of its
wholly owned subsidiaries, Biotrol International, Inc. and Challenge Products,
Inc. to Young Colorado, LLC, for a purchase price of $9 million. The assets
sold comprised the Company's line of infection control and preventive chemical
products for the dental industry. The gain from the sale of the assets was
reported at approximately $3.9 million net of taxes of $2.5 million as of June
30, 2001.&nbsp; The gain on the sale has been reduced by $668,000,
during 2002, represented by an increase to the reserve to offset warranty claims made by Young and other third
party creditors associated with the Biotrol operation.&nbsp;&nbsp; There
remained an escrow balance of $1,221,000 and a total reserve of $431,000 as of
June 30, 2002.</p>



<p align="justify">&nbsp;</p>



<p align="center">8</p>



  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company received $6.6
million of the purchase price at the closing. The balance of the purchase price
of $2.4 million was escrowed to secure various warranties under the sale
agreement. The escrow agreement contains various scheduled release dates for
the funds thereafter. The actual
distribution of the escrow account varied from the original agreement due to
various claims by Young.&nbsp; There was a
release of $1.2 million of the escrow funds in the quarter ending March 31,
2002, of which (a) $350,000 was paid back to Young for (i) $183,000 related to warranty issues
and, (ii) $167,000 related to remaining operating obligations (b) $136,000
was paid to third party creditors for liabilities related to the sale of prior
operations of Biotrol, and (c) $714,000 was retained by the Company.&nbsp; A second release of $1,100,000 was made in
July 2002, of which (a) $431,000 was returned to Young for warranty related
issues, (b) $366,000 was paid to a third party creditor and (c) $324,000 was
retained by the Company, leaving an escrow balance of $100,000 and no remaining
reserve.&nbsp; The $100,000 is being held for title clearance of certain
purchased assets and is expected to be received by the Company in October 2002.&nbsp;
In addition, the Company earned approximately $43,000 in interest on the escrow
account during the year ended June 30, 2002.</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp; During the year ended June 30, 2002,
the
Company received indemnification notices from Young, to recover alleged
losses and costs as they are incurred for certain alleged breaches of
representations and warranties contained in the Asset Purchase Agreement
related to compliance issues with the Food, Drug, and Cosmetic Act (&quot;FDCA&quot;),
Federal Insecticide, Fungicide and Rodentcide Act (&quot;FIFRA&quot;), and other related
laws.&nbsp; In February 2002, the Company
settled a complaint with the Environmental Protection Agency (&quot;EPA&quot;) set forth
in Young's indemnification notice for alleged violations of FIFRA.&nbsp; Pursuant to the settlement, the Company will
pay $150,000 to the EPA, over a 15-month period, commencing March 2002.&nbsp;
The remaining amount of $110,000 is recorded as an accrued liability in the June 30,
2002 financial statements in addition to the $431,000 escrow reserve.</p>



<p align="justify"><b>Risk Factors</b></p>

<p align="justify"><b>Competition</b>&nbsp; </p>

<p align="justify"><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;</i>The
markets for healthcare and semiconductor industries are intensely competitive,
and the Company faces significant competition from a number of different
sources.&nbsp; Several of the Company's
competitors have significantly greater name recognition as well as
substantially greater financial, technical, product development and marketing
resources than the Company.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company competes in all of
its markets with other major healthcare and semiconductor related companies.
Competitive pressures and other factors, such as new product or new technology
introductions by the Company or its competitors, may result in price or market
share erosion that could have a material adverse effect on the Company's
business, results of operations and financial condition. Also, there can be no
assurance that the Company's products and services will achieve broad market
acceptance or will successfully compete with other competing products.</p>

<p align="justify">&nbsp;</p>

<p align="center">9</p>

  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>

<p align="justify"><b>Fluctuation in
Quarterly Operating Results</b></p>

<p align="justify"><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </i>The
Company's revenues have fluctuated in the past, and may fluctuate in the future
from quarter to quarter and period to period, as a result of a number of
factors including, without limitation: the size and timing of orders from
customers; the length of new product development cycles; market acceptance of
new technologies; changes in pricing policies or price reductions by the
Company or its competitors; the timing of new product announcements and product
introductions by the Company or its competitors; changes in revenue recognition
guidelines established by the Financial Accounting Standards Board or other
rule-making bodies; the financial stability of major customers; the Company's
success in expanding its sales and marketing programs; deferrals of customer
orders in anticipation of new products; changes in Company strategy; personnel
changes; and general market/economic factors. </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Because a significant
percentage of the Company's expenses are relatively fixed, a variation in the
timing of sales can cause significant variations in operating results from
quarter to quarter. As a result, the Company believes that interim
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Further, the Company's historical operating results are not necessarily
indicative of future performance for any particular period.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Due
to all of the foregoing factors, it is possible that in some future quarter(s)
the Company's operating results may be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially adversely affected.</p>



<p align="justify"><b>Dependence on Principal Product
and New Product Development</b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company currently derives
a substantial part of its net revenues from sales of its core healthcare and
motion control products and services. The Company believes that a primary
factor in the market acceptance of its product and services is the value that
is created for its customers by those products and services. The Company's
future financial performance will depend in large part on the Company's ability
to continue to meet the increasingly sophisticated needs of its customers
through the timely development, successful introduction and implementation of
new and enhanced products and services. The Company has historically expended a
significant percentage of its net revenues on product development and believes
that significant continued product development efforts will be required to
sustain the Company's growth. Continued investment in the Company's sales and
marketing efforts will also be required to support future growth. </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; There can be no assurance that the Company
will be successful in its product development efforts, that the market will
continue to accept the Company's existing products, or that new products or
product enhancements will be developed and implemented in a timely manner, meet
the requirements of its customers, or achieve market acceptance. If new
products or product enhancements do not achieve market acceptance, the
Company's business, results of operations and financial condition could be
materially adversely affected. </p>

<p align="justify"><b>Technological Change</b></p>

<p align="justify"><b><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </i></b>The
healthcare and semiconductor markets are generally characterized by rapid
technological change, changing customer needs, frequent new product
introductions, and evolving industry standards. The introduction of products
incorporating new technologies and the emergence of new industry standards
could render the Company's existing products obsolete and unmarketable. There
can be no assurance that the Company will be successful in developing and
marketing new products that respond to technological changes or evolving
industry standards.</p>

<p align="justify">&nbsp;</p>

<p align="center">10</p>

  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; New product
development depends upon significant research and development expenditures that
depend ultimately upon sales growth. Any material weakness in revenues or
research funding could impair the Company's ability to respond to technological
advances in the marketplace and to remain competitive. If the Company is
unable, for technological or other reasons, to develop and introduce new
products in a timely manner in response to changing market conditions or
customer requirements, the Company's business, results of operations and
financial condition may be materially adversely affected.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In response to increasing market demand,
the Company is currently developing new products. There can be no assurance
that the Company will successfully develop these new products or that these
products will operate successfully, or that any such development, even if
successful, will be completed concurrently with or prior to introduction of
competing products. Any such failure or delay could adversely affect the
Company's competitive position or could make the Company's current products
obsolete.</p>



<p align="justify"><b>Litigation</b></p>

<p align="justify"><i>&nbsp;</i>&nbsp;&nbsp;&nbsp;&nbsp; The
Company continually faces the possibility of litigation as either a plaintiff
or a defendant.&nbsp; It is not reasonably
possible to estimate the awards or damage, or the range of awards or damages,
if any, that the Company might incur in connection with such litigation. The
uncertainty associated with potential litigation may have an adverse impact on
the Company's business. In particular, such litigation could impair the
Company's relationships with existing customers and its ability to obtain new
customers. Defending such litigation may result in a diversion of management's
time and attention away from business operations, which could have a material
adverse effect on the Company's business, results of operations and financial
condition. Such litigation may also have the effect of discouraging potential
acquirers from bidding for the Company or reducing the consideration such
acquirers would otherwise be willing to pay in connection with an acquisition.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; There can be no
assurance that such litigation will not result in liability in excess of its
insurance coverage, that the Company's insurance will cover such claims or that
appropriate insurance will continue to be available to the Company in the
future at commercially reasonable rates.</p>

<p align="justify"><b>Proprietary
Technology </b></p>

<p align="justify"><i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </i>The Company is dependent on the
maintenance and protection of its intellectual property and relies on license
agreements, exclusive development and supply agreements, confidentiality
procedures, and employee nondisclosure agreements to protect its intellectual
property. </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; There can be no assurance
that the legal protections and precautions taken by the Company will be
adequate to prevent misappropriation of the Company's technology or that
competitors will not independently develop technologies equivalent or superior
to the Company's. Further, the laws of some foreign countries do not protect
the Company's proprietary rights to as great an extent as do the laws of the
United States and are often not enforced as vigorously as those in the United
States.</p>

<p align="justify">&nbsp;</p>

<p align="center">11</p>

  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company does not believe that its
operations or products infringe on the intellectual property rights of others.
However, there can be no assurance that others will not assert infringement or
trade secret claims against the Company with respect to its current or future
products or that any such assertion will not require the Company to enter into
a license agreement or royalty arrangement with the party asserting the claim. </p>

<p align="justify"><b>Ability to Manage
Growth</b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company has
in the past experienced periods of growth that have placed, and may continue to
place, a significant strain on the Company's resources. The Company also
anticipates expanding its overall development, marketing, sales, client
management and training capacity. In the event the Company is unable to
identify, hire, train and retain qualified individuals in such capacities
within a reasonable timeframe, such failure could have a material adverse
effect on the Company. </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In addition, the
Company's ability to manage future increases, if any, in the scope of its
operations or personnel will depend on significant expansion of its research
and development, marketing and sales, management, and administrative and
financial capabilities. The failure of the Company's management to effectively
manage expansion in its business could have a material adverse effect on the
Company's business, results of operations and financial condition.</p>

<p align="justify"><b>Dependence Upon Key
Personnel</b>&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company's
future performance also depends in significant part upon the continued service
of its key technical and senior management personnel, many of whom have been
with the Company for a significant period of time.&nbsp; The Company does not maintain key man life
insurance on any of its employees. Because the Company has a relatively small
number of employees when compared to other leading companies in the same
industry, its dependence on maintaining its relationship with key employees is
particularly significant. The Company is also dependent on its ability to
attract and retain high quality personnel, particularly in the areas of product
development and operations management. </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The healthcare and
semiconductor industries are characterized by a high level of employee mobility
and the aggressive recruiting of skilled personnel. There can be no assurance
that the Company's current employees will continue to work for the Company. </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Loss of services of key
employees could have a material adverse effect on the Company's business,
results of operations and financial condition. Furthermore, the Company may
need to grant additional stock options to key employees and provide other forms
of incentive compensation to attract and retain such key personnel.</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp; The Company has experienced changes
in some of its key management positions in the past year as it has streamlined
its operations.&nbsp; In the year ended June 30, 2002, Kent Searl retired as President and Chief
Executive Officer of the Company and was replaced on an interim basis by Frank Zagar.&nbsp; Mr. Zagar completed a substantial part of the Corporate
reorganization and on September 1, 2002, resigned his operating position, while
remaining a Director.&nbsp; Patrick Johnson, Micro Motors President,&nbsp;
assumed the position of President and Chief Executive
Officer of the Company in addition to his pre-existing role as President of
Micro.&nbsp; In July 2002, George Isaac,
resigned his operating position as Treasurer and Chief Financial Officer, while
remaining Corporate Secretary and a Director, to focus on other business
opportunities, and Jeffrey J. Ritchey assumed the Treasurer and Chief Financial
Officer position in addition to his pre-existing role as Controller of Micro.&nbsp;
The Company believes that the new CEO and CFO have the background experience
necessary to be able to perform the duties required for these positions.</p>



<p align="justify">&nbsp;</p>

<p align="center">12</p>

  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align="justify"><b>Product Liability</b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company
maintains insurance to protect against claims associated with the use of its
products, but there can be no assurance that its insurance coverage would
adequately cover any claim asserted against the Company. A successful claim
brought against the Company in excess of its insurance coverage could have a
material adverse effect on the Company's business, results of operations and
financial condition. Even unsuccessful claims could result in the Company's
expenditure of funds in litigation and management time and resources.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; There can be no assurance that the Company
will not be subject to product liability claims, that such claims will not
result in liability in excess of its insurance coverage, that the Company's
insurance will cover such claims or that appropriate insurance will continue to
be available to the Company in the future at commercially reasonable rates.
Such claims could have a material adverse affect on the Company's business,
results of operations and financial condition. </p>



<p align="justify"><b>Exchange Delisting</b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp; The Company received a notice from the
NASDAQ that unless its stock price maintained a $1.00 per share closing price
for ten consecutive trading sessions, the Company's stock would be delisted on
December 6, 2002.&nbsp; Under the current
rules, management believes the delisitng will be extended another 180 days if
the Company maintains $5,000,000 of stockholders equity.&nbsp; Management believes it will maintain the
required retained earnings level, postponing the delisting deadline.&nbsp; However, there is no assurance that the
Company will meet these exchange listing requirements in the future or that the
Company's shares will maintain a sufficiently high price to eliminate future
delisting notices and subsequent delisting.</p>



<p align="justify"><b>Item 2.&nbsp;&nbsp;
Properties </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company's
executive office and Micro's office and manufacturing facility is located at
151 East Columbine Avenue, Santa Ana, California 92707.&nbsp; On July 1, 2001, Micro consolidated its
operations at the Santa Ana location into one of the two buildings it had been
occupying.&nbsp; The building is a two-story
building of concrete tilt-up construction, approximately 25 years old and in
good condition.&nbsp; Micro leased those
buildings under a previously existing lease from Mr. Ronald G. Coss, currently
a director of the Company, at a monthly rental of $29,816 that expired March
31, 2001 and continued to lease the buildings on a month-to-month basis until
June 30, 2001. A new lease for one of those buildings commenced July 1, 2001
for five years at a monthly rent of $12,285, before yearly inflation
adjustments.&nbsp; The building was sold and
lease assigned to an unrelated third party on January 3, 2002.&nbsp; The Company's management believes that the
monthly rental is comparable to rents charged for comparable properties in the
market area. Micro took action in its fiscal year 2001 and fiscal year 2002 to
remediate hazardous waste contamination on the property, which was completed in
June of 2002 at a cost of approximately $60,000, against an original reserve of
$97,000.&nbsp; Micro and the Company require
full compliance by the lessor with applicable California and EPA standards. See
&quot;Item 12 - Certain Relationships and Related Party Transactions.&quot; </p>



<p align="justify">&nbsp;</p>



<p align="justify">&nbsp;</p>



<p align="center">13</p>



  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; OMS' offices and
manufacturing facilities are located at 1800 N.W. 169th Place, Building C100,
Beaverton, Oregon 97006. OMS leases the facility from an unrelated third party,
at a base monthly lease rate of $9,100, which lease has been extended through
October 2007.&nbsp; The building is a one
story suite in a 15-year-old industrial office complex.</p>



<p align="justify"><b>Item 3.&nbsp;&nbsp;
Legal Proceedings </b></p>

<p align="justify"><b>&nbsp;&nbsp; </b>&nbsp;&nbsp;&nbsp;
Snyder v. Patterson Dental Company, et al. v. Biotrol International, Inc.,
Court of Common Pleas, Philadelphia County, Philadelphia, PA, February Term
1999. The complaint against Biotrol was filed February 17, 2001. Plaintiff
alleges that Patterson and other defendants manufactured, distributed and/or
sold latex gloves causing her alleged exposure to latex and personal injuries.
To date it is not possible to assess the likelihood of an unfavorable outcome
and estimate the amount or range of potential loss to the Company at this time.
</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The manufacture
and distribution of certain products by subsidiaries of the Company involves a
risk of legal action, and, from time to time, the Company and its subsidiaries
are named as defendants in lawsuits. While the Company's management believes
that these matters will not have a material adverse impact on the financial
condition of the Company, there can be no certainty that the Company may not
ultimately incur liability or that such liability will not be material and
adverse. </p>



<p align="justify"><b>Item 4.&nbsp;&nbsp; Submission of Matters to a Vote of
Security Holders During the Year Ended June 30, 2002 </b> </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No matter was submitted
to a vote of the Company's shareholders during the fourth quarter ended June 30,
2002.</p>



  <p align="justify">&nbsp;</p>



  <p align="center">14</p>
  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>


<p align=center><b>PART II</b></p>



<p align="justify"><b>Item 5.&nbsp;&nbsp;
Market for Registrant's Common Stock and Related Stockholder Matters </b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company's no par value common stock is quoted
under the symbol &quot;PDEX&quot; on the automated quotation system of the
National Association of Securities Dealers Small Cap Market
(&quot;NASDAQ&quot;). The following table sets forth for the quarters indicated
the high and low sales prices as reported by NASDAQ.&nbsp; The quotations reflect inter-dealer prices,
without retail markup, markdown, or commissions, and may not necessarily
represent actual transactions. </p>

<div align=center>

<table border=0 cellspacing=0 cellpadding=0 width="334">
 <tr>
  <td width=190 valign=top>
  <p><b><u>Quarter Ended </u></b></p>
  </td>
  <td width=53 valign=top>
  <p align=right><b><u>High </u></b></p>
  </td>
  <td width=77 valign=top>
  <p align=right><b><u>Low </u></b></p>
  </td>
 </tr>
 <tr>
  <td width=190 valign=top>
  <p>September 30, 2000</p>
  </td>
  <td width=53 valign=top>
  <p align=right>$2.81 </p>
  </td>
  <td width=77 valign=top>
  <p align=right>$1.88 </p>
  </td>
 </tr>
 <tr>
  <td width=190 valign=top>
  <p>December 31, 2000</p>
  </td>
  <td width=53 valign=top>
  <p align=right>3.00 </p>
  </td>
  <td width=77 valign=top>
  <p align=right>1.88 </p>
  </td>
 </tr>
 <tr>
  <td width=190 valign=top>
  <p>March 31, 2001</p>
  </td>
  <td width=53 valign=top>
  <p align=right>3.25 </p>
  </td>
  <td width=77 valign=top>
  <p align=right>2.32 </p>
  </td>
 </tr>
 <tr>
  <td width=190 valign=top>
  <p>June 30, 2001</p>
  </td>
  <td width=53 valign=top>
  <p align=right>2.53 </p>
  </td>
  <td width=77 valign=top>
  <p align=right>0.96 </p>
  </td>
 </tr>
 <tr>
  <td width=190 valign=top>
  <p>September 30, 2001 </p>
  </td>
  <td width=53 valign=top>
  <p align=right>1.16 </p>
  </td>
  <td width=77 valign=top>
  <p align=right>1.03 </p>
  </td>
 </tr>
 <tr>
  <td width=190 valign=top>
  <p>December 31, 2001</p>
  </td>
  <td width=53 valign=top>
  <p align=right>1.10 </p>
  </td>
  <td width=77 valign=top>
  <p align=right>0.73 </p>
  </td>
 </tr>
 <tr>
  <td width=190 valign=top>
  <p>March 31, 2002</p>
  </td>
  <td width=53 valign=top>
  <p align=right>1.34 </p>
  </td>
  <td width=77 valign=top>
  <p align=right>0.81 </p>
  </td>
 </tr>
 <tr>
  <td width=190 valign=top>
  <p>June 30, 2002</p>
  </td>
  <td width=53 valign=top>
  <p align=right>1.15 </p>
  </td>
  <td width=77 valign=top>
  <p align=right>0.51 </p>
  </td>
 </tr>
</table>

</div>

<p align="justify"><b>&nbsp;</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; On September 27,
2002, the last sale price of the common stock as reported by NASDAQ was $0.42 per
share. The last sale price reported on NASDAQ on June 28, 2002, was $0.63 per
share.</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp; The
Company received a notice from the NASDAQ that unless its stock price
maintained a $1.00 per share closing price for ten consecutive trading
sessions, the Company's stock would be delisted on
December 3, 2002.&nbsp; Under the current
rules, management believes the delisitng will be
extended another 180 days if the Company maintains $5,000,000 of stockholders
equity.&nbsp; Management believes it will
maintain the required retained earnings level, postponing the delisting
deadline.&nbsp; However, there is no assurance
that the Company will meet these exchange listing requirements in the future or
that the Company's shares will maintain a sufficiently high price to eliminate
future delisting notices and subsequent delisting.</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; At June 30,
2002, the approximate number of holders of record of the Company's common stock
was 342. This number does not include beneficial owners including holders whose
shares are held in nominee or &quot;street&quot; name.</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company has
not paid a cash dividend with respect to its common stock, and has no present
intention to pay cash dividends in the foreseeable future. The current policy of
the Company's Board of Directors is to retain earnings to provide funds for the
operation and expansion of its business. The Board of Directors, in light of
the circumstances then existing, including the Company's earnings and financial
requirements and general business conditions, will determine future
dividends.&nbsp; There are no restrictions on
the Company in issuing dividends associated with the credit line with Wells
Fargo Business Credit Inc. (WFBCI).&nbsp; </p>





<p align="justify">&nbsp;</p>





<p align="center">15</p>





  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>





<p align="justify"><b>Item 6.&nbsp;&nbsp;
Management's Discussion and Analysis of Financial Condition and Results of
Operations </b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The following
discussion and analysis provides information that the Company's management
believes is relevant to an assessment and understanding of the Company's
results of operations and financial condition for each of the two years ended
June 30, 2002. This discussion should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Report. This Report contains certain forward-looking statements and
information. The cautionary statements included herein should be read as being
applicable to all related forward-looking statements wherever they may appear.
The Company's actual future results could differ materially from those
discussed herein.&nbsp; The Company's critical
accounting policies relate to inventory valuation for slow moving items,
allowance for funds in escrow, impairment of goodwill, and recoverability of
deferred income taxes.</p>

<p align="justify"><b>Selected Financial
Data </b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The following table
sets forth selected financial data regarding the Company's financial position
and operating results. This data should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto and
&quot;Management's Discussion and Analysis of Financial Condition and Results
of Operations.&quot; </p>



<p align=center>(All amounts in thousands) </p>

  <div align="left">

<table border=0 cellspacing=0 cellpadding=0 width="671" style="border-collapse: collapse" bordercolor="#111111">
 <tr>
  <td
  width=7><p>&nbsp;</td>
  <td width=286 valign=top>

  </td>
  <td width=378 colspan=5 valign=top align="center">
  <p align=center><u>Year Ended June 30,</u></p>
  </td>
 </tr>
 <tr>
  <td width=321 colspan=3 valign=top>

  </td>
  <td width=40 valign=top align="center">

  </td>
  <td width=120 valign=top align="center">
  <p align=center><u>2002 </u></p>
  </td>
  <td width=74 valign=top align="center">

  </td>
  <td width=116 valign=top align="center">
  <p align=center><u>2001 </u></p>
  </td>
 </tr>
 <tr>
  <td width=321 colspan=3 valign=top>
  <p>Statement of Operations Data </p>
  </td>
  <td width=40 valign=top align="center">

  <p align=center>&nbsp;</p>
  </td>
  <td width=120 valign=top align="center">
  <p align=center>&nbsp;</p>
  </td>
  <td width=74 valign=top align="center">
  <p align=center>&nbsp;</p>
  </td>
  <td width=116 valign=top align="center">
  <p align=center>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=321 colspan=3 valign=top>
  <p>Net sales </p>
  </td>
  <td width=40 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=120 valign=top align="right">
  <p align=right>10,526&nbsp; </p>
  </td>
  <td width=74 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=116 valign=top align="right">
  <p align=right>14,844&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=321 colspan=3 valign=top>
  <p>Cost of sales </p>
  </td>
  <td width=40 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=120 valign=top align="right">
  <p align=right>6,426&nbsp; </p>
  </td>
  <td width=74 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=116 valign=top align="right">
  <p align=right>8,090&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=321 colspan=3 valign=top>

  </td>
  <td width=40 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=120 valign=top align="right">
  <p align=right>_______ </p>
  </td>
  <td width=74 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=116 valign=top align="right">
  <p align=right>_______ </p>
  </td>
 </tr>
 <tr>
  <td width=321 colspan=3 valign=top>
  <p>Gross profit </p>
  </td>
  <td width=40 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=120 valign=top align="right">
  <p align=right>4,100&nbsp; </p>
  </td>
  <td width=74 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=116 valign=top align="right">
  <p align=right>6,754&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=321 colspan=3 valign=top>
  <p>Unusual charges </p>
  </td>
  <td width=40 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=120 valign=top align="right">
  <p align=right>--&nbsp; </p>
  </td>
  <td width=74 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=116 valign=top align="right">
  <p align=right>1,134&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=321 colspan=3 valign=top>
  <p>Operating expenses </p>
  </td>
  <td width=40 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=120 valign=top align="right">
  <p align=right>6,235&nbsp; </p>
  </td>
  <td width=74 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=116 valign=top align="right">
  <p align=right>6,839&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=321 colspan=3 valign=top>

  </td>
  <td width=40 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=120 valign=top align="right">
  <p align=right>_______ </p>
  </td>
  <td width=74 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=116 valign=top align="right">
  <p align=right>_______ </p>
  </td>
 </tr>
 <tr>
  <td width=321 colspan=3 valign=top>
  <p>Net operating  (loss) </p>
  </td>
  <td width=40 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=120 valign=top align="right">
  <p align=right>(2,135)</p>
  </td>
  <td width=74 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=116 valign=top align="right">
  <p align=right>(1,219) </p>
  </td>
 </tr>
 <tr>
  <td width=321 colspan=3 valign=top>
  <p>Net other  (expense) </p>
  </td>
  <td width=40 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=120 valign=top align="right">
  <p align=right>(240)</p>
  </td>
  <td width=74 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=116 valign=top align="right">
  <p align=right>(907) </p>
  </td>
 </tr>
 <tr>
  <td width=321 colspan=3 valign=top>
  <p>Income tax  credit </p>
  </td>
  <td width=40 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=120 valign=top align="right">
  <p align=right>1,210&nbsp; </p>
  </td>
  <td width=74 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=116 valign=top align="right">
  <p align=right>829&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=321 colspan=3 valign=top>

  </td>
  <td width=40 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=120 valign=top align="right">
  <p align=right>_______ </p>
  </td>
  <td width=74 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=116 valign=top align="right">
  <p align=right>_______ </p>
  </td>
 </tr>
 <tr>
  <td width=321 colspan=3 valign=top>
  <p>(Loss) from continuing operations </p>
  </td>
  <td width=40 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=120 valign=top align="right">
  <p align=right>(1,165)</p>
  </td>
  <td width=74 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=116 valign=top align="right">
  <p align=right>(1,297) </p>
  </td>
 </tr>
 <tr>
  <td width=321 colspan=3 valign=top>
  <p>Income (loss) from discontinued operations </p>
  </td>
  <td width=40 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=120 valign=top align="right">
  <p align=right>(401)</p>
  </td>
  <td width=74 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=116 valign=top align="right">
  <p align=right>4,144&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=321 colspan=3 valign=top>

  </td>
  <td width=40 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=120 valign=top align="right">
  <p align=right>_______ </p>
  </td>
  <td width=74 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=116 valign=top align="right">
  <p align=right>_______ </p>
  </td>
 </tr>
 <tr>
  <td width=321 colspan=3 valign=top>
  <p>Net income (loss)</p>
  </td>
  <td width=40 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=120 valign=top align="right">
  <p align=right>(1,566)</p>
  </td>
  <td width=74 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=116 valign=top align="right">
  <p align=right>2,847&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=321 colspan=3 valign=top>

  </td>
  <td width=40 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=120 valign=top align="right">
  <p align=right>====== </p>
  </td>
  <td width=74 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=116 valign=top align="right">
  <p align=right>====== </p>
  </td>
 </tr>
 </table>

  </div>
  <p align="center">&nbsp;</p>
  <p align="center">16</p>
  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align="justify"><b>&nbsp; </b>&nbsp;&nbsp;&nbsp;
On June 12, 2001, the Company sold substantially all of the assets of its
wholly owned subsidiaries, Biotrol International,
Inc. and Challenge Products, Inc. to Young Colorado, LLC, for a purchase price
of $9 million. The assets sold comprised the Company's line of infection
control and preventive chemical products for the dental industry. The gain from
the sale of the assets was reported at approximately $3.9 million net of taxes
of $2.5 million as of June 30, 2001.&nbsp; The
gain on the sale has been reduced by $668,000, during 2002, represented by an
increase to the reserve to offset warranty claims made by Young and other third
party creditors associated with the Biotrol operation.&nbsp;&nbsp; There
remained an escrow balance of $1,221,000 and a total reserve of $431,000 as of
June 30, 2002.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company received $6.6
million of the purchase price at the closing. The balance of the purchase price
of $2.4 million was escrowed to secure various warranties under the sale
agreement. The escrow agreement contains various scheduled release dates for
the funds. The actual distribution of the escrow account varied from the
original agreement due to various claims by Young.&nbsp; There was a release of $1.2 million of the
escrow funds in the quarter ending March 31, 2002, of which (a) $350,000 was paid
back to Young for (i) $183,000 related to warranty
issues and, (ii) $167,000 related to remaining operating obligations, (b)
$136,000 was paid to third party creditors for liabilities related to the sale of
prior operations of Biotrol, and (c) $714,000 was
retained by the Company.&nbsp; A second release
of $1,100,000 was made in July, 2002, of which (a) $431,000 was returned to
Young for warranty related issues, (b) $366,000 was paid to a third party
creditor and (c) $324,000 was retained by the Company, leaving an escrow
balance of $100,000 and no remaining reserve.&nbsp;
The $100,000 is being held for title clearance of certain purchased
assets and is expected to be received by the Company in October 2002.&nbsp; In
addition, the Company earned approximately $43,000 in interest on the escrow
account during the year ended June 30, 2002.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp; During the year ended June 30, 2002, the
Company received indemnification notices from Young, to recover alleged losses
and costs as they are incurred for certain alleged breaches of representations
and warranties contained in the Young Asset Purchase Agreement related to
compliance issues with the Food, Drug, and Cosmetic Act (&quot;FDCA&quot;), Federal Insecticide,
Fungicide and Rodentcide Act (&quot;FIFRA&quot;), and other
related laws.&nbsp; In February 2002, the
Company settled a complaint with the Environmental Protection Agency (&quot;EPA&quot;)
set forth in Young's indemnification notice for alleged violations of FIFRA.&nbsp; Pursuant to the settlement, the Company will
pay $150,000 to the EPA, over a 15-month period, commencing March 2002.&nbsp; The remaining amount of $110,000 is recorded
as an accrued liability in the June 30, 2002 financial statements in addition
to the $431,000 escrow reserve.</p>



<p><b>Results of
Operations for Fiscal Year Ended June 30, 2002, Compared to Fiscal Year Ended
June 30, 2001 </b></p>



<p>Net sales by subsidiary follow: </p>



<table border=0 cellspacing=0 cellpadding=0 width="715">
 <tr>
  <td width=188 valign=top>

  </td>
  <td width=48 valign=top>

  </td>
  <td width=93 valign=top>
  <p align=right>2002 </p>
  </td>
  <td width=98 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=95 valign=top>
  <p align=right>2001 </p>
  </td>
  <td width=67 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=126 valign=top>
  <p align=right>Increase/(Decrease)</p>
  </td>
 </tr>
 <tr>
  <td width=701 colspan=7 valign=top>
  <p align=right>____________________________________________________________________
  </p>
  </td>
 </tr>
 <tr>
  <td width=188 valign=top>
  <p>Micro Motors </p>
  </td>
  <td width=48 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=93 valign=top>
  <p align=right>8,285,000</p>
  </td>
  <td width=98 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=95 valign=top>
  <p align=right>7,744,000 </p>
  </td>
  <td width=67 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=126 valign=top>
  <p align=right>541,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=188 valign=top>
  <p>Oregon Micro Systems </p>
  </td>
  <td width=48 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=93 valign=top>
  <p align=right>2,241,000</p>
  </td>
  <td width=98 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=95 valign=top>
  <p align=right>7,100,000 </p>
  </td>
  <td width=67 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=126 valign=top>
  <p align=right>(4,859,000) </p>
  </td>
 </tr>
 <tr>
  <td width=188 valign=top>

  </td>
  <td width=48 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=93 valign=top>
  <p align=right>________ </p>
  </td>
  <td width=98 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=95 valign=top>
  <p align=right>________ </p>
  </td>
  <td width=67 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=126 valign=top>
  <p align=right>________ </p>
  </td>
 </tr>
 <tr>
  <td width=188 valign=top>

  </td>
  <td width=48 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=93 valign=top>
  <p align=right>10,526,000</p>
  </td>
  <td width=98 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=95 valign=top>
  <p align=right>14,844,000 </p>
  </td>
  <td width=67 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=126 valign=top>
  <p align=right>(4,318,000) </p>
  </td>
 </tr>
 <tr>
  <td width=188 valign=top>

  </td>
  <td width=48 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=93 valign=top>
  <p align=right>======= </p>
  </td>
  <td width=98 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=95 valign=top>
  <p align=right>======= </p>
  </td>
  <td width=67 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=126 valign=top>
  <p align=right>======= </p>
  </td>
 </tr>
</table>





<p align="justify">&nbsp;</p>





<p align="center">17</p>



  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>





<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Consolidated net
sales decreased 29% to $10.5 million for the year ended June 30, 2002 from
$14.8 million in the year ended June 30, 2001. The sales decline was due to the
decrease in sales at OMS, reflecting continuing slowness in the semiconductor
fabrication industry. </p>





<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; At Micro, sales for
the year ended June 30, 2002 increased 7% from the year ended June 30,
2001.&nbsp; Sales increased in all of Micro's standard
product lines, realizing the benefit of the investment it has made in the
design and development of powered rotary drive instruments and systems for use
in the medical market and increases in its core dental business.&nbsp; Sales to its medical customers increased 15%
the year ended June 30, 2002 compared to sales in the year ended June 30, 2001.
Sales to its dental customers increased 10% from the previous year, and sales
to its industrial customers increased 5%.</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Sales at OMS
decreased 68% from the previous year. The decline was a result of the continued
slowdown in the electronics and semiconductor industry that began in November
2000. There continues to be no sign of immediate recovery in the semiconductor
industry.&nbsp; OMS continues to develop a
business strategy to reduce its exposure to the cycles of the semiconductor
equipment manufacture industry. Included in OMS' strategy is the development of
a family of embedded motion control products, and expansion into new
distribution channels. OMS continues to develop, design and manufacture
competitive technology for servo/stepper motor products and accessories. </p>



<div align=center>

<table border=1 cellspacing=0 cellpadding=0 bordercolor="#000000" style="border-collapse: collapse" width="422">
 <tr>
  <td width=147 valign=bottom>

  </td>
  <td width=72 valign=bottom>
  <p align=center>2002</p>
  </td>
  <td width=80 valign=bottom>
  <p align=center>2001</p>
  </td>
  <td width=118 valign=bottom>
  <p align=center>Increase /<br>
  (Decrease) %</p>
  </td>
 </tr>
 <tr>
  <td width=147 valign=top>
  <p>Dental</p>
  </td>
  <td width=72 valign=top>
  <p align=right>$5,594</p>
  </td>
  <td width=80 valign=top>
  <p align=right>$5,064</p>
  </td>
  <td width=118 valign=top>
  <p align=right>10% </p>
  </td>
 </tr>
 <tr>
  <td width=147 valign=top>
  <p>Medical</p>
  </td>
  <td width=72 valign=top>
  <p align=right>1,226</p>
  </td>
  <td width=80 valign=top>
  <p align=right>1,062</p>
  </td>
  <td width=118 valign=top>
  <p align=right>15% </p>
  </td>
 </tr>
 <tr>
  <td width=147 valign=top>
  <p>Industrial</p>
  </td>
  <td width=72 valign=top>
  <p align=right>949</p>
  </td>
  <td width=80 valign=top>
  <p align=right>907</p>
  </td>
  <td width=118 valign=top>
  <p align=right>5% </p>
  </td>
 </tr>
 <tr>
  <td width=147 valign=top>
  <p>Repair &amp; Other</p>
  </td>
  <td width=72 valign=top>
  <p align=right><u>&nbsp;&nbsp;&nbsp;&nbsp; 515</u></p>
  </td>
  <td width=80 valign=top>
  <p align=right><u>&nbsp;&nbsp;&nbsp;&nbsp; 711</u></p>
  </td>
  <td width=118 valign=top>
  <p align=right><u>(28%)</u></p>
  </td>
 </tr>
 <tr>
  <td width=147 valign=top>
  <p>Total Micro Motors</p>
  </td>
  <td width=72 valign=top>
  <p align=right><u>$8,285</u></p>
  </td>
  <td width=80 valign=top>
  <p align=right><u>$7,744</u></p>
  </td>
  <td width=118 valign=top>
  <p align=right><u>&nbsp;&nbsp;&nbsp; 7% </u></p>
  </td>
 </tr>
 <tr>
  <td width=147 valign=top>

  <p>OMS</p>
  </td>
  <td width=72 valign=top>
  <p align=right>$2,241</p>
  </td>
  <td width=80 valign=top>
  <p align=right>$7,100</p>
  </td>
  <td width=118 valign=top>
  <p align=right>(68%)</p>
  </td>
 </tr>
 <tr>
  <td width=147 valign=top>


  </td>
  <td width=72 valign=top>
  <p align=right><u>$10,526</u></p>
  </td>
  <td width=80 valign=top>
  <p align=right><u>$14,844</u></p>
  </td>
  <td width=118 valign=top>
  <p align=right>(29%)</p>
  </td>
 </tr>
</table>

</div>





<p>Gross profits by subsidiary follow: </p>



<table border=0 cellspacing=0 cellpadding=0 width="674">
 <tr>
  <td width=180 valign=top>

  </td>
  <td width=29 valign=top>

  </td>
  <td width=88 valign=top>
  <p align=right>2002 </p>
  </td>
  <td width=65 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=84 valign=top>
  <p align=right>2001 </p>
  </td>
  <td width=98 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=130 valign=top>
  <p align=right>Increase/ (Decrease) </p>
  </td>
 </tr>
 <tr>
  <td width=674 colspan=7 valign=top>
  <p align=right>___________________________________________________________________________</p>
  </td>
 </tr>
 <tr>
  <td width=180 valign=top>
  <p>Micro Motors </p>
  </td>
  <td width=29 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=88 valign=top>
  <p align=right>2,982,000 </p>
  </td>
  <td width=65 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=84 valign=top>
  <p align=right>1,624,000 </p>
  </td>
  <td width=98 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=130 valign=top>
  <p align=right>1,358,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=180 valign=top>
  <p>Oregon Micro Systems </p>
  </td>
  <td width=29 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=88 valign=top>
  <p align=right>1,118,000 </p>
  </td>
  <td width=65 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=84 valign=top>
  <p align=right>5,130,000 </p>
  </td>
  <td width=98 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=130 valign=top>
  <p align=right>(4,012,000) </p>
  </td>
 </tr>
 <tr>
  <td width=180 valign=top>

  </td>
  <td width=29 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=88 valign=top>
  <p align=right>_______ </p>
  </td>
  <td width=65 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=84 valign=top>
  <p align=right>_______ </p>
  </td>
  <td width=98 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=130 valign=top>
  <p align=right>__________ </p>
  </td>
 </tr>
 <tr>
  <td width=180 valign=top>

  </td>
  <td width=29 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=88 valign=top>
  <p align=right>4,100,000 </p>
  </td>
  <td width=65 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=84 valign=top>
  <p align=right>6,754,000 </p>
  </td>
  <td width=98 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=130 valign=top>
  <p align=right>(2,654,000) </p>
  </td>
 </tr>
 <tr>
  <td width=180 valign=top>

  </td>
  <td width=29 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=88 valign=top>
  <p align=right>&nbsp;====== </p>
  </td>
  <td width=65 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=84 valign=top>
  <p align=right>====== </p>
  </td>
  <td width=98 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=130 valign=top>
  <p align=right>====== </p>
  </td>
 </tr>
</table>





  <p align="left">&nbsp;</p>





  <p align="center">18</p>
  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>





<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Consolidated
gross profit dollars decreased by 39% from $6.8 million to $4.1 million for the
year ended June 30, 2002 compared to the year ended June 30, 2001. Gross profit
dollars and gross profit margins at Micro improved dramatically with a savings
of approximately $1.0 million in manufacturing costs as the result
of more efficient manufacturing practices, better inventory control, reduced
building rental costs as it moved from two to one buildings, and improved gross
margins on newly developed products while the mix of sales between the product
lines remained stable. Gross profit at OMS declined due to the
decrease in revenue. Gross profit margin at OMS decreased because the cost of
carrying excess fixed capacity due to lower revenue and an increase in necessary reserves for slow
moving inventory. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended June 30, 2002, the Company
reduced its operating expenses by 9% to $6,235,000 for the year ended June 30,
2002 from $6,839,000 (excluding unusual charges of $1,134,000) for the year
ended June 30, 2001.&nbsp; Micro has significantly
consolidated its operations and reduced the expenses related to those
operations, while continuing to grow overall sales and develop new
products.&nbsp; This includes reducing its
workforce by 30% and consolidating into a 20,000 sq. ft. manufacturing
facility.&nbsp; In response to the rapidly
changing market conditions, OMS also reduced its number of
employees, made deep cuts in sales and marketing expenses and focused on
maximizing the sales of existing product to existing customers.&nbsp; The Company continues to invest in research
and development, spending $1,545,000 (15% of gross revenue) for the year ended
June 30, 2002 compared to $1,672,000 (12% of gross revenue) in the year ended
June 30, 2001.</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In accordance with FAS
121 &quot;Accounting for the Impairment of Long-Lived Assets&quot;, management reviewed
the remaining goodwill, recorded at OMS and determined that the remaining fair
value of the asset was impaired.&nbsp; Management's decision was based on the
fact that future cash flows at OMS will not exceed the carrying value of the
asset and that the Company generated current year losses.&nbsp; As such,
management determined that the carrying value should be zero; expensing the
remaining $154,000 as general and administrative expense in the statement of
operations.&nbsp; The balance of goodwill is related to the Micro and as of June
30, 2002, remaining goodwill net of accumulated amortization totaled $1,110,000.&nbsp;
The Company has compared the remaining value of Micro's goodwill with its future
expected cash flows and determined that none of the goodwill recorded as of June
30, 2002 was impaired.&nbsp; Goodwill amortization expense for the year ended
June 30, 2002 was approximately $103,000, excluding the $154,000 that was
written off in fiscal year 2002.</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In June 2001,
management determined that the value of a non-compete agreement with the
previous owner of an acquired business was significantly impaired. The Company
has focused its efforts on developing new products and new markets for its
products, and decided to release the previous owner from the non-compete
agreement. As a result the Company took an unusual charge of $473,000 related
to the non-compete agreement that it deemed had no future value.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In June 2001,
the Company wrote off fees and expenses in connection with failed merger and
acquisition activity amounting to $493,000. In addition, the Company recorded
an accrual for remediation costs in connection with the removal of contaminated
soil of $97,000 and various other unusual charges of $71,000. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company
sustained a loss from operations of ($2,135,000) for the year ended June 30,
2002 compared to a loss of ($1,219,000) for the year ended June 30, 2001. The
prior year's loss included unusual charges of $1,134,000. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June 12, 2001,
the Company paid its entire obligation to its bank using the proceeds from
the sale of operating assets of the Biotrol and Challenge operations, and as a
result, had no bank debt outstanding as of June 30, 2001. The Company
reestablished a banking facility and associated credit line with Wells Fargo
Business Credit Inc. (WFBCI) in May
2002.&nbsp; Interest expense for the year
ended June 30, 2002 was $117,000 compared to $858,000 for the year ended June
30, 2001. The interest expense during 2002 primarily reflects the remaining loans from
stockholders and the bank line of credit.&nbsp; During fiscal year 2001,
the Company paid $94,000 in forbearance fees to the bank. </p>





<p align="justify">&nbsp;</p>





<p align="center">19</p>





  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>





<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company's effective
tax rate on (loss) from continuing operations is 51% in fiscal 2002 and 39% in
fiscal 2001.&nbsp; In 2002, the Company realized the benefit from the resolution
of tax contingencies of approximately $289,000.&nbsp; The tax
expense without the benefit would have been approximately 39%. The Company's
effective tax rate for discontinued operations was approximately 39% for fiscal
2002 and 2001. </p>





<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Our consolidated financial statements
are prepared in accordance with accounting principles generally accepted in the
United States (GAAP). The preparation of our financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, expenses and related disclosures. We base our
estimates on historical experience and various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions. The significant
accounting policies that we believe are the most critical to aid in fully
understanding and evaluating our reported financial results include inventory
valuations for slow moving items, allowances for funds in escrow, impairment of
goodwill, and potentially the most significant, the recovery of deferred income
tax assets.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; As part
of the process of preparing our consolidated financial statements we are
required to estimate our income taxes in each of the jurisdictions in which we
operate. This process involves us estimating our actual current tax liabilities
together with assessing temporary differences resulting from differing
treatment of items for tax and accounting purposes. These differences result in
deferred tax assets and liabilities, which are included within our consolidated
balance sheet. The most significant tax assets are future deductions from the
amortization of intangibles over the next ten years.&nbsp; Tax assets also result from net operating
losses and research and development tax credits. We must then assess the
likelihood that our deferred tax assets will be recovered from future taxable
income and to the extent we believe that recovery is not likely, we must
establish a valuation allowance. To the extent we establish a valuation
allowance or increase this allowance in a period, the impact will be included
in the tax provision in the statement of operations.</p>





<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company
incurred a (loss) from continuing operations of ($1,165,000) or ($0.13) per
share for the year ended June 30, 2002 compared to a (loss) from continuing
operations of ($1,297,000) or ($0.15) per share for the previous year. Loss
from discontinued operations for the year ended June 30, 2002 is ($401,000) or
($0.05) per share compared to income of $4,144,000 or $0.47 per share for the
year ended June 30, 2001. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net income
(loss) for the year ended June 30, 2002 was ($1,566,000) or ($0.18) per share
compared to $2,847,000 or $0.32 per share for the year ended June 30, 2001. </p>



<p align="justify"><b>Liquidity and
Capital Resources </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The operations of the Company
are conducted principally through its wholly owned subsidiaries. On June 12,
2001 the Company paid off its bank debt of approximately $5.6 million to Harris
Bank and Trust utilizing the proceeds from the sale of its Biotrol and Challenge operating assets. The Company's working capital at June
30, 2002 was approximately $4.0 million.&nbsp;
Cash Flow provided by/(used from) Operations was ($1,757,000) in
the year ended June 30, 2002 compared to $616,000 for the year ended June 30,
2001.&nbsp; Management
believes that the Company's working capital needs over the next twelve months
can be adequately supported by current operations. After the sale of the Biotrol and Challenge operations, management has taken steps to reduce
corporate overhead and consolidate operations for greater efficiency.&nbsp; These efforts have continued through the
present time by eliminating all corporate staff and associated expenses and
consolidating its operations with existing Micro and OMS facilities and staff.&nbsp;&nbsp;
While the loss from continuing operations was similar between the periods, the
changes in working capital components caused a decrease in cash flow from
operating activities.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
subsidiaries of the Company obtained a $3,000,000 revolving line of credit from
WFBCI in May 2002 to fund working capital and other general needs.&nbsp; There was
$638,000 outstanding on the line of credit as of June 30, 2002.&nbsp; The facility has a two year term and is based
on Micro and OMS accounts receivables and secured by those receivables and all
other assets of Micro and OMS.&nbsp; The
borrowings of Micro and OMS are guaranteed by Pro-Dex, Inc. The interest rate
on the facility is based on prime rate (4.75% at June 30, 2002) plus a 1.00% to
1.75% margin based on outstanding borrowings.&nbsp;
There is a minimum interest charge of $50,000 per year on the credit
facility.&nbsp; There are certain financial
and non-financial covenants that the Company must meet to be in compliance with
the terms of the credit facility.&nbsp; As of
June 30, 2002, OMS and Micro were not in compliance with certain covenants, and
are in the process of negotiating a waiver for such non-compliance and
restructuring the covenants to be in compliance in the future. </p>



<p align="justify">&nbsp;</p>



<p align="center">20</p>



  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Subsequent to year ended June 30, 2002, the Board of Directors approved, at
managements' discretion, the
repurchase of up to 500,000 shares of common stock. The maximum total value of the repurchase is not to exceed
$500,000.&nbsp; This repurchase is to be financed both with cash generated by
operations and through the utilization of the credit facility.</p>



<p align="justify"><b>Pending Accounting
Changes </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In
June 2001, the FASB issued Statement of Financial Accounting Standards No. 141,
&quot;Business Combinations&quot; (SFAS No. 141) and Statement of Financial
Accounting Standards No. 142, &quot;Goodwill and Other Intangible Assets&quot;
(SFAS No. 142). SFAS No. 141 addresses financial accounting and reporting for
business combinations and is effective for all business combinations after June
30, 2001. SFAS No. 142 addresses financial accounting and reporting for
acquired goodwill and other intangible assts and is effective for fiscal years
beginning after December 15, 2001. The Company adopted SFAS 141 and 142 on July
1, 2002.&nbsp; The Company has ceased
amortizing amounts related to goodwill starting July 1, 2002.&nbsp; Management
does not believe there will be a material effect from the adoption of these
standards on the financial statements.</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In August 2001, the
FASB issued Statement of Financial Accounting Standards No. 144,
&quot;Accounting for the Impairment or Disposal of Long-Lived Assets&quot;
(SFAS No. 144). SFAS No. 144 addresses the financial accounting and reporting
for the impairment or disposal of long-lived assets. The Company adopted this
Statement on July 1, 2002. The Company has determined there is no material impact from
this Statement on its financial statements. </p>



<p align="justify"><b>Impact of Inflation and Changing Prices </b> </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The industries
in which the Company competes are labor intensive, often involving personnel
with high-level technical or sales skills. Wages and other expenses increase
during periods of inflation and when shortages in the marketplace occur. In
addition, suppliers pass along rising costs to the Company's subsidiaries in
the form of higher prices. To some extent, the Company's subsidiaries have been
able to offset increases in operating costs by increasing charges, expanding
services and implementing cost control measures. Nevertheless, each of the
Company's subsidiaries' ability to increase prices is limited by market
conditions, including international competition in many of the Company's
markets.</p>

<p><b>Item 7.&nbsp;&nbsp;
Financial Statements and Supplemental Data</b></p>



<table border=0 cellspacing=0 cellpadding=0 width="528">
 <tr>
  <td width=473 valign=top>
  <p><a href="#INDEPENDENT AUDITORS REPORT">Independent
  Auditor's Report &nbsp;</a></p>
  </td>
  <td width=33 valign=top>
  23</td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p><a href="#CONSOLIDATED BALANCE SHEETS">Consolidated
  Balance Sheets &nbsp;</a></p>
  </td>
  <td width=33 valign=top>
  24</td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p><a href="#CONSOLIDATED STATEMENTS OF OPERATIONS">Consolidated
  Statements of Operations &nbsp;</a></p>
  </td>
  <td width=33 valign=top>
  26</td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p><a href="#CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY">Consolidated
  Statements of Shareholders' Equity &nbsp;</a></p>
  </td>
  <td width=33 valign=top>
  27</td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p><a href="#CONSOLIDATED STATEMENTS OF CASH FLOWS">Consolidated
  Statements of Cash Flows &nbsp;</a></p>
  </td>
  <td width=33 valign=top>
  38</td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p><a href="#NOTES TO CONSOLIDATED FINANCIAL STATEMENTS">Notes to
  Consolidated Financial Statements &nbsp;</a></p>
  </td>
  <td width=33 valign=top>
  29</td>
 </tr>
</table>

<p><b>Item 8.&nbsp;&nbsp;
Changes and Disagreements with Accountants on Accounting and Financial
Disclosures. </b></p>



<p>None. </p>



<p>&nbsp;</p>



<p align="center">21</p>
  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>

<p>&nbsp;</p>

<p align=center><b>PART III </b></p>

<p><b>Item 9.&nbsp;&nbsp;
Directors, Executive Officers, Promoters, and Control Persons; Compliance with
16(a) of the </b></p>

<p><b>Securities Exchange
Act of 1934 </b></p>

<p align="justify"><b>&nbsp;&nbsp; </b>&nbsp;&nbsp;&nbsp;
Information concerning the Company's Directors and Executive Officers is
incorporated by reference from the information contained in the sections
entitled &quot;Continuing Directors&quot;, &quot;Directors and Executive Officers&quot;,
&quot;Recent Events and Transactions&quot;, &quot;Other Management
Information&quot; and &quot;Certain Relationships and Related Party
Transactions&quot; in the Company's definitive Proxy Statement for the
Company's 2002 Annual Meeting of Shareholders to be filed with the Securities
and Exchange Commission (the &quot;Proxy Statement&quot;). </p>

<p align="justify"><b>Item
10.&nbsp;&nbsp; Executive Compensation </b></p>

<p align="justify"><b>&nbsp;&nbsp; </b>&nbsp;&nbsp;&nbsp;
Information required by this Item is included by reference from &quot;Executive
Compensation&quot; under the Section entitled &quot;Other Management
Information&quot; contained in the Proxy Statement. </p>



<p><b>Item
11.&nbsp;&nbsp; Security Ownership of Certain Beneficial owners and Management </b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Information required
by this Item is included by reference from &quot;Security Ownership of Certain
Beneficial Owners and Management&quot; under the Section entitled &quot;Other
Management Information&quot; contained in the Proxy Statement. </p>



<p align="justify"><b>Item
12.&nbsp;&nbsp; Certain Relationships and Related Party Transactions </b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Information required
by this Item is included by reference from the information contained in the
Section entitled &quot;Certain Relationships and Related Party
Transactions&quot; contained in the Proxy Statement. </p>



<p><b>Item
13.&nbsp;&nbsp; Exhibits, Financial Statement Schedules and Reports on Form 8-K
</b></p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp; Exhibits (1)<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp; No reports on Form 8K
were filed in the fourth quarter.</p>

<p>(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; See
Exhibit Index</p>



<p>&nbsp;</p>



<p align="center">22</p>



  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align=left>&nbsp;</p>


<p align=center><b><a name="INDEPENDENT AUDITORS REPORT">INDEPENDENT AUDITOR'S REPORT
</a> </b></p>

<p align=center>&nbsp;</p>

<p>To the Board of Directors <br>
Pro-Dex, Inc. <br>
Santa Ana, California </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We have
audited the accompanying consolidated balance sheet of Pro-Dex, Inc. and
Subsidiaries (the &quot;Company&quot;) as of June 30, 2002, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the two years in the period ended June 30, 2002. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We conducted
our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In our
opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
June 30, 2002, and the results of their operations and their cash flows for
each of the two years in the period ended June 30, 2002, in conformity with
accounting principles generally accepted in the United States of America. </p>



<p>/s/ McGladrey &amp; Pullen, LLP </p>



<p>McGladrey &amp; Pullen, LLP <br>
September 12, 2002 </p>



<p>Anaheim, California </p>



<p>&nbsp;</p>



<p align="center">23</p>
  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>
&nbsp;<p align=center>&nbsp;</p>

<p align=center><b>PRO-DEX, INC. AND SUBSIDIARIES </b></p>

<p align=center><b><a name="CONSOLIDATED BALANCE SHEETS">&nbsp;CONSOLIDATED BALANCE SHEETS
</a><br>
June 30, 2002 </b></p>

<p align=center><b>&nbsp;</b></p>

<p><b>ASSETS </b></p>



  <div align="left">



<table border=0 cellspacing=0 cellpadding=0 width="740" style="border-collapse: collapse" bordercolor="#111111">
 <tr>
  <td width=585 valign=top>
  <p>Current assets: </p>
  </td>
  <td width=31 valign=top>

  </td>
  <td width=124 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Cash and cash equivalents </p>
  </td>
  <td width=31 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=124 valign=top align="right">
  <p align=right>236,000 </p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Funds held in escrow, net </p>
  </td>
  <td width=31 valign=top>

  </td>
  <td width=124 valign=top align="right">
  <p align=right>790,000 </p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Accounts receivable, net of allowance
  for doubtful accounts of $26,000 </p>
  </td>
  <td width=31 valign=top>

  </td>
  <td width=124 valign=top align="right">
  <p align=right>1,620,000 </p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Inventories, net </p>
  </td>
  <td width=31 valign=top>

  </td>
  <td width=124 valign=top align="right">
  <p align=right>2,924,000 </p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Prepaid expenses </p>
  </td>
  <td width=31 valign=top>

  </td>
  <td width=124 valign=top align="right">
  <p align=right>84,000 </p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Deferred taxes</p>
  </td>
  <td width=31 valign=top>

  </td>
  <td width=124 valign=top align="right">
  <p align=right>454,000 </p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Income tax receivable</p>
  </td>
  <td width=31 valign=top>

  </td>
  <td width=124 valign=top align="right">
  <p align=right><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 330,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Total current assets </p>
  </td>
  <td width=31 valign=top>

  </td>
  <td width=124 valign=top align="right">
  <p align=right>6,438,000 </p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>

  </td>
  <td width=31 valign=top>

  </td>
  <td width=124 valign=top align="right">
  <p align=right>__________ </p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>
  <p>Equipment, and leasehold improvements, net </p>
  </td>
  <td width=31 valign=top>

  </td>
  <td width=124 valign=top align="right">
  <p align=right>1,025,000 </p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>

  </td>
  <td width=31 valign=top>

  </td>
  <td width=124 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>
  <p>Other assets: </p>
  </td>
  <td width=31 valign=top>

  </td>
  <td width=124 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Other </p>
  </td>
  <td width=31 valign=top>

  </td>
  <td width=124 valign=top align="right">
  <p align=right>37,000 </p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Deferred taxes </p>
  </td>
  <td width=31 valign=top>

  </td>
  <td width=124 valign=top align="right">
  <p align=right>1,326,000 </p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Patents, net of accumulated amortization of $2,660,000</p>
  </td>
  <td width=31 valign=top>

  </td>
  <td width=124 valign=top align="right">
  <p align=right>32,000</p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Goodwill, net of accumulated amortization $1,683,000</p>
  </td>
  <td width=31 valign=top>

  </td>
  <td width=124 valign=top align="right">
  <p align=right><u>&nbsp;&nbsp;&nbsp; 1,110,000</u></p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total other
  assets </p>
  </td>
  <td width=31 valign=top>

  </td>
  <td width=124 valign=top align="right">
  <p align=right>2,505,000 </p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>

  </td>
  <td width=31 valign=top>

  </td>
  <td width=124 valign=top align="right">
  <p align=right>__________ </p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total
  assets </p>
  </td>
  <td width=31 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=124 valign=top align="right">
  <p align=right>9,968,000 </p>
  </td>
 </tr>
 <tr>
  <td width=585 valign=top>

  </td>
  <td width=31 valign=top>

  </td>
  <td width=124 valign=top align="right">
  <p align=right>========= </p>
  </td>
 </tr>
</table>

  </div>

<p>&nbsp;</p>

<p>&nbsp;</p>

<p align="center">24</p>

  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>

<p>&nbsp;</p>

<p><b>LIABILITIES &amp;
SHAREHOLDERS' EQUITY </b></p>



  <div align="left">



<table border=0 cellspacing=0 cellpadding=0 width="740" style="border-collapse: collapse" bordercolor="#111111">
 <tr>
  <td width=584 valign=top>
  <p>Current liabilities: </p>
  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Current portion of long term debt to
  shareholders </p>
  </td>
  <td width=32 valign=top align="right">
  <p>$ </p>
  </td>
  <td width=124 valign=top align="right">
  <p align=right>126,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Notes payable </p>
  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>8,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Credit line payable </p>
  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>638,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Accounts payable </p>
  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>765,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Accrued expenses </p>
  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>801,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Income taxes payable </p>
  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 101,000&nbsp; </u></p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>
  <p>Total current liabilities </p>
  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>2,439,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>

  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>
  <p>Long-term debt to a shareholder, net of current portion </p>
  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>211,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>

  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>__________ </p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total
  liabilities </p>
  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>2,650,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>

  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>__________ </p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>
  <p>Commitments and contingencies </p>
  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>
  <p>Shareholders' equity: </p>
  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=bottom>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Series
  A convertible preferred shares, no par value; liquidation preference of $3.60
  per share; 10,000,000 shares authorized; 78,129 shares issued and outstanding</p>
  </td>
  <td width=32 valign=bottom align="right">

  </td>
  <td width=124 valign=bottom align="right">
  <p align=right>283,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>

  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>
  <p>Common shares, no par value; 50,000,000 shares
  authorized; </p>
  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  8,787,300 shares issued and outstanding </p>
  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>15,033,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>
  <p>Accumulated deficit </p>
  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>(7,922,000)</p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>

  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>__________ </p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>

  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>7,394,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>
  <p>Receivable for stock purchase </p>
  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>(76,000)</p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>

  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>__________ </p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total
  shareholders' equity </p>
  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>7,318,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>

  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>__________ </p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total
  liabilities and shareholders' equity </p>
  </td>
  <td width=32 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=124 valign=top align="right">
  <p align=right>9,968,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=584 valign=top>

  </td>
  <td width=32 valign=top align="right">

  </td>
  <td width=124 valign=top align="right">
  <p align=right>========== </p>
  </td>
 </tr>
</table>





  </div>





<p>See &quot;Notes to Consolidated Financial
Statements.&quot; </p>

<p align=center>&nbsp;</p>

<p align=center>25</p>

  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>
&nbsp;<p align=center><b>PRO-DEX, INC. AND SUBSIDIARIES </b></p>

<p align=center><b><a name="CONSOLIDATED STATEMENTS OF OPERATIONS">&nbsp;CONSOLIDATED STATEMENTS OF OPERATIONS
</a><br>
Years Ended June 30, 2002 and 2001 </b></p>

<p align=center>&nbsp;</p>

  <div align="left">

<table border=0 cellspacing=0 cellpadding=0 width="707" style="border-collapse: collapse" bordercolor="#111111">
 <tr>
  <td width=411 valign=top>

  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="center">
  <p align=center>2002</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="center">
  <p>2001</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>

  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>__________ </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>__________ </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>Net sales </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>10,526,000&nbsp; </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>14,844,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>Cost of sales (Includes rent paid to a director of </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp; $74,000 and $358,000 for 2002 and
  2001) </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>6,426,000&nbsp; </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>8,090,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>

  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>__________ </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>__________ </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>Gross profit </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>4,100,000&nbsp; </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>6,754,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>

  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>__________ </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>__________ </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>Operating expenses: </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Selling </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>551,000&nbsp; </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>1,027,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp; General and administrative </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>3,650,000&nbsp; </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>3,650,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Research and development </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>1,545,000&nbsp; </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>1,672,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Amortization </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>489,000&nbsp; </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>490,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Unusual charges </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>--&nbsp; </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>1,134,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>

  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>__________ </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>__________</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total
  operating expenses </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>6,235,000&nbsp; </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>7,973,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>

  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>__________ </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>__________</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>(Loss) from continued operations </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>(2,135,000)</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>(1,219,000)</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>

  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>__________ </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>__________</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>Other income (expense): </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Other income (expense) </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>36,000&nbsp; </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>(99,000)</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Interest (expense) </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>(117,000)</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>(858,000)</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Loss on disposal of equipment and leasehold improvements</p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>(159,000)</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  &nbsp;</td>
 </tr>
 <tr>
  <td width=411 valign=top>

  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>__________ </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>__________</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>(240,000)</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>(907,000)</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>

  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>__________ </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>__________</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=bottom>
  <p>(Loss) from continuing operations before <br>
  &nbsp;&nbsp;&nbsp;&nbsp;
  income taxes (credits) </p>
  </td>
  <td width=14 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=bottom align="right">
  <p align=right>(2,375,000)</p>
  </td>
  <td width=42 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=bottom align="right">
  <p align=right>(2,126,000)</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>Income taxes (credits) </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>(1,210,000)</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>(829,000)</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>

  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>__________</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>__________</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>(Loss) from continuing operations </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>(1,165,000)</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>(1,297,000)</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>Discontinued operations: </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=bottom>
  <p>Income from discontinued operations (net of taxes
  of&nbsp; <br>
  $116,000 for 2001) </p>
  </td>
  <td width=14 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=bottom align="right">
  <p align=right>--&nbsp; </p>
  </td>
  <td width=42 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=bottom align="right">
  <p align=right>182,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=bottom>
  <p>&nbsp;&nbsp;&nbsp; Gain (loss) on disposal of
  discontinued operations <br>
  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

  net of taxes (credits) of&nbsp; <br>
  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  ($267,000) for 2002 and $2,533,000 for 2001) </p>
  </td>
  <td width=14 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=bottom align="right">
  <p align=right>(401,000)</p>
  </td>
  <td width=42 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=bottom align="right">
  <p align=right>3,962,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>

  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>__________</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>__________</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>Net income (loss) </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>(1,566,000)</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>2,847,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>

  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>========</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>========</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>

  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>

  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>

  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>

  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>Earnings (loss) per common share: </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>Income (loss) from continuing operations: </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Basic </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>(0.13)</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>(0.15) </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Diluted
  </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>(0.13)</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>(0.15) </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>Income (loss) from discontinued operations: </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Basic </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>(0.05)</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>0.47&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Diluted
  </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>(0.05)</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>0.47&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>Net income: </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Basic </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>(0.18)</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>0.32&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Diluted
  </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>(0.18)</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>0.32&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>Weighted average common and common equivalents </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Shares outstanding </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Basic </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>8,787,300&nbsp; </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>8,787,300&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=411 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Diluted
  </p>
  </td>
  <td width=14 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=123 valign=top align="right">
  <p align=right>8,787,300&nbsp; </p>
  </td>
  <td width=42 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=117 valign=top align="right">
  <p align=right>8,787,300&nbsp; </p>
  </td>
 </tr>
</table>





  </div>





<p>See &quot;Notes to Consolidated Financial
Statements.&quot; </p>

<p align=center>26</p>

  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>

<p align=left>&nbsp;</p>

  <p align=center><b>PRO-DEX, INC.
  AND SUBSIDIARIES </b></p>
  <p align=center><b><a name="CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY">CONSOLIDATED
  STATEMENTS OF SHAREHOLDERS' EQUITY </a><br>
  Years Ended
  June 30, 2002 and 2001 </b></p>
  <div align="left">



<table border=0 cellspacing=0 cellpadding=0 style="border-collapse: collapse" bordercolor="#111111" width="740">
 <tr>
  <td valign=bottom align="center">

  &nbsp;</td>
  <td valign=bottom colspan="2" align="center">
  <u><font size="2">Preferred Shares&nbsp;</font></u></td>
  <td valign=bottom align="center">

  &nbsp;</td>
  <td colspan=4 valign=bottom align="center">
  <u><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Common Shares&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  </font> </u>
  </td>
  <td colspan=2 valign=bottom align="center">

  &nbsp;</td>
  <td valign=bottom align="center">
  &nbsp;</td>
  <td valign=bottom align="center">

  &nbsp;</td>
 </tr>
 <tr>
  <td valign=bottom align="center">

  </td>
  <td valign=bottom align="center">
  <p align=center><font size="2">Number </font> </p>
  </td>
  <td valign=bottom align="center">

  </td>
  <td valign=bottom align="center">

  </td>
  <td colspan=3 valign=bottom align="center">
  <p align=center><font size="2">Number </font> </p>
  </td>
  <td valign=bottom align="center">

  </td>
  <td colspan=2 valign=bottom align="center">

  </td>
  <td valign=bottom align="center">
  <p align=center><font size="2">Receivable </font> </p>
  </td>
  <td valign=bottom align="center">

  </td>
 </tr>
 <tr>
  <td valign=bottom align="center">

  </td>
  <td valign=bottom align="center">
  <p align=center><font size="2">of </font> </p>
  </td>
  <td valign=bottom align="center">

  </td>
  <td valign=bottom align="center">

  </td>
  <td colspan=3 valign=bottom align="center">
  <p align=center><font size="2">of </font> </p>
  </td>
  <td valign=bottom align="center">

  </td>
  <td colspan=2 valign=bottom align="center">
  <p align=center><font size="2">Accumulated </font> </p>
  </td>
  <td valign=bottom align="center">
  <p align=center><font size="2">for Stock </font> </p>
  </td>
  <td valign=bottom align="center">

  </td>
 </tr>
 <tr>
  <td valign=bottom align="center">

  </td>
  <td valign=bottom align="center">
  <p align=center><font size="2">Shares </font> </p>
  </td>
  <td valign=bottom align="center">
  <p align=center><font size="2">Amount </font> </p>
  </td>
  <td valign=bottom align="center">

  </td>
  <td colspan=3 valign=bottom align="center">
  <p align=center><font size="2">Shares </font> </p>
  </td>
  <td valign=bottom align="center">
  <p align=center><font size="2">Amount </font> </p>
  </td>
  <td colspan=2 valign=bottom align="center">
  <p align=center><font size="2">Deficit </font> </p>
  </td>
  <td valign=bottom align="center">
  <p align=center><font size="2">Purchase </font> </p>
  </td>
  <td valign=bottom align="center">
  <p align=center><font size="2">Total </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=bottom align="center">

  &nbsp;</td>
  <td valign=bottom align="center" colspan="11">
  <hr color="#000000" size="1">
  </td>
 </tr>
 <tr>
  <td valign=bottom align="left">
  <p><font size="2">Balance,
  June 30, 2000 </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">78,129 </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">$283,000 </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">8,787,300 </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=right><font size="2">$14,976,000 </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=right><font size="2">($9,203,000)</font></p>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">($126,000)</font></p>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">$5,930,000&nbsp; </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=bottom align="left">
  <p><font size="2">Stock
  Based Compensation </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=right><font size="2">44,000 </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">44,000&nbsp; </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=bottom align="left">
  <p><font size="2">Services
  Received </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">25,000&nbsp; </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">25,000&nbsp; </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=bottom align="left">
  <p><font size="2">Net
  income </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=right><font size="2">2,847,000&nbsp; </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">2,847,000&nbsp; </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=bottom align="center">

  &nbsp;</td>
  <td valign=bottom align="center" colspan="11">
  <hr color="#000000" size="1">
  </td>
  </tr>
 <tr>
  <td valign=bottom align="left">
  <font size="2">Balance,
  June 30, 2001 </font>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">78,129 </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">$283,000 </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  &nbsp;</td>
  <td valign=bottom align="right">
  <p align=right><font size="2">8,787,300 </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=right><font size="2">$15,020,000 </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">($6,356,000)</font></p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=right><font size="2">($101,000)</font></p>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">$8,846,000&nbsp; </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=bottom align="left">
  <p><font size="2">Stock
  Based Compensation </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=bottom align="center">
  <p><font size="2">-- </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=right><font size="2">13,000 </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">13,000&nbsp; </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=bottom align="left">
  <font size="2">Services
  Received </font>
  </td>
  <td valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  &nbsp;</td>
  <td valign=bottom align="center">
  <p><font size="2">-- </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=right><font size="2">25,000&nbsp; </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">25,000&nbsp; </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=bottom align="left">
  <p><font size="2">Net
  (loss) </font> </p>
  </td>
  <td valign=bottom align="right">
  <p><font size="2">-- </font> </p>
  </td>
  <td valign=bottom align="right">
  <p><font size="2">-- </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=bottom align="center">
  <p><font size="2">-- </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">(1,566,000)</font></p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=center><font size="2">-- </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">(1,566,000)</font></p>
  </td>
 </tr>
 <tr>
  <td valign=bottom align="center">

  &nbsp;</td>
  <td valign=bottom align="center" colspan="11">
  <hr color="#000000" size="1">
  </td>
  </tr>
 <tr>
  <td valign=bottom align="left">
  <font size="2">Balance,
  June 30, 2002 </font>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">78,129 </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">$283,000 </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  &nbsp;</td>
  <td valign=bottom align="right">
  <p align=right><font size="2">8,787,300 </font> </p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=right><font size="2">$15,033,000 </font> </p>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">($7,922,000)</font></p>
  </td>
  <td colspan=2 valign=bottom align="right">
  <p align=right><font size="2">($76,000)</font></p>
  </td>
  <td valign=bottom align="right">
  <p align=right><font size="2">$7,318,000&nbsp; </font> </p>
  </td>
 </tr>
 <tr>
  <td valign=bottom align="center">

  &nbsp;</td>
  <td valign=bottom align="center" colspan="11">
  <hr color="#000000" size="1">
  </td>
  </tr>
 <tr>
  <td valign=bottom align="left">
  &nbsp;</td>
  <td valign=bottom align="right">
  &nbsp;</td>
  <td valign=bottom align="right">
  &nbsp;</td>
  <td colspan=2 valign=bottom align="right">
  &nbsp;</td>
  <td valign=bottom align="right">
  &nbsp;</td>
  <td colspan=2 valign=bottom align="right">
  &nbsp;</td>
  <td valign=bottom align="right">
  &nbsp;</td>
  <td colspan=2 valign=bottom align="right">
  &nbsp;</td>
  <td valign=bottom align="right">
  &nbsp;</td>
 </tr>
 </table>



  </div>



<p><b>&nbsp;</b>See &quot;Notes to Consolidated Financial
Statements.&quot; </p>

  <p align="center">&nbsp;</p>
  <p align="center">27</p>


  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>

<p align=center><b>PRO-DEX, INC. AND SUBSIDIARIES </b></p>

<p align=center><b><a name="CONSOLIDATED STATEMENTS OF CASH FLOWS">&nbsp;CONSOLIDATED STATEMENTS OF CASH FLOWS
</a><br>
Years Ended June 30, 2002 and 2001 </b></p>

  <div align="left">

<table border=0 cellspacing=0 cellpadding=0 width="740" style="border-collapse: collapse" bordercolor="#111111">
 <tr>
  <td width=473 valign=top>

  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=center>2002 </p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=center>2001 </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>

  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>__________ </p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>__________ </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>CASH FLOWS FROM OPERATING ACTIVITIES </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Net income (loss)</p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>(1,566,000)</p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p>$</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>2,847,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Adjustments to reconcile net income
  (loss) to net </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; cash
  provided by (used in) operating activities: </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Depreciation and amortization </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>865,000&nbsp; </p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>958,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Provision for doubtful accounts </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>(18,000)</p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>11,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=bottom>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (Gain) Loss on disposal of discontinued operations </p>
  </td>
  <td width=27 valign=bottom align="right">
  <p align=center>&nbsp;</p>
  </td>
  <td width=98 valign=bottom align="right">
  <p align=right>401,000&nbsp; </p>
  </td>
  <td width=31 colspan=2 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=bottom align="right">
  <p align=right>(3,962,000)</p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Loss on sale of real estate available for sale </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>37,000&nbsp; </p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>--&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Loss on disposal of equipment&nbsp; and leasehold improvements</p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>159,000&nbsp; </p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>148,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Impairment of intangible assets </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>154,000&nbsp; </p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>473,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Non-cash compensation </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>38,000&nbsp; </p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>25,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Deferred taxes </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>(902,000)</p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>(1,304,000)</p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Other </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>&nbsp; --</p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>126,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Change in working capital components
  net of
  effects </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; from
  discontinued operations: </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (Increase) decrease in accounts receivable </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>(216,000)</p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>824,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Decrease in inventories </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>83,000&nbsp; </p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>23,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Increase in income tax receivable </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>(330,000)</p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>--&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  (Increase) decrease in prepaid expenses </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>12,000&nbsp; </p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>(24,000)</p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Decrease in other assets </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>75,000&nbsp; </p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>148,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=bottom>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Increase (decrease) in accounts payable and
  accrued expense </p>
  </td>
  <td width=27 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=bottom align="right">
  <p align=right>(549,000)</p>
  </td>
  <td width=31 colspan=2 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=bottom align="right">
  <p align=right>323,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>

  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>__________ </p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>__________ </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Net cash provided by (used in)
  operating activities </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>(1,757,000)</p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>616,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>

  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>__________ </p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>__________ </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>CASH FLOWS FROM INVESTING ACTIVITIES </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Proceeds from sale of discontinued
  operations </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>875,000&nbsp; </p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>6,865,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Purchase of equipment </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>(296,000)</p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>(152,000)</p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Payments related to sale from
  discontinued ops </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>(168,000)</p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>--&nbsp;&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Proceeds from sale of real estate
  available for sale </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right><u>&nbsp;&nbsp;&nbsp; 434,000&nbsp; </u></p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; --&nbsp;&nbsp;
  </u> </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=bottom>
  <p>&nbsp;&nbsp;&nbsp; Net cash flows provided by
  investing activities </p>
  </td>
  <td width=27 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=bottom align="right">
  <p align=right>845,000&nbsp; </p>
  </td>
  <td width=31 colspan=2 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=bottom align="right">
  <p align=right>6,713,000</p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=bottom>
  &nbsp;
  </td>
  <td width=27 valign=bottom align="right">
  &nbsp;</td>
  <td width=98 valign=bottom align="right">
  &nbsp;</td>
  <td width=31 colspan=2 valign=bottom align="right">
  &nbsp;</td>
  <td width=111 valign=bottom align="right">
  &nbsp;</td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>CASH FLOWS FROM FINANCING ACTIVITIES </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Principal payments on long-term
  borrowings </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>(188,000)</p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>(7,104,000)</p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Net borrowings on line of credit </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right><u>&nbsp;&nbsp; 638,000&nbsp; </u></p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; --&nbsp; </u></p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Net cash flows provided by (used in) financing
  activities </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>450,000&nbsp; </p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>(7,104,000)</p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>

  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>========= </p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>======== </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>NET INCREASE (DECREASE) IN CASH </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=500 colspan=2 valign=top>
  <p>&nbsp;&nbsp;&nbsp; AND CASH EQUIVALENTS </p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>(462,000)</p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>225,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>Cash and cash equivalents, beginning of period </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>698,000&nbsp; </p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>473,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>

  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>__________ </p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>__________ </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>Cash and cash equivalents, end of period </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>236,000&nbsp; </p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>698,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>

  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top align="right">
  <p align=right>========= </p>
  </td>
  <td width=31 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>======== </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>

  &nbsp;</td>
  <td width=27 valign=top align="right">
  &nbsp;</td>
  <td width=98 valign=top align="right">
  &nbsp;</td>
  <td width=31 colspan=2 valign=top align="right">
  &nbsp;</td>
  <td width=111 valign=top align="right">
  &nbsp;</td>
 </tr>
 <tr>
  <td width=740 valign=top colspan="6">

  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>Cash payments for interest </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=98 colspan=2 valign=top align="right">
  <p align=right>117,000&nbsp; </p>
  </td>
  <td width=31 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>819,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>Cash payments for income taxes </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=98 colspan=2 valign=top align="right">
  <p align=right>387,000&nbsp; </p>
  </td>
  <td width=31 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>158,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  &nbsp;
  </td>
  <td width=27 valign=top align="right">
  &nbsp;</td>
  <td width=98 colspan=2 valign=top align="right">
  &nbsp;</td>
  <td width=31 valign=top align="right">
  &nbsp;</td>
  <td width=111 valign=top align="right">
  &nbsp;</td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>Non-cash investing and financing activities: </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=31 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>Property transferred to real estate available for sale </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 colspan=2 valign=top align="right">
  <p align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  --&nbsp; </p>
  </td>
  <td width=31 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>&nbsp;&nbsp; 471,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>

  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=31 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>Discontinued operations: </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=31 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Working capital </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 colspan=2 valign=top align="right">
  <p align=right>--&nbsp; </p>
  </td>
  <td width=31 valign=top align="right">
  <p align=right>$</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>(1,162,000)</p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=bottom>
  <p>&nbsp;&nbsp;&nbsp; Fair value of assets disposed, principally
  fixed assets </p>
  </td>
  <td width=27 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 colspan=2 valign=bottom align="right">
  <p align=right>--&nbsp; </p>
  </td>
  <td width=31 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=bottom align="right">
  <p align=right>(480,000)</p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=bottom>
  <p>&nbsp;&nbsp;&nbsp; Escrow receivable obtained upon
  disposal of operations </p>
  </td>
  <td width=27 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 colspan=2 valign=bottom align="right">
  <p align=right>--&nbsp; </p>
  </td>
  <td width=31 valign=bottom align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=bottom align="right">
  <p align=right>2,400,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Proceeds from sale of discontinued
  operations </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 colspan=2 valign=top align="right">
  <p align=right>--&nbsp; </p>
  </td>
  <td width=31 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>6,600,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Fees paid to others </p>
  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 colspan=2 valign=top align="right">
  <p align=right>--&nbsp; </p>
  </td>
  <td width=31 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right><u>&nbsp; (493,000)</u></p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>

  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=31 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>6,865,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=473 valign=top>

  </td>
  <td width=27 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 colspan=2 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=31 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=111 valign=top align="right">
  <p align=right>======== </p>
  </td>
 </tr>
 </table>





  </div>





<p>See &quot;Notes to Consolidated Financial
Statements.&quot; </p>

<p align=center>28</p>
  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>


<p align=left>&nbsp;</p>

<p align=center><b><a name="NOTES TO CONSOLIDATED FINANCIAL STATEMENTS">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</a><br>
JUNE 30, 2002 AND 2001 </b></p>

<p align="justify"><b>NOTE 1 - SUMMARY OF
ACCOUNTING POLICIES </b></p>



<p align="justify"><b>Nature of Business </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Pro-Dex, Inc. (the
Company) is the parent of two operating subsidiaries, Micro Motors, Inc.
(Micro), and Oregon Micro Systems, Inc. (OMS). Micro manufactures miniature
pneumatic motors used in dental, medical, and industrial devices as
well as a complete line of dental handpieces. OMS designs, develops and
manufactures motion control products used predominantly in the computer chip
manufacturing industry. The Company extends credit to its customers, all on an
unsecured basis, on terms that it establishes for individual customers.
Customers are located predominately in the United States. Many of the Company's
products are regulated by a number of state and federal regulatory bodies,
including the Food and Drug Administration (&quot;FDA&quot;). While the
Company's management and management of each of the Company's operating
subsidiaries make every effort to maintain full compliance with all applicable
laws and regulations, there exists an ongoing risk that one or more of its
activities may at some point be determined to be non-compliant. Notwithstanding
the risks inherent in the Company's business sectors, management believes that
each of the Company's subsidiaries are in compliance with applicable
regulations. </p>



<p align="justify"><b>Principles of
Consolidation </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The consolidated
financial statements include the accounts of the Company and all of its
subsidiaries. All significant inter-company accounts and transactions have been
eliminated. </p>



<p align="justify"><b>Revenue Recognition
</b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Revenue on product
sales is recognized upon shipment to the customer. The Company sells some of
its products with a warranty that provides for repairs or replacement of any
defective parts for a period after the sale. At the time of the sale, the
Company accrues an estimate of the cost of providing the warranty based on
prior experience.&nbsp; The Company recognizes
revenue under research and development agreements as certain milestone
activities are met as specified in each development contract.&nbsp; </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Management recognizes shipping
costs as incurred as a part of the costs of goods sold.&nbsp; The Company
incurred shipping charges of approximately $111,000 and $138,000 for the years
ended June 30, 2002 and 2001, respectively.&nbsp; </p>



<p align="justify"><b>Cash and Cash
Equivalents </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company considers
highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents. </p>



<p align="justify">&nbsp;</p>



<p align="center">29</p>



  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align="justify"><b>Inventories </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Inventories are
stated at the lower of cost (the first-in, first-out method) or market and
consist of the following as of June 30, 2002: </p>





  <div align="left">





<table border=0 cellspacing=0 cellpadding=0 width="503" style="border-collapse: collapse" bordercolor="#111111">
 <tr>
  <td width=369 valign=top>
  <p>Raw materials </p>
  </td>
  <td width=26 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=108 valign=top align="right">
  <p align=right>591,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=369 valign=top>
  <p>Work in process </p>
  </td>
  <td width=26 valign=top>

  </td>
  <td width=108 valign=top align="right">
  <p align=right>291,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=369 valign=top>
  <p>Finished goods </p>
  </td>
  <td width=26 valign=top>

  </td>
  <td width=108 valign=top align="right">
  <p align=right><u>&nbsp;&nbsp;&nbsp; 2,634,000&nbsp; </u></p>
  </td>
 </tr>
 <tr>
  <td width=369 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Total </p>
  </td>
  <td width=26 valign=top>

  </td>
  <td width=108 valign=top align="right">
  <p align=right>3,516,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=369 valign=top>
  <p>Reserve for slow moving inventories </p>
  </td>
  <td width=26 valign=top>

  </td>
  <td width=108 valign=top align="right">
  <p align=right><u>&nbsp;&nbsp; (592,000)</u></p>
  </td>
 </tr>
 <tr>
  <td width=369 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Total inventories, net </p>
  </td>
  <td width=26 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=108 valign=top align="right">
  <p align=right>2,924,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=369 valign=top>

  </td>
  <td width=26 valign=top>

  </td>
  <td width=108 valign=top align="right">
  <p align=right>======== </p>
  </td>
 </tr>
</table>

  </div>

<p align="justify"><b>Equipment and Leasehold Improvements</b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Equipment and leasehold
improvements is recorded
at cost. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets as follows: equipment -- 3-10 years;
leasehold improvements -- 7 years. Leasehold improvements are depreciated over
the shorter of the term of the lease or their estimated useful lives. </p>



<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The following table
summarizes equipment and leasehold improvements as of June 30, 2002: </p>





  <div align="left">





<table border=0 cellspacing=0 cellpadding=0 width="416" style="border-collapse: collapse" bordercolor="#111111">
 <tr>
  <td width=284 valign=top>
  <p>Equipment </p>
  </td>
  <td width=19 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=113 valign=top align="right">
  <p align=right>3,447,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=284 valign=top>
  <p>Leasehold Improvements </p>
  </td>
  <td width=19 valign=top align="right">

  </td>
  <td width=113 valign=top align="right">
  <p align=right><u>&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; 85,000&nbsp; </u></p>
  </td>
 </tr>
 <tr>
  <td width=284 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Total </p>
  </td>
  <td width=19 valign=top align="right">

  </td>
  <td width=113 valign=top align="right">
  <p align=right>3,532,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=284 valign=top>
  <p>Accumulated Depreciation </p>
  </td>
  <td width=19 valign=top align="right">

  </td>
  <td width=113 valign=top align="right">
  <p align=right><u>&nbsp; (2,507,000)</u></p>
  </td>
 </tr>
 <tr>
  <td width=284 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Total Fixed Assets, net </p>
  </td>
  <td width=19 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=113 valign=top align="right">
  <p align=right>1,025,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=284 valign=top>

  </td>
  <td width=19 valign=top align="right">

  </td>
  <td width=113 valign=top align="right">
  <p align=right>========= </p>
  </td>
 </tr>
</table>



  </div>



<p align="justify"><b>Intangible Assets </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Intangible
assets include patents and the cost of net assets acquired in excess of fair
value, which are amortized on a straight-line basis over their estimated
useful lives ranging from 7 to 20 years. </p>



<p align="justify">&nbsp;</p>



<p align="center">30</p>



  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align="justify">&nbsp;</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In accordance with FAS 121
&quot;Accounting for the Impairment of Long-Lived Assets&quot;, management reviewed the
remaining goodwill, recorded at OMS and determined that the remaining fair value
of the asset was
impaired.&nbsp; Management's decision was
based on the fact that future cash flows at OMS will not exceed the carrying value
of the asset
and that the Company generated current year losses.&nbsp; As such, management determined that the
carrying value should be zero; expensing the remaining $154,000 as general and
administrative
expense in the statement of operations.&nbsp;
The balance of goodwill is related to the Micro and as of June 30, 2002,
remaining goodwill net of accumulated amortization totaled $1,110,000.&nbsp;
The Company has compared the remaining value of Micro's goodwill with its
future expected cash flows and determined that none of the goodwill recorded as
of June 30, 2002 was impaired.&nbsp; Goodwill amortization expense for the year
ended June 30, 2002 was approximately $103,000, excluding the $154,000 that was
written off in fiscal year 2002.&nbsp; </p>



<p align="justify"><b>Recent Accounting Pronouncements</b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In June 2001, the FASB issued Statement of Financial Accounting Standards No. 141,
&quot;Business Combinations&quot; (SFAS No. 141) and Statement of Financial
Accounting Standards No. 142, &quot;Goodwill and Other Intangible Assets&quot;
(SFAS No. 142). SFAS No. 141 addresses financial accounting and reporting for
business combinations and is effective for all business combinations after June
30, 2001. SFAS No. 142 addresses financial accounting and reporting for
acquired goodwill and other intangible assts and is effective for fiscal years
beginning after December 15, 2001. The Company adopted SFAS 141 and 142 on July
1, 2002.&nbsp; The Company has ceased amortizing amounts related to goodwill
starting July 1, 2002.&nbsp; The Company does not anticipate any material affect
on the financial statements as a result of adoption of these statements.</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In August 2001, the
FASB issued Statement of Financial Accounting Standards No. 144,
&quot;Accounting for the Impairment or Disposal of Long-Lived Assets&quot;
(SFAS No. 144). SFAS No. 144 addresses the financial accounting and reporting
for the impairment or disposal of long-lived assets. The Company adopted this
Statement on July 1, 2002. The Company has determined there is no material impact from
this Statement on its financial statements.</p>



<p align="justify"><b>Advertising </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company
expenses the cost of advertising the first time the advertising takes place.
The Company's balance sheet contains no deferred advertising costs. The Company
incurred advertising expenses of approximately $41,000 and $71,000 in 2002 and
2001, respectively. </p>



<p align="justify"><b>Income Taxes </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deferred income taxes
are provided on a liability method whereby deferred tax assets are recognized
for deductible temporary differences and operating losses and tax credit carry
forwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.</p>

<p align="justify"><b>Use of Estimates </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. </p>



<p align="justify">&nbsp;</p>



<p align="center">31</p>



  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company's operations are affected by numerous factors including
market acceptance, changes in technologies and new laws and government
regulations and policies. The Company cannot predict what impact, if any, the
occurrence of these or other events might have on the Company's operations.
Significant estimates and assumptions made by management are used for, but not
limited to, the allowance for doubtful accounts, the reserve for slow moving or
obsolete inventories, the carrying value of long-lived and intangible assets,
and the recoverability of deferred tax deferred tax assets.</p>



<p><b>Reclassification</b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Certain items in the
2001 financial statements have been reclassified to conform to the presentation
adopted in 2002.&nbsp; These reclassifications
had no effect on net income or stockholders equity as previously reported.</p>



<p align="justify"><b>Earnings per Share </b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Basic earnings per
common share data has been computed on the basis of the weighted-average number
of common shares outstanding during each period presented. Diluted per share
amounts assume the conversion, exercise or issuance of all potential common
stock instruments unless the effect is to reduce a loss or increase the income
per common share from continuing operations. </p>



<p align="justify"><b>Fair Value of
Financial Instruments </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The method and
assumptions used to estimate the fair value of notes payable, which
approximates the carrying value, is based on interest rates for instruments
with similar terms and remaining maturities. </p>



<p align="justify"><b>Stock-based
Compensation </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company accounts
for stock-based employee compensation under the requirements of Accounting
Principles board (APB) Opinion No. 25 and related interpretations, which does
not require compensation to be recorded if the consideration to be received is
at least equal to fair value at the measurement date. Non-employee stock-based
transactions are accounted for under the requirements of the Financial
Accounting Standards Board's (FASB) Statement of Financial Accounting Standard
(SFAS) No. 123 &quot;Accounting for Stock Based Compensation&quot; which
requires compensation to be recorded based on the fair value of the securities
issued or the services received, whichever is more reliably measurable. The
Company determines fair value at the measurement date based upon the trading
price of its stock. The Company considers outside directors as employees for
the purpose of applying this Statement. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Significant
management judgment is required in determining our provision for income taxes
and the recoverability of our deferred tax asset. It is based on our estimates
of future taxable income by jurisdiction in which we operate and the period over
which our deferred tax assets will be recoverable.&nbsp; In the event that
actual results differ from these estimates or we adjust these estimates in
future periods we may need to establish a valuation allowance which could result
in a tax provision equal to the carrying value of our deferred tax assets.</p>



<p align="justify"><b>NOTE 2 - FOURTH
QUARTER ADJUSTMENTS </b></p>

<p align="justify"><b>&nbsp;&nbsp; </b>&nbsp;&nbsp;&nbsp;
During the fourth quarter ended June 30, 2002 there were
adjustments that resulted in the Company reducing net income by approximately
$51,000.&nbsp; The adjustments related to
material changes in estimates, write-offs of intangible assets, and reversals
of tax contingencies. Prior years' tax audits were completed, allowing
management to recognize the reversal of approximately $289,000 of tax
contingencies, offset by increasing inventory reserves by $186,000 due to slow
moving inventory identified by management in the fourth quarter and for
goodwill written off in the amount of $154,000.</p>

<p>&nbsp;</p>



<p align="justify">&nbsp;</p>



<p align="center">32</p>



  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align="justify"><b>NOTE 3 - LINE OF
CREDIT </b></p>

<p align="justify"><b>&nbsp;&nbsp; </b>&nbsp;&nbsp;&nbsp;
The subsidiaries of the Company entered into a credit facility with Wells Fargo
Business Credit Inc. (WFBCI) in May 2002 for borrowings up to $3,000,000 or 80%
of eligible accounts receivable.&nbsp; The terms of the credit facility expire
May 2004 and require monthly interest payments at the prime rate (4.75% at June
30, 2002) plus 1.00% to 1.75% based on outstanding borrowings, with a minimum
interest per quarter of $12,500.&nbsp; The outstanding borrowings are secured by
all the assets of the Micro and OMS and guaranteed by the Company.&nbsp; The
outstanding balance under terms of this credit facility as of June 30, 2002 was
$638,000.&nbsp; Available borrowing capacity at June 30, 2002 was $380,000.&nbsp;
The bank agreement requires that certain financial and non-financial covenants
be maintained.&nbsp; At June 30, 2002 the Company was in violation of certain
income/(loss) and net tangible net worth covenants. </p>

<p align="justify"><b>NOTE 4 - LONG-TERM
DEBT </b></p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Following is a summary of long-term debt as
of June 30, 2002: </p>



<table border=0 cellspacing=0 cellpadding=0>
 <tr>
  <td width=516 valign=top>
  <p>Unsecured note to a shareholder, bearing </p>
  </td>
  <td width=15 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=91 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=1 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=516 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;Interest at 7%, payments of
  $19,600 quarterly, including </p>
  </td>
  <td width=15 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=91 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=1 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=516 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Interest to June 30, 2006 </p>
  </td>
  <td width=15 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=91 valign=top>
  <p align=right>272,000 </p>
  </td>
  <td width=1 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=516 valign=top>
  <p>Less current portion </p>
  </td>
  <td width=15 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=91 valign=top>
  <p align=right><u>&nbsp;&nbsp;&nbsp; 61,000 </u></p>
  </td>
  <td width=1 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=516 valign=top>
  <p>Total long-term debt </p>
  </td>
  <td width=15 valign=top>
  <p align=right>$&nbsp; </p>
  </td>
  <td width=91 valign=top>
  <p align=right>211,000 </p>
  </td>
  <td width=1 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=516 valign=top>

  </td>
  <td width=15 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=91 valign=top>
  <p align=right>======= </p>
  </td>
  <td width=1 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
</table>



<p>This debt is subordinated to the line of credit (Note 3).&nbsp; Interest
expense on this debt totaled approximately $34,000 for the years ended June 30,
2002 and 2001, respectively.</p>

<p><b>NOTE 5 - NOTES
PAYABLE </b></p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Following is a
summary of notes payable: </p>





<table border=0 cellspacing=0 cellpadding=0 width=625>
 <tr>
  <td width=522 valign=top>
  <p>Note payable to a shareholder </p>
  </td>
  <td width=18 valign=top>

  </td>
  <td width=82 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=2 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=522 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Bearing interest at a rate of 9.1%,
  due on demand </p>
  </td>
  <td width=18 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=82 valign=top>
  <p align=right>65,000 </p>
  </td>
  <td width=2 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=522 valign=top>
  <p>Other </p>
  </td>
  <td width=18 valign=top>

  </td>
  <td width=82 valign=top>
  <p align=right><u>&nbsp;&nbsp; 8,000 </u></p>
  </td>
  <td width=2 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=522 valign=top>
  <p>Total </p>
  </td>
  <td width=18 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=82 valign=top>
  <p align=right>73,000 </p>
  </td>
  <td width=2 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=522 valign=top>

  </td>
  <td width=18 valign=top>

  </td>
  <td width=82 valign=top>
  <p align=right>====== </p>
  </td>
  <td width=2 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
</table>



<p align="justify"><b>NOTE 6 -
COMMITMENTS AND CONTINGENCIES </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Micro leased office
and warehouse facilities from the Company's largest shareholder until January
2002. The Company and its subsidiaries lease its existing office and warehouse
facilities from unrelated parties under lease agreements expiring through
October 2007. These leases generally require the Company to pay insurance,
taxes, and other expenses related to the leased space. Total rent expense was
$257,000 and $509,000, including approximately $74,000 and $358,000 paid to the
Company's largest shareholder for the years ended June 30, 2002 and 2001,
respectively. Future minimum lease payments for the years ending June 30, are;
2003, $264,000; 2004, $266,000; 2005, $272,000; 2006, $278,000; 2007 $113,000
for a total of $1,193,000 with no additional payments to the Company's largest
shareholder. </p>



<p align="justify">&nbsp;</p>



<p align="center">33</p>



  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Biotrol is named
as a co-defendant by way of a joinder complaint in the case <u>Snyder v.
Patterson Dental, et al </u>alleging personal injuries caused by exposure to
latex gloves. The case is being held in the Court of Common Pleas, Philadelphia,
Pennsylvania. To date, management is unable to assess the
likelihood of an unfavorable outcome and cannot estimate the amount or range of
potential loss if any.</p>





<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The manufacture and
distribution of certain products by subsidiaries of the Company involves a risk
of legal action, and, from time to time, the Company and its subsidiaries are named
as defendants in lawsuits. While the Company's management believes that these
matters will not have a material adverse impact on the financial condition of
the Company, there can be no certainty that the Company may not ultimately
incur liability or that such liability will not be material and adverse.</p>





<p align="justify"><b>NOTE 7 - INCOME
TAXES </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The provision for
income taxes (credits) for the years ended June 30, 2002 and 2001 is as
follows: </p>





<table border=0 cellspacing=0 cellpadding=0 width="580">
 <tr>
  <td width=284 valign=top>

  </td>
  <td width=37 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=96 valign=top>
  <p align=center><u>2002 </u> </p>
  </td>
  <td width=63 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=100 valign=top>
  <p align=center><u>2001 </u> </p>
  </td>
 </tr>
 <tr>
  <td width=284 valign=top>
  <p>Current taxes (credits) </p>
  </td>
  <td width=37 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=96 valign=top>
  <p align=right>(308,000) </p>
  </td>
  <td width=63 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=100 valign=top align="right">
  <p align=right>(44,000) </p>
  </td>
 </tr>
 <tr>
  <td width=284 valign=top>
  <p>Deferred taxes (credits) </p>
  </td>
  <td width=37 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=96 valign=top>
  <p align=right><u>&nbsp; (902,000) </u></p>
  </td>
  <td width=63 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=100 valign=top align="right">
  <p align=right><u>(785,000) </u></p>
  </td>
 </tr>
 <tr>
  <td width=284 valign=top>

  </td>
  <td width=37 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=96 valign=top>
  <p align=right>(1,210,000) </p>
  </td>
  <td width=63 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=100 valign=top align="right">
  <p align=right>(829,000) </p>
  </td>
 </tr>
 <tr>
  <td width=284 valign=top>

  </td>
  <td width=37 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=96 valign=top>
  <p align=right>======= </p>
  </td>
  <td width=63 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=100 valign=top align="right">
  <p align=right>======= </p>
  </td>
 </tr>
</table>





<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; A reconciliation of
expected tax (credit) to the amount computed by applying the federal
statutory income tax rates to income (loss) before taxes (credits) is as
follows: </p>





<table border=0 cellspacing=0 cellpadding=0 width="659">
 <tr>
  <td width=377 valign=top>

  </td>
  <td width=28 valign=top>

  </td>
  <td width=89 valign=top>
  <p align=center><u>2002 </u> </p>
  </td>
  <td width=44 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=84 valign=top>
  <p align=center><u>2001 </u> </p>
  </td>
 </tr>
 <tr>
  <td width=377 valign=top>
  <p>Federal income taxes (credits), </p>
  </td>
  <td width=28 valign=top>

  </td>
  <td width=89 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=44 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=84 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=377 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Computed at the statutory rate </p>
  </td>
  <td valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td valign=top align="right">
  <p align=right>(807,000)</p>
  </td>
  <td valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td valign=top align="right">
  <p align=right>(744,000)</p>
  </td>
 </tr>
 <tr>
  <td width=377 valign=top>
  <p>State income taxes (credits) </p>
  </td>
  <td valign=top align="right">

  </td>
  <td valign=top align="right">
  <p align=right>(69,000)</p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="right">
  <p align=right>(102,000)</p>
  </td>
 </tr>
 <tr>
  <td width=377 valign=top>
  <p>Non-deductible items, primarily goodwill </p>
  </td>
  <td valign=top align="right">

  </td>
  <td valign=top align="right">
  <p align=right>90,000&nbsp; </p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="right">
  <p align=right>35,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=377 valign=top>
  <p>Tax credits, primarily research and development</p>
  </td>
  <td valign=top align="right">

  </td>
  <td valign=top align="right">
  <p align=right>(135,000)</p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="right">
  <p align=right>--</p>
  </td>
 </tr>
 <tr>
  <td width=377 valign=top>
  <p>Favorable resolution of tax contingency</p>
  </td>
  <td valign=top align="right">

  </td>
  <td valign=top align="right">
  <p align=right><u>&nbsp; (289,000)</u></p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="right">
  <p><u>&nbsp;-</u></p>
  </td>
 </tr>
 <tr>
  <td width=377 valign=top>
  <p>Other</p>
  </td>
  <td valign=top align="right">

  </td>
  <td valign=top align="right">
  <p align=right>--</p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="right">
  <p align=right><u>&nbsp;&nbsp; (18,000)</u></p>
  </td>
 </tr>
 <tr>
  <td width=377 valign=top>

  </td>
  <td valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td valign=top align="right">
  <p align=right>(1,210,000)</p>
  </td>
  <td valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td valign=top align="right">
  <p align=right>(829,000)</p>
  </td>
 </tr>
 <tr>
  <td width=377 valign=top>

  </td>
  <td valign=top align="right">

  </td>
  <td valign=top align="right">
  <p align=right>======= </p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="right">
  <p align=right>======= </p>
  </td>
 </tr>
</table>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deferred income tax assets and liabilities in the
accompanying balance sheet at June 30, 2002 consist of the following: </p>



<table border=0 cellspacing=0 cellpadding=0 width="659">
 <tr>
  <td width=491 valign=top>
  <p>Assets: </p>
  </td>
  <td width=67 valign=top>

  </td>
  <td width=101 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=491 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Accrued expenses </p>
  </td>
  <td width=67 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=101 valign=top align="right">
  <p align=right>181,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=491 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Intangible assets </p>
  </td>
  <td width=67 valign=top>

  </td>
  <td width=101 valign=top align="right">
  <p align=right>1,120,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=491 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Inventories </p>
  </td>
  <td width=67 valign=top>

  </td>
  <td width=101 valign=top align="right">
  <p align=right>318,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=491 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Net operating loss carryforward</p>
  </td>
  <td width=67 valign=top>

  </td>
  <td width=101 valign=top align="right">
  <p align=right>293,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=491 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Income tax
  credit carryforward</p>
  </td>
  <td width=67 valign=top>

  </td>
  <td width=101 valign=top align="right">
  <p align=right><u>&nbsp;&nbsp; 135,000&nbsp; </u></p>
  </td>
 </tr>
 <tr>
  <td width=491 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total
  deferred tax assets </p>
  </td>
  <td width=67 valign=top>

  </td>
  <td width=101 valign=top align="right">
  <p align=right>2,047,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=491 valign=top>

  <p>Liabilities: </p>
  </td>
  <td width=67 valign=top>

  </td>
  <td width=101 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=491 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Installment gain on sale of
  discontinued operations </p>
  </td>
  <td width=67 valign=top>

  </td>
  <td width=101 valign=top align="right">
  <p align=right>(45,000)</p>
  </td>
 </tr>
 <tr>
  <td width=491 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Equipment </p>
  </td>
  <td width=67 valign=top>

  </td>
  <td width=101 valign=top align="right">
  <p align=right><u>&nbsp;&nbsp;&nbsp; (222,000)</u></p>
  </td>
 </tr>
 <tr>
  <td width=491 valign=top>
  <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total
  deferred tax liabilities </p>
  </td>
  <td width=67 valign=top>

  </td>
  <td width=101 valign=top align="right">
  <p align=right><u>&nbsp;&nbsp;&nbsp; (267,000)</u></p>
  </td>
 </tr>
 <tr>
  <td width=491 valign=top>

  </td>
  <td width=67 valign=top>

  </td>
  <td width=101 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=491 valign=top>
  <p>Net deferred tax assets </p>
  </td>
  <td width=67 valign=top>
  <p align=right>$ </p>
  </td>
  <td width=101 valign=top align="right">
  <p align=right>1,780,000&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=491 valign=top>

  </td>
  <td width=67 valign=top>

  </td>
  <td width=101 valign=top align="right">
  <p align=right>======= </p>
  </td>
 </tr>
</table>





  <p align="center">&nbsp;</p>





  <p align="center">34</p>
  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>





<p align="justify">&nbsp;</p>





<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company has
net operating loss carryforwards of $716,000 for Federal and $1,299,000 for
State Income tax purposes.&nbsp; Federal loss
carryforwards expire in 2022 and State carryforwards expire 2022.&nbsp; Tax credit carryforwards
totaling $135,000 do not expire.&nbsp; The components giving rise to the net
deferred tax assets (liabilities) described above have been included in the
accompanying balance sheet as of June 30, 2002 as follows: </p>



<table border=0 cellspacing=0 cellpadding=0 width=658>
 <tr>
  <td width=300 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Non-current assets </p>
  </td>
  <td width=358 valign=top align="right">
  <p align=right>$&nbsp;&nbsp;&nbsp;&nbsp; &nbsp; 1,326,000&nbsp;&nbsp;
  </p>
  </td>
 </tr>
 <tr>
  <td width=300 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Current assets&nbsp;</p>
  </td>
  <td width=358 valign=top align="right">
  <p align=right><u>&nbsp; 454,000&nbsp;&nbsp; </u></p>
  </td>
 </tr>
 <tr>
  <td width=300 valign=top>

  </td>
  <td width=358 valign=top align="right">
  <p align=right>$&nbsp;&nbsp;&nbsp;&nbsp; &nbsp; 1,780,000&nbsp;&nbsp;
  </p>
  </td>
 </tr>
 <tr>
  <td width=300 valign=top>

  </td>
  <td width=358 valign=top align="right">
  <p align=right>======= </p>
  </td>
 </tr>
</table>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Management believes that it is more likely than not that the deferred tax asset will be
fully recovered.&nbsp; Net realizable deferred
tax assets could be reduced in the near term if estimates of future
profitability are reduced or if future changes in the ownership of the Company
occur. </p>



<p align="justify">&nbsp;</p>



<p align="center">35</p>
  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align="justify">&nbsp;</p>


<p align="justify"><b>NOTE 8 -
SHAREHOLDERS' EQUITY </b></p>

<p align="justify"><b>Stock Options </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Board of
Directors and the shareholders of the Company have approved and adopted two
plans, pursuant to which options to purchase an aggregate of 2,000,000 shares
of common stock that can be granted to officers, directors, employees and to
others expected to provide significant services to the Company. There are 380,495
shares remaining in the option plans, which are available for grant in future
years.</p>

<p align="justify">Transactions involving the stock options are summarized as
follows: </p>



  <div align="left">



<table border=0 cellspacing=0 cellpadding=0 width="694" style="border-collapse: collapse" bordercolor="#111111">
 <tr>
  <td width=218 valign=top>

  </td>
  <td width=224 colspan=2 valign=top>
  <p align=center><u><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2002&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  </font>
  </u></p>
  </td>
  <td width=246 colspan=2 valign=top>
  <p align=center><u><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  2001&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  </font>
  </u></p>
  </td>
 </tr>
 <tr>
  <td width=218 valign=top>
  <p align=center><font size="2">Fixed Options </font> </p>
  </td>
  <td width=90 valign=top>
  <p align=center><font size="2">Shares </font> </p>
  </td>
  <td width=134 valign=top>
  <p align=center><font size="2">Weighted-Average <br>
  Exercise <br>
  Price </font> </p>
  </td>
  <td width=103 valign=top>
  <p align=center><font size="2">Shares </font> </p>
  </td>
  <td width=143 valign=top>
  <p align=center><font size="2">Weighted-Average<br>
  Exercise <br>
  Price </font> </p>
  </td>
 </tr>
 <tr>
  <td width=688 colspan=5 valign=top>
  <p align=right><font size="2">_____________________________________________________________________________________________
  </font>
  </p>
  </td>
 </tr>
 <tr>
  <td width=218 valign=top>
  <p><font size="2">Outstanding
  at beginning of year </font> </p>
  </td>
  <td width=90 valign=top>
  <p align=right><font size="2">1,284,361&nbsp;&nbsp; </font> </p>
  </td>
  <td width=134 valign=top>
  <p align=right><font size="2">$2.16 </font> </p>
  </td>
  <td width=103 valign=top>
  <p align=right><font size="2">1,409,361 </font> </p>
  </td>
  <td width=143 valign=top>
  <p align=right><font size="2">$2.10 </font> </p>
  </td>
 </tr>
 <tr>
  <td width=218 valign=top>
  <p><font size="2">&nbsp;&nbsp;&nbsp;
  Granted </font> </p>
  </td>
  <td width=90 valign=top>
  <p align=right><font size="2">1,066,000&nbsp;&nbsp; </font> </p>
  </td>
  <td width=134 valign=top>
  <p align=right><font size="2">0.85 </font> </p>
  </td>
  <td width=103 valign=top>
  <p align=right><font size="2">105,000 </font> </p>
  </td>
  <td width=143 valign=top>
  <p align=right><font size="2">2.50 </font> </p>
  </td>
 </tr>
 <tr>
  <td width=218 valign=top>
  <p><font size="2">&nbsp;&nbsp;&nbsp;
  Exercised </font> </p>
  </td>
  <td width=90 valign=top>
  <p align=center><font size="2">- </font> </p>
  </td>
  <td width=134 valign=top>
  <p align=right><font size="2">-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font> </p>
  </td>
  <td width=103 valign=top>
  <p align=right><font size="2">-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font> </p>
  </td>
  <td width=143 valign=top>
  <p align=right><font size="2">-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font> </p>
  </td>
 </tr>
 <tr>
  <td width=218 valign=top>
  <p><font size="2">&nbsp;&nbsp;&nbsp;
  Forfeited </font> </p>
  </td>
  <td width=90 valign=top>
  <p align=right><font size="2">(730,856) </font> </p>
  </td>
  <td width=134 valign=top>
  <p align=right><font size="2">2.17&nbsp; </font> </p>
  </td>
  <td width=103 valign=top>
  <p align=right><font size="2">(230,000) </font> </p>
  </td>
  <td width=143 valign=top>
  <p align=right><font size="2">1.94 </font> </p>
  </td>
 </tr>
 <tr>
  <td width=218 valign=top>

  </td>
  <td width=470 colspan=4 valign=top>
  <p align=right><font size="2">_________________________________________________
  </font> </p>
  </td>
 </tr>
 <tr>
  <td width=218 valign=top>
  <p><font size="2">Outstanding
  at end of year </font> </p>
  </td>
  <td width=90 valign=top>
  <p align=right><font size="2">1,619,505&nbsp;&nbsp; </font> </p>
  </td>
  <td width=134 valign=top>
  <p align=right><font size="2">$1.28 </font> </p>
  </td>
  <td width=103 valign=top>
  <p align=right><font size="2">1,284,361 </font> </p>
  </td>
  <td width=143 valign=top>
  <p align=right><font size="2">$2.16 </font> </p>
  </td>
 </tr>
 <tr>
  <td width=218 valign=top>

  </td>
  <td width=470 colspan=4 valign=top>
  <p align=right><font size="2">_________________________________________________
  </font> </p>
  </td>
 </tr>
 <tr>
  <td width=218 valign=top>
  <p><font size="2">Exercisable
  at end of year </font> </p>
  </td>
  <td width=90 valign=top>
  <p align=right><font size="2">586,005&nbsp;&nbsp; </font> </p>
  </td>
  <td width=134 valign=top>
  <p align=right><font size="2">$1.96 </font> </p>
  </td>
  <td width=103 valign=top>
  <p align=right><font size="2">1,139,361 </font> </p>
  </td>
  <td width=143 valign=top>
  <p align=right><font size="2">$2.12 </font> </p>
  </td>
 </tr>
 <tr>
  <td width=218 valign=top>

  </td>
  <td width=470 colspan=4 valign=top>
  <hr color="#000000" align="right" width="350">
  </td>
 </tr>
 <tr>
  <td width=218 valign=top>
  <p><font size="2">Weighted-average
  fair value per </font> </p>
  </td>
  <td width=90 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=134 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=103 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=143 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=218 valign=top>
  <p><font size="2">&nbsp;&nbsp;&nbsp;
  Option granted during the year </font> </p>
  </td>
  <td width=90 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=134 valign=top>
  <p align=right><u><font size="2">&nbsp;&nbsp;&nbsp; $0.48 </font> </u></p>
  </td>
  <td width=103 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=143 valign=top>
  <p align=right><u><font size="2">&nbsp;&nbsp;&nbsp; $1.80 </font> </u></p>
  </td>
 </tr>
</table>





  </div>





<p>A further summary concerning fixed options outstanding
June 30, 2002, is as follows: </p>





<table border=0 cellspacing=0 cellpadding=0>
 <tr>
  <td width=102 valign=top>

  </td>
  <td width=300 colspan=3 valign=top>
  <p align=center><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Options
  Outstanding&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  </u></p>
  </td>
  <td width=220 colspan=2 valign=top>
  <p align=center><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Options Exercisable&nbsp;</u></p>
  </td>
  <td width=2 valign=top>
  <p align=center>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=102 valign=bottom>
  <p align=center>Range of <br>
  Exercise Price </p>
  </td>
  <td width=101 valign=bottom>
  <p align=center>Number <br>
  Outstanding </p>
  </td>
  <td width=111 valign=bottom>
  <p align=center>Weighted- <br>
  Average <br>
  Remaining <br>
  Contractual Life </p>
  </td>
  <td width=88 valign=bottom>
  <p align=center>Weighted <br>
  Average <br>
  Exercise <br>
  Price </p>
  </td>
  <td width=124 valign=bottom>
  <p align=center>Number <br>
  Exercisable </p>
  </td>
  <td width=95 valign=bottom>
  <p align=center>Weighted- <br>
  Average <br>
  Exercise <br>
  Price </p>
  </td>
  <td width=2 valign=bottom>
  <p align=center>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=622 colspan=6 valign=top>
  <p align=right>______________________________________________________________________________
  </p>
  </td>
  <td width=2 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=102 valign=top>
  <p align=center>$0.81 to $1.00 </p>
  </td>
  <td valign=top align="right">
  <p align=right>936,000 </p>
  </td>
  <td valign=top align="right">
  <p align=center>9.5 years </p>
  </td>
  <td valign=top align="right">
  <p align=right>$ 0.82 </p>
  </td>
  <td valign=top align="right">
  <p align=right>20,000 </p>
  </td>
  <td valign=top align="right">
  <p align=right>$ 0.99 </p>
  </td>
  <td width=2 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=102 valign=top>
  <p align=center>$1.05 to $2.00 </p>
  </td>
  <td valign=top align="right">
  <p align=right>290,000 </p>
  </td>
  <td valign=top align="right">
  <p align=center>7.8 years </p>
  </td>
  <td valign=top align="right">
  <p align=right>1.30 </p>
  </td>
  <td valign=top align="right">
  <p align=right>200,000 </p>
  </td>
  <td valign=top align="right">
  <p align=right>1.36 </p>
  </td>
  <td width=2 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=102 valign=top>
  <p align=center>$2.05 to $2.90 </p>
  </td>
  <td valign=top align="right">
  <p align=right>393,505 </p>
  </td>
  <td valign=top align="right">
  <p align=center>6.2 years </p>
  </td>
  <td valign=top align="right">
  <p align=right>2.36 </p>
  </td>
  <td valign=top align="right">
  <p align=right>366,005 </p>
  </td>
  <td valign=top align="right">
  <p align=right>2.34 </p>
  </td>
  <td width=2 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=102 valign=top>

  </td>
  <td valign=top align="right">
  <p align=right>_________ </p>
  </td>
  <td valign=top align="right">

  </td>
  <td colspan=3 valign=top align="right">
  <p align=right>__________________________________ </p>
  </td>
  <td width=2 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=102 valign=top>

  </td>
  <td valign=top align="right">
  <p align=right>1,619,505 </p>
  </td>
  <td valign=top align="right">

  </td>
  <td valign=top align="right">
  <p align=right>$ 1.28 </p>
  </td>
  <td valign=top align="right">
  <p align=right>586,005 </p>
  </td>
  <td valign=top align="right">
  <p align=right>$ 1.96 </p>
  </td>
  <td width=2 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=102 valign=top>

  </td>
  <td valign=top align="right">
  <p align=right>======= </p>
  </td>
  <td valign=top align="right">

  </td>
  <td colspan=3 valign=top align="right">
  <p align=right>============================== </p>
  </td>
  <td width=2 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
</table>

  <p align="center">36</p>
  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>

<p align="justify">&nbsp;</p>





<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The option plans are substantially similar and call for
the vesting as approved by the Board of Directors, and allow for the options to
be outstanding for a period of ten years. Under the Company's plans, employees
of the discontinued operations had until July 12, 2001 to exercise their
options or they expired. At June 30, 2001, these employees held 80,000 stock
options, and at June 30, 2002, these options had expired. Grants under the
Company's stock option plans are accounted for following APB Opinion No. 25 and
related interpretations. Had compensation cost for the stock-based compensation
plans been determined based on the grant date fair values of awards (the method
described in SFAS No. 123), reported net income and basic and diluted earnings
per common share would have been adjusted to the pro forma amounts shown below:</p>





<table border=0 cellspacing=0 cellpadding=0 width="560">
 <tr>
  <td width=289 valign=top>

  </td>
  <td width=23 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=103 valign=top>
  <p align=center><u>&nbsp;
  2002&nbsp;&nbsp;&nbsp; </u></p>
  </td>
  <td width=35 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=110 valign=top>
  <p align=center><u>&nbsp;
  2001&nbsp;&nbsp;&nbsp; </u></p>
  </td>
 </tr>
 <tr>
  <td width=289 valign=top>
  <p>Net income </p>
  </td>
  <td width=23 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=103 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=35 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=110 valign=top>
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=289 valign=top>
  <p>&nbsp;&nbsp;&nbsp; As reported </p>
  </td>
  <td width=23 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=103 valign=top align="right">
  <p align=right>(1,566,000)</p>
  </td>
  <td width=35 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=110 valign=top align="right">
  <p align=right>2,847,000 </p>
  </td>
 </tr>
 <tr>
  <td width=289 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Pro forma </p>
  </td>
  <td width=23 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=103 valign=top align="right">
  <p align=right>(1,789,000)</p>
  </td>
  <td width=35 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=110 valign=top align="right">
  <p align=right>2,730,000 </p>
  </td>
 </tr>
 <tr>
  <td width=289 valign=top>
  <p>Earnings per common share </p>
  </td>
  <td width=23 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=103 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=35 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=110 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=289 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Basic </p>
  </td>
  <td width=23 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=103 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=35 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=110 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=289 valign=top>
  <p>&nbsp;&nbsp;&nbsp; As reported </p>
  </td>
  <td width=23 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=103 valign=top align="right">
  <p align=right>(0.18)</p>
  </td>
  <td width=35 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=110 valign=top align="right">
  <p align=right>0.32 </p>
  </td>
 </tr>
 <tr>
  <td width=289 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Pro forma </p>
  </td>
  <td width=23 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=103 valign=top align="right">
  <p align=right>(0.20)</p>
  </td>
  <td width=35 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=110 valign=top align="right">
  <p align=right>0.31 </p>
  </td>
 </tr>
 <tr>
  <td width=289 valign=top>
  <p>Diluted </p>
  </td>
  <td width=23 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=103 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=35 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=110 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=289 valign=top>
  <p>&nbsp;&nbsp;&nbsp; As reported </p>
  </td>
  <td width=23 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=103 valign=top align="right">
  <p align=right>(0.18)</p>
  </td>
  <td width=35 valign=top align="right">
  <p align=right>$ </p>
  </td>
  <td width=110 valign=top align="right">
  <p align=right>0.32 </p>
  </td>
 </tr>
 <tr>
  <td width=289 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Pro forma </p>
  </td>
  <td width=23 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=103 valign=top align="right">
  <p align=right>(0.20)</p>
  </td>
  <td width=35 valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td width=110 valign=top align="right">
  <p align=right>0.31 </p>
  </td>
 </tr>
</table>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;The fair value of each grant is estimated at
the grant date using the Black-Scholes option-pricing model with the following
weighted-average assumptions: no dividend rate for all years; price volatility
of 62% to 69% in 2002, 64% to 69% in 2001; risk-free interest rates of
approximately 4.3% to 4.6% in 2002 and 4.8% to 6.1% in 2001; and expected lives
of five years. </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsequent to year
ended June 30, 2002, the Board of Directors approved, at managements'
discretion the repurchase of up to 500,000 shares of common stock.&nbsp; The maximum total value of the repurchase is
not to exceed $500,000.&nbsp; This repurchase
is to be financed both with cash generated by operations and through the
utilization of the credit facility.</p>

<p align="justify"><b>Stock Warrants </b></p>

<p align="justify"><b>&nbsp;&nbsp; </b>&nbsp;&nbsp;&nbsp;
In prior years, the Company issued warrants to acquire shares of common stock.
At June 30, 2002, warrants to acquire 312,000 shares of common stock were
outstanding. These warrants are fully vested, have a weighted-average exercise
price of $1.71, and a weighted-average remaining life of 2.9 years.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; During
the year ended June 30, 2002, the Company granted 24,000 warrants to acquire
common shares of stock incurring a charge of $13,000.&nbsp; The fair value of the warrants was estimated
at the grant date using the Black-Scholes option-pricing model with the
following weighted-average assumptions: no dividend rate for all years; price
volatility of 58% to 68%; a risk-free interest rate of approximately 4.0% to
4.4%; and expected life of five years.&nbsp;
The warrants were fully vested as of December 31, 2001. </p>

<p align="justify"><b>Preferred Shares </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Holders of
Series A preferred shares have no voting, dividend, or redemption rights. In
the event of liquidation or dissolution, preferred shareholders are entitled to
receive $3.60 per share. Each preferred share is convertible into one common
share at the option of the holder. </p>



<p align="justify">&nbsp;</p>



<p align="center">37</p>

  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align="justify"><b>Employee Stock
Purchase Plan </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In July 1998, the
Company adopted an Employee Stock Purchase Plan, under which up to 200,000
shares of common stock may be issued to substantially all full-time employees,
if they choose to participate. Employees can choose each year to have between
1% and 10% of their defined earnings withheld to purchase the Company's common
stock at a price that is 85% of the lower of the market price at July 1 and
January 1 of each year or the date on which the shares are fully paid by the
employee. The minimum purchase price under the plan is $2.00 per share, unless
the Company's Stock Purchase Plan Committee determines a lower price is
appropriate. During 2002 and 2001, no shares were purchased under the plan. </p>



<p align="justify"><b>NOTE 9 - UNUSUAL
CHARGES </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended
June 30, 2001 management determined that a non-compete agreement with the
previous owner of an acquired business no longer had any value to the Company.
The Company has focused its efforts on developing new products and new markets
to grow its business. As a result, management determined that the Company would
not sustain any damage if the previous owner decided to compete in the same
line of business. The Company wrote off $473,000 of the non-compete agreement
that it deemed had no future value. The Company also wrote off fees and
expenses in connection with failed merger and acquisition activity amounting to
$493,000 during the year ended June 30, 2001. In addition, the Company recorded
an accrual for remediation costs in connection with the removal of contaminated
soil of $97,000, and various other charges totaling $71,000 during the year
ended June 30, 2001.&nbsp; In total, the
unusual charges for the year ended June 30, 2001 amounted to $1,134,000.</p>

<p align="justify"><b>NOTE 10 - FUNDS
HELD IN ESCROW, NET, BUSINESS DIVESTITURES AND DISCONTINUED OPERATIONS </b></p>

<p align="justify"><b>&nbsp; </b>&nbsp;&nbsp;&nbsp;
On June 12, 2001, the Company sold substantially all of the assets of its
wholly owned subsidiaries, Biotrol International,
Inc. and Challenge Products, Inc. to Young Colorado, LLC, for a purchase price
of $9 million. The assets sold comprised the Company's line of infection
control and preventive chemical products for the dental industry. The gain from
the sale of the assets was reported at approximately $3.9 million net of taxes
of $2.5 million as of June 30, 2001.&nbsp; The
gain on the sale has been reduced by $668,000, during 2002, represented by an
increase to the reserve to offset warranty claims made by Young and other third
party creditors associated with the Biotrol operation.&nbsp;&nbsp; There
remained an escrow balance of $1,221,000 and a total reserve of $431,000 as of
June 30, 2002.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company received $6.6
million of the purchase price at the closing. The balance of the purchase price
of $2.4 million was escrowed to secure various warranties under the sale
agreement. The escrow agreement contains various scheduled release dates for
the funds. The actual distribution of the escrow account varied from the
original agreement due to various claims by Young.&nbsp; There was a release of $1.2 million of the
escrow funds in the quarter ending March 31, 2002, of which (a) $350,000 was
paid back to Young for (i) $183,000 related to
warranty issues and, (ii) $167,000 related to remaining operating obligations,
(b) $136,000 paid to third party creditors for liabilities related to the sale
of prior operations of Biotrol, and (c) $714,000 was
retained by the Company.&nbsp; A second
release of $1,121,000 was made in July, 2002, of which (a) $431,000 was
returned to Young for warranty related issues, (b) $366,000 was paid to a third
party creditor and (c) $324,000 was retained by the Company, leaving an escrow
balance of $100,000 and no remaining reserve.&nbsp;
The $100,000 is being held for title clearance of certain purchased
assets and is expected to be received by the Company in October 2002.&nbsp;&nbsp;
In addition, the Company earned approximately $43,000 in interest on the escrow
account during the year ended June 30, 2002.</p>

<p align="justify">&nbsp;</p>



<p align="justify">&nbsp;</p>



<p align="center">38</p>



<hr color="#000080" align="left"> <p style="Page-break-after: always"> &nbsp;&nbsp;&nbsp;&nbsp; During the
year ended June 30, 2002, the Company received indemnification notices from
Young, to recover alleged losses and costs as they are incurred for certain
alleged breaches of representations and warranties contained in the Young Asset
Purchase Agreement related to compliance issues with the Food, Drug, and
Cosmetic Act (&quot;FDCA&quot;), Federal Insecticide, Fungicide and Rodentcide
Act (&quot;FIFRA&quot;), and other related laws.&nbsp;
In February 2002, the Company settled a complaint with the Environmental
Protection Agency (&quot;EPA&quot;) set forth in Young's indemnification notice for
alleged violations of FIFRA.&nbsp; Pursuant to
the settlement, the Company will pay $150,000 to the EPA, over a 15-month
period, commencing March 2002.&nbsp; The
remaining amount of $110,000 is recorded as an accrued liability in the June
30, 2002 financial statements in addition to the $431,000 escrow reserve.</P>



<p align="justify">&nbsp;</p>



<p align="center">39</p>

  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align="justify"><b>NOTE 11 - SEGMENT
INFORMATION </b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company's
reportable segments are strategic business units that offer different products
and services. They are managed separately because each business requires
different technology and marketing strategies. </p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; After the 2001
divestiture (Note 10), there are two reportable segments: Micro Motors, and OMS.
The accounting policies applied to determine the segment information are the
same as those described in the summary of significant accounting policies.
Interest expense is allocated based upon the specific identification of debt
incurred by the individual segment. Corporate overhead, the provision for
income taxes, income from discontinued operations, and gain on disposal of
discontinued operations are included in corporate profit, and are not allocated
to the individual reported segments. Intersegment sales and transfers are
accounted for at amounts that management believes provides the transferring segment
with fair compensation for the products transferred, considering their
condition, market demand, and, where appropriate, a reasonable profit that
recognized which segment will be responsible for marketing costs. Management
evaluates the performance of each segment based on income (loss) before income
taxes. </p>

<p align="justify">Financial information with respect to the reportable
segments follows (in thousands): </p>



  <div align="left">



<table border=0 cellspacing=0 cellpadding=0 width=740 style="border-collapse: collapse" bordercolor="#111111">
 <tr>
  <td width=225 valign=bottom>
  <p align=center>2002 </p>
  </td>
  <td valign=bottom align="right">
  <p>Micro <br>
  Motors </p>
  </td>
  <td valign=bottom align="right">
  <p>Oregon <br>
  Micro <br>
  Systems </p>
  </td>
  <td valign=bottom align="right">
  <p>Corp. </p>
  </td>
  <td valign=bottom align="right">
  <p>Total </p>
  </td>
 </tr>
 <tr>
  <td width=225 valign=top>
  <p>Sales from external customers </p>
  </td>
  <td valign=top align="right">
  <p align=right>$8,285 </p>
  </td>
  <td valign=top align="right">
  <p align=right>$2,241&nbsp; </p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp; --</p>
  </td>
  <td valign=top align="right">
  <p align=right>$10,526&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=225 valign=top>
  <p>Depreciation and amortization </p>
  </td>
  <td valign=top align="right">
  <p align=right>371 </p>
  </td>
  <td valign=top align="right">
  <p align=right>454&nbsp; </p>
  </td>
  <td valign=top align="right">
  <p align=right>40&nbsp; </p>
  </td>
  <td valign=top align="right">
  <p align=right>865&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=225 valign=top>
  <p>Interest expense </p>
  </td>
  <td valign=top align="right">
  <p align=right>75</p>
  </td>
  <td valign=top align="right">
  <p align=right>--&nbsp; </p>
  </td>
  <td valign=top align="right">
  <p align=right>42&nbsp; </p>
  </td>
  <td valign=top align="right">
  <p align=right>117&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=225 valign=top>
  <p>Segment profit (loss) </p>
  </td>
  <td valign=top align="right">
  <p align=right>635 </p>
  </td>
  <td valign=top align="right">
  <p align=right>(1,021)</p>
  </td>
  <td valign=top align="right">
  <p align=right>(1,180)</p>
  </td>
  <td valign=top align="right">
  <p align=right>(1,566)</p>
  </td>
 </tr>
 <tr>
  <td width=225 valign=top>
  <p>Segment assets </p>
  </td>
  <td valign=top align="right">
  <p align=right>5,505 </p>
  </td>
  <td valign=top align="right">
  <p align=right>1,070&nbsp; </p>
  </td>
  <td valign=top align="right">
  <p align=right>3,393&nbsp; </p>
  </td>
  <td valign=top align="right">
  <p align=right>9,968&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=225 valign=top>
  <p>Expenditure for segment assets </p>
  </td>
  <td valign=top align="right">
  <p align=right>266 </p>
  </td>
  <td valign=top align="right">
  <p align=right>30&nbsp; </p>
  </td>
  <td valign=top align="right">
  <p align=right>--&nbsp; </p>
  </td>
  <td valign=top align="right">
  <p align=right>296&nbsp; </p>
  </td>
 </tr>
 </table>



  </div>



<p align="justify">&nbsp;</p>



<p align="justify">&nbsp;</p>

  <div align="left">



<table border=0 cellspacing=0 cellpadding=0 width=744 style="border-collapse: collapse" bordercolor="#111111">
 <tr>
  <td width=265 valign=bottom>
  <p align=center>2001 </p>
  </td>
  <td width=122 valign=bottom>
  <p align=right>Micro <br>
  Motors </p>
  </td>
  <td width=137 valign=bottom>
  <p align=right>Oregon <br>
  Micro <br>
  Systems </p>
  </td>
  <td width=102 valign=bottom>
  <p align=right>Corp. </p>
  </td>
  <td width=118 valign=bottom>
  <p align=right>Total </p>
  </td>
 </tr>
 <tr>
  <td width=744 colspan=5 valign=top>
  <p align=center>_____________________________________________________________________________________________
  </p>
  </td>
 </tr>
 <tr>
  <td width=265 valign=top>
  <p>Sales from external customers </p>
  </td>
  <td width=122 valign=top align="right">
  <p align=right>$7,744&nbsp; </p>
  </td>
  <td width=137 valign=top align="right">
  <p align=right>$7,100&nbsp; </p>
  </td>
  <td width=102 valign=top align="right">
  <p align=right>&nbsp; --</p>
  </td>
  <td width=118 valign=top align="right">
  <p align=right>$14,844 </p>
  </td>
 </tr>
 <tr>
  <td width=265 valign=top>
  <p>Depreciation and amortization </p>
  </td>
  <td width=122 valign=top align="right">
  <p align=right>402&nbsp; </p>
  </td>
  <td width=137 valign=top align="right">
  <p align=right>474&nbsp; </p>
  </td>
  <td width=102 valign=top align="right">
  <p align=right>82 </p>
  </td>
  <td width=118 valign=top align="right">
  <p align=right>958 </p>
  </td>
 </tr>
 <tr>
  <td width=265 valign=top>
  <p>Unusual charges </p>
  </td>
  <td width=122 valign=top align="right">
  <p align=right>473&nbsp; </p>
  </td>
  <td width=137 valign=top align="right">
  <p align=right>&nbsp; --</p>
  </td>
  <td width=102 valign=top align="right">
  <p align=right>661 </p>
  </td>
  <td width=118 valign=top align="right">
  <p align=right>1,134 </p>
  </td>
 </tr>
 <tr>
  <td width=265 valign=top>
  <p>Interest expense </p>
  </td>
  <td width=122 valign=top align="right">
  <p align=right>844&nbsp; </p>
  </td>
  <td width=137 valign=top align="right">
  <p align=right>&nbsp; --</p>
  </td>
  <td width=102 valign=top align="right">
  <p align=right>14 </p>
  </td>
  <td width=118 valign=top align="right">
  <p align=right>858 </p>
  </td>
 </tr>
 <tr>
  <td width=265 valign=top>
  <p>Segment profit (loss) </p>
  </td>
  <td width=122 valign=top align="right">
  <p align=right>(2,404)</p>
  </td>
  <td width=137 valign=top align="right">
  <p align=right>2,626&nbsp; </p>
  </td>
  <td width=102 valign=top align="right">
  <p align=right>2,625 </p>
  </td>
  <td width=118 valign=top align="right">
  <p align=right>2,847 </p>
  </td>
 </tr>
 <tr>
  <td width=265 valign=top>
  <p>Segment assets </p>
  </td>
  <td width=122 valign=top align="right">
  <p align=right>5,319&nbsp; </p>
  </td>
  <td width=137 valign=top align="right">
  <p align=right>2,040&nbsp; </p>
  </td>
  <td width=102 valign=top align="right">
  <p align=right>4,385 </p>
  </td>
  <td width=118 valign=top align="right">
  <p align=right>11,744 </p>
  </td>
 </tr>
 <tr>
  <td width=265 valign=top>
  <p>Expenditure for segment assets </p>
  </td>
  <td width=122 valign=top align="right">
  <p align=right>128&nbsp; </p>
  </td>
  <td width=137 valign=top align="right">
  <p align=right>20&nbsp; </p>
  </td>
  <td width=102 valign=top align="right">
  <p align=right>4 </p>
  </td>
  <td width=118 valign=top align="right">
  <p align=right>152 </p>
  </td>
 </tr>
</table>



  </div>



<p align="justify">&nbsp;</p>



<p align="center">40</p>

  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align="justify">&nbsp;</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No single customer generated
in excess of 10% of consolidated sales during 2002.&nbsp; Sales to one customer for 2001 were $2.53
million dollars.<b>&nbsp;</b></p>

<p><b>NOTE 12 - EARNINGS
PER SHARE </b></p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The weighted-average
number of common shares and common share equivalents outstanding during the
years used to compute basic and diluted earnings/(loss) per common share is as
follows: </p>





  <div align="left">





<table border=0 cellspacing=0 cellpadding=0 width="740" style="border-collapse: collapse" bordercolor="#111111">
 <tr>
  <td width=401 valign=top>

  </td>
  <td width=95 valign=top>
  <p align=center>2002 </p>
  </td>
  <td width=28 valign=top>
  <p align=right>&nbsp;</p>
  </td>
  <td width=98 valign=top>
  <p align=center>2001 </p>
  </td>
 </tr>
 <tr>
  <td width=401 valign=top>

  </td>
  <td valign=top align="right">
  <p align=right>__________ </p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="right">
  <p align=right>__________ </p>
  </td>
 </tr>
 <tr>
  <td width=401 valign=top>
  <p>Weighted-average common shares used in computation of </p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=401 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Basic earnings (loss) per share </p>
  </td>
  <td valign=top align="right">
  <p align=right>8,787,300 </p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="right">
  <p align=right>8,787,300 </p>
  </td>
 </tr>
 <tr>
  <td width=401 valign=top>
  <p>Effect of dilutive securities: </p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=401 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Common stock options and warrants </p>
  </td>
  <td valign=top align="right">
  <p align=right>-- </p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="right">
  <p align=right>-- </p>
  </td>
 </tr>
 <tr>
  <td width=401 valign=top>
  <p>&nbsp;&nbsp;&nbsp; Convertible preferred stock </p>
  </td>
  <td valign=top align="right">

  --</td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="right">

  --</td>
 </tr>
 <tr>
  <td width=401 valign=top>

  </td>
  <td valign=top align="right">
  <p align=right>__________ </p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="right">
  <p align=right>__________ </p>
  </td>
 </tr>
 <tr>
  <td width=401 valign=top>
  <p>Weighted-average common and common share equivalents </p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=401 valign=top>
  <p>&nbsp;&nbsp;&nbsp; used in the computation of diluted
  earnings (loss) per share </p>
  </td>
  <td valign=top align="right">
  <p align=right>8,787,300 </p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="right">
  <p align=right>8,787,300 </p>
  </td>
 </tr>
 <tr>
  <td width=401 valign=top>

  </td>
  <td valign=top align="right">
  <p align=right>======== </p>
  </td>
  <td valign=top align="right">
  <p align=right>&nbsp;</p>
  </td>
  <td valign=top align="right">
  <p align=right>======== </p>
  </td>
 </tr>
</table>





  </div>
  <blockquote>



<p align="justify">In 2002, common shares issuable upon exercise of the employee stock options and
common stock warrants (see Note 8) and upon the conversion of 78,129 shares of
preferred stock have not been included in the 2002 computation because their
inclusion would have been antidilutive on continuing operations.</p>



<p align="justify">In 2001, common shares issuable upon exercise of the 39,065 employee stock options
and common stock warrants (see Note 8) and upon the conversion of 78,129 shares
of preferred stock have not been included in the 2001 computation because their
inclusion would have been antidilutive on continuing operations.</p>

  </blockquote>



<p align="center">41</p>



  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p align=center>&nbsp;</p>

<p align=center><b>PRO-DEX, INC. AND SUBSIDIARIES </b></p>

<p align=center><b>EXHIBIT INDEX </b></p>

<p align=center>&nbsp;</p>

  <div align="left">

<table border=0 cellspacing=0 cellpadding=0 width="740" style="border-collapse: collapse" bordercolor="#111111">
 <tr>
  <td width=73 valign=top>
  <p align=center><b>Exhibit <br>
  No. </b></p>
  </td>
  <td valign=top align="left">
  <p align=center><b>Document </b></p>
  </td>
  <td valign=top align="center">
  <p><b>Sequentially<br>
  Numbered <br>
  Pages </b></p>
  </td>
 </tr>
 <tr>
  <td width=73 valign=top>
  2.2</td>
  <td valign=top align="left">
  Merger Agreement between Pro-Dex, Inc., Micro Systems Acquisition Corporation,
  and Micro Motors, Inc., dated July 26, 1995.</td>
  <td width=36 valign=top>

  &nbsp;</td>
 </tr>
 <tr>
  <td width=73 valign=top>
  2.3</td>
  <td valign=top align="left">
  Acquisition Agreement between Pro-Dex, Inc., Oregon Micro Systems, Inc. and L.
  Wayne Hunter dated July 26, 1996 (incorporated herein by reference to Exhibit
  7.2 to the Company's Form 8-K dated July 26, 1996).</td>
  <td width=36 valign=top>

  &nbsp;</td>
 </tr>
 <tr>
  <td width=73 valign=top>
  <p>3.1 </p>
  </td>
  <td valign=top align="left">
  <p>Articles of Incorporation (incorporated herein by reference
  to Exhibit 3.1 to Pro-Dex, Inc. Registration Statement No. 33-74397). </p>
  </td>
  <td width=36 valign=top>

  </td>
 </tr>
 <tr>
  <td width=73 valign=top>
  <p>3.2 </p>
  </td>
  <td valign=top align="left">
  <p>Bylaws (incorporated herein by reference to Exhibit 3.2
  to Pro-Dex, Inc. Registration Statement No. 33-74397). </p>
  </td>
  <td width=36 valign=top>

  </td>
 </tr>
 <tr>
  <td width=73 valign=top>
  <p>10.16 </p>
  </td>
  <td valign=top align="left">
  <p>Prophy Ring Patent License Agreement dated and effective
  July 1, 1993 between Challenge Products, Inc. and Charles L. Bull
  (incorporated herein by reference to Exhibit 10.17 to Pro-Dex, Inc.
  Registration Statement No. 33-74397). </p>
  </td>
  <td width=36 valign=top>

  </td>
 </tr>
 <tr>
  <td width=73 valign=top>
  <p>10.17* </p>
  </td>
  <td valign=top align="left">
  <p>1994 Stock Option Plan (incorporated herein by reference
  to Exhibit 10.21 to Pro-Dex, Inc. Registration Statement No. 33-74397). </p>
  </td>
  <td width=36 valign=top>

  </td>
 </tr>
 <tr>
  <td width=73 valign=top>
  <p>10.18* </p>
  </td>
  <td valign=top align="left">
  <p>Director's Stock Option Plan (incorporated herein by
  reference to Exhibit 10.22 to Pro-Dex, Inc. Registration Statement No.
  33-74397). </p>
  </td>
  <td width=36 valign=top>

  </td>
 </tr>
 <tr>
  <td width=73 valign=top>
  <p>10.25* </p>
  </td>
  <td valign=top align="left">
  <p>Employee Stock Purchase Plan (incorporated herein by
  reference to the Company's Form 10-K dated September 13, 1999). </p>
  </td>
  <td width=36 valign=top>

  </td>
 </tr>
 <tr>
  <td width=73 valign=top>
  <p>10.26</p>

  </td>
  <td valign=top align="left">
  <p>Audit Committee Charter.</p>

  </td>
  <td width=36 valign=top>

  </td>
 </tr>
 <tr>
  <td width=73 valign=top>
  <p>10.27 </p>
  </td>
  <td valign=top align="left">
  <p>Real Property Sale by Challenge subsidiary (PDMI
  subsidiary C) Settlement Statement</p>
  </td>
  <td width=36 valign=top>

  </td>
 </tr>
 <tr>
  <td width=73 valign=top>
  <p>10.28</p>
  <p>&nbsp;</p>


  </td>
  <td valign=top align="left">
  <p>Acquisition Agreement between Pro-Dex, Inc., Oregon
  Micro Systems, Inc. and L. Wayne Hunter dated July 26, 1996 (incorporated
  herein by reference to Exhibit 7.2 to the Company's Form 8-K dated July 26,
  1996).</p>
  </td>
  <td width=36 valign=top>

  </td>
 </tr>
 <tr>
  <td width=73 valign=top>
  10.29</td>
  <td valign=top align="left">
  Asset
  Sale Agreement dated June 12, 2001, by and among Young Colorado, LLC,
  Pro-Dex, Inc., Pro-Dex Management, Inc.,&nbsp;
  Biotrol International, Inc., and Challenge Products, Inc.
  (incorporated herein by reference to the Form 8-K filed July 30, 2001).</td>
  <td width=36 valign=top>

  &nbsp;</td>
 </tr>
 <tr>
  <td width=73 valign=top>
  <p>10.30</p>
  </td>
  <td valign=top align="left">
  <p>Micro Motors Credit and Security Agreements with WFBCI </p>
  </td>
  <td width=36 valign=top>

  </td>
 </tr>
 <tr>
  <td width=73 valign=top>
  <p>10.31</p>
  </td>
  <td valign=top align="left">
  <p>OMS Credit and Security Agreements with WFBCI </p>
  </td>
  <td width=36 valign=top>

  </td>
 </tr>
 <tr>
  <td width=73 valign=top>
  <p>21.00 </p>
  </td>
  <td valign=top align="left">
  <p>The Company has the following subsidiaries incorporated
  in the following states: PDMI subsidiary B, a Delaware corporation; PDMI
  subsidiary C, Pro-Dex Management Inc, a California corporation, a Missouri
  corporation; Micro Motors, Inc., a Colorado corporation; Oregon Micro
  Systems, Inc., an Oregon corporation. </p>
  </td>
  <td width=36 valign=top>

  </td>
 </tr>
 <tr>
  <td width=73 valign=top>
  27</td>
  <td valign=top align="left">
  Financial Data Schedule</td>
  <td width=36 valign=top>

  &nbsp;</td>
 </tr>
 <tr>
  <td width=73 valign=top>
  <p>99.1 </p>
  </td>
  <td valign=top align="left">
  <p>Chief Executive Officer certification </p>
  </td>
  <td
  width=67><p>&nbsp;</td>
 </tr>
 <tr>
  <td width=73 valign=top>
  <p>99.2 </p>
  </td>
  <td valign=top align="left">
  <p>Chief Financial Officer certification </p>
  </td>
  <td
  width=67><p>&nbsp;</td>
 </tr>
</table>



  </div>



<p align="justify">* denotes management contract or compensatory arrangement
required to be filed as an exhibit to the Form 10-KSB. </p>



<p align="justify">&nbsp;</p>



<p align="center">42</p>
  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>
&nbsp;<p align=center>SIGNATURES </p>

<p align=center>&nbsp;</p>

<p align="justify">In accordance with the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized. </p>

<table border=0 cellspacing=0 cellpadding=0>
 <tr>
  <td width=305 valign=top>
  <p>PRO-DEX INC. </p>
  </td>
  <td width=1 valign=top>

  </td>
 </tr>
 <tr>
  <td width=305 valign=top>
  <p>By: / s / Patrick Johnson </p>
  </td>
  <td width=1 valign=top>

  </td>
 </tr>
 <tr>
  <td width=305 valign=top>
  <p>----------------------------- </p>
  </td>
  <td width=1 valign=top>

  </td>
 </tr>
 <tr>
  <td width=305 valign=top>
  <p>Patrick Johnson </p>
  </td>
  <td width=1 valign=top>

  </td>
 </tr>
 <tr>
  <td width=305 valign=top>
  <p>Chief Executive Officer</p>
  </td>
  <td width=1 valign=top>

  </td>
 </tr>
 <tr>
  <td width=305 valign=top>
  <p>and President </p>
  </td>
  <td width=1 valign=top>

  </td>
 </tr>
</table>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with the
requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated. </p>



<table border=0 cellspacing=0 cellpadding=0 width=744>
 <tr>
  <td width=346 valign=top>

  <p>/
  s / Patrick Johnson&nbsp;</p>
  </td>
  <td width=374 valign=top>

  <p>October 1, 2002</p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>---------------------------------&nbsp;
  </p>
  </td>
  <td width=374 valign=top>
  <p>&nbsp;------------------------------------ </p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>Patrick
  Johnson&nbsp;</p>
  </td>
  <td width=374 valign=top>
  <p>Date
  </p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>President
  and Chief Executive Officer</p>
  </td>
  <td width=374 valign=top>

  &nbsp;

  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>(Principal
  Executive Officer)</p>
  </td>
  <td width=374 valign=top>

  </td>
 </tr>
 <tr>
  <td width=346 valign=top>

  &nbsp;

  </td>
  <td width=374 valign=top>

  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>/
  s / Jeffrey J. Ritchey&nbsp; </p>
  </td>
  <td width=374 valign=top>
  <p>October 1, 2002</p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>---------------------------------&nbsp;
  </p>
  </td>
  <td width=374 valign=top>
  <p>&nbsp;------------------------------------- </p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>Jeffrey
  J. Ritchey&nbsp;</p>
  </td>
  <td width=374 valign=top>
  <p>Date
  </p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>Treasurer
  and Chief Financial Officer</p>
  </td>
  <td width=374 valign=top>

  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>(Principal
  Financial and Accounting Officer) </p>
  </td>
  <td width=374 valign=top>

  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>&nbsp;&nbsp; </p>
  </td>
  <td width=374 valign=top>
  <p>&nbsp;&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>/
  s / George J. Isaac&nbsp; </p>
  </td>
  <td width=374 valign=top>
  <p>September
  30, 2002</p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>----------------------------------&nbsp;&nbsp;
  </p>
  </td>
  <td width=374 valign=top>
  <p>----------------------------------------
  </p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>George
  J. Isaac&nbsp;</p>
  </td>
  <td width=374 valign=top>
  <p>&nbsp;Date </p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>Secretary
  and a Director </p>
  </td>
  <td width=374 valign=top>

  &nbsp;

  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  &nbsp;
  </td>
  <td width=374 valign=top>

  &nbsp;

  </td>
 </tr>
 <tr>
  <td width=346 valign=top>


  <p>/
  s / Ronald G. Coss&nbsp;</p>
  </td>
  <td width=374 valign=top>
  <p>October 1, 2002</p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>---------------------------------&nbsp;
  </p>
  </td>
  <td width=374 valign=top>
  <p>&nbsp;---------------------------------------- </p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>Ronald
  G. Coss&nbsp;</p>
  </td>
  <td width=374 valign=top>
  <p>Date</p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>Director</p>


  </td>
  <td width=374 valign=top>
  &nbsp;</td>
 </tr>
 <tr>
  <td width=346 valign=top>
  &nbsp;


  </td>
  <td width=374 valign=top>
  &nbsp;
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  /
  s / Robert A. Hovee&nbsp;</td>
  <td width=374 valign=top>
  October 1, 2002</td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>---------------------------------&nbsp;</p>
  </td>
  <td width=374 valign=top>
  <p>&nbsp;---------------------------------------- </p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  Robert
  A. Hovee&nbsp;
  </td>
  <td width=374 valign=top>
  <p>Date</p>

  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>Director</p>
  </td>
  <td width=374 valign=top>
  &nbsp;</td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>&nbsp;&nbsp; </p>
  </td>
  <td width=374 valign=top>
  &nbsp;</td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>/
  s / Frank Zagar&nbsp; </p>
  </td>
  <td width=374 valign=top>
  <p>October 1, 2002</p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>------------------------------------&nbsp;&nbsp;
  </p>
  </td>
  <td width=374 valign=top>
  <p>-----------------------------------------
  </p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>Frank
  Zagar&nbsp;</p>
  </td>
  <td width=374 valign=top>
  <p>Date
  </p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>Director</p>


  </td>
  <td width=374 valign=top>
  <p>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  &nbsp;
  </td>
  <td width=374 valign=top>
  &nbsp;</td>
 </tr>
 <tr>
  <td width=346 valign=top>
  /
  s / Michael Messenbrink&nbsp;
  </td>
  <td width=374 valign=top>
  October 1, 2002</td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>------------------------------------&nbsp;&nbsp;
  </p>
  </td>
  <td width=374 valign=top>
  <p>-----------------------------------------
  </p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>Michael
  Messenbrink&nbsp;</p>
  </td>
  <td width=374 valign=top>
  <p>Date
  </p>
  </td>
 </tr>
 <tr>
  <td width=346 valign=top>
  <p>Director
  </p>
  </td>
  <td width=374 valign=top>

  </td>
 </tr>
 <tr>
  <td width=346 valign=top>

  </td>
  <td width=374 valign=top>

  </td>
 </tr>
</table>



<p>&nbsp;</p>



<p align="center">43</p>

  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>



<p>&nbsp;</p>



<p align="center">CERTIFICATIONS</p>

<p align="center"><u>CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER</u></p>





<p align="justify">I, Patrick Johnson, certify that:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; I have reviewed
this Annual Report on Form&nbsp;10&#8209;KSB of&nbsp;
Pro-Dex, Inc.;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Based on my
knowledge, this Annual Report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this Annual Report;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (3)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Based on my
knowledge, the financial statements, and other financial information included
in this Annual Report, fairly present in all material respects the financial
condition results of operations and cash flows of the Registrant as of, and
for, the periods presented in this Annual Report.</p>

<p>Date:&nbsp; October 1, 2002</p>

  <div align="right">
    <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="462" id="AutoNumber1">
      <tr>
        <td width="462">&nbsp;<u>/s/
Patrick Johnson&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u>
        </td>
      </tr>
      <tr>
        <td width="462">

<p align="left">Patrick Johnson, President and Chief Executive  </p>

        </td>
      </tr>
      <tr>
        <td width="462">Officer&nbsp;-&nbsp;Principal
Executive Officer</td>
      </tr>
    </table>
  </div>

<p align="center">&nbsp;</p>



<p align="center">&nbsp;</p>



<p align="center">44</p>



  <hr color="#000080" align="left"><p style="Page-break-after: always"></P>

<p align="left">&nbsp;</p>



<p align="center"><u>CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER</u></p>



<p align="justify">I, Jeffrey J. Ritchey, certify that:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; I have reviewed
this Annual Report on Form&nbsp;10&#8209;KSB of Pro-Dex, Inc;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Based on my
knowledge, this Annual Report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this Annual Report;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (3)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Based on my
knowledge, the financial statements, and other financial information included
in this Annual Report, fairly present in all material respects the financial
condition results of operations and cash flows of the Registrant as of, and
for, the periods presented in this Annual Report.</p>

<p>Date:&nbsp; October 1,
2002</p>

  <div align="right">
    <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="462" id="AutoNumber2">
      <tr>
        <td>&nbsp;<u>/s/
Jeffrey J. Ritchey&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u>
        </td>
      </tr>
      <tr>
        <td>Jeffrey J. Ritchey, Chief Financial Officer&nbsp;-</td>
      </tr>
      <tr>
        <td>&nbsp;Principal Financial Officer</td>
      </tr>
    </table>
  </div>
&nbsp;<p align="center">&nbsp;</p>
  <p align="center">45</p>
  <p>&nbsp;</p>

</body>

</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.26
<SEQUENCE>3
<FILENAME>ex1026.htm
<TEXT>
<html>

<head>

<title>Exhibit 10.26</title>

</head>

<body>


<p align=center><b>PRO-DEX, INC.&nbsp;</b></p>

<p align=center><b>CHARTER OF THE
AUDIT COMMITTEE&nbsp;</b></p>

<p><b>PURPOSE:</b></p>

<p align="justify"><b>&nbsp;</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
purpose of the Audit Committee (the &quot;Committee&quot;) of the Board of Directors (the
&quot;Board&quot;) of Pro-Dex, Inc., a Colorado corporation (the &quot;Company&quot;) shall be to
make such examinations as are necessary to monitor the corporate financial
reporting and the internal and external audits of the Company, to provide the
Board the results of its examinations and recommendations derived therefrom, to
outline to the Board improvements made, or to be made, in internal accounting
controls, to nominate independent auditors, and to provide such additional
information and materials as it may deem necessary to make the Board aware of
significant financial matters which require the Board's attention.</p>

<p><b>COMPOSITION:</b></p>

<p align="justify"><b>&nbsp;</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Except as discussed herein, the
Committee shall be comprised of at least three members, a majority of which are
&quot;independent&quot; members of the Board, each of whom is able to read and understand
fundamental financial statements and at least one of whom has past employment
experience in finance or accounting, is a certified public accountant, or has
other comparable experience, including a current or past position as chief
executive, financial officer or other senior officer with financial oversight
responsibilities.&nbsp; A member of the Board
is independent only if he or she has no relationship to the Company that may
interfere with the exercise of his or her independent judgment.&nbsp; The members of the Committee and its
Chairman will be appointed by and serve at the discretion of the Board.</p>

<p><b>FUNCTIONS AND AUTHORITY:</b></p>

<p align="justify"><b>&nbsp;</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
operation of the Committee shall be subject to the Bylaws of the Company, as in
effect from time to time, and Section 7, Article 108 of the Colorado Business
Corporation Act, as amended.&nbsp; The
Committee shall be obligated, and shall have full power and authority, to carry
out the following responsibilities:</p>

<blockquote>
  <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="711">
    <tr>
      <td width="32" align="left" valign="top">1.&nbsp;&nbsp; </td>
      <td width="676" align="justify">To
recommend annually to the full Board the firm of certified public accountants
to be employed by the Company as its independent auditors for the ensuing year.</td>
    </tr>
    <tr>
      <td width="32" align="left" valign="top">&nbsp;</td>
    </tr>
    <tr>
      <td width="32" align="left" valign="top">2.&nbsp;&nbsp; </td>
      <td width="676" align="justify">To
receive a formal written statement from the Company's independent auditors
delineating all relationships between the auditors and the Company.</td>
    </tr>
  </table>
</blockquote>

<p>&nbsp;</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p>&nbsp;</p>

<blockquote>
  <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="709">
    <tr>
      <td width="34" align="left" valign="top">3.&nbsp;&nbsp; </td>
      <td width="675" align="justify">To
review the engagement of the independent auditors, including the scope, extent
and procedures of the audit and the compensation to be paid therefore, and all
other matters the Committee deems appropriate.</td>
    </tr>
    <tr>
      <td width="34" align="left" valign="top">&nbsp;</td>
    </tr>
    <tr>
      <td width="34" align="left" valign="top">4.&nbsp;&nbsp; </td>
      <td width="675" align="justify">To
instruct the independent auditors that the independent auditors are accountable
to the Board and the Committee as stockholder representatives, and that the
Committee has a responsibility to select, evaluate, and where appropriate,
replace the independent auditors.</td>
    </tr>
    <tr>
      <td width="34" align="left" valign="top">&nbsp;</td>
    </tr>
    <tr>
      <td width="34" align="left" valign="top">5.&nbsp;&nbsp; </td>
      <td width="675" align="justify">To
have familiarity, through the individual efforts of its members, with the
accounting and reporting principles and practices applied by the Company in
preparing its financial statements, including, without limitation, the policies
for recognition of revenues in financial statements.</td>
    </tr>
    <tr>
      <td width="34" align="left" valign="top">&nbsp;</td>
    </tr>
    <tr>
      <td width="34" align="left" valign="top">6.&nbsp;&nbsp; </td>
      <td width="675" align="justify">To
periodically review new and proposed releases and pronouncements by the
Financial Accounting Standards Board (FASB), the American Institute of
Certified Public Accountants (AICPA) and the Securities and Exchange Commission
(SEC) that may affect current or future financial statements or other
disclosures in financial reports.</td>
    </tr>
    <tr>
      <td width="34" align="left" valign="top">&nbsp;</td>
    </tr>
    <tr>
      <td width="34" align="left" valign="top">7.&nbsp;&nbsp; </td>
      <td width="675" align="justify">To
meet separately with management and the independent auditors, upon completion
of their audit, to review and discuss the Company's financial results for the
year, as reported in the Company's financial statements, or other disclosures.</td>
    </tr>
    <tr>
      <td width="34" align="left" valign="top">&nbsp;</td>
    </tr>
    <tr>
      <td width="34" align="left" valign="top">8.&nbsp;&nbsp; </td>
      <td width="675" align="justify">To
provide a report in the Company's annual meeting proxy statement and the
Company's Form 10-K stating whether the Committee has complied with its
responsibilities under the Charter, including without limitation, whether the
Committee has reviewed and discussed the Company's audited financial statements
with the Company's management, whether the Committee recommended to the Board
that the audited financial statements be included in the Company's Annual
Report on Form 10-K, and whether anything came to the attention of the
Committee that caused the Committee to believe that the audited financial
statements contain any materially misleading information or omit any material
information.</td>
    </tr>
    <tr>
      <td width="34" align="left" valign="top">&nbsp;</td>
    </tr>
    <tr>
      <td width="34" align="left" valign="top">9.&nbsp;&nbsp; </td>
      <td width="675" align="justify">To
instruct the independent auditors that the independent auditors shall discuss
the Company's financial results with the Committee and the Company's management
prior to filing of a Form 10-Q.</td>
    </tr>
  </table>
</blockquote>

<p>&nbsp;</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p>&nbsp;</p>

<div align="left">
  <blockquote>
    <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="707">
      <tr>
        <td width="33" align="left" valign="top">10.&nbsp;&nbsp; </td>
        <td width="674" align="justify">To
assist and interact with the independent auditors in order that they may carry
out their duties in the most efficient and cost effective manner.</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">&nbsp;</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">11.&nbsp;&nbsp; </td>
        <td width="674" align="justify">To
evaluate the cooperation received by the independent auditors during their
audit examination, including their access to all requested records, data and
information, and elicits the comments of management regarding the
responsiveness of the independent auditors to the Company's needs.</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">&nbsp;</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">12.&nbsp;&nbsp; </td>
        <td width="674" align="justify">To
review the Company's balance sheets, profit and loss statements and statements
of cash flows and stockholder's equity for each interim period, and any changes
in accounting policy that have occurred during the interim period.</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">&nbsp;</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">13.&nbsp;&nbsp; </td>
        <td width="674" align="justify">To
review and approve all professional services provided to the Company by its
independent auditors and consider the possible effect of such services on the
independence of such auditors.</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">&nbsp;</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">14.&nbsp;&nbsp; </td>
        <td width="674" align="justify">To
consult with the independent auditors and discuss with the Company management
the scope and quality of internal accounting and financial reporting controls
in effect.</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">&nbsp;</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">15.&nbsp;&nbsp; </td>
        <td width="674" align="justify">To
determine, as regards to new transactions or events, the auditor's reasoning in
determining the appropriateness of the accounting principles and disclosure
practices adopted by management.</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">&nbsp;</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">16.&nbsp;&nbsp; </td>
        <td width="674" align="justify">To
assure that the auditor's reasoning is described in determining the
appropriateness of changes in accounting principles and disclosure practices.</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">&nbsp;</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">17.&nbsp;&nbsp; </td>
        <td width="674" align="justify">To
disclose in the Company's annual meeting proxy statement whether that Committee
has a written charter, and to file the Committee's Charter every three years in
the Company's annual meeting proxy statement.</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">&nbsp;</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">18.&nbsp;&nbsp; </td>
        <td width="674" align="justify">To
review and update the Committee's Charter annually.</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">&nbsp;</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">19.&nbsp;&nbsp; </td>
        <td width="674" align="justify">To
investigate, review and report to the Board the propriety and ethical
implications of any transactions, as reported or disclosed to the Committee by
the independent auditors, employees, officers members of the Board, or
otherwise, between (a) the Company and (b) any employee, officer or member of
the Board of the Company, or any affiliates of the foregoing.</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">&nbsp;</td>
      </tr>
      <tr>
        <td width="33" align="left" valign="top">20.&nbsp;&nbsp; </td>
        <td width="674" align="justify">To
perform such other functions and have such other power as may be necessary or
convenient in the efficient and lawful discharge of the foregoing.</td>
      </tr>
    </table>
  </blockquote>
</div>

<p>&nbsp;</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p>&nbsp;</p>

<p><b>MEETINGS AND PROCEDURAL
MATTERS:</b></p>

<p>&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
Committee will hold at least two regular meetings per year and additional
meetings as the Chairman or Committee deems appropriate.&nbsp; The Committee will meet at such time as
shall be determined by its Chairperson, or upon the request of any two of its
members.&nbsp; The agenda of each meeting
will be prepared by the Secretary of the Committee and, whenever reasonably
practicable circulated to each member prior to the meeting date.&nbsp; The chief executive officer or the chief
accounting officer may attend any meeting of the Committee, except for portions
of the meetings where his, her or their presence would be inappropriate, as
determined by the Committee Chairman.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; One-third of the members, but not
less than two (2) members, will constitute a quorum.&nbsp; A majority of the members present at any meeting at which a
quorum is present may act on behalf of the Committee.&nbsp; The Chairperson will preside, when present, at all meetings of
the Committee.&nbsp; The Committee may meet
by telephone, video conference, and may take action by written consent.&nbsp; Minutes of each meeting of the Committee
shall be kept and distributed to each member of the Committee, members of the
Board who are not members of the Committee and the Secretary of the
Company.&nbsp; The Chairman of the Committee
shall report to the Board from time to time, or whenever so requested by the
Board.</p>

</body>

</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.27
<SEQUENCE>4
<FILENAME>ex1027.htm
<TEXT>
<html>

<head>

<title>ex10.27</title>

</head>

<body>



<p><b><font size="2">A. SETTLEMENT
STATEMENT</font></b></p>

<p><b><font size="2">U.S. Department of Housing<br>
and Urban Development</font></b></p>

<p align="right"><font size="2">OMB No. 2502-0265</font></p>

<table border=0 cellspacing=0 cellpadding=0 style="border-collapse: collapse" bordercolor="#111111" width="775">
 <tr>
  <td width=826 colspan=4 valign=top>
  <p><b><font size="2">B.
  Type of Loan</font></b></p>
  </td>
 </tr>
 <tr>
  <td colspan=4 valign=top width="826">
  <p><font size="2">1.___FHA&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.___FMHA&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3. <u>X&nbsp; </u>Conf. Unins.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6. File Number&nbsp;&nbsp;
  00205146&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7. Loan Number &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8. Mortgage Insurance Case Number<br>
  4.___VA&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5.___Conv. Ins.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <br>&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width=826 colspan=4 valign=top>
  <p><b><font size="2">C.
  NOTE:</font></b><font size="2"> This form is furnished to give you a statement of actual settlement
  costs. Amounts paid to and by the settlement agent are shown.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  <br>
  Items marked (P.O.C.) were
  paid outside the closing; they are shown here for information purposes and
  are not included in the totals. </font>  </p>
  </td>
 </tr>
 <tr>
  <td colspan=4 valign=top>
  <p><font size="2">D. Name and Address of Borrower&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  E. Name and Address of Seller&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  F. Name and Address of Lender:&nbsp; </font> </p>
  <p><font size="2">AHMAD NADIMI&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; PDMI SUBSIDIARY C. INC.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CENTRAL BANK OF LAKE
  OF THE OZARKS</font></p>

  <p><font size="2">5395 HWY 54&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;151
  EAST COLUMBINE AVE.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;P.O. BOX 207<br>
  OSAGE BEACH, MISSOURI 65065&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SANTA ANA, CA&nbsp; 92707&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;OSAGE
  BEACH, MO 65065<br><br></font></p>
  </td>
 </tr>
 <tr>
  <td width=353 rowspan=2 valign=top>
  <p><font size="2">G.
  Property Location</font></p>
  <p><font size="2">1100
  BLUFF DRIVE<br>
  OSAGE BEACH, MISSOURI 65065 <br>
  CHALLENGE PRODUCTS LOT 1</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=407 colspan=2 valign=top>
  <p><font size="2">H.
  Settlement Agent<br>&nbsp;GUARANTY LAND TITLE INSURANCE, INC.</font></p>

  </td>
 </tr>
 <tr>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">Place
  of Settlement<br>
  4558 HI6HMAY 54, SUITE 104<br>
  OSAGE BEACH, MO 65065</font></p>

  </td>
  <td width=74 valign=top>
  <p align=center><font size="2">1. Settlement<br>
  Date</font></p>
  <p align="center"><font size="2">06/20/02</font></p>

  </td>
 </tr>
 <tr>
  <td width=419 colspan=2 valign=top>
  <p><i><font size="2">4.</font></i><font size="2"> SUMMARY OP
  BORROWER'S TRANSACTION:</font></p>

  </td>
  <td width=407 colspan=2 valign=top>
  <p><font size="2">K,
  SUMMARY OF SELLER'S TRANSACTION:</font></p>

  </td>
 </tr>
 <tr>
  <td width=419 colspan=2 valign=top>
  <p><font size="2">100
  Gross Amount Due Prom Borrower</font></p>

  </td>
  <td width=407 colspan=2 valign=top>
  <p><font size="2">400.
  Gross Amount Due To Seller</font></p>

  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">101.
  Contract sales price</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">401.
  Contract sales price</font></p>

  </td>
  <td width=74 valign=top>
  <p align=right><font size="2">395,000.00</font></p>

  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">102.
  Personal property</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">402.
  Personal Property</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">103.
  Settlement charges to borrower (Line 1400)</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">403.</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">104.</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">404.</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">105.</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">405.</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=419 colspan=2 valign=top>
  <p><font size="2">Adjustments
  for Items paid by seller in advance</font></p>

  </td>
  <td width=407 colspan=2 valign=top>
  <p><font size="2">Adjustments
  for items paid by seller in advance</font></p>

  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">106.
  City/town taxes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</font></p>
  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">406.
  City/town taxes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  to</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">107.
  County taxes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  to</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">407.
  County taxes &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">108.
  Assessments&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">408.
  Assessments&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  to</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">109.</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">409.</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">110.</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">410.</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">111.</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">411.</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">112.</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">412.</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">120.
  GROSS AMOUNT DUE FROM BORROWER</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">420.
  GROSS AMOUNT DUE TO SELLER</font></p>

  </td>
  <td width=74 valign=top>
  <p align=right><font size="2">395,000.00</font></p>

  </td>
 </tr>
 <tr>
  <td width=419 colspan=2 valign=top>
  <p><font size="2">200.
  Amounts paid By or In Behalf of Borrower</font></p>

  </td>
  <td width=333 valign=top>
  <p><font size="2">500.
  Reductions In Amount Due To Seller</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">201.
  Deposit of earnest money</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">501.
  Excess Deposit (see instructions)</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">202.
  Principal amount of new loans</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">502.
  Settlement charges to seller (line 1400)</font></p>

  </td>
  <td width=74 valign=top>
  <p align=right><font size="2">21,107.50</font></p>

  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">203.
  Existing loan(s) taken subject to</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">503.
  Existing loan(s) taken subject to</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">204.</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">504.
  Payoff of first mortgage loan</font></p>

  </td>
  <td width=74 valign=top>
  <p align=right><font size="2">109,561.83</font></p>

  </td>
 </tr>
 <tr>
  <td width=353 valign=top>


  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">CENTRAl BANK OF LAKE OF THE OZARKS</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">205.</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">505.
  Payoff of second mortgage loan</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>


  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>


  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">206.</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">506.</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">207.</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">507.</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">208.</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">508.</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">209.</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">509.</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=419 colspan=2 valign=top>
  <p><font size="2">Adjustments
  for Items unpaid by seller</font></p>

  </td>
  <td width=407 colspan=2 valign=top>
  <p align=center><font size="2">Adjustments for Items unpaid by
  seller</font></p>

  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">210.
  City/town taxes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  to</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">510.
  City/town taxes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  to</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">211.
  County taxes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;01/01/ to 6/20</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">511.
  County taxes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;01/01 to 8/20</font></p>

  </td>
  <td width=74 valign=top>
  <p align=right><font size="2">2,720.84</font></p>

  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">212.
  Assessments&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  to</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">512.
  Assessments&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">213.</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">513. </font>
  </p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">214.</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">514.</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">215.</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">515.</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">216.</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">516.</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">217.</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">517.</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">218.</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">518.</font></p>

  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">219</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">519.</font></p>
  </td>
  <td width=74 valign=top>


  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">220.
  TOTAL PAID BY/FOR BORROWER</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">520.
  TOTAL REDUCTION AMOUNT DUE SELLER</font></p>

  </td>
  <td width=74 valign=top>
  <p align=right><font size="2">133,390.17</font></p>

  </td>
 </tr>
 <tr>
  <td width=419 colspan=2 valign=top>
  <p><font size="2">300.
  Cash At Settlement From or to Borrower</font></p>

  </td>
  <td width=407 colspan=2 valign=top>
  <p><font size="2">600.
  Cash At Settlement To or From Seller</font></p>

  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">301.
  Gross amount due from borrower (line 120)</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">601.
  Gross amount due to seller (line 420)</font></p>

  </td>
  <td width=74 valign=top>
  <p align=right><font size="2">395,000.00</font></p>

  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">302.
  Less amounts paid by/for borrower (line 220)</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">602.
  Less reduction amount due seller (line 520)</font></p>

  </td>
  <td width=74 valign=top>
  <p align=right><font size="2">133,390.17</font></p>

  </td>
 </tr>
 <tr>
  <td width=353 valign=top>
  <p><font size="2">303.
  CASH FROM BORROWER</font></p>

  </td>
  <td width=66 valign=top>


  </td>
  <td width=333 valign=top>
  <p><font size="2">603.
  CASH&nbsp;&nbsp;&nbsp; TO&nbsp;&nbsp;&nbsp; SELLER</font></p>

  </td>
  <td width=74 valign=top>
  <p align=right><font size="2">261,609.83</font></p>

  </td>
 </tr>
</table>

<font size="2">

<br clear=all>


</font><hr color="#000080">
<p>&nbsp;</p>
<p>&nbsp;</p>


<p><font size="2">U.S.
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT<b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; SETTLEMENT STATEMENT</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; PAGE
2</font></p>

<table border=0 cellspacing=0 cellpadding=0 width="775" style="border-collapse: collapse" bordercolor="#111111">
 <tr>
  <td valign=top>
  <p><font size="2">L.
  SETTLEMENT CHARGES:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FILE
  #: 00205146</font></p>

  </td>
  <td width=76 colspan=2 rowspan=5 valign=top>
  <p><font size="2">PAID
  FROM<br>
  BORROWER'S<br>
  FUNDS AT<br>
  SETTLEMENT</font></p>

  </td>
  <td width=75 rowspan=5 valign=top>
  <p><font size="2">PAID
  FROM<br>
  SELLER'S<br>
  FUNDS AT<br>
  SETTLEMENT</font></p>

  </td>
 </tr>
 <tr>
  <td valign=top>
  <p><font size="2">700.
  TOTAL SALES/BROKER'S COMMISSION based on price $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 395.000.00@&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5.00 = 19,750.00</font></p>

  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Division of commission (line 700) as
  follows:</font></p>

  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">701.$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 19.750.00 to John Farrell
  Real Estate</font></p>

  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">702.$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; to</font></p>

  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">703.
  Commission paid at Settlement</font></p>

  </td>
  <td width=76 colspan=2 valign=top>


  </td>
  <td width=75 valign=top>
  <p align=right><font size="2">19,750.00</font></p>

  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">704.</font></p>

  </td>
  <td width=76 colspan=2 valign=top>


  </td>
  <td width=75 valign=top>


  </td>
 </tr>
 <tr>
  <td width=591 colspan=4 valign=top>
  <p><font size="2">800. ITEMS
  PAYABLE IN CONNECTION WITH LOAN</font></p>

  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">801.
  Loan Origination Fee %</font></p>

  </td>
  <td width=76 colspan=2 valign=top>


  </td>
  <td width=75 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">802.
  Loan Discount %</font></p>

  </td>
  <td width=76 colspan=2 valign=top>


  </td>
  <td width=75 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">803.
  Appraisal Fee&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; to</font></p>

  </td>
  <td width=76 colspan=2 valign=top>


  </td>
  <td width=75 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">804.
  Credit Report&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; to</font></p>

  </td>
  <td width=76 colspan=2 valign=top>


  </td>
  <td width=75 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">805.
  Lender's Inspection Fee&nbsp;&nbsp;&nbsp;&nbsp; to</font></p>

  </td>
  <td width=76 colspan=2 valign=top>


  </td>
  <td width=75 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">806. Mtg.
  Ins. Application Fee&nbsp;&nbsp; to</font></p>

  </td>
  <td width=76 colspan=2 valign=top>


  </td>
  <td width=75 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">807.
  Assumption Fee&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; to</font></p>

  </td>
  <td width=76 colspan=2 valign=top>


  </td>
  <td width=75 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">808.</font></p>

  </td>
  <td width=76 colspan=2 valign=top>


  </td>
  <td width=75 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">809.</font></p>

  </td>
  <td width=76 colspan=2 valign=top>


  </td>
  <td width=75 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">810.</font></p>

  </td>
  <td width=76 colspan=2 valign=top>


  </td>
  <td width=75 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">811.</font></p>

  </td>
  <td width=76 colspan=2 valign=top>


  </td>
  <td width=75 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">812.</font></p>

  </td>
  <td width=76 colspan=2 valign=top>


  </td>
  <td width=75 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">813.</font></p>

  </td>
  <td width=76 colspan=2 valign=top>


  </td>
  <td width=75 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">814.</font></p>

  </td>
  <td width=76 colspan=2 valign=top>


  </td>
  <td width=75 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">815.</font></p>

  </td>
  <td width=76 colspan=2 valign=top>


  </td>
  <td width=75 valign=top>


  </td>
 </tr>
 <tr>
  <td width=591 colspan=4 valign=top>
  <p><font size="2">900.
  ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE</font></p>

  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">901.
  Interest from&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; @$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; /day&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Days</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">902.
  Mortgage Insurance Premium for&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  to</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">903. Hazard
  Insurance Premium for&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; yrs&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">904.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">905.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=591 colspan=4 valign=top>
  <p><font size="2">1000.
  RESERVES DEPOSITED WITH LENDER FOR</font></p>

  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1001.
  Hazard Insurance&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; mo.@$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; /mo.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1002.
  Mortgage Insurance&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;mo.&reg;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;/mo.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1003.
  City property taxes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;mo.&reg;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;/mo.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1004.
  County property taxes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;mo.&reg;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;/mo.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1005.
  Annual Assessments&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;mo.@$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;/mo.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1006.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  mo.@$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; /mo.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1007.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  mo.@$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; /mo.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1008.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=591 colspan=4 valign=top>
  <p><font size="2">1100.
  TITLE CHARGES</font></p>

  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1101.
  Settlement or closing fee&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; to&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; GUARANTY LAND TITLE</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>
  <p align=right><font size="2">150.00</font></p>

  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1102.
  Abstract or title search&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1103. Title
  examination&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1104. Title
  insurance binder&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; GUARANTY LAND TITLE</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>
  <p align=right><font size="2">100.00</font></p>

  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1105.
  Document preparation&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1106.
  Notary fees&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1107.
  Attorney's fees&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">(includes
  above items No: )</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1108.
  Title insurance&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  to&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; GUARANTY LAND TITLE</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>
  <p align=right><font size="2">1.067.50</font></p>

  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">(Includes
  above items No: )</font></p>

  </td>
  <td width=73 rowspan=3 valign=top>


  </td>
  <td width=77 colspan=2 rowspan=3 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1109.
  Lender's coverage $</font></p>

  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1110.
  Owner's coverage $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 395,000.00
  ---- 1067.50</font></p>

  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1111.
  OVERNIGHT PROCESSING FEE&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; GUARANTY LAND
  TITLE</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>
  <p align=right><font size="2">40.00</font></p>

  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1112.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1113.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=591 colspan=4 valign=top>
  <p><font size="2">1200.
  GOVERNMENT RECORDING AND TRANSFER CHARGES .</font></p>

  </td>
 </tr>
 <tr>
  <td valign=top>
  <p><font size="2">1201.
  Recording fees&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Deed$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mortgage $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  ;Releases $</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1202. City/county/stamps&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deed$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mortgage $</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1203.
  Slate tax/stamps&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Deed$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mortgage $</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1204.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1205.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=591 colspan=4 valign=top>
  <p><font size="2">1300.
  ADDITIONAL SETTLEMENT CHARGES</font></p>

  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1301.
  Survey&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  to</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1302.
  Pest Inspection&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1303.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1304.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1305.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1306.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1307.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td width=440 valign=top>
  <p><font size="2">1308.</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>


  </td>
 </tr>
 <tr>
  <td valign=top>
  <p><font size="2">1400.
  TOTAL SETTLEMENT CHARGES (enter on lines 103 and 502, Sections J and K)</font></p>

  </td>
  <td width=73 valign=top>


  </td>
  <td width=77 colspan=2 valign=top>
  <p align=right><font size="2">21,107.50</font></p>

  </td>
 </tr>
 <tr height=0>
  <td width=440></td>
  <td width=73></td>
  <td width=3></td>
  <td width=75></td>
 </tr>
</table>





</body>

</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.30
<SEQUENCE>5
<FILENAME>ex1030.htm
<TEXT>
<html>

<head>

<title>Exhibit 10.30</title>

</head>

<body link=blue vlink=purple>



<p align="right"><b><u>EXECUTION COPY</u></b></p>

























<p align="right">&nbsp;</p>

























<hr color="#000000" width="650" size="4">
<div align="center">
  <center>

























<table border=0 cellspacing=0 cellpadding=0 style="text-align: center; border-collapse: collapse" bordercolor="#111111">
 <tr>
  <td width=638 valign=top>
  <p><br>
  CREDIT AND SECURITY AGREEMENT<br>
  <br>
  BY AND BETWEEN<br>
  <br>
  MICRO MOTORS, INC.<br>
  <br>
  AND<br>
  <br>
  WELLS FARGO BUSINESS CREDIT, INC.</p>
  <p>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=638 valign=top>
  <p align=center><b>May 28,
  2002<br>
&nbsp;</b></p>
  </td>
 </tr>
</table>



  </center>
</div>
<hr color="#000000" width="650" size="4">



<p><u><br clear=all>
</u></p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="center"><u>Table of Contents</u></p>

<p>&nbsp;</p>

<div align="left">
  <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="722" height="776">
    <tr>
      <td width="722" colspan="3" height="19">
      <p align="right"><u>Page</u></td>
    </tr>
    <tr>
      <td width="692" colspan="2" height="19">&nbsp;</td>
      <td width="30" align="right" valign="bottom" height="19">&nbsp;</td>
    </tr>
    <tr>
      <td width="692" colspan="2" height="19">ARTICLE I&nbsp;&nbsp; DEFINITIONS&nbsp;&nbsp;
      </td>
      <td width="30" align="right" valign="bottom" height="19">1</td>
    </tr>
    <tr>
      <td width="107" height="19">&nbsp;</td>
      <td width="585" height="19">&nbsp;</td>
      <td width="30" align="right" valign="bottom" height="19">&nbsp;</td>
    </tr>
    <tr>
      <td width="107" height="19">Section 1.1&nbsp;&nbsp; </td>
      <td width="585" height="19">&nbsp;Definitions&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">1</td>
    </tr>
    <tr>
      <td width="107" height="19">Section 1.2&nbsp;&nbsp; </td>
      <td width="585" height="19">&nbsp;Other Definitional Terms; Rules of
      Interpretation&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">11</td>
    </tr>
    <tr>
      <td width="692" colspan="2" height="19">&nbsp;</td>
      <td width="30" align="right" valign="bottom" height="19">&nbsp;</td>
    </tr>
    <tr>
      <td width="692" colspan="2" height="19">ARTICLE II&nbsp;&nbsp; AMOUNT AND
      TERMS OF THE CREDIT FACILITY&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">12</td>
    </tr>
    <tr>
      <td width="107" height="19">&nbsp;</td>
      <td width="585" height="19">&nbsp;</td>
      <td width="30" align="right" valign="bottom" height="19">&nbsp;</td>
    </tr>
    <tr>
      <td width="107" height="19" align="left" valign="top">Section 2.1&nbsp;&nbsp;
      </td>
      <td width="585" height="19">&nbsp;Revolving Advances&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">12</td>
    </tr>
    <tr>
      <td width="107" height="19" align="left" valign="top">Section 2.2&nbsp;&nbsp;
      </td>
      <td width="585" height="19">&nbsp;Procedures for Requesting Advances&nbsp;&nbsp;
      </td>
      <td width="30" align="right" valign="bottom" height="19">12</td>
    </tr>
    <tr>
      <td width="107" height="19" align="left" valign="top">Section 2.3&nbsp;&nbsp;
      </td>
      <td width="585" height="19">&nbsp;Letters of Credit&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">13</td>
    </tr>
    <tr>
      <td width="107" height="19" align="left" valign="top">Section 2.4&nbsp;&nbsp;
      </td>
      <td width="585" height="19">&nbsp;Special Account&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">13</td>
    </tr>
    <tr>
      <td width="107" height="19" align="left" valign="top">Section 2.5&nbsp;&nbsp;
      </td>
      <td width="585" height="19">&nbsp;Payment of Amounts Drawn Under Letters
      of Credit; Obligation of<br>
&nbsp;Reimbursement&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">13</td>
    </tr>
    <tr>
      <td width="107" height="19" align="left" valign="top">Section 2.6&nbsp;&nbsp;
      </td>
      <td width="585" height="19">Obligations Absolute&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">14</td>
    </tr>
    <tr>
      <td width="107" height="19" align="left" valign="top">Section 2.7&nbsp;&nbsp;
      </td>
      <td width="585" height="19">Interest; Minimum Interest Charge; Default
      Interest; Participations; <br>
      Clearance Days; Usury&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">15</td>
    </tr>
    <tr>
      <td width="107" height="19" align="left" valign="top">Section 2.8&nbsp;&nbsp;
      </td>
      <td width="585" height="19">Fees&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">16</td>
    </tr>
    <tr>
      <td width="107" height="19" align="left" valign="top">Section 2.9&nbsp;&nbsp;
      </td>
      <td width="585" height="19">Time for Interest Payments; Payment on
      Non-Banking Days; Computation of <br>
      Interest and Fees&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">17</td>
    </tr>
    <tr>
      <td width="107" height="19" align="left" valign="top">Section 2.10&nbsp;&nbsp;
      </td>
      <td width="585" height="19">Lockbox; Collateral Account; Application of
      Payments&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">18</td>
    </tr>
    <tr>
      <td width="107" height="19" align="left" valign="top">Section 2.11&nbsp;&nbsp;
      </td>
      <td width="585" height="19">Voluntary Prepayment; Termination of the
      Credit Facility by the Borrower&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">18</td>
    </tr>
    <tr>
      <td width="107" height="19" align="left" valign="top">Section 2.12&nbsp;&nbsp;
      </td>
      <td width="585" height="19">Mandatory Prepayment&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">19</td>
    </tr>
    <tr>
      <td width="107" height="19" align="left" valign="top">Section 2.13&nbsp;&nbsp;
      </td>
      <td width="585" height="19">Revolving Advances to Pay Obligations&nbsp;&nbsp;
      </td>
      <td width="30" align="right" valign="bottom" height="19">19</td>
    </tr>
    <tr>
      <td width="107" height="19" align="left" valign="top">Section 2.14&nbsp;&nbsp;
      </td>
      <td width="585" height="19">Use of Proceeds&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">19</td>
    </tr>
    <tr>
      <td width="107" height="19" align="left" valign="top">Section 2.15&nbsp;&nbsp;
      </td>
      <td width="585" height="19">Liability Records&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">19</td>
    </tr>
    <tr>
      <td width="692" colspan="2" height="19">&nbsp;</td>
      <td width="30" align="right" valign="bottom" height="19">&nbsp;</td>
    </tr>
    <tr>
      <td width="692" colspan="2" height="19">ARTICLE III&nbsp;&nbsp; SECURITY INTEREST; OCCUPANCY; SETOFF&nbsp;&nbsp;
      </td>
      <td width="30" align="right" valign="bottom" height="19">19</td>
    </tr>
    <tr>
      <td width="107" height="19">&nbsp;</td>
      <td width="585" height="19">&nbsp;</td>
      <td width="30" align="right" valign="bottom" height="19">&nbsp;</td>
    </tr>
    <tr>
      <td width="107" height="19">Section 3.1&nbsp;&nbsp; </td>
      <td width="585" height="19">Grant of Security Interest&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">19</td>
    </tr>
    <tr>
      <td width="107" height="19">Section 3.2&nbsp;&nbsp; </td>
      <td width="585" height="19">Notification of Account Debtors and Other Obligors&nbsp;&nbsp;
      </td>
      <td width="30" align="right" valign="bottom" height="19">19</td>
    </tr>
    <tr>
      <td width="107" height="19">Section 3.3&nbsp;&nbsp; </td>
      <td width="585" height="19">Assignment of Insurance&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">20</td>
    </tr>
    <tr>
      <td width="107" height="19">Section 3.4&nbsp;&nbsp; </td>
      <td width="585" height="19">Occupancy&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">20</td>
    </tr>
    <tr>
      <td width="107" height="19">Section 3.5&nbsp;&nbsp; </td>
      <td width="585" height="19">License&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">21</td>
    </tr>
    <tr>
      <td width="107" height="19">Section 3.6&nbsp;&nbsp; </td>
      <td width="585" height="19">Financing Statement&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">21</td>
    </tr>
    <tr>
      <td width="107" height="19">Section 3.7&nbsp;&nbsp; </td>
      <td width="585" height="19">Setoff&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">21</td>
    </tr>
    <tr>
      <td width="107" height="19">Section 3.8&nbsp;&nbsp; </td>
      <td width="585" height="19">Power of Attorney&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">21</td>
    </tr>
    <tr>
      <td width="692" colspan="2" height="19">&nbsp;</td>
      <td width="30" align="right" valign="bottom" height="19">&nbsp;</td>
    </tr>
    <tr>
      <td width="692" colspan="2" height="19">ARTICLE IV&nbsp; CONDITIONS OF LENDING&nbsp;&nbsp;
      </td>
      <td width="30" align="right" valign="bottom" height="19">22</td>
    </tr>
    <tr>
      <td width="107" height="19">&nbsp;</td>
      <td width="585" height="19">&nbsp;</td>
      <td width="30" align="right" valign="bottom" height="19">&nbsp;</td>
    </tr>
    <tr>
      <td width="107" height="19">Section 4.1&nbsp;&nbsp; </td>
      <td width="585" height="19">Conditions Precedent to the Initial Advances and Letter of
Credit&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">22</td>
    </tr>
    <tr>
      <td width="107" height="19">Section 4.2&nbsp;&nbsp; </td>
      <td width="585" height="19">Conditions Precedent to All Advances and Letters of
Credit&nbsp;&nbsp; </td>
      <td width="30" align="right" valign="bottom" height="19">25</td>
    </tr>
    <tr>
      <td width="692" colspan="2" height="19">&nbsp;</td>
      <td width="30" align="right" valign="bottom" height="19">&nbsp;</td>
    </tr>
    <tr>
      <td width="692" colspan="2" height="19">ARTICLE V&nbsp; REPRESENTATIONS AND WARRANTIES&nbsp;&nbsp;
      </td>
      <td width="30" align="right" valign="bottom" height="19">25</td>
    </tr>
    <tr>
      <td width="107" align="left" valign="top" height="1"></td>
      <td width="585" align="left" valign="top" height="1"></td>
      <td width="30" align="right" valign="bottom" height="1"></td>
    </tr>
    <tr>
      <td width="107" align="left" valign="top" height="38">Section 5.1&nbsp;&nbsp;
      </td>
      <td width="585" align="left" valign="top" height="38">Existence and Power; Name; Chief Executive Office;
Inventory and <br>
      Equipment Locations; Federal Employer Identification Number&nbsp;&nbsp;
      </td>
      <td width="30" align="right" valign="bottom" height="38">25</td>
    </tr>
  </table>
</div>
<p>&nbsp;</p>
<p align="center">i</p>
<hr color="#000080"><P Style="page-break-after: always"></P>
<p>&nbsp;</p>
<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="722">
  <tr>
    <td width="109">Section 5.2&nbsp;&nbsp; </td>
    <td width="579">Capitalization&nbsp;&nbsp; </td>
    <td width="34" align="right">25</td>
  </tr>
  <tr>
    <td width="109">Section 5.3&nbsp;&nbsp; </td>
    <td width="579">Authorization of Borrowing; No Conflict as to Law or
Agreements&nbsp;&nbsp; </td>
    <td width="34" align="right">26</td>
  </tr>
  <tr>
    <td width="109">Section 5.4&nbsp;&nbsp; </td>
    <td width="579">Legal Agreements&nbsp;&nbsp; </td>
    <td width="34" align="right">26</td>
  </tr>
  <tr>
    <td width="109">Section 5.5&nbsp;&nbsp; </td>
    <td width="579">Subsidiaries&nbsp;&nbsp; </td>
    <td width="34" align="right">26</td>
  </tr>
  <tr>
    <td width="109">Section 5.6&nbsp;&nbsp; </td>
    <td width="579">Financial Condition; No Adverse Change&nbsp;&nbsp; </td>
    <td width="34" align="right">26</td>
  </tr>
  <tr>
    <td width="109">Section 5.7&nbsp;&nbsp; </td>
    <td width="579">Litigation&nbsp;&nbsp; </td>
    <td width="34" align="right">26</td>
  </tr>
  <tr>
    <td width="109">Section 5.8&nbsp;&nbsp; </td>
    <td width="579">Regulation U&nbsp;&nbsp; </td>
    <td width="34" align="right">27</td>
  </tr>
  <tr>
    <td width="109">Section 5.9&nbsp;&nbsp; </td>
    <td width="579">Taxes&nbsp;&nbsp; </td>
    <td width="34" align="right">27</td>
  </tr>
  <tr>
    <td width="109">Section 5.10&nbsp;&nbsp; </td>
    <td width="579">Titles and Liens&nbsp;&nbsp; </td>
    <td width="34" align="right">27</td>
  </tr>
  <tr>
    <td width="109">Section 5.11&nbsp;&nbsp; </td>
    <td width="579">Intellectual Property Rights&nbsp;&nbsp; </td>
    <td width="34" align="right">27</td>
  </tr>
  <tr>
    <td width="109">Section 5.12&nbsp;&nbsp; </td>
    <td width="579">Plans&nbsp;&nbsp; </td>
    <td width="34" align="right">28</td>
  </tr>
  <tr>
    <td width="109">Section 5.13&nbsp;&nbsp; </td>
    <td width="579">Default&nbsp;&nbsp; </td>
    <td width="34" align="right">29</td>
  </tr>
  <tr>
    <td width="109">Section 5.14&nbsp;&nbsp; </td>
    <td width="579">Environmental Matters&nbsp;&nbsp; </td>
    <td width="34" align="right">29</td>
  </tr>
  <tr>
    <td width="109">Section 5.15&nbsp;&nbsp; </td>
    <td width="579">Submissions to Lender&nbsp;&nbsp; </td>
    <td width="34" align="right">30</td>
  </tr>
  <tr>
    <td width="109">Section 5.16&nbsp;&nbsp; </td>
    <td width="579">Financing Statements&nbsp;&nbsp; </td>
    <td width="34" align="right">30</td>
  </tr>
  <tr>
    <td width="109">Section 5.17&nbsp;&nbsp; </td>
    <td width="579">Rights to Payment&nbsp;&nbsp; </td>
    <td width="34" align="right">30</td>
  </tr>
  <tr>
    <td width="109">Section 5.18&nbsp;&nbsp; </td>
    <td width="579">Eligible Accounts&nbsp;&nbsp; </td>
    <td width="34" align="right">30</td>
  </tr>
  <tr>
    <td width="109">Section 5.19&nbsp;&nbsp; </td>
    <td width="579">Eligible Inventory&nbsp;&nbsp; </td>
    <td width="34" align="right">31</td>
  </tr>
  <tr>
    <td width="109">Section 5.20&nbsp;&nbsp; </td>
    <td width="579">Equipment&nbsp;&nbsp; </td>
    <td width="34" align="right">31</td>
  </tr>
  <tr>
    <td width="109">Section 5.21&nbsp;&nbsp; </td>
    <td width="579">Fraudulent
Transfer&nbsp;&nbsp; </td>
    <td width="34" align="right">31</td>
  </tr>
  <tr>
    <td width="688" colspan="2">&nbsp;</td>
    <td width="34" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td width="688" colspan="2">ARTICLE VI&nbsp; COVENANTS&nbsp;&nbsp; </td>
    <td width="34" align="right">32</td>
  </tr>
  <tr>
    <td width="109">&nbsp;</td>
    <td width="579">&nbsp;</td>
    <td width="34" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td width="109">Section 6.1&nbsp;&nbsp; </td>
    <td width="579">Reporting Requirements&nbsp;&nbsp; </td>
    <td width="34" align="right">32</td>
  </tr>
  <tr>
    <td width="109">Section 6.2&nbsp;&nbsp; </td>
    <td width="579">Financial
Covenants&nbsp;&nbsp; </td>
    <td width="34" align="right">36</td>
  </tr>
  <tr>
    <td width="109">Section 6.3&nbsp;&nbsp; </td>
    <td width="579">Permitted
Liens; Financing Statements&nbsp;&nbsp; </td>
    <td width="34" align="right">36</td>
  </tr>
  <tr>
    <td width="109">Section 6.4&nbsp;&nbsp; </td>
    <td width="579">Indebtedness&nbsp;&nbsp; </td>
    <td width="34" align="right">37</td>
  </tr>
  <tr>
    <td width="109">Section 6.5&nbsp;&nbsp; </td>
    <td width="579">Guaranties&nbsp;&nbsp; </td>
    <td width="34" align="right">37</td>
  </tr>
  <tr>
    <td width="109">Section 6.6&nbsp;&nbsp; </td>
    <td width="579">Investments and Subsidiaries&nbsp;&nbsp; </td>
    <td width="34" align="right">37</td>
  </tr>
  <tr>
    <td width="109">Section 6.7&nbsp;&nbsp; </td>
    <td width="579">Dividends and Distributions&nbsp;&nbsp; </td>
    <td width="34" align="right">38</td>
  </tr>
  <tr>
    <td width="109">Section 6.8&nbsp;&nbsp; </td>
    <td width="579">Salaries&nbsp;&nbsp; </td>
    <td width="34" align="right">38</td>
  </tr>
  <tr>
    <td width="109">Section 6.9&nbsp;&nbsp; </td>
    <td width="579">Books and
Records; Inspection and Examination&nbsp;&nbsp; </td>
    <td width="34" align="right">38</td>
  </tr>
  <tr>
    <td width="109">Section 6.10&nbsp;&nbsp; </td>
    <td width="579">Account Verification&nbsp;&nbsp; </td>
    <td width="34" align="right">39</td>
  </tr>
  <tr>
    <td width="109">Section 6.11&nbsp;&nbsp; </td>
    <td width="579">Compliance with Laws&nbsp;&nbsp; </td>
    <td width="34" align="right">39</td>
  </tr>
  <tr>
    <td width="109">Section 6.12&nbsp;&nbsp; </td>
    <td width="579">Payment of Taxes and Other Claims&nbsp;&nbsp; </td>
    <td width="34" align="right">39</td>
  </tr>
  <tr>
    <td width="109">Section 6.13&nbsp;&nbsp; </td>
    <td width="579">Maintenance of Properties&nbsp;&nbsp; </td>
    <td width="34" align="right">39</td>
  </tr>
  <tr>
    <td width="109">Section 6.14&nbsp;&nbsp; </td>
    <td width="579">Insurance&nbsp;&nbsp; </td>
    <td width="34" align="right">40</td>
  </tr>
  <tr>
    <td width="109">Section 6.15&nbsp;&nbsp; </td>
    <td width="579">Preservation of Existence&nbsp;&nbsp; </td>
    <td width="34" align="right">40</td>
  </tr>
  <tr>
    <td width="109">Section 6.16&nbsp;&nbsp; </td>
    <td width="579">Delivery of Instruments, etc&nbsp;&nbsp; </td>
    <td width="34" align="right">40</td>
  </tr>
  <tr>
    <td width="109">Section 6.17&nbsp;&nbsp; </td>
    <td width="579">Sale or Transfer of Assets; Suspension of Business
Operations&nbsp;&nbsp; </td>
    <td width="34" align="right">40</td>
  </tr>
  <tr>
    <td width="109">Section 6.18&nbsp;&nbsp; </td>
    <td width="579">Consolidation and Merger; Asset Acquisitions&nbsp;&nbsp;
    </td>
    <td width="34" align="right">41</td>
  </tr>
  <tr>
    <td width="109">Section 6.19&nbsp;&nbsp; </td>
    <td width="579">Sale and Leaseback&nbsp;&nbsp; </td>
    <td width="34" align="right">41</td>
  </tr>
  <tr>
    <td width="109">Section 6.20&nbsp;&nbsp; </td>
    <td width="579">Restrictions on Nature of Business&nbsp;&nbsp; </td>
    <td width="34" align="right">41</td>
  </tr>
  <tr>
    <td width="109">Section 6.21&nbsp;&nbsp; </td>
    <td width="579">Accounting&nbsp;&nbsp; </td>
    <td width="34" align="right">41</td>
  </tr>
  <tr>
    <td width="109">Section 6.22&nbsp;&nbsp; </td>
    <td width="579">Discounts,
etc&nbsp;&nbsp; </td>
    <td width="34" align="right">41</td>
  </tr>
  <tr>
    <td width="109">Section 6.23&nbsp;&nbsp; </td>
    <td width="579">Plans&nbsp;&nbsp; </td>
    <td width="34" align="right">41</td>
  </tr>
  <tr>
    <td width="109">Section 6.24&nbsp;&nbsp; </td>
    <td width="579">Place of Business; Name&nbsp;&nbsp; </td>
    <td width="34" align="right">41</td>
  </tr>
</table>

<p>&nbsp;</p>

<p align="center">ii</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p>&nbsp;</p>

<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="722">
  <tr>
    <td width="108">Section 6.25&nbsp;&nbsp; </td>
    <td width="577">Constituent
Documents; S Corporation Status&nbsp;&nbsp; </td>
    <td width="37" align="right">42</td>
  </tr>
  <tr>
    <td width="108">Section 6.26&nbsp;&nbsp; </td>
    <td width="577">Transactions
With Affiliates&nbsp;&nbsp; </td>
    <td width="37" align="right">42</td>
  </tr>
  <tr>
    <td width="108">Section 6.27&nbsp;&nbsp; </td>
    <td width="577">Performance by the Lender&nbsp;&nbsp; </td>
    <td width="37" align="right">42</td>
  </tr>
  <tr>
    <td width="108">&nbsp;</td>
    <td width="577">&nbsp;</td>
    <td width="37" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2" width="685">ARTICLE VII&nbsp; EVENTS OF DEFAULT, RIGHTS AND REMEDIES&nbsp;&nbsp;
    </td>
    <td width="37" align="right">43</td>
  </tr>
  <tr>
    <td width="108">&nbsp;</td>
    <td width="577">&nbsp;</td>
    <td width="37" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td width="108">Section 7.1&nbsp;&nbsp; </td>
    <td width="577">Events of Default&nbsp;&nbsp; </td>
    <td width="37" align="right">43</td>
  </tr>
  <tr>
    <td width="108">Section 7.2&nbsp;&nbsp; </td>
    <td width="577">Rights and Remedies&nbsp;&nbsp; </td>
    <td width="37" align="right">45</td>
  </tr>
  <tr>
    <td width="108">Section 7.3&nbsp;&nbsp; </td>
    <td width="577">Disclaimer of Warranties&nbsp;&nbsp; </td>
    <td width="37" align="right">48</td>
  </tr>
  <tr>
    <td width="108">Section 7.4&nbsp;&nbsp; </td>
    <td width="577">Compliance With Laws&nbsp;&nbsp; </td>
    <td width="37" align="right">48</td>
  </tr>
  <tr>
    <td width="108">Section 7.5&nbsp;&nbsp; </td>
    <td width="577">No Marshalling&nbsp;&nbsp; </td>
    <td width="37" align="right">48</td>
  </tr>
  <tr>
    <td width="108">Section 7.6&nbsp;&nbsp; </td>
    <td width="577">Borrower to Cooperate&nbsp;&nbsp; </td>
    <td width="37" align="right">48</td>
  </tr>
  <tr>
    <td width="108">Section 7.7&nbsp;&nbsp; </td>
    <td width="577">Application of Proceeds&nbsp;&nbsp; </td>
    <td width="37" align="right">48</td>
  </tr>
  <tr>
    <td width="108">Section 7.8&nbsp;&nbsp; </td>
    <td width="577">Remedies Cumulative&nbsp;&nbsp; </td>
    <td width="37" align="right">48</td>
  </tr>
  <tr>
    <td width="108">Section 7.9&nbsp;&nbsp; </td>
    <td width="577">Lender Not Liable For The Collateral&nbsp;&nbsp; </td>
    <td width="37" align="right">49</td>
  </tr>
  <tr>
    <td width="108">&nbsp;</td>
    <td width="577">&nbsp;</td>
    <td width="37" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2" width="685">ARTICLE VIII&nbsp; MISCELLANEOUS&nbsp;&nbsp;
    </td>
    <td width="37" align="right">49</td>
  </tr>
  <tr>
    <td width="108">&nbsp;</td>
    <td width="577">&nbsp;</td>
    <td width="37" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td width="108">Section 8.1&nbsp;&nbsp; </td>
    <td width="577">No Waiver&nbsp;&nbsp; </td>
    <td width="37" align="right">49</td>
  </tr>
  <tr>
    <td width="108">Section 8.2&nbsp;&nbsp; </td>
    <td width="577">Amendments, Etc&nbsp;&nbsp; </td>
    <td width="37" align="right">49</td>
  </tr>
  <tr>
    <td width="108">Section 8.3&nbsp;&nbsp; </td>
    <td width="577">Addresses for Notices; Requests for Accounting&nbsp;&nbsp;
    </td>
    <td width="37" align="right">49</td>
  </tr>
  <tr>
    <td width="108">Section 8.4&nbsp;&nbsp; </td>
    <td width="577">Further Documents&nbsp;&nbsp; </td>
    <td width="37" align="right">50</td>
  </tr>
  <tr>
    <td width="108">Section 8.5&nbsp;&nbsp; </td>
    <td width="577">Costs and Expenses&nbsp;&nbsp; </td>
    <td width="37" align="right">50</td>
  </tr>
  <tr>
    <td width="108">Section 8.6&nbsp;&nbsp; </td>
    <td width="577">Indemnity&nbsp;&nbsp; </td>
    <td width="37" align="right">50</td>
  </tr>
  <tr>
    <td width="108">Section 8.7&nbsp;&nbsp; </td>
    <td width="577">Participants&nbsp;&nbsp; </td>
    <td width="37" align="right">51</td>
  </tr>
  <tr>
    <td width="108">Section 8.8&nbsp;&nbsp; </td>
    <td width="577">Advertising and Promotion&nbsp;&nbsp; </td>
    <td width="37" align="right">51</td>
  </tr>
  <tr>
    <td width="108">Section 8.9&nbsp;&nbsp; </td>
    <td width="577">Execution in Counterparts; Telefacsimile Execution&nbsp;&nbsp;
    </td>
    <td width="37" align="right">51</td>
  </tr>
  <tr>
    <td width="108">Section 8.10&nbsp;&nbsp; </td>
    <td width="577">Retention of Borrower's Records&nbsp;&nbsp; </td>
    <td width="37" align="right">52</td>
  </tr>
  <tr>
    <td width="108">Section 8.11&nbsp;&nbsp; </td>
    <td width="577">Binding Effect; Assignment; Complete Agreement; Exchanging
Information&nbsp;&nbsp; </td>
    <td width="37" align="right">52</td>
  </tr>
  <tr>
    <td width="108">Section 8.12&nbsp;&nbsp; </td>
    <td width="577">Severability of Provisions&nbsp;&nbsp; </td>
    <td width="37" align="right">52</td>
  </tr>
  <tr>
    <td width="108">Section 8.13&nbsp;&nbsp; </td>
    <td width="577">Revival and Reinstatement of Obligations&nbsp;&nbsp; </td>
    <td width="37" align="right">52</td>
  </tr>
  <tr>
    <td width="108">Section 8.14&nbsp;&nbsp; </td>
    <td width="577">Headings&nbsp;&nbsp; </td>
    <td width="37" align="right">53</td>
  </tr>
  <tr>
    <td width="108">Section 8.15&nbsp;&nbsp; </td>
    <td width="577">Governing Law; Jurisdiction, Venue; Waiver of Jury
Trial&nbsp;&nbsp; </td>
    <td width="37" align="right">53</td>
  </tr>
  <tr>
    <td width="108">&nbsp;</td>
    <td width="577">&nbsp;</td>
    <td width="37" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2" width="685">ARTICLE IX&nbsp; JOINT AND SEVERAL LIABILITY&nbsp;&nbsp;
    </td>
    <td width="37" align="right">53</td>
  </tr>
  <tr>
    <td width="108">&nbsp;</td>
    <td width="577">&nbsp;</td>
    <td width="37" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td width="108">Section 9.1&nbsp;&nbsp; </td>
    <td width="577">Joint and Several Liability&nbsp;&nbsp; </td>
    <td width="37" align="right">53</td>
  </tr>
  <tr>
    <td width="108">Section 9.2&nbsp;&nbsp; </td>
    <td width="577">Primary Obligation; Waiver of Marshalling&nbsp;&nbsp; </td>
    <td width="37" align="right">53</td>
  </tr>
  <tr>
    <td width="108">Section 9.3&nbsp;&nbsp; </td>
    <td width="577">Continuing Liability&nbsp;&nbsp; </td>
    <td width="37" align="right">54</td>
  </tr>
  <tr>
    <td width="108">Section 9.4&nbsp;&nbsp; </td>
    <td width="577">Additional Waivers&nbsp;&nbsp; </td>
    <td width="37" align="right">54</td>
  </tr>
  <tr>
    <td width="108">Section 9.5&nbsp;&nbsp; </td>
    <td width="577">Settlement or Releases&nbsp;&nbsp; </td>
    <td width="37" align="right">56</td>
  </tr>
  <tr>
    <td width="108">Section 9.6&nbsp;&nbsp; </td>
    <td width="577">No Election&nbsp;&nbsp; </td>
    <td width="37" align="right">56</td>
  </tr>
  <tr>
    <td width="108">Section 9.7&nbsp;&nbsp; </td>
    <td width="577">Indefeasible Payment&nbsp;&nbsp; </td>
    <td width="37" align="right">57</td>
  </tr>
  <tr>
    <td width="108">Section 9.8&nbsp;&nbsp; </td>
    <td width="577">Financial Condition of the Affiliate Borrower&nbsp;&nbsp;
    </td>
    <td width="37" align="right">57</td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="center">iii</p>
<hr color="#000080"><P Style="page-break-after: always"></P>

<p>&nbsp;</p>

<p align="center"><b>CREDIT AND SECURITY AGREEMENT</b></p>

<p align="center">Dated as of May&nbsp;28, 2002</p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; MICRO MOTORS, INC., a Colorado corporation (the &quot;Borrower&quot;), and WELLS FARGO
BUSINESS CREDIT, INC., a Minnesota corporation (the &quot;Lender&quot;), hereby agree as
follows:</p>

<p align="center"><b>ARTICLE I</b><br>
<br>
<b><u>DEFINITIONS</u></b></p>

<p align="justify">Section
1.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Definitions</u>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; For all purposes of this Agreement, except as otherwise expressly
provided, the following terms shall have the meanings assigned to them in this
Section or in the Section referenced after such term:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Account Debtor&quot; means any Person who is or who may become obligated under,
with respect to, or on account of, an Account, chattel paper, or a General
Intangible.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Accounts&quot; means all of Borrower's now owned or hereafter acquired right,
title, and interest with respect to &quot;accounts&quot; (as that term is defined in the
UCC), and any and all supporting obligations in respect thereof.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Advance&quot; means a Revolving Advance.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Affiliate&quot; means, as applied to any Person, any other Person who, directly
or indirectly, controls, is controlled by, or is under common control with,
such Person.&nbsp; For purposes of this definition, &quot;control&quot; means the
possession, directly or indirectly, of the power to direct the management and
policies of a Person, whether through the ownership of stock, by contract, or
otherwise; <u>provided</u>, <u>however</u>, that, in any event: (a) any Person
which owns directly or indirectly 10% or more of the securities having ordinary
voting power for the election of directors or other members of the governing
body of a Person or 10% or more of the partnership or other ownership interests
of a Person (other than as a limited partner of such Person) shall be deemed to
control such Person, (b) each director (or comparable manager) of a Person
shall be deemed to be an Affiliate of such Person, and (c) each partnership or
joint venture in which a Person is a partner or joint venturer shall be deemed
to be an Affiliate of such Person.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Agreement&quot; means this Credit and Security Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Affiliate Borrower&quot; means Oregon Micro Systems, Inc., an Oregon
corporation.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Affiliate Credit Agreement&quot; means that certain Credit and Security
Agreement, dated as of even date herewith, between the Affiliate Borrower and
the Lender, as the same may be amended or restated from time to time.</p>

<p align="justify">&nbsp;</p>

<p align="center">1</p>

<hr color="#000080" align="justify">

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Affiliate Loan Documents&quot; means the &quot;Loan Documents&quot; as such term is
defined in the Affiliate Credit Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Affiliate Obligations&quot; means the &quot;Obligations&quot; as such term is defined in
the Affiliate Credit Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Applicable Margin&quot; means the margin set forth in the table below opposite
the applicable average outstanding Advances, calculated as of the date of
determination:</p>

<div align="left">

<table border=1 cellspacing=0 cellpadding=0 bordercolor="#000000" style="border-collapse: collapse">
 <tr>
  <td width=319 valign=top>
  <p><b>Average Outstanding Advances</b></p>
  </td>
  <td width=319 valign=top>
  <p><b>Applicable Margin</b></p>
  </td>
 </tr>
 <tr>
  <td width=319 valign=top>
  <p>$2,100,000 for 60 consecutive days</p>
  </td>
  <td width=319 valign=top>
  <p>1.50 percentage points (150 basis points)</p>
  </td>
 </tr>
 <tr>
  <td width=319 valign=top>
  <p>$2,400,000 for 60 consecutive days</p>
  </td>
  <td width=319 valign=top>
  <p>1.25 percentage points (125 basis points)</p>
  </td>
 </tr>
 <tr>
  <td width=319 valign=top>
  <p>$3,000,000 for 60 consecutive days</p>
  </td>
  <td width=319 valign=top>
  <p>1.00 percentage points (100 basis points)</p>
  </td>
 </tr>
</table>



</div>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Availability&quot; means the difference of (i) the Borrowing Base and (ii) the
sum of (A) the outstanding principal balance of the Revolving Note, (B) the L/C
Amount, and (C) the Affiliate Obligations.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Banking Day&quot; means a day on which the Federal Reserve Bank of New York is
open for Business.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Bankruptcy Code&quot; means the United States Bankruptcy Code, as in effect from
time to time.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Base Rate&quot; means the rate of interest publicly announced from time to time
by Wells Fargo Bank National Association at its principal office in San
Francisco as its &quot;prime rate&quot;, with the understanding that the
&quot;prime rate&quot; is one of Wells Fargo's base rates (not necessarily the
lowest of such rates) and serves as the basis upon which effective rates of
interest are calculated for loans making reference thereto.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Book Net Worth&quot; means the aggregate of the common and preferred
stockholders' equity in the Borrower, determined in accordance with GAAP.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Borrowing Base&quot; means at any time the lesser of:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Maximum Line; or</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
80% of Eligible Accounts <u>less</u> the amount, if any, of the Dilution
Reserve.</p>

<p align="justify"><u>Provided</u>, <u>however</u>, the Lender may reduce the advance rates or
create additional reserves against the Eligible Accounts, in its sole and
absolute discretion, without declaring an Event of Default if it reasonably
determines that there has occurred a Material Adverse Effect.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Capital Expenditures&quot; means for a period, any expenditure of money during
such period for the purchase or construction of assets, or for improvements or
additions thereto, which are capitalized on the Borrower's balance sheet.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>

<p align="center">2</p>

<hr color="#000080" align="justify">

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Change of Control&quot; means the occurrence of any of the following events:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any Person or &quot;group&quot; (as such term is used in Sections&nbsp;13(d) and 14(d) of
the Securities Exchange Act of 1934) is or becomes the &quot;beneficial owner&quot; (as
defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934,
except that a Person will be deemed to have &quot;beneficial ownership&quot; of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 25% of the voting power of all classes of voting stock
of the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During any consecutive two-year period, individuals who at the beginning of
such period constituted the board of Directors of the Borrower (together with
any new Directors whose election to such board of Directors, or whose
nomination for election by the owners of the Borrower, was approved by a vote
of 66-2/3% of the Directors then still in office who were either Directors at
the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
board of Directors of the Borrower then in office.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Frank&nbsp;A. Zagar shall cease to actively manage the Borrower's day-to-day
business activities.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Collateral&quot; means all of the Borrower's Accounts, chattel paper, deposit
accounts, documents, Equipment, General Intangibles, goods, instruments,
Inventory, Investment Property, letter-of-credit rights, letters of credit, all
sums on deposit in any Collateral Account, and any items in any Lockbox;
together with (i) all substitutions and replacements for and products of any of
the foregoing; (ii) in the case of all goods, all accessions; (iii) all
accessories, attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any goods; (iv) all warehouse
receipts, bills of lading and other documents of title now or hereafter
covering such goods; (v) all collateral subject to the Lien of any Security
Document; (vi) any money, or other assets of the Borrower that now or hereafter
come into the possession, custody, or control of the Lender; (vii) all sums on
deposit in the Special Account; and (viii) proceeds of any and all of the
foregoing.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Collateral Account&quot; means the &quot;Lender Account&quot; as defined in the Lockbox
and Collection Account Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Commitment&quot; means the Lender's commitment to make Advances to, and to cause
the Issuer to issue Letters of Credit for the account of, the Borrower pursuant
to Article&nbsp;II.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Constituent Documents&quot; means with respect to any Person, as applicable, such
Person's certificate of incorporation, articles of incorporation, by-laws,
certificate of formation, articles of organization, limited liability company
agreement, management agreement, operating agreement, shareholder agreement,
partnership agreement or similar document or agreement governing such Person's
existence, organization or management or concerning disposition of ownership
interests of such Person or voting rights among such Person's owners.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Copyright Security Agreement&quot; means the Copyright Security Agreement by the
Borrower in favor of the Lender of even date herewith.</p>

<p align="justify">&nbsp;</p>

<p align="center">3</p>

<hr color="#000080" align="justify">
<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Daily Balance&quot; means, with respect to each day during the term of this
Agreement, the amount of an Obligation owed at the end of such day.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Default&quot; means an event that, with giving of notice or passage of time or
both, would constitute an Event of Default.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Default Period&quot; means any period of time beginning on the day a Default or
Event of Default occurs and ending on the date the Lender notifies the Borrower
in writing that such Default or Event of Default has been cured or waived.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Default Rate&quot; means an annual interest rate equal to three percent (3%)
over the Floating Rate, which interest rate shall change when and as the
Floating Rate changes.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Dilution&quot; means, as of any date of determination, a percentage, based upon
the experience of the calendar year-to-date period ending on the date of
determination, that is the result of dividing the Dollar amount of (a)&nbsp;bad
debt write&#8209;downs, discounts, advertising allowances, credits, or other
dilutive items with respect to the Accounts during such period, by
(b)&nbsp;Borrower's sales during such period (excluding extraordinary items)
plus the Dollar amount of clause&nbsp;(a).</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Dilution Reserve&quot; means, as of any date of determination, an amount sufficient
to reduce the advance rate against Eligible Accounts by one percentage point
for each percentage point by which Dilution is in excess of 5%.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Director&quot; means a director if the Borrower is a corporation, a manager if
the Borrower is a limited liability company, or a general partner if the
Borrower is a partnership.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Dollars&quot; or &quot;$&quot; means lawful currency of the United States of America.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;ERISA&quot; means the Employee Retirement Income Security Act of 1974.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;ERISA Affiliate&quot; means any trade or business (whether or not incorporated)
that is a member of a group which includes the Borrower and which is treated as
a single employer under Section&nbsp;414 of the IRC.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Earnings Before Taxes&quot; means from operations but including extraordinary
losses.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Eligible Accounts&quot; means those Accounts created by the Borrower in the
ordinary course of its business, that arise out of the Borrower's sale of goods
or rendition of services, that comply with each of the representations and
warranties respecting Eligible Accounts made by the Borrower in the Loan
Documents, and that are not excluded as ineligible by virtue of one or more of
the criteria set forth below; provided, however, that such criteria may be
fixed and revised from time to time by the Lender in the Lender's sole and
absolute discretion to address the results of any audit performed by the Lender
from time to time after the Closing Date.&nbsp; In determining the amount to be
included, Eligible Accounts shall be calculated net of customer deposits and
unapplied cash remitted to the Borrower.&nbsp; Eligible Accounts shall not
include the following:</p>

<p align="justify">&nbsp;</p>

<p align="center">4</p>

<hr color="#000080" align="justify">
<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
That portion of Accounts unpaid 90 days or more after the invoice date;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
That portion of Accounts that is disputed or subject to a claim of offset or a
contra account;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
That portion of Accounts not yet earned by the final delivery of goods or
rendition of services, as applicable, by the Borrower to the customer,
including progress billings;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts constituting proceeds of copyrightable material unless such
copyrightable material shall have been registered with the United States
Copyright Office and shall be covered by a duly executed copyright security
agreement, in form and substance satisfactory to the Lender, and filed in the
United States Copyright Office;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (v)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts owed by an Account Debtor that is not Solvent, the subject of an
Insolvency Proceeding or has gone out of business;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (vi)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts owed by an Owner, Subsidiary, Affiliate, Officer or employee of the
Borrower;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (vii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts not subject to a duly perfected security interest in the Lender's
favor or which are subject to any Lien other than a Permitted Lien;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (viii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; That
portion of Accounts that has been restructured, extended, amended or modified;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ix)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
That portion of Accounts that constitutes advertising, finance charges, service
charges or sales or excise taxes;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (x)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts owed by an Account Debtor (or an Affiliate of such Account Debtor),
regardless of whether otherwise eligible, to the extent that the balance of
such Accounts exceed 15% of the aggregate amount of all Accounts (or 25% if the
Account Debtor is Natural White, Inc.);</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (xi)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts owed by an Account Debtor (or an Affiliate of such Account Debtor),
regardless of whether otherwise eligible, if 25% or more of the total amount
due under Accounts from such Account Debtor is ineligible under clauses (i),
(ii)or (x) above; </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (xii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts arising in a transaction wherein goods are placed on consignment or
are sold pursuant to a guaranteed sale, a sale or return, a sale on approval, a
bill and hold, or any other terms by reason of which the payment by the Account
Debtor may be conditional;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (xiii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accounts
that are not payable in Dollars;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (xiv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accounts
with respect to which the Account Debtor either (i) does not maintain its chief
executive office in the United States, or (ii) is not organized under the laws
of the United States or any state thereof, or (iii) is the government of any
foreign country or sovereign state, or of any state, province, municipality, or
other political subdivision thereof, or of any department, agency, public
corporation, or other instrumentality thereof, unless (y) the Account is
supported by an irrevocable letter of credit satisfactory to the Lender (as to
form, substance, and issuer or domestic confirming bank) that has been
delivered to Lender and is directly drawable by the Lender, or (z) the Account
is covered by credit insurance in form, substance, and amount, and by an
insurer, satisfactory to the Lender;</p>

<p align="justify">&nbsp;</p>

<p align="center">5</p>

<hr color="#000080" align="justify">
<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (xv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts with respect to which the Account Debtor is either (i) the United
States or any department, agency, or instrumentality of the United States
(exclusive, however, of Accounts with respect to which the Borrower has
complied, to the reasonable satisfaction of the Lender, with the Assignment of
Claims Act, 31 USC &sect; 3727), or (ii) any state of the United States (exclusive,
however, of (y) Accounts owed by any state that does not have a statutory
counterpart to the Assignment of Claims Act, or (z) Accounts owed by any state
that does have a statutory counterpart to the Assignment of Claims Act as to
which the Borrower has complied to the Lender's satisfaction);</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (xvi)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accounts
with respect to which the Account Debtor is located in the states of New
Jersey, Minnesota, or West Virginia (or any other state that requires a
creditor to file a business activity report or similar document in order to
bring suit or otherwise enforce its remedies against such Account Debtor in the
courts or through any judicial process of such state), unless Borrower has
qualified to do business in New Jersey, Minnesota, West Virginia, or such other
states, or has filed a business activities report with the applicable division
of taxation, the department of revenue, or with such other state offices, as
appropriate, for the then-current year, or is exempt from such filing requirement;
and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (xvii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accounts, or portions
thereof, of poor quality credit or otherwise deemed ineligible by the Lender in
its sole discretion.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Environmental Law&quot; means any federal, state, local or other governmental
statute, regulation, law or ordinance dealing with the protection of human
health and the environment.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Equipment&quot; means all of the Borrower's equipment, as such term is defined
in the UCC, whether now owned or hereafter acquired, including but not limited
to all present and future machinery, vehicles, furniture, fixtures,
manufacturing equipment, shop equipment, office and recordkeeping equipment,
parts, tools, supplies, and including specifically the goods described in any
equipment schedule or list herewith or hereafter furnished to the Lender by the
Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Event of Default&quot; has the meaning specified in Section&nbsp;7.1.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Financial Covenants&quot; means the covenants set forth in Section&nbsp;6.2.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Floating Rate&quot; means an annual interest rate equal to the sum of the Base
Rate <u>plus</u> (i)&nbsp;so long as there has not existed a Default Period for
the prior six (6) month period, the Applicable Margin, and (ii)&nbsp;in all
other cases, 1.75 percentage points (175 basis points), which interest rate
shall, in each case, change when and as the Base Rate changes.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Funding Date&quot; has the meaning given in Section&nbsp;2.1.</p>

<p align="justify">&nbsp;</p>

<p align="center">6</p>

<hr color="#000080" align="justify">
<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;GAAP&quot; means generally accepted accounting principles, applied on a basis
consistent with the accounting practices applied in the financial statements
described in Section&nbsp;5.6.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;General Intangibles&quot; means all of the Borrower's general intangibles, as
such term is defined in the UCC, whether now owned or hereafter acquired,
including all present and future Intellectual Property Rights, customer or
supplier lists and contracts, manuals, operating instructions, permits,
franchises, the right to use the Borrower's name, and the goodwill of the
Borrower's business.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Governmental Authority&quot; means any federal, state, local, or other
governmental or administrative body, instrumentality, department, or agency or
any court, tribunal, administrative hearing body, arbitration panel,
commission, or other similar dispute-resolving panel or body.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Guarantor(s)&quot; means Pro&#8209;Dex, Inc., a Colorado corporation, and any
other Person now or hereafter guarantying the Obligations.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Guaranty&quot; means that certain Continuing Guaranty, dated as of even date
herewith, by the Guarantor in favor of the Lender.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Guaranty Security Agreement&quot; means that certain Security Agreement, dated
as of even date herewith, between the Guarantor and the Lender.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Hazardous Substances&quot; means pollutants, contaminants, hazardous substances,
hazardous wastes, petroleum and fractions thereof, and all other chemicals,
wastes, substances and materials listed in, regulated by or identified in any
Environmental Law.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Indebtedness&quot; means of a Person as of a given date, all items of
indebtedness or liability which in accordance with GAAP would be included in
determining total liabilities as shown on the liabilities side of a balance
sheet for such Person and shall also include the aggregate payments required to
be made by such Person at any time under any lease that is considered a
capitalized lease under GAAP.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;IRC&quot; means the Internal Revenue Code of 1986.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Infringe&quot; means when used with respect to Intellectual Property Rights
means any infringement or other violation of Intellectual Property Rights.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Insolvency Proceeding&quot; means any proceeding commenced by or against any
Person under any provision of the Bankruptcy Code or under any other state or
federal bankruptcy or insolvency law, assignments for the benefit of creditors,
formal or informal moratoria, compositions, extensions generally with
creditors, or proceedings seeking reorganization, arrangement, or other similar
relief.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Intangible Assets&quot; means all intangible assets as determined in accordance
with GAAP and including Intellectual Property Rights, goodwill, accounts due
from Affiliates, Directors, Officers or employees, prepaid expenses, deposits,
deferred charges or treasury stock or any securities or Indebtedness of the
Borrower or any other securities unless the same are readily marketable in the
United States of America, or entitled to be used as a credit against federal
income tax liabilities, non-compete agreements and any other assets designated
from time to time by the Lender, in its sole discretion.</p>

<p align="justify">&nbsp;</p>

<p align="center">7</p>

<hr color="#000080" align="justify">
<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Intellectual Property Rights&quot; means all actual or prospective rights
arising in connection with any intellectual property or other proprietary
rights, including all rights arising in connection with copyrights, patents,
service marks, trade dress, trade secrets, trademarks, trade names or mask
works.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Inventory&quot; means all of the Borrower's inventory, as such term is defined
in the UCC, whether now owned or hereafter acquired, whether consisting of
whole goods, spare parts or components, supplies or materials, whether
acquired, held or furnished for sale, for lease or under service contracts or
for manufacture or processing, and wherever located.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Investment Property&quot; means all of the Borrower's investment property, as
such term is defined in the UCC, whether now owned or hereafter acquired,
including but not limited to all securities, security entitlements, securities
accounts, commodity contracts, commodity accounts, stocks, bonds, mutual fund
shares, money market shares and U.S. Government securities.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Issuer&quot; means the issuer of any Letter of Credit.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;L/C Amount&quot; means the sum of (i) the aggregate face amount of any issued
and outstanding Letters of Credit and (ii) the unpaid amount of the Obligation
of Reimbursement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;L/C Application&quot; means an application and agreement for letters of credit
in a form acceptable to the Issuer and the Lender.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Letter of Credit&quot; has the meaning specified in Section&nbsp;2.3.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Licensed Intellectual Property&quot; has the meaning given in
Section&nbsp;5.11(c).</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Lien&quot; means any security interest, mortgage, deed of trust, pledge, lien,
charge, encumbrance, title retention agreement or analogous instrument or
device, including the interest of each lessor under any capitalized lease and
the interest of any bondsman under any payment or performance bond, in, of or
on any assets or properties of a Person, whether now owned or hereafter
acquired and whether arising by agreement or operation of law.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Loan Documents&quot; means this Agreement, the Note, the Guaranty, the Guaranty
Security Agreement, the Security Documents, the Subordination Agreements and
any L/C Application.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Lockbox&quot; means as defined in the Lockbox and Collection Account Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Lockbox and Collection Account Agreement&quot; means the Lockbox and Collection
Account Agreement by and among the Borrower, Wells Fargo Bank, N.A., Regulus
West, LLC and the Lender, of even date herewith.</p>

<p align="justify">&nbsp;</p>

<p align="center">8</p>

<hr color="#000080" align="justify">

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Material Adverse Effect&quot; means any of the following:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
a material adverse effect on the business, operations, results of operations,
prospects, assets, liabilities or financial condition of the Borrower or the
Guarantor;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
a material adverse effect on the ability of the Borrower or the Guarantor to
perform its obligations under the Loan Documents;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
a material adverse effect on the ability of the Lender to enforce the
Obligations or to realize the intended benefits of the Security Documents,
including a material adverse effect on the validity or enforceability of any
Loan Document or of any rights against the Guarantor, or on the status,
existence, perfection, priority (subject to Permitted Liens) or enforceability
of any Lien securing payment or performance of the Obligations (other than any
such material adverse effect caused solely by any act or omission by the
Lender); or</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any claim against the Borrower or the Guarantor or threat of litigation which
if determined adversely to the Borrower or the Guarantor would cause the Borrower
or the Guarantor to be liable to pay an amount exceeding $200,000 or would be
an event described in clauses (i), (ii) and (iii) above.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Maturity Date&quot; means May&nbsp;28, 2004.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Maximum Line&quot; means $3,000,000.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Minimum Interest Charge&quot; has the meaning given in Section 2.7(b).</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Multiemployer Plan&quot; means a multiemployer plan (as defined in
Section&nbsp;4001(a)(3) of ERISA) to which the Borrower or any ERISA Affiliate
contributes or is obligated to contribute.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Net Income&quot; and &quot;Net Loss&quot; mean fiscal year-to-date after-tax net income,
or loss, as applicable, from continuing operations as determined in accordance
with GAAP.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Note&quot; means the Revolving Note.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Obligation of Reimbursement&quot; has the meaning given in Section 2.5(a).</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Obligations&quot; means (i)&nbsp;the Note, the Obligation of Reimbursement and
each and every other debt, liability and obligation of every type and
description which the Borrower may now or at any time hereafter owe to the
Lender, whether such debt, liability or obligation now exists or is hereafter
created or incurred, whether it arises in a transaction involving the Lender
alone or in a transaction involving other creditors of the Borrower, and
whether it is direct or indirect, due or to become due, absolute or contingent,
primary or secondary, liquidated or unliquidated, or sole, joint, several or
joint and several, and including all indebtedness of the Borrower arising under
any Credit Document or guaranty between the Borrower and the Lender, whether
now in effect or hereafter entered into, and (ii)&nbsp;the &quot;Obligations&quot; as
such term is defined in the Affiliate Credit Agreement.</p>

<p align="justify">&nbsp;</p>

<p align="center">9</p>

<hr color="#000080" align="justify">
<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Officer&quot; means with respect to the Borrower, an officer if the Borrower is
a corporation, a manager if the Borrower is a limited liability company, or a
partner if the Borrower is a partnership.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Owned Intellectual Property&quot; has the meaning given in Section 5.11(a).</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Owner&quot; means with respect to the Borrower, each Person having legal or
beneficial title to an ownership interest in the Borrower or a right to acquire
such an interest.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Patent and Trademark Security Agreement&quot; means the Patent and Trademark
Security Agreement by the Borrower in favor of the Lender of even date
herewith.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Pension Plan&quot; means a pension plan (as defined in Section 3(2) of ERISA)
maintained for employees of the Borrower or any ERISA Affiliate and covered by
Title IV of ERISA.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Permitted Lien&quot; has the meaning given in Section&nbsp;6.3(a).</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Person&quot; means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Plan&quot; means an employee benefit plan (as defined in Section 3(3) of ERISA)
maintained for employees of the Borrower or any ERISA Affiliate.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Premises&quot; means all premises where the Borrower conducts its business and
has any rights of possession, including the premises legally described in
Exhibit D attached hereto.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Reportable Event&quot; means a reportable event (as defined in Section 4043 of
ERISA), other than an event for which the 30-day notice requirement under ERISA
has been waived in regulations issued by the Pension Benefit Guaranty
Corporation.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Revolving Advance&quot; has the meaning given in Section&nbsp;2.1.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Revolving Note&quot; means the Borrower's revolving promissory note, payable to
the order of the Lender in substantially the form of Exhibit A hereto.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Security Documents&quot; means this Agreement, the Lockbox and Collection
Account Agreement, the Patent and Trademark Security Agreement, and the Copyright
Security Agreement, and any other document delivered to the Lender from time to
time to secure the Obligations.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Security Interest&quot; has the meaning given in Section 3.1.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Solvent&quot; means, with respect to any Person on a particular date, that such
Person is not insolvent (as such term is defined in the Uniform Fraudulent
Transfer Act).</p>

<p align="justify">&nbsp;</p>

<p align="center">10</p>

<hr color="#000080" align="justify">
<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Special Account&quot; means a specified cash collateral account maintained by a
financial institution acceptable to the Lender in connection with Letters of
Credit, as contemplated by Section&nbsp;2.4.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Subordinated Indebtedness&quot; has the meaning given to such term in the
Subordination Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Subordination Agreements&quot; means (i) the Subordination Agreement of even
date herewith, executed by the Guarantor in the Lender's favor and acknowledged
by the Borrower, (ii) the Subordination Agreement of even date herewith,
executed by Ronald G. Coss in the Lender's favor and acknowledged by the
Borrower, and (iii) and any other subordination agreement accepted by the
Lender from time to time.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Subsidiary&quot; means any corporation of which more than 50% of the outstanding
shares of capital stock having general voting power under ordinary
circumstances to elect a majority of the board of Directors of such
corporation, irrespective of whether or not at the time stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency, is at the time directly or indirectly owned by
the Borrower, by the Borrower and one or more other Subsidiaries, or by one or
more other Subsidiaries.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Tangible Net Worth&quot; means the result of (i) Book Net Worth, plus (ii)
amounts due from the Borrower to its Affiliates, minus (iii)&nbsp;Intangible
Assets, and minus (iv)&nbsp;amounts due to the Borrower from its Affiliates.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Termination Date&quot; means the earliest of (i) the Maturity Date, (ii) the
date the Borrower terminates the Credit Facility, or (iii) the date the Lender
demands payment of the Obligations after an Event of Default pursuant to
Section&nbsp;7.2.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;UCC&quot; means the Uniform Commercial Code as in effect in the state designated
in Section&nbsp;8.15 as the state whose laws shall govern this Agreement, or in
any other state whose laws are held to govern this Agreement or any portion
hereof.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Wells Fargo Bank Minnesota&quot; means Wells Fargo Bank Minnesota, National
Association.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
1.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Other Definitional Terms; Rules of Interpretation.</u>&nbsp; The words &quot;hereof&quot;, &quot;herein&quot; and &quot;hereunder&quot; and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement.&nbsp; All accounting terms
not otherwise defined herein have the meanings assigned to them in accordance
with GAAP. All terms defined in the UCC and not otherwise defined herein have
the meanings assigned to them in the UCC. References to Articles, Sections,
subsections, Exhibits, Schedules and the like, are to Articles, Sections and
subsections of, or Exhibits or Schedules attached to, this Agreement unless
otherwise expressly provided.&nbsp; The words &quot;include&quot;, &quot;includes&quot; and
&quot;including&quot; shall be deemed to be followed by the phrase &quot;without
limitation&quot;.&nbsp; Unless the context in which used herein otherwise clearly
requires, &quot;or&quot; has the inclusive meaning represented by the phrase
&quot;and/or&quot;.&nbsp; Defined terms include in the singular number the plural and in
the plural number the singular.&nbsp; Reference to any agreement (including the
Loan Documents), document or instrument means such agreement, document or
instrument as amended or modified and in effect from time to time in accordance
with the terms thereof (and, if applicable, in accordance with the terms hereof
and the other Loan Documents), except where otherwise explicitly provided, and
reference to any promissory note includes any promissory note which is an
extension or renewal thereof or a substitute or replacement therefor. Reference
to any law, rule, regulation, order, decree, requirement, policy, guideline,
directive or interpretation means as amended, modified, codified, replaced or
reenacted, in whole or in part, and in effect on the determination date,
including rules and regulations promulgated thereunder.</p>

<p align="justify">&nbsp;</p>

<p align="center">11</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="center"><b>ARTICLE II</b><br>
<br>
<b><u>AMOUNT AND TERMS OF THE CREDIT FACILITY</u></b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
2.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Revolving Advances</u>.&nbsp; The Lender agrees, on the terms and subject to the conditions herein
set forth, to make advances to the Borrower from time to time from the date all
of the conditions set forth in Section&nbsp;4.1 are satisfied (the &quot;Funding
Date&quot;) to the Termination Date (the &quot;Revolving Advances&quot;).&nbsp; The Lender
shall have no obligation to make a Revolving Advance to the extent the amount
of the requested Revolving Advance exceeds Availability.&nbsp; The Borrower's
obligation to pay the Revolving Advances shall be evidenced by the Revolving
Note and shall be secured by the Collateral.&nbsp; Within the limits set forth
in this Section&nbsp;2.1, the Borrower may borrow, prepay pursuant to
Section&nbsp;2.11 and reborrow.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
2.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Procedures for Requesting Advances</u>.&nbsp; The Borrower shall comply with the following procedures in
requesting Revolving Advances:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Time for Requests</i>.</b>&nbsp; The Borrower shall request each Advance
not later than 10:00&nbsp;a.m., Pacific time on the Banking Day which is the
date the Advance is to be made.&nbsp; Each such request shall be effective upon
receipt by the Lender, shall be in writing or by telephone, telecopy
transmission or email, to be confirmed in writing by the Borrower if so
requested by the Lender (in the form of Exhibit E), shall be by (i) an Officer
of the Borrower; or (ii) a person designated as the Borrower's agent by an
Officer of the Borrower in a writing delivered to the Lender; or (iii) a person
whom the Lender reasonably believes to be an Officer of the Borrower or such a
designated agent.&nbsp; The Borrower shall repay all Advances even if the Lender
does not receive such confirmation and even if the person requesting an Advance
was not in fact authorized to do so.&nbsp; Any request for an Advance, whether
written or telephonic, shall be deemed to be a representation by the Borrower
that the conditions set forth in Section&nbsp;4.2 have been satisfied as of the
time of the request.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Disbursement</i>.</b>&nbsp; Upon fulfillment of the applicable conditions
set forth in Article&nbsp;IV, the Lender shall disburse the proceeds of the
requested Advance by crediting the same to the Borrower's demand deposit
account maintained with Wells Fargo Bank, N.A., unless the Lender and the
Borrower shall agree in writing to another manner of disbursement.</p>

<p align="justify">&nbsp;</p>

<p align="center">12</p>

<hr color="#000080"><P Style="page-break-after: always"></P>
<p align="justify">&nbsp;</p>

<p align="justify">Section
2.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Letters of Credit</u>.<sup>1</sup></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Lender agrees, on the terms and subject to the conditions herein set forth,
to cause an Issuer to issue, from the Funding Date to the Termination Date, one
or more irrevocable standby or documentary letters of credit (each, a &quot;Letter
of Credit&quot;) for the Borrower's account by guaranteeing payment of the
Borrower's obligations or being a co-applicant. The Lender shall have no
obligation to cause an Issuer to issue any Letter of Credit if the face amount
of the Letter of Credit to be issued would exceed the lesser of:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
$0 less the L/C Amount, or</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Availability.</p>

<p align="justify">Each Letter of Credit, if any, shall be issued pursuant to a separate L/C
Application entered into between the Borrower and the Lender for the benefit of
the Issuer, completed in a manner satisfactory to the Lender and the Issuer.
The terms and conditions set forth in each such L/C Application shall
supplement the terms and conditions hereof, but if the terms of any such L/C
Application and the terms of this Agreement are inconsistent, the terms hereof
shall control.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
No Letter of Credit shall be issued with an expiry date later than the
Termination Date in effect as of the date of issuance.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any request to cause an Issuer to issue a Letter of Credit shall be deemed to
be a representation by the Borrower that the conditions set forth in
Section&nbsp;4.2 have been satisfied as of the date of the request.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
2.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Special Account</u>.&nbsp; If the Credit Facility is terminated for any reason while any Letter
of Credit is outstanding, the Borrower shall thereupon pay the Lender in
immediately available funds for deposit in the Special Account an amount equal
to the L/C Amount. The Special Account shall be an interest bearing account
maintained for the Lender by any financial institution acceptable to the
Lender. Any interest earned on amounts deposited in the Special Account shall
be credited to the Special Account. The Lender may apply amounts on deposit in
the Special Account at any time or from time to time to the Obligations in the
Lender's sole discretion. The Borrower may not withdraw any amounts on deposit
in the Special Account as long as the Lender maintains a security interest
therein. The Lender agrees to transfer any balance in the Special Account to
the Borrower when the Lender is required to release its security interest in
the Special Account under applicable law.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
2.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Payment of Amounts Drawn Under Letters of Credit; Obligation of
Reimbursement</u>.&nbsp; The Borrower acknowledges that the Lender, as co-applicant, will be
liable to the Issuer for reimbursement of any and all draws under Letters of
Credit and for all other amounts required to be paid under the applicable L/C
Application. Accordingly, the Borrower shall pay to the Lender any and all
amounts required to be paid under the applicable L/C Application, when and as
required to be paid thereby, and the amounts designated below, when and as
designated:</p>



<hr size=1 width="33%" align=left color="#C0C0C0">





<p><sup>1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</sup>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of the Closing Date, the Lender has not agreed to cause the Issuer to issue
any Letters of Credit.&nbsp; The terms of Sections&nbsp;2.3, 2.4, 2.5 and 2.6
(and the related definitions) shall not be effective until the Lender gives
written notice to the Borrower that such Sections shall be effective.</p>




<p align="center">13</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower shall pay to the Lender on the day a draft is honored under any
Letter of Credit a sum equal to all amounts drawn under such Letter of Credit
plus any and all reasonable charges and expenses that the Issuer or the Lender
may pay or incur relative to such draw and the applicable L/C Application, plus
interest on all such amounts, charges and expenses as set forth below (the
Borrower's obligation to pay all such amounts is herein referred to as the
&quot;Obligation of Reimbursement&quot;).</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Whenever a draft is submitted under a Letter of Credit, the Borrower authorizes
the Lender to make a Revolving Advance in the amount of the Obligation of
Reimbursement and to apply the proceeds of such Revolving Advance thereto. Such
Revolving Advance shall be repayable in accordance with and be treated in all
other respects as a Revolving Advance hereunder.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If a draft is submitted under a Letter of Credit when the Borrower is unable,
because a Default Period exists or for any other reason, to obtain a Revolving
Advance to pay the Obligation of Reimbursement, the Borrower shall pay to the
Lender on demand and in immediately available funds, the amount of the
Obligation of Reimbursement together with interest, accrued from the date of
the draft until payment in full at the Default Rate. Notwithstanding the
Borrower's inability to obtain a Revolving Advance for any reason, the Lender
is irrevocably authorized, in its sole discretion, to make a Revolving Advance
in an amount sufficient to discharge the Obligation of Reimbursement and all
accrued but unpaid interest thereon.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower's obligation to pay any Revolving Advance made under this
Section&nbsp;2.5, shall be evidenced by the Revolving Note and shall bear
interest as provided in Section&nbsp;2.7.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
2.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Obligations Absolute</u>.&nbsp; The Borrower's obligations arising under Section&nbsp;2.5 shall be
absolute, unconditional and irrevocable, and shall be paid strictly in
accordance with the terms of Section&nbsp;2.5, under all circumstances
whatsoever, including (without limitation) the following circumstances:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any lack of validity or enforceability of any Letter of Credit or any other
agreement or instrument relating to any Letter of Credit (collectively the
&quot;Related Documents&quot;);</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any amendment or waiver of or any consent to departure from all or any of the
Related Documents;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the existence of any claim, setoff, defense or other right which the Borrower
may have at any time, against any beneficiary or any transferee of any Letter
of Credit (or any persons or entities for whom any such beneficiary or any such
transferee may be acting), or other person or entity, whether in connection
with this Agreement, the transactions contemplated herein or in the Related
Documents or any unrelated transactions;</p>

<p align="justify">&nbsp;</p>

<p align="center">14</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any statement or any other document presented under any Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect whatsoever;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
payment by or on behalf of the Issuer under any Letter of Credit against
presentation of a draft or certificate which does not strictly comply with the
terms of such Letter of Credit; or</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any other circumstance or happening whatsoever, whether or not similar to any
of the foregoing.</p>

<p align="justify">Section
2.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Interest; Minimum Interest Charge; Default Interest; Participations;
Clearance Days; Usury</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Note</i></b>.&nbsp; Except as set forth in Subsections (c) and (f), the
outstanding principal balance of the Note shall bear interest at the Floating
Rate.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Minimum Interest Charge</i></b>.&nbsp; Notwithstanding the interest
payable pursuant to subsection (a), the Borrower shall pay to the Lender
interest of not less than $12,500 per quarter (the &quot;Minimum Interest Charge&quot;)
during the term of this Agreement, and the Borrower shall pay any deficiency
between the Minimum Interest Charge and the amount of interest otherwise
calculated under subsection (a) on the first day of each quarter and on the
Termination Date.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Default Interest Rate</i>.</b>&nbsp; Upon notice to the Borrower from the
Lender from time to time, the principal of the Advances outstanding from time
to time shall bear interest at the Default Rate, effective as of the first day
of the month during which any Default Period begins through the last day of
such Default Period. The Lender's election to charge the Default Rate shall be
in its sole discretion and shall not be a waiver of any of its other rights and
remedies. The Lender's election to charge interest at the Default Rate for less
than the entire period during which the Default Rate may be charged shall not
be a waiver of its right to later charge the Default Rate for the entire such
period.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Clearance Days</i></b>.&nbsp; Notwithstanding Section 2.10(b)(ii),
interest at the interest rate applicable under this Section 2.7 shall accrue on
the amount of all payments (even if in the form of immediately available
federal funds) for two (2) Banking Days for clearance.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Participations</i></b>.&nbsp; If any Person shall acquire a participation
in the Advances or the Obligation of Reimbursement, the Borrower shall be
obligated to the Lender to pay the full amount of all interest calculated under
this Section 2.7, along with all other fees, charges and other amounts due
under this Agreement, regardless if such Person elects to accept interest with
respect to its participation at a lower rate than that calculated under this
Section 2.7, or otherwise elects to accept less than its prorata share of such
fees, charges and other amounts due under this Agreement.</p>

<p align="justify">&nbsp;</p>

<p align="center">15</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Usury</i></b>.&nbsp; In any event no rate change shall be put into effect
which would result in a rate greater than the highest rate permitted by
law.&nbsp; Notwithstanding anything to the contrary contained in any Loan
Document, all agreements which either now are or which shall become agreements
between the Borrower and the Lender are hereby limited so that in no
contingency or event whatsoever shall the total liability for payments in the
nature of interest, additional interest and other charges exceed the applicable
limits imposed by any applicable usury laws. If any payments in the nature of
interest, additional interest and other charges made under any Loan Document
are held to be in excess of the limits imposed by any applicable usury laws, it
is agreed that any such amount held to be in excess shall be considered payment
of principal hereunder, and the indebtedness evidenced hereby shall be reduced
by such amount so that the total liability for payments in the nature of
interest, additional interest and other charges shall not exceed the applicable
limits imposed by any applicable usury laws, in compliance with the desires of
the Borrower and the Lender. This provision shall never be superseded or waived
and shall control every other provision of the Loan Documents and all
agreements between the Borrower and the Lender, or their successors and
assigns.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
2.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Fees</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Origination Fee</i></b>.&nbsp; The Borrower and the Affiliate Borrower
shall jointly pay the Lender a fully earned and non-refundable origination fee
of $37,500, due and payable upon the execution of this Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Audit Fees</i></b>.&nbsp; The Borrower shall pay the Lender, on demand,
audit fees in connection with any audits or inspections conducted by or on
behalf of the Lender of any Collateral or the Borrower's operations or business
at the rates established from time to time by the Lender as its audit fees
(which fees are currently $90 per hour per auditor), together with all actual
out-of-pocket costs and expenses incurred in conducting any such audit or
inspection.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Letter of Credit Fees</i></b>.&nbsp; The Borrower shall pay to the Lender
a fee with respect to each Letter of Credit, if any, accruing on a daily basis
and computed at the annual rate of one and one quarter percent (1.25%), of the
aggregate amount that may then be drawn under it assuming compliance with all
conditions for drawing (the &quot;Aggregate Face Amount&quot;), from and including the
date of issuance of such Letter of Credit until such date as such Letter of
Credit shall terminate by its terms or be returned to the Lender, due and
payable monthly in arrears on the first day of each month and on the
Termination Date; <u>provided</u>, <u>however</u> that during Default Periods,
in the Lender's sole discretion and without waiving any of its other rights and
remedies, such fee shall increase to four and one quarter percent (4.25%) of
the Aggregate Face Amount.&nbsp; The foregoing fee shall be in addition to any
and all fees, commissions and charges of the Issuer with respect to or in
connection with such Letter of Credit.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Letter of Credit Administrative Fees</i></b>.&nbsp; The Borrower shall
pay to the Lender, on written demand, the administrative fees charged by the
Issuer in connection with the honoring of drafts under any Letter of Credit,
amendments thereto, transfers thereof and all other activity with respect to
the Letters of Credit at the then-current rates published by the Issuer for
such services rendered on behalf of customers of the Issuer generally.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Termination</i></b> <b><i>Fees.</i></b>&nbsp; If the Credit Facility is
terminated (i) by the Lender during a Default Period that begins before a
Maturity Date, (ii) by the Borrower (A) as of a date other than a Maturity Date
or (B) as of a Maturity Date but without the Lender having received written
notice of such termination at least 90 days before such Maturity Date, the
Borrower shall pay to the Lender a fee in an amount equal to a percentage of
the Maximum Line as follows: (A) three percent (3.0%) if the termination occurs
on or before the first anniversary of the Funding Date; and (B) one percent
(1.0%) if the termination occurs after the first anniversary of the Funding
Date.</p>

<p align="justify">&nbsp;</p>

<p align="center">16</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b>W<i>aiver of Termination</i></b>.&nbsp; The Borrower will not be required to
pay the termination and prepayment fees otherwise due under subsection&nbsp;(e)
if such termination or prepayment is made because of refinancing by an
affiliate of the Lender.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Unused Line Fee</i></b>.&nbsp; On the first day of each calendar quarter
during the term of this Agreement, an unused line fee in an amount equal to
0.25% per annum times the result of (a) the Maximum Line, less (b) the sum of
(i) the average Daily Balance of Advances that were outstanding during the
immediately preceding calendar quarter, plus (ii) the average Daily Balance of
the L/C Amount during the immediately preceding calendar quarter, and plus
(iii) the average Affiliate Obligations during the immediately preceding
calendar quarter.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (h)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Other Fees</i></b>.&nbsp; The Lender may from time to time, upon five (5)
days prior notice to the Borrower during a Default Period, charge additional
fees for Revolving Advances made and Letters of Credit issued in excess of
Availability, for late delivery of reports, in lieu of imposing interest at the
Default Rate, and for other commercially reasonable reasons.&nbsp; The
Borrower's request for a Revolving Advance or the issuance of a Letter of
Credit at any time after such notice is given and such five (5) day period has
elapsed shall constitute the Borrower's agreement to pay the fees described in
such notice.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
2.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Time for Interest Payments; Payment on Non-Banking Days; Computation of
Interest and Fees</u></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Time For Interest Payments</i></b>.&nbsp; Interest shall be due and payable
in arrears on the first day of each month and on the Termination Date.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Payment on Non-Banking Days</i></b>.&nbsp; Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such extension
of time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Computation of Interest and Fees</i></b>.&nbsp; Interest accruing on the
outstanding principal balance of the Advances and fees hereunder outstanding
from time to time shall be computed on the basis of actual number of days
elapsed in a year of 360 days.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
2.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Lockbox;
Collateral Account; Application of Payments</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Lockbox and Collateral Account</i></b>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower shall instruct all Account Debtors to pay all Accounts directly to
the Lockbox. If, notwithstanding such instructions, the Borrower receives any
payments on Accounts, the Borrower shall deposit such payments into the
Collateral Account. The Borrower shall also deposit all other cash proceeds of
Collateral directly to the Collateral Account. Until so deposited, the Borrower
shall hold all such payments and cash proceeds in trust for and as the property
of the Lender and shall not commingle such property with any of its other funds
or property. All deposits in the Collateral Account shall constitute proceeds
of Collateral and shall not constitute payment of the Obligations.</p>

<p align="justify">&nbsp;</p>

<p align="center">17</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All items deposited in the Collateral Account shall be subject to final
payment. If any such item is returned uncollected, the Borrower will
immediately pay the Lender, or, for items deposited in the Collateral Account,
the bank maintaining such account, the amount of that item, or such bank at its
discretion may charge any uncollected item to the Borrower's commercial account
or other account. The Borrower shall be liable as an endorser on all items
deposited in the Collateral Account, whether or not in fact endorsed by the
Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Application of Payments</i></b>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower may, from time to time, in accordance with the Lockbox and
Collection Account Agreement, cause funds in the Collateral Account to be
transferred to the Lender's general account for payment of the Obligations.
Except as provided in the preceding sentence, amounts deposited in the
Collateral Account shall not be subject to withdrawal by the Borrower, except
after full payment and discharge of all Obligations.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All payments to the Lender shall be made in immediately available funds and
shall be applied to the Obligations upon receipt by the Lender. Funds received
from the Collateral Account shall be deemed to be immediately available. The
Lender may hold all payments not constituting immediately available funds for
two (2) additional Banking Days before applying them to the Obligations.
Subject to Section&nbsp;7.7 of this Agreement, all payments with respect to the
Obligations may be applied, and in the Lender's sole discretion reversed and
re-applied, to the Obligations, in such order and manner as the Lender shall
determine in its sole discretion.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
2.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Voluntary
Prepayment; Termination of the Credit Facility by the Borrower</u>.&nbsp; Except as otherwise provided herein, the Borrower may prepay the
Advances in whole at any time or from time to time in part.&nbsp; The Borrower
may terminate the Credit Facility at any time if it (i) gives the Lender at
least 30 days' prior written notice and (ii)&nbsp;pays the Lender termination,
prepayment and Maximum Line reduction fees in accordance with
Section&nbsp;2.8(e). Subject to termination of the Credit Facility and payment
and performance of all Obligations, the Lender shall, at the Borrower's
expense, release or terminate the Security Interest and the Security Documents
to which the Borrower is entitled by law.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
2.12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Mandatory
Prepayment</u>.&nbsp; Without notice or demand, if the sum of the outstanding principal
balance of the Revolving Advances plus the L/C Amount shall at any time exceed
the Borrowing Base, the Borrower shall (i)&nbsp;first, immediately prepay the
Revolving Advances to the extent necessary to eliminate such excess; and (ii)
if prepayment in full of the Revolving Advances is insufficient to eliminate
such excess, pay to the Lender in immediately available funds for deposit in
the Special Account an amount equal to the remaining excess. Any payment
received by the Lender under this Section&nbsp;2.12 or under Section&nbsp;2.11
may be applied to the Obligations, in such order and in such amounts as the
Lender, in its discretion, may from time to time determine.</p>

<p align="justify">&nbsp;</p>

<p align="center">18</p>

<hr color="#000080" align="justify">

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
2.13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Revolving
Advances to Pay Obligations</u>.&nbsp; Notwithstanding anything in Section&nbsp;2.1, the Lender may, in its
discretion at any time or from time to time, without the Borrower's request and
even if the conditions set forth in Section&nbsp;4.2 would not be satisfied,
make a Revolving Advance in an amount equal to the portion of the Obligations
from time to time due and payable.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
2.14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Use of Proceeds</u>.&nbsp; The Borrower shall use the proceeds of Advances and each Letter of
Credit for ordinary working capital purposes.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
2.15&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Liability Records</u>.&nbsp; The Lender may maintain from time to time, at its discretion,
records as to the Obligations.&nbsp; All entries made on any such record shall
be presumed correct until the Borrower establishes the contrary.&nbsp; Upon the
Lender's demand, the Borrower will admit and certify in writing the exact
principal balance of the Obligations that the Borrower then asserts to be
outstanding.&nbsp; Any billing statement or accounting rendered by the Lender
shall be conclusive and fully binding on the Borrower unless the Borrower gives
the Lender specific written notice of exception within 30 days after receipt.</p>

<p align="center"><b>ARTICLE III</b><u><br>
<br>
<b>SECURITY INTEREST; OCCUPANCY; SETOFF</b></u></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
3.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Grant of Security Interest</u>.&nbsp; The Borrower hereby pledges, assigns and grants to the Lender a lien
and security interest (collectively referred to as the &quot;Security Interest&quot;) in
the Collateral, as security for the payment and performance of the
Obligations.&nbsp; Upon request by the Lender, the Borrower will grant the
Lender a security interest in all commercial tort claims it may have against
any Person.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Section
3.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Notification of Account Debtors and Other Obligors</u>.&nbsp; The Lender may at any time (whether or not a Default Period then
exists) notify any Account Debtor or other person obligated to pay the amount
due that such right to payment has been assigned or transferred to the Lender
for security and shall be paid directly to the Lender.&nbsp; The Borrower will
join in giving such notice if the Lender so requests.&nbsp; At any time after
the Borrower or the Lender gives such notice to an Account Debtor or other
obligor, the Lender may, but need not, in the Lender's name or in the
Borrower's name, demand, sue for, collect or receive any money or property at
any time payable or receivable on account of, or securing, any such right to
payment, or grant any extension to, make any compromise or settlement with or
otherwise agree to waive, modify, amend or change the obligations (including
collateral obligations) of any such Account Debtor or other obligor.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
3.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Assignment of Insurance</u>.&nbsp; As additional security for the payment and performance of the
Obligations, the Borrower hereby assigns to the Lender any and all monies
(including proceeds of insurance and refunds of unearned premiums) due or to
become due under, and all other rights of the Borrower with respect to, any and
all policies of insurance now or at any time hereafter covering the Collateral
or any evidence thereof or any business records or valuable papers pertaining
thereto, and the Borrower hereby directs the issuer of any such policy to pay
all such monies directly to the Lender.&nbsp; At any time, whether or not a
Default Period then exists, the Lender may (but need not), in the Lender's name
or in the Borrower's name, execute and deliver proof of claim, receive all such
monies, endorse checks and other instruments representing payment of such
monies, and adjust, litigate, compromise or release any claim against the
issuer of any such policy.</p>

<p align="justify">&nbsp;</p>

<p align="center">19</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
3.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Occupancy</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower hereby irrevocably grants to the Lender the right to take
exclusive possession of the Premises at any time during a Default Period.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Lender may use the Premises only to hold, process, manufacture, sell, use,
store, liquidate, realize upon or otherwise dispose of goods that are
Collateral and for other purposes that the Lender may in good faith deem to be
related or incidental purposes.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Lender's right to hold the Premises shall cease and terminate upon the
earlier of (i) payment in full and discharge of all Obligations and termination
of the Credit Facility, and (ii) final sale or disposition of all goods
constituting Collateral and delivery of all such goods to purchasers.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Lender shall not be obligated to pay or account for any rent or other
compensation for the possession, occupancy or use of any of the Premises;
provided, however, that if the Lender does pay or account for any rent or other
compensation for the possession, occupancy or use of any of the Premises, the
Borrower shall reimburse the Lender promptly for the full amount thereof. In
addition, the Borrower will pay, or reimburse the Lender for, all taxes, fees,
duties, imposts, charges and expenses at any time incurred by or imposed upon
the Lender by reason of the execution, delivery, existence, recordation,
performance or enforcement of this Agreement or the provisions of this
Section&nbsp;3.4.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
3.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>License</u>.&nbsp; Without limiting the generality of any other Security Document, the
Borrower hereby grants to the Lender a non-exclusive, worldwide and
royalty-free license to use or otherwise exploit all Intellectual Property
Rights of the Borrower for the purpose of: (a) completing the manufacture of
any in-process materials during any Default Period so that such materials
become saleable Inventory, all in accordance with the same quality standards
previously adopted by the Borrower for its own manufacturing and subject to the
Borrower's reasonable exercise of quality control; and (b) selling, leasing or
otherwise disposing of any or all Collateral during any Default Period.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
3.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Financing Statement</u>.&nbsp; The Borrower authorizes the Lender to file from time to time where
permitted by law, such financing statements against collateral described as
&quot;all personal property&quot; or describing specific items of collateral including
commercial tort claims as the Lender deems necessary or useful to perfect the
Security Interest.&nbsp; A carbon, photographic or other reproduction of this
Agreement or of any financing statements signed by the Borrower is sufficient
as a financing statement and may be filed as a financing statement in any state
to perfect the security interests granted hereby. For this purpose, the
following information is set forth:</p>

<p align="justify">&nbsp;</p>

<p align="center">20</p>

<hr color="#000080"><P Style="page-break-after: always"></P>
<blockquote>
  <blockquote>
    <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="438">
      <tr>
        <td width="436">Name and address of Debtor:</td>
      </tr>
      <tr>
        <td width="436">&nbsp;</td>
      </tr>
      <tr>
        <td width="436">Micro Motors, Inc.</td>
      </tr>
      <tr>
        <td width="436">151 E. Columbine</td>
      </tr>
      <tr>
        <td width="436">Santa Ana, CA&nbsp; 92707</td>
      </tr>
      <tr>
        <td width="436">Federal Employer Identification No. 95-1027922</td>
      </tr>
      <tr>
        <td width="436">Organizational Identification No. 951027922</td>
      </tr>
      <tr>
        <td width="436">&nbsp;</td>
      </tr>
      <tr>
        <td width="436">Name and address of Secured Party:</td>
      </tr>
      <tr>
        <td width="436">&nbsp;</td>
      </tr>
      <tr>
        <td width="436">Wells Fargo Business Credit, Inc.</td>
      </tr>
      <tr>
        <td width="436">245 S. Los Robles Avenue, Suite&nbsp;600</td>
      </tr>
      <tr>
        <td width="436">Pasadena, CA&nbsp; 91101</td>
      </tr>
      <tr>
        <td width="436">Federal Employer Identification No. 41-1237652</td>
      </tr>
    </table>
  </blockquote>
</blockquote>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
3.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Setoff</u>.&nbsp; The Lender may at any time or from time to time, at its sole
discretion and without demand and without notice to anyone, setoff any
liability owed to the Borrower by the Lender, whether or not due, against any
Obligation, whether or not due. In addition, each other Person holding a
participating interest in any Obligations shall have the right to appropriate
or setoff any deposit or other liability then owed by such Person to the
Borrower, whether or not due, and apply the same to the payment of said
participating interest, as fully as if such Person had lent directly to the
Borrower the amount of such participating interest.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
3.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Power of Attorney</u>.&nbsp; The Borrower hereby irrevocably makes, constitutes, and appoints the
Lender (and any of the Lender's officers, employees, or agents designated by
the Lender) as the Borrower's true and lawful attorney, with power to (a) if
the Borrower refuses to, or fails timely to execute and deliver any of the
documents required to be described in Section 8.4, sign the name of the
Borrower on any of the documents described in Section 8.4, (b) at any time that
an Event of Default has occurred and is continuing, sign the Borrower's name on
any invoice or bill of lading relating to the Collateral, drafts against
Account Debtors, or notices to Account Debtors, (c) send requests for verification
of Accounts, (d) endorse the Borrower's name on any collection item that may
come into the Lender's possession, (e) at any time that an Event of Default has
occurred and is continuing, make, settle, and adjust all claims under
Borrower's policies of insurance and make all determinations and decisions with
respect to such policies of insurance, (f) at any time that an Event of Default
has occurred and is continuing, settle and adjust disputes and claims
respecting the Accounts, chattel paper, or General Intangibles directly with
Account Debtors, for amounts and upon terms that the Lender determines to be
reasonable, and the Lender may cause to be executed and delivered any documents
and releases that the Lender determines to be necessary, and (g) notify the
United States Postal Service to change the address for delivery of the
Borrower's mail to any address designated by the Lender, otherwise intercept
the Borrower's mail, and receive, open and dispose of the Borrower's mail,
applying all Collateral as permitted under this Agreement and holding all other
mail for the Borrower's account or forwarding such mail to the Borrower's last
known address.&nbsp; The appointment of the Lender as the Borrower's attorney,
and each and every one of its rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully and
finally repaid and performed and the Lender's obligations to extend credit
hereunder are terminated.</p>

<p align="justify">&nbsp;</p>

<p align="center">21</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="center"><b>ARTICLE IV</b><br>
<br>
<b><u>CONDITIONS OF LENDING</u></b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
4.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Conditions Precedent to the Initial Advances and Letter of Credit</u>.&nbsp; The Lender's obligation to make the initial Advances or to cause any
Letters of Credit to be issued shall be subject to the condition precedent that
the Lender shall have received all of the following, each in form and substance
satisfactory to the Lender:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This Agreement, duly executed by the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Note, duly executed by the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A true and correct copy of any and all leases pursuant to which the Borrower is
leasing the Premises, together with a landlord's disclaimer and consent with
respect to each such lease.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A true and correct copy of any and all mortgages pursuant to which the Borrower
has mortgaged the Premises, together with a mortgagee's disclaimer and consent
with respect to each such mortgage.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A true and correct copy of any and all agreements pursuant to which the
Borrower's property is in the possession of any Person other than the Borrower,
together with, in the case of any goods held by such Person for resale, (i) a
consignee's acknowledgment and waiver of Liens, (ii) UCC financing statements
sufficient to protect the Borrower's and the Lender's interests in such goods,
and (iii) UCC searches showing that no other secured party has filed a
financing statement against such Person and covering property similar to the
Borrower's other than the Borrower, or if there exists any such secured party,
evidence that each such secured party has received notice from the Borrower and
the Lender sufficient to protect the Borrower's and the Lender's interests in
the Borrower's goods from any claim by such secured party.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An acknowledgment and waiver of Liens from each warehouse in which the Borrower
is storing Inventory.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A true and correct copy of any and all agreements pursuant to which the
Borrower's property is in the possession of any Person other than the Borrower,
together with, (i) an acknowledgment and waiver of Liens from each
subcontractor who has possession of the Borrower's goods from time to time,
(ii) UCC financing statements sufficient to protect the Borrower's and the
Lender's interests in such goods, and (iii) UCC searches showing that no other
secured party has filed a financing statement covering such Person's property
other than the Borrower, or if there exists any such secured party, evidence
that each such secured party has received notice from the Borrower and the
Lender sufficient to protect the Borrower's and the Lender's interests in the
Borrower's goods from any claim by such secured party.</p>

<p align="justify">&nbsp;</p>

<p align="center">22</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (h)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Lockbox and Collection Account Agreement, duly executed by the Borrower and
Wells Fargo Bank, N.A.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Control agreements, duly executed by the Borrower and each bank at which the
Borrower maintains deposit accounts.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (j)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Patent and Trademark Security Agreement, duly executed by the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (k)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Guaranty and the Guaranty Security Agreement, each duly executed by the
Guarantor, </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (l)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Copyright Security Agreement, duly executed by the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (m)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Subordination Agreements, duly executed by the Guarantor and Ronald&nbsp;G.
Coss, respectively, and acknowledged by the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (n)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Current searches of appropriate filing offices showing that (i) no Liens have
been filed and remain in effect against the Borrower except Permitted Liens or
Liens held by Persons who have agreed in writing that upon receipt of proceeds
of the initial Advances, they will satisfy, release or terminate such Liens in
a manner satisfactory to the Lender, and (ii) the Lender has duly filed all
financing statements necessary to perfect the Security Interest, to the extent
the Security Interest is capable of being perfected by filing.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (o)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A certificate of the Borrower's Secretary or Assistant Secretary certifying
that attached to such certificate are (i) the resolutions of the Borrower's
Directors and, if required, Owners, authorizing the execution, delivery and
performance of the Loan Documents, (ii) true, correct and complete copies of
the Borrower's Constituent Documents, and (iii) examples of the signatures of
the Borrower's Officers or agents authorized to execute and deliver the Loan
Documents and other instruments, agreements and certificates, including Advance
requests, on the Borrower's behalf.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (p)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A current certificate issued by the Secretary of State of Colorado, certifying
that the Borrower is in compliance with all applicable organizational
requirements of the State of Colorado.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (q)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Evidence that the Borrower is duly licensed or qualified to transact business
in all jurisdictions where the character of the property owned or leased or the
nature of the business transacted by it makes such licensing or qualification
necessary.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (r)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A certificate of an Officer of the Borrower confirming, in his personal
capacity, the representations and warranties set forth in Article V.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (s)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An opinion of counsel to the Borrower and the Guarantor, addressed to the
Lender.</p>

<p align="justify">&nbsp;</p>

<p align="center">23</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (t)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Certificates of the insurance required hereunder, with all hazard insurance
containing a lender's loss payable endorsement in the Lender's favor and with
all liability insurance naming the Lender as an additional insured.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (u)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Payment of the fees and commissions due under Section 2.13 through the date of
the initial Advance or Letter of Credit and expenses incurred by the Lender
through such date and required to be paid by the Borrower under Section 8.6,
including all legal expenses incurred through the date of this Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (v)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Evidence that after making the initial Revolving Advance, satisfying all trade
payables older than 60 days from invoice date, book overdrafts and closing
costs, Availability shall be not less than $500,000.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (w)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Evidence satisfactory to the Lender that there has been no Material Adverse
Effect since the date of the last financial statements provided by the Borrower
to the Lender, or any material variance from the Borrower's projections
previously provided by the Borrower to the Lender.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (x)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A Collateral audit, satisfactory to the Lender.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (y)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The results of the Lender's due diligence with respect to the Borrower,
including background checks on the senior officers of the Borrower,
satisfactory to the Lender.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (z)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
True and complete copies of all license agreements pursuant to which the
Borrower licenses any Intellectual Property Rights, together with a consent to
assignment to the Lender or its nominee from each licensor thereof (including
without limitation, from Ronald G. Coss).</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (aa)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Such
other documents as the Lender in its sole discretion may require.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
4.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Conditions Precedent to All Advances and Letters of Credit</u>.&nbsp; The Lender's obligation to make each Advance and to cause each
Letter of Credit to be issued shall be subject to the further conditions
precedent that:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the representations and warranties contained in Article V are correct on and as
of the date of such Advance or issuance of a Letter of Credit as though made on
and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
no event has occurred and is continuing, or would result from such Advance or
issuance of a Letter of Credit which constitutes a Default or an Event of
Default; and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
no injunction, writ, restraining order, or other order of any nature
prohibiting, directly or indirectly, the extending of such credit shall have
been issued and remain in force by any Governmental Authority against the
Borrower, the Lender, or any of their Affiliates.</p>

<p align="justify">&nbsp;</p>

<p align="center">24</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="center"><b>ARTICLE V</b><u><br>
<br>
<b>REPRESENTATIONS AND WARRANTIES</b></u></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Borrower represents and warrants to the Lender as follows:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Existence and Power; Name; Chief Executive Office; Inventory and Equipment
Locations; Federal Employer Identification Number</u>.&nbsp; The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Colorado and is duly licensed
or qualified to transact business in all jurisdictions where the character of
the property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary. The Borrower has all requisite
power and authority to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents.&nbsp; During its existence, the Borrower has done business solely
under the names set forth in Schedule&nbsp;5.1 and all of the Borrower's
records relating to its business or the Collateral are kept at that
location.&nbsp; The Borrower's chief executive office and principal place of
business is located at the address set forth in Schedule&nbsp;5.1.&nbsp; All
Inventory and Equipment is located at that location or at one of the other
locations listed in Schedule&nbsp;5.1.&nbsp; The Borrower's federal employer
identification number is correctly set forth in Section&nbsp;3.6.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Capitalization</u>. &nbsp;Schedule&nbsp;5.2 constitutes a correct and complete list of all
ownership interests of the Borrower and rights to acquire ownership interests
including the record holder, number of interests and percentage interests on a
fully diluted basis, and an organizational chart showing the ownership
structure of all Subsidiaries of the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Authorization of Borrowing; No Conflict as to Law or Agreements</u>.&nbsp; The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i)
require any consent or approval of the Borrower's Owners; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any Governmental Authority, or any third Person, except such
authorization, consent, approval, registration, declaration, filing or notice
as has been obtained, accomplished or given prior to the date hereof; (iii)
violate any provision of any law, rule or regulation (including Regulation X of
the Board of Governors of the Federal Reserve System) or of any order, writ,
injunction or decree presently in effect having applicability to the Borrower
or of the Borrower's Constituent Documents; (iv) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other material agreement, lease or instrument to which the Borrower is a party
or by which it or its properties may be bound or affected; or (v) result in, or
require, the creation or imposition of any Lien (other than the Security
Interest) upon or with respect to any of the properties now owned or hereafter
acquired by the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Legal Agreements</u>.&nbsp; This Agreement constitutes and, upon due execution by the Borrower,
the other Loan Documents will constitute the legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in accordance
with their respective terms, except as enforcement may be limited by equitable
principles or by bankruptcy, insolvency, reorganization, moratorium, or similar
laws relating to or limiting creditors' rights generally.</p>

<p align="justify">&nbsp;</p>

<p align="center">25</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Subsidiaries</u>.&nbsp; Except as set forth in Schedule&nbsp;5.5 hereto, the Borrower has no
Subsidiaries.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Financial Condition; No Adverse Change</u>.&nbsp; The Borrower has furnished to the Lender its audited financial
statements for its fiscal year ended June&nbsp;30, 2001 and unaudited financial
statements for the fiscal-year-to-date period ended March&nbsp;31, 2002, and
those statements fairly present the Borrower's financial condition on the dates
thereof and the results of its operations and cash flows for the periods then
ended and were prepared in accordance with generally accepted accounting
principles.&nbsp; Since the date of the most recent financial statements, there
has been no change in the Borrower's business, properties or condition
(financial or otherwise) which has had a Material Adverse Effect.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Litigation</u>.&nbsp; There are no actions, suits or proceedings pending or, to the
Borrower's knowledge, threatened against or affecting the Borrower or any of
its Affiliates or the properties of the Borrower or any of its Affiliates
before any court or governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, which, if determined adversely to the
Borrower or any of its Affiliates, would have a Material Adverse Effect.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Regulation U</u>.&nbsp; The Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System), and no
part of the proceeds of any Advance will be used to purchase or carry any
margin stock or to extend credit to others for the purpose of purchasing or
carrying any margin stock.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Taxes</u>.&nbsp; The Borrower and its Affiliates have paid or caused to be paid to
the proper authorities when due all federal, state and local taxes required to
be withheld by each of them.&nbsp; The Borrower and its Affiliates have filed
all federal, state and local tax returns which to the knowledge of the Officers
of the Borrower or any Affiliate, as the case may be, are required to be filed,
and the Borrower and its Affiliates have paid or caused to be paid to the
respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Titles and Liens</u>.&nbsp; The Borrower has good and absolute title to all Collateral free and
clear of all Liens other than Permitted Liens.&nbsp; No financing statement
naming the Borrower as debtor is on file in any office except to perfect only
Permitted Liens.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Intellectual Property
Rights</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Owned Intellectual Property</i></b>.&nbsp; Schedule 5.11 is a complete
list of all patents, applications for patents, trademarks, applications for
trademarks, service marks, applications for service marks, mask works, trade
dress and copyrights for which the Borrower is the registered owner (the &quot;Owned
Intellectual Property&quot;). Except as disclosed on Schedule 5.11, (i) the Borrower
owns the Owned Intellectual Property free and clear of all restrictions
(including covenants not to sue a third party), court orders, injunctions,
decrees, writs or Liens, whether by written agreement or otherwise, (ii) no
Person other than the Borrower owns or has been granted any right in the Owned
Intellectual Property, (iii) all Owned Intellectual Property is valid,
subsisting and enforceable and (iv) the Borrower has taken all commercially
reasonable action necessary to maintain and protect the Owned Intellectual
Property.</p>

<p align="justify">&nbsp;</p>

<p align="center">26</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Agreements with Employees and Contractors</i></b>.&nbsp; The Borrower has
entered into a legally enforceable agreement with each of its employees and
subcontractors obligating each such Person to assign to the Borrower, without
any additional compensation, any Intellectual Property Rights created,
discovered or invented by such Person in the course of such Person's employment
or engagement with the Borrower (except to the extent prohibited by law), and
further requiring such Person to cooperate with the Borrower, without any
additional compensation, in connection with securing and enforcing any
Intellectual Property Rights therein; provided, however, that the foregoing
shall not apply with respect to employees and subcontractors whose job
descriptions are of the type such that no such assignments are reasonably
foreseeable.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Intellectual Property Rights Licensed from Others</i></b>.&nbsp;
Schedule&nbsp;5.11 is a complete list of all agreements under which the
Borrower has licensed Intellectual Property Rights from another Person
(&quot;Licensed Intellectual Property&quot;) other than readily available, non-negotiated
licenses of computer software and other intellectual property used solely for
performing accounting, word processing and similar administrative tasks
(&quot;Off-the-shelf Software&quot;) and a summary of any ongoing payments the Borrower
is obligated to make with respect thereto.&nbsp; Except as disclosed on
Schedule&nbsp;5.11 and in written agreements copies of which have been given to
the Lender, the Borrower's licenses to use the Licensed Intellectual Property
are free and clear of all restrictions, Liens, court orders, injunctions,
decrees, or writs, whether by written agreement or otherwise.&nbsp; Except as
disclosed on Schedule&nbsp;5.11, the Borrower is not obligated or under any
liability whatsoever to make any payments of a material nature by way of
royalties, fees or otherwise to any owner of, licensor of, or other claimant
to, any Intellectual Property Rights.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Other Intellectual Property Needed for Business</i></b>.&nbsp; Except for
Off-the-shelf Software and as disclosed on Schedule&nbsp;5.11, the Owned Intellectual
Property and the Licensed Intellectual Property constitute all Intellectual
Property Rights used or necessary to conduct the Borrower's business as it is
presently conducted or as the Borrower reasonably foresees conducting it.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Infringement</i></b>.&nbsp; Except as disclosed on Schedule&nbsp;5.11,
the Borrower has no knowledge of, and has not received any written claim or
notice alleging, any Infringement of another Person's Intellectual Property
Rights (including any written claim that the Borrower must license or refrain
from using the Intellectual Property Rights of any third party) nor, to the
Borrower's knowledge, is there any threatened claim or any reasonable basis for
any such claim.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Plans</u>.&nbsp; Except as disclosed to the Lender in writing prior to the date
hereof, neither the Borrower nor any ERISA Affiliate (i) maintains or has
maintained any Pension Plan, (ii) contributes or has contributed to any
Multiemployer Plan or (iii) provides or has provided post-retirement medical or
insurance benefits with respect to employees or former employees (other than
benefits required under Section&nbsp;601 of ERISA, Section 4980B of the IRC or
applicable state law). Neither the Borrower nor any ERISA Affiliate has
received any notice or has any knowledge to the effect that it is not in full
compliance with any of the requirements of ERISA, the IRC or applicable state
law with respect to any Plan. No Reportable Event exists in connection with any
Pension Plan. Each Plan which is intended to qualify under the IRC is so
qualified, and no fact or circumstance exists which may have an adverse effect
on the Plan's tax-qualified status.&nbsp; Neither the Borrower nor any ERISA
Affiliate has (i) any accumulated funding deficiency (as defined in Section&nbsp;302
of ERISA and Section&nbsp;412 of the IRC) under any Plan, whether or not
waived, (ii)&nbsp;any liability under Section&nbsp;4201 or 4243 of ERISA for
any withdrawal, partial withdrawal, reorganization or other event under any
Multiemployer Plan or (iii) any liability or knowledge of any facts or
circumstances which could result in any liability to the Pension Benefit
Guaranty Corporation, the Internal Revenue Service, the Department of Labor or
any participant in connection with any Plan (other than routine claims for benefits
under the Plan).</p>

<p align="justify">&nbsp;</p>

<p align="center">27</p>

<hr color="#000080" align="justify">

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Default</u>.&nbsp; The Borrower is in compliance with all provisions of all agreements,
instruments, decrees and orders to which it is a party or by which it or its
property is bound or affected, the breach or default of which could have a
Material Adverse Effect.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Environmental
Matters</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
To the Borrower's best knowledge, there are not present in, on or under the
Premises any Hazardous Substances in such form or quantity as to create any
material liability or obligation for either the Borrower or the Lender under
common law of any jurisdiction or under any Environmental Law, and no Hazardous
Substances have ever been stored, buried, spilled, leaked, discharged, emitted
or released in, on or under the Premises in such a way as to create any such
material liability.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
To the Borrower's best knowledge, the Borrower has not disposed of Hazardous
Substances in such a manner as to create any material liability under any Environmental
Law.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There are not and there never have been any requests, claims, notices,
investigations, demands, administrative proceedings, hearings or litigation,
relating in any way to the Premises or the Borrower, alleging material liability
under, violation of, or noncompliance with any Environmental Law or any
license, permit or other authorization issued pursuant thereto.&nbsp; To the
Borrower's best knowledge, no such matter is threatened or impending.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
To the Borrower's best knowledge, the Borrower's businesses are and have in the
past always been conducted in accordance with all Environmental Laws and all
licenses, permits and other authorizations required pursuant to any
Environmental Law and necessary for the lawful and efficient operation of such
businesses are in the Borrower's possession and are in full force and effect.
No permit required under any Environmental Law is scheduled to expire within 12
months and there is no threat that any such permit will be withdrawn,
terminated, limited or materially changed.</p>

<p align="justify">&nbsp;</p>

<p align="center">28</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
To the Borrower's best knowledge, the Premises are not and never have been
listed on the National Priorities List, the Comprehensive Environmental
Response, Compensation and Liability Information System or any similar federal,
state or local list, schedule, log, inventory or database.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower has delivered to Lender all environmental assessments, audits,
reports, permits, licenses and other documents describing or relating in any
way to the Premises or Borrower's businesses.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.15&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Submissions to
Lender</u>.&nbsp; All financial and other information provided to the Lender by or on
behalf of the Borrower in connection with the Borrower's request for the credit
facilities contemplated hereby is (i) true and correct in all material
respects, (ii) does not omit any material fact necessary to make such
information not misleading and, (iii) as to projections, valuations or proforma
financial statements, present a good faith opinion as to such projections,
valuations and proforma condition and results.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.16&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Financing
Statements</u>.&nbsp; The Borrower has authorized the filing of financing statements
sufficient when filed to perfect the Security Interest and the other security
interests created by the Security Documents. When such financing statements are
filed in the offices noted therein, the Lender will have a valid and perfected
security interest in all Collateral which is capable of being perfected by filing
financing statements. None of the Collateral is or will become a fixture on
real estate, unless a sufficient fixture filing is in effect with respect
thereto.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.17&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Rights to Payment</u>.&nbsp; Each right to payment and each instrument, document, chattel paper
and other agreement constituting or evidencing Collateral is (or, in the case
of all future Collateral, will be when arising or issued) the valid, genuine
and legally enforceable obligation, subject to no defense, setoff or
counterclaim, of the Account Debtor or other obligor named therein or in the
Borrower's records pertaining thereto as being obligated to pay such
obligation.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.18&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Eligible Accounts</u>.&nbsp; The Eligible Accounts are bona fide existing payment obligations of
Account Debtors created by the sale and delivery of Inventory or the rendition
of services to such Account Debtors in the ordinary course of the Borrower's
business, owed to the Borrower without defenses, disputes, offsets,
counterclaims, or rights of return or cancellation.&nbsp; As to each Eligible
Account, such Account is not:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
owed by an employee, Affiliate, or agent of Borrower, </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
on account of a transaction wherein goods were placed on consignment or were
sold pursuant to a guaranteed sale, a sale or return, a sale on approval, a
bill and hold, or on any other terms by reason of which the payment by the
Account Debtor may be conditional;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;payable in a currency other than Dollars,</p>

<p align="justify">&nbsp;</p>

<p align="center">29</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
owed by an Account Debtor that has or has asserted a right of setoff, has
disputed its liability, or has made any claim with respect to its obligation to
pay the Account,</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (v)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
owed by an Account Debtor that is subject to any Insolvency Proceeding or is
not Solvent or as to which Borrower has received notice of an imminent
Insolvency Proceeding or a material impairment of the financial condition of
such Account Debtor,</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (vi)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
on account of a transaction as to which the goods giving rise to such Account
have not been shipped and billed to the Account Debtor or the services giving
rise to such Account have not been performed and accepted by the Account
Debtor, </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (vii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
a right to receive progress payments or other advance billings that are due
prior to the completion of performance by Borrower of the subject contract for
goods or services, and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (viii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; an
Account that has not been billed to the customer. </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.19&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Eligible
Inventory</u>.&nbsp; All Eligible Inventory is of good and merchantable quality, free from
defects.&nbsp; As to each item of Eligible Inventory, such Inventory is </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
owned by the Borrower free and clear of all Liens other than Liens in favor of
the Lender or Permitted Liens,</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
not goods that have been returned or rejected by the Borrower's customers, and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
goods that are obsolete or slow moving, restrictive or custom items,
work-in-process, or that constitute spare parts, packaging and shipping materials,
supplies used or consumed in Borrower's business, bill and hold goods,
defective goods, &quot;seconds,&quot; or Inventory acquired on consignment.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.20&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Equipment</u>.&nbsp; All of the Equipment is used or held for use in the Borrower's
business and is fit for such purposes.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.21&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Fraudulent
Transfer</u>.&nbsp; The Borrower is Solvent.&nbsp; No transfer of property is being made
by The Borrower and no obligation is being incurred by the Borrower in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of the Borrower.</p>

<p align="justify">&nbsp;</p>

<p align="center">30</p>

<hr color="#000080"><P Style="page-break-after: always"></P>
<p align="justify">&nbsp;</p>


<p align="center"><b>ARTICLE VI</b><u><br>
<br>
<b>COVENANTS</b></u></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; So long as the Obligations shall remain unpaid, or the Credit Facility shall
remain outstanding, the Borrower will comply with the following requirements,
unless the Lender shall otherwise consent in writing:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Reporting Requirements</u>.&nbsp; The Borrower will deliver, or cause to be delivered, to the Lender
each of the following, which shall be in form and detail acceptable to the
Lender:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Annual Financial Statements</i></b>.&nbsp; As soon as available, and in
any event within 90 days after the end of each fiscal year of the Borrower, the
Borrower will deliver, or cause to be delivered, to the Lender, the Borrower's
audited financial statements with the unqualified opinion of independent
certified public accountants selected by the Borrower and acceptable to the
Lender, which annual financial statements shall include the Borrower's balance
sheet as at the end of such fiscal year and the related statements of the
Borrower's income, retained earnings and cash flows for the fiscal year then
ended, prepared on a consolidating and consolidated basis to include the
Affiliate Borrower and the Guarantor, all in reasonable detail and prepared in
accordance with GAAP, together with (i) copies of all management letters
prepared by such accountants; (ii) a report signed by such accountants stating
that in making the investigations necessary for said opinion they obtained no
knowledge, except as specifically stated, of any Default or Event of Default
and all relevant facts in reasonable detail to evidence, and the computations
as to, whether or not the Borrower is in compliance with the Financial
Covenants; and (iii) a certificate of the Borrower's chief financial officer
stating that such financial statements have been prepared in accordance with
GAAP, fairly represent the Borrower's financial position and the results of its
operations, and whether or not such officer has knowledge of the occurrence of
any Default or Event of Default and, if so, stating in reasonable detail the
facts with respect thereto.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Monthly Financial Statements</i></b>.&nbsp; As soon as available and in
any event within 25 days after the end of each month, the Borrower will deliver
to the Lender an unaudited/internal balance sheet and statements of income and
retained earnings of the Borrower as at the end of and for such month and for
the year to date period then ended, prepared on a consolidating and
consolidated basis to include the Affiliate Borrower and the Guarantor, in
reasonable detail and stating in comparative form the figures for the
corresponding date and periods in the previous year, all prepared in accordance
with GAAP, subject to year-end audit adjustments and fairly represent the
Borrower's financial position and the results of its operations; and
accompanied by a certificate of the Borrower's chief financial Officer,
substantially in the form of Exhibit C hereto stating (i) that such financial
statements have been prepared in accordance with GAAP, subject to year-end
audit adjustments, (ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default not theretofore reported and
remedied and, if so, stating in reasonable detail the facts with respect
thereto, and (iii) all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Borrower is in compliance with the
Financial Covenants.</p>

<p align="justify">&nbsp;</p>

<p align="center">31</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Collateral Reports</i></b>.&nbsp; The Borrower will deliver to the Lender
the following documents at the following times in form satisfactory to Lender:</p>

<div align="left">

<table border=1 cellspacing=0 cellpadding=0 width="740" bordercolor="#000000" style="border-collapse: collapse">
 <tr>
  <td width=127 valign=top>
  <p>Daily </p>
  </td>
  <td width=511 valign=top>
  <p>(a)&nbsp; a report of cash collections, sales assignments, credit
  memos/adjustments and deposits, and a calculation of the Borrowing Base as of
  such date, and</p>
  <p>(b)&nbsp; notice of all returns, disputes, or claims.<br>
&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=127 valign=top>
  <p>Monthly (not later than the 15th day of each month)</p>
  </td>
  <td width=511 valign=top>
  <p>(c)&nbsp;&nbsp; a detailed calculation of the Borrowing Base (including
  detail regarding those Accounts that are not Eligible Accounts or Eligible
  Foreign Accounts, and Inventory that is not Eligible Inventory),</p>
  <p>(d) &nbsp; a detailed listing and aging, by total, of the Accounts,
  together with a reconciliation to the detailed calculation of the Borrowing
  Base&nbsp; previously provided to Lender,</p>
  <p>(e) &nbsp; a summary aging, by vendor, of Borrower's accounts payable and
  any book overdraft, together with a reconciliation to the Borrower's general
  ledger and monthly financial statements delivered pursuant to Section 6.1(b),</p>
  <p>(f) &nbsp;&nbsp; an Inventory stock status report, by type and by
  location,<br>
&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=127 valign=top>

  </td>
  <td width=511 valign=top>
  <p>(g) &nbsp; an Inventory slow moving report, and</p>

  <p>(h) &nbsp; an Inventory certification and perpetual report by location,
  including Inventory turnover by item number, together with a reconciliation
  to the Borrower's general ledger and monthly financial statements delivered
  pursuant to Section 6.1(b).<br>
&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=127 valign=top>
  <p>Semi-Annually</p>
  </td>
  <td width=511 valign=top>
  <p>(i) &nbsp;&nbsp; a detailed list of Borrower's customers<br>
&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=127 valign=top>
  <p>Upon request by Lender </p>
  </td>
  <td width=511 valign=top>
  <p>(j) &nbsp;&nbsp; copies of invoices in connection with the Accounts,
  credit memos, remittance advices, deposit slips, shipping and delivery
  documents in connection with the Accounts and, for Inventory and Equipment
  acquired by Borrower, purchase orders and invoices, and</p>
  <p>(k) &nbsp; such other reports as to the Collateral, or the financial
  condition of Borrower, as Lender may request.</p>
  </td>
 </tr>
</table>



</div>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Projections</i></b>.&nbsp; At least 30 days before the beginning of each
fiscal year of the Borrower, the Borrower will deliver to the Lender the
projected balance sheets and income statements for each month of such year,
each in reasonable detail, representing the Borrower's good faith projections
and certified by the Borrower's chief financial Officer as being the most
accurate projections available and identical to the projections used by the
Borrower for internal planning purposes, together with a statement of
underlying assumptions and such supporting schedules and information as the
Lender may in its discretion require.</p>



<p align="justify">&nbsp;</p>



<p align="center">32</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Litigation</i></b>.&nbsp; Immediately after the commencement thereof, the
Borrower will deliver to the Lender notice in writing of all litigation and of
all proceedings before any governmental or regulatory agency affecting the
Borrower (i) of the type described in Section&nbsp;5.14(c) or (ii) which seek a
monetary recovery against the Borrower in excess of $100,000.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Defaults</i></b>.&nbsp; As promptly as practicable (but in any event not
later than five business days) after an Officer of the Borrower obtains
knowledge of the occurrence of any Default or Event of Default, the Borrower
will deliver to the Lender notice of such occurrence, together with a detailed
statement by a responsible Officer of the Borrower of the steps being taken by
the Borrower to cure the effect thereof.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Plans</i></b>.&nbsp; As soon as possible, and in any event within 30 days
after the Borrower knows or has reason to know that any Reportable Event with
respect to any Pension Plan has occurred, the Borrower will deliver to the
Lender a statement of the Borrower's chief financial Officer setting forth
details as to such Reportable Event and the action which the Borrower proposes
to take with respect thereto, together with a copy of the notice of such
Reportable Event to the Pension Benefit Guaranty Corporation. As soon as
possible, and in any event within 10 days after the Borrower fails to make any
quarterly contribution required with respect to any Pension Plan under Section
412(m) of the IRC, the Borrower will deliver to the Lender a statement of the
Borrower's chief financial Officer setting forth details as to such failure and
the action which the Borrower proposes to take with respect thereto, together
with a copy of any notice of such failure required to be provided to the
Pension Benefit Guaranty Corporation. As soon as possible, and in any event
with 10 days after the Borrower knows or has reason to know that it has or is
reasonably expected to have any liability under Section 4201 or 4243 of ERISA
for any withdrawal, partial withdrawal, reorganization or other event under any
Multiemployer Plan, the Borrower will deliver to the Lender a statement of the
Borrower's chief financial Officer setting forth details as to such liability
and the action which Borrower proposes to take with respect thereto.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (h)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Disputes</i></b>.&nbsp; Promptly upon knowledge thereof, the Borrower
will deliver to the Lender notice of (i) any disputes or claims by the
Borrower's customers exceeding $10,000 individually or $50,000 in the aggregate
during any fiscal year; (ii) credit memos; (iii) any goods returned to or
recovered by the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Officers and Directors</i></b>.&nbsp; Promptly upon knowledge thereof,
the Borrower will deliver to the Lender notice any change in the persons
constituting the Borrower's Officers and Directors.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (j)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Collateral</i></b>.&nbsp; Promptly upon knowledge thereof, the Borrower
will deliver to the Lender notice of any loss of or material damage to any
Collateral or of any substantial adverse change in any Collateral or the
prospect of payment thereof.</p>

<p align="justify">&nbsp;</p>

<p align="center">33</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (k)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Commercial Tort Claims</i></b>.&nbsp; Promptly upon knowledge thereof,
the Borrower will deliver to the Lender notice of any commercial tort claims it
may bring against any person, including the name and address of each defendant,
a summary of the facts, an estimate of the Borrower's damages, copies of any
complaint or demand letter submitted by the Borrower, and such other
information as the Lender may request.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (l)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Intellectual Property</i></b>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower will give the Lender 30 days prior written notice of its intent to
acquire material Intellectual Property Rights; except for transfers permitted
under Section 6.17, the Borrower will give the Lender 30 days prior written
notice of its intent to dispose of material Intellectual Property Rights; and
upon request, shall provide the Lender with copies of all applicable documents
and agreements.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Promptly upon knowledge thereof, the Borrower will deliver to the Lender notice
of (A) any material Infringement of its Intellectual Property Rights by others,
(B) claims that the Borrower is Infringing another Person's Intellectual
Property Rights and (C) any threatened cancellation, termination or material
limitation of its Intellectual Property Rights.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Promptly upon receipt, the Borrower will give the Lender copies of all
registrations and filings with respect to its Intellectual Property Rights.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (m)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Reports to Owners</i></b>.&nbsp; Promptly upon their distribution, the
Borrower will deliver to the Lender copies of all financial statements, reports
and proxy statements which the Borrower shall have sent to its Owners.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (n)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>SEC Filings.</i></b>&nbsp; Promptly after the sending or filing thereof,
the Borrower will deliver to the Lender copies of all regular and periodic
reports which the Borrower shall file with the Securities and Exchange
Commission or any national securities exchange.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (o)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Tax Returns.</i></b>&nbsp; As soon as possible, and in any event by not
later five days after they are due, copies of the Guarantor's consolidated
state and federal tax returns and all schedules thereto.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (p)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Violations of Law</i></b>.&nbsp; Promptly upon knowledge thereof, the
Borrower will deliver to the Lender notice of the Borrower's violation of any
law, rule or regulation, the non-compliance with which could materially and
adversely affect the Borrower's business or its financial condition.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (q)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Other Reports</i></b>.&nbsp; From time to time, with reasonable
promptness, the Borrower will deliver to the Lender any and all receivables
schedules, collection reports, deposit records, equipment schedules, copies of
invoices to Account Debtors, shipment documents and delivery receipts for goods
sold, and such other material, reports, records or information as the Lender
may reasonably request.</p>

<p align="justify">&nbsp;</p>

<p align="center">34</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Financial Covenants</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Minimum Tangible Net Worth</i></b>.&nbsp; The Borrower will maintain its
Tangible Net Worth, as at the end of each month, at an amount not less than the
amount set forth in the table below opposite the applicable period:</p>

<div align=center>

<table border=1 cellspacing=0 cellpadding=0 width="467" bordercolor="#000000" style="border-collapse: collapse">
 <tr>
  <td width=227 valign=bottom>
  <p align=center><b>Test Date/Period</b></td>
  <td width=234 valign=bottom>
  <p align="center"><b>Minimum Tangible Net Worth</b></p>
  </td>
 </tr>
 <tr>
  <td width=227 valign=top align="center">
  <p>4/30/2002</p>
  </td>
  <td width=234 valign=top align="center">
  <p>$2,842,000</p>
  </td>
 </tr>
 <tr>
  <td width=227 valign=top align="center">
  <p align=center>5/31/2002</p>
  </td>
  <td width=234 valign=top align="center">
  <p>$2,646,000</p>
  </td>
 </tr>
 <tr>
  <td width=227 valign=top align="center">
  <p align=center>6/30/2002 and each month end
  thereafter</p>
  </td>
  <td width=234 valign=top align="center">
  <p>$2,737,000</p>
  </td>
 </tr>
 </table>

</div>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Minimum Net Income</i></b>. The Borrower will achieve during each period
described below, measured quarterly on a fiscal-year-to-date basis, minimum Net
Income (or maximum Net Loss, as applicable), of not less than the amount set
forth in the table below opposite the applicable period:</p>

<div align=center>

<table border=1 cellspacing=0 cellpadding=0 style="border-collapse: collapse" bordercolor="#111111" width="463">

  <tr>
   <td width=238 valign=bottom>
   <p align=center><b>Fiscal Year to Date
   Period&nbsp;Ending</b></p>
   </td>
   <td width=222 valign=top>
   <p align=center><b>Minimum Net Income (or Maximum
   Net Loss)</b></p>
   </td>
  </tr>

 <tr>
  <td width=238 valign=top>
  <p align=center>6/30/2002</p>
  </td>
  <td width=222 valign=top>
  <p align=center>$850,000</p>
  </td>
 </tr>
 </table>

</div>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Maximum Net Loss.</i></b>&nbsp; The Borrower shall not have a Net Loss in
excess of $75,000 as at the end of any month, commencing with the month ending
July&nbsp;31, 2002.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Capital Expenditures</i></b>.&nbsp; The Borrower and the Affiliate
Borrower will not incur or contract to incur Capital Expenditures of more than
$150,000 in the aggregate during any fiscal year, or more than $50,000 in the
aggregate for the fiscal quarter ending June&nbsp;30, 2002.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Permitted Liens; Financing Statements</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower will not create, incur or suffer to exist any Lien upon or of any
of its assets, now owned or hereafter acquired, to secure any indebtedness; <u>excluding</u>,
<u>however</u>, from the operation of the foregoing, the following
(collectively, &quot;Permitted Liens&quot;):</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
in the case of any of the Borrower's property which is not Collateral,
covenants, restrictions, rights, easements and minor irregularities in title
which do not materially interfere with the Borrower's business or operations as
presently conducted;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Liens in existence on the date hereof and listed in Schedule&nbsp;6.3 hereto,
securing indebtedness for borrowed money permitted under Section&nbsp;6.4;</p>

<p align="justify">&nbsp;</p>

<p align="center">35</p>

<hr color="#000080" align="justify">

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Security Interest and Liens created by the Security Documents; and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
purchase money Liens relating to the acquisition of machinery and equipment of
the Borrower not exceeding the lesser of cost or fair market value thereof, not
exceeding $50,000 for any one purchase or $100,000 in the aggregate during any
fiscal year, and so long as no Default Period is then in existence and none
would exist immediately after such acquisition.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower will not amend any financing statements in favor of the Lender
except as permitted by law. Any authorization by the Lender to any Person to
amend financing statements in favor of the Lender shall be in writing.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Indebtedness</u>.&nbsp; The Borrower will not incur, create, assume or permit to exist any
Indebtedness or liability on account of deposits or advances or any
Indebtedness for borrowed money or letters of credit issued on the Borrower's
behalf, or any other Indebtedness or liability evidenced by notes, bonds,
debentures or similar obligations, except:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Indebtedness arising hereunder;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Indebtedness of the Borrower in existence on the date hereof and listed in
Schedule&nbsp;6.4 hereto; and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Indebtedness relating to Permitted Liens.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Guaranties</u>.&nbsp; The Borrower will not assume, guarantee, endorse or otherwise become
directly or contingently liable in connection with any obligations of any other
Person, except:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the endorsement of negotiable instruments by the Borrower for deposit or
collection or similar transactions in the ordinary course of business; and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
guaranties, endorsements and other direct or contingent liabilities in
connection with the obligations of other Persons, in existence on the date
hereof and listed in Schedule&nbsp;6.4 hereto.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Investments and Subsidiaries</u>.&nbsp; The Borrower will not purchase or hold beneficially any stock or
other securities or evidences of indebtedness of, make or permit to exist any
loans or advances to, or make any investment or acquire any interest whatsoever
in, any other Person, including any partnership or joint venture, except:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
investments in direct obligations of the United States of America or any agency
or instrumentality thereof whose obligations constitute full faith and credit
obligations of the United States of America having a maturity of one year or
less, commercial paper issued by U.S. corporations rated &quot;A-1&quot; or &quot;A-2&quot; by
Standard &amp; Poors Corporation or &quot;P-1&quot; or &quot;P-2&quot; by Moody's Investors Service
or certificates of deposit or bankers' acceptances having a maturity of one
year or less issued by members of the Federal Reserve System having deposits in
excess of $100,000,000 (which certificates of deposit or bankers' acceptances
are fully insured by the Federal Deposit Insurance Corporation);</p>

<p align="justify">&nbsp;</p>

<p align="center">36</p>

<hr color="#000080" align="justify">

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
travel advances or loans to the Borrower's Officers and employees not exceeding
at any one time an aggregate of $5,000;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
advances in the form of progress payments, prepaid rent not exceeding three (3)
months or security deposits; and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
current investments in the Subsidiaries in existence on the date hereof and
listed in Schedule&nbsp;5.5 hereto.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Dividends and Distributions</u>.&nbsp; Except as set forth in this Section 6.7, the Borrower will not
declare or pay any dividends (other than dividends payable solely in stock of
the Borrower) on any class of its stock or make any payment on account of the
purchase, redemption or other retirement of any shares of such stock or make
any distribution in respect thereof, either directly or indirectly.&nbsp;
Notwithstanding the foregoing, provided that a Default Period is not continuing
or would result therefrom, the Borrower and the Affiliate Borrower may declare
and pay dividends to the Guarantor in an aggregate amount to cover the
Guarantor's corporate overhead expenses.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Salaries</u>.&nbsp; The Borrower will not pay excessive or unreasonable salaries,
bonuses, commissions, consultant fees or other compensation.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Section
6.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Books and Records; Inspection and Examination</u>.&nbsp; The Borrower will keep accurate books of record and account for
itself pertaining to the Collateral and pertaining to the Borrower's business
and financial condition and such other matters as the Lender may from time to
time request in which true and complete entries will be made in accordance with
GAAP and, upon the Lender's request, will permit any officer, employee,
attorney or accountant for the Lender to audit, review, make extracts from or
copy any and all company and financial books and records of the Borrower at all
times during ordinary business hours, to send and discuss with Account Debtors
and other obligors requests for verification of amounts owed to the Borrower,
and to discuss the Borrower's affairs with any of its Directors, Officers,
employees or agents. The Borrower hereby irrevocably authorizes all accountants
and third parties to disclose and deliver to Lender, at the Borrower's expense,
all financial information, books and records, work papers, management reports
and other information in their possession regarding the Borrower. The Borrower
will permit the Lender, or its employees, accountants, attorneys or agents, to
examine and inspect any Collateral or any other property of the Borrower at any
time during ordinary business hours.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Account
Verification</u>.&nbsp; The Lender may at any time and from time to time send or require the
Borrower to send requests for verification of accounts or notices of assignment
to Account Debtors and other obligors. The Lender may also at any time and from
time to time telephone Account Debtors and other obligors to verify accounts.</p>

<p align="justify">&nbsp;</p>

<p align="center">37</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Compliance with
Laws</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower will (i) comply with the requirements of applicable laws and
regulations, the non-compliance with which would materially and adversely
affect its business or its financial condition and (ii) use and keep the
Collateral, and require that others use and keep the Collateral, only for
lawful purposes, without violation of any federal, state or local law, statute
or ordinance.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Without limiting the foregoing undertakings, the Borrower specifically agrees
that it will comply with all applicable Environmental Laws and obtain and
comply with all permits, licenses and similar approvals required by any
Environmental Laws, and will not generate, use, transport, treat, store or
dispose of any Hazardous Substances in such a manner as to create any material
liability or obligation under the common law of any jurisdiction or any
Environmental Law.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Payment of Taxes
and Other Claims</u>.&nbsp; The Borrower will pay or discharge, when due, (a) all taxes,
assessments and governmental charges levied or imposed upon it or upon its
income or profits, upon any properties belonging to it (including the
Collateral) or upon or against the creation, perfection or continuance of the
Security Interest, prior to the date on which penalties attach thereto, (b) all
federal, state and local taxes required to be withheld by it, and (c) all
lawful claims for labor, materials and supplies which, if unpaid, might by law
become a Lien upon any properties of the Borrower; provided, that the Borrower
shall not be required to pay any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Maintenance of
Properties</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower will keep and maintain the Collateral and all of its other
properties necessary or useful in its business in good condition, repair and
working order (normal wear and tear excepted) and will from time to time
replace or repair any worn, defective or broken parts; provided, however, that
nothing in this Section&nbsp;6.13 shall prevent the Borrower from discontinuing
the operation and maintenance of any of its properties if such discontinuance
is, in the Borrower's judgment, desirable in the conduct of the Borrower's
business and not disadvantageous in any material respect to the Lender.&nbsp;
The Borrower will take all commercially reasonable steps necessary to protect
and maintain its Intellectual Property Rights.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower will defend the Collateral against all Liens, claims or demands of
all Persons (other than the Lender) claiming the Collateral or any interest
therein. The Borrower will keep all Collateral free and clear of all Liens
except Permitted Liens. The Borrower will take all commercially reasonable
steps necessary to prosecute any Person Infringing its Intellectual Property
Rights and to defend itself against any Person accusing it of Infringing any
Person's Intellectual Property Rights.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Insurance</u>.&nbsp; The Borrower will obtain and at all times maintain insurance with
insurers believed by the Borrower to be responsible and reputable, in such
amounts and against such risks as may from time to time be required by the
Lender, but in all events in such amounts and against such risks as is usually
carried by companies engaged in similar business and owning similar properties
in the same general areas in which the Borrower operates. Without limiting the
generality of the foregoing, the Borrower will at all times maintain business
interruption insurance including coverage for force majeure and keep all
tangible Collateral insured against risks of fire (including so-called extended
coverage), theft, collision (for Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Lender may reasonably request, with
any loss payable to the Lender to the extent of its interest, and all policies
of such insurance shall contain a lender's loss payable endorsement for the
Lender's benefit. All policies of liability insurance required hereunder shall
name the Lender as an additional insured.</p>

<p align="justify">&nbsp;</p>

<p align="center">38</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.15&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Preservation of
Existence</u>.&nbsp; The Borrower will preserve and maintain its existence and all of its
rights, privileges and franchises necessary or desirable in the normal conduct
of its business and shall conduct its business in an orderly, efficient and
regular manner.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.16&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Delivery of
Instruments, etc</u>.&nbsp; Upon request by the Lender, the Borrower will promptly deliver to the
Lender in pledge all instruments, documents and chattel paper constituting
Collateral, duly endorsed or assigned by the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.17&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Sale or Transfer
of Assets; Suspension of Business Operations</u>.&nbsp; The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than (x)
the sale of Inventory in the ordinary course of business, and (y) dispositions
of obsolete, worn or nonfunctional equipment.&nbsp; The Borrower will not
liquidate, dissolve or suspend business operations. The Borrower will not
transfer any part of its ownership interest in any Intellectual Property Rights
and will not permit any agreement under which it has licensed Licensed Intellectual
Property to lapse, except that the Borrower may transfer such rights or permit
such agreements to lapse if it shall have reasonably determined that the
applicable Intellectual Property Rights are no longer useful in its business.
If the Borrower transfers any Intellectual Property Rights for value, the
Borrower will pay over the proceeds to the Lender for application to the
Obligations. The Borrower will not license any other Person to use any of the
Borrower's Intellectual Property Rights, except that the Borrower may grant
licenses in the ordinary course of its business in connection with sales of
Inventory or provision of services to its customers.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.18&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Consolidation and
Merger; Asset Acquisitions</u>.&nbsp; The Borrower will not consolidate with or merge into any Person, or
permit any other Person to merge into it, or acquire (in a transaction
analogous in purpose or effect to a consolidation or merger) all or
substantially all the assets of any other Person.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.19&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Sale and Leaseback</u>.&nbsp; The Borrower will not enter into any arrangement, directly or
indirectly, with any other Person whereby the Borrower shall sell or transfer
any real or personal property, whether now owned or hereafter acquired, and
then or thereafter rent or lease as lessee such property or any part thereof or
any other property which the Borrower intends to use for substantially the same
purpose or purposes as the property being sold or transferred.</p>

<p align="justify">&nbsp;</p>

<p align="center">39</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.20&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Restrictions on
Nature of Business</u>.&nbsp; The Borrower will not engage in any line of business materially
different from that presently engaged in by the Borrower and will not purchase,
lease or otherwise acquire assets not related to its business.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.21&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Accounting</u>.&nbsp; The Borrower will not adopt any material change in accounting
principles other than as required by GAAP.&nbsp; The Borrower will not adopt,
permit or consent to any change in its fiscal year.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.22&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Discounts, etc.</u>&nbsp; After notice from the Lender, the Borrower will not grant any
discount, credit or allowance to any customer of the Borrower or accept any
return of goods sold.&nbsp; The Borrower will not at any time modify, amend,
subordinate, cancel or terminate the obligation of any Account Debtor or other
obligor of the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.23&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Plans</u>.&nbsp; Unless disclosed to the Lender pursuant to Section 5.12, neither the
Borrower nor any ERISA Affiliate will (i) adopt, create, assume or become a
party to any Pension Plan, (ii) incur any obligation to contribute to any
Multiemployer Plan, (iii) incur any obligation to provide post-retirement
medical or insurance benefits with respect to employees or former employees
(other than benefits required by law) or (iv) amend any Plan in a manner that
would materially increase its funding obligations.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.24&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Place of
Business; Name</u>.&nbsp; The Borrower will not transfer its chief executive office or
principal place of business, or move, relocate, close or sell any business
location.&nbsp; The Borrower will not permit any tangible Collateral or any
records pertaining to the Collateral to be located in any state or area in
which, in the event of such location, a financing statement covering such
Collateral would be required to be, but has not in fact been, filed in order to
perfect the Security Interest.&nbsp; The Borrower will not change its name or
jurisdiction of organization.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.25&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Constituent
Documents; S Corporation Status</u>.&nbsp; The Borrower will not amend its Constituent Documents.&nbsp; The
Borrower will not become an S Corporation.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.26&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Transactions With
Affiliates</u>.&nbsp; The Borrower will not directly or indirectly enter into or permit to
exist any transaction with any Affiliate of the Borrower except for
transactions that are in the ordinary course of the Borrower's business, upon
fair and reasonable terms, that are fully disclosed to the Lender, and that are
no less favorable to the Borrower than would be obtained in an arm's length
transaction with a non-Affiliate.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.27&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Performance by
the Lender</u>.&nbsp; If the Borrower at any time fails to perform or observe any of the
foregoing covenants contained in this Article&nbsp;VI or elsewhere herein, and
if such failure shall continue for a period of ten calendar days after the
Lender gives the Borrower written notice thereof (or in the case of the
agreements contained in Sections&nbsp;6.13 and 6.15, immediately upon the
occurrence of such failure, without notice or lapse of time), the Lender may,
but need not, perform or observe such covenant on behalf and in the name, place
and stead of the Borrower (or, at the Lender's option, in the Lender's name)
and may, but need not, take any and all other actions which the Lender may
reasonably deem necessary to cure or correct such failure (including the
payment of taxes, the satisfaction of Liens, the performance of obligations
owed to Account Debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Default Rate.&nbsp; To facilitate the Lender's performance or observance of
such covenants of the Borrower, the Borrower hereby irrevocably appoints the
Lender, or the Lender's delegate, acting alone, as the Borrower's attorney in
fact (which appointment is coupled with an interest) with the right (but not
the duty) from time to time to create, prepare, complete, execute, deliver,
endorse or file in the name and on behalf of the Borrower any and all
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by the Borrower under this
Section&nbsp;6.27.</p>

<p align="justify">&nbsp;</p>

<p align="center">40</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="center"><b>ARTICLE VII</b><u><br>
<br>
<b>EVENTS OF DEFAULT, RIGHTS AND REMEDIES</b></u></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
7.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Events of Default</u>.&nbsp; &quot;Event of Default&quot;, wherever used herein, means any one of the
following events:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Default in the payment of any Obligations when they become due and payable;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Default in the performance, or breach, of any covenant or agreement of the
Borrower contained in this Agreement</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A Change of Control shall occur;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any Financial Covenant shall become inapplicable due to the lapse of time and
the failure to amend any such covenant to cover future periods;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An Insolvency Proceeding is commenced by the Borrower or any Guarantor;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An Insolvency Proceeding is commenced against the Borrower, or any Guarantor,
and any of the following events occur:&nbsp; (a)&nbsp;the Borrower or such Guarantor
consents to the institution of such Insolvency Proceeding against it,
(b)&nbsp;the petition commencing the Insolvency Proceeding is not timely
controverted, (c)&nbsp;the petition commencing the Insolvency Proceeding is not
dismissed within 45 calendar days of the date of the filing thereof; <u>provided</u>,
<u>however</u>, that, during the pendency of
such period, the Lender shall be relieved of its obligations to extend credit
hereunder, (d)&nbsp;an interim trustee is appointed to take possession of all
or any substantial portion of the properties or assets of, or to operate all or
any substantial portion of the business of, the Borrower or any such Guarantor,
or (e)&nbsp;an order for relief shall have been entered therein;</p>

<p align="justify">&nbsp;</p>

<p align="center">41</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any material portion of the Borrower's or any Guarantor's assets is attached,
seized, subjected to a writ or distress warrant, levied upon, or comes into the
possession of any third Person;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (h)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower or any Guarantor is enjoined, restrained, or in any way prevented
by court order from continuing to conduct all or any material part of its
business affairs;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A notice of Lien, levy, or assessment is filed of record with respect to any of
the Borrower's or any Guarantor's assets by the United States, or any
department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, or if any taxes or debts owing at any time
hereafter to any one or more of such entities becomes a Lien, whether choate or
otherwise, upon any of the Borrower's or any Guarantor's assets and the same is
not paid before such payment is delinquent;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (j)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This Agreement or any other Loan Document that purports to create a Lien,
shall, for any reason, fail or cease to create a valid and perfected and,
except to the extent permitted by the terms hereof or thereof, first priority
Lien on or security interest in the Collateral covered hereby or thereby; </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (k)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any provision of any Loan Document shall at any time for any reason be declared
to be null and void, or the validity or enforceability thereof shall be
contested by Borrower, or a proceeding shall be commenced by Borrower, or by
any Governmental Authority having jurisdiction over Borrower, seeking to establish
the invalidity or unenforceability thereof, or Borrower shall deny that
Borrower has any liability or obligation purported to be created under any Loan
Document.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (l)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any representation or warranty made by the Borrower in this Agreement, by any
Guarantor in any guaranty delivered to the Lender, or by the Borrower (or any
of its Officers) or any Guarantor in any agreement, certificate, instrument or
financial statement or other statement contemplated by or made or delivered
pursuant to or in connection with this Agreement or any such guaranty shall
prove to have been incorrect in any material respect when deemed to be
effective;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (m)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The rendering against the Borrower of an arbitration award, final judgment,
decree or order for the payment of money in excess of $200,000 and the
continuance of such arbitration award, judgment, decree or order unsatisfied
and in effect for any period of 30 consecutive days without a stay of
execution;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (n)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A default under any bond, debenture, note or other evidence of material
Indebtedness of the Borrower owed to any Person other than the Lender, or under
any indenture or other instrument under which any such evidence of Indebtedness
has been issued or by which it is governed, or under any material lease or
other contract, and the expiration of the applicable period of grace, if any,
specified in such evidence of Indebtedness, indenture, other instrument, lease
or contract;</p>

<p align="justify">&nbsp;</p>

<p align="center">42</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (o)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any Reportable Event, which the Lender determines in good faith might
constitute grounds for the termination of any Pension Plan or for the
appointment by the appropriate United States District Court of a trustee to
administer any Pension Plan, shall have occurred and be continuing 30 days after
written notice to such effect shall have been given to the Borrower by the
Lender; or a trustee shall have been appointed by an appropriate United States
District Court to administer any Pension Plan; or the Pension Benefit Guaranty
Corporation shall have instituted proceedings to terminate any Pension Plan or
to appoint a trustee to administer any Pension Plan; or the Borrower or any
ERISA Affiliate shall have filed for a distress termination of any Pension Plan
under Title IV of ERISA; or the Borrower or any ERISA Affiliate shall have
failed to make any quarterly contribution required with respect to any Pension
Plan under Section 412(m) of the IRC, which the Lender determines in good faith
may by itself, or in combination with any such failures that the Lender may
determine are likely to occur in the future, result in the imposition of a Lien
on the Borrower's assets in favor of the Pension Plan; or any withdrawal,
partial withdrawal, reorganization or other event occurs with respect to a
Multiemployer Plan which results or could reasonably be expected to result in a
material liability of the Borrower to the Multiemployer Plan under Title IV of
ERISA.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (p)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An event of default shall occur under any Security Document;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (q)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower shall liquidate, dissolve, terminate or suspend its business
operations or otherwise fail to operate its business in the ordinary course, or
sell or attempt to sell all or substantially all of its assets;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (r)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Default in the payment of any amount owed by the Borrower to the Lender other
than any Indebtedness arising hereunder;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (s)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any Guarantor or person signing a support agreement in favor of the Lender
shall repudiate, purport to revoke or fail to perform his obligations under his
guaranty or support agreement in favor of the Lender, any individual Guarantor
shall die or any other Guarantor shall cease to exist;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (t)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower shall take or participate in any action which would be prohibited
under the provisions of any Subordination Agreement or make any payment on the
Subordinated Indebtedness that any Person was not entitled to receive under the
provisions of the applicable Subordination Agreement;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (u)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any event or circumstance with respect to the Borrower shall occur such that
the Lender shall believe in good faith that the prospect of payment of all or
any part of the Obligations or the performance by the Borrower under the Loan
Documents is impaired or any material adverse change in the business or
financial condition of the Borrower shall occur;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (v)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any Event of Default under the Affiliate Credit Agreement shall occur, or any
other breach, default or event of default by or attributable to any Affiliate
under any agreement between such Affiliate and the Lender shall occur; or</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (w)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any other Material Adverse Effect shall occur.</p>

<p align="justify">&nbsp;</p>

<p align="center">43</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
7.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Rights and Remedies</u>.&nbsp; During any Default Period, the Lender may exercise any or all of the
following rights and remedies, all of which the Borrower acknowledges and
agrees are commercially reasonable:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may, by notice to the Borrower, declare the Commitment to be
terminated, whereupon the same shall forthwith terminate;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may, by notice to the Borrower, declare the Obligations to be
forthwith due and payable, whereupon all Obligations shall become and be
forthwith due and payable, without presentment, notice of dishonor, protest or
further notice of any kind, all of which the Borrower hereby expressly waives;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may, without notice to the Borrower and without further action,
apply any and all money owing by the Lender to the Borrower to the payment of
the Obligations;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which the Lender considers advisable, and in
such cases, the Lender will credit the Obligations with only the net amounts
received by the Lender in payment of such disputed Accounts after deducting all
expenses incurred or expended by the Lender in connection therewith;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may cause the Borrower to hold all returned Inventory in trust for
the Lender, segregate all returned Inventory from all other assets of the
Borrower or in the Borrower's possession and conspicuously label said returned
Inventory as the property of the Lender;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
without notice to or demand upon the Borrower or any Guarantor, the Lender may make
such payments and do such acts as the Lender considers necessary or reasonable
to protect its security interests in the Collateral.&nbsp; The Borrower agrees
to assemble the Collateral if the Lender so requires, and to make the
Collateral available to the Lender at a place that the Lender may designate
which is reasonably convenient to both parties.&nbsp; The Borrower authorizes
Lender to enter the premises where the Collateral is located, to take and
maintain possession of the Collateral, or any part of it, and to pay, purchase,
contest, or compromise any Lien that in the Lender's determination appears to
conflict with the Lender's Liens and to pay all expenses incurred in connection
therewith and to charge the Obligations therefor.&nbsp; With respect to any of
the Borrower's owned or leased premises, the Borrower hereby grants the Lender
a license to enter into possession of such premises and to occupy the same,
without charge, in order to exercise any of the Lender's rights or remedies
provided herein, at law, in equity, or otherwise;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
without notice to Borrower (such notice being expressly waived), and without
constituting a retention of any collateral in satisfaction of an obligation
(within the meaning of the UCC), the Lender may set off and apply to the
Obligations any and all (i) balances and deposits of the Borrower held by the
Lender (including any amounts received in the Lockbox), or (ii) Indebtedness at
any time owing to or for the credit or the account of the Borrower held by
Lender;</p>

<p align="justify">&nbsp;</p>

<p align="center">44</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (h)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may hold, as cash collateral, any and all balances and deposits of
the Borrower held by the Lender, and any amounts received in the Lockbox, to
secure the full and final repayment of all of the Obligations;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (j)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including the Borrower's premises) as the Lender
determines is commercially reasonable.&nbsp; It is not necessary that the
Collateral be present at any such sale;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (k)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender shall give notice of the disposition of the Collateral as follows:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Lender shall give the Borrower a notice in writing of the time and place of
public sale, or, if the sale is a private sale or some other disposition other
than a public sale is to be made of the Collateral, the time on or after which
the private sale or other disposition is to be made; and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The notice shall be personally delivered or mailed, postage prepaid, to the
Borrower as provided in <u>Section 8.3</u>, at least 10 days before the
earliest time of disposition set forth in the notice; no notice needs to be
given prior to the disposition of any portion of the Collateral that is
perishable or threatens to decline speedily in value or that is of a type
customarily sold on a recognized market;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (l)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may credit bid and purchase at any public sale; </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (m)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may seek the appointment of a receiver or keeper to take possession
of all or any portion of the Collateral or to operate same and, to the maximum
extent permitted by law, may seek the appointment of such a receiver without
the requirement of prior notice or a hearing;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (n)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If the Lender sells any of the Collateral on credit, the Obligations will be
reduced only to the extent of payments actually received. If the purchaser
fails to pay for the Collateral, the Lender may resell the Collateral and shall
apply any proceeds actually received to the Obligations;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (o)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender shall have no obligation to attempt to satisfy the Obligations by
collecting them from any third Person which may be liable for them or any
portion thereof, and the Lender may release, modify or&nbsp; waive any
collateral provided by any other Person as security for the Obligations or any
portion thereof, all without affecting the Lender's rights against the
Borrower.&nbsp; The Borrower waives any right it may have to require the Lender
to pursue any third Person for any of the Obligations;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (p)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may make demand upon the Borrower and, forthwith upon such demand,
the Borrower will pay to the Lender in immediately available funds for deposit
in the Special Account pursuant to Section 2.4 an amount equal to the aggregate
maximum amount available to be drawn under all Letters of Credit then
outstanding, assuming compliance with all conditions for drawing thereunder;</p>

<p align="justify">&nbsp;</p>

<p align="center">45</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (q)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may exercise and enforce its rights and remedies under the Loan
Documents; and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (r)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may exercise any other rights and remedies available to it by law or
agreement.</p>

<p align="justify">Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (e) or (f) of Section 7.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
7.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Disclaimer of Warranties</u>.&nbsp; The Lender may sell the Collateral without giving any warranties as to the
Collateral.&nbsp; The Lender may specifically disclaim any warranties of title
or the like.&nbsp; This procedure will not be considered to adversely affect
the commercial reasonableness of any sale of the Collateral.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
7.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Compliance With Laws</u>.&nbsp; The Lender may comply with any applicable state or federal law requirements
in connection with a disposition of the Collateral, and the Lender's compliance
therewith will not be considered to adversely affect the commercial
reasonableness of any sale of the Collateral.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
7.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>No Marshalling</u>.&nbsp; The Lender shall be under no obligation to marshal any assets in favor of
the Borrower, or against or in payment of the Obligations or any other
obligation owned to the Lender by the Borrower or any other Person.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
7.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Borrower to Cooperate</u>.&nbsp; Upon the exercise by the Lender of any power, right, privilege, or remedy
pursuant to this Agreement which requires any consent, approval, registration,
qualification, or authorization of any Governmental Authority, the Borrower
agrees to execute and deliver, or will cause the execution and delivery of, all
applications, certificates, instruments, assignments, and other documents and
papers that the Lender or any purchaser of the Collateral may be required to
obtain for such governmental consent, approval, registration, qualification, or
authorization.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
7.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Application of Proceeds</u>.&nbsp; All proceeds realized as the result of any sale of the Collateral shall be
applied by the Lender:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b>FIRST</b> to the costs, expenses, liabilities, obligations and attorneys' fees
incurred by the Lender in the exercise of its rights under this Agreement;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b>SECOND</b> to the interest and fees due upon any of the Obligations; and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b>THIRD</b> to the principal of the Obligations, in such order as the Lender shall
determine in its sole discretion.&nbsp; Any surplus shall be paid to the
Borrower or other Persons legally entitled thereto; the Borrower shall remain
liable to the Lender for any deficiency.</p>

<p align="justify">&nbsp;</p>

<p align="center">46</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
7.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Remedies Cumulative</u>.&nbsp; The rights and remedies of the Lender under this Agreement, the other Loan
Documents, and all other agreements contemplated hereby and thereby shall be
cumulative.&nbsp; The Lender shall have all other rights and remedies not
inconsistent herewith as provided under the UCC, by law, or in equity.&nbsp; No
exercise by the Lender of any one right or remedy shall be deemed an election
of remedies, and no waiver by the Lender of any default on the Borrower's part
shall be deemed a continuing waiver of any further defaults.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
7.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Lender Not Liable For The Collateral</u>.&nbsp; So long as the Lender complies with the obligations, if any, imposed by the
UCC,&nbsp; the Lender shall not otherwise be liable or responsible in any way
or manner for:&nbsp; (a) the safekeeping of the Collateral; (b) any loss or
damage thereto occurring or arising in any manner or fashion or from any cause;
(c) any diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever.&nbsp; The
Borrower bears the risk of loss or damage of the Collateral.</p>

<p align="center"><b>ARTICLE VIII</b><u><br>
<br>
<b>MISCELLANEOUS</b></u></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
8.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>No Waiver</u>.&nbsp; No failure or delay by the Lender in exercising any right, power or
remedy under the Loan Documents shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy under the Loan Documents.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
8.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Amendments, Etc.</u>&nbsp; &nbsp;No amendment, modification, termination or waiver of any provision of
any Loan Document or consent to any departure by the Borrower therefrom or any
release of a Security Interest shall be effective unless the same shall be in
writing and signed by the Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No notice to or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in similar or other
circumstances.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
8.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Addresses for Notices; Requests for Accounting</u>.&nbsp; Except as otherwise expressly provided herein, all notices, requests,
demands and other communications provided for under the Loan Documents shall be
in writing and shall be (a) personally delivered, (b) sent by first class
United States mail, (c) sent by overnight courier of national reputation, or (d)
transmitted by telecopy, in each case addressed or telecopied to the party to
whom notice is being given at its address or telecopier number as set forth
below next to its signature or, as to each party, at such other address or
telecopier number as may hereafter be designated by such party in a written
notice to the other party complying as to delivery with the terms of this
Section. All such notices, requests, demands and other communications shall be
deemed to have been given on (a) the date received if personally delivered, (b)
when deposited in the mail if delivered by mail, (c) the date sent if sent by
overnight courier, or (d) the date of transmission if delivered by telecopy,
except that notices or requests to the Lender pursuant to any of the provisions
of Article II shall not be effective until received by the Lender. All requests
under Section 9210 of the UCC (i) shall be made in a writing signed by a person
authorized under Section 2.2(a), (ii) shall be personally delivered, sent by
registered or certified mail, return receipt requested, or by overnight courier
of national reputation (iii) shall be deemed to be sent when received by the
Lender and (iv) shall otherwise comply with the requirements of
Section&nbsp;9210. The Borrower requests that the Lender respond to all such
requests which on their face appear to come from an authorized individual and
releases the Lender from any liability for so responding. The Borrower shall
pay Lender the maximum amount allowed by law for responding to such requests.</p>

<p align="justify">&nbsp;</p>

<p align="center">47</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
8.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Further Documents</u>.&nbsp; The Borrower will from time to time execute and deliver or endorse
any and all instruments, documents, conveyances, assignments, security
agreements, financing statements, control agreements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
8.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Costs and Expenses</u>.&nbsp; The Borrower shall pay on demand all costs and expenses, including
reasonable attorneys' fees, incurred by the Lender in connection with the
Obligations, this Agreement, the Loan Documents, any Letter of Credit and any
other document or agreement related hereto or thereto, and the transactions
contemplated hereby, including all such costs, expenses and fees incurred in
connection with the negotiation, preparation, execution, amendment, administration,
performance, collection and enforcement of the Obligations and all such
documents and agreements and the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interest.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Section
8.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Indemnity</u>.&nbsp; In addition to the payment of expenses pursuant to Section 8.5, the
Borrower shall indemnify, defend and hold harmless the Lender, and any of its
participants, parent corporations, subsidiary corporations, affiliated
corporations, successor corporations, and all present and future officers,
directors, employees, attorneys and agents of the foregoing (the &quot;Indemnitees&quot;)
from and against any of the following (collectively, &quot;Indemnified
Liabilities&quot;):</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any and all transfer taxes, documentary taxes, assessments or charges made by
any governmental authority by reason of the execution and delivery of the Loan
Documents or the making of the Advances;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any claims, loss or damage to which any Indemnitee may be subjected if any
representation or warranty contained in Section 5.14 proves to be incorrect in
any respect or as a result of any violation of the covenant contained in
Section 6.11(b); and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any and all other liabilities, losses, damages, penalties, judgments, suits,
claims, costs and expenses of any kind or nature whatsoever (including the
reasonable fees and disbursements of counsel) in connection with the foregoing
and any other investigative, administrative or judicial proceedings, whether or
not such Indemnitee shall be designated a party thereto, which may be imposed
on, incurred by or asserted against any such Indemnitee, in any manner related
to or arising out of or in connection with the making of the Advances and the
Loan Documents or the use or intended use of the proceeds of the Advances.</p>

<p align="justify">&nbsp;</p>

<p align="center">48</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">If any investigative, judicial or administrative proceeding arising from any
of the foregoing is brought against any Indemnitee, upon such Indemnitee's
request, the Borrower, or counsel designated by the Borrower and satisfactory
to the Indemnitee, will resist and defend such action, suit or proceeding to
the extent and in the manner directed by the Indemnitee, at the Borrower's sole
costs and expense. Each Indemnitee will use its best efforts to cooperate in
the defense of any such action, suit or proceeding. If the foregoing
undertaking to indemnify, defend and hold harmless may be held to be
unenforceable because it violates any law or public policy, the Borrower shall
nevertheless make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
The Borrower's obligation under this Section 8.6 shall survive the termination
of this Agreement and the discharge of the Borrower's other obligations
hereunder.</p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
8.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Participants</u>.&nbsp;The Borrower hereby authorizes the Lender to disclose to any assignee
or any participant (either, a &quot;Transferee&quot;) and any prospective Transferee any
and all financial information in the Lender's possession concerning Borrower
which has been delivered to the Lender by the Borrower pursuant to this
Agreement or which has been delivered to the Lender by the Borrower in
connection with the Lender's credit evaluation prior to entering into this
Agreement.&nbsp; The Lender and its participants, if any, are not partners or
joint venturers, and the Lender shall not have any liability or responsibility
for any obligation, act or omission of any of its participants. All rights and
powers specifically conferred upon the Lender may be transferred or delegated
to any of the Lender's participants, successors or assigns.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
8.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Advertising and Promotion</u>.&nbsp; The Borrower agrees that the Lender may use the Borrower's name(s) in
advertising and promotional materials, and in conjunction therewith, the Lender
may disclose the amount of the Commitment and the purpose thereof.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
8.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Execution in Counterparts; Telefacsimile Execution</u>.&nbsp; This Agreement and other Loan Documents may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed
to be an original and all of which counterparts, taken together, shall
constitute but one and the same instrument. Delivery of an executed counterpart
of this Agreement by telefacsimile shall be equally as effective as delivery of
an original executed counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telefacsimile also shall deliver an
original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability,
and binding effect of this Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
8.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Retention of
Borrower's Records</u>.&nbsp; The Lender shall have no obligation to maintain any electronic
records or any documents, schedules, invoices, agings, or other papers
delivered to the Lender by the Borrower or in connection with the Loan
Documents for more than four months after receipt by the Lender.</p>

<p align="justify">&nbsp;</p>

<p align="center">49</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
8.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Binding Effect;
Assignment; Complete Agreement; Exchanging Information</u>.&nbsp; The Loan Documents shall be binding upon and inure to the benefit of
the Borrower and the Lender and their respective successors and assigns, except
that the Borrower shall not have the right to assign its rights thereunder or
any interest therein without the Lender's prior written consent. To the extent
permitted by law, the Borrower waives and will not assert against any assignee
any claims, defenses or set-offs which the Borrower could assert against the
Lender. This Agreement shall also bind all Persons who become a party to this
Agreement as a borrower. This Agreement, together with the Loan Documents,
comprises the complete and integrated agreement of the parties on the subject
matter hereof and supersedes all prior agreements, written or oral, on the
subject matter hereof. Without limiting the Lender's right to share information
regarding the Borrower and its Affiliates with the Lender's participants,
accountants, lawyers and other advisors, the Lender, Wells Fargo &amp; Company,
and all direct and indirect subsidiaries of Wells Fargo &amp; Company, may
exchange any and all information they may have in their possession regarding
the Borrower and its Affiliates, and the Borrower waives any right of confidentiality
it may have with respect to such exchange of such information.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
8.12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Severability of
Provisions</u>.&nbsp; Any provision of this Agreement which is prohibited or unenforceable
shall be ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
8.13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Revival and
Reinstatement of Obligations</u>.&nbsp; If the incurrence or payment of the Obligations by the Borrower or
the Guarantor or the transfer to the Lender of any property should for any
reason subsequently be declared to be void or voidable under any state or
federal law relating to creditors' rights, including provisions of the
Bankruptcy Code relating to fraudulent conveyances, preferences, or other
voidable or recoverable payments of money or transfers of property
(collectively, a &quot;Voidable Transfer&quot;), and if the Lender is required to repay
or restore, in whole or in part, any such Voidable Transfer, or elects to do so
upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that the Lender is required or elects to repay
or restore, and as to all reasonable costs, expenses, and attorneys fees of the
Lender related thereto, the liability of the Borrower or the Guarantor
automatically shall be revived, reinstated, and restored and shall exist as
though such Voidable Transfer had never been made.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
8.14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Headings</u>.&nbsp; Article, Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
8.15&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Governing Law;
Jurisdiction, Venue; Waiver of Jury Trial</u>.&nbsp; The Loan Documents shall be governed by and construed in accordance
with the substantive laws (other than conflict laws) of the State of
California. The parties hereto hereby (i) consent to the personal jurisdiction
of the state and federal courts located in the State of California in
connection with any controversy related to this Agreement; (ii) waive any
argument that venue in any such forum is not convenient, (iii) agree that any
litigation initiated by the Lender or the Borrower in connection with this
Agreement or the other Loan Documents may be venued in either the State or Federal
courts located in Los&nbsp;Angeles County, California; and (iv) agree that a
final judgment in any such suit, action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law.</p>

<p align="justify">&nbsp;</p>

<p align="center">50</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify"><b>THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BASED ON OR PERTAINING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.</b></p>

<p align="center"><b>ARTICLE IX</b><br>
<br>
<b><u>JOINT AND SEVERAL LIABILITY</u></b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
9.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Joint and Several Liability</u>.&nbsp; The Borrower agrees that it is jointly and severally, directly and
primarily liable to the Lender for payment, performance and satisfaction in
full of the Obligations and that such liability is independent of the duties,
obligations, and liabilities of the Affiliate Borrower.&nbsp; The Lender may
bring a separate action or actions on each, any, or all of the Obligations
against the Borrower, whether action is brought against the Affiliate Borrower
or whether the Affiliate Borrower is joined in such action.&nbsp; In the event
that the Affiliate Borrower fails to make any payment of any Obligation on or
before the due date thereof, the Borrower immediately shall cause such payment
to be made or each of such obligations to be made or each of such Obligations
to be performed, kept, observed, or fulfilled.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
9.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Primary Obligation; Waiver of Marshalling</u>.&nbsp; This Agreement and the Loan Documents to which the Borrower is a
party are a primary and original obligation of the Borrower, are not the
creation of a surety relationship, and are an absolute, unconditional, and
continuing promise of payment and performance which shall remain in full force
and effect without respect to future changes in conditions, including any
change of law or any invalidity or irregularity with respect to this Agreement
or the Loan Documents to which the Borrower is a party.&nbsp; The Borrower
agrees that its liability under this Agreement and the Loan Documents to which
the Borrower is a party shall be immediate and shall not be contingent upon the
exercise or enforcement by the Lender of whatever remedies it may have against
the Affiliate Borrower, or the enforcement of any lien or realization upon any
security the Lender may at any time possess. The Borrower consents and agrees
that the Lender shall be under no obligation to marshal any assets of the
Borrower or the Affiliate Borrower against or in payment of any or all of the
Obligations.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
9.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Continuing Liability</u>.&nbsp; The liability of the Borrower under this Agreement and the Loan
Documents to which the Borrower is a party includes Obligations arising under
successive transactions continuing, compromising, extending, increasing,
modifying, releasing, or renewing the Obligations, changing the interest rate,
payment terms, or other terms and conditions thereof, or creating new or
additional Obligations after prior Obligations have been satisfied in whole or
in part.&nbsp; To the maximum extent permitted by law, the Borrower hereby
waives any right to revoke its liability under this Agreement and the Loan
Documents as to future indebtedness.</p>

<p align="justify">&nbsp;</p>

<p align="center">51</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
9.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Additional Waivers</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower absolutely, unconditionally, knowingly, and expressly waives:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(1) notice of acceptance hereof; (2) notice of any Advances or other financial
accommodations made or extended under the Affiliate Credit Agreement or the
Affiliate Loan Documents or the creation or existence of any Obligations; (3)
notice of the amount of the Obligations, subject, however, to the Borrower's
right to make inquiry of the Lender to ascertain the amount of the Obligations
at any reasonable time; (4) notice of any adverse change in the financial
condition of the Affiliate Borrower or of any fact that might increase the
Borrower's risk hereunder; (5) notice of presentment for payment, demand,
protest, and notice thereof as to any instruments among the Affiliate Loan
Documents; (6) notice of any Event of Default or Default under the Affiliate
Credit Agreement; and (7) all other notices (except if such notice is
specifically required to be given to the Borrower hereunder or under the Loan
Documents to which the Borrower is a party) and demands to which the Borrower
might otherwise be entitled.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
its right, under Sections 2845 or 2850 of the California Civil Code, or
otherwise, to require the Lender to institute suit against, or to exhaust any
rights and remedies which the Lender has or may have against the Affiliate
Borrower or any third Person, or against any collateral for the Obligations
provided by the Affiliate Borrower or any third Person.&nbsp; The Borrower
further waives any defense arising by reason of any disability or other defense
(other than the defense that the Obligations shall have been fully and finally
performed and indefeasibly paid) of any third party or by reason of the
cessation from any cause whatsoever of the liability of any third party in
respect thereof.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any rights to assert against the Lender any defense (legal or equitable),
set-off, counterclaim, or claim which the Borrower may now or at any time
hereafter have against the Affiliate Borrower or any other party liable to the
Lender; (2)&nbsp; any defense, set-off, counterclaim, or claim, of any kind or
nature, arising directly or indirectly from the present or future lack of
perfection, sufficiency, validity, or enforceability of the Obligations or any
security therefor; (3) any defense the Borrower has to performance hereunder,
and any right The Borrower has to be exonerated, provided by Sections 2819,
2822, or 2825 of the California Civil Code, or otherwise, arising by reason
of:&nbsp; the impairment or suspension of the Lender's rights or remedies
against the Affiliate Borrower or any third Person; the alteration by the
Lender of the Obligations; any discharge of the Affiliate Borrower or any third
Person's obligations to the Lender by operation of law as a result of the
Lender's intervention or omission; or the acceptance by the Lender of anything
in partial satisfaction of the Obligations; and (4) the benefit of any statute
of limitations affecting the Affiliate Borrower or such third Person's
liability hereunder or the enforcement thereof, and any act which shall defer
or delay the operation of any statute of limitations applicable to the Obligations
shall similarly operate to defer or delay the operation of such statute of
limitations applicable to the Borrower's liability hereunder.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower hereby absolutely, unconditionally, knowingly, and expressly
waives: (i) any right of subrogation the Borrower has or may have as against
the Affiliate Borrower or any third Person with respect to the Obligations;
(ii) any right to proceed against the Affiliate Borrower or any third Person,
now or hereafter, for contribution, indemnity, reimbursement, or any other
suretyship rights and claims, whether direct or indirect, liquidated or
contingent, whether arising under express or implied contract or by operation
of law, which the Borrower may now have or hereafter have as against the Affiliate
Borrower or any third Person with respect to the Obligations; and (iii) any
right to proceed or seek recourse against or with respect to any property or
asset of the Affiliate Borrower or any third Person.</p>

<p align="justify">&nbsp;</p>

<p align="center">52</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (v)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower absolutely, unconditionally, knowingly, and expressly waives any
defense arising by reason of or deriving from (i) any claim or defense based
upon an election of remedies by the Lender including any defense based upon an
election of remedies by the Lender under the provisions of Sections 580a, 580b,
580d, and 726 of the California Code of Civil Procedure or any similar law of
California or any other jurisdiction; or (ii) any election by the Lender under
Section 1111(b) of the Bankruptcy Code to limit the amount of, or any collateral
securing, its claim against the Affiliate Borrower.&nbsp; Pursuant to
California Civil Code Section 2856(b):</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Borrower waives all rights and defenses arising out of an election of
remedies by the Lender, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for the Obligations, has
destroyed the Borrower's rights of subrogation and reimbursement against the
Affiliate Borrower by the operation of Section 580(d) of the California Code of
Civil Procedure or otherwise.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Borrower waives all rights and defenses that the Borrower may have
because the Obligations are secured by real property.&nbsp; This means, among
other things:&nbsp; (1) the Lender may collect from the Borrower without first
foreclosing on any real or personal property collateral pledged by the
Affiliate Borrower; and (2) if the Lender forecloses on any real property
collateral pledged by the Affiliate Borrower:&nbsp; (A) the amount of the
Obligations may be reduced only by the price for which that collateral is sold
at the foreclosure sale, even if the collateral is worth more than the sale
price; and (B) the Lender may collect from the Borrower even if the Lender, by
foreclosing on the real property collateral, has destroyed any right The
Borrower may have to collect from the Affiliate Borrower.&nbsp; This is an
unconditional and irrevocable waiver of any rights and defenses the Borrower
may have because the Obligations are secured by real property.&nbsp; These
rights and defenses include, but are not limited to, any rights or defenses
based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil
Procedure.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower also agrees that the &quot;fair market value&quot; provisions of Section
580a of the California Code of Civil Procedure shall have no applicability with
respect to the determination of the Borrower's liability under this Agreement
and the Loan Documents to which the Borrower is a party.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b>WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION SET
FORTH IN THIS AGREEMENT, THE BORROWER HEREBY ABSOLUTELY, KNOWINGLY,
UNCONDITIONALLY, AND EXPRESSLY WAIVES AND AGREES NOT TO ASSERT ANY AND ALL
BENEFITS OR DEFENSES ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF
CALIFORNIA CIVIL CODE SECTIONS 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821,
2822, 2825, 2839, 2845, 2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL
PROCEDURE SECTIONS 580a, 580b, 580c, 580d AND 726, CALIFORNIA UNIFORM
COMMERCIAL CODE SECTIONS 3116, 3118, 3119, 3419, AND 3605, AND CHAPTER 2 OF
TITLE 14 OF PART 4 OF DIVISION 3 OF THE CALIFORNIA CIVIL CODE.</b></p>

<p align="justify">&nbsp;</p>

<p align="center">53</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
9.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Settlement or Releases</u>.&nbsp; The Borrower consents and agrees that, without notice to or by the
Borrower, and without affecting or impairing the liability of the Borrower
hereunder, the Lender may, by action or inaction:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
compromise, settle, extend the duration or the time for the payment of, or
discharge the performance of, or may refuse to or otherwise not enforce the
Affiliate Credit Agreement or the Affiliate Loan Documents, or any part
thereof, with respect to the Affiliate Borrower or any third Person;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
release the Affiliate Borrower any third Person or grant other indulgences to
the Affiliate Borrower or any guarantor of the Obligations in respect thereof;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
amend or modify in any manner and at any time (or from time to time) any of the
Affiliate Loan Documents or the Affiliate Credit Agreement; or</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
release or substitute any guarantor, if any, of the Obligations, or enforce,
exchange, release, or waive any security for the Obligations or any other
guaranty of the Obligations, or any portion thereof.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
9.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>No Election</u>.&nbsp; The Lender shall have the right to seek recourse against the
Borrower to the fullest extent provided for herein, and no election by the
Lender to proceed in one form of action or proceeding, or against any party, or
on any obligation, shall constitute a waiver of the Lender's right to proceed
in any other form of action or proceeding or against other parties unless the
Lender has expressly waived such right in writing.&nbsp; Specifically, but
without limiting the generality of the foregoing, no action or proceeding by
the Lender under this Agreement, the Loan Documents, the Affiliate Loan
Documents or the Affiliate Credit Agreement, shall serve to diminish the
liability of the Borrower under this Agreement and the Loan Documents to which
the Borrower is a party except to the extent that the Lender finally and
unconditionally shall have realized indefeasible payment by such action or
proceeding.</p>

<p align="justify">&nbsp;</p>

<p align="center">54</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
9.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Indefeasible Payment</u>.&nbsp; The Obligations shall not be considered indefeasibly paid unless and
until all payments to the Lender are no longer subject to any right on the part
of any Person, including the Affiliate Borrower, the Affiliate Borrower as a
debtor in possession, or any trustee (whether appointed pursuant to the
Bankruptcy Code, or otherwise) of the Affiliate Borrower's assets to invalidate
or set aside such payments or to seek to recoup the amount of such payments or
any portion thereof, or to declare same to be fraudulent or preferential.&nbsp;
In the event that, for any reason, any portion of such payments to the Lender
is set aside or restored, whether voluntarily or involuntarily, after the
making thereof, then the obligation intended to be satisfied thereby shall be
revived and continued in full force and effect as if said payment or payments
had not been made, and the Borrower shall be liable for the full amount the
Lender is required to repay plus any and all costs and expenses (including
attorneys' fees and attorneys' fees incurred in proceedings brought under the
Bankruptcy Code) paid by the Lender in connection therewith.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
9.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Financial Condition of the Affiliate Borrower</u>.&nbsp; The Borrower acknowledges that it is presently informed as to the
financial condition of the Affiliate Borrower and of all other circumstances
which a diligent inquiry would reveal and which bear upon the risk of
nonpayment of the Obligations.&nbsp; The Borrower hereby covenants that it will
continue to keep informed as to the financial condition the Affiliate Borrower,
the status of the other the Affiliate Borrower and of all circumstances which
bear upon the risk of nonpayment.&nbsp; Absent a written request from the
Borrower to the Lender for information, the Borrower hereby waives any and all
rights it may have to require the Lender to disclose to the Borrower any
information which the Lender may now or hereafter acquire concerning the
condition or circumstances of the Affiliate Borrower.</p>

<p align="justify">&nbsp;</p>

<p align="center">*&nbsp;&nbsp; *&nbsp;&nbsp;&nbsp; *</p>

<p align=center>[remainder of this page intentionally
left blank]</p>

<p align="center">*&nbsp;&nbsp;&nbsp; *&nbsp;&nbsp;&nbsp; *</p>

<p align="justify">&nbsp;</p>

<p align="center">55</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.</p>

<table border=0 cellspacing=0 cellpadding=0 width="670">
 <tr>
  <td width=350 valign=top>
  <p>Micro Motors, Inc.<br>
  151 E. Columbine<br>
  Santa Ana, CA&nbsp; 92707<br>
  Telecopier:&nbsp; (714) 433-7200<br>
  Attention:&nbsp; Jeffrey J. Ritchey<br>
  e-mail:&nbsp; jefrit@micromotorsinc.com</p>
  <p>&nbsp;</p>
  <p>&nbsp;</p>


  </td>
  <td width=320 valign=top>
  <p>MICRO MOTORS, INC.</p>


  <p>By:<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  <br>
  </u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Patrick Johnson,
  President</p>
  </td>
 </tr>
 <tr>
  <td width=350 valign=top>
  <p>Wells Fargo Business Credit, Inc.<br>
  245 S. Los Robles Avenue, Suite 600<br>
  Pasadena, California&nbsp; 91101<br>
  Telecopier:&nbsp; (626) 844&#8209;9063<br>
  Attention:&nbsp; Harry&nbsp;L. Joe<br>
  e-mail:&nbsp; joeharry@wellsfargo.com</p>
  <p>&nbsp;</p>

  </td>
  <td width=320 valign=top>
  <p>WELLS FARGO BUSINESS CREDIT, INC.</p>


  <p>By:<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  <br>
  </u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Jeffrey A.
  Heisinger, Vice President</p>
  </td>
 </tr>
</table>

<p align="justify"><b><br clear=all>
</b></p>

<p align="center">56</p>

<hr color="#000080"><P Style="page-break-after: always"></P>
<p align="justify">&nbsp;</p>

<div align="center">
  <center>
  <table border="0" cellpadding="3" style="border-collapse: collapse" bordercolor="#111111" width="581">
    <tr>
      <td colspan="2" align="center" width="573"><b>Table of Exhibits and Schedules</b></td>
    </tr>
    <tr>
      <td width="167">&nbsp;</td>
      <td width="399">&nbsp;</td>
    </tr>
    <tr>
      <td align="left" valign="top" width="167">

<p align="justify">Exhibit A&nbsp;&nbsp; </p>



      </td>
      <td width="399">

<p align="justify">Form of Revolving Note</p>



      </td>
    </tr>
    <tr>
      <td align="left" valign="top" width="167">



<p align="justify">Exhibit B&nbsp;&nbsp; </p>



      </td>
      <td width="399">



<p align="justify">[Intentionally Omitted]</p>



      </td>
    </tr>
    <tr>
      <td align="left" valign="top" width="167">



<p align="justify">Exhibit C&nbsp;&nbsp; </p>



      </td>
      <td width="399">



<p align="justify">Compliance Certificate</p>



      </td>
    </tr>
    <tr>
      <td align="left" valign="top" width="167">



<p align="justify">Exhibit D&nbsp;&nbsp; </p>



      </td>
      <td width="399">



<p align="justify">Premises</p>



      </td>
    </tr>
    <tr>
      <td align="left" valign="top" width="167">



<p align="justify">Exhibit E&nbsp;&nbsp; </p>



      </td>
      <td width="399">



<p align="justify">Form of Notice of Borrowing</p>



      </td>
    </tr>
    <tr>
      <td align="left" valign="top" width="167">



<p align="justify">Schedule 5.1&nbsp;&nbsp; </p>

      </td>
      <td width="399">



<p align="justify">Trade Names, Chief Executive Office, Principal Place<br>
of Business, and Locations of Collateral </p>

      </td>
    </tr>
    <tr>
      <td align="left" valign="top" width="167">



<p align="justify">Schedule 5.2&nbsp;&nbsp; </p>



      </td>
      <td width="399">



<p align="justify">Capitalization and Organizational Chart</p>



      </td>
    </tr>
    <tr>
      <td align="left" valign="top" width="167">



<p align="justify">Schedule 5.5&nbsp;&nbsp; </p>



      </td>
      <td width="399">



<p align="justify">Subsidiaries</p>



      </td>
    </tr>
    <tr>
      <td align="left" valign="top" width="167">



<p align="justify">Schedule 5.11&nbsp;&nbsp; </p>



      </td>
      <td width="399">



<p align="justify">Intellectual Property Disclosures</p>



      </td>
    </tr>
    <tr>
      <td align="left" valign="top" width="167">



<p align="justify">Schedule 6.3&nbsp;&nbsp; </p>



      </td>
      <td width="399">



<p align="justify">Permitted Liens</p>



      </td>
    </tr>
    <tr>
      <td align="left" valign="top" width="167">



<p align="justify">Schedule 6.4&nbsp;&nbsp; </p>





      </td>
      <td width="399">



<p align="justify">Permitted Indebtedness and Guaranties</p>





      </td>
    </tr>
  </table>
  </center>
</div>
<p align="justify">&nbsp;</p>
<hr color="#000080"><P Style="page-break-after: always"></P>





<p align="justify">&nbsp;</p>

<p align="center"><b>Exhibit A to Credit and Security Agreement</b></p>

<p align="center"><b>REVOLVING NOTE</b></p>

<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="762">
  <tr>
    <td width="569">

<p align="justify">$3,000,000&nbsp;&nbsp; </p>

    </td>
    <td align="right" width="190">Santa Ana, California</td>
  </tr>
  <tr>
    <td width="569">

<p align="justify">&nbsp;&nbsp; </p>

    </td>
    <td align="right" width="190">May&nbsp;28, 2002</td>
  </tr>
</table>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; For value received, the undersigned, MICRO MOTORS, INC., a Colorado
corporation (the &quot;Borrower&quot;), jointly and severally with Oregon Micro Systems,
Inc., an Oregon corporation, hereby promises to pay on the Termination Date
under the Credit Agreement (defined below), to the order of WELLS FARGO
BUSINESS CREDIT, INC., a Minnesota corporation (the &quot;Lender&quot;), at its main
office in Minneapolis, Minnesota, or at any other place designated at any time
by the holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of Three Million Dollars ($3,000,000)
or, if less, the aggregate unpaid principal amount of all Revolving Advances
made by the Lender to the Borrower under the Credit Agreement (defined below)
together with interest on the principal amount hereunder remaining unpaid from
time to time, computed on the basis of the actual number of days elapsed and a
360-day year, from the date hereof until this Note is fully paid at the rate
from time to time in effect under the Credit and Security Agreement of even
date herewith (the &quot;Credit Agreement&quot;) by and between the Lender and the
Borrower. The principal hereof and interest accruing thereon shall be due and
payable as provided in the Credit Agreement. This Note may be prepaid only in
accordance with the Credit Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; This Note is issued pursuant, and is subject, to the Credit Agreement, which
provides, among other things, for acceleration hereof. This Note is the
Revolving Note referred to in the Credit Agreement. This Note is secured, among
other things, pursuant to the Credit Agreement and the Security Documents as
therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other
instruments or agreements.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Borrower shall pay all costs of collection, including reasonable
attorneys' fees and legal expenses if this Note is not paid when due, whether
or not legal proceedings are commenced.</p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Presentment or other demand for payment, notice of dishonor and protest are
expressly waived.</p>

<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="468" align="right">
  <tr>
    <td width="466">MICRO MOTORS, INC.</td>
  </tr>
  <tr>
    <td width="466">By<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u></td>
  </tr>
  <tr>
    <td width="466">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Its
President</td>
  </tr>
</table>

<p><br clear=all>
</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="center"><b>Exhibit C to Credit and Security Agreement</b></p>

<p align="center"><b>Compliance Certificate</b></p>

<p>To:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Harry&nbsp;L. Joe<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Wells Fargo
Business Credit, Inc.</p>



<p>Date:&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
__________________, 200___</p>



<p>Subject:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Micro Motors, Inc.</p>



<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Financial
Statements</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In accordance with our Credit and Security Agreement dated as of
May&nbsp;28, 2002 (the &quot;Credit Agreement&quot;), attached are the financial statements
of Micro Motors, Inc. (the &quot;Borrower&quot;) as of and for ________________, 20___
(the &quot;Reporting Date&quot;) and the year-to-date period then ended (the &quot;Current
Financials&quot;). All terms used in this certificate have the meanings given in the
Credit Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; I certify that the Current Financials have been prepared in accordance with
GAAP, subject to year-end audit adjustments, and fairly present the Borrower's
financial condition as of the date thereof.</p>

<p align="justify"><u>Events of Default</u>. (Check one):</p>

<p align="justify">&#61608;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The undersigned does not have knowledge of the occurrence of a Default or Event
of Default under the Credit Agreement except as previously reported in writing
to the Lender.</p>

<p align="justify">&#61608;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The undersigned has knowledge of the occurrence of a Default or Event of
Default under the Credit Agreement not previously reported in writing to the
Lender and attached hereto is a statement of the facts with respect to thereto.
The Borrower acknowledges that pursuant to Section 2.12(d) of the Credit
Agreement, the Lender may impose the Default Rate at any time during the
resulting Default Period.</p>

<p><u>Financial Covenants</u>. I further hereby certify as follows:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Minimum Tangible Net Worth</u>.&nbsp; Pursuant to Section 6.2(a) of the
Credit Agreement, as of the Reporting Date, the Borrower's Tangible Net Worth
was $____________, which &#61608; satisfies &#61608; does not satisfy the requirement that
such amount be not less than $_____________ on the Reporting Date as set forth
in table below:</p>

<p align="center">1</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<div align=center>

<table border=1 cellspacing=0 cellpadding=0 bordercolor="#000000" style="border-collapse: collapse">
 <tr>
  <td width=222 valign=bottom>
  <p align=center><b>Test Date/Period</b></td>
  <td width=222 valign=top>
  <p align="center"><b>Minimum Tangible Net Worth</b></p>
  </td>
 </tr>
 <tr>
  <td width=222 valign=top align="center">
  <p>4/30/2002</p>
  </td>
  <td width=222 valign=top align="center">
  <p>$2,842,000</p>
  </td>
 </tr>
 <tr>
  <td width=222 valign=top align="center">
  <p align=center>5/31/2002</p>
  </td>
  <td width=222 valign=top align="center">
  <p>$2,646,000</p>
  </td>
 </tr>
 <tr>
  <td width=222 valign=top align="center">
  <p align=center>6/30/2002 and each month end
  thereafter</p>
  </td>
  <td width=222 valign=top align="center">
  <p>$2,737,000</p>
  </td>
 </tr>
</table>

</div>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Minimum Net Income</u>.&nbsp; Pursuant to Section&nbsp;6.2(b) of the Credit
Agreement, the Borrower's Net Income (Net Loss) for the fiscal year-to-date
period ending on the Reporting Date, was $____________, which &#61608; satisfies &#61608;
does not satisfy the requirement that such amount be not less than
$____________, as set forth in the table below:</p>

<div align=center>

<table border=1 cellspacing=0 cellpadding=0 bordercolor="#000000" style="border-collapse: collapse">

  <tr>
   <td width=204 valign=bottom>
   <p align=center><b>Fiscal Year to Date
   Period&nbsp;Ending</b></p>
   </td>
   <td width=195 valign=top>
   <p align=center><b>Minimum Net Income (or Maximum
   Net Loss)</b></p>
   </td>
  </tr>

 <tr>
  <td width=204 valign=top>
  <p align=center>6/30/2002</p>
  </td>
  <td width=195 valign=top>
  <p align=center>$850,000</p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top>
  <p align=center>&nbsp;</p>
  </td>
  <td width=195 valign=top>
  <p align=center>&nbsp;</p>
  </td>
 </tr>
</table>

</div>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Maximum Net Loss</u>.&nbsp; Pursuant to Section 6.2(c) of the Credit
Agreement, the Borrower's Net Income (Net Loss) for the month ending on the
Reporting Date was $____________, which &#61608; satisfies &#61608; does not satisfy the
requirement that such amount be not less than -$75,000, commencing with the
month ending July&nbsp;31, 2002.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Capital Expenditures</u>. Pursuant to Section 6.2(i) of the Credit
Agreement, for the year-to-date period ending on the Reporting Date, the
Borrower has expended or contracted to expend during the _____________ year
ended ______________, 200___, for Capital Expenditures, $___________ in the
aggregate, which &#61608; satisfies &#61608; does not satisfy the requirement that such
expenditures not exceed $150,00 in the aggregate during such year, or $50,000
for the fiscal quarter ended June&nbsp;30, 2002.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Salaries</u>. As of the Reporting Date, the Borrower &#61608; is &#61608; is not in
compliance with Section 6.8 of the Credit Agreement concerning salaries.</p>

<p align="center"><br clear=all>
2</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Attached hereto are all relevant facts in reasonable detail to evidence, and
the computations of the financial covenants referred to above. These
computations were made in accordance with GAAP.</p>

<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="493" align="right">
  <tr>
    <td width="491">MICRO MOTORS, INC. <br>
<br>
<br>
By<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <br>
</u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Its
Chief Financial Officer</td>
  </tr>
</table>



<p>&nbsp;</p>



<p>&nbsp;</p>



<p>&nbsp;</p>



<p>&nbsp;</p>

<p align="center">3</p>
<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="center"><b>Exhibit D to Credit and Security Agreement</b></p>

<p align="center"><b>Premises</b></p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Premises referred to in the Credit and Security Agreement are legally
described as follows:</p>

<p align=center>[_To be completed by Borrower_]</p>



<p><br clear=all>
</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="center"><b>Exhibit E to Credit and Security Agreement</b></p>

<p align="center"><b>NOTICE OF BORROWING</b></p>

<p align="center">_____________, _______</p>

<p>TO:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Wells Fargo Business Credit, Inc.<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 245 S.
Los Robles Avenue, Suite 600<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Pasadena,
California&nbsp; 91101<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Telecopier:&nbsp; (626) 844&#8209;9063<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Attention:&nbsp; Harry L. Joe</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We refer to that certain Credit and Security Agreement dated as of
May&nbsp;28, 2002 (as amended or modified to date, the &quot;Credit Agreement&quot;) by
and between Micro Motors, Inc. and Wells Fargo Business Credit, Inc.
Capitalized terms used herein but not otherwise defined shall have the same
meanings assigned to them in the Credit Agreement.</p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Pursuant to Section 2.2(a) of the Credit Agreement, we hereby request or
confirm our request for an Advance on the date, of the type(s) and in the
amount(s) specified below.</p>

<table border=0 cellspacing=0 cellpadding=0>
 <tr>
  <td width=205 valign=top>
  <p><u>Amount of Advance</u></p>
  </td>
  <td width=336 valign=top>
  <p><u>Date of Borrowing</u></p>
  </td>
 </tr>
 <tr>
  <td width=205 valign=top>
  <p>$</p>
  </td>
  <td width=336 valign=top>

  </td>
 </tr>
 <tr>
  <td width=205 valign=top>

  </td>
  <td width=336 valign=top>

  </td>
 </tr>
</table>



<p>&nbsp;</p>



<p>&nbsp;</p>

<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="557" align="right">
  <tr>
    <td width="555">MICRO MOTORS, INC. </td>
  </tr>
  <tr>
    <td width="555"><br>
<br>
    By<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Its<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u>
    </td>
  </tr>
</table>



<p><br clear=all>
</p>



<p>&nbsp;</p>

<hr color="#000080"><P Style="page-break-after: always"></P>



<p>&nbsp;</p>

<p align="center"><b>Schedule 5.1 to Credit and Security Agreement</b></p>

<p align="center"><b>Trade Names, Chief Executive Office, Principal Place of Business,</b></p>

<p align="center"><b>and Locations of Collateral</b></p>

<p align="center"><b><u>Trade Names</u></b></p>

<p align="center">[_to be completed by Borrower_]</p>

<p align="center"><b><u>Chief Executive Office/Principal Place of Business</u></b></p>

<p align="center">&nbsp;&nbsp;
<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u></p>

<p align="center">&nbsp;&nbsp;
<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u></p>

<p align="center">&nbsp;&nbsp;
<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u></p>



<p align="center"><b><u>Other Inventory and Equipment Locations</u></b></p>

<p align="center">[_to be completed by Borrower_]</p>

<p><br clear=all>
</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="center"><b>Schedule 5.2 to Credit and Security Agreement</b></p>

<p align="center"><b>Capitalization and Organizational Chart</b></p>



<div align="center">
  <center>



<table border=0 cellspacing=0 cellpadding=0 style="text-align: center; border-collapse: collapse" bordercolor="#111111">
 <tr>
  <td width=163 valign=bottom>


  <p><b><u>Holder</u></b></p>
  </td>
  <td width=163 valign=bottom>

  <p align=center><b>Type of<br>
  <u>Rights/Stock</u></b></p>
  </td>
  <td width=163 valign=bottom>
  <p align=center><b>No. of shares (after<br>
  Exercise of all rights<br>
  <u>to acquire shares)</u></b></p>
  </td>
  <td width=163 valign=bottom>

  <p align=center><b>Percent interest on<br>
  <u>a fully diluted basis</u></b></p>
  </td>
 </tr>
 <tr>
  <td width=163 valign=top>

  </td>
  <td width=163 valign=top>

  </td>
  <td width=163 valign=top>

  </td>
  <td width=163 valign=top>

  </td>
 </tr>
 <tr>
  <td width=163 valign=top>

  </td>
  <td width=163 valign=top>

  </td>
  <td width=163 valign=top>

  </td>
  <td width=163 valign=top>

  </td>
 </tr>
</table>



  </center>
</div>



<p align="center">Attach organizational chart showing the ownership structure of all
Subsidiaries of the Borrower.</p>

<p align="center">[_to be completed by Borrower_]</p>



<p><br clear=all>
</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="center"><b>Schedule 5.5&nbsp; to Credit and Security Agreement</b></p>

<p align="center"><b>Subsidiaries</b></p>

<p align="center">[_to be completed by Borrower_]</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p><br clear=all>
</p>

<p align="center"><b>Schedule 5.11 to Credit and Security Agreement</b></p>

<p align="center"><b>Intellectual Property Disclosures</b></p>

<p align="center">[_to be completed by Borrower_]</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p><br clear=all>
</p>

<p align="center"><b>Schedule 6.3 to Credit and Security Agreement</b></p>

<p align="center"><b>Permitted Liens</b></p>

<div align="center">
  <center>

<table border=0 cellspacing=0 cellpadding=0 style="border-collapse: collapse" bordercolor="#111111">
 <tr>
  <td width=131 valign=top>
  <p align="center"><u>Creditor</u></p>
  </td>
  <td width=131 valign=top>
  <p align="center"><u>Collateral</u></p>
  </td>
  <td width=131 valign=top>
  <p align="center"><u>Jurisdiction</u></p>
  </td>
  <td width=131 valign=top>
  <p align="center"><u>Filing Date</u></p>
  </td>
  <td width=131 valign=top>
  <p align="center"><u>Filing No.</u></p>
  </td>
 </tr>
 <tr>
  <td width=131 valign=top>

  <p align="center">

  </td>
  <td width=131 valign=top>

  <p align="center">

  </td>
  <td width=131 valign=top>

  <p align="center">

  </td>
  <td width=131 valign=top>

  <p align="center">

  </td>
  <td width=131 valign=top>

  <p align="center">

  </td>
 </tr>
 <tr>
  <td width=131 valign=top>

  </td>
  <td width=131 valign=top>

  </td>
  <td width=131 valign=top>

  </td>
  <td width=131 valign=top>

  </td>
  <td width=131 valign=top>

  </td>
 </tr>
</table>



  </center>
</div>



<p align="center">[_to be completed by Borrower_]</p>

<p><br clear=all>
</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="center"><b>Schedule 6.4 to Credit and Security Agreement</b></p>

<p align="center"><b>Permitted Indebtedness and Guaranties</b></p>



<div align="center">
  <center>



<table border=0 cellspacing=0 cellpadding=0 style="border-collapse: collapse" bordercolor="#111111">
 <tr>
  <td width=653 colspan=5 valign=top>
  <p align=center>Indebtedness</p>
  </td>
 </tr>
 <tr>
  <td width=131 valign=bottom>

  <p><u>Creditor</u></p>
  </td>
  <td width=131 valign=bottom>
  <p align=center>Principal<br>
  <u>Amount</u></p>
  </td>
  <td width=131 valign=bottom>
  <p align=center>Maturity<br>
  <u>Date</u></p>
  </td>
  <td width=131 valign=bottom>
  <p align=center>Monthly<br>
  <u>Payment</u></p>
  </td>
  <td width=131 valign=bottom>

  <p align=center><u>Collateral</u></p>
  </td>
 </tr>
 <tr>
  <td width=131 valign=top>

  </td>
  <td width=131 valign=top>

  </td>
  <td width=131 valign=top>

  </td>
  <td width=131 valign=top>

  </td>
  <td width=131 valign=top>

  </td>
 </tr>
 <tr>
  <td width=131 valign=top>

  </td>
  <td width=131 valign=top>

  </td>
  <td width=131 valign=top>

  </td>
  <td width=131 valign=top>

  </td>
  <td width=131 valign=top>

  </td>
 </tr>
</table>



  </center>
</div>



<p align="center">[_to be completed by Borrower_]</p>



<div align="center">
  <center>



<table border=0 cellspacing=0 cellpadding=0 style="border-collapse: collapse" bordercolor="#111111">
 <tr>
  <td width=653 colspan=3 valign=top>
  <p align=center>Guaranties</p>
  </td>
 </tr>
 <tr>
  <td width=218 valign=bottom>

  <p><u>Primary Obligor</u></p>
  </td>
  <td width=218 valign=bottom>
  <p align=center>Amount and Description of<br>
  <u>Obligation Guaranteed</u></p>
  </td>
  <td width=218 valign=bottom>

  <p align=center><u>Beneficiary of Guaranty</u></p>
  </td>
 </tr>
 <tr>
  <td width=218 valign=top>

  </td>
  <td width=218 valign=top>

  </td>
  <td width=218 valign=top>

  </td>
 </tr>
 <tr>
  <td width=218 valign=top>

  </td>
  <td width=218 valign=top>

  </td>
  <td width=218 valign=top>

  </td>
 </tr>
</table>



  </center>
</div>



<p align="center">[_To be completed by Borrower_]</p>

<p>&nbsp;</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="center">&nbsp;</p>


<p align=right>DRAFT<br>
SEPTEMBER
6, 2002</p>

<p align="center"><b>FIRST AMENDMENT TO
CREDIT AND SECURITY<br>
AGREEMENT </b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; This Amendment, dated as of&nbsp; September __, 2002, is made by and between MICRO MOTORS, INC., a
Colorado corporation (the &quot;<u>Borrower</u>&quot;), and WELLS FARGO BUSINESS CREDIT,
INC., a Minnesota corporation (the &quot;<u>Lender</u>&quot;).</p>

<p align="center">Recitals</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Borrower and the Lender are parties to a Credit and
Security Agreement, dated as of May 28, 2002 (the &quot;<u>Credit Agreement</u>&quot;).
Capitalized terms used in these recitals have the meanings given to them in the
Credit Agreement unless otherwise specified.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Borrower has requested that certain amendments be made
to the Credit Agreement, which the Lender is willing to make pursuant to the
terms and conditions set forth herein.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein contained, it is agreed as follows:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Defined Terms</u>. Capitalized terms used in this Amendment
which are defined in the Credit Agreement shall have the same meanings as
defined therein, unless otherwise defined herein.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, <u>Section 1.1</u> of the Credit Agreement is
amended by amending the definition of &quot;Change of Control&quot; to read as follows:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Change of Control&quot; means
the occurrence of any of the following events:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any Person or &quot;group&quot; (as such term is used in
Sections&nbsp;13(d) and 14(d) of the Securities Exchange Act of 1934) is or
becomes the &quot;beneficial owner&quot; (as defined in Rules 13d-3 and 13d-5 under the
Securities Exchange Act of 1934, except that a Person will be deemed to have
&quot;beneficial ownership&quot; of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 25% of the voting power
of all classes of voting stock of the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During any consecutive two-year period, individuals who at the
beginning of such period constituted the board of Directors of the Borrower
(together with any new Directors whose election to such board of Directors, or
whose nomination for election by the owners of the Borrower, was approved by a
vote of 66-2/3% of the Directors then still in office who were either Directors
at the beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a majority of
the board of Directors of the Borrower then in office.</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Either or both of Patrick L. Johnson and Jeffrey J. Ritchey
shall cease to actively manage the Borrower's day-to-day business activities.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>No Other Changes</u>. All of the terms and conditions of
the Credit Agreement and the Loan Documents as amended by this Amendment shall
remain in full force and effect.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Amendment Fee</u>. The Borrower shall pay the Lender as of
the date hereof a fully earned, non-refundable fee (the &quot;<u>Amendment Fee</u>&quot;)
in the amount of $1,000 in consideration of the Lender's execution and delivery
of this Amendment.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Conditions Precedent</u>. This Amendmentshall be effective when the Lender
shall have received an executed original hereof, together with each of the
following, each in substance and form acceptable to the Lender in its sole
discretion:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Payment of the Amendment Fee.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Acknowledgment and Agreement of the Guarantor, The
Acknowledgment and Agreement of the Affiliate Borrower and The Acknowledgment
and Agreement of Subordinated Creditors set forth at the end of this Amendment,
duly executed by the Guarantor, the Affiliate Borrower and Subordinated
Creditors.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Such other matters as the Lender may require.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Representations and Warranties</u>. The Borrower hereby
represents and warrants to the Lender as follows:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower has all requisite power and authority to execute
this Amendment and to perform all of its obligations hereunder, and this
Amendment has been duly executed and delivered by the Borrower and constitutes
the legal, valid and binding obligation of the Borrower, enforceable in
accordance with its terms.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The execution, delivery and performance by the Borrower of
this Amendment has been duly authorized by all necessary corporate action and
do not (i)&nbsp;require any authorization, consent or approval by any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, (ii)&nbsp;violate any provision of any law, rule or
regulation or of any order, writ, injunction or decree presently in effect, having
applicability to the Borrower, or the articles of incorporation or by-laws of
the Borrower, or (iii)&nbsp;result in a breach of or constitute a default under
any indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Borrower is a party or by which it or its properties
may be bound or affected.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All of the representations and warranties contained in
Article&nbsp;V of the Credit Agreement are correct on and as of the date hereof
as though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>References</u>. All references in the Credit Agreement to
&quot;this Agreement&quot; shall be deemed to refer to the Credit Agreement as amended
hereby; and any and all references in the Security Documents to the Credit
Agreement shall be deemed to refer to the Credit Agreement as amended hereby.</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>No Waiver</u>. The execution of this Amendment and
acceptance of any documents related hereto shall not be deemed to be a waiver
of any Default or Event of Defaultunder
the Credit Agreement or breach, default or event of default under any Security
Document or other document held by the Lender, whether or not known to the
Lender and whether or not existing on the date of this Amendment.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Release</u>. The Borrower, Guarantor by signing the
Acknowledgment and Agreement of Guarantor set forth below, the Affiliate
Borrower by signing the Acknowledgment and Agreement of Affiliate Borrower set
forth below and each Subordinated Creditor by signing the Acknowledgment and
Agreement of Subordinated Creditors set forth below, each hereby absolutely and
unconditionally releases and forever discharges the Lender, and any and all
participants, parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together
with all of the present and former directors, officers, agents and employees of
any of the foregoing, from any and all claims, demands or causes of action of
any kind, nature or description, whether arising in law or equity or upon
contract or tort or under any state or federal law or otherwise, which the
Borrower, Guarantor, Affiliate Borrower or such Subordinated Creditorhas had, now has or has made claim to
have against any such person for or by reason of any act, omission, matter,
cause or thing whatsoever arising from the beginning of time to and including
the date of this Amendment, whether such claims, demands and causes of action
are matured or unmatured or known or unknown.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Costs and Expenses.</u> The Borrower hereby reaffirms its
agreement under the Credit Agreement to pay or reimburse the Lender on demand
for all costs and expenses incurred by the Lender in connection with the Loan
Documents, including without limitation all reasonable fees and disbursements
of legal counsel. Without limiting the generality of the foregoing, the
Borrower specifically agrees to pay all fees and disbursements of counsel to
the Lender for the services performed by such counsel in connection with the
preparation of this Amendment and the documents and instruments incidental
hereto. The Borrower hereby agrees that the Lender may, at any time or from
time to time in its sole discretion and without further authorization by the
Borrower, make a loan to the Borrower under the Credit Agreement, or apply the
proceeds of any loan, for the purpose of paying any such fees, disbursements,
costs and expenses and the Amendment Fee.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Miscellaneous</u>. This Amendment, the Acknowledgment and
Agreement of Guarantor, the Acknowledgment and Agreement of Affiliate Borrower
and the Acknowledgment and Agreement of Subordinated Creditors may be executed
in any number of counterparts, each of which when so executed and delivered
shall be deemed an original and all of which counterparts, taken together,
shall constitute one and the same instrument.</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; IN WITNESS WHEREOF, the
parties hereto have caused this Amendment to be duly executed as of the date
first written above.</p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>

<div align="right">
  <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="518">
    <tr>
      <td width="516">WELLS FARGO BUSINESS CREDIT, INC.</td>
    </tr>
    <tr>
      <td width="516">&nbsp;</td>
    </tr>
    <tr>
      <td width="516">&nbsp;</td>
    </tr>
    <tr>
      <td width="516">By<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u>
      </td>
    </tr>
    <tr>
      <td width="516">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Tony
S. Lee</td>
    </tr>
    <tr>
      <td width="516">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Its Senior Vice President</td>
    </tr>
    <tr>
      <td width="516">&nbsp;</td>
    </tr>
    <tr>
      <td width="516">&nbsp;</td>
    </tr>
    <tr>
      <td width="516">MICRO
MOTORS, INC.</td>
    </tr>
    <tr>
      <td width="516">

<p align=left>&nbsp;</p>

      </td>
    </tr>
    <tr>
      <td width="516">

<p align=left>&nbsp;</p>

      </td>
    </tr>
    <tr>
      <td width="516">By<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u>
      </td>
    </tr>
    <tr>
      <td width="516">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Patrick
L. Johnson</td>
    </tr>
    <tr>
      <td width="516">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Its
President</td>
    </tr>
  </table>
</div>

<p>&nbsp;</p>

<hr color="#000080"><P Style="page-break-after: always"></P>
<p>&nbsp;</p>
<p align="center"><b>ACKNOWLEDGMENT
AND AGREEMENT OF GUARANTOR</b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The undersigned, a guarantor of the indebtedness of Micro
Motors, Inc. (the &quot;<u>Borrower</u>&quot;) to Wells Fargo Business Credit, Inc. (the
&quot;<u>Lender</u>&quot;) pursuant to a Continuing Guaranty, dated as of May 28, 2002
(the &quot;<u>Guaranty</u>&quot;), hereby (i)&nbsp;acknowledges receipt of the foregoing
Amendment; (ii)&nbsp;consents to the terms (including without limitation the
release set forth in paragraph 8 of the Amendment) and execution thereof;
(iii)&nbsp;reaffirms its obligations to the Lender pursuant to the terms of its
Guaranty; and (iv)&nbsp;acknowledges that the Lender may amend, restate,
extend, renew or otherwise modify the Credit Agreement and any indebtedness or
agreement of the Borrower, or enter into any agreement or extend additional or
other credit accommodations, without notifying or obtaining the consent of the
undersigned and without impairing the liability of the undersigned under its
Guaranty for all of the Borrower's present and future indebtedness to the
Lender.</p>

<p></p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  </p>

<div align="right">
  <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="532">
    <tr>
      <td width="530">PRO-DEX,
INC.</td>
    </tr>
    <tr>
      <td width="530">&nbsp;</td>
    </tr>
    <tr>
      <td width="530">&nbsp;</td>
    </tr>
    <tr>
      <td width="530">By<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u>
      </td>
    </tr>
    <tr>
      <td width="530">Patrick
L. Johnson</td>
    </tr>
    <tr>
      <td width="530">Its
President and Chief Executive Officer</td>
    </tr>
  </table>
</div>
<p>&nbsp;</p>
<hr color="#000080"><P Style="page-break-after: always"></P>
<p>&nbsp;</p>
<p align="center"><b>ACKNOWLEDGMENT
AND AGREEMENT OF AFFILIATE BORROWER</b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Reference is hereby made to: (i) that certain Credit and
Security Agreement (the &quot;<u>OMS Credit Agreement</u>&quot;), dated as of May 28,
2002, between the undersigned and Wells Fargo Business Credit, Inc. (&quot;<u>Lender</u>&quot;),
and (ii) that certain Credit and Security Agreement (the &quot;<u>Credit Agreement</u>&quot;),
dated as of May 28, 2002, between Micro Motors, Inc. (the &quot;<u>Borrower</u>&quot;)
and Lender.&nbsp; Pursuant to the OMS Credit
Agreement, the obligations of the undersigned under the OMS Credit Agreement
are cross-defaulted with the obligations of Borrower under the Credit
Agreement.&nbsp; In light of the foregoing,
the undersigned hereby (i)&nbsp;acknowledges receipt of the foregoing
Amendment; (ii)&nbsp;consents to the terms (including without limitation the
release set forth in paragraph 8 of the Amendment) and execution thereof;
(iii)&nbsp;reaffirms its obligations to the Lender pursuant to the terms of its
OMS Credit Agreement; and (iv)&nbsp;acknowledges that the Lender may amend,
restate, extend, renew or otherwise modify the Credit Agreement and any
indebtedness or agreement of the Borrower, or enter into any agreement or
extend additional or other credit accommodations, without notifying or
obtaining the consent of the undersigned and without impairing the liability of
the undersigned under its OMS Credit Agreement for all of the Borrower's
present and future indebtedness to the Lender.</p>

<p></p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>

<div align="right">
  <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="526">
    <tr>
      <td width="524">OREGON MICRO SYSTEMS, INC.</td>
    </tr>
    <tr>
      <td width="524">&nbsp;</td>
    </tr>
    <tr>
      <td width="524">&nbsp;</td>
    </tr>
    <tr>
      <td width="524">By<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u>
      </td>
    </tr>
    <tr>
      <td width="524">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u>
      </td>
    </tr>
    <tr>
      <td width="524">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Its<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u>
      </td>
    </tr>
  </table>
</div>

<p>&nbsp;</p>

<hr color="#000080"><P Style="page-break-after: always"></P>
<p>&nbsp;</p>
<p><b>ACKNOWLEDGMENT
AND AGREEMENT OF SUBORDINATED CREDITORS</b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The undersigned, each a subordinated creditor of Micro
Motors, Inc. (the &quot;<u>Borrower</u>&quot;) to Wells Fargo Business Credit, Inc. (the
&quot;<u>Lender</u>&quot;) pursuant to a separateSubordination
Agreement, each dated as of May 28, 2002 (each a &quot;<u>Subordination Agreement</u>&quot;),
hereby (i)&nbsp;acknowledges receipt of the foregoing Amendment;
(ii)&nbsp;consents to the terms (including without limitation the release set
forth in paragraph 8 of the Amendment) and execution thereof;
(iii)&nbsp;reaffirms his or itsobligations
to the Lender pursuant to the terms of his or its Subordination Agreement; and
(iv)&nbsp;acknowledges that the Lender may amend, restate, extend, renew or
otherwise modify the Loan Documents and any indebtedness or agreement of the
Borrower, or enter into any agreement or extend additional or other credit
accommodations, without notifying or obtaining the consent of the undersigned
and without impairing the obligations of the undersigned underhis or its Subordination Agreement.</p>

<p>&nbsp;</p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>

<div align="right">
  <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="590">
    <tr>
      <td width="588"> <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u>
      </td>
    </tr>
    <tr>
      <td width="588">RONALD
G. COSS, an individual</td>
    </tr>
    <tr>
      <td width="588">&nbsp;</td>
    </tr>
    <tr>
      <td width="588">&nbsp;</td>
    </tr>
    <tr>
      <td width="588">PRO-DEX,
INC.</td>
    </tr>
    <tr>
      <td width="588">&nbsp;</td>
    </tr>
    <tr>
      <td width="588">&nbsp;</td>
    </tr>
    <tr>
      <td width="588">By<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u>
      </td>
    </tr>
    <tr>
      <td width="588">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Patrick
L. Johnson</td>
    </tr>
    <tr>
      <td width="588">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      Its President and Chief Executive Officer</td>
    </tr>
  </table>
</div>
<p>&nbsp;</p>

</body>

</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.31
<SEQUENCE>6
<FILENAME>ex1031.htm
<TEXT>
<html>

<head>

<title>Exhibit 10.31</title>

</head>

<body link=blue vlink=purple>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b><u>EXECUTION COPY</u></b></p>

<hr color="#000000" size="4" width="80%">

<p>&nbsp;</p>

<p align="center"><b><font size="4">CREDIT AND SECURITY AGREEMENT<br>
  <br>
  BY AND BETWEEN<br>
  <br>
  OREGON MICRO SYSTEMS, INC.<br>
  <br>AND<br>
  <br>
  WELLS FARGO BUSINESS CREDIT, INC.</font></b></p>

<p align="center"><br><b>May 28, 2002<br></b></p>

<hr color="#000000" size="4" width="80%">

<p>&nbsp;</p>

<hr color="#000080"><P Style="page-break-after: always"></P>
&nbsp;<p align="center"><u>Table of Contents</u></p>

<p>&nbsp;</p>

<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="747" id="AutoNumber1">
  <tr>
    <td width="642">&nbsp;</td>
    <td width="105" align="center">Page</td>
  </tr>
  <tr>
    <td width="642"><b>ARTICLE I DEFINITIONS</b>....................................................................................................
    </td>
    <td width="105" align="center">1</td>
  </tr>
  <tr>
    <td width="642">Section 1.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Definitions.........................................................................................................
    </td>
    <td width="105" align="center">1</td>
  </tr>
  <tr>
    <td width="642">Section 1.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Other Definitional Terms; Rules of
    Interpretation................................................ </td>
    <td width="105" align="center">11</td>
  </tr>
  <tr>
    <td width="642">&nbsp; </td>
    <td width="105" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td width="642"><b>ARTICLE II AMOUNT AND
TERMS OF THE CREDIT FACILITY</b>............................... </td>
    <td width="105" align="center">12</td>
  </tr>
  <tr>
    <td width="642">Section 2.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Revolving
    Advances..........................................................................................
    </td>
    <td width="105" align="center">12</td>
  </tr>
  <tr>
    <td width="642">Section 2.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Procedures for Requesting
    Advances................................................................
    </td>
    <td width="105" align="center">12</td>
  </tr>
  <tr>
    <td width="642">Section 2.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Letters of
    Credit...............................................................................................
    </td>
    <td width="105" align="center">12</td>
  </tr>
  <tr>
    <td width="642">Section 2.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Special
    Account................................................................................................
    </td>
    <td width="105" align="center">13</td>
  </tr>
  <tr>
    <td width="642">Section 2.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Payment of Amounts Drawn Under Letters of Credit; Obligation <br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    of
    Reimbursement...............................................................................................</td>
    <td width="105" align="center">13</td>
  </tr>
  <tr>
    <td width="642">Section 2.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Obligations
    Absolute.........................................................................................
    </td>
    <td width="105" align="center">14</td>
  </tr>
  <tr>
    <td width="642">Section 2.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Interest; Minimum Interest Charge; Default Interest; Participations; <br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Clearance Days;
    Usury.......................................................................................</td>
    <td width="105" align="center">15</td>
  </tr>
  <tr>
    <td width="642">Section 2.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Fees..................................................................................................................
    </td>
    <td width="105" align="center">16</td>
  </tr>
  <tr>
    <td width="642">Section 2.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Time for Interest Payments; Payment on Non-Banking Days; Computation <br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    of Interest and
    Fees...........................................................................................</td>
    <td width="105" align="center">17</td>
  </tr>
  <tr>
    <td width="642">Section 2.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Lockbox;
    Collateral Account; Application of
    Payments...................................... </td>
    <td width="105" align="center">17</td>
  </tr>
  <tr>
    <td width="642">Section 2.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Voluntary
    Prepayment; Termination of the Credit Facility by the Borrower..........
    </td>
    <td width="105" align="center">18</td>
  </tr>
  <tr>
    <td width="642">Section 2.12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Mandatory
    Prepayment.....................................................................................
    </td>
    <td width="105" align="center">18</td>
  </tr>
  <tr>
    <td width="642">Section 2.13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Revolving
    Advances to Pay
    Obligations.............................................................
    </td>
    <td width="105" align="center">18</td>
  </tr>
  <tr>
    <td width="642">Section 2.14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Use of
    Proceeds................................................................................................
    </td>
    <td width="105" align="center">19</td>
  </tr>
  <tr>
    <td width="642">Section 2.15&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Liability
    Records...............................................................................................
    </td>
    <td width="105" align="center">19</td>
  </tr>
  <tr>
    <td width="642">&nbsp;
    </td>
    <td width="105" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td width="642"><b>ARTICLE III SECURITY
INTEREST; OCCUPANCY; SETOFF</b>....................................... </td>
    <td width="105" align="center">19</td>
  </tr>
  <tr>
    <td width="642">Section 3.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Grant of Security
    Interest...................................................................................
    </td>
    <td width="105" align="center">19</td>
  </tr>
  <tr>
    <td width="642">Section 3.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Notification of Account Debtors and Other
    Obligors.......................................... </td>
    <td width="105" align="center">19</td>
  </tr>
  <tr>
    <td width="642">Section 3.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Assignment of
    Insurance....................................................................................
    </td>
    <td width="105" align="center">19</td>
  </tr>
  <tr>
    <td width="642">Section 3.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Occupancy........................................................................................................
    </td>
    <td width="105" align="center">20</td>
  </tr>
  <tr>
    <td width="642">Section 3.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    License.............................................................................................................
    </td>
    <td width="105" align="center">20</td>
  </tr>
  <tr>
    <td width="642">Section 3.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Financing
    Statement...........................................................................................
    </td>
    <td width="105" align="center">20</td>
  </tr>
  <tr>
    <td width="642">Section 3.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Setoff................................................................................................................
    </td>
    <td width="105" align="center">21</td>
  </tr>
  <tr>
    <td width="642">Section 3.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Power of
    Attorney.............................................................................................
    </td>
    <td width="105" align="center">21</td>
  </tr>
  <tr>
    <td width="642">&nbsp;</td>
    <td width="105" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td width="642"><b>ARTICLE IV CONDITIONS
OF LENDING</b>........................................................................
    </td>
    <td width="105" align="center">22</td>
  </tr>
  <tr>
    <td width="642">Section 4.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Conditions Precedent to the Initial Advances and Letter of
    Credit....................... </td>
    <td width="105" align="center">22</td>
  </tr>
  <tr>
    <td width="642">Section 4.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Conditions Precedent to All Advances and Letters of
    Credit............................... </td>
    <td width="105" align="center">24</td>
  </tr>
  <tr>
    <td width="642">&nbsp;</td>
    <td width="105" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td width="642"><b>ARTICLE V
REPRESENTATIONS AND WARRANTIES</b>.................................................
    </td>
    <td width="105" align="center">25</td>
  </tr>
  <tr>
    <td width="642">Section 5.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Existence and Power; Name; Chief Executive Office; Inventory and Equipment
    <br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Locations; Federal Employer Identification
    Number............................................ </td>
    <td width="105" align="center">25</td>
  </tr>
  </table>
<p>

&nbsp;</p>


<p align="center">

i</p>


<hr color="#000080"><P Style="page-break-after: always"></P>
<p>

&nbsp;</p>


<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="747" id="AutoNumber1">
  <tr>
    <td width="642">Section 5.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Capitalization.....................................................................................................
    </td>
    <td width="105" align="center">25</td>
  </tr>
  <tr>
    <td width="642">Section 5.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Authorization of Borrowing; No Conflict as to Law or
    Agreements..................... </td>
    <td width="105" align="center">25</td>
  </tr>
  <tr>
    <td width="642">Section 5.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Legal
    Agreements..............................................................................................
    </td>
    <td width="105" align="center">25</td>
  </tr>
  <tr>
    <td width="642">Section 5.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Subsidiaries.......................................................................................................
    </td>
    <td width="105" align="center">26</td>
  </tr>
  <tr>
    <td width="642">Section 5.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Financial Condition; No Adverse
    Change........................................................... </td>
    <td width="105" align="center">26</td>
  </tr>
  <tr>
    <td width="642">Section 5.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Litigation...........................................................................................................
    </td>
    <td width="105" align="center">26</td>
  </tr>
  <tr>
    <td width="642">Section 5.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Regulation
    U.....................................................................................................
    </td>
    <td width="105" align="center">26</td>
  </tr>
  <tr>
    <td width="642">Section 5.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Taxes................................................................................................................
    </td>
    <td width="105" align="center">26</td>
  </tr>
  <tr>
    <td width="642">Section 5.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Titles and
    Liens.................................................................................................
    </td>
    <td width="105" align="center">26</td>
  </tr>
  <tr>
    <td width="642">Section 5.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Intellectual Property
    Rights................................................................................
    </td>
    <td width="105" align="center">26</td>
  </tr>
  <tr>
    <td width="642">Section 5.12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Plans.................................................................................................................
    </td>
    <td width="105" align="center">27</td>
  </tr>
  <tr>
    <td width="642">Section 5.13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Default..............................................................................................................
    </td>
    <td width="105" align="center">28</td>
  </tr>
  <tr>
    <td width="642">Section 5.14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Environmental
    Matters.......................................................................................
    </td>
    <td width="105" align="center">28</td>
  </tr>
  <tr>
    <td width="642">Section 5.15&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Submissions
    to
    Lender.......................................................................................
    </td>
    <td width="105" align="center">29</td>
  </tr>
  <tr>
    <td width="642">Section 5.16&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Financing
    Statements.........................................................................................
    </td>
    <td width="105" align="center">29</td>
  </tr>
  <tr>
    <td width="642">Section 5.17&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Rights to
    Payment..............................................................................................
    </td>
    <td width="105" align="center">29</td>
  </tr>
  <tr>
    <td width="642">Section 5.18&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Eligible
    Accounts...............................................................................................
    </td>
    <td width="105" align="center">29</td>
  </tr>
  <tr>
    <td width="642">Section 5.19&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Eligible
    Inventory...............................................................................................
    </td>
    <td width="105" align="center">30</td>
  </tr>
  <tr>
    <td width="642">Section 5.20&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Equipment.........................................................................................................
    </td>
    <td width="105" align="center">30</td>
  </tr>
  <tr>
    <td width="642">Section 5.21&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Fraudulent
    Transfer...........................................................................................
    </td>
    <td width="105" align="center">30</td>
  </tr>
  <tr>
    <td width="642">&nbsp;
    </td>
    <td width="105" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td width="642"><b>ARTICLE VI COVENANTS</b>...................................................................................................
    </td>
    <td width="105" align="center">31</td>
  </tr>
  <tr>
    <td width="642">Section 6.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Reporting
    Requirements.....................................................................................
    </td>
    <td width="105" align="center">31</td>
  </tr>
  <tr>
    <td width="642">Section 6.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Financial
    Covenants...........................................................................................
    </td>
    <td width="105" align="center">35</td>
  </tr>
  <tr>
    <td width="642">Section 6.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Permitted Liens; Financing
    Statements................................................................
    </td>
    <td width="105" align="center">35</td>
  </tr>
  <tr>
    <td width="642">Section 6.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Indebtedness.....................................................................................................
    </td>
    <td width="105" align="center">36</td>
  </tr>
  <tr>
    <td width="642">Section 6.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Guaranties.........................................................................................................
    </td>
    <td width="105" align="center">36</td>
  </tr>
  <tr>
    <td width="642">Section 6.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Investments and
    Subsidiaries..............................................................................
    </td>
    <td width="105" align="center">36</td>
  </tr>
  <tr>
    <td width="642">Section 6.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Dividends and
    Distributions................................................................................
    </td>
    <td width="105" align="center">37</td>
  </tr>
  <tr>
    <td width="642">Section 6.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Salaries.............................................................................................................
    </td>
    <td width="105" align="center">37</td>
  </tr>
  <tr>
    <td width="642">Section 6.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Books and Records; Inspection and
    Examination............................................... </td>
    <td width="105" align="center">37</td>
  </tr>
  <tr>
    <td width="642">Section 6.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Account
    Verification..........................................................................................
    </td>
    <td width="105" align="center">37</td>
  </tr>
  <tr>
    <td width="642">Section 6.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Compliance
    with
    Laws......................................................................................
    </td>
    <td width="105" align="center">38</td>
  </tr>
  <tr>
    <td width="642">Section 6.12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Payment of
    Taxes and Other
    Claims..................................................................
    </td>
    <td width="105" align="center">38</td>
  </tr>
  <tr>
    <td width="642">Section 6.13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Maintenance
    of
    Properties.................................................................................
    </td>
    <td width="105" align="center">38</td>
  </tr>
  <tr>
    <td width="642">Section 6.14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Insurance..........................................................................................................
    </td>
    <td width="105" align="center">38</td>
  </tr>
  <tr>
    <td width="642">Section 6.15&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Preservation of
    Existence...................................................................................
    </td>
    <td width="105" align="center">39</td>
  </tr>
  <tr>
    <td width="642">Section 6.16&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Delivery of
    Instruments,
    etc................................................................................
    </td>
    <td width="105" align="center">39</td>
  </tr>
  <tr>
    <td width="642">Section 6.17&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Sale or
    Transfer of Assets; Suspension of Business
    Operations........................... </td>
    <td width="105" align="center">39</td>
  </tr>
  <tr>
    <td width="642">Section 6.18&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Consolidation and Merger; Asset
    Acquisitions.................................................... </td>
    <td width="105" align="center">39</td>
  </tr>
  <tr>
    <td width="642">Section 6.19&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Sale and
    Leaseback..........................................................................................
    </td>
    <td width="105" align="center">39</td>
  </tr>
  <tr>
    <td width="642">Section 6.20&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Restrictions on Nature of
    Business.....................................................................
    </td>
    <td width="105" align="center">40</td>
  </tr>
  <tr>
    <td width="642">Section 6.21&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Accounting........................................................................................................
    </td>
    <td width="105" align="center">40</td>
  </tr>
  <tr>
    <td width="642">Section 6.22&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Discounts,
    etc....................................................................................................
    </td>
    <td width="105" align="center">40</td>
  </tr>
  <tr>
    <td width="642">Section 6.23&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Plans.................................................................................................................
    </td>
    <td width="105" align="center">40</td>
  </tr>
  <tr>
    <td width="642">Section 6.24&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Place of
    Business;
    Name...................................................................................
    </td>
    <td width="105" align="center">40</td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="center">ii</p>
<hr color="#000080"><P Style="page-break-after: always"></P>


<p align="center">&nbsp;</p>

<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="747" id="AutoNumber1">
  <tr>
    <td width="642">Section 6.25&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Constituent
    Documents; S Corporation
    Status.................................................... </td>
    <td width="105" align="center">40</td>
  </tr>
  <tr>
    <td width="642">Section 6.26&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Transactions With
    Affiliates................................................................................
    </td>
    <td width="105" align="center">40</td>
  </tr>
  <tr>
    <td width="642">Section 6.27&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Performance
    by the
    Lender................................................................................
    </td>
    <td width="105" align="center">40</td>
  </tr>
  <tr>
    <td width="642">&nbsp;
    </td>
    <td width="105" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td width="642"><b>ARTICLE VII EVENTS OF
DEFAULT, RIGHTS AND REMEDIES</b>................................ </td>
    <td width="105" align="center">41</td>
  </tr>
  <tr>
    <td width="642">Section 7.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Events of
    Default...............................................................................................
    </td>
    <td width="105" align="center">41</td>
  </tr>
  <tr>
    <td width="642">Section 7.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Rights and
    Remedies.........................................................................................
    </td>
    <td width="105" align="center">44</td>
  </tr>
  <tr>
    <td width="642">Section 7.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Disclaimer of
    Warranties....................................................................................
    </td>
    <td width="105" align="center">46</td>
  </tr>
  <tr>
    <td width="642">Section 7.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Compliance With
    Laws.....................................................................................
    </td>
    <td width="105" align="center">46</td>
  </tr>
  <tr>
    <td width="642">Section 7.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    No
    Marshalling..................................................................................................
    </td>
    <td width="105" align="center">46</td>
  </tr>
  <tr>
    <td width="642">Section 7.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Borrower to
    Cooperate.....................................................................................
    </td>
    <td width="105" align="center">46</td>
  </tr>
  <tr>
    <td width="642">Section 7.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Application of
    Proceeds....................................................................................
    </td>
    <td width="105" align="center">46</td>
  </tr>
  <tr>
    <td width="642">Section 7.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Remedies
    Cumulative........................................................................................
    </td>
    <td width="105" align="center">47</td>
  </tr>
  <tr>
    <td width="642">Section 7.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Lender Not Liable For The
    Collateral................................................................
    </td>
    <td width="105" align="center">47</td>
  </tr>
  <tr>
    <td width="642">&nbsp;
    </td>
    <td width="105" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td width="642"><b>ARTICLE VIII
MISCELLANEOUS</b>......................................................................................
    </td>
    <td width="105" align="center">47</td>
  </tr>
  <tr>
    <td width="642">Section 8.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    No
    Waiver........................................................................................................
    </td>
    <td width="105" align="center">47</td>
  </tr>
  <tr>
    <td width="642">Section 8.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Amendments,
    Etc..............................................................................................
    </td>
    <td width="105" align="center">47</td>
  </tr>
  <tr>
    <td width="642">Section 8.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Addresses for Notices; Requests for
    Accounting................................................ </td>
    <td width="105" align="center">47</td>
  </tr>
  <tr>
    <td width="642">Section 8.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Further
    Documents............................................................................................
    </td>
    <td width="105" align="center">48</td>
  </tr>
  <tr>
    <td width="642">Section 8.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Costs and
    Expenses..........................................................................................
    </td>
    <td width="105" align="center">48</td>
  </tr>
  <tr>
    <td width="642">Section 8.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Indemnity..........................................................................................................
    </td>
    <td width="105" align="center">48</td>
  </tr>
  <tr>
    <td width="642">Section 8.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Participants.................................................................................................
    ...... </td>
    <td width="105" align="center">49</td>
  </tr>
  <tr>
    <td width="642">Section 8.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Advertising and
    Promotion.................................................................................
    </td>
    <td width="105" align="center">49</td>
  </tr>
  <tr>
    <td width="642">Section 8.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Execution
in Counterparts; Telefacsimile
    Execution............................................. </td>
    <td width="105" align="center">49</td>
  </tr>
  <tr>
    <td width="642">Section 8.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Retention
    of Borrower's
    Records...................................................................
    ... </td>
    <td width="105" align="center">49</td>
  </tr>
  <tr>
    <td width="642">Section 8.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Binding
    Effect; Assignment; Complete Agreement; Exchanging Information.........
    </td>
    <td width="105" align="center">50</td>
  </tr>
  <tr>
    <td width="642">Section 8.12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Severability of
    Provisions...................................................................................
    </td>
    <td width="105" align="center">50</td>
  </tr>
  <tr>
    <td width="642">Section 8.13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Revival and
    Reinstatement of
    Obligations........................................................... </td>
    <td width="105" align="center">50</td>
  </tr>
  <tr>
    <td width="642">Section 8.14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Headings...........................................................................................................
    </td>
    <td width="105" align="center">50</td>
  </tr>
  <tr>
    <td width="642">Section 8.15&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Governing
    Law; Jurisdiction, Venue; Waiver of Jury
    Trial................................... </td>
    <td width="105" align="center">50</td>
  </tr>
  <tr>
    <td width="642">&nbsp; </td>
    <td width="105" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td width="642"><b>ARTICLE IX JOINT AND
SEVERAL LIABILITY</b>..............................................................</td>
    <td width="105" align="center">&nbsp;51</td>
  </tr>
  <tr>
    <td width="642">Section 9.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Joint and Several
    Liability..................................................................................
    </td>
    <td width="105" align="center">51</td>
  </tr>
  <tr>
    <td width="642">Section 9.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Primary Obligation; Waiver of
    Marshalling......................................................... </td>
    <td width="105" align="center">51</td>
  </tr>
  <tr>
    <td width="642">Section 9.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Continuing
    Liability............................................................................................
    </td>
    <td width="105" align="center">51</td>
  </tr>
  <tr>
    <td width="642">Section 9.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Additional
    Waivers............................................................................................
    </td>
    <td width="105" align="center">52</td>
  </tr>
  <tr>
    <td width="642">Section 9.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Settlement or
    Releases.......................................................................................
    </td>
    <td width="105" align="center">54</td>
  </tr>
  <tr>
    <td width="642">Section 9.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    No
    Election.......................................................................................................
    </td>
    <td width="105" align="center">54</td>
  </tr>
  <tr>
    <td width="642">Section 9.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Indefeasible
    Payment.........................................................................................
    </td>
    <td width="105" align="center">54</td>
  </tr>
  <tr>
    <td width="642">Section 9.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Financial Condition of the Affiliate
    Borrower...................................................... </td>
    <td width="105" align="center">55</td>
  </tr>
  <tr>
    <td width="642">

<p align=left></p>

    </td>
    <td width="105" align="center">&nbsp;</td>
  </tr>
</table>
<p>&nbsp;</p>
<p align="center">iii</p>
<hr color="#000080"><P Style="page-break-after: always"></P>


<p align="center">&nbsp;</p>


<p align="center"><b>CREDIT AND
SECURITY AGREEMENT</b></p>

<p align="center">Dated as of May&nbsp;28, 2002</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; OREGON MICRO SYSTEMS, INC., an Oregon corporation (the
&quot;Borrower&quot;), and WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation
(the &quot;Lender&quot;), hereby agree as follows:</p>

<p align="center"><b>ARTICLE I</b><br>
<br>
<b><u>DEFINITIONS</u></b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 1.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Definitions</u>.&nbsp; For all purposes of
this Agreement, except as otherwise expressly provided, the following terms
shall have the meanings assigned to them in this Section or in the Section
referenced after such term:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Account Debtor&quot; means any Person who is or who may become
obligated under, with respect to, or on account of, an Account, chattel paper,
or a General Intangible.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Accounts&quot; means all of Borrower's now owned or hereafter
acquired right, title, and interest with respect to &quot;accounts&quot; (as that term is
defined in the UCC), and any and all supporting obligations in respect thereof.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Advance&quot; means a Revolving Advance.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Affiliate&quot; means, as applied to any Person, any other
Person who, directly or indirectly, controls, is controlled by, or is under
common control with, such Person.&nbsp; For
purposes of this definition, &quot;control&quot; means the possession, directly or
indirectly, of the power to direct the management and policies of a Person,
whether through the ownership of stock, by contract, or otherwise; <u>provided</u>,
<u>however</u>, that, in any event: (a) any Person which owns directly or
indirectly 10% or more of the securities having ordinary voting power for the
election of directors or other members of the governing body of a Person or 10%
or more of the partnership or other ownership interests of a Person (other than
as a limited partner of such Person) shall be deemed to control such Person,
(b) each director (or comparable manager) of a Person shall be deemed to be an
Affiliate of such Person, and (c) each partnership or joint venture in which a
Person is a partner or joint venturer shall be deemed to be an Affiliate of
such Person.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Agreement&quot; means this Credit and Security Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Affiliate Borrower&quot; means Micro Motors, Inc., a Colorado
corporation.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Affiliate Credit Agreement&quot; means that certain Credit and
Security Agreement, dated as of even date herewith, between the Affiliate
Borrower and the Lender, as the same may be amended or restated from time to
time.</p>

<p align="justify">&nbsp;</p>

<p align="center">1</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Affiliate Loan Documents&quot; means the &quot;Loan Documents&quot; as
such term is defined in the Affiliate Credit Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Affiliate Obligations&quot; means the &quot;Obligations&quot; as such
term is defined in the Affiliate Credit Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Applicable Margin&quot; means the margin set forth in the table
below opposite the applicable average outstanding Advances, calculated as of
the date of determination:</p>

<div align="left">

<table border=1 cellspacing=0 cellpadding=0 bordercolor="#000000" style="border-collapse: collapse">
 <tr>
  <td width=319 valign=top>
  <p><b>Average Outstanding
  Advances</b></p>
  </td>
  <td width=319 valign=top>
  <p><b>Applicable Margin</b></p>
  </td>
 </tr>
 <tr>
  <td width=319 valign=top>
  <p>$2,100,000 for 60 consecutive days</p>
  </td>
  <td width=319 valign=top>
  <p>1.50 percentage points (150 basis points)</p>
  </td>
 </tr>
 <tr>
  <td width=319 valign=top>
  <p>$2,400,000 for 60 consecutive days</p>
  </td>
  <td width=319 valign=top>
  <p>1.25 percentage points (125 basis points)</p>
  </td>
 </tr>
 <tr>
  <td width=319 valign=top>
  <p>$3,000,000 for 60 consecutive days</p>
  </td>
  <td width=319 valign=top>
  <p>1.00 percentage points (100 basis points)</p>
  </td>
 </tr>
</table>

</div>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Availability&quot; means the difference of (i) the Borrowing
Base and (ii) the sum of (A) the outstanding principal balance of the Revolving
Note, (B) the L/C Amount, and (C) the Affiliate Obligations.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Banking Day&quot; means a day on which the Federal Reserve Bank
of New York is open for Business.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Bankruptcy Code&quot; means the United States Bankruptcy Code,
as in effect from time to time.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Base Rate&quot; means the rate of interest publicly announced
from time to time by Wells Fargo Bank National Association at its principal
office in San Francisco as its &quot;prime rate&quot;, with the understanding
that the &quot;prime rate&quot; is one of Wells Fargo's base rates (not
necessarily the lowest of such rates) and serves as the basis upon which
effective rates of interest are calculated for loans making reference thereto.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Book Net Worth&quot; means the aggregate of the common and
preferred stockholders' equity in the Borrower, determined in accordance with
GAAP.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Borrowing Base&quot; means at
any time the lesser of:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Maximum Line; or</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
85% of Eligible Accounts <u>less</u> the amount, if
any, of the Dilution Reserve.</p>

<p align="justify"><u>Provided</u>, <u>however</u>, the Lender may reduce the
advance rates or create additional reserves against the Eligible Accounts, in
its sole and absolute discretion, without declaring an Event of Default if it
reasonably determines that there has occurred a
Material Adverse Effect.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Capital Expenditures&quot; means for a period, any expenditure
of money during such period for the purchase or construction of assets, or for
improvements or additions thereto, which are capitalized on the Borrower's
balance sheet.</p>

<p align="justify">&nbsp;</p>

<p align="center">2</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Change of Control&quot; means
the occurrence of any of the following events:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any Person or &quot;group&quot; (as such term is used in
Sections&nbsp;13(d) and 14(d) of the Securities Exchange Act of 1934) is or
becomes the &quot;beneficial owner&quot; (as defined in Rules 13d-3 and 13d-5 under the
Securities Exchange Act of 1934, except that a Person will be deemed to have
&quot;beneficial ownership&quot; of all securities that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 25% of the voting power of all
classes of voting stock of the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During any consecutive two-year period, individuals who
at the beginning of such period constituted the board of Directors of the
Borrower (together with any new Directors whose election to such board of
Directors, or whose nomination for election by the owners of the Borrower, was
approved by a vote of 66-2/3% of the Directors then still in office who were
either Directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the board of Directors of the Borrower then in office.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Frank&nbsp;A. Zagar shall cease to actively manage the
Borrower's day-to-day business activities.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Collateral&quot; means all of the Borrower's Accounts, chattel
paper, deposit accounts, documents, Equipment, General Intangibles, goods,
instruments, Inventory, Investment Property, letter-of-credit rights, letters
of credit, all sums on deposit in any Collateral Account, and any items in any
Lockbox; together with (i) all substitutions and replacements for and products
of any of the foregoing; (ii) in the case of all goods, all accessions; (iii)
all accessories, attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any goods; (iv) all warehouse
receipts, bills of lading and other documents of title now or hereafter
covering such goods; (v) all collateral subject to the Lien of any Security
Document; (vi) any money, or other assets of the Borrower that now or hereafter
come into the possession, custody, or control of the Lender; (vii) all sums on
deposit in the Special Account; and (viii) proceeds of any and all of the
foregoing.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Collateral Account&quot; means the &quot;Lender Account&quot; as defined
in the Lockbox and Collection Account Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Commitment&quot; means the Lender's commitment to make Advances
to, and to cause the Issuer to issue Letters of Credit for the account of, the
Borrower pursuant to Article&nbsp;II.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Constituent Documents&quot; means with respect to any Person,
as applicable, such Person's certificate of incorporation, articles of
incorporation, by-laws, certificate of formation, articles of organization,
limited liability company agreement, management agreement, operating agreement,
shareholder agreement, partnership agreement or similar document or agreement
governing such Person's existence, organization or management or concerning
disposition of ownership interests of such Person or voting rights among such
Person's owners.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Copyright Security Agreement&quot; means the Copyright Security
Agreement by the Borrower in favor of the Lender of even date herewith.</p>

<p align="justify">&nbsp;</p>

<p align="center">3</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Daily Balance&quot; means, with respect to each day during the
term of this Agreement, the amount of an Obligation owed at the end of such
day.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Default&quot; means an event that, with giving of notice or
passage of time or both, would constitute an Event of
Default.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Default Period&quot; means any period of time beginning on the
day a Default or Event of Default occurs and ending on the date the Lender
notifies the Borrower in writing that such Default or Event of Default has been
cured or waived.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Default Rate&quot; means an annual interest rate equal to three
percent (3%) over the Floating Rate, which interest rate shall change when and
as the Floating Rate changes.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Dilution&quot; means, as of any date of determination, a
percentage, based upon the experience of the calendar year-to-date period
ending on the date of determination, that is the result of dividing the Dollar
amount of (a)&nbsp;bad debt write&#8209;downs, discounts, advertising
allowances, credits, or other dilutive items with respect to the Accounts
during such period, by (b)&nbsp;Borrower's sales during such period (excluding
extraordinary items) plus the Dollar amount of clause&nbsp;(a).</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Dilution Reserve&quot; means, as of any date of determination,
an amount sufficient to reduce the advance rate against Eligible Accounts by
one percentage point for each percentage point by which Dilution is in excess
of 5%.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Director&quot; means a director if the Borrower is a
corporation, a manager if the Borrower is a limited liability company, or a general partner if the Borrower is a
partnership.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Dollars&quot; or &quot;$&quot; means lawful currency of the United States
of America.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;ERISA&quot; means the Employee Retirement Income Security Act
of 1974.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;ERISA Affiliate&quot; means any trade or business (whether or
not incorporated) that is a member of a group which includes the Borrower and
which is treated as a single employer under Section&nbsp;414 of the IRC.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Earnings Before Taxes&quot; means from
operations but including extraordinary losses.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Eligible Accounts&quot; means those Accounts created by the
Borrower in the ordinary course of its business, that arise out of the
Borrower's sale of goods or rendition of services, that comply with each of the
representations and warranties respecting Eligible Accounts made by the
Borrower in the Loan Documents, and that are not excluded as ineligible by
virtue of one or more of the criteria set forth below; provided, however, that
such criteria may be fixed and revised from time to time by the Lender in the
Lender's sole and absolute discretion to address the results of any audit
performed by the Lender from time to time after the Closing Date.&nbsp; In determining the amount to be included,
Eligible Accounts shall be calculated net of customer deposits and unapplied
cash remitted to the Borrower.&nbsp; Eligible
Accounts shall not include the following:</p>

<p align="justify">&nbsp;</p>

<p align="center">4</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
That portion of Accounts unpaid 90 days or more after
the invoice date;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
That portion of Accounts that is disputed or subject to
a claim of offset or a contra account;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
That portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable, by the Borrower to
the customer, including progress billings;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts constituting proceeds of copyrightable
material unless such copyrightable material shall have been registered with the
United States Copyright Office and shall be covered by a duly executed
copyright security agreement, in form and substance satisfactory to the Lender,
and filed in the United States Copyright Office;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (v)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts owed by an Account Debtor that is not Solvent,
the subject of an Insolvency Proceeding or has gone out of business;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (vi)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts owed by an Owner, Subsidiary, Affiliate,
Officer or employee of the Borrower;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (vii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts not subject to a duly perfected security
interest in the Lender's favor or which are subject to any Lien other than a
Permitted Lien;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (viii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
That portion of Accounts that has been restructured,
extended, amended or modified;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ix)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
That portion of Accounts that constitutes advertising,
finance charges, service charges or sales or excise taxes;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (x)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts owed by an Account Debtor (or an Affiliate of
such Account Debtor), regardless of whether otherwise eligible, to the extent
that the balance of such Accounts exceeds 15% of the aggregate amount of all
Accounts (or 25% if the Account Debtor is Applied Materials);</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (xi)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts owed by an Account Debtor (or an Affiliate of
such Account Debtor), regardless of whether otherwise eligible, if 25% or more
of the total amount due under Accounts from such Account Debtor is ineligible
under clauses (i), (ii)or (x) above; </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (xii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts arising in a transaction wherein goods are
placed on consignment or are sold pursuant to a guaranteed sale, a sale or
return, a sale on approval, a bill and hold, or any other terms by reason of
which the payment by the Account Debtor may be conditional;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (xiii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts that are not payable in Dollars;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (xiv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts with respect to which the Account Debtor
either (i) does not maintain its chief executive office in the United States,
or (ii) is not organized under the laws of the United States or any state
thereof, or (iii) is the government of any foreign country or sovereign state,
or of any state, province, municipality, or other political subdivision
thereof, or of any department, agency, public corporation, or other
instrumentality thereof, unless (y) the Account is supported by an irrevocable
letter of credit satisfactory to the Lender (as to form, substance, and issuer
or domestic confirming bank) that has been delivered to Lender and is directly
drawable by the Lender, or (z) the Account is covered by credit insurance in
form, substance, and amount, and by an insurer, satisfactory to the Lender;</p>

<p align="justify">&nbsp;</p>

<p align="center">5</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (xv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which the
Borrower has complied, to the reasonable satisfaction of the Lender, with the
Assignment of Claims Act, 31 USC &sect; 3727), or (ii) any state of the United
States (exclusive, however, of (y) Accounts owed by any state that does not
have a statutory counterpart to the Assignment of Claims Act, or (z) Accounts
owed by any state that does have a statutory counterpart to the Assignment of
Claims Act as to which the Borrower has complied to the Lender's satisfaction);</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (xvi)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, or West Virginia (or any other
state that requires a creditor to file a business activity report or similar
document in order to bring suit or otherwise enforce its remedies against such
Account Debtor in the courts or through any judicial process of such state),
unless Borrower has qualified to do business in New Jersey, Minnesota, West
Virginia, or such other states, or has filed a business activities report with
the applicable division of taxation, the department of revenue, or with such
other state offices, as appropriate, for the then-current year, or is exempt
from such filing requirement; and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (xvii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts, or portions thereof, of poor quality credit
or otherwise deemed ineligible by the Lender in its sole discretion.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Environmental Law&quot; means any federal, state, local or
other governmental statute, regulation, law or ordinance dealing with the
protection of human health and the environment.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Equipment&quot; means all of the Borrower's equipment, as such
term is defined in the UCC, whether now owned or hereafter acquired, including
but not limited to all present and future machinery, vehicles, furniture,
fixtures, manufacturing equipment, shop equipment, office and recordkeeping
equipment, parts, tools, supplies, and including specifically the goods
described in any equipment schedule or list herewith or hereafter furnished to
the Lender by the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Event of Default&quot; has the meaning specified in
Section&nbsp;7.1.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Financial Covenants&quot; means the covenants set forth in
Section&nbsp;6.2.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Floating Rate&quot; means an annual interest rate equal to the
sum of the Base Rate <u>plus</u> (i)&nbsp;so long as there has not existed a
Default Period for the prior six (6) month period, the Applicable Margin, and
(ii)&nbsp;in all other cases, 1.75 percentage points (175 basis points), which
interest rate shall, in each case, change when and as the Base Rate changes.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Funding Date&quot; has the meaning given in Section&nbsp;2.1.</p>

<p align="justify">&nbsp;</p>

<p align="center">6</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;GAAP&quot; means generally accepted accounting principles,
applied on a basis consistent with the accounting practices applied in the
financial statements described in Section&nbsp;5.6.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;General Intangibles&quot; means all of the Borrower's general
intangibles, as such term is defined in the UCC, whether now owned or hereafter
acquired, including all present and future Intellectual Property Rights,
customer or supplier lists and contracts, manuals, operating instructions,
permits, franchises, the right to use the Borrower's name, and the goodwill of
the Borrower's business.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Governmental Authority&quot; means any
federal, state, local, or other governmental or administrative body,
instrumentality, department, or agency or any court, tribunal, administrative
hearing body, arbitration panel, commission, or other similar dispute-resolving
panel or body.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Guarantor(s)&quot; means Pro&#8209;Dex, Inc.,
a Colorado corporation, and any other Person now or hereafter
guarantying the Obligations.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Guaranty&quot; means that certain Continuing Guaranty, dated as
of even date herewith, by the Guarantor in favor of the Lender.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Guaranty Security Agreement&quot; means that certain Security
Agreement, dated as of even date herewith, between the Guarantor and the
Lender.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Hazardous Substances&quot; means pollutants, contaminants,
hazardous substances, hazardous wastes, petroleum and fractions thereof, and
all other chemicals, wastes, substances and materials listed in, regulated by
or identified in any Environmental Law.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Indebtedness&quot; means of a Person as of a given date, all
items of indebtedness or liability which in accordance with GAAP would be
included in determining total liabilities as shown on the liabilities side of a
balance sheet for such Person and shall also include the aggregate payments
required to be made by such Person at any time under any lease that is
considered a capitalized lease under GAAP.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;IRC&quot; means the Internal Revenue Code of 1986.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Infringe&quot; means when used with respect to Intellectual
Property Rights means any infringement or other violation of Intellectual
Property Rights.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Insolvency Proceeding&quot; means any proceeding commenced by
or against any Person under any provision of the Bankruptcy Code or under any
other state or federal bankruptcy or insolvency law, assignments for the
benefit of creditors, formal or informal moratoria, compositions, extensions
generally with creditors, or proceedings seeking reorganization, arrangement,
or other similar relief.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Intangible Assets&quot; means all
intangible assets as determined in accordance with GAAP and including
Intellectual Property Rights, goodwill, accounts due from Affiliates,
Directors, Officers or employees, prepaid expenses, deposits, deferred charges
or treasury stock or any securities or Indebtedness of the Borrower or any
other securities unless the same are readily marketable in the United States of
America, or entitled to be used as a credit against federal income tax
liabilities, non-compete agreements and any other assets designated from time
to time by the Lender, in its sole discretion.</p>

<p align="justify">&nbsp;</p>

<p align="center">7</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Intellectual Property Rights&quot; means all actual or
prospective rights arising in connection with any intellectual property or
other proprietary rights, including all rights arising in connection with
copyrights, patents, service marks, trade dress, trade secrets, trademarks,
trade names or mask works.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Inventory&quot; means all of the Borrower's inventory, as such
term is defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or materials,
whether acquired, held or furnished for sale, for lease or under service
contracts or for manufacture or processing, and wherever located.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Investment Property&quot; means all of the Borrower's
investment property, as such term is defined in the UCC, whether now owned or
hereafter acquired, including but not limited to all securities, security
entitlements, securities accounts, commodity contracts, commodity accounts,
stocks, bonds, mutual fund shares, money market shares and U.S. Government
securities.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Issuer&quot; means the issuer of any Letter of Credit.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;L/C Amount&quot; means the sum of (i) the aggregate face amount
of any issued and outstanding Letters of Credit and (ii) the unpaid amount of
the Obligation of Reimbursement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;L/C Application&quot; means an application and agreement for
letters of credit in a form acceptable to the Issuer and the Lender.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Letter of Credit&quot; has the meaning specified in
Section&nbsp;2.3.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Licensed Intellectual Property&quot; has the meaning given in
Section&nbsp;5.11(c).</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Lien&quot; means any security interest, mortgage, deed of
trust, pledge, lien, charge, encumbrance, title retention agreement or
analogous instrument or device, including the interest of each lessor under any
capitalized lease and the interest of any bondsman under any payment or
performance bond, in, of or on any assets or properties of a Person, whether
now owned or hereafter acquired and whether arising by agreement or operation
of law.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Loan Documents&quot; means this Agreement, the Note, the
Guaranty, the Guaranty Security Agreement, the Security Documents, the
Subordination Agreement and any L/C Application.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Lockbox&quot; means as defined in the Lockbox and Collection
Account Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Lockbox and Collection Account Agreement&quot; means the
Lockbox and Collection Account Agreement by and among the Borrower, Wells Fargo
Bank, N.A., Regulus West, LLC and the Lender, of even date herewith.</p>

<p align="justify">&nbsp;</p>

<p align="center">8</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Material Adverse Effect&quot;
means any of the following:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
a material adverse effect on the business, operations,
results of operations, prospects, assets, liabilities or financial condition of
the Borrower or the Guarantor;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
a material adverse effect on the ability of the Borrower
or the Guarantor to perform its obligations under the Loan Documents;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
a material adverse effect on the ability of the Lender
to enforce the Obligations or to realize the intended benefits of the Security
Documents, including a material adverse effect on the validity or
enforceability of any Loan Document or of any rights against the Guarantor, or
on the status, existence, perfection, priority (subject to Permitted Liens) or
enforceability of any Lien securing payment or performance of the Obligations
(other than any such material adverse effect caused solely by any act or
omission by the Lender); or</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any claim against the Borrower
or the Guarantor or threat of litigation which if determined adversely to the
Borrower or the Guarantor would cause the Borrower or the Guarantor to be
liable to pay an amount exceeding $200,000 or would be an event described in
clauses (i), (ii) and (iii) above.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Maturity Date&quot; means May&nbsp;28, 2004.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Maximum Line&quot; means $3,000,000.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Minimum Interest Charge&quot; has the meaning given in Section
2.7(b).</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Multiemployer Plan&quot; means a multiemployer plan (as defined
in Section&nbsp;4001(a)(3) of ERISA) to which the
Borrower or any ERISA Affiliate contributes or is obligated to contribute.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Net Income&quot; and &quot;Net Loss&quot; mean fiscal year-to-date after-tax
net income, or loss, as applicable, from continuing operations as determined in
accordance with GAAP.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Note&quot; means the Revolving Note.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Obligation of Reimbursement&quot; has the meaning given in
Section 2.5(a).</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Obligations&quot; means (i)&nbsp;the Note, the Obligation of
Reimbursement and each and every other debt, liability and obligation of every
type and description which the Borrower may now or at any time hereafter owe to
the Lender, whether such debt, liability or obligation now exists or is
hereafter created or incurred, whether it arises in a transaction involving the
Lender alone or in a transaction involving other creditors of the Borrower, and
whether it is direct or indirect, due or to become due, absolute or contingent,
primary or secondary, liquidated or unliquidated, or sole, joint, several or
joint and several, and including all indebtedness of the Borrower arising under
any Credit Document or guaranty between the Borrower and the Lender, whether
now in effect or hereafter entered into, and (ii)&nbsp;the &quot;Obligations&quot; as
such term is defined in the Affiliate Credit Agreement.</p>

<p align="justify">&nbsp;</p>

<p align="center">9</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Officer&quot; means with respect to the Borrower, an officer if
the Borrower is a corporation, a manager if the Borrower is a limited liability
company, or a partner if the Borrower is a
partnership.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Owned Intellectual Property&quot; has the meaning given in
Section 5.11(a).</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Owner&quot; means with respect to the Borrower, each Person
having legal or beneficial title to an ownership interest in the Borrower or a
right to acquire such an interest.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Patent and Trademark Security Agreement&quot; means the Patent
and Trademark Security Agreement by the Borrower in favor of the Lender of even
date herewith.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Pension Plan&quot; means a pension plan (as defined in Section
3(2) of ERISA) maintained for employees of the Borrower or any ERISA Affiliate
and covered by Title IV of ERISA.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Permitted Lien&quot; has the meaning given in
Section&nbsp;6.3(a).</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Person&quot; means any individual, corporation, partnership,
joint venture, limited liability company, association,
joint-stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Plan&quot; means an employee benefit plan (as defined in
Section 3(3) of ERISA) maintained for employees of the Borrower or any ERISA
Affiliate.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Premises&quot; means all premises where the Borrower conducts
its business and has any rights of possession, including the premises legally
described in Exhibit D attached hereto.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Reportable Event&quot; means a reportable event (as defined in
Section 4043 of ERISA), other than an event for which the 30-day notice
requirement under ERISA has been waived in regulations issued by the Pension
Benefit Guaranty Corporation.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Revolving Advance&quot; has the meaning given in
Section&nbsp;2.1.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Revolving Note&quot; means the Borrower's revolving promissory
note, payable to the order of the Lender in substantially the form of Exhibit A
hereto.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Security Documents&quot; means this Agreement, the Lockbox and
Collection Account Agreement, the Patent and Trademark Security Agreement, and
the Copyright Security Agreement, and any other document delivered to the
Lender from time to time to secure the Obligations.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Security Interest&quot; has the meaning given in Section 3.1.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Solvent&quot; means, with respect to any Person on a particular
date, that such Person is not insolvent (as such term is defined in the Uniform
Fraudulent Transfer Act).</p>

<p align="justify">&nbsp;</p>

<p align="center">10</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Special Account&quot; means a specified cash collateral account
maintained by a financial institution acceptable to the Lender in connection
with Letters of Credit, as contemplated by Section&nbsp;2.4.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Subsidiary&quot; means any corporation of which more than 50%
of the outstanding shares of capital stock having general voting power under
ordinary circumstances to elect a majority of the board of Directors of such
corporation, irrespective of whether or not at the time stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency, is at the time directly or indirectly owned by
the Borrower, by the Borrower and one or more other Subsidiaries, or by one or
more other Subsidiaries.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Tangible Net Worth&quot; means the result of (i) Book Net
Worth, plus (ii) amounts due from the Borrower to its Affiliates, minus
(iii)&nbsp;Intangible Assets, and minus (iv)&nbsp;amounts
due to the Borrower from its Affiliates.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Termination Date&quot; means the earliest of (i) the Maturity
Date, (ii) the date the Borrower terminates the Credit Facility, or (iii) the
date the Lender demands payment of the Obligations after an Event of Default
pursuant to Section&nbsp;7.2.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;UCC&quot; means the Uniform Commercial Code as in effect in the
state designated in Section&nbsp;8.15 as the state whose laws shall govern this
Agreement, or in any other state whose laws are held to govern this Agreement
or any portion hereof.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &quot;Wells Fargo Bank Minnesota&quot; means Wells Fargo Bank
Minnesota, National Association.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 1.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Other Definitional Terms; Rules of
Interpretation</u>.&nbsp; The words &quot;hereof&quot;,
&quot;herein&quot; and &quot;hereunder&quot; and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement.&nbsp; All
accounting terms not otherwise defined herein have the meanings assigned to
them in accordance with GAAP. All terms defined in the UCC and not otherwise
defined herein have the meanings assigned to them in the UCC. References to
Articles, Sections, subsections, Exhibits, Schedules and the like, are to
Articles, Sections and subsections of, or Exhibits or Schedules attached to,
this Agreement unless otherwise expressly provided.&nbsp; The words &quot;include&quot;, &quot;includes&quot; and &quot;including&quot;
shall be deemed to be followed by the phrase &quot;without limitation&quot;.&nbsp; Unless the context in which used herein
otherwise clearly requires, &quot;or&quot; has the inclusive meaning represented by the
phrase &quot;and/or&quot;.&nbsp; Defined terms include
in the singular number the plural and in the plural number the singular.&nbsp; Reference to any agreement (including the
Loan Documents), document or instrument means such agreement, document or
instrument as amended or modified and in effect from time to time in accordance
with the terms thereof (and, if applicable, in accordance with the terms hereof
and the other Loan Documents), except where otherwise explicitly provided, and
reference to any promissory note includes any promissory note which is an
extension or renewal thereof or a substitute or replacement therefor. Reference
to any law, rule, regulation, order, decree, requirement, policy, guideline,
directive or interpretation means as amended, modified, codified, replaced or
reenacted, in whole or in part, and in effect on the determination date,
including rules and regulations promulgated thereunder.</p>

<p align="justify">&nbsp;</p>

<p align="center">11</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="center"><b>ARTICLE II</b><br>
<br>
<b><u>AMOUNT AND
TERMS OF THE CREDIT FACILITY</u></b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 2.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Revolving Advances</u>.&nbsp; The Lender agrees,
on the terms and subject to the conditions herein set forth, to make advances
to the Borrower from time to time from the date all of the conditions set forth
in Section&nbsp;4.1 are satisfied (the &quot;Funding Date&quot;) to the Termination Date
(the &quot;Revolving Advances&quot;).&nbsp; The Lender
shall have no obligation to make a Revolving Advance to the extent the amount
of the requested Revolving Advance exceeds Availability.&nbsp; The Borrower's obligation to pay the
Revolving Advances shall be evidenced by the Revolving Note and shall be
secured by the Collateral.&nbsp; Within the
limits set forth in this Section&nbsp;2.1, the Borrower may borrow, prepay
pursuant to Section&nbsp;2.11 and reborrow.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 2.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Procedures for Requesting Advances</u>.&nbsp; The Borrower shall comply with the following
procedures in requesting Revolving Advances:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Time for Requests</i>.</b>&nbsp; The Borrower shall request each Advance not
later than 10:00&nbsp;a.m., Pacific time on the
Banking Day which is the date the Advance is to be made.&nbsp; Each such request shall be effective upon
receipt by the Lender, shall be in writing or by telephone, telecopy
transmission or email, to be confirmed in writing by the Borrower if so
requested by the Lender (in the form of Exhibit E), shall be by (i) an Officer
of the Borrower; or (ii) a person designated as the Borrower's agent by an
Officer of the Borrower in a writing delivered to the Lender; or (iii) a person
whom the Lender reasonably believes to be an Officer of the Borrower or such a
designated agent.&nbsp; The Borrower shall
repay all Advances even if the Lender does not receive such confirmation and
even if the person requesting an Advance was not in fact authorized to do
so.&nbsp; Any request for an Advance, whether
written or telephonic, shall be deemed to be a representation by the Borrower
that the conditions set forth in Section&nbsp;4.2 have been satisfied as of the
time of the request.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Disbursement</i>.</b>&nbsp; Upon fulfillment of the applicable conditions
set forth in Article&nbsp;IV, the Lender shall disburse the proceeds of the
requested Advance by crediting the same to the Borrower's demand deposit
account maintained with Wells Fargo Bank, N.A., unless the Lender and the Borrower
shall agree in writing to another manner of disbursement.</p>

<p align="justify">Section
2.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Letters of Credit</u>.[1]</p>

<p align="justify">(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Lender agrees, on the terms and subject to the
conditions herein set forth, to cause an Issuer to issue, from the Funding Date
to the Termination Date, one or more irrevocable standby or documentary letters
of credit (each, a &quot;Letter of Credit&quot;) for the Borrower's account by
guaranteeing payment of the Borrower's obligations or being a co-applicant. The
Lender shall have no obligation to cause an Issuer to issue any Letter of
Credit if the face amount of the Letter of Credit to be issued would exceed the
lesser of:</p>

<p align="justify">____________________________________</p>

<blockquote>

<p align="justify"><font size="2">[1]&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; As of the Closing Date, the
Lender has not agreed to cause the Issuer to issue any Letters of Credit.&nbsp; The terms of Sections&nbsp;2.3, 2.4, 2.5 and
2.6 (and the related definitions) shall not be effective until the Lender gives
written notice to the Borrower that such Sections shall be effective.</font></p>

<p align="justify">&nbsp;</p>

<p align="center">12</p>

</blockquote>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
$0 less the L/C Amount, or</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Availability.</p>

<p align="justify">Each Letter of Credit, if any, shall be issued pursuant to a
separate L/C Application entered into between the Borrower and the Lender for
the benefit of the Issuer, completed in a manner satisfactory to the Lender and
the Issuer. The terms and conditions set forth in each such L/C Application
shall supplement the terms and conditions hereof, but if the terms of any such
L/C Application and the terms of this Agreement are inconsistent, the terms
hereof shall control.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
No Letter of Credit shall be issued with an expiry date
later than the Termination Date in effect as of the date of issuance.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any request to cause an Issuer to issue a Letter of
Credit shall be deemed to be a representation by the Borrower that the
conditions set forth in Section&nbsp;4.2 have been satisfied as of the date of
the request.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 2.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Special Account</u>.&nbsp; If the Credit
Facility is terminated for any reason while any Letter of Credit is
outstanding, the Borrower shall thereupon pay the Lender in immediately
available funds for deposit in the Special Account an amount equal to the L/C
Amount. The Special Account shall be an interest bearing account maintained for
the Lender by any financial institution acceptable to the Lender. Any interest
earned on amounts deposited in the Special Account shall be credited to the
Special Account. The Lender may apply amounts on deposit in the Special Account
at any time or from time to time to the Obligations in the Lender's sole
discretion. The Borrower may not withdraw any amounts on deposit in the Special
Account as long as the Lender maintains a security interest therein. The Lender
agrees to transfer any balance in the Special Account to the Borrower when the
Lender is required to release its security interest in the Special Account
under applicable law.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 2.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Payment of Amounts Drawn Under Letters of
Credit; Obligation of Reimbursement</u>.&nbsp; The Borrower
acknowledges that the Lender, as co-applicant, will be liable to the Issuer for
reimbursement of any and all draws under Letters of Credit and for all other
amounts required to be paid under the applicable L/C Application. Accordingly,
the Borrower shall pay to the Lender any and all amounts required to be paid
under the applicable L/C Application, when and as required to be paid thereby,
and the amounts designated below, when and as designated:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower shall pay to the Lender on the day a draft
is honored under any Letter of Credit a sum equal to all amounts drawn under
such Letter of Credit plus any and all reasonable charges and expenses that the
Issuer or the Lender may pay or incur relative to such draw and the applicable
L/C Application, plus interest on all such amounts, charges and expenses as set
forth below (the Borrower's obligation to pay all such amounts is herein
referred to as the &quot;Obligation of Reimbursement&quot;).</p>

<p align="justify">&nbsp;</p>

<p align="center">13</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Whenever a draft is submitted under a Letter of Credit,
the Borrower authorizes the Lender to make a Revolving Advance in the amount of
the Obligation of Reimbursement and to apply the proceeds of such Revolving
Advance thereto. Such Revolving Advance shall be repayable in accordance with
and be treated in all other respects as a Revolving Advance hereunder.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If a draft is submitted under a Letter of Credit when
the Borrower is unable, because a Default Period exists or for any other
reason, to obtain a Revolving Advance to pay the Obligation of Reimbursement,
the Borrower shall pay to the Lender on demand and in immediately available
funds, the amount of the Obligation of Reimbursement together with interest,
accrued from the date of the draft until payment in full at the Default Rate.
Notwithstanding the Borrower's inability to obtain a Revolving Advance for any reason,
the Lender is irrevocably authorized, in its sole discretion, to make a
Revolving Advance in an amount sufficient to discharge the Obligation of
Reimbursement and all accrued but unpaid interest thereon.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower's obligation to pay any Revolving Advance
made under this Section&nbsp;2.5, shall be evidenced
by the Revolving Note and shall bear interest as provided in Section&nbsp;2.7.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 2.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Obligations Absolute</u>.&nbsp; The Borrower's
obligations arising under Section&nbsp;2.5 shall be absolute, unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of
Section&nbsp;2.5, under all circumstances whatsoever, including (without
limitation) the following circumstances:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any lack of validity or enforceability of any Letter of
Credit or any other agreement or instrument relating to any Letter of Credit
(collectively the &quot;Related Documents&quot;);</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any amendment or waiver of or any consent to departure
from all or any of the Related Documents;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the existence of any claim, setoff, defense or other
right which the Borrower may have at any time, against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom any
such beneficiary or any such transferee may be acting), or other person or
entity, whether in connection with this Agreement, the transactions
contemplated herein or in the Related Documents or any unrelated transactions;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect
whatsoever;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
payment by or on behalf of the Issuer under any Letter
of Credit against presentation of a draft or certificate which does not
strictly comply with the terms of such Letter of Credit; or</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any other circumstance or
happening whatsoever, whether or not similar to any of the foregoing.</p>

<p align="justify">&nbsp;</p>

<p align="center">14</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
2.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Interest; Minimum Interest Charge; Default Interest;
Participations; Clearance Days; Usury</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Note</i></b>.&nbsp; Except as set forth in Subsections (c) and
(f), the outstanding principal balance of the Note shall bear interest at the
Floating Rate.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Minimum Interest Charge</i></b>.&nbsp; Notwithstanding the interest payable pursuant
to subsection (a), the Borrower shall pay to the Lender interest of not less
than $12,500 per quarter (the &quot;Minimum Interest Charge&quot;) during the term of
this Agreement, and the Borrower shall pay any deficiency between the Minimum
Interest Charge and the amount of interest otherwise calculated under
subsection (a) on the first day of each quarter and on the Termination Date.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Default Interest Rate</i>.</b>&nbsp; Upon notice to the Borrower from the Lender
from time to time, the principal of the Advances outstanding from time to time
shall bear interest at the Default Rate, effective as of the first day of the
month during which any Default Period begins through the last day of such
Default Period. The Lender's election to charge the Default Rate shall be in
its sole discretion and shall not be a waiver of any of its other rights and
remedies. The Lender's election to charge interest at the Default Rate for less
than the entire period during which the Default Rate may be charged shall not
be a waiver of its right to later charge the Default Rate for the entire such
period.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Clearance Days</i></b>.&nbsp; Notwithstanding Section 2.10(b)(ii), interest at the interest rate applicable under this
Section 2.7 shall accrue on the amount of all payments (even if in the form of
immediately available federal funds) for two (2) Banking Days for clearance.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Participations</i></b>.&nbsp; If any Person shall acquire a participation
in the Advances or the Obligation of Reimbursement, the Borrower shall be
obligated to the Lender to pay the full amount of all interest calculated under
this Section 2.7, along with all other fees, charges and other amounts due
under this Agreement, regardless if such Person elects to accept interest with
respect to its participation at a lower rate than that calculated under this
Section 2.7, or otherwise elects to accept less than its prorata share of such
fees, charges and other amounts due under this Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Usury</i></b>.&nbsp; In any event no rate change shall be put into
effect which would result in a rate greater than the highest rate permitted by
law.&nbsp; Notwithstanding anything to the
contrary contained in any Loan Document, all agreements which either now are or
which shall become agreements between the Borrower and the Lender are hereby
limited so that in no contingency or event whatsoever shall the total liability
for payments in the nature of interest, additional interest and other charges
exceed the applicable limits imposed by any applicable usury laws. If any
payments in the nature of interest, additional interest and other charges made
under any Loan Document are held to be in excess of the limits imposed by any
applicable usury laws, it is agreed that any such amount held to be in excess
shall be considered payment of principal hereunder, and the indebtedness
evidenced hereby shall be reduced by such amount so that the total liability
for payments in the nature of interest, additional interest and other charges
shall not exceed the applicable limits imposed by any applicable usury laws, in
compliance with the desires of the Borrower and the Lender. This provision
shall never be superseded or waived and shall control every other provision of
the Loan Documents and all agreements between the Borrower and the Lender, or
their successors and assigns.</p>

<p align="justify">&nbsp;</p>

<p align="center">15</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
2.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Fees</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Origination Fee</i></b>.&nbsp; The Borrower and the Affiliate Borrower shall
jointly pay the Lender a fully earned and non-refundable origination fee of
$37,500, due and payable upon the execution of this Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Audit Fees</i></b>.&nbsp; The Borrower shall pay the Lender, on demand,
audit fees in connection with any audits or inspections conducted by or on
behalf of the Lender of any Collateral or the Borrower's operations or business
at the rates established from time to time by the Lender as its audit fees
(which fees are currently $90 per hour per auditor), together with all actual
out-of-pocket costs and expenses incurred in conducting any such audit or
inspection.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Letter of Credit Fees</i></b>.&nbsp; The Borrower shall pay to the Lender a fee
with respect to each Letter of Credit, if any, accruing on a daily basis and
computed at the annual rate of one and one quarter percent (1.25%), of the
aggregate amount that may then be drawn under it assuming compliance with all
conditions for drawing (the &quot;Aggregate Face Amount&quot;), from and including the
date of issuance of such Letter of Credit until such date as such Letter of
Credit shall terminate by its terms or be returned to the Lender, due and
payable monthly in arrears on the first day of each month and on the
Termination Date; <u>provided</u>, <u>however</u> that during Default Periods,
in the Lender's sole discretion and without waiving any of its other rights and
remedies, such fee shall increase to four and one quarter percent (4.25%) of
the Aggregate Face Amount.&nbsp; The foregoing
fee shall be in addition to any and all fees, commissions and charges of the
Issuer with respect to or in connection with such Letter of Credit.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Letter of Credit Administrative Fees</i></b>.&nbsp; The Borrower shall pay to the Lender, on
written demand, the administrative fees charged by the Issuer in connection
with the honoring of drafts under any Letter of Credit, amendments thereto,
transfers thereof and all other activity with respect to the Letters of Credit
at the then-current rates published by the Issuer for such services rendered on
behalf of customers of the Issuer generally.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Termination</i></b> <b><i>Fees.</i></b>&nbsp; If the Credit Facility is terminated (i) by
the Lender during a Default Period that begins before a Maturity Date, (ii) by
the Borrower (A) as of a date other than a Maturity Date or (B) as of a
Maturity Date but without the Lender having received written notice of such
termination at least 90 days before such Maturity Date, the Borrower shall pay
to the Lender a fee in an amount equal to a percentage of the Maximum Line as
follows: (A) three percent (3.0%) if the termination occurs on or before the
first anniversary of the Funding Date; and (B) one percent (1.0%) if the
termination occurs after the first anniversary of the Funding Date.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b>W<i>aiver of Termination</i></b>.&nbsp; The Borrower will not be required to pay the
termination and prepayment fees otherwise due under subsection&nbsp;(e) if such
termination or prepayment is made because of refinancing by an affiliate of the
Lender.</p>

<p align="justify">&nbsp;</p>

<p align="center">16</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Unused Line Fee</i></b>.&nbsp; On the first day of each calendar quarter
during the term of this Agreement, an unused line fee in an amount equal to
0.25% per annum times the result of (a) the Maximum Line, less (b) the sum of
(i) the average Daily Balance of Advances that were outstanding during the
immediately preceding calendar quarter, plus (ii) the average Daily Balance of
the L/C Amount during the immediately preceding calendar quarter, and plus
(iii) the average Affiliate Obligations during the immediately preceding
calendar quarter.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (h)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Other Fees</i></b>.&nbsp; The Lender may from time to time, upon five
(5) days prior notice to the Borrower during a Default Period, charge
additional fees for Revolving Advances made and Letters of Credit issued in excess
of Availability, for late delivery of reports, in lieu of imposing interest at
the Default Rate, and for other commercially reasonable reasons.&nbsp; The Borrower's request for a Revolving
Advance or the issuance of a Letter of Credit at any time after such notice is
given and such five (5) day period has elapsed shall constitute the Borrower's
agreement to pay the fees described in such notice.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
2.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Time for Interest Payments; Payment on Non-Banking
Days; Computation of Interest and Fees</u></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Time For Interest
Payments</i></b>.&nbsp; Interest shall be due
and payable in arrears on the first day of each month and on the Termination
Date.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Payment on Non-Banking Days</i></b>.&nbsp; Whenever any payment to be made hereunder
shall be stated to be due on a day which is not a Banking Day, such payment may
be made on the next succeeding Banking Day, and such extension of time shall in
such case be included in the computation of interest on the Advances or the
fees hereunder, as the case may be.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Computation of Interest and Fees</i></b>.&nbsp; Interest accruing on the outstanding
principal balance of the Advances and fees hereunder outstanding from time to
time shall be computed on the basis of actual number of days elapsed in a year
of 360 days.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
2.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Lockbox; Collateral Account; Application of Payments</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Lockbox and Collateral Account</i></b>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower shall instruct all Account Debtors to pay
all Accounts directly to the Lockbox. If, notwithstanding such instructions,
the Borrower receives any payments on Accounts, the Borrower shall deposit such
payments into the Collateral Account. The Borrower shall also deposit all other
cash proceeds of Collateral directly to the Collateral Account. Until so
deposited, the Borrower shall hold all such payments and cash proceeds in trust
for and as the property of the Lender and shall not commingle such property
with any of its other funds or property. All deposits in the Collateral Account
shall constitute proceeds of Collateral and shall not constitute payment of the
Obligations.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All items deposited in the Collateral Account shall be
subject to final payment. If any such item is returned uncollected, the
Borrower will immediately pay the Lender, or, for items deposited in the
Collateral Account, the bank maintaining such account, the amount of that item, or such bank at its discretion may charge any
uncollected item to the Borrower's commercial account or other account. The
Borrower shall be liable as an endorser on all items deposited in the
Collateral Account, whether or not in fact endorsed by the Borrower.</p>

<p align="justify">&nbsp;</p>

<p align="center">17</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Application of Payments</i></b>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower may, from time to time, in accordance with
the Lockbox and Collection Account Agreement, cause funds in the Collateral
Account to be transferred to the Lender's general account for payment of the
Obligations. Except as provided in the preceding sentence, amounts deposited in
the Collateral Account shall not be subject to withdrawal by the Borrower,
except after full payment and discharge of all Obligations.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All payments to the Lender shall be made in immediately
available funds and shall be applied to the Obligations upon receipt by the
Lender. Funds received from the Collateral Account shall be deemed to be
immediately available. The Lender may hold all payments not constituting
immediately available funds for two (2) additional Banking Days before applying
them to the Obligations. Subject to Section&nbsp;7.7 of this Agreement, all
payments with respect to the Obligations may be applied, and in the Lender's
sole discretion reversed and re-applied, to the Obligations, in such order and
manner as the Lender shall determine in its sole discretion.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 2.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Voluntary Prepayment; Termination of the
Credit Facility by the Borrower</u>.&nbsp; Except
as otherwise provided herein, the Borrower may prepay the Advances in whole at
any time or from time to time in part.&nbsp;
The Borrower may terminate the Credit Facility at any time if it (i)
gives the Lender at least 30 days' prior written notice and (ii)&nbsp;pays the
Lender termination, prepayment and Maximum Line reduction fees in accordance
with Section&nbsp;2.8(e). Subject to termination of the Credit Facility and
payment and performance of all Obligations, the Lender shall, at the Borrower's
expense, release or terminate the Security Interest and the Security Documents
to which the Borrower is entitled by law.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 2.12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Mandatory Prepayment</u>.&nbsp; Without notice or
demand, if the sum of the outstanding principal balance of the Revolving
Advances plus the L/C Amount shall at any time exceed the Borrowing Base, the
Borrower shall (i)&nbsp;first, immediately prepay the Revolving Advances to the
extent necessary to eliminate such excess; and (ii) if prepayment in full of
the Revolving Advances is insufficient to eliminate such excess, pay to the
Lender in immediately available funds for deposit in the Special Account an
amount equal to the remaining excess. Any payment received by the Lender under
this Section&nbsp;2.12 or under Section&nbsp;2.11 may be applied to the
Obligations, in such order and in such amounts as the Lender, in its
discretion, may from time to time determine.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 2.13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Revolving Advances to Pay Obligations</u>.&nbsp; Notwithstanding
anything in Section&nbsp;2.1, the Lender may, in its discretion at any time or
from time to time, without the Borrower's request and even if the conditions
set forth in Section&nbsp;4.2 would not be satisfied, make a Revolving Advance
in an amount equal to the portion of the Obligations from time to time due and
payable.</p>

<p align="justify">&nbsp;</p>

<p align="center">18</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 2.14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Use of Proceeds</u>.&nbsp; The Borrower shall
use the proceeds of Advances and each Letter of Credit for ordinary working
capital purposes.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 2.15&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Liability Records</u>.&nbsp; The Lender may
maintain from time to time, at its discretion, records as to the
Obligations.&nbsp; All entries made on any
such record shall be presumed correct until the Borrower establishes the
contrary.&nbsp; Upon the Lender's demand, the
Borrower will admit and certify in writing the exact principal balance of the
Obligations that the Borrower then asserts to be outstanding.&nbsp; Any billing statement or accounting rendered
by the Lender shall be conclusive and fully binding on the Borrower unless the
Borrower gives the Lender specific written notice of exception within 30 days
after receipt.</p>

<p align="center"><b>ARTICLE III</b><u><br>
<br>
<b>SECURITY
INTEREST; OCCUPANCY; SETOFF</b></u></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 3.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Grant of Security Interest</u>.&nbsp; The Borrower hereby
pledges, assigns and grants to the Lender a lien and security interest
(collectively referred to as the &quot;Security Interest&quot;) in the Collateral, as
security for the payment and performance of the Obligations.&nbsp; Upon request by the Lender, the Borrower will
grant the Lender a security interest in all commercial tort claims it may have
against any Person.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 3.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Notification of Account Debtors and Other
Obligors</u>.&nbsp; The Lender may at
any time (whether or not a Default Period then exists) notify any Account
Debtor or other person obligated to pay the amount due that such right to
payment has been assigned or transferred to the Lender for security and shall
be paid directly to the Lender.&nbsp; The
Borrower will join in giving such notice if the Lender so requests.&nbsp; At any time after the Borrower or the Lender
gives such notice to an Account Debtor or other obligor, the Lender may, but
need not, in the Lender's name or in the Borrower's name, demand, sue for,
collect or receive any money or property at any time payable or receivable on
account of, or securing, any such right to payment, or grant any extension to,
make any compromise or settlement with or otherwise agree to waive, modify,
amend or change the obligations (including collateral obligations) of any such
Account Debtor or other obligor.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 3.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Assignment of Insurance</u>.&nbsp; As additional
security for the payment and performance of the Obligations, the Borrower
hereby assigns to the Lender any and all monies (including proceeds of
insurance and refunds of unearned premiums) due or to become due under, and all
other rights of the Borrower with respect to, any and all policies of insurance
now or at any time hereafter covering the Collateral or any evidence thereof or
any business records or valuable papers pertaining thereto, and the Borrower
hereby directs the issuer of any such policy to pay all such monies directly to
the Lender.&nbsp; At any time, whether or not
a Default Period then exists, the Lender may (but need not), in the Lender's
name or in the Borrower's name, execute and deliver proof of claim, receive all
such monies, endorse checks and other instruments representing payment of such
monies, and adjust, litigate, compromise or release any claim against the
issuer of any such policy.</p>

<p align="justify">&nbsp;</p>

<p align="center">19</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
3.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Occupancy</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower hereby irrevocably grants to the Lender
the right to take exclusive possession of the Premises at any time during a
Default Period.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon
or otherwise dispose of goods that are Collateral and for other purposes that
the Lender may in good faith deem to be related or incidental purposes.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Credit Facility, and (ii) final sale or
disposition of all goods constituting Collateral and delivery of all such goods
to purchasers.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of any of
the Premises; provided, however, that if the Lender does pay or account for any
rent or other compensation for the possession, occupancy or use of any of the
Premises, the Borrower shall reimburse the Lender promptly for the full amount
thereof. In addition, the Borrower will pay, or reimburse the Lender for, all
taxes, fees, duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery, existence,
recordation, performance or enforcement of this Agreement or the provisions of
this Section&nbsp;3.4.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 3.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>License</u>.&nbsp; Without limiting
the generality of any other Security Document, the Borrower hereby grants to
the Lender a non-exclusive, worldwide and royalty-free license to use or
otherwise exploit all Intellectual Property Rights of the Borrower for the
purpose of: (a) completing the manufacture of any in-process materials during
any Default Period so that such materials become saleable Inventory, all in
accordance with the same quality standards previously adopted by the Borrower
for its own manufacturing and subject to the Borrower's reasonable exercise of
quality control; and (b) selling, leasing or otherwise disposing of any or all
Collateral during any Default Period.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 3.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Financing Statement</u>.&nbsp; The Borrower
authorizes the Lender to file from time to time where permitted by law, such
financing statements against collateral described as &quot;all personal property&quot; or
describing specific items of collateral including commercial tort claims as the
Lender deems necessary or useful to perfect the Security Interest.&nbsp; A carbon, photographic or other reproduction
of this Agreement or of any financing statements signed by the Borrower is
sufficient as a financing statement and may be filed as a financing statement
in any state to perfect the security interests granted hereby. For this
purpose, the following information is set forth:</p>

<p align="justify">&nbsp;</p>

<p align="center">20</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p>Name and address of Debtor:</p>

<p>Oregon Micro Systems, Inc.<br>
1800 NW 169<sup>th</sup> Place, Bldg. C100<br>
Beaverton, Oregon 97006<br>
Federal Employer Identification No. 93&#8209;0894151<br>
Organizational Identification No. 208152</p>

<p>Name and address of Secured Party:</p>

<p>Wells Fargo Business Credit, Inc.<br>
245 S. Los Robles Avenue, Suite&nbsp;600<br>
Pasadena, CA&nbsp; 91101<br>
Federal Employer Identification No. 41-1237652</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 3.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Setoff</u>.&nbsp; The Lender may at
any time or from time to time, at its sole discretion and without demand and
without notice to anyone, setoff any liability owed to the Borrower by the
Lender, whether or not due, against any Obligation, whether or not due. In
addition, each other Person holding a participating interest in any Obligations
shall have the right to appropriate or setoff any deposit or other liability
then owed by such Person to the Borrower, whether or not due, and apply the
same to the payment of said participating interest, as fully as if such Person
had lent directly to the Borrower the amount of such participating interest.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 3.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Power of Attorney</u>.&nbsp; The Borrower hereby
irrevocably makes, constitutes, and appoints the Lender (and any of the
Lender's officers, employees, or agents designated by the Lender) as the
Borrower's true and lawful attorney, with power to (a) if the Borrower refuses
to, or fails timely to execute and deliver any of the documents required to be
described in Section 8.4, sign the name of the Borrower on any of the documents
described in Section 8.4, (b) at any time that an Event of Default has occurred
and is continuing, sign the Borrower's name on any invoice or bill of lading
relating to the Collateral, drafts against Account Debtors, or notices to
Account Debtors, (c) send requests for verification of Accounts, (d) endorse
the Borrower's name on any collection item that may come into the Lender's
possession, (e) at any time that an Event of Default has occurred and is
continuing, make, settle, and adjust all claims under Borrower's policies of
insurance and make all determinations and decisions with respect to such
policies of insurance, (f) at any time that an Event of Default has occurred
and is continuing, settle and adjust disputes and claims respecting the
Accounts, chattel paper, or General Intangibles directly with Account Debtors,
for amounts and upon terms that the Lender determines to be reasonable, and the
Lender may cause to be executed and delivered any documents and releases that
the Lender determines to be necessary, and (g) notify the United States Postal
Service to change the address for delivery of the Borrower's mail to any
address designated by the Lender, otherwise intercept the Borrower's mail, and
receive, open and dispose of the Borrower's mail, applying all Collateral as
permitted under this Agreement and holding all other mail for the Borrower's
account or forwarding such mail to the Borrower's last known address.&nbsp; The appointment of the Lender as the
Borrower's attorney, and each and every one of its rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully and finally repaid and performed and the Lender's obligations to extend
credit hereunder are terminated.</p>

<p align="justify">&nbsp;</p>

<p align="center">21</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="center"><b>ARTICLE IV</b><br>
<br>
<b><u>CONDITIONS OF
LENDING</u></b></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 4.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Conditions Precedent to the Initial Advances
and Letter of Credit</u>.&nbsp; The Lender's obligation
to make the initial Advances or to cause any Letters of Credit to be issued
shall be subject to the condition precedent that the Lender shall have received
all of the following, each in form and substance satisfactory to the Lender:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This Agreement, duly executed by the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Note, duly executed by the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A true and correct copy of any and all leases pursuant
to which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent with respect to each such lease.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A true and correct copy of any and all mortgages
pursuant to which the Borrower has mortgaged the Premises, together with a
mortgagee's disclaimer and consent with respect to each such mortgage.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A true and correct copy of any and all agreements
pursuant to which the Borrower's property is in the possession of any Person
other than the Borrower, together with, in the case of any goods held by such
Person for resale, (i) a consignee's acknowledgment and waiver of Liens, (ii)
UCC financing statements sufficient to protect the Borrower's and the Lender's
interests in such goods, and (iii) UCC searches showing that no other secured
party has filed a financing statement against such Person and covering property
similar to the Borrower's other than the Borrower, or if there exists any such
secured party, evidence that each such secured party has received notice from
the Borrower and the Lender sufficient to protect the Borrower's and the
Lender's interests in the Borrower's goods from any claim by such secured party.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An acknowledgment and waiver of Liens from each
warehouse in which the Borrower is storing Inventory.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A true and correct copy of any and all agreements
pursuant to which the Borrower's property is in the possession of any Person
other than the Borrower, together with, (i) an acknowledgment and waiver of
Liens from each subcontractor who has possession of the Borrower's goods from
time to time, (ii) UCC financing statements sufficient to protect the
Borrower's and the Lender's interests in such goods, and (iii) UCC searches
showing that no other secured party has filed a financing statement covering
such Person's property other than the Borrower, or if there exists any such
secured party, evidence that each such secured party has received notice from
the Borrower and the Lender sufficient to protect the Borrower's and the
Lender's interests in the Borrower's goods from any claim by such secured
party.</p>

<p align="justify">&nbsp;</p>

<p align="center">22</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (h)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Lockbox and Collection Account Agreement, duly
executed by the Borrower and Wells Fargo Bank, N.A.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Control agreements, duly executed by the Borrower and
each bank at which the Borrower maintains deposit accounts.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (j)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Patent and Trademark Security Agreement, duly
executed by the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (k)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Guaranty and the Guaranty Security Agreement, each
duly executed by the Guarantor, </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (l)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Copyright Security Agreement, duly executed by the
Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (m)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Subordination Agreement,
duly executed by the Guarantor and acknowledged by the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (n)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Current searches of appropriate filing offices showing
that (i) no Liens have been filed and remain in effect against the Borrower
except Permitted Liens or Liens held by Persons who have agreed in writing that
upon receipt of proceeds of the initial Advances, they will satisfy, release or
terminate such Liens in a manner satisfactory to the Lender, and (ii) the
Lender has duly filed all financing statements necessary to perfect the
Security Interest, to the extent the Security Interest is capable of being
perfected by filing.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (o)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A certificate of the Borrower's Secretary or Assistant
Secretary certifying that attached to such certificate are (i) the resolutions
of the Borrower's Directors and, if required, Owners, authorizing the
execution, delivery and performance of the Loan Documents, (ii) true, correct
and complete copies of the Borrower's Constituent Documents, and (iii) examples
of the signatures of the Borrower's Officers or agents authorized to execute
and deliver the Loan Documents and other instruments, agreements and
certificates, including Advance requests, on the Borrower's behalf.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (p)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A current certificate issued by the Secretary of State
of Oregon, certifying that the Borrower is in compliance with all applicable
organizational requirements of the State of Oregon.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (q)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Evidence that the Borrower is duly licensed or
qualified to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it makes
such licensing or qualification necessary.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (r)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A certificate of an Officer of the Borrower confirming,
in his personal capacity, the representations and warranties set forth in
Article V.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (s)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An opinion of counsel to the Borrower and the
Guarantor, addressed to the Lender.</p>

<p align="justify">&nbsp;</p>

<p align="center">23</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (t)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Certificates of the insurance required hereunder, with
all hazard insurance containing a lender's loss payable endorsement in the
Lender's favor and with all liability insurance naming the Lender as an
additional insured.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (u)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Payment of the fees and commissions due under Section
2.13 through the date of the initial Advance or Letter of Credit and expenses
incurred by the Lender through such date and required to be paid by the
Borrower under Section 8.6, including all legal expenses incurred through the
date of this Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (v)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Evidence that after making the initial Revolving
Advance, satisfying all trade payables older than 60 days from invoice date,
book overdrafts and closing costs, Availability shall be not less than
$500,000.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (w)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Evidence satisfactory to the Lender that there has been
no Material Adverse Effect since the date of the last financial statements
provided by the Borrower to the Lender, or any material variance from the
Borrower's projections previously provided by the Borrower to the Lender.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (x)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A Collateral audit, satisfactory to the Lender.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (y)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The results of the Lender's due diligence with respect
to the Borrower, including background checks on the senior officers of the
Borrower, satisfactory to the Lender.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (z)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
True and complete copies of all license agreements
pursuant to which the Borrower licenses any Intellectual Property Rights,
together with a consent to assignment to the Lender or
its nominee from each licensor thereof (including without limitation, from
Ronald G. Coss).</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (aa)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Such other documents as the Lender in its sole
discretion may require.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 4.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Conditions Precedent to All Advances and
Letters of Credit</u>.&nbsp; The Lender's obligation to make each Advance
and to cause each Letter of Credit to be issued shall be subject to the further
conditions precedent that:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the representations and warranties contained in Article
V are correct on and as of the date of such Advance or issuance of a Letter of
Credit as though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
no event has occurred and is continuing, or would
result from such Advance or issuance of a Letter of Credit which constitutes a
Default or an Event of Default; and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
no injunction, writ,
restraining order, or other order of any nature prohibiting, directly or
indirectly, the extending of such credit shall have been issued and remain in
force by any Governmental Authority against the Borrower, the Lender, or any of
their Affiliates.</p>

<p align="justify">&nbsp;</p>

<p align="center">24</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="center"><b>ARTICLE V</b><u><br>
<br>
<b>REPRESENTATIONS
AND WARRANTIES</b></u></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Borrower represents and
warrants to the Lender as follows:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 5.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Existence and Power; Name; Chief Executive
Office; Inventory and Equipment Locations; Federal Employer Identification
Number</u>.&nbsp; The Borrower is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Oregon and is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority to
conduct its business, to own its properties and to execute and deliver, and to
perform all of its obligations under, the Loan Documents.&nbsp; During its existence, the Borrower has done
business solely under the names set forth in Schedule&nbsp;5.1 and all of the
Borrower's records relating to its business or the Collateral are kept at that
location.&nbsp; The Borrower's chief executive
office and principal place of business is located at the address set forth in
Schedule&nbsp;5.1.&nbsp; All Inventory and Equipment
is located at that location or at one of the other locations listed in Schedule&nbsp;5.1.&nbsp; The Borrower's federal employer
identification number is correctly set forth in Section&nbsp;3.6.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 5.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Capitalization</u>.&nbsp; Schedule&nbsp;5.2
constitutes a correct and complete list of all ownership interests of the
Borrower and rights to acquire ownership interests including the record holder,
number of interests and percentage interests on a fully diluted basis, and an
organizational chart showing the ownership structure of all Subsidiaries of the
Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 5.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Authorization of Borrowing; No Conflict as to
Law or Agreements</u>.&nbsp; The execution,
delivery and performance by the Borrower of the Loan Documents and the
borrowings from time to time hereunder have been duly authorized by all
necessary corporate action and do not and will not (i) require any consent or
approval of the Borrower's Owners; (ii) require any authorization, consent or
approval by, or registration, declaration or filing with, or notice to, any
Governmental Authority, or any third Person, except such authorization,
consent, approval, registration, declaration, filing or notice as has been
obtained, accomplished or given prior to the date hereof; (iii) violate any
provision of any law, rule or regulation (including Regulation X of the Board
of Governors of the Federal Reserve System) or of any order, writ, injunction
or decree presently in effect having applicability to the Borrower or of the
Borrower's Constituent Documents; (iv) result in a breach of or constitute a
default under any indenture or loan or credit agreement or any other material
agreement, lease or instrument to which the Borrower is a party or by which it
or its properties may be bound or affected; or (v) result in, or require, the
creation or imposition of any Lien (other than the Security Interest) upon or
with respect to any of the properties now owned or hereafter acquired by the
Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 5.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Legal Agreements</u>.&nbsp; This Agreement
constitutes and, upon due execution by the Borrower, the other Loan Documents
will constitute the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms,
except as enforcement may be limited by equitable principles or by bankruptcy,
insolvency, reorganization, moratorium, or similar laws relating to or limiting
creditors' rights generally.</p>

<p align="justify">&nbsp;</p>

<p align="center">25</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 5.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Subsidiaries</u>.&nbsp; Except as set forth
in Schedule&nbsp;5.5 hereto, the Borrower has no Subsidiaries.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 5.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Financial Condition; No Adverse Change</u>.&nbsp; The Borrower has
furnished to the Lender its audited financial statements for its fiscal year
ended June&nbsp;30, 2001 and unaudited financial statements for the
fiscal-year-to-date period ended March&nbsp;31, 2002, and those statements
fairly present the Borrower's financial condition on the dates thereof and the
results of its operations and cash flows for the periods then ended and were
prepared in accordance with generally accepted accounting principles.&nbsp; Since the date of the most recent financial
statements, there has been no change in the Borrower's business, properties or
condition (financial or otherwise) which has had a Material Adverse Effect.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 5.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Litigation</u>.&nbsp; There are no
actions, suits or proceedings pending or, to the Borrower's knowledge,
threatened against or affecting the Borrower or any of its Affiliates or the
properties of the Borrower or any of its Affiliates before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which, if determined adversely to the Borrower or any of
its Affiliates, would have a Material Adverse Effect.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 5.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Regulation U</u>.&nbsp; The Borrower is not
engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System), and no part of the proceeds of any
Advance will be used to purchase or carry any margin stock or to extend credit
to others for the purpose of purchasing or carrying any margin stock.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 5.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Taxes</u>.&nbsp; The Borrower and
its Affiliates have paid or caused to be paid to the proper authorities when
due all federal, state and local taxes required to be withheld by each of
them.&nbsp; The Borrower and its Affiliates
have filed all federal, state and local tax returns which to the knowledge of
the Officers of the Borrower or any Affiliate, as the case may be, are required
to be filed, and the Borrower and its Affiliates have paid or caused to be paid
to the respective taxing authorities all taxes as shown on said returns or on
any assessment received by any of them to the extent such taxes have become
due.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 5.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Titles and Liens</u>.&nbsp; The Borrower has
good and absolute title to all Collateral free and
clear of all Liens other than Permitted Liens.&nbsp;
No financing statement naming the Borrower as debtor is on file in any
office except to perfect only Permitted Liens.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Intellectual Property Rights</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Owned Intellectual Property</i></b>.&nbsp; Schedule 5.11 is a complete list of all
patents, applications for patents, trademarks, applications for trademarks,
service marks, applications for service marks, mask works, trade dress and
copyrights for which the Borrower is the registered owner (the &quot;Owned
Intellectual Property&quot;). Except as disclosed on Schedule 5.11, (i) the Borrower
owns the Owned Intellectual Property free and clear of all restrictions
(including covenants not to sue a third party), court orders, injunctions, decrees,
writs or Liens, whether by written agreement or otherwise, (ii) no Person other
than the Borrower owns or has been granted any right in the Owned Intellectual
Property, (iii) all Owned Intellectual Property is valid, subsisting and
enforceable and (iv) the Borrower has taken all commercially reasonable action
necessary to maintain and protect the Owned Intellectual Property.</p>

<p align="justify">&nbsp;</p>

<p align="center">26</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Agreements with Employees and Contractors</i></b>.&nbsp; The Borrower has entered into a legally
enforceable agreement with each of its employees and subcontractors obligating
each such Person to assign to the Borrower, without any additional
compensation, any Intellectual Property Rights created, discovered or invented
by such Person in the course of such Person's employment or engagement with the
Borrower (except to the extent prohibited by law), and further requiring such
Person to cooperate with the Borrower, without any additional compensation, in
connection with securing and enforcing any Intellectual Property Rights
therein; provided, however, that the foregoing shall not apply with respect to
employees and subcontractors whose job descriptions are of the type such that
no such assignments are reasonably foreseeable.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Intellectual Property Rights Licensed from
Others</i></b>.&nbsp; Schedule&nbsp;5.11 is a
complete list of all agreements under which the Borrower has licensed
Intellectual Property Rights from another Person (&quot;Licensed Intellectual
Property&quot;) other than readily available, non-negotiated licenses of computer
software and other intellectual property used solely for performing accounting,
word processing and similar administrative tasks (&quot;Off-the-shelf Software&quot;) and
a summary of any ongoing payments the Borrower is obligated to make with
respect thereto.&nbsp; Except as disclosed on
Schedule&nbsp;5.11 and in written agreements copies of which have been given to
the Lender, the Borrower's licenses to use the Licensed Intellectual Property
are free and clear of all restrictions, Liens, court orders, injunctions,
decrees, or writs, whether by written agreement or otherwise.&nbsp; Except as disclosed on Schedule&nbsp;5.11,
the Borrower is not obligated or under any liability whatsoever to make any
payments of a material nature by way of royalties, fees or otherwise to any
owner of, licensor of, or other claimant to, any Intellectual Property Rights.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Other Intellectual Property Needed for
Business</i></b>.&nbsp; Except for
Off-the-shelf Software and as disclosed on Schedule&nbsp;5.11, the Owned
Intellectual Property and the Licensed Intellectual Property constitute all
Intellectual Property Rights used or necessary to conduct the Borrower's
business as it is presently conducted or as the Borrower reasonably foresees
conducting it.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Infringement</i></b>.&nbsp; Except as disclosed on Schedule&nbsp;5.11,
the Borrower has no knowledge of, and has not received any written claim or
notice alleging, any Infringement of another Person's Intellectual Property
Rights (including any written claim that the Borrower must license or refrain
from using the Intellectual Property Rights of any third party) nor, to the
Borrower's knowledge, is there any threatened claim or any reasonable basis for
any such claim.</p>

<p align="justify">&nbsp;</p>

<p align="center">27</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 5.12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Plans</u>.&nbsp; Except as disclosed
to the Lender in writing prior to the date hereof, neither the Borrower nor any
ERISA Affiliate (i) maintains or has maintained any Pension Plan, (ii)
contributes or has contributed to any Multiemployer Plan or (iii) provides or
has provided post-retirement medical or insurance benefits with respect to
employees or former employees (other than benefits required under
Section&nbsp;601 of ERISA, Section 4980B of the IRC or applicable state law).
Neither the Borrower nor any ERISA Affiliate has received any notice or has any
knowledge to the effect that it is not in full compliance with any of the
requirements of ERISA, the IRC or applicable state law with respect to any
Plan. No Reportable Event exists in connection with any Pension Plan. Each Plan
which is intended to qualify under the IRC is so qualified, and no fact or
circumstance exists which may have an adverse effect on the Plan's
tax-qualified status.&nbsp; Neither the
Borrower nor any ERISA Affiliate has (i) any accumulated funding deficiency (as
defined in Section&nbsp;302 of ERISA and Section&nbsp;412 of the IRC) under any
Plan, whether or not waived, (ii)&nbsp;any liability under Section&nbsp;4201 or
4243 of ERISA for any withdrawal, partial withdrawal, reorganization or other
event under any Multiemployer Plan or (iii) any liability or knowledge of any
facts or circumstances which could result in any liability to the Pension
Benefit Guaranty Corporation, the Internal Revenue Service, the Department of
Labor or any participant in connection with any Plan (other than routine claims
for benefits under the Plan).</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 5.13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Default</u>.&nbsp; The Borrower is in
compliance with all provisions of all agreements, instruments, decrees and
orders to which it is a party or by which it or its property is bound or
affected, the breach or default of which could have a Material Adverse Effect.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
5.14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Environmental Matters</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
To the Borrower's best knowledge, there are not present
in, on or under the Premises any Hazardous Substances in such form or quantity
as to create any material liability or obligation for either the Borrower or
the Lender under common law of any jurisdiction or under any Environmental Law,
and no Hazardous Substances have ever been stored, buried, spilled, leaked,
discharged, emitted or released in, on or under the Premises in such a way as
to create any such material liability.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
To the Borrower's best knowledge, the Borrower has not
disposed of Hazardous Substances in such a manner as to create any material
liability under any Environmental Law.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There are not and there never have been any requests,
claims, notices, investigations, demands, administrative proceedings, hearings
or litigation, relating in any way to the Premises or the Borrower, alleging
material liability under, violation of, or noncompliance with any Environmental
Law or any license, permit or other authorization issued pursuant thereto.&nbsp; To the Borrower's best knowledge, no such
matter is threatened or impending.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
To the Borrower's best knowledge, the Borrower's
businesses are and have in the past always been conducted in accordance with
all Environmental Laws and all licenses, permits and other authorizations
required pursuant to any Environmental Law and necessary for the lawful and
efficient operation of such businesses are in the Borrower's possession and are
in full force and effect. No permit required under any Environmental Law is
scheduled to expire within 12 months and there is no threat that any such
permit will be withdrawn, terminated, limited or materially changed.</p>

<p align="justify">&nbsp;</p>

<p align="center">28</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
To the Borrower's best knowledge, the Premises are not
and never have been listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System or any
similar federal, state or local list, schedule, log, inventory or database.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents describing
or relating in any way to the Premises or Borrower's businesses.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 5.15&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Submissions to Lender</u>.&nbsp; All financial and
other information provided to the Lender by or on behalf of the Borrower in
connection with the Borrower's request for the credit facilities contemplated
hereby is (i) true and correct in all material respects, (ii) does not omit any
material fact necessary to make such information not misleading and, (iii) as
to projections, valuations or proforma financial statements, present a good
faith opinion as to such projections, valuations and proforma condition and
results.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 5.16&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Financing Statements</u>.&nbsp; The Borrower has
authorized the filing of financing statements sufficient when filed to perfect
the Security Interest and the other security interests created by the Security
Documents. When such financing statements are filed in the offices noted
therein, the Lender will have a valid and perfected security interest in all
Collateral which is capable of being perfected by filing financing statements.
None of the Collateral is or will become a fixture on real estate, unless a
sufficient fixture filing is in effect with respect thereto.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 5.17&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Rights to Payment</u>.&nbsp; Each right to
payment and each instrument, document, chattel paper and other agreement
constituting or evidencing Collateral is (or, in the case of all future
Collateral, will be when arising or issued) the valid, genuine and legally
enforceable obligation, subject to no defense, setoff or counterclaim, of the
Account Debtor or other obligor named therein or in the Borrower's records
pertaining thereto as being obligated to pay such obligation.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 5.18&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Eligible Accounts</u>.&nbsp; &nbsp; The Eligible
Accounts are bona fide existing payment obligations of Account Debtors created
by the sale and delivery of Inventory or the rendition of services to such
Account Debtors in the ordinary course of the Borrower's business, owed to the
Borrower without defenses, disputes, offsets, counterclaims, or rights of
return or cancellation.&nbsp; As to each
Eligible Account, such Account is not:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
owed by an employee, Affiliate, or agent of Borrower, </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
on account of a transaction wherein goods were placed
on consignment or were sold pursuant to a guaranteed sale, a sale or return, a
sale on approval, a bill and hold, or on any other terms by reason of which the
payment by the Account Debtor may be conditional;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;payable in a
currency other than Dollars,</p>

<p align="justify">&nbsp;</p>

<p align="center">29</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
owed by an Account Debtor that has or has asserted a
right of setoff, has disputed its liability, or has made any claim with respect
to its obligation to pay the Account,</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (v)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
owed by an Account Debtor that is subject to any
Insolvency Proceeding or is not Solvent or as to which Borrower has received
notice of an imminent Insolvency Proceeding or a material impairment of the
financial condition of such Account Debtor,</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (vi)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
on account of a transaction as to which the goods
giving rise to such Account have not been shipped and billed to the Account
Debtor or the services giving rise to such Account have not been performed and
accepted by the Account Debtor, </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (vii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
a right to receive progress payments or other advance
billings that are due prior to the completion of performance by Borrower of the
subject contract for goods or services, and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (viii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
an Account that has not been
billed to the customer. </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 5.19&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Eligible Inventory</u>.&nbsp; &nbsp; All Eligible
Inventory is of good and merchantable quality, free from defects.&nbsp; As to each item of Eligible Inventory, such
Inventory is </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
owned by the Borrower free and clear of all Liens other
than Liens in favor of the Lender or Permitted Liens,</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
not goods that have been returned or rejected by the
Borrower's customers, and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
goods that are obsolete or slow moving, restrictive or
custom items, work-in-process, or that constitute spare parts, packaging and
shipping materials, supplies used or consumed in Borrower's business, bill and
hold goods, defective goods, &quot;seconds,&quot; or Inventory acquired on consignment.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 5.20&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Equipment</u>.&nbsp; &nbsp; All of the Equipment
is used or held for use in the Borrower's business and is fit for such
purposes.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 5.21&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Fraudulent Transfer</u>.&nbsp; &nbsp; The Borrower is
Solvent.&nbsp; No transfer of property is
being made by The Borrower and no obligation is being incurred by the Borrower
in connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of the Borrower.</p>

<p align="justify">&nbsp;</p>

<p align="center">30</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="center"><b>ARTICLE VI</b><u><br>
<br>
<b>COVENANTS</b></u></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; So long as the Obligations shall remain unpaid, or the
Credit Facility shall remain outstanding, the Borrower will comply with the
following requirements, unless the Lender shall otherwise consent in writing:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Reporting Requirements</u>.&nbsp; The Borrower will deliver, or cause to be
delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Annual Financial Statements</i></b>.&nbsp; As soon as available, and in any event within
90 days after the end of each fiscal year of the Borrower, the Borrower will
deliver, or cause to be delivered, to the Lender, the Borrower's audited
financial statements with the unqualified opinion of independent certified
public accountants selected by the Borrower and acceptable to the Lender, which
annual financial statements shall include the Borrower's balance sheet as at
the end of such fiscal year and the related statements of the Borrower's
income, retained earnings and cash flows for the fiscal year then ended,
prepared on a consolidating and consolidated basis to include the Affiliate
Borrower and the Guarantor, all in reasonable detail and prepared in accordance
with GAAP, together with (i) copies of all management letters prepared by such
accountants; (ii) a report signed by such accountants stating that in making
the investigations necessary for said opinion they obtained no knowledge,
except as specifically stated, of any Default or Event of Default and all
relevant facts in reasonable detail to evidence, and the computations as to,
whether or not the Borrower is in compliance with the Financial Covenants; and
(iii) a certificate of the Borrower's chief financial officer stating that such
financial statements have been prepared in accordance with GAAP, fairly
represent the Borrower's financial position and the results of its operations,
and whether or not such officer has knowledge of the occurrence of any Default
or Event of Default and, if so, stating in reasonable detail the facts with
respect thereto.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Monthly Financial Statements</i></b>.&nbsp; As soon as available and in any event within
25 days after the end of each month, the Borrower will deliver to the Lender an
unaudited/internal balance sheet and statements of income and retained earnings
of the Borrower as at the end of and for such month and for the year to date
period then ended, prepared on a consolidating and consolidated basis to
include the Affiliate Borrower and the Guarantor, in reasonable detail and
stating in comparative form the figures for the corresponding date and periods
in the previous year, all prepared in accordance with GAAP, subject to year-end
audit adjustments and fairly represent the Borrower's financial position and
the results of its operations; and accompanied by a certificate of the
Borrower's chief financial Officer, substantially in the form of Exhibit C
hereto stating (i) that such financial statements have been prepared in
accordance with GAAP, subject to year-end audit adjustments, (ii) whether or
not such officer has knowledge of the occurrence of any Default or Event of
Default not theretofore reported and remedied and, if so, stating in reasonable
detail the facts with respect thereto, and (iii) all relevant facts in
reasonable detail to evidence, and the computations as to, whether or not the
Borrower is in compliance with the Financial Covenants.</p>

<p align="justify">&nbsp;</p>

<p align="center">31</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Collateral Reports</i></b>.&nbsp; The Borrower will deliver to the Lender the
following documents at the following times in form satisfactory to Lender:</p>

<div align="left">

<table border=1 cellspacing=0 cellpadding=0 bordercolor="#000000" style="border-collapse: collapse" width="740">
 <tr>
  <td width=127 valign=top>
  <p>Daily </p>
  </td>
  <td valign=top align="left">
  <p>(a)&nbsp; a report of cash collections, sales
  assignments, credit memos/adjustments and deposits, and a calculation of the
  Borrowing Base as of such date, and</p>
  <p>(b)&nbsp; notice of all returns, disputes, or claims.</p>
  <p>&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=127 valign=top>
  <p>Monthly (not later than the 15th day of each
  month)</p>
  </td>
  <td valign=top align="left">
  <p>(c)&nbsp;&nbsp; a detailed calculation of the Borrowing
  Base (including detail regarding those Accounts that are not Eligible
  Accounts or Eligible Foreign Accounts, and Inventory that is not Eligible
  Inventory),</p>
  <p>(d) &nbsp; a detailed listing and aging, by total, of
  the Accounts, together with a reconciliation to the detailed calculation of
  the Borrowing Base&nbsp; previously provided
  to Lender,</p>
  </td>
 </tr>
 <tr>
  <td width=127 valign=top>
  <p>&nbsp;</p>
  </td>
  <td valign=top align="left">
  <p>(e) &nbsp; a summary aging, by vendor, of Borrower's
  accounts payable and any book overdraft, together with a reconciliation to
  the Borrower's general ledger and monthly financial statements delivered
  pursuant to Section 6.1(b),</p>
  <p>(f) &nbsp;&nbsp; an Inventory stock status report, by type
  and by location,</p>
  </td>
 </tr>
 <tr>
  <td width=127 valign=top>
  <p>&nbsp;</p>
  </td>
  <td valign=top align="left">
  <p>(g) &nbsp; an Inventory slow moving report, and</p>
  <p>(h) &nbsp; an Inventory
  certification and perpetual report by location, including Inventory turnover
  by item number, together with a reconciliation to the Borrower's general
  ledger and monthly financial statements delivered pursuant to Section 6.1(b).</p>
  <p>&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=127 valign=top>
  <p>Semi-Annually</p>
  </td>
  <td valign=top align="left">
  <p>(i) &nbsp;&nbsp; a detailed list of Borrower's customers</p>
  <p>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=127 valign=top>
  <p>Upon request by Lender </p>
  </td>
  <td valign=top align="left">
  <p>(j) &nbsp;&nbsp; copies of invoices in connection with the
  Accounts, credit memos, remittance advices, deposit slips, shipping and
  delivery documents in connection with the Accounts and, for Inventory and
  Equipment acquired by Borrower, purchase orders and invoices, and</p>
  <p>(k) &nbsp; such other reports
  as to the Collateral, or the financial condition of Borrower, as Lender may
  request.</p>
  </td>
 </tr>
</table>

</div>

<p>&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Projections</i></b>.&nbsp; At least 30 days before the beginning of each
fiscal year of the Borrower, the Borrower will deliver to the Lender the
projected balance sheets and income statements for each month of such year,
each in reasonable detail, representing the Borrower's good faith projections
and certified by the Borrower's chief financial Officer as being the most
accurate projections available and identical to the projections used by the
Borrower for internal planning purposes, together with a statement of
underlying assumptions and such supporting schedules and information as the
Lender may in its discretion require.</p>

<p align="justify">&nbsp;</p>

<p align="center">32</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Litigation</i></b>.&nbsp; Immediately after the commencement thereof,
the Borrower will deliver to the Lender notice in writing of all litigation and
of all proceedings before any governmental or regulatory agency affecting the
Borrower (i) of the type described in Section&nbsp;5.14(c) or (ii) which seek a
monetary recovery against the Borrower in excess of $100,000.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Defaults</i></b>.&nbsp; As promptly as practicable (but in any event
not later than five business days) after an Officer of the Borrower obtains
knowledge of the occurrence of any Default or Event of Default, the Borrower
will deliver to the Lender notice of such occurrence, together with a detailed
statement by a responsible Officer of the Borrower of the steps being taken by
the Borrower to cure the effect thereof.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Plans</i></b>.&nbsp; As soon as possible, and in any event within
30 days after the Borrower knows or has reason to know that any Reportable
Event with respect to any Pension Plan has occurred, the Borrower will deliver
to the Lender a statement of the Borrower's chief financial Officer setting
forth details as to such Reportable Event and the action which the Borrower
proposes to take with respect thereto, together with a copy of the notice of
such Reportable Event to the Pension Benefit Guaranty Corporation. As soon as
possible, and in any event within 10 days after the Borrower fails to make any
quarterly contribution required with respect to any Pension Plan under Section
412(m) of the IRC, the Borrower will deliver to the Lender a statement of the
Borrower's chief financial Officer setting forth details as to such failure and
the action which the Borrower proposes to take with respect thereto, together
with a copy of any notice of such failure required to be provided to the
Pension Benefit Guaranty Corporation. As soon as possible, and in any event
with 10 days after the Borrower knows or has reason to know that it has or is
reasonably expected to have any liability under Section 4201 or 4243 of ERISA
for any withdrawal, partial withdrawal, reorganization or other event under any
Multiemployer Plan, the Borrower will deliver to the Lender a statement of the
Borrower's chief financial Officer setting forth details as to such liability
and the action which Borrower proposes to take with respect thereto.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (h)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Disputes</i></b>.&nbsp; Promptly upon knowledge thereof, the Borrower
will deliver to the Lender notice of (i) any disputes or claims by the
Borrower's customers exceeding $10,000 individually or $50,000 in the aggregate
during any fiscal year; (ii) credit memos; (iii) any goods returned to or
recovered by the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Officers and Directors</i></b>.&nbsp; Promptly upon knowledge thereof, the Borrower
will deliver to the Lender notice any change in the persons constituting the
Borrower's Officers and Directors.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (j)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Collateral</i></b>.&nbsp; Promptly upon knowledge thereof, the Borrower
will deliver to the Lender notice of any loss of or material damage to any
Collateral or of any substantial adverse change in any Collateral or the
prospect of payment thereof.</p>

<p align="justify">&nbsp;</p>

<p align="center">33</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (k)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Commercial Tort Claims</i></b>.&nbsp; Promptly upon knowledge thereof, the Borrower
will deliver to the Lender notice of any commercial tort claims it may bring
against any person, including the name and address of each defendant, a summary
of the facts, an estimate of the Borrower's damages, copies of any complaint or
demand letter submitted by the Borrower, and such other information as the
Lender may request.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (l)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Intellectual Property</i></b>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower will give the Lender 30 days prior written
notice of its intent to acquire material Intellectual Property Rights; except
for transfers permitted under Section 6.17, the Borrower will give the Lender
30 days prior written notice of its intent to dispose of material Intellectual
Property Rights; and upon request, shall provide the Lender with copies of all
applicable documents and agreements.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Promptly upon knowledge thereof, the Borrower will
deliver to the Lender notice of (A) any material Infringement of its
Intellectual Property Rights by others, (B) claims that the Borrower is Infringing another Person's Intellectual Property Rights and
(C) any threatened cancellation, termination or material limitation of its
Intellectual Property Rights.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Promptly upon receipt, the Borrower will give the
Lender copies of all registrations and filings with respect to its Intellectual
Property Rights.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (m)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Reports to Owners</i></b>.&nbsp; Promptly upon their distribution, the
Borrower will deliver to the Lender copies of all financial statements, reports
and proxy statements which the Borrower shall have sent to its Owners.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (n)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>SEC Filings.</i></b>&nbsp; Promptly after the sending or filing thereof,
the Borrower will deliver to the Lender copies of all regular and periodic
reports which the Borrower shall file with the Securities and Exchange
Commission or any national securities exchange.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (o)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Tax Returns.</i></b>&nbsp; As soon as possible, and in any event by not
later five days after they are due, copies of the Guarantor's consolidated
state and federal tax returns and all schedules thereto.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (p)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Violations of Law</i></b>.&nbsp; Promptly upon knowledge thereof, the Borrower
will deliver to the Lender notice of the Borrower's violation of any law, rule
or regulation, the non-compliance with which could materially and adversely
affect the Borrower's business or its financial condition.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (q)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Other Reports</i></b>.&nbsp; From time to time, with reasonable
promptness, the Borrower will deliver to the Lender any and all receivables
schedules, collection reports, deposit records, equipment schedules, copies of
invoices to Account Debtors, shipment documents and delivery receipts for goods
sold, and such other material, reports, records or information as the Lender
may reasonably request.</p>

<p align="justify">&nbsp;</p>

<p align="center">34</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Financial Covenants</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Minimum Tangible Net Worth</i></b>.&nbsp; The Borrower will maintain its Tangible Net
Worth, as at the end of each month, at an amount not less than the amount set
forth in the table below opposite the applicable period:</p>

<div align=center>

<table border=1 cellspacing=0 cellpadding=0 bordercolor="#000000" style="border-collapse: collapse">
 <tr>
  <td width=222 valign=bottom>
  <p align=center><b>Test
  Date/Period</b></td>
  <td width=222 valign=bottom>
  <p><b>Minimum
  Tangible Net Worth</b></p>
  </td>
 </tr>
 <tr>
  <td width=222 valign=top>
  <p align="center">4/30/2002</p>
  </td>
  <td width=222 valign=top align="center">
  <p>$950,000</p>
  </td>
 </tr>
 <tr>
  <td width=222 valign=top>
  <p align=center>5/31/2002</p>
  </td>
  <td width=222 valign=top align="center">
  <p>$950,000</p>
  </td>
 </tr>
 <tr>
  <td width=222 valign=top>
  <p align=center>6/30/2002
  and each month end thereafter</p>
  </td>
  <td width=222 valign=top align="center">
  <p>$950,000</p>
  </td>
 </tr>
 <tr>
  <td width=222 valign=top>
  <p align=center>&nbsp;</p>
  </td>
  <td width=222 valign=top>
  <p>&nbsp;</p>
  </td>
 </tr>
</table>

</div>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Minimum Net Income</i></b>. The Borrower
will achieve during each period described below, measured quarterly on a
fiscal-year-to-date basis, minimum Net Income (or maximum Net Loss, as
applicable), of not less than the amount set forth in the table below opposite
the applicable period:</p>

<div align=center>

<table border=1 cellspacing=0 cellpadding=0 bordercolor="#000000" style="border-collapse: collapse">

  <tr>
   <td width=204 valign=bottom>
   <p align=center><b>Fiscal Year to Date Period&nbsp;Ending</b></p>
   </td>
   <td width=195 valign=bottom>
   <p align=center><b>Minimum Net Income  (or Maximum Net Loss)</b></p>
   </td>
  </tr>

 <tr>
  <td width=204 valign=top>
  <p align=center>6/30/2002</p>
  </td>
  <td width=195 valign=top>
  <p align=center>-$800,000</p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top>
  <p align=center>&nbsp;</p>
  </td>
  <td width=195 valign=top>
  <p align=center>&nbsp;</p>
  </td>
 </tr>
</table>

</div>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Maximum Net Loss.</i></b>&nbsp; The Borrower shall not have a Net Loss in
excess of $75,000 as at the end of any month, commencing with the month ending
July&nbsp;31, 2002.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><i>Capital Expenditures</i></b>.&nbsp; The Borrower and the Affiliate Borrower will
not incur or contract to incur Capital Expenditures of more than $150,000 in
the aggregate during any fiscal year, or more than $50,000 in the aggregate for
the fiscal quarter ending June&nbsp;30, 2002.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Permitted Liens; Financing Statements</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower will not create, incur or suffer to exist
any Lien upon or of any of its assets, now owned or hereafter acquired, to secure
any indebtedness; <u>excluding</u>, <u>however</u>, from the operation of the
foregoing, the following (collectively, &quot;Permitted Liens&quot;):</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
in the case of any of the Borrower's property which is
not Collateral, covenants, restrictions, rights, easements and minor irregularities
in title which do not materially interfere with the Borrower's business or
operations as presently conducted;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Liens in existence on the date hereof and listed in
Schedule&nbsp;6.3 hereto, securing indebtedness for borrowed money permitted
under Section&nbsp;6.4;</p>

<p align="justify">&nbsp;</p>

<p align="center">35</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Security Interest and Liens created by the Security
Documents; and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
purchase money Liens relating
to the acquisition of machinery and equipment of the Borrower not exceeding the
lesser of cost or fair market value thereof, not exceeding $50,000 for any one
purchase or $100,000 in the aggregate during any fiscal year, and so long as no
Default Period is then in existence and none would exist immediately after such
acquisition.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower will not amend any financing statements in
favor of the Lender except as permitted by law. Any authorization by the Lender
to any Person to amend financing statements in favor of the Lender shall be in
writing.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Indebtedness</u>.&nbsp; The Borrower will
not incur, create, assume or permit to exist any Indebtedness or liability on
account of deposits or advances or any Indebtedness for borrowed money or
letters of credit issued on the Borrower's behalf, or any other Indebtedness or
liability evidenced by notes, bonds, debentures or similar obligations, except:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Indebtedness arising hereunder;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Indebtedness of the Borrower in existence on the date
hereof and listed in Schedule&nbsp;6.4 hereto; and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Indebtedness relating to Permitted Liens.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Guaranties</u>.&nbsp; The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the endorsement of negotiable instruments by the
Borrower for deposit or collection or similar transactions in the ordinary
course of business; and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
guaranties, endorsements and
other direct or contingent liabilities in connection with the obligations of
other Persons, in existence on the date hereof and listed in Schedule&nbsp;6.4
hereto.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Investments and Subsidiaries</u>.&nbsp; The Borrower will
not purchase or hold beneficially any stock or other securities or evidences of
indebtedness of, make or permit to exist any loans or advances to, or make any
investment or acquire any interest whatsoever in, any other Person, including
any partnership or joint venture, except:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
investments in direct obligations of the United States
of America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of America
having a maturity of one year or less, commercial paper issued by U.S. corporations
rated &quot;A-1&quot; or &quot;A-2&quot; by Standard &amp; Poors Corporation or &quot;P-1&quot; or &quot;P-2&quot; by
Moody's Investors Service or certificates of deposit or bankers' acceptances
having a maturity of one year or less issued by members of the Federal Reserve
System having deposits in excess of $100,000,000 (which certificates of deposit
or bankers' acceptances are fully insured by the Federal Deposit Insurance
Corporation);</p>

<p align="justify">&nbsp;</p>

<p align="center">36</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
travel advances or loans to the Borrower's Officers and
employees not exceeding at any one time an aggregate of $5,000;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
advances in the form of progress payments, prepaid rent
not exceeding three (3) months or security deposits; and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
current investments in the
Subsidiaries in existence on the date hereof and listed in Schedule&nbsp;5.5
hereto.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Dividends and Distributions</u>.&nbsp; Except as set forth
in this Section 6.7, the Borrower will not declare or pay any dividends (other
than dividends payable solely in stock of the Borrower) on any class of its
stock or make any payment on account of the purchase, redemption or other
retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly.&nbsp;
Notwithstanding the foregoing, provided that a Default Period is not
continuing or would result therefrom, the Borrower and the Affiliate Borrower
may declare and pay dividends to the Guarantor in an aggregate amount to cover
the Guarantor's corporate overhead expenses.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Salaries</u>.&nbsp; The Borrower will
not pay excessive or unreasonable salaries, bonuses, commissions, consultant
fees or other compensation.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Books and Records; Inspection and Examination</u>.&nbsp; The Borrower will
keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower's business and financial condition
and such other matters as the Lender may from time to time request in which
true and complete entries will be made in accordance with GAAP and, upon the
Lender's request, will permit any officer, employee, attorney or accountant for
the Lender to audit, review, make extracts from or copy any and all company and
financial books and records of the Borrower at all times during ordinary
business hours, to send and discuss with Account Debtors and other obligors
requests for verification of amounts owed to the Borrower, and to discuss the
Borrower's affairs with any of its Directors, Officers, employees or agents.
The Borrower hereby irrevocably authorizes all accountants and third parties to
disclose and deliver to Lender, at the Borrower's expense, all financial
information, books and records, work papers, management reports and other
information in their possession regarding the Borrower. The Borrower will
permit the Lender, or its employees, accountants, attorneys or agents, to
examine and inspect any Collateral or any other property of the Borrower at any
time during ordinary business hours.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Account Verification</u>.&nbsp; The Lender may at
any time and from time to time send or require the Borrower to send requests
for verification of accounts or notices of assignment to Account Debtors and other
obligors. The Lender may also at any time and from time to time telephone
Account Debtors and other obligors to verify accounts.</p>

<p align="justify">&nbsp;</p>

<p align="center">37</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Compliance with Laws</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would materially
and adversely affect its business or its financial condition and (ii) use and
keep the Collateral, and require that others use and keep the Collateral, only
for lawful purposes, without violation of any federal, state or local law,
statute or ordinance.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Without limiting the foregoing undertakings, the
Borrower specifically agrees that it will comply with all applicable
Environmental Laws and obtain and comply with all permits, licenses and similar
approvals required by any Environmental Laws, and will not generate, use,
transport, treat, store or dispose of any Hazardous Substances in such a manner
as to create any material liability or obligation under the common law of any
jurisdiction or any Environmental Law.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Payment of Taxes and Other Claims</u>.&nbsp; The Borrower will
pay or discharge, when due, (a) all taxes, assessments and governmental charges
levied or imposed upon it or upon its income or profits, upon any properties
belonging to it (including the Collateral) or upon or against the creation,
perfection or continuance of the Security Interest, prior to the date on which
penalties attach thereto, (b) all federal, state and local taxes required to be
withheld by it, and (c) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a Lien upon any properties of the Borrower;
provided, that the Borrower shall not be required to pay any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which proper
reserves have been made.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
6.13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Maintenance of Properties</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower will keep and maintain the Collateral and
all of its other properties necessary or useful in its business in good
condition, repair and working order (normal wear and tear excepted) and will
from time to time replace or repair any worn, defective or broken parts;
provided, however, that nothing in this Section&nbsp;6.13 shall prevent the
Borrower from discontinuing the operation and maintenance of any of its
properties if such discontinuance is, in the Borrower's judgment, desirable in
the conduct of the Borrower's business and not disadvantageous in any material
respect to the Lender.&nbsp; The Borrower will
take all commercially reasonable steps necessary to protect and maintain its
Intellectual Property Rights.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower will defend the Collateral against all
Liens, claims or demands of all Persons (other than the Lender) claiming the
Collateral or any interest therein. The Borrower will keep all Collateral free and clear of all Liens except Permitted
Liens. The Borrower will take all commercially reasonable steps necessary to
prosecute any Person Infringing its Intellectual Property Rights and to defend
itself against any Person accusing it of Infringing
any Person's Intellectual Property Rights.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Insurance</u>.&nbsp; The Borrower will
obtain and at all times maintain insurance with insurers believed by the
Borrower to be responsible and reputable, in such amounts and against such
risks as may from time to time be required by the Lender, but in all events in
such amounts and against such risks as is usually carried by companies engaged
in similar business and owning similar properties in the same general areas in
which the Borrower operates. Without limiting the generality of the foregoing,
the Borrower will at all times maintain business interruption insurance
including coverage for force majeure and keep all tangible Collateral insured
against risks of fire (including so-called extended coverage), theft, collision
(for Collateral consisting of motor vehicles) and such other risks and in such
amounts as the Lender may reasonably request, with any loss payable to the
Lender to the extent of its interest, and all policies of such insurance shall
contain a lender's loss payable endorsement for the Lender's benefit. All
policies of liability insurance required hereunder shall name the Lender as an
additional insured.</p>

<p align="justify">&nbsp;</p>

<p align="center">38</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.15&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Preservation of Existence</u>.&nbsp; The Borrower will
preserve and maintain its existence and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.16&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Delivery of Instruments, etc</u>.&nbsp; &nbsp; Upon request by the
Lender, the Borrower will promptly deliver to the Lender in pledge all
instruments, documents and chattel paper constituting Collateral, duly endorsed
or assigned by the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.17&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Sale or Transfer of Assets; Suspension of
Business Operations</u>.&nbsp; The Borrower will
not sell, lease, assign, transfer or otherwise dispose of (i) the stock of any
Subsidiary, (ii) all or a substantial part of its assets, or (iii) any
Collateral or any interest therein (whether in one transaction or in a series
of transactions) to any other Person other than (x) the sale of Inventory in
the ordinary course of business, and (y) dispositions of obsolete, worn or
nonfunctional equipment.&nbsp; The Borrower
will not liquidate, dissolve or suspend business operations. The Borrower will
not transfer any part of its ownership interest in any Intellectual Property
Rights and will not permit any agreement under which it has licensed Licensed
Intellectual Property to lapse, except that the Borrower may transfer such
rights or permit such agreements to lapse if it shall have reasonably determined
that the applicable Intellectual Property Rights are no longer useful in its
business. If the Borrower transfers any Intellectual Property Rights for value,
the Borrower will pay over the proceeds to the Lender for application to the
Obligations. The Borrower will not license any other Person to use any of the
Borrower's Intellectual Property Rights, except that the Borrower may grant
licenses in the ordinary course of its business in connection with sales of
Inventory or provision of services to its customers.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.18&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Consolidation and Merger; Asset Acquisitions</u>.&nbsp; The Borrower will
not consolidate with or merge into any Person, or permit any other Person to
merge into it, or acquire (in a transaction analogous in purpose or effect to a
consolidation or merger) all or substantially all the assets of any other
Person.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.19&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Sale and Leaseback</u>.&nbsp; The Borrower will
not enter into any arrangement, directly or indirectly, with any other Person
whereby the Borrower shall sell or transfer any real or personal property, whether
now owned or hereafter acquired, and then or thereafter rent or lease as lessee
such property or any part thereof or any other property which the Borrower
intends to use for substantially the same purpose or purposes as the property
being sold or transferred.</p>

<p align="justify">&nbsp;</p>

<p align="center">39</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.20&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Restrictions on Nature of Business</u>.&nbsp; The Borrower will
not engage in any line of business materially different from that presently
engaged in by the Borrower and will not purchase, lease or otherwise acquire
assets not related to its business.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.21&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Accounting</u>.&nbsp; The Borrower will
not adopt any material change in accounting principles other than as required
by GAAP.&nbsp; The Borrower will not adopt,
permit or consent to any change in its fiscal year.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.22&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Discounts, etc.</u></p>

<p align="justify">&nbsp; After notice from
the Lender, the Borrower will not grant any discount, credit or allowance to
any customer of the Borrower or accept any return of goods sold.&nbsp; The Borrower will not at any time modify,
amend, subordinate, cancel or terminate the obligation of any Account Debtor or
other obligor of the Borrower.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.23&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Plans</u>.&nbsp; Unless disclosed to
the Lender pursuant to Section 5.12, neither the Borrower nor any ERISA
Affiliate will (i) adopt, create, assume or become a party to any Pension Plan,
(ii) incur any obligation to contribute to any Multiemployer Plan, (iii) incur
any obligation to provide post-retirement medical or insurance benefits with
respect to employees or former employees (other than benefits required by law)
or (iv) amend any Plan in a manner that would materially increase its funding
obligations.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.24&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Place of Business; Name</u>.&nbsp; The Borrower will
not transfer its chief executive office or principal place of business, or
move, relocate, close or sell any business location.&nbsp; The Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest.&nbsp; The Borrower will not change its name or
jurisdiction of organization.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.25&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Constituent Documents; S Corporation Status</u>.&nbsp; The Borrower will
not amend its Constituent Documents.&nbsp; The
Borrower will not become an S Corporation.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.26&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Transactions With Affiliates</u>.&nbsp; &nbsp; The Borrower will
not directly or indirectly enter into or permit to exist any transaction with
any Affiliate of the Borrower except for transactions that are in the ordinary
course of the Borrower's business, upon fair and reasonable terms, that are
fully disclosed to the Lender, and that are no less favorable to the Borrower
than would be obtained in an arm's length transaction with a non-Affiliate.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 6.27&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Performance by the Lender</u>.&nbsp; If the Borrower at
any time fails to perform or observe any of the foregoing covenants contained
in this Article&nbsp;VI or elsewhere herein, and if such failure shall continue
for a period of ten calendar days after the Lender gives the Borrower written
notice thereof (or in the case of the agreements contained in
Sections&nbsp;6.13 and 6.15, immediately upon the occurrence of such failure,
without notice or lapse of time), the Lender may, but need not, perform or
observe such covenant on behalf and in the name, place and stead of the
Borrower (or, at the Lender's option, in the Lender's name) and may, but need
not, take any and all other actions which the Lender may reasonably deem
necessary to cure or correct such failure (including the payment of taxes, the
satisfaction of Liens, the performance of obligations owed to Account Debtors
or other obligors, the procurement and maintenance of insurance, the execution
of assignments, security agreements and financing statements, and the
endorsement of instruments); and the Borrower shall thereupon pay to the Lender
on demand the amount of all monies expended and all costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by the
Lender in connection with or as a result of the performance or observance of
such agreements or the taking of such action by the Lender, together with
interest thereon from the date expended or incurred at the Default Rate.&nbsp; To facilitate the Lender's performance or
observance of such covenants of the Borrower, the Borrower hereby irrevocably
appoints the Lender, or the Lender's delegate, acting alone, as the Borrower's
attorney in fact (which appointment is coupled with an interest) with the right
(but not the duty) from time to time to create, prepare, complete, execute,
deliver, endorse or file in the name and on behalf of the Borrower any and all
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by the Borrower under this
Section&nbsp;6.27.</p>

<p align="justify">&nbsp;</p>

<p align="center">40</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="center"><b>ARTICLE VII</b><u><br>
<br>
<b>EVENTS OF DEFAULT,
RIGHTS AND REMEDIES</b></u></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 7.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Events of Default</u>.&nbsp; &nbsp; &quot;Event of Default&quot;, wherever used herein,
means any one of the following events:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Default in the payment of any Obligations when they
become due and payable;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A Change of Control shall occur;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any Financial Covenant shall become inapplicable due to
the lapse of time and the failure to amend any such covenant to cover future
periods;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An Insolvency Proceeding is commenced by the Borrower
or any Guarantor;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An Insolvency Proceeding is commenced against the
Borrower, or any Guarantor, and any of the following events occur:&nbsp; (a)&nbsp;the Borrower or such Guarantor
consents to the institution of such Insolvency Proceeding against it,
(b)&nbsp;the petition commencing the Insolvency Proceeding is not timely
controverted, (c)&nbsp;the petition commencing the Insolvency Proceeding is not
dismissed within 45 calendar days of the date of the filing thereof; <u>provided</u>,
<u>however</u>, that, during the pendency of such period, the Lender shall be
relieved of its obligations to extend credit hereunder, (d)&nbsp;an interim
trustee is appointed to take possession of all or any substantial portion of
the properties or assets of, or to operate all or any substantial portion of
the business of, the Borrower or any such Guarantor, or (e)&nbsp;an order for
relief shall have been entered therein;</p>

<p align="justify">&nbsp;</p>

<p align="center">41</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any material portion of the Borrower's or any
Guarantor's assets is attached, seized, subjected to a writ or distress warrant,
levied upon, or comes into the possession of any third Person;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (h)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower or any Guarantor is enjoined, restrained,
or in any way prevented by court order from continuing to conduct all or any
material part of its business affairs;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A notice of Lien, levy, or assessment is filed of
record with respect to any of the Borrower's or any Guarantor's assets by the
United States, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes or debts
owing at any time hereafter to any one or more of such entities becomes a Lien,
whether choate or otherwise, upon any of the Borrower's or any Guarantor's
assets and the same is not paid before such payment is delinquent;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (j)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This Agreement or any other Loan Document that purports
to create a Lien, shall, for any reason, fail or cease to create a valid and
perfected and, except to the extent permitted by the terms hereof or thereof,
first priority Lien on or security interest in the Collateral covered hereby or
thereby; </p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (k)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any provision of any Loan Document shall at any time
for any reason be declared to be null and void, or the validity or
enforceability thereof shall be contested by Borrower, or a proceeding shall be
commenced by Borrower, or by any Governmental Authority having jurisdiction
over Borrower, seeking to establish the invalidity or unenforceability thereof,
or Borrower shall deny that Borrower has any liability or obligation purported
to be created under any Loan Document.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (l)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any representation or warranty made by the Borrower in
this Agreement, by any Guarantor in any guaranty delivered to the Lender, or by
the Borrower (or any of its Officers) or any Guarantor in any agreement,
certificate, instrument or financial statement or other statement contemplated
by or made or delivered pursuant to or in connection with this Agreement or any
such guaranty shall prove to have been incorrect in any material respect when
deemed to be effective;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (m)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The rendering against the Borrower of an arbitration
award, final judgment, decree or order for the payment of money in excess of
$200,000 and the continuance of such arbitration award, judgment, decree or
order unsatisfied and in effect for any period of 30 consecutive days without a
stay of execution;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (n)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A default under any bond, debenture, note or other
evidence of material Indebtedness of the Borrower owed to any Person other than
the Lender, or under any indenture or other instrument under which any such
evidence of Indebtedness has been issued or by which it is governed, or under
any material lease or other contract, and the expiration of the applicable
period of grace, if any, specified in such evidence of Indebtedness, indenture,
other instrument, lease or contract;</p>

<p align="justify">&nbsp;</p>

<p align="center">42</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (o)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any Reportable Event, which the Lender determines in
good faith might constitute grounds for the termination of any Pension Plan or
for the appointment by the appropriate United States District Court of a
trustee to administer any Pension Plan, shall have occurred and be continuing
30 days after written notice to such effect shall have been given to the
Borrower by the Lender; or a trustee shall have been appointed by an
appropriate United States District Court to administer any Pension Plan; or the
Pension Benefit Guaranty Corporation shall have instituted proceedings to
terminate any Pension Plan or to appoint a trustee to administer any Pension
Plan; or the Borrower or any ERISA Affiliate shall have filed for a distress
termination of any Pension Plan under Title IV of ERISA; or the Borrower or any
ERISA Affiliate shall have failed to make any quarterly contribution required
with respect to any Pension Plan under Section 412(m) of the IRC, which the
Lender determines in good faith may by itself, or in combination with any such
failures that the Lender may determine are likely to occur in the future,
result in the imposition of a Lien on the Borrower's assets in favor of the
Pension Plan; or any withdrawal, partial withdrawal, reorganization or other
event occurs with respect to a Multiemployer Plan which results or could
reasonably be expected to result in a material liability of the Borrower to the
Multiemployer Plan under Title IV of ERISA.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (p)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An event of default shall occur under any Security
Document;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (q)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its business in
the ordinary course, or sell or attempt to sell all or substantially all of its
assets;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (r)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Default in the payment of any amount owed by the
Borrower to the Lender other than any Indebtedness arising hereunder;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (s)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any Guarantor or person signing a support agreement in
favor of the Lender shall repudiate, purport to revoke or fail to perform his
obligations under his guaranty or support agreement in favor of the Lender, any
individual Guarantor shall die or any other Guarantor shall cease to exist;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (t)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower shall take or participate in any action
which would be prohibited under the provisions of any Subordination Agreement
or make any payment on the Subordinated Indebtedness (as defined in the
Subordination Agreement) that any Person was not entitled to receive under the
provisions of the Subordination Agreement;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (u)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any event or circumstance with respect to the Borrower
shall occur such that the Lender shall believe in good faith that the prospect
of payment of all or any part of the Obligations or the performance by the
Borrower under the Loan Documents is impaired or any material adverse change in
the business or financial condition of the Borrower shall occur;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (v)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any Event of Default under the Affiliate Credit
Agreement shall occur, or any other breach, default or event of default by or
attributable to any Affiliate under any agreement between such Affiliate and
the Lender shall occur; or</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (w)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any other Material Adverse Effect shall occur.</p>

<p align="justify">&nbsp;</p>

<p align="center">43</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 7.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Rights and Remedies</u>.&nbsp; &nbsp; During any Default Period, the Lender may
exercise any or all of the following rights and remedies, all of which the
Borrower acknowledges and agrees are commercially reasonable:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may, by notice to the Borrower, declare the
Commitment to be terminated, whereupon the same shall forthwith terminate;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations shall
become and be forthwith due and payable, without presentment, notice of
dishonor, protest or further notice of any kind, all of which the Borrower
hereby expressly waives;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may, without notice to the Borrower and
without further action, apply any and all money owing by the Lender to the
Borrower to the payment of the Obligations;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may settle or adjust disputes and claims
directly with Account Debtors for amounts and upon terms which the Lender
considers advisable, and in such cases, the Lender will credit the Obligations
with only the net amounts received by the Lender in payment of such disputed
Accounts after deducting all expenses incurred or expended by the Lender in
connection therewith;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may cause the Borrower to hold all returned
Inventory in trust for the Lender, segregate all returned Inventory from all
other assets of the Borrower or in the Borrower's possession and conspicuously
label said returned Inventory as the property of the Lender;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
without notice to or demand
upon the Borrower or any Guarantor, the Lender
may make such payments and do such acts as the Lender considers necessary or
reasonable to protect its security interests in the Collateral.&nbsp; The Borrower agrees to assemble the Collateral if the Lender so requires, and to make the
Collateral available to the Lender at a place that the Lender may designate
which is reasonably convenient to both parties.&nbsp;
The Borrower authorizes Lender to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or
any part of it, and to pay, purchase, contest, or compromise any Lien that in
the Lender's determination appears to conflict with the Lender's Liens and to
pay all expenses incurred in connection therewith and to charge the Obligations
therefor.&nbsp; With respect to any of the
Borrower's owned or leased premises, the Borrower hereby grants the Lender a
license to enter into possession of such premises and to occupy the same,
without charge, in order to exercise any of the Lender's rights or remedies
provided herein, at law, in equity, or otherwise;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
without notice to Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in satisfaction
of an obligation (within the meaning of the UCC), the Lender may set off and
apply to the Obligations any and all (i) balances and deposits of the Borrower
held by the Lender (including any amounts received in the Lockbox), or (ii)
Indebtedness at any time owing to or for the credit or the account of the
Borrower held by Lender;</p>

<p align="justify">&nbsp;</p>

<p align="center">44</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (h)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may hold, as cash collateral, any and all
balances and deposits of the Borrower held by the Lender, and any amounts
received in the Lockbox, to secure the full and final repayment of all of the
Obligations;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (j)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may sell the Collateral at either a public
or private sale, or both, by way of one or more contracts or transactions, for
cash or on terms, in such manner and at such places (including the Borrower's
premises) as the Lender determines is commercially reasonable.&nbsp; It is not necessary that the Collateral be
present at any such sale;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (k)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender shall give notice of the disposition of the
Collateral as follows:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Lender shall give the Borrower a notice in writing
of the time and place of public sale, or, if the sale is a private sale or some
other disposition other than a public sale is to be made of the Collateral, the
time on or after which the private sale or other disposition is to be made; and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The notice shall be personally delivered or mailed,
postage prepaid, to the Borrower as provided in <u>Section 8.3</u>, at least 10
days before the earliest time of disposition set forth in the notice; no notice
needs to be given prior to the disposition of any portion of the Collateral
that is perishable or threatens to decline speedily in value or that is of a
type customarily sold on a recognized market;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (l)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may credit bid and purchase at any public sale;
</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (m)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may seek the appointment of a receiver or
keeper to take possession of all or any portion of the Collateral or to operate
same and, to the maximum extent permitted by law, may seek the appointment of
such a receiver without the requirement of prior notice or a hearing;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (n)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If the Lender sells any of the Collateral on credit,
the Obligations will be reduced only to the extent of payments actually
received. If the purchaser fails to pay for the Collateral, the Lender may
resell the Collateral and shall apply any proceeds actually received to the
Obligations;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (o)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender shall have no obligation to attempt to
satisfy the Obligations by collecting them from any third Person which may be
liable for them or any portion thereof, and the Lender may release, modify or&nbsp; waive any
collateral provided by any other Person as security for the Obligations or any
portion thereof, all without affecting the Lender's rights against the
Borrower.&nbsp; The Borrower waives any right
it may have to require the Lender to pursue any third Person for any of the
Obligations;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (p)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may make demand upon the Borrower and,
forthwith upon such demand, the Borrower will pay to the Lender in immediately
available funds for deposit in the Special Account pursuant to Section 2.4 an amount
equal to the aggregate maximum amount available to be drawn under all Letters
of Credit then outstanding, assuming compliance with all conditions for drawing
thereunder;</p>

<p align="justify">&nbsp;</p>

<p align="center">45</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (q)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (r)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the Lender may exercise any
other rights and remedies available to it by law or agreement.</p>

<p align="justify">Notwithstanding the foregoing, upon the occurrence of an
Event of Default described in subsections (e) or (f) of Section 7.1, the
Obligations shall be immediately due and payable automatically without
presentment, demand, protest or notice of any kind.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 7.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Disclaimer of Warranties</u>.&nbsp; </p>

<p align="justify">The Lender may sell the Collateral without giving any
warranties as to the Collateral.&nbsp; The
Lender may specifically disclaim any warranties of title or the like.&nbsp; This procedure will not be considered to
adversely affect the commercial reasonableness of any sale of the Collateral.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 7.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Compliance With Laws</u>.&nbsp; </p>

<p align="justify">The Lender may comply with any applicable state or federal
law requirements in connection with a disposition of the Collateral,
and the Lender's compliance therewith will not be considered to adversely
affect the commercial reasonableness of any sale of the Collateral.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 7.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>No Marshalling</u>.&nbsp; </p>

<p align="justify">The Lender shall be under no obligation to marshal any
assets in favor of the Borrower, or against or in payment of the Obligations or
any other obligation owned to the Lender by the Borrower or any other Person.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 7.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Borrower to Cooperate</u>.&nbsp; </p>

<p align="justify">Upon the exercise by the Lender of any power, right,
privilege, or remedy pursuant to this Agreement which requires any consent,
approval, registration, qualification, or authorization of any Governmental
Authority, the Borrower agrees to execute and deliver, or will cause the
execution and delivery of, all applications, certificates, instruments,
assignments, and other documents and papers that the Lender or any purchaser of
the Collateral may be required to obtain for such governmental consent,
approval, registration, qualification, or authorization.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 7.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Application of Proceeds</u>.&nbsp; All proceeds realized as the result of any sale of the
Collateral shall be applied by the Lender:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; FIRST to the costs, expenses, liabilities,
obligations and attorneys' fees incurred by the Lender in the exercise of its
rights under this Agreement;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; SECOND to the interest and fees due upon any of
the Obligations; and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; THIRD to the principal of the
Obligations, in such order as the Lender shall determine in its sole
discretion.&nbsp; Any surplus shall be
paid to the Borrower or other Persons legally entitled thereto; the Borrower
shall remain liable to the Lender for any deficiency.</p>

<p align="justify">&nbsp;</p>

<p align="center">46</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 7.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Remedies Cumulative</u>.&nbsp; The rights and remedies of the Lender under this Agreement,
the other Loan Documents, and all other agreements contemplated hereby and
thereby shall be cumulative.&nbsp; The Lender
shall have all other rights and remedies not inconsistent herewith as provided
under the UCC, by law, or in equity.&nbsp; No
exercise by the Lender of any one right or remedy shall be deemed an election
of remedies, and no waiver by the Lender of any default on the Borrower's part
shall be deemed a continuing waiver of any further defaults.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 7.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Lender Not Liable For The Collateral</u>.&nbsp; So long as the Lender complies with the obligations, if any,
imposed by the UCC,&nbsp;
the Lender shall not otherwise be liable or responsible in any
way or manner for:&nbsp; (a) the safekeeping
of the Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion or from any cause; (c) any diminution in the value thereof;
or (d) any act or default of any carrier, warehouseman, bailee, forwarding
agency, or other person whomsoever.&nbsp; The
Borrower bears the risk of loss or damage of the Collateral.</p>

<p align="center"><b>ARTICLE VIII</b><u><br>
<br>
<b>MISCELLANEOUS</b></u></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 8.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>No Waiver</u>.&nbsp; &nbsp; No failure or delay
by the Lender in exercising any right, power or remedy under the Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy under the Loan Documents.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 8.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Amendments, Etc.</u>&nbsp;&nbsp; &nbsp;No amendment,
modification, termination or waiver of any provision of any Loan Document or
consent to any departure by the Borrower therefrom or any release of a Security
Interest shall be effective unless the same shall be in writing and signed by
the Lender, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No notice to or
demand on the Borrower in any case shall entitle the Borrower to any other or
further notice or demand in similar or other circumstances.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 8.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Addresses for Notices; Requests for
Accounting</u>.&nbsp; &nbsp; Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States mail,
(c) sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in each case addressed or telecopied to the party to whom notice is
being given at its address or telecopier number as set forth below next to its
signature or, as to each party, at such other address or telecopier number as
may hereafter be designated by such party in a written notice to the other
party complying as to delivery with the terms of this Section. All such
notices, requests, demands and other communications shall be deemed to have
been given on (a) the date received if personally delivered, (b) when deposited
in the mail if delivered by mail, (c) the date sent if sent by overnight
courier, or (d) the date of transmission if delivered by telecopy, except that
notices or requests to the Lender pursuant to any of the provisions of Article
II shall not be effective until received by the Lender. All requests under
Section 9210 of the UCC (i) shall be made in a writing signed by a person
authorized under Section 2.2(a), (ii) shall be personally delivered, sent by
registered or certified mail, return receipt requested, or by overnight courier
of national reputation (iii) shall be deemed to be sent when received by the
Lender and (iv) shall otherwise comply with the requirements of
Section&nbsp;9210. The Borrower requests that the Lender respond to all such
requests which on their face appear to come from an authorized individual and
releases the Lender from any liability for so responding. The Borrower shall
pay Lender the maximum amount allowed by law for responding to such requests.</p>

<p align="justify">&nbsp;</p>

<p align="center">47</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 8.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Further Documents</u>.&nbsp; &nbsp; The Borrower will
from time to time execute and deliver or endorse any and all instruments,
documents, conveyances, assignments, security agreements, financing statements,
control agreements and other agreements and writings that the Lender may
reasonably request in order to secure, protect, perfect or enforce the Security
Interest or the Lender's rights under the Loan Documents (but any failure to
request or assure that the Borrower executes, delivers or endorses any such
item shall not affect or impair the validity, sufficiency or enforceability of
the Loan Documents and the Security Interest, regardless of whether any such
item was or was not executed, delivered or endorsed in a similar context or on
a prior occasion).</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 8.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Costs and Expenses</u>.&nbsp; &nbsp; The Borrower shall
pay on demand all costs and expenses, including reasonable attorneys' fees,
incurred by the Lender in connection with the Obligations, this Agreement, the
Loan Documents, any Letter of Credit and any other document or agreement
related hereto or thereto, and the transactions contemplated hereby, including
all such costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interest.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 8.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Indemnity</u>.&nbsp; &nbsp; In addition to the
payment of expenses pursuant to Section 8.5, the Borrower shall indemnify,
defend and hold harmless the Lender, and any of its participants, parent
corporations, subsidiary corporations, affiliated corporations, successor
corporations, and all present and future officers, directors, employees,
attorneys and agents of the foregoing (the &quot;Indemnitees&quot;) from and against any
of the following (collectively, &quot;Indemnified Liabilities&quot;):</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any and all transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by reason of the
execution and delivery of the Loan Documents or the making of the Advances;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any claims, loss or damage to which any Indemnitee may
be subjected if any representation or warranty contained in Section 5.14 proves
to be incorrect in any respect or as a result of any violation of the covenant
contained in Section 6.11(b); and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any and all other liabilities, losses, damages,
penalties, judgments, suits, claims, costs and expenses of any kind or nature
whatsoever (including the reasonable fees and disbursements of counsel) in
connection with the foregoing and any other investigative, administrative or
judicial proceedings, whether or not such Indemnitee shall be designated a
party thereto, which may be imposed on, incurred by or asserted against any
such Indemnitee, in any manner related to or arising out of or in connection
with the making of the Advances and the Loan Documents or the use or intended
use of the proceeds of the Advances.</p>

<p align="justify">&nbsp;</p>

<p align="center">48</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">If any investigative, judicial or administrative proceeding
arising from any of the foregoing is brought against any Indemnitee, upon such
Indemnitee's request, the Borrower, or counsel designated by the Borrower and
satisfactory to the Indemnitee, will resist and defend such action, suit or
proceeding to the extent and in the manner directed by the Indemnitee, at the
Borrower's sole costs and expense. Each Indemnitee will use its best efforts to
cooperate in the defense of any such action, suit or proceeding. If the
foregoing undertaking to indemnify, defend and hold
harmless may be held to be unenforceable because it violates any law or public
policy, the Borrower shall nevertheless make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. The Borrower's obligation under this Section
8.6 shall survive the termination of this Agreement and the discharge of the
Borrower's other obligations hereunder.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 8.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Participants</u>.&nbsp; &nbsp;The Borrower hereby
authorizes the Lender to disclose to any assignee or any participant (either, a
&quot;Transferee&quot;) and any prospective Transferee any and all financial information
in the Lender's possession concerning Borrower which has been delivered to the
Lender by the Borrower pursuant to this Agreement or which has been delivered
to the Lender by the Borrower in connection with the Lender's credit evaluation
prior to entering into this Agreement.&nbsp;
The Lender and its participants, if any, are not partners or joint
venturers, and the Lender shall not have any liability or responsibility for
any obligation, act or omission of any of its participants. All rights and
powers specifically conferred upon the Lender may be transferred or delegated
to any of the Lender's participants, successors or assigns.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 8.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Advertising and Promotion</u>.&nbsp; </p>

<p align="justify">&nbsp; The Borrower agrees
that the Lender may use the Borrower's name(s) in advertising and promotional
materials, and in conjunction therewith, the Lender may disclose the amount of
the Commitment and the purpose thereof.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 8.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Execution in Counterparts; Telefacsimile
Execution</u>.&nbsp; &nbsp; This Agreement and
other Loan Documents may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect
of this Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 8.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Retention of Borrower's Records</u>.&nbsp; &nbsp; The Lender shall
have no obligation to maintain any electronic records or any documents,
schedules, invoices, agings, or other papers delivered to the Lender by the
Borrower or in connection with the Loan Documents for more than four months
after receipt by the Lender.</p>

<p align="justify">&nbsp;</p>

<p align="center">49</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 8.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Binding Effect; Assignment; Complete
Agreement; Exchanging Information</u>.&nbsp; &nbsp; The Loan Documents
shall be binding upon and inure to the benefit of the Borrower and the Lender
and their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights thereunder or any interest therein without
the Lender's prior written consent. To the extent permitted by law, the
Borrower waives and will not assert against any assignee any claims, defenses
or set-offs which the Borrower could assert against the Lender. This Agreement
shall also bind all Persons who become a party to this Agreement as a borrower.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's participants, accountants, lawyers and other
advisors, the Lender, Wells Fargo &amp; Company, and all direct and indirect
subsidiaries of Wells Fargo &amp; Company, may exchange any and all information
they may have in their possession regarding the Borrower and its Affiliates,
and the Borrower waives any right of confidentiality it may have with respect
to such exchange of such information.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 8.12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Severability of Provisions</u>.&nbsp; &nbsp; Any provision of
this Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 8.13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Revival and Reinstatement of Obligations</u>.&nbsp; &nbsp; If the incurrence or
payment of the Obligations by the Borrower or the Guarantor or the transfer to
the Lender of any property should for any reason subsequently be declared to be
void or voidable under any state or federal law relating to creditors' rights,
including provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, or other voidable or recoverable payments of money or transfers of
property (collectively, a &quot;Voidable Transfer&quot;), and if the Lender is required
to repay or restore, in whole or in part, any such Voidable Transfer, or elects
to do so upon the reasonable advice of its counsel, then, as to any such
Voidable Transfer, or the amount thereof that the Lender is required or elects
to repay or restore, and as to all reasonable costs, expenses, and attorneys
fees of the Lender related thereto, the liability of the Borrower or the
Guarantor automatically shall be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 8.14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Headings</u>.&nbsp; &nbsp; Article, Section and
subsection headings in this Agreement are included herein for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 8.15&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Governing Law; Jurisdiction, Venue; Waiver of
Jury Trial</u>.&nbsp; &nbsp; The Loan Documents
shall be governed by and construed in accordance with the substantive laws
(other than conflict laws) of the State of California. The parties hereto
hereby (i) consent to the personal jurisdiction of the state and federal courts
located in the State of California in connection with any controversy related
to this Agreement; (ii) waive any argument that venue in any such forum is not
convenient, (iii) agree that any litigation initiated by the Lender or the
Borrower in connection with this Agreement or the other Loan Documents may be
venued in either the State or Federal courts located in Los&nbsp;Angeles
County, California; and (iv) agree that a final judgment in any such suit,
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.</p>

<p align="justify">&nbsp;</p>

<p align="center">50</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify"><b>THE PARTIES WAIVE ANY
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.</b></p>

<p align="center"><b>ARTICLE IX</b><br>
<br>
<a name="_Toc10003128"><b><u>JOINT AND
SEVERAL LIABILITY</u></b></a></p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 9.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Joint and Several Liability</u>.&nbsp; The Borrower agrees
that it is jointly and severally, directly and primarily liable to the Lender
for payment, performance and satisfaction in full of the Obligations and that
such liability is independent of the duties, obligations, and liabilities of
the Affiliate Borrower.&nbsp; The Lender may
bring a separate action or actions on each, any, or all of the Obligations
against the Borrower, whether action is brought against the Affiliate Borrower
or whether the Affiliate Borrower is joined in such action.&nbsp; In the event that the Affiliate Borrower
fails to make any payment of any Obligation on or before the due date thereof,
the Borrower immediately shall cause such payment to be made or each of such
obligations to be made or each of such Obligations to be performed, kept,
observed, or fulfilled.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 9.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Primary Obligation; Waiver of Marshalling</u>.&nbsp; This Agreement and
the Loan Documents to which the Borrower is a party are a primary and original
obligation of the Borrower, are not the creation of a surety relationship, and
are an absolute, unconditional, and continuing promise of payment and
performance which shall remain in full force and effect without respect to
future changes in conditions, including any change of law or any invalidity or
irregularity with respect to this Agreement or the Loan Documents to which the
Borrower is a party.&nbsp; The Borrower agrees
that its liability under this Agreement and the Loan Documents to which the
Borrower is a party shall be immediate and shall not be contingent upon the
exercise or enforcement by the Lender of whatever remedies it may have against
the Affiliate Borrower, or the enforcement of any lien or realization upon any
security the Lender may at any time possess. The Borrower consents and agrees
that the Lender shall be under no obligation to marshal any assets of the
Borrower or the Affiliate Borrower against or in payment of any or all of the
Obligations.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 9.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Continuing Liability</u>.&nbsp; The liability of
the Borrower under this Agreement and the Loan Documents to which the Borrower
is a party includes Obligations arising under successive transactions
continuing, compromising, extending, increasing, modifying, releasing, or
renewing the Obligations, changing the interest rate, payment terms, or other
terms and conditions thereof, or creating new or additional Obligations after
prior Obligations have been satisfied in whole or in part.&nbsp; To the maximum extent permitted by law, the
Borrower hereby waives any right to revoke its liability under this Agreement
and the Loan Documents as to future indebtedness.</p>

<p align="justify">&nbsp;</p>

<p align="center">51</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section
9.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Additional Waivers</u>.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower absolutely, unconditionally, knowingly,
and expressly waives:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(1) notice of acceptance hereof; (2) notice of any
Advances or other financial accommodations made or extended under the Affiliate
Credit Agreement or the Affiliate Loan Documents or the creation or existence
of any Obligations; (3) notice of the amount of the Obligations, subject,
however, to the Borrower's right to make inquiry of the Lender to ascertain the
amount of the Obligations at any reasonable time; (4) notice of any adverse
change in the financial condition of the Affiliate Borrower or of any fact that
might increase the Borrower's risk hereunder; (5) notice of presentment for
payment, demand, protest, and notice thereof as to any instruments among the
Affiliate Loan Documents; (6) notice of any Event of Default or Default under
the Affiliate Credit Agreement; and (7) all other notices (except if such
notice is specifically required to be given to the Borrower hereunder or under
the Loan Documents to which the Borrower is a party) and demands to which the
Borrower might otherwise be entitled.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
its right, under Sections 2845 or 2850 of the
California Civil Code, or otherwise, to require the Lender to institute suit
against, or to exhaust any rights and remedies which the Lender has or may have
against the Affiliate Borrower or any third Person, or against any collateral
for the Obligations provided by the Affiliate Borrower or any third
Person.&nbsp; The Borrower further waives any
defense arising by reason of any disability or other defense (other than the
defense that the Obligations shall have been fully and finally performed and
indefeasibly paid) of any third party or by reason of the cessation from any
cause whatsoever of the liability of any third party in respect thereof.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
any rights to assert against the Lender any defense
(legal or equitable), set-off, counterclaim, or claim which the Borrower may
now or at any time hereafter have against the Affiliate Borrower or any other
party liable to the Lender; (2)&nbsp; any
defense, set-off, counterclaim, or claim, of any kind or nature, arising
directly or indirectly from the present or future lack of perfection,
sufficiency, validity, or enforceability of the Obligations or any security
therefor; (3) any defense the Borrower has to performance hereunder, and any
right The Borrower has to be exonerated, provided by Sections 2819, 2822, or
2825 of the California Civil Code, or otherwise, arising by reason of:&nbsp; the impairment or suspension of the Lender's
rights or remedies against the Affiliate Borrower or any third Person; the
alteration by the Lender of the Obligations; any discharge of the Affiliate
Borrower or any third Person's obligations to the Lender by operation of law as
a result of the Lender's intervention or omission; or the acceptance by the
Lender of anything in partial satisfaction of the Obligations; and (4) the
benefit of any statute of limitations affecting the Affiliate Borrower or such
third Person's liability hereunder or the enforcement thereof, and any act
which shall defer or delay the operation of any statute of limitations
applicable to the Obligations shall similarly operate to defer or delay the
operation of such statute of limitations applicable to the Borrower's liability
hereunder.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (iv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower hereby absolutely, unconditionally,
knowingly, and expressly waives: (i) any right of subrogation the Borrower has
or may have as against the Affiliate Borrower or any third Person with respect
to the Obligations; (ii) any right to proceed against the Affiliate Borrower or
any third Person, now or hereafter, for contribution, indemnity, reimbursement,
or any other suretyship rights and claims, whether direct or indirect,
liquidated or contingent, whether arising under express or implied contract or
by operation of law, which the Borrower may now have or hereafter have as
against the Affiliate Borrower or any third Person with respect to the
Obligations; and (iii) any right to proceed or seek recourse against or with
respect to any property or asset of the Affiliate Borrower or any third Person.</p>

<p align="justify">&nbsp;</p>

<p align="center">52</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (v)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower absolutely, unconditionally, knowingly,
and expressly waives any defense arising by reason of or deriving from (i) any
claim or defense based upon an election of remedies by the Lender including any
defense based upon an election of remedies by the Lender under the provisions
of Sections 580a, 580b, 580d, and 726 of the California Code of Civil Procedure
or any similar law of California or any other jurisdiction; or (ii) any
election by the Lender under Section 1111(b) of the Bankruptcy Code to limit
the amount of, or any collateral securing, its claim against the Affiliate
Borrower.&nbsp; Pursuant to California Civil
Code Section 2856(b):</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Borrower waives all rights and defenses arising out of
an election of remedies by the Lender, even though that election of remedies,
such as a nonjudicial foreclosure with respect to security for the Obligations,
has destroyed the Borrower's rights of subrogation and reimbursement against
the Affiliate Borrower by the operation of Section 580(d) of the California
Code of Civil Procedure or otherwise.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Borrower waives all rights and defenses that the
Borrower may have because the Obligations are secured by real property.&nbsp; This means, among other things:&nbsp; (1) the Lender may collect from the Borrower
without first foreclosing on any real or personal property collateral pledged
by the Affiliate Borrower; and (2) if the Lender forecloses on any real
property collateral pledged by the Affiliate Borrower:&nbsp; (A) the amount of the Obligations may be
reduced only by the price for which that collateral is sold at the foreclosure
sale, even if the collateral is worth more than the sale price; and (B) the
Lender may collect from the Borrower even if the Lender, by foreclosing on the
real property collateral, has destroyed any right The Borrower may have to
collect from the Affiliate Borrower.&nbsp;
This is an unconditional and irrevocable waiver of any rights and
defenses the Borrower may have because the Obligations are secured by real
property.&nbsp; These rights and defenses
include, but are not limited to, any rights or defenses based upon Section
580a, 580b, 580d, or 726 of the California Code of Civil Procedure.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Borrower also agrees that the &quot;fair market value&quot;
provisions of Section 580a of the California Code of Civil Procedure shall have
no applicability with respect to the determination of the Borrower's liability
under this Agreement and the Loan Documents to which the Borrower is a party.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b>WITHOUT LIMITING
THE GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION SET FORTH IN THIS
AGREEMENT, THE BORROWER HEREBY ABSOLUTELY, KNOWINGLY, UNCONDITIONALLY, AND
EXPRESSLY WAIVES AND AGREES NOT TO ASSERT ANY AND ALL BENEFITS OR DEFENSES
ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE
SECTIONS 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2825, 2839,
2845, 2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS 580a,
580b, 580c, 580d AND 726, CALIFORNIA UNIFORM COMMERCIAL CODE SECTIONS 3116,
3118, 3119, 3419, AND 3605, AND CHAPTER 2 OF TITLE 14 OF PART 4 OF DIVISION 3
OF THE CALIFORNIA CIVIL CODE.</b></p>

<p align="justify">&nbsp;</p>

<p align="center">53</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 9.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Settlement or Releases</u>.&nbsp; The Borrower
consents and agrees that, without notice to or by the Borrower, and without
affecting or impairing the liability of the Borrower hereunder, the Lender may,
by action or inaction:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
compromise, settle, extend the duration or the time for
the payment of, or discharge the performance of, or may refuse to or otherwise
not enforce the Affiliate Credit Agreement or the Affiliate Loan Documents, or
any part thereof, with respect to the Affiliate Borrower or any third Person;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
release the Affiliate Borrower any third Person or
grant other indulgences to the Affiliate Borrower or any guarantor of the
Obligations in respect thereof;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
amend or modify in any manner and at any time (or from
time to time) any of the Affiliate Loan Documents or the Affiliate Credit
Agreement; or</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
release or substitute any
guarantor, if any, of the Obligations, or enforce, exchange, release, or waive
any security for the Obligations or any other guaranty of the Obligations, or
any portion thereof.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 9.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>No Election</u>.&nbsp; The Lender shall
have the right to seek recourse against the Borrower to the fullest extent
provided for herein, and no election by the Lender to proceed in one form of
action or proceeding, or against any party, or on any obligation, shall
constitute a waiver of the Lender's right to proceed in any other form of
action or proceeding or against other parties unless the Lender has expressly
waived such right in writing.&nbsp;
Specifically, but without limiting the generality of the foregoing, no
action or proceeding by the Lender under this Agreement, the Loan Documents,
the Affiliate Loan Documents or the Affiliate Credit Agreement, shall serve to
diminish the liability of the Borrower under this Agreement and the Loan
Documents to which the Borrower is a party except to the extent that the Lender
finally and unconditionally shall have realized indefeasible payment by such
action or proceeding.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 9.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Indefeasible Payment</u>.&nbsp; The Obligations
shall not be considered indefeasibly paid unless and until all payments to the
Lender are no longer subject to any right on the part of any Person, including
the Affiliate Borrower, the Affiliate Borrower as a debtor in possession, or
any trustee (whether appointed pursuant to the Bankruptcy Code, or otherwise)
of the Affiliate Borrower's assets to invalidate or set aside such payments or
to seek to recoup the amount of such payments or any portion thereof, or to declare
same to be fraudulent or preferential.&nbsp;
In the event that, for any reason, any portion of such payments to the
Lender is set aside or restored, whether voluntarily or involuntarily, after
the making thereof, then the obligation intended to be satisfied thereby shall
be revived and continued in full force and effect as if said payment or
payments had not been made, and the Borrower shall be liable for the full
amount the Lender is required to repay plus any and all costs and expenses
(including attorneys' fees and attorneys' fees incurred in proceedings brought
under the Bankruptcy Code) paid by the Lender in connection therewith.</p>

<p align="justify">&nbsp;</p>

<p align="center">54</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Section 9.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Financial Condition of the Affiliate Borrower</u>.&nbsp; The Borrower
acknowledges that it is presently informed as to the financial condition of the
Affiliate Borrower and of all other circumstances which a diligent inquiry
would reveal and which bear upon the risk of nonpayment of the
Obligations.&nbsp; The Borrower hereby
covenants that it will continue to keep informed as to the financial condition
the Affiliate Borrower, the status of the other the Affiliate Borrower and of
all circumstances which bear upon the risk of nonpayment.&nbsp; Absent a written request from the Borrower to
the Lender for information, the Borrower hereby waives any and all rights it
may have to require the Lender to disclose to the Borrower any information
which the Lender may now or hereafter acquire concerning the condition or
circumstances of the Affiliate Borrower.</p>

<p align="center">*&nbsp;&nbsp; *&nbsp;&nbsp;&nbsp; *</p>

<p align=center>[remainder
of this page intentionally left blank]</p>

<p align="center">*&nbsp;&nbsp;&nbsp; *&nbsp;&nbsp;&nbsp; *</p><br clear=all>


<p align="center">55</p>
<hr color="#000080"><P Style="page-break-after: always"></P>


<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.</p>

<div align="left">

<table border=0 cellspacing=0 cellpadding=0 width="740" style="border-collapse: collapse" bordercolor="#111111">
 <tr>
  <td width=319 valign=top>
  <p align=left>Oregon Micro Systems,
  Inc.<br>
  1800 NW 169<sup>th</sup>
  Place, Bldg. C100<br>
  Beaverton, Oregon&nbsp; 97006<br>
  Telecopier: (877) 629&#8209;0688<br>
  Attention: Brenda C.G.
  Baumen<br>
  e-mail:
  brendab@omsmotion.com</p>
  </td>
  <td width=319 valign=top>
  <p align=left>OREGON MICRO SYSTEMS,
  INC.</p>
  <p align=left>&nbsp;</p>
  <p align=left>By:<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  <br>
  </u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Frank H. Zagar, Director</p>
  <p align=left>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p>
  </td>
 </tr>
 <tr>
  <td width=319 valign=top>
  <p align=left>Wells Fargo Business
  Credit, Inc.<br>
  245 S. Los Robles Avenue,
  Suite 600<br>
  Pasadena, California&nbsp; 91101<br>
  Telecopier:&nbsp; (626) 844&#8209;9063<br>
  Attention:&nbsp; Harry&nbsp;L. Joe<br>
  e-mail:&nbsp; joeharry@wellsfargo.com</p>
  <p align=left>&nbsp;</p>
  </td>
  <td width=319 valign=top>
  <p align=left>WELLS FARGO BUSINESS
  CREDIT, INC.</p>
  <p align=left>&nbsp;</p>
  <p align=left>By:<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  <br>
  </u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Jeffrey A. Heisinger, Vice President</p>
  </td>
 </tr>
</table>

</div>

<b><br clear=all>
</b>

<p align="center">56</p>
<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="center"><b>Table of Exhibits and Schedules</b></p>

<p>Exhibit A&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form
of Revolving Note</p>

<p>Exhibit B&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; [Intentionally Omitted]</p>

<p>Exhibit C&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Compliance Certificate</p>

<p>Exhibit D&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Premises</p>

<p>Exhibit E&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form of Notice of Borrowing</p>

<p>Schedule
5.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Trade Names, Chief Executive
Office, Principal Place <br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; of
Business, and Locations of Collateral</p>

<p>Schedule
5.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Capitalization
and Organizational Chart</p>

<p>Schedule
5.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Subsidiaries</p>

<p>Schedule
5.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Intellectual Property
Disclosures</p>

<p>Schedule
6.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Permitted Liens</p>

<p>Schedule
6.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Permitted Indebtedness and
Guaranties</p>

<p>&nbsp;</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p>&nbsp;</p>

&nbsp;<p align="center"><b>Exhibit A to
Credit and Security Agreement</b></p>

<p align="center"><b>REVOLVING NOTE</b></p>

<p>$3,000,000&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Santa
Ana, California<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; May&nbsp;28,
2002</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; For value received, the undersigned, OREGON MICRO SYSTEMS,
INC., an Oregon corporation (the &quot;Borrower&quot;), jointly and severally with Micro
Motors, Inc., a Colorado corporation, hereby promises to pay on the Termination
Date under the Credit Agreement (defined below), to the order of WELLS FARGO
BUSINESS CREDIT, INC., a Minnesota corporation (the &quot;Lender&quot;), at its main
office in Minneapolis, Minnesota, or at any other place designated at any time
by the holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of Three Million Dollars
($3,000,000) or, if less, the aggregate unpaid principal amount of all
Revolving Advances made by the Lender to the Borrower under the Credit
Agreement (defined below) together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the
Credit and Security Agreement of even date herewith (the &quot;Credit Agreement&quot;) by
and between the Lender and the Borrower. The principal hereof and interest
accruing thereon shall be due and payable as provided in the Credit Agreement.
This Note may be prepaid only in accordance with the Credit Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; This Note is issued pursuant, and is subject, to the Credit
Agreement, which provides, among other things, for acceleration hereof. This
Note is the Revolving Note referred to in the Credit Agreement. This Note is
secured, among other things, pursuant to the Credit Agreement and the Security
Documents as therein defined, and may now or hereafter be secured by one or
more other security agreements, mortgages, deeds of trust, assignments or other
instruments or agreements.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Borrower shall pay all costs of collection, including
reasonable attorneys' fees and legal expenses if this Note is not paid when
due, whether or not legal proceedings are commenced.</p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Presentment or other demand for payment, notice of dishonor
and protest are expressly waived.</p>

<p>OREGON MICRO SYSTEMS, INC.</p>

<p>&nbsp;</p>

<p>By<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<br>
</u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Frank H.
Zagar, Director</p>

<br clear=all>


<hr color="#000080"><P Style="page-break-after: always"></P>


<p align="center"><b>Exhibit C to
Credit and Security Agreement</b></p>

<p align="center"><b>Compliance
Certificate</b></p>

<p>To:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Harry&nbsp;L.
Joe<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Wells
Fargo Business Credit, Inc.</p>

<p>Date:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; __________________,
200___</p>

<p>Subject:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Oregon
Micro Systems, Inc.</p>

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Financial
Statements</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In accordance with our Credit and Security Agreement dated
as of May&nbsp;28, 2002 (the &quot;Credit Agreement&quot;), attached are the financial
statements of Oregon Micro Systems, Inc. (the &quot;Borrower&quot;) as of and for
________________, 20___ (the &quot;Reporting Date&quot;) and the year-to-date period then
ended (the &quot;Current Financials&quot;). All terms used in this certificate have the
meanings given in the Credit Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
the Borrower's financial condition as of the date thereof.</p>

<p><u>Events of Default</u>. (Check
one):</p>

<blockquote>

<p align="justify">&#61608; The undersigned does not have knowledge of the
occurrence of a Default or Event of Default under the Credit Agreement except
as previously reported in writing to the Lender.</p>

<p align="justify">&#61608;
The undersigned has knowledge of the occurrence
of a Default or Event of Default under the Credit Agreement not previously
reported in writing to the Lender and attached hereto is a statement of the
facts with respect to thereto. The Borrower acknowledges that pursuant to
Section 2.12(d) of the Credit Agreement, the Lender may impose the Default Rate
at any time during the resulting Default Period.</p>

</blockquote>

<p><u>Financial
Covenants</u>. I further hereby certify as follows:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Minimum Tangible Net Worth</u>.&nbsp; Pursuant to Section 6.2(a) of the Credit
Agreement, as of the Reporting Date, the Borrower's Tangible Net Worth was
$____________, which &#61608; satisfies &#61608; does not satisfy the requirement that such amount be
not less than $_____________ on the Reporting Date as set forth in table below:</p>

<p align="justify">&nbsp;</p>

<p align="center">1</p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>

<div align=center>

<table border=1 cellspacing=0 cellpadding=0 bordercolor="#000000" style="border-collapse: collapse">
 <tr>
  <td width=222 valign=bottom>
  <p align=center><b>Test
  Date/Period</b></td>
  <td width=222 valign=top>
  <p><b>Minimum
  Tangible Net Worth</b></p>
  </td>
 </tr>
 <tr>
  <td width=222 valign=top>
  <p align="center">4/30/2002</p>
  </td>
  <td width=222 valign=top align="center">
  <p>$950,000</p>
  </td>
 </tr>
 <tr>
  <td width=222 valign=top>
  <p align=center>5/31/2002</p>
  </td>
  <td width=222 valign=top align="center">
  <p>$950,000</p>
  </td>
 </tr>
 <tr>
  <td width=222 valign=top>
  <p align=center>6/30/2002
  and each month end thereafter</p>
  </td>
  <td width=222 valign=top align="center">
  <p>$950,000</p>
  </td>
 </tr>
</table>

</div>

<p>&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Minimum Net Income</u>.&nbsp; Pursuant to Section&nbsp;6.2(b) of the Credit
Agreement, the Borrower's Net Income (Net Loss) for the fiscal year-to-date
period ending on the Reporting Date, was $____________, which &#61608; satisfies
&#61608;
does not satisfy the requirement that such amount be not less than
$____________, as set forth in the table below:</p>

<div align=center>

<table border=1 cellspacing=0 cellpadding=0 bordercolor="#000000" style="border-collapse: collapse">

  <tr>
   <td width=204 valign=bottom>
   <p align=center><b>Fiscal Year to Date Period&nbsp;Ending</b></p>
   </td>
   <td width=195 valign=bottom>
   <p align=center><b>Minimum Net Income  (or Maximum Net Loss)</b></p>
   </td>
  </tr>

 <tr>
  <td width=204 valign=top>
  <p align=center>6/30/2002</p>
  </td>
  <td width=195 valign=top>
  <p align=center>-$800,000</p>
  </td>
 </tr>
 <tr>
  <td width=204 valign=top>
  <p align=center>&nbsp;</p>
  </td>
  <td width=195 valign=top>
  <p align=center>&nbsp;</p>
  </td>
 </tr>
</table>

</div>

<p>&nbsp;</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Maximum Net Loss</u>.&nbsp; Pursuant to Section 6.2(c) of the Credit
Agreement, the Borrower's Net Income (Net Loss) for the month ending on the
Reporting Date was $____________, which &#61608; satisfies &#61608; does
not satisfy the requirement that such amount be not less than -$75,000,
commencing with the month ending July&nbsp;31, 2002.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Capital Expenditures</u>. Pursuant to Section 6.2(i)
of the Credit Agreement, for the year-to-date period ending on the Reporting
Date, the Borrower has expended or contracted to expend during the
_____________ year ended ______________, 200___, for Capital Expenditures,
$___________ in the aggregate, which &#61608; satisfies &#61608; does not
satisfy the requirement that such expenditures not exceed $150,00 in the aggregate during such year, or $50,000 for the
fiscal quarter ended June&nbsp;30, 2002.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Salaries</u>. As of the Reporting Date, the Borrower
&#61608; is &#61608; is not in compliance with Section 6.8 of the Credit
Agreement concerning salaries.</p>


<p align="justify">&nbsp;</p>


<p align="center">2</p>


<hr color="#000080"><P Style="page-break-after: always"></P>

<p align="justify">&nbsp;</p>


<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Attached hereto are all relevant facts in reasonable detail
to evidence, and the computations of the financial
covenants referred to above. These computations were made in accordance with
GAAP.</p>

<p>OREGON MICRO SYSTEMS, INC.<br>
<br>
<br>
By<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <br>
</u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Its Chief Financial
Officer</p>

<p>&nbsp;</p>

<br clear=all>


<p>&nbsp;</p>
<p align="center">3</p>
<hr color="#000080"><P Style="page-break-after: always"></P>


<p align="center"><b>Exhibit D to
Credit and Security Agreement</b></p>

<p align="center"><b>Premises</b></p>

<p>The Premises referred to in the Credit and Security Agreement
are legally described as follows:</p>

<p align=center>[_To be completed by
Borrower_]</p>

<p>&nbsp;</p>

<br clear=all>


<hr color="#000080"><P Style="page-break-after: always"></P>


<p align="center"><b>Exhibit E to
Credit and Security Agreement</b></p>

<p align="center"><b>NOTICE OF
BORROWING</b></p>

<p align="center">_____________, _______</p>

<p>TO:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Wells
Fargo Business Credit, Inc.<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 245
S. Los Robles Avenue, Suite 600<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Pasadena,
California &nbsp;91101<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Telecopier:&nbsp; (626) 844&#8209;9063<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Attention:&nbsp; Harry
L. Joe</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We refer to that certain Credit and Security Agreement
dated as of May&nbsp;28, 2002 (as amended or modified to date, the &quot;Credit
Agreement&quot;) by and between Oregon Micro Systems, Inc. and Wells Fargo Business
Credit, Inc. Capitalized terms used herein but not otherwise defined shall have
the same meanings assigned to them in the Credit Agreement.</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Pursuant to Section 2.2(a) of the Credit Agreement, we
hereby request or confirm our request for an Advance on the date, of the
type(s) and in the amount(s) specified below.</p>

<table border=0 cellspacing=0 cellpadding=0 width="541">
 <tr>
  <td width=249 valign=top>
  <p><u>Amount of Advance</u></p>
  </td>
  <td width=292 valign=top>
  <p><u>Date of Borrowing</u></p>
  </td>
 </tr>
 <tr>
  <td width=249 valign=top>
  <p>$</p>
  </td>
  <td width=292 valign=top>
  <p>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=249 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=292 valign=top>
  <p>&nbsp;</p>
  </td>
 </tr>
</table>

<p>&nbsp;</p>

<p>&nbsp;</p>

<p>OREGON MICRO SYSTEMS, INC.<br>
<br>
<br>
By<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u><br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Its<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u></p>

<hr color="#000080"><P Style="page-break-after: always"></P>

<p>&nbsp;</p>

<br clear=all>


<p align="center"><b>Schedule 5.1 to
Credit and Security Agreement</b></p>

<p align="center"><b>Trade Names, Chief
Executive Office, Principal Place of Business,<br>
and Locations of Collateral</b></p>

<p align="center"><b><u>Trade Names</u></b></p>

<p align="center">[_to be completed by Borrower_]</p>

<p align="center"><b><u>Chief
Executive Office/Principal Place of Business</u></b></p>

<p align="center"> <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u></p>

<p align="center">&nbsp;<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u></p>

<p align="center"> <u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u></p>

<p>&nbsp;</p>

<p align="center"><b><u>Other
Inventory and Equipment Locations</u></b></p>

<p align="center">[_to be completed by Borrower_]</p>

<br clear=all>


<hr color="#000080"><P Style="page-break-after: always"></P>


<p align="center"><b>Schedule 5.2 to
Credit and Security Agreement</b></p>

<p align="center"><b>Capitalization
and Organizational Chart</b></p>

<p>&nbsp;</p>

<table border=0 cellspacing=0 cellpadding=0>
 <tr>
  <td width=163 valign=bottom>
  <p><b><u>Holder</u></b></p>
  </td>
  <td width=163 valign=bottom>
  <p align=center><b>Type of<br>
  <u>Rights/Stock</u></b></p>
  </td>
  <td width=163 valign=bottom>
  <p align=center><b>No. of shares (after<br>
  Exercise of all rights<br>
  <u>to acquire shares)</u></b></p>
  </td>
  <td width=163 valign=bottom>
  <p align=center><b>Percent interest on<br>
  <u>a fully diluted basis</u></b></p>
  </td>
 </tr>
 <tr>
  <td width=163 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=163 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=163 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=163 valign=top>
  <p>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=163 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=163 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=163 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=163 valign=top>
  <p>&nbsp;</p>
  </td>
 </tr>
</table>

<p>&nbsp;</p>

<p>Attach organizational chart showing the ownership
structure of all Subsidiaries of the Borrower.</p>

<p align="center">[_to be completed by Borrower_]</p>

<p>&nbsp;</p>

<br clear=all>


<hr color="#000080"><P Style="page-break-after: always"></P>


<p align="center"><b>Schedule 5.5&nbsp; to Credit and
Security Agreement</b></p>

<p align="center"><b>Subsidiaries</b></p>

<p align="center">[_to be completed by Borrower_]</p>

<br clear=all>


<hr color="#000080"><P Style="page-break-after: always"></P>


<p align="center"><b>Schedule 5.11 to
Credit and Security Agreement</b></p>

<p align="center"><b>Intellectual Property
Disclosures</b></p>

<p align="center">[_to be completed by Borrower_]</p>

<br clear=all>


<hr color="#000080"><P Style="page-break-after: always"></P>


<p align="center"><b>Schedule 6.3 to
Credit and Security Agreement</b></p>

<p align="center"><b>Permitted Liens</b></p>

<table border=0 cellspacing=0 cellpadding=0>
 <tr>
  <td width=131 valign=top>
  <p><u>Creditor</u></p>
  </td>
  <td width=131 valign=top>
  <p><u>Collateral</u></p>
  </td>
  <td width=131 valign=top>
  <p><u>Jurisdiction</u></p>
  </td>
  <td width=131 valign=top>
  <p><u>Filing Date</u></p>
  </td>
  <td width=131 valign=top>
  <p><u>Filing No.</u></p>
  </td>
 </tr>
 <tr>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
 </tr>
</table>

<p>&nbsp;</p>

<p align="center">[_to be completed by Borrower_]</p>

<br clear=all>


<hr color="#000080"><P Style="page-break-after: always"></P>


<p align="center"><b>Schedule 6.4 to
Credit and Security Agreement</b></p>

<p align="center"><b>Permitted
Indebtedness and Guaranties</b></p>

<p>&nbsp;</p>

<table border=0 cellspacing=0 cellpadding=0>
 <tr>
  <td width=653 colspan=5 valign=top>
  <p align=center>Indebtedness</p>
  </td>
 </tr>
 <tr>
  <td width=131 valign=bottom>
  <p><u>Creditor</u></p>
  </td>
  <td width=131 valign=bottom>
  <p align=center>Principal<br>
  <u>Amount</u></p>
  </td>
  <td width=131 valign=bottom>
  <p align=center>Maturity<br>
  <u>Date</u></p>
  </td>
  <td width=131 valign=bottom>
  <p align=center>Monthly<br>
  <u>Payment</u></p>
  </td>
  <td width=131 valign=bottom>
  <p align=center><u>Collateral</u></p>
  </td>
 </tr>
 <tr>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=131 valign=top>
  <p>&nbsp;</p>
  </td>
 </tr>
</table>

<p>&nbsp;</p>

<p align="center">[_to be completed by Borrower_]</p>

<p>&nbsp;</p>

<table border=0 cellspacing=0 cellpadding=0>
 <tr>
  <td width=653 colspan=3 valign=top>
  <p align=center>Guaranties</p>
  </td>
 </tr>
 <tr>
  <td width=218 valign=bottom>
  <p><u>Primary Obligor</u></p>
  </td>
  <td width=218 valign=bottom>
  <p align=center>Amount and
  Description of<br>
  <u>Obligation
  Guaranteed</u></p>
  </td>
  <td width=218 valign=bottom>
  <p align=center><u>Beneficiary
  of Guaranty</u></p>
  </td>
 </tr>
 <tr>
  <td width=218 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=218 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=218 valign=top>
  <p>&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width=218 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=218 valign=top>
  <p>&nbsp;</p>
  </td>
  <td width=218 valign=top>
  <p>&nbsp;</p>
  </td>
 </tr>
</table>

<p>&nbsp;</p>

<p align="center">[_To be completed by Borrower_]</p>

&nbsp;</body></html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>7
<FILENAME>ex991.htm
<DESCRIPTION>CERTIFICATION
<TEXT>
<html>

<head>
<title>Exhibit 99.1</title>
</head>

<body>

  <p>&nbsp;</p>


<p align="center">PRO-DEX, INC.<br>
<br>
2002 Annual Report on Form 10&#8209;KSB<br>
<br>
EXHIBIT 99.1<br>
<br>
CERTIFICATION PURSUANT TO<br>
18 U.S.C. SECTION 1350,<br>
AS ADOPTED PURSUANT TO<br>
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In connection with the Annual Report of Pro-Dex, Inc. (the
&quot;Company&quot;) on Form&nbsp;10&#8209;KSB for the fiscal year ended June 30, 2002,
as filed with the Securities and Exchange Commission on the date hereof (the
&quot;Report'), I, Patrick Johnson, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to
Section&nbsp;906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Report
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The information
contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.</p>



  <div align="right">
    <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="462" id="AutoNumber3">
      <tr>
        <td> <u>/s/
Patrick Johnson&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></td>
      </tr>
      <tr>
        <td>Patrick Johnson, Chief Executive Officer</td>
      </tr>
      <tr>
        <td>September 30, 2002</td>
      </tr>
    </table>
  </div>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; This certification accompanies this Report pursuant to
Section&nbsp;906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed
filed by the Company for purposes of Section&nbsp;18 of the Securities Exchange
Act of 1934, as amended.</p>



</body>

</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>8
<FILENAME>ex992.htm
<DESCRIPTION>CERTIFICATION
<TEXT>
<html>

<head>
<title>Exhibit 99.2</title>
</head>

<body>

  <p>&nbsp;</p>

<p align="center">PRO-DEX, INC.<br>
<br>
2002 Annual Report on Form 10&#8209;KSB<br>
<br>
EXHIBIT 99.2<br>
<br>
CERTIFICATION PURSUANT TO <br>
18. U.S.C. SECTION 1350<br>
AS ADOPTED PURSUANT TO<br>
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</p>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In connection with the Annual Report of Pro-Dex, Inc. (the
&quot;Company&quot;) on Form&nbsp;10&#8209;KSB for the fiscal year ended June 30, 2002,
as filed with the Securities and Exchange Commission on the date hereof (the
&quot;Report'), I, Jeffrey J. Ritchey, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to
Section&nbsp;906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Report
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and</p>

<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The information
contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.</p>



  <div align="right">
    <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="462" id="AutoNumber4">
      <tr>
        <td> <u>/s/
Jeffrey J. Ritchey&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u>
        </td>
      </tr>
      <tr>
        <td>Jeffrey J. Ritchey, Chief Financial Officer</td>
      </tr>
      <tr>
        <td>September 30, 2002</td>
      </tr>
    </table>
  </div>



<p align="justify">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; This certification accompanies this Report pursuant to
Section&nbsp;906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed
filed by the Company for purposes of Section&nbsp;18 of the Securities Exchange
Act of 1934, as amended.</p>

</body>

</html>

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
