AMENDED AND RESTATED CREDIT AGREEMENT

AMENDED AND RESTATED CREDIT AGREEMENT

This Amended and Restated Credit Agreement dated as of the 31st day of January, 2007, by and between NEXT, INC. , a Delaware corporation ("Borrower"), and NATIONAL CITY BANK , a national banking association whose principal banking office is located at 110 West Berry Street, Suite 2400, Fort Wayne, Indiana 46802 ("Bank").

W I T N E S S E T H :

WHEREAS, Borrower desires to obtain certain financial accommodations from Bank; and

WHEREAS, Bank is willing to provide such financial accommodations to Borrower on the terms and subject to the conditions in this Agreement.

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

SECTION 1.

Definitions .  When used herein, the capitalized terms defined in the recitals above shall have the meanings therein stated and the following capitalized terms shall have the meanings ascribed to them below. Other terms used but not otherwise defined herein shall have the meaning ascribed to such terms by the Uniform Commercial Code in effect in Indiana from time to time and GAAP, as the context may require, unless the context expressly provides otherwise.

1.1.

" Account Debtor " means the party who is obligated on or under any Receivable or Contract Right.

1.2.

" Agreement " means this Amended and Restated Credit Agreement between Borrower and Bank including all exhibits hereto and the executed originals thereof, as the same may be amended from time to time.

1.3.

" Applicable Spread " means that number of percentage points to be taken into account in determining the per annum rate at which interest will accrue on the Line of Credit, determined by reference to the ratio of Borrower's Senior Debt to its EBITDA in accordance with the following table:

Initially, the Applicable Spread shall be the largest spread shown on the above table. Hereafter, the Applicable Spread shall be determined on the basis of the financial statements of Borrower for each fiscal quarter furnished to Bank pursuant to the requirements of Section 7.2, with prospective effect for the following fiscal quarter. Interest will accrue and be payable in any fiscal quarter on the basis of the Applicable Spread in effect during the preceding fiscal quarter until an adjustment is made under the provisions of this definition. The Applicable Spread shall be adjusted on the first interest payment date which follows receipt by Bank of the financial statements upon which such adjustment is based. In the event that Borrower fails to deliver the financial statements and compliance certificates required under Section 7.2 for any month which ends a fiscal quarter, then the Applicable Spread shall be the largest spread shown on the above table from the date such financial statements were required to be delivered until the first interest payment date which follows delivery to Bank of such financial statements.

1.4.

" Application for Advance " means that document required by Section  hereof in the form and substance of Exhibit 1.4 hereof.

1.5.

" Banking Day " means a day which is not (a) Saturday, Sunday or legal holiday on which banking institutions in the State of Indiana or the city in which the office of Bank is located is authorized to remain closed, or (b) a day on which the New York Stock Exchange is closed. For Bank, a "Banking Day" ends at 2:00 P.M. Eastern Standard Time, and all business transacted after such time on any particular day shall be deemed to have been transacted as of the next Banking Day.

1.6.

" Bankruptcy Code " means the Federal Bankruptcy Code of 1978, as amended.

1.7.

" Basis Point " means one one-hundredth of one percent (0.01%).

1.8.

" Board " means the Board of Governors of the Federal Reserve System.

1.9.

" Borrowing Base " means an amount equal to the sum of (i) eighty-five percent (85%) of Eligible Receivables, plus (ii) sixty percent (60%) of Eligible Inventory ("Inventory Availability"), provided that the maximum amount of the Inventory Availability shall be limited to $3,500,000.00 minus (iii) an amount equal to the face amount of any outstanding Letters of Credit (except that with respect to the Letter of Credit relating to Contract Management Services, only forty percent (40%) of such outstanding Letter of Credit shall be deducted from the Borrowing Base), all as disclosed on the most recent Borrowing Base Certificate furnished to Bank pursuant to the requirements of this Agreement.

1.10.

" Borrowing Base Certificate " means the certificate required by Section 7.2.5 hereof, in the form and substance of Exhibit 1.10 hereto.

1.11.

" Cash Flow Leverage Ratio " means the ratio of Senior Debt to EBITDA.

1.12.

" Closing Date " means the date upon which the conditions set forth in Section 6 hereof are satisfied and the financial accommodations referenced in this Agreement are consummated.  

1.13.

" Code " means the Internal Revenue Code of 1986, as amended.

1.14.

" Collateral " means all of Borrower’s interest in real property and personal property of every kind and nature, as more particularly described in the Real Estate Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing executed by Borrower for the benefit of Bank and as more particularly described in each Security Agreement executed by Borrower for the benefit of Bank, including all Real Estate, Receivables, Contract Rights, Inventory, Investment Property, Machinery and Equipment, Proprietary Rights, General Intangibles, chattel paper, documents and instruments and shall also include, without limitation, (i) all attachments, accessions and equipment now owned or hereafter affixed to any of the Collateral or used in connection therewith, substitutions and replacements thereof, (ii) all items of Collateral now owned or existing and hereafter acquired, created or arising, and all products and proceeds thereof (including without limitation claims of Borrower against third parties for loss or damage to or destruction of any Collateral and all insurance proceeds) and any substitution or replacement thereto, (iii) all monies, securities, drafts, notes, items and other property of Borrower, and the proceeds thereof, now or hereafter held or received by or in transit to Bank from or for Borrower, whether for safekeeping, custody, pledge, transmission, collection, or otherwise, (iv) any and all deposits (general or special), balances, sums, proceeds and credits of Borrower with, any and all claims of Borrower against, Bank, at any time existing, and (v) all labels and other devises, names or marks affixed to or to be affixed to any of the Inventory for purposes of selling or of identifying the same or the seller or manufacturer thereof and all right, title and interest of Borrower therein and thereto. The Collateral shall also include any property described in any separate schedules at any time or from time to time furnished by Borrower to Bank (all of which shall be and hereby are deemed part of this Agreement) and shall also include without limitation all other Collateral now or hereafter pledged, assigned, hypothecated or transferred to Bank.

1.15.

" Compliance Certificate " means the certificate required by Section 7.2.6 hereof, in the form and substance of Exhibit 1.15 attached.

1.16.

" Contract Rights " means any right of Borrower to payment under a contract for the sale or lease of goods or the rendering of services, which right is at the time not yet earned by performance.

1.17.

" EBITDA " means Borrower’s earnings before interest, taxes, depreciation and amortization expense.

1.18.

" Eligible Inventory " means (i) Inventory in which Bank has a perfected first priority security interest, (ii) Inventory which consists of raw materials and finished goods, and (iii) Inventory which is not obsolete, is saleable in the ordinary course of business, and is merchantable; but Eligible Inventory will not include the following:  (a) rental equipment; (b) contingent sales; (c) obsolete or slow moving Inventory; (d) packing materials and/or packaging; (e) consigned Inventory, unless a bailee agreement is obtained from the bailee which is satisfactory in form and substance to Bank; (f) work-in-process Inventory; (g) all production supplies whether opened or unopened; (h) Inventory in transit; and (i) any Inventory which does not meet Bank’s standards in Bank’s sole credit judgment exercised in good faith.

1.19.

 " Eligible Receivables " means (i) those Receivables which are due and payable within ninety (90) days from the invoice date, (ii) those Receivables which have been validly assigned to Bank and in which Bank has a first priority security interest, and (iii) those Receivables which strictly comply with all of Borrower’s warranties and representations to Bank minus the value of any accrued royalties payable of Borrower; but Eligible Receivables will not include the following:  (a) Receivables with respect to which the Account Debtor is a Subsidiary or a shareholder, officer, employee or agent of Borrower, or a corporation more than five percent (5%) of the stock of which is owned by any of such persons; (b) Receivables with respect to which the Account Debtor is not a resident of the United States unless supported/confirmed by a letter of credit in form or otherwise insured in a manner acceptable to Bank; (c) Receivables with respect to which the Account Debtor is a subsidiary of, related to, affiliated or has common officers or directors with Borrower; (d) any Receivables which may be subject to any claim of reduction, counterclaim, setoff, recoupment or any claims for credits, allowances or adjustments by the Account Debtor; (e) any Receivables owed by the U.S. Government, or a department or agency thereof, not properly assigned to Bank; (f) any Receivables not billed or invoiced under usual and customary trade credit terms; (g) any and all Receivables owed by a particular Account Debtor when twenty-five percent (25%) or more of the total Receivables of such Account Debtor are more than ninety (90) days old from the invoice date; (h) when any particular Account Debtor has fifteen percent (15%) or more of all Receivables of Borrower, any excess Receivables over and above such fifteen percent (15%) shall be excluded (provided that the Receivables of the following Account Debtors shall not be so excluded up to the amount listed next to the name of each such Account Debtor:  Kohl’s ($3,500,000.00), Kmart ($2,500,000.00), Dollar General ($2,000,000.00), Cracker Barrel ($2,000,000.00), and Sam's Club ($2,000,000.00)); (i) any amounts attributable to retainages; (j) any Receivables owed by an Account Debtor who does not meet Bank’s standards of credit worthiness in Bank’s sole credit judgment exercised in good faith; and (k) any Receivable that is more than ninety (90) days old from the invoice date.

1.20.

 " Environmental Certificate " means the Environmental Certificate and Indemnification Agreement regarding the Real Estate executed by Borrower in favor of Bank and dated April 15, 2004, as the same may be amended from time to time.

1.21.

" ERISA " means the Employee Retirement Income Security Act of 1974, as amended.

1.22.

" Event of Default " means the occurrence of any event specified in Section 9 hereof.

1.23.

" Financial Contract " of a Person means (a) any exchange-traded or over-the-counter futures, forward, swap or option contract or other financial instrument with similar characteristics, (b) any agreements, devices or arrangements providing for payments related to fluctuations of interest rates, exchange rates or forward rates, including, but not limited to, interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, or (c)  to the extent not otherwise included in the foregoing, any Rate Hedging Agreement.

1.24.

" Fixed Charge Coverage Ratio " means, on a consolidated basis, the sum of Borrower’s and each Subsidiary's EBITDA minus unfunded capital expenditures divided by the sum of cash interest expense, scheduled amortization payments of the principal portion of all indebtedness for borrowed money, cash income taxes, and the payment of any cash dividends or distributions. The calculation of the Fixed Charge Coverage Ratio shall exclude any transactions between Borrower and any Subsidiary.

1.25.

" GAAP " means generally accepted accounting principles, in effect from time to time.

1.26.

" General Intangibles " means all present and future general intangibles (including choses or things in action), goodwill, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, infringement claims, computer programs, computer disks, computer software, computer tapes, literature, reports, catalogs, deposit accounts, insurance premium rebates, tax refunds, tax refund claims and insurance proceeds, together with all proceeds and products thereof.

1.27.

" Governmental Authority " means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government, including, without limiting the generality of the foregoing, any agency, body, commission, court or department thereof whether federal, state, local or foreign.

1.28.

Guarantors " means Danny F. Cooke and Robert Budd, collectively.

1.29.

" Inventory " means all goods, merchandise and other personal property of Borrower, now owned or existing or hereafter acquired, created or arising, which are held for sale or lease or are furnished or to be furnished under a contract of service or supply or are raw materials, work-in-process, finished goods or materials used or to be used in Borrower’s business.

1.30.

" Investment Property " shall mean all investment property (as that term is defined in the Uniform Commercial Code) including, without limitation, all securities, whether certificated or uncertificated, all security entitlements, all securities accounts all commodity contracts and all commodity accounts owned by Borrower in which Borrower has an interest.

1.31.

"Letters of Credit " means the standby letters of credit issued by Bank for Borrower’s account as contemplated in Section 2.3 hereof.

1.32.

" Line of Credit " means the revolving line of credit extended to Borrower by Bank, pursuant to the terms and conditions of Section 2.1 hereof, including all renewals and extensions thereof.

1.33.

" Line of Credit Loan " means any advance, and in the plural all advances, made to Borrower from time to time under the Line of Credit.

1.34.

" Line of Credit Note " means the Replacement Promissory Note (Line of Credit) from Borrower to Bank described in Section 2.1.1 hereof, including all renewals and extensions thereof evidencing the Line of Credit Loans.

1.35.

" Loan Documents " means this Agreement, the Notes, and such other documents, instruments, certificates, statements or other writings contemplated by or delivered or to be delivered by Borrower in connection with this Agreement.

1.36.

" Loans " means all Line of Credit Loans and all Over-Advance Loans, including all renewals, modifications, amendments and extensions thereof, together with any and all other indebtedness or other obligations which may be advanced from time to time to Borrower by Bank, including but not limited to any Rate Hedging Obligations or other Financial Contracts.

1.37.

" Machinery and Equipment " shall mean all tools, accessories, parts, machinery, equipment, trucks, trailers and other rolling stock, furniture, office equipment, leasehold improvements, fixtures, trade fixtures and accessions and accessories thereto wherever situated, and any substitution or replacement of such property.

1.38.

" Mortgage " means the Amended and Restated Real Estate Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing regarding the Real Estate executed by Borrower in favor of Bank and dated April 15, 2004, as the same may be amended from time to time.

1.39.

" Notes " means the Line of Credit Note and the Over-Advance Note, including all renewals and extensions thereof evidencing the Loans.

1.40.

" Over-Advance Line of Credit " means the revolving line of credit extended to Borrower by Bank, pursuant to the terms and conditions of Section 2.2 hereof, including all renewals and extensions thereof.

1.41.

" Over-Advance Loan " means any advance, and in the plural all advances, made to Borrower from time to time under the Over-Advance Line of Credit.

1.42.

" Over-Advance Note " means the Demand Note (Over-Advance Line of Credit) from Borrower to Bank described in Section 2.2.1 hereof, including all renewals and extensions thereof evidencing the Over-Advance Line of Credit Loans.

1.43.

" Person " means and includes an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated association and a Governmental Authority.

1.44.

" Plan " means an employee pension benefit plan as defined in ERISA.

1.45.

" Prime-based Rate " means any variable rate at which interest may accrue on all or a portion of either of the Loans under the terms of this Agreement, which rate is determined by reference to the Prime Rate.

1.46.

" Prime Rate " means a variable per annum interest rate equal at all times to the rate of interest established and quoted by Bank as its Prime Rate, such rate to change contemporaneously with each change in such established and quoted rate, provided that it is understood that the Prime Rate shall not necessarily be representative of the rate of interest actually charged by Bank on any loan or class of loans.

1.47.

" Proprietary Rights " means all patent rights, patent applications, franchise rights, trademarks, service marks, tradenames, corporate names, copyrights, trade secrets and other proprietary rights and general intangibles necessary to the conduct of the business of Borrower as it is now conducted, including all reissue applications, registrations, registration applications, and corporate name authorizations applicable thereto.

1.48.

" Rate Hedging Agreement " means an agreement, device or arrangement providing for payments which are related to fluctuations of interest rates, exchange rates or forward rates, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants.

1.49.

" Rate Hedging Obligations " of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all Rate Hedging Agreements, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any Rate Hedging Agreement.

1.50.

" Real Estate " means the real property located in Wabash County, Indiana legally described on Exhibit 1.50 attached hereto, currently owned by Borrower and from which Borrower conducts its business.

1.51.

" Receivables " means all accounts, account receivables, notes, contract rights, contract receivables, contracts, instruments, documents, and chattel paper, whether secured or unsecured which Borrower owns or hereafter acquires or in which it has or acquires an interest.

1.52.

" Security Agreement " means the Amended and Restated Security Agreement and Perfection Certificated executed by Borrower in favor of Bank and dated April 15, 2004, as the same may be amended from time to time.

1.53.

" Senior Debt " means all indebtedness of Borrower to Bank (i) in respect of money borrowed, or (ii) evidenced by a note, debenture (senior or subordinated) or other like written obligation to pay money, or (iii) in respect of rent or hire of property under leases or lease arrangements which under GAAP are required to be capitalized, or (iv) in respect of obligations under conditional sales or other title retention agreements; and shall also include all guaranties of any of the foregoing.

1.54.

" Subordinated Debt " means all subordinated indebtedness of Borrower, including but not limited to, indebtedness of Borrower to Next Investors, LLC, as evidenced by the promissory note attached hereto as Exhibit 1.54 , which is subordinated to the indebtedness of Borrower to Bank under the terms of the Subordination Agreement referenced in Section 6.19, and any other indebtedness of Borrower to third parties, as evidenced by the promissory notes attached hereto as Exhibit 1.54 , which is subordinated to the indebtedness of Borrower to Bank, in a manner satisfactory to Bank as to both form and substance.

1.55.

" Subsidiary " and " Subsidiaries " means, as to Borrower, any entity which, directly or indirectly, is controlled by Borrower or is owned, in whole or in part, by Borrower.

1.56.

" Trademark Security Agreement " means the Amended and Restated Security Agreement executed by Borrower in favor of Bank and dated April 15, 2004, as the same may be amended from time to time.

1.57.

" UCC " means the Uniform Commercial Code as adopted and in force in the State of Indiana from time to time.

1.58.

" Unmatured Event of Default " means any event which, if it continues uncured (other than obligations which have not matured), will with lapse of time or notice, or both, constitute an Event of Default.

SECTION 2.

Credit Facilities .

2.1.

Line of Credit .  So long as no Event of Default or Unmatured Event of Default has occurred, Bank may lend to Borrower and Borrower agrees to borrow from Bank (and to repay to Bank in accordance with the terms hereof) from time to time an aggregate principal sum not to exceed at any time outstanding the lesser of (i) Seven Million Five Hundred Thousand and No/100 Dollars ($7,500,000.00), and (ii) the Borrowing Base.

2.1.1.

The Line of Credit Note; Method of Borrowing .  The obligation of Borrower to repay the Line of Credit Loans shall be evidenced by the Line of Credit Note which shall be repayable on or before January 31, 2009. As long as no Event of Default or Unmatured Event of Default shall have occurred and be continuing, and subject to the further conditions and limitations contained herein, and until expiration of the Line of Credit, upon acceleration or otherwise, Borrower may borrow, repay and re-borrow under the Line of Credit Note. Each Line of Credit Loan which Bank determines to make to Borrower will, at the discretion of Bank be conditioned upon the receipt by Bank of an Application for Advance dated as of the date of request. Bank, in its sole discretion, shall be entitled to rely on any oral or telephonic communication requesting an advance and/or providing disbursement instructions which shall be received by it in good faith from anyone identifying himself as a person authorized by certified borrowing resolutions delivered from time to time to Bank or from anyone reasonably believed by Bank to be an officer or agent of Borrower otherwise authorized to borrow funds from Bank on behalf of Borrower. Borrower shall, upon Bank’s request, immediately confirm in writing to Bank any such oral or telephonic communication. All Line of Credit Loans by Bank and payments by Borrower shall be recorded by Bank on its books and records, and said books and records shall be conclusive evidence of the total indebtedness owed under the Line of Credit.

2.1.2.

Interest .  Borrower agrees to pay interest on the unpaid balance of the Line of Credit Note outstanding from time to time from the date thereof until its maturity at a rate per annum equal to the sum of the Prime Rate plus the Applicable Spread. Payments of accrued and unpaid interest shall be debited by Bank when due to any demand deposit account of Borrower maintained with Bank without further authority from Borrower. If Bank has not received accrued but unpaid interest as of the due date thereof (after any applicable cure period), Bank shall have the right to disburse to itself the amount of such interest as of the date thereof and to add such amount to the principal balance of the Line of Credit.

2.1.3.

Reimbursements Due to Payments by Bank .  Any amounts which Bank is permitted to pay on behalf of Borrower pursuant to any of the Loan Documents and which in its sole discretion Bank elects to pay, plus any other amounts to which Bank is entitled to reimbursement from Borrower, shall be invoiced to Borrower and shall be payable upon demand upon submission of such invoice. If not paid within five (5) days, such amounts shall be charged to the Line of Credit. Thereupon, the available Line of Credit shall be immediately reduced by a corresponding amount. Upon being charged to the Line of Credit, these amounts shall be considered to be principal and shall immediately begin to bear interest at the same rate and shall be payable at the same times as set forth in Section 2.1.2 hereof.

2.1.4.

Application of Payments .  Any payments received from Borrower with respect to the Line of Credit Loan generally shall be applied first to accrued interest thereon, then to any expenses for which Bank is entitled to reimbursement pursuant to the terms of this Agreement or any of the Loan Documents, and then to the principal balance of the Line of Credit Loan.

2.1.5.

Mandatory Reductions .  If at any time the aggregate principal outstanding under the Line of Credit exceeds the lesser of (a) Seven Million Five Hundred Thousand and No/100 Dollars ($7,500,000.00), and (b) the Borrowing Base, either as a result of a decrease in the value of the Borrowing Base or otherwise, Borrower shall immediately repay to Bank, without the necessity of notice or demand from Bank, an amount not less than such excess.

2.1.6.

Commitment Fees .  In addition to interest on the Line of Credit, Borrower shall pay to Bank from and after the date hereof until the date on which Bank’s commitment under the Line of Credit is terminated in whole, an unused fee accruing at the rate set forth in the Applicable Spread table contained herein on the average daily unborrowed portion of the Line of Credit. All such unused fees payable under this clause shall be payable monthly in arrears on the first day of each month occurring after the date hereof, and, in addition, on the date on which Bank’s commitment under the Line of Credit is terminated in whole. Such unused fees shall be calculated on the basis of the actual number of days elapsed and a three hundred sixty (360) day year. Such unused fees shall be debited by Bank when due to any demand deposit account of Borrower maintained with Bank without further authority.

2.1.7.

Use of Line of Credit Proceeds .  The proceeds of the Line of Credit will be used by Borrower to support general working capital of Borrower.

2.2.

Over-Advance Line of Credit .  For each period of February 1 through and including May 31 of each calendar year, and so long as no Event of Default or Unmatured Event of Default has occurred, Bank may lend to Borrower and Borrower agrees to borrow from Bank (and to repay to Bank in accordance with the terms hereof) from time to time an aggregate principal sum not to exceed at any time outstanding Three Hundred Fifty Thousand and No/100 Dollars ($350,000.00).

2.2.1.

The Over-Advance Line of Credit Note; Method of Borrowing .  The obligation of Borrower to repay the Over-Advance Line of Credit Loans shall be evidenced by the Over-Advance Line of Credit Note which shall be repayable on DEMAND. As long as no Event of Default or Unmatured Event of Default shall have occurred and be continuing, and subject to the further conditions and limitations contained herein, and until DEMAND, Borrower may borrow, repay and re-borrow under the Over-Advance Line of Credit Note for each period of February 1 through and including May 31 of each calendar year. Each Over-Advance Line of Credit Loan which Bank determines to make to Borrower will, at the discretion of Bank be conditioned upon the receipt by Bank of an Application for Advance dated as of the date of request. Bank, in its sole discretion, shall be entitled to rely on any oral or telephonic communication requesting an advance and/or providing disbursement instructions which shall be received by it in good faith from anyone identifying himself as a person authorized by certified borrowing resolutions delivered from time to time to Bank or from anyone reasonably believed by Bank to be an officer or agent of Borrower otherwise authorized to borrow funds from Bank on behalf of Borrower. Borrower shall, upon Bank’s request, immediately confirm in writing to Bank any such oral or telephonic communication. All Over-Advance Line of Credit Loans by Bank and payments by Borrower shall be recorded by Bank on its books and records, and said books and records shall be conclusive evidence of the total indebtedness owed under the Over-Advance Line of Credit.

2.2.2.

Interest .  Borrower agrees to pay interest on the unpaid balance of the Over-Advance Line of Credit Note outstanding from time to time from the date thereof until DEMAND at a rate per annum equal to the sum of the Prime Rate plus One Hundred (100) Basis Points. Payments of accrued and unpaid interest shall be debited by Bank when due to any demand deposit account of Borrower maintained with Bank without further authority from Borrower. If Bank has not received accrued but unpaid interest as of the due date thereof (after any applicable cure period), Bank shall have the right to disburse to itself the amount of such interest as of the date thereof and to add such amount to the principal balance of the Over-Advance Line of Credit.

2.2.3.

Application of Payments .  Any payments received from Borrower with respect to the Over-Advance Line of Credit Loan generally shall be applied first to accrued interest thereon, then to any expenses for which Bank is entitled to reimbursement pursuant to the terms of this Agreement or any of the Loan Documents, and then to the principal balance of the Over-Advance Line of Credit Loan.

2.2.4.

Mandatory Reductions .  If at any time the aggregate principal outstanding under the Over-Advance Line of Credit exceeds Three Hundred Fifty Thousand and No/100 Dollars ($350,000.00) or if there is an outstanding principal balance under the Over-Advance Line of Credit during any time other than the period of February 1 through and including May 31 of each calendar year, Borrower shall immediately repay to Bank, without the necessity of notice or demand from Bank, an amount not less than such excess or such outstanding principal balance, as applicable.

2.2.5.

Use of Over-Advance Line of Credit Proceeds .  The proceeds of the Over-Advance Line of Credit will be used by Borrower to support general working capital of Borrower.

2.3.

Letters of Credit .  Borrower may apply to Bank for the issuance by Bank of one or more Letters of Credit (individually a "Letter of Credit" and collectively the "Letters of Credit"), the aggregate maximum principal amount of such Letters of Credit not to exceed Five Hundred Thousand and No/100 Dollars ($500,000.00). Upon receipt by Bank of a duly executed application by Borrower for a Letter of Credit on Bank's standard form therefor, Bank will accept such applications and issue one or more of its Letters of Credit, subject to availability under the Line of Credit. Borrower agrees to pay to Bank the standard issuance and documentation fees of Bank, including but not limited to an initial commission fee equal to Two Hundred Fifty (250) Basis Points of the amount of any Letter of Credit. Borrower shall not be entitled to, and agrees not to seek, any refund, credit or offset for such fees whether or not any amounts are drawn under any of such Letters of Credit. Any amounts drawn by the beneficiaries of any of the Letters of Credit shall be deemed Advances as of the date of disbursement by Bank. The terms and conditions of the Letters of Credit shall be governed by Uniform Customs and Practice for Documentary Credits (1993 Revision) International Chamber of Commerce Publication No. 500 and otherwise in accordance with their terms. The terms and conditions of any obligations of Borrower pursuant to any such Letter of Credit shall be determined by the application made by Borrower as accepted by Bank. Borrower acknowledges that the amount available under the Borrowing Base shall be reduced by an amount equal to the face amount of any outstanding Letters of Credit multiplied times the inverse percentage of the advance rate on Eligible Inventory, all as disclosed on the most recent Borrowing Base Certificate furnished to Bank pursuant to the requirements of this Agreement.

2.4.

Rate Hedging Agreements .  Bank shall, subject to its practices and policies in effect from time to time, permit Borrower to enter into Rate Hedging Agreements in order to adjust the per annum rate payable under the Loans, subject to the satisfaction of all conditions precedent and other requirements as set forth in such Rate Hedging Agreements with Bank, provided that nothing herein shall obligate Bank, as of this date or from time to time, to enter into any Rate Hedging Agreements with Borrower.

2.5.

Collection and Application of Receivables . Bank and Borrower shall enter into a lockbox providing for the collection of the Receivables. Borrower shall make collection of all Receivables for Bank, receive all payments thereon as Bank’s trustee, and immediately deliver them to Bank in their original form. After the occurrence of an Event of Default, Bank or its designee may notify customers or Account Debtors at any time, and from time to time, that the Receivables have been assigned to Bank and of Bank’s security interests therein, and may collect them directly and charge the collection costs and expenses to Borrower.

SECTION 3.

Fees and Expenses .  Upon execution of this Agreement, Borrower shall pay to Bank Ten Thousand and No/100 Dollars ($10,000.00), and then by no later than April 30, 2007, Borrower shall pay to Bank another Ten Thousand and No/100 Dollars ($10,000.00), which shall constitute the balance due of the required arrangement fee equal to Twenty Thousand and No/100 Dollars ($20,000.00). Such arrangement fee is earned upon the execution of this Agreement and Borrower shall not be entitled to any refund, in whole or in part, of such fee for any reason. Additionally, all out-of-pocket expenses of Bank, including without limitation, field audit fees, UCC search fees, filing fees, recording fees, attorneys’ fees, title search fees and disbursements made by or for the benefit of Bank will be paid by Borrower on the Closing Date or reimbursed to Bank promptly upon demand. Borrower’s failure to timely pay such expenses shall constitute an Event of Default under this Agreement in addition to the terms as set forth in Section 9 hereof.

SECTION 4.

Grant of Security Interest .  In consideration of one or more loans, advances, or other financial accommodations at any time before, at or after the date hereof made or extended by Bank (at the sole discretion of Bank