CREDIT AGREEMENT

EXHIBIT 4.3 AND 10.31

CREDIT AGREEMENT

COMERICA BANK (“Bank”)

AND

TANDY BRANDS ACCESSORIES, INC. (“Borrower”)

Dated as of February 12, 2008

TABLE OF CONTENTS

						Page
SECTION 1.				DEFINITIONS			1
		1.1		Defined Terms			1
		1.2		Accounting Terms			1
		1.3		Singular and Plural			1
SECTION 2.				TERMS, CONDITIONS AND PROCEDURES FOR BORROWING			1
SECTION 3.				REPRESENTATIONS AND WARRANTIES			1
		3.1		Authority			1
		3.2		Due Authorization			2
		3.3		Title to Property			2
		3.4		Encumbrances			2
		3.5		Subsidiaries			2
		3.6		Taxes			2
		3.7		No-Defaults			2
		3.8		Enforceability of Agreement and Loan Documents			2
		3.9		Non-violation			3
		3.10		Actions, Suits, Litigation or Proceedings			3
		3.11		Compliance with Laws			3
		3.12		Consents, Approvals and Filings, Etc			3
		3.13		Contracts, Agreements and Leases			3
		3.14		ERISA			3
		3.15		No Investment Company			3
		3.16		No Margin Stock			3
		3.17		Environmental Representations			4
		3.18		Accuracy of Information			4
		3.19		[Reserved]			5
		3.20		Conditions Precedent			5
		3.21		Obligations			5
		3.22		Material Agreements			5
		3.23		Misrepresentation			5
		3.24		No Conflicting Agreements			5
		3.25		Intellectual Property			6
		3.26		Survival of Representations and Warranties			6

TABLE OF CONTENTS
(continued)

						Page
SECTION 4.				AFFIRMATIVE COVENANTS			6
		4.1		Preservation of Existence, Etc			6
		4.2		Keeping of Books			6
		4.3		Reporting Requirements			6
		4.4		Financial Covenants			8
		4.5		Inspections			8
		4.6		Further Assurances; Financing Statements			8
		4.7		Compliance with Leases, Licenses and Governmental Requirements			8
		4.8		Indemnification			8
		4.9		Governmental and Other Approvals			9
		4.10		Insurance			9
		4.11		Compliance with ERISA			9
		4.12		Environmental Covenants			9
		4.13		Accounts			10
		4.14		Use of Loan Proceeds			10
		4.15		Taxes			10
		4.16		[Reserved.]			10
		4.17		Future Domestic Subsidiaries; Additional Collateral			11
		4.18		Registration of Intellectual Property Rights			11
		4.19		Intellectual Property			12
SECTION 5.				NEGATIVE COVENANTS			12
		5.1		Capital Structure, Business Purpose			12
		5.2		Mergers or Dispositions			12
		5.3		Guaranties			12
		5.4		Debt			12
		5.5		Encumbrances			13
		5.6		Acquisitions			13
		5.7		Dividends			13
		5.8		Investments			13
		5.9		Transactions with Affiliates			14
		5.10		Defaults on Other Obligations			14
		5.11		Prepayment of Debt			14

TABLE OF CONTENTS
(continued)

						Page
		5.12		Pension Plans			14
		5.13		Subordinate Indebtedness			14
		5.14		No Further Negative Pledges			14
		5.15		Accounts Receivable			14
		5.16		[Reserved.]			14
		5.17		Acquire Fixed Assets			14
		5.18		Subordinated Debt			15
		5.19		Property Transfers			15
		5.20		Off-Site Inventory and Equipment			15
		5.21		Government Regulation			15
		5.22		Misrepresentation			15
		5.23		Margin Stock			15
SECTION 6.				EVENTS OF DEFAULT			15
		6.1		Events of Default			15
		6.2		Remedies Upon Event of Default			17
		6.3		Setoff			17
		6.4		Waiver of Certain Laws			18
		6.5		Waiver of Defaults			18
		6.6		Receiver			18
		6.7		[Reserved]			18
		6.8		Application of Proceeds of Collateral			18
SECTION 7.				MISCELLANEOUS			18
		7.1		Accounting Principles			18
		7.2		Taxes and Fees			18
		7.3		Governing Law			19
		7.4		Audits of Collateral; Fees			19
		7.5		Costs and Expenses			19
		7.6		Notices			19
		7.7		Further Action			19
		7.8		Successors and Assigns; Participation			20
		7.9		Indulgence			20
		7.10		Amendment and Waiver			20

TABLE OF CONTENTS
(continued)

						Page
		7.11		Severability			20
		7.12		Headings and Construction of Terms			20
		7.13		[Reserved.]			20
		7.14		Reliance on and Survival of Various Provisions			20
		7.15		Effective Upon Execution			20
		7.16		Complete Agreement; Conflicts			21
		7.17		Exhibits and Addenda			21
		7.18		Treatment of Certain Information; Confidentiality			21
		7.19		WAIVER OF JURY TRIAL			22
		7.20		USA Patriot Act Notification			22
		7.21		OFAC/BSA Provision			22
		7.22		ORAL AGREEMENTS INEFFECTIVE			23

ADDENDA:
		Defined Terms Addendum
		Financial Covenants Addendum
		Loan Terms, Conditions and Procedures Addendum
EXHIBITS:
		Exhibit A — Form of Borrowing Base Certificate
		Exhibit B — Form of Compliance Certificate
		Exhibit C — Form of Request for Advance
SCHEDULES:
		Schedule 3.1(c)(3)		Guarantors
		Schedule 3.1(c)(6)		Accounts
		Schedule 3.1(j)		Documentation Checklist
		Schedule 3.5		Subsidiaries
		Schedule 3.14		Pension Plans subject to Title IV of ERISA
		Schedule 3.17		Environmental Disclosures
		Schedule 3.22		Material Agreements
		Schedule 3.25		Intellectual Property
		Schedule 5.4		Debt
		Schedule 5.5		Encumbrances
		Schedule 5.20		Loan Party Locations

CREDIT AGREEMENT

     THIS CREDIT AGREEMENT is made and delivered effective as of the 12th day of February, 2008, (“Effective Date”) by and between TANDY BRANDS ACCESSORIES, INC., a Delaware corporation (“Borrower”), and COMERICA BANK, a Texas banking association (“Bank”), and delivered to Bank in Detroit, Michigan for execution by Bank at its offices in Detroit, Michigan.

RECITALS

     A. Borrower desires to obtain certain credit facilities from the Bank, and the Bank is willing to provide such credit facilities to and in favor of Borrower.

     B. Such credit facilities are subject to the terms and conditions set forth herein and in every other Loan Document.

AGREEMENT

     NOW, THEREFORE, in consideration of the premises and the mutual promises herein contained, Borrower and Bank agree as follows:

SECTION 1. DEFINITIONS

     1.1 Defined Terms . The terms as used in this Agreement shall have the meanings assigned to such terms in the Defined Terms Addendum.

     1.2 Accounting Terms . All accounting terms not specifically defined in this Agreement shall be determined and construed in accordance with GAAP.

     1.3 Singular and Plural . Where the context herein requires, the singular number shall be deemed to include the plural, the masculine gender shall include the feminine and neuter genders, and vice versa.

SECTION 2. TERMS, CONDITIONS AND PROCEDURES FOR BORROWING

     Subject to the terms, conditions and procedures of this Agreement and each other Loan Document including, but not limited to, the terms, conditions and procedures set forth in the Defined Terms Addendum and Loan Terms, Conditions and Procedures Addendum, Bank agrees to make credit available to the Borrower on such dates and in such amounts as the Borrower shall request from time to time.

SECTION 3. REPRESENTATIONS AND WARRANTIES

     Borrower represents and warrants, and such representations and warranties shall be deemed to be continuing representations and warranties during the entire life of this Agreement, and so long as Bank shall have any commitment or obligation to make any Loans or issue any Letters of Credit hereunder, and so long as any Indebtedness remains unpaid and outstanding under any Loan Document, as follows:

     3.1 Authority . Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is duly qualified and authorized to do business in each other jurisdiction in which the character of its assets or the nature of its business makes such qualification necessary except to the extent that the failure to do so would result in a Material Adverse Effect.

     3.2 Due Authorization . Each Loan Party has all requisite corporate or other organizational power and authority to execute, deliver and perform its obligations under each Loan Document to which it is a party or is otherwise bound, all of which have been duly authorized by all necessary corporate or other organizational action, and are not in contravention of law or the terms of any Loan Party’s organizational or other governing documents.

     3.3 Title to Property . Each Loan Party has marketable title to all property and assets purported to be owned by it, including those assets identified on the Financial Statements most recently delivered by Borrower to Bank, subject only to Permitted Encumbrances. Each Loan Party owns or has the right to use all assets and properties, real and personal, tangible and intangible, including without limitation all trademarks, service marks, trade names, copyrights, patents, franchises and licenses that are necessary or material to the conduct of its business as now operated, and no such ownership or right violates the rights of any other Person therein, except where the failure to own such properties or the right to use such properties would not have a Material Adverse Effect.

     3.4 Encumbrances . There are no security interests or other Liens or encumbrances on, and no financing statements on file with respect to, any of the property or assets of any Loan Party, except for Permitted Encumbrances.

     3.5 Subsidiaries . Borrower has no Subsidiaries as of the Effective Date, except as set forth in Schedule 3.5 which Schedule sets forth the percentage of ownership of Borrower in each such Subsidiary as of the Effective Date. As to Borrower and each of its Subsidiaries as of the Effective Date, (a) it is an organization as described on Schedule 3.5 hereto and, with respect to the Domestic Subsidiaries, has provided the Bank with complete and correct copies of its articles of incorporation, by-laws or other applicable charter or organizational documents, and, if applicable, a good standing certificate from its jurisdiction of organization and each United States jurisdiction in which it has a physical presence, and (b) its correct legal name, chief executive office address, type of organization and jurisdiction of organization, and tax identification number are set forth on Schedule 3.5 hereto.

     3.6 Taxes . Each Loan Party has filed, on or before their respective due dates, all federal, state, local and foreign tax returns which are required to be filed, or has obtained extensions for filing such tax returns, and is not delinquent in filing such returns in accordance with such extensions, and has paid all taxes which have become due and payable pursuant to those returns or pursuant to any assessments received by any such party, as the case may be, to the extent such taxes have become due and payable, except to the extent such tax payments are being actively and diligently contested in good faith by appropriate proceedings, and if requested by Bank, have been bonded or reserved in an amount and manner reasonably satisfactory to Bank.

     3.7 No-Defaults . There exists no default (or event which, with the giving of notice or passage of time, or both, would result in a default) under the provisions of any instrument or agreement evidencing, governing, securing or otherwise relating to any Debt of any Loan Party or pertaining to any of the Permitted Encumbrances that would, individually or in the aggregate, have a Material Adverse Effect.

     3.8 Enforceability of Agreement and Loan Documents . Each Loan Document has been duly executed and delivered by duly authorized officer(s) or other representative(s) of each Loan Party, and constitutes the valid and binding obligations of each Loan Party, enforceable in accordance with their respective terms, except to the extent that enforcement thereof may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general principles of equity at the time in effect.

     3.9 Non-violation . The execution, delivery and performance by each Loan Party of the Loan Documents to which such Loan Party is a party or otherwise bound, are not in violation of the terms of any indenture, agreement or undertaking to which any such Loan Party is a party or by which it is bound, except to the extent that such terms have been waived or that failure to comply with any such terms would not have a Material Adverse Effect.

     3.10 Actions, Suits, Litigation or Proceedings . There are no actions, suits, litigation or proceedings, at law or in equity, and no proceedings before any arbitrator or by or before any Governmental Authority, pending, or, to the knowledge of Borrower, threatened against any Loan Party, which, if adversely determined, could materially impair the right of any Loan Party to carry on its business substantially as now conducted or could reasonably be expected to have a Material Adverse Effect. To the knowledge of Borrower, no Loan Party has received any written notice from any Governmental Authority that such Loan Party is under investigation by, or is operating under any restrictions imposed by, any Governmental Authority.

     3.11 Compliance with Laws . Each Loan Party has complied with all Governmental Requirements applicable to it, including, without limitation, Environmental Laws, to the extent that failure to so comply could reasonably be expected to have a Material Adverse Effect.

     3.12 Consents, Approvals and Filings, Etc . Except as have been previously obtained or as otherwise expressly provided in this Agreement, no authorization, consent, approval, license, qualification or formal exemption from, nor any filing (other than financing statements and filings with the SEC related to the execution, delivery and performance of any Loan Document), declaration or registration with, any Governmental Authority and no material authorization, consent or approval from any other Person, is required in connection with the execution, delivery and performance by each Loan Party of any Loan Document to which it is a party. All such authorizations, consents, approvals, licenses, qualifications, exemptions, filings, declarations and registrations which have previously been obtained or made, as the case may be, are in full force and effect and are not the subject of any attack, or to the knowledge of Borrower, any threatened attack, in any material respect, by appeal, direct proceeding or otherwise.

     3.13 Contracts, Agreements and Leases . To Borrower’s knowledge, no Loan Party is in default (beyond any applicable period of grace or cure) in complying with any provision of any material contract, agreement, indenture, lease or instrument to which it is a party or by which it or any of its properties or assets are bound, where such default would have a Material Adverse Effect.

     3.14 ERISA . Except as shown on Schedule 3.14 , as the same may be updated or supplemented from time to time, no Loan Party maintains or contributes to any Pension Plan subject to Title IV of ERISA. Furthermore, no Loan Party has incurred any accumulated funding deficiency within the meaning of ERISA or incurred any liability to the PBGC in connection with any Pension Plan established or maintained by such Loan Party, other than liabilities for premium payments. There have been no unreported “reportable events” described in Section 4043(c) of ERISA with respect to any Pension Plan and no Loan Party has participated in any “prohibited transaction” described in Sections 406 or 407 of ERISA for which no exemption exists under Section 408 of ERISA.

     3.15 No Investment Company . No Loan Party is required to be registered as an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

     3.16 No Margin Stock . No Loan Party is engaged principally, or as one of its important activities, directly or indirectly, in the business of extending credit for the purpose of purchasing or carrying margin stock, and none of the proceeds of any of the Loans will be used, directly or indirectly, to purchase or carry any margin stock or made available by any Loan Party in any manner to any other

Person to enable or assist such Person in purchasing or carrying margin stock, or otherwise used or made available for any other purpose which might violate the provisions of Regulations G, T, U, or X of the Board of Governors of the Federal Reserve System. Terms for which meanings are provided in Regulation U of said Board of Governors or any regulations substituted therefor, as are from time to time in effect, are used in this Section with such meanings, and these representations and warranties shall be immediately effective.

     3.17 Environmental Representations .

          (a) No Loan Party has received any written notice of any violation of any Environmental Law(s) that either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; and no Loan Party is a party to any litigation or administrative proceeding, nor, so far as is known by Borrower, is any litigation or administrative proceeding threatened against any Loan Party which, in any case, (i) asserts or alleges that any Loan Party violated any Environmental Law(s), (ii) asserts or alleges that any Loan Party is required to clean up, remove or take any other remedial or response action due to the disposal, depositing, discharge, leaking or other release of any Hazardous Materials, or (iii) asserts or alleges that any Loan Party is required to pay all or a portion of any past, present or future clean-up, removal or other remedial or response action which arises out of or is related to the disposal, depositing, discharge, leaking or other release of any Hazardous Materials by any Loan Party, and which, with respect to clauses (i), (ii) or (iii) above, either singularly or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

          (b) To Borrower’s knowledge, there are no conditions existing currently which could reasonably be expected to subject any Loan Party to damages, penalties, injunctive relief or clean-up costs under any applicable Environmental Law(s), or which require, or are likely to require, clean-up, removal, remedial action or other response pursuant to any applicable Environmental Law(s) by any Loan Party, and which, in any case, either singularly or in aggregate, could reasonably be expected to have a Material Adverse Effect.

          (c) No Loan Party is subject to any judgment, decree, order or citation related to or arising out of any applicable Environmental Law(s), which, either singularly or in the aggregate, could reasonably be expected to have a Material Adverse Effect; and, to Borrower’s knowledge, no Loan Party has been named or listed as a potentially responsible party by any Governmental Authority in any matter arising under any applicable Environmental Law(s), except as disclosed in Schedule 3.17 as of the Effective Date, and, in the event that any such matters are disclosed in said Schedule 3.17 they will not, either singularly or in the aggregate, have a Material Adverse Effect.

          (d) Each Loan Party has all permits, licenses and approvals required under applicable Environmental Laws, except where the failure to so obtain or maintain any such permits, licenses or approvals could reasonably be expected to have a Material Adverse Effect.

     3.18 Accuracy of Information . The Financial Statements previously furnished to Bank have been prepared in all material respects in accordance with GAAP and fairly presented in all material respects the financial condition of Borrower and, as applicable, the consolidated financial condition of Borrower and such other Person(s) as such Financial Statements purport to present, and the results of their respective operations as of the dates and for the periods covered thereby, provided that in the case of interim Financial Statements, such Financial Statements are subject to normally recurring year-end adjustments; and since the date(s) of said Financial Statements, there has been no Material Adverse Effect. As of the date covered by such Financial Statements, no Loan Party has any material contingent obligations, liabilities for taxes, long-term leases or long-term commitments not disclosed by, or reserved against in, such Financial Statements. After the making of the Loans, the Loan Parties, taken as a whole,

are able to pay their debts as they mature, have capital sufficient to carry on their businesses and have assets the fair market value of which, taken as a whole, exceed their liabilities, and no Loan Party will be rendered insolvent, under-capitalized or unable to pay debts generally as they become due by the execution or performance of any Loan Document to which it is a party or by which it is otherwise bound.

     3.19 [ Reserved ]

     3.20 Conditions Precedent . As of each Disbursement Date, all appropriate conditions precedent referred to in Section 3 of the Loan Terms, Conditions and Procedures Addendum hereof shall have been satisfied or waived in writing by Bank.

     3.21 Obligations . Neither Borrower nor any Loan Party has any Debt, except as permitted by Section 5.4.

     3.22 Material Agreements . Borrower is, and to Borrower’s knowledge, all other parties to Borrower’s Material Agreements are, in compliance with all of Borrower’s Material Agreements in all material respects, and to Borrower’s knowledge, no event has occurred and no condition exists that can be reasonably anticipated to result in any failure of compliance with any such Material Agreement in any material respect. Schedule 3.22 sets forth the Material Agreement(s) of each Loan Party in effect on the Effective Date.

     3.23 Misrepresentation . No warranty or representation by Borrower contained herein or in any certificate or other document furnished by Borrower pursuant hereto contains any untrue statement of material fact or omits to state a material fact necessary to make such warranty or representation not misleading in light of the circumstances under which it was made; provided, that, with respect to projected financial information, Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time in light of the circumstances when made There is no fact known to Borrower which Borrower has not disclosed to Bank in writing which could reasonably be expected to have a Material Adverse Effect.

     3.24 No Conflicting Agreements . Neither Borrower nor any Loan Party is in default under any shareholder agreement or preferred stock agreement that could reasonably be expected to have a Material Adverse Effect. No provision of the Certificate of Incorporation, Bylaws or preferred stock, if any, of Borrower, and no provision of any existing mortgage, indenture, note, statute (including, without limitation, any applicable usury or similar law), rule, regulation, judgment, decree or order binding on Borrower or affecting the property of Borrower conflicts with, or requires any consent under, or would in any way prevent the execution, delivery or carrying out of the terms of, this Agreement and the documents contemplated hereby, and the taking of any such action will not constitute a default under, or result in the creation or imposition of, or obligation to create any lien upon the property of Borrower pursuant to the terms of any such mortgage, indenture or note.

     3.25 Intellectual Property . Borrower and each Loan Party own or have rights to use all Intellectual Property necessary to continue to conduct their respective businesses as now or heretofore conducted, except where the failure to own such intellectual property or the right to use such intellectual property would not have a Material Adverse Effect, and each patent, trademark, copyright and license held by Borrower or such other Loan Party as of the Effective Date is listed, together with application or registration, numbers, as applicable, on Schedule 3.25 . To Borrower’s knowledge, Borrower and each Loan Party conduct their respective businesses and affairs without infringement upon or interference with any Intellectual Property of any other Person, except where such infringement or interference would not have a Material Adverse Effect.

     3.26 Survival of Representations and Warranties . All the representations and warranties contained in Sections 3.1 through 3.24, inclusive, shall survive the execution and delivery of this Agreement and shall continue in full force and effect until all amounts owing hereunder have been repaid and the credit facilities made available hereunder have been terminated.

SECTION 4. AFFIRMATIVE COVENANTS

     Borrower covenants and agrees that, so long as Bank is committed to make any Loan or issue any Letter of Credit under this Agreement, and so long as any Indebtedness remains outstanding, it will, and, as applicable, it will cause each Loan Party within its control to:

     4.1 Preservation of Existence, Etc . Preserve and maintain its corporate existence except as permitted by Sections 5.1 and 5.2, and preserve and maintain such of its rights, licenses, and privileges as are material to the business and operations conducted by it except to the extent the failure to maintain such rights, licenses and privileges would not have a Material Adverse Effect; qualify and remain qualified to do business in each jurisdiction in which such qualification is material to its business and operations or ownership of its properties except where the failure to so qualify would not have a Material Adverse Effect, continue to conduct and operate its business substantially as conducted and operated on the Effective Date; at all times maintain, preserve and protect all of its franchises and trade names and preserve all the remainder of its property necessary to conduct its business except where the failure to do so would not have a Material Adverse Effect and keep the same in good repair, working order and condition (ordinary wear and tear excepted); and from time to time make, or cause to be made, all needed and proper repairs, renewals, replacements, betterments and improvements thereto necessary to conduct its business except where the failure to do so would not have a Material Adverse Effect.

     4.2 Keeping of Books . Keep proper books of record and account in which full and correct entries shall be made of all of its financial transactions and its assets and businesses so as to permit the presentation of financial statements (including, without limitation, those Financial Statements to be delivered to Bank pursuant Section 4.3 hereof) prepared in accordance with GAAP.

     4.3 Reporting Requirements . Furnish to Bank, or cause to be furnished to Bank, the following:

          (a) Within three (3) Business Days after becoming aware of the occurrence or existence of each Default or Event of Default hereunder, any occurrence that which has or could reasonably be expected to have a Material Adverse Effect, a written statement of the chief financial officer of Borrower (or in his or her absence, a responsible senior officer of Borrower), setting forth details of such Default, Event of Default or occurrence, and the action which Borrower has taken, or has caused to be taken, or proposes to take, or to cause to be taken, with respect thereto;

          (b) within ninety (90) days after and as of the end of each fiscal year of Borrower, audited Financial Statements of Borrower and its consolidated Subsidiaries, including a balance sheet, statement of operations and statement of cash flows, for and as of such fiscal year then ending, with comparative numbers for the preceding fiscal year. Such audited Financial Statements shall be prepared in accordance with GAAP by independent certified public accountants of recognized standing selected by Borrower and satisfactory to Bank and shall contain unqualified opinions as to the fairness of the statements therein contained.

          (c) within thirty (30) days after and as of the end of each of the first two months of each calendar quarter, and within forty-five (45) days after and as of the end of the last month of each calendar quarter, Financial Statements of Borrower and its Subsidiaries, consolidated, as applicable, for

and as of such reporting period, including a balance sheet, statement of operations and statement of cash flows for and as of such reporting period then ending and for and as of that portion of the fiscal year then ending, with comparative numbers for the same period of the preceding fiscal year, in each case, certified by the chief financial officer of Borrower as to consistency with prior financial reports and accounting periods, accuracy and fairness of presentation, subject to year end audit adjustments;

          (d) within thirty (30) days after and as of the end of each calendar month, agings and reports of accounts receivable of Borrower and such of the other Borrowing Base Obligors as may be required by the Bank, in form and detail satisfactory to Bank;

          (e) within thirty (30) days after and as of the end of each calendar month, agings and reports of accounts payable of Borrower and such of the other Loan Parties as may be required by the Bank, in form and detail satisfactory to Bank;

          (f) within thirty (30) days after and as of the end of each calendar month, a listing of Eligible Inventory of Borrower and such of the other Borrowing Base Obligors in form and detail satisfactory to Bank, such listing to identify the cost and location thereof;

          (g) within forty-five (45) days after and as of the end of the earlier of (i) each calendar quarter, or (ii) each date of filing of Borrower’s 10-Q with the SEC, a Compliance Certificate dated as of the end of such quarter;

          (h) within thirty (30) days after and as of the end of each calendar month, a Borrowing Base Certificate dated as of the end of such month;

          (i) promptly upon becoming available, a copy of all financial statements, reports, notices, proxy statements and other material written communications sent by Borrower or any Loan Party to their stockholders, and all regular and periodic reports filed by Borrower or any Loan Party with any securities exchange and the SEC;

          (j) promptly following receipt thereof, copies of all management letters and other substantive reports submitted to any Loan Party by independent certified public accountants in connection with any annual audit of any such party;

          (k) within thirty (30) days after the end of each fiscal year of Borrower, a forecast of the income, expense and cash flow of Borrower for the succeeding fiscal year presented on a month-by-month and year-to-date basis and accompanied by a narrative summary of assumptions, and in form and detail satisfactory to Bank; and

          (l) promptly, and in form and detail satisfactory to Bank, such other information as Bank may request in writing from time to time.

     4.4 Financial Covenants . On a consolidated basis, Borrower and its Subsidiaries will maintain all financial covenants set forth in the Financial Covenants Addendum.

     4.5 Inspections . Permit Bank, through its authorized attorneys, accountants and representatives, at Borrower’s cost and expense, to visit any office of any Loan Party, discuss its financial matters with its officers, employees and independent certified public accountants, and by this provision, Borrower authorizes such officers, employees and accountants to discuss the finances and affairs of any Loan Party, and examine each Loan Party’s books, accounts, records, ledgers, assets and properties of every kind and description, wherever located, at all reasonable times during normal business hours of

Borrower or such Loan Party, upon three (3) Business Days prior written request of Bank, provided that no advance request or notice shall be required upon the occurrence and during the existence or continuance of an Event of Default. Borrower agrees to reimburse Bank, within 30 days of written demand, for the costs and expenses incurred by Bank for such inspections, provided that, so long as no Event of Default has occurred and is continuing or existing, Borrower shall not be obligated to reimburse Bank for more than four inspections during any calendar year.

     4.6 Further Assurances; Financing Statements . Furnish Bank, at Borrower’s expense, upon Bank’s request and in form satisfactory to Bank (and execute and deliver or cause to be executed and delivered), such additional pledges, assignments, mortgages, lien instruments or other security instruments, consents, acknowledgments, subordinations and financing statements covering any or all of the Collateral pledged, assigned, mortgaged or encumbered pursuant to any Loan Document, of every nature and description, whether now owned or hereafter acquired by Borrower or any other Loan Party providing such Collateral, together with such other documents or instruments as Bank may require to effectuate more fully the purposes of any Loan Document. Borrower further agrees to provide or cause to be provided to Bank such documentation or information as requested by Bank from time to time, including, without limitation, information to satisfy the Bank’s requirements under “Know Your Customer” or “Customer Identification” provisions under federal laws relating to anti-money laundering or terrorism including, without limitation, under the Patriot Act and regulations issued pursuant thereto, as well as acts administered by the Office of Foreign Assets Control.

     4.7 Compliance with Leases, Licenses and Governmental Requirements . Comply with all terms and conditions of (i) any leases covering any premises or property (real or personal) wherein any of the Collateral is or may be located, or covering any of the other material personal or real property now or hereafter owned, leased or otherwise used by any Loan Party in the conduct of its business, (ii) any license agreements covering any Inventory now or hereafter owned or otherwise used by any Loan Party in the conduct of its business, (c) any Material Agreement, and, (d) any Governmental Requirement, except in each case where the failure to so comply could not reasonably be expected to result in a Material Adverse Effect.

     4.8 Indemnification . INDEMNIFY, DEFEND AND SAVE BANK HARMLESS FROM ANY AND ALL CLAIMS, LOSSES, COSTS, DAMAGES, LIABILITIES, OBLIGATIONS AND EXPENSES, INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS’ FEES, INCURRED BY BANK BY REASON OF ANY DEFAULT OR EVENT OF DEFAULT, IN DEFENDING OR PROTECTING THE LIENS WHICH SECURE OR PURPORT TO SECURE ALL OR ANY PORTION OF THE INDEBTEDNESS, WHETHER EXISTING UNDER ANY LOAN DOCUMENT OR OTHERWISE OR THE PRIORITY THEREOF, OR IN ENFORCING THE OBLIGATIONS OF BORROWER OR ANY OTHER PERSON UNDER OR PURSUANT TO ANY LOAN DOCUMENT, OR IN THE PROSECUTION OR DEFENSE OF ANY ACTION OR PROCEEDING CONCERNING ANY MATTER GROWING OUT OF OR CONNECTED WITH THE COLLATERAL OR ANY LOAN DOCUMENT, INCLUDING ANY CLAIMS, LOSSES, COSTS, DAMAGES, LIABILITIES, OBLIGATIONS, AND EXPENSES RESULTING FROM BANK’S OWN NEGLIGENCE, EXCEPT AND TO THE EXTENT BUT ONLY TO THE EXTENT CAUSED BY BANK’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT .

     4.9 Governmental and Other Approvals . Apply for, obtain and/or maintain in effect, as applicable, all authorizations, consents, approvals, licenses, qualifications, exemptions, filings, declarations and registrations (whether with any court, governmental agency, regulatory authority, securities exchange or otherwise) which are necessary in connection with the execution, delivery and/or performance by any Loan Party of any Loan Document to which it is a party, except where the failure to do so would not have a Material Adverse Effect .

     4.10 Insurance . Maintain insurance coverage on its physical assets and against other business risks in such amounts and of such types as are customarily carried by companies similar in size and nature (including, without limitation, loss of rent and/or business interruption insurance and boiler and machinery insurance), including but not limited to (a) insurance under an “all risk” policy against fire and other risks customarily insured against, and (b) public liability insurance and other insurance as may be required by law or reasonably required by Bank, and in the event of acquisition of additional property, real or personal, or of the incurrence of additional risks of any nature, increase such insurance coverage in such manner and to such extent as prudent business judgment and present practice would dictate, all of which insurance shall be in amount, form and content, and written by companies as may be reasonably satisfactory to Bank; and in the case of all policies covering property subject to any Loan Document or property in which the Bank shall have a Lien of any kind whatsoever, other than those policies protecting against casualty liabilities to strangers, all such insurance policies shall provide that the loss payable thereunder shall be payable to Borrower (or other Person providing Collateral) and Bank, with lender’s loss payee and/or mortgagee’s clauses, as applicable, in favor of and satisfactory to Bank for all such policies, and such policies shall also provide that they may not be canceled or changed without thirty (30) days’ prior written notice to Bank (ten (10) days’ prior notice in the event of cancellation due to non-payment of premiums). Upon the request of Bank, all of said policies, or copies thereof, including all endorsements thereon and those required hereunder, shall be deposited with Bank.

     4.11 Compliance with ERISA . In the event that any Loan Party or any of its Subsidiaries maintain(s) or establish(es) a Pension Plan, such party shall (a) comply in all material respects with all applicable requirements imposed by ERISA as presently in effect or hereafter promulgated, including, but not limited to, the minimum funding requirements thereof; (b) promptly notify Bank upon the occurrence of a “reportable event” described in Section 4043(c) of ERISA, or the occurrence of a “prohibited transaction” described in Sections 406 and 407 of ERISA for which no exemption exists under Section 408 of ERISA, or the commencement by the PBGC or any Loan Party of proceedings to terminate any Pension Plan, together with a copy of any proposed notice of such event which may be required to be filed with the PBGC; and (c) furnish to Bank (or cause the plan administrator to furnish to Bank) a copy of the annual return (including all schedules and attachments) for each Pension Plan, and filed with the Department of Labor by any Loan Party not later than thirty (30) days after such report has been so filed.

     4.12 Environmental Covenants .

          (a) Comply with all applicable Environmental Laws, and maintain all permits, licenses and approvals required under applicable Environmental Laws, where the failure to do so could reasonably be expected to have a Material Adverse Effect.

          (b) Promptly notify Bank, in writing, after Borrower becomes aware of any condition or circumstance which makes any of the environmental representations or warranties set forth in this Agreement incomplete, incorrect or inaccurate in any material respect as of such date if such condition or circumstance could reasonably be expected to have a Material Adverse Effect; and promptly provide to Bank, after receipt thereof, copies of any material correspondence, notice, pleading, citation, indictment, complaint, order or decree, or other document from any source received by Borrower asserting or alleging a violation of any Environmental Laws by any Loan Party, or of any circumstance or condition which requires or may require, a financial contribution by any Loan Party, or a clean-up, removal, remedial action or other response by or on behalf of any Loan Party, under applicable Environmental Law(s), or which seeks damages or civil, criminal or punitive penalties from any Loan Party or any violation or alleged violation of Environmental Law(s), if the same could reasonably be expected to have a Material Adverse Effect.

          (c) BORROWER HEREBY AGREES TO INDEMNIFY, DEFEND AND HOLD BANK, AND ANY OF BANK’S PAST, PRESENT AND FUTURE OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES, REPRESENTATIVES AND CONSULTANTS (THE “INDEMNIFIED PARTIES”), HARMLESS FROM ANY AND ALL CLAIMS, LOSSES, DAMAGES, SUITS, PENALTIES, COSTS, LIABILITIES, OBLIGATIONS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE LEGAL EXPENSES AND REASONABLE ATTORNEYS’ FEES) INCURRED OR ARISING OUT OF ANY CLAIM, LOSS OR DAMAGE OF ANY PROPERTY, INJURIES TO OR DEATH OF ANY PERSONS, CONTAMINATION OF OR ADVERSE EFFECTS ON THE ENVIRONMENT, OR OTHER VIOLATION OF ANY APPLICABLE ENVIRONMENTAL LAW(S), IN ANY CASE, CAUSED BY ANY LOAN PARTY OR IN ANY WAY RELATED TO ANY PROPERTY OWNED OR OPERATED BY ANY LOAN PARTY OR DUE TO ANY ACTS OF ANY LOAN PARTY OR ANY OF ITS OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES, CONSULTANTS AND/OR REPRESENTATIVES INCLUDING ANY CLAIMS, LOSSES, DAMAGES, SUITS, PENALTIES, COSTS, LIABILITIES, OBLIGATIONS OR EXPENSES, RESULTING FROM BANK’S OWN NEGLIGENCE; PROVIDED HOWEVER, THAT THE FOREGOING INDEMNIFICATION SHALL NOT BE APPLICABLE, AND BORROWER SHALL NOT BE LIABLE FOR ANY SUCH CLAIMS, LOSSES, DAMAGES, SUITS, PENALTIES, COSTS, LIABILITIES, OBLIGATIONS OR EXPENSES, TO THE EXTENT (BUT ONLY TO THE EXTENT) THE SAME ARISE OR RESULT FROM ANY GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTIES .

     4.13 Accounts . By May 12, 2008, open and maintain, deposit accounts (including all operating accounts, cash management accounts, and collection/lockbox services) of Borrower with Bank, provided that, with respect to any such accounts maintained with any other Person (other than accounts for payroll or other liabilities related to employees) listed on Schedule 3.1(c)(6), while such account is maintained with such Person, cause to be executed and delivered an Account Control Agreement in form and substance satisfactory to Bank and Borrower by March 17, 2008. In the event Borrower is unable to deliver a satisfactory Account Control Agreement for an account by March 17, 2008, Borrower shall have until May 12, 2008 to transfer such account to Bank or such other financial institution as will provide an Account Control Agreement in form and substance satisfactory to Bank and Borrower.

     4.14 Use of Loan Proceeds . Use the proceeds of the Loans only for the purposes set forth in the Section 1.6 of the Loan Terms, Conditions and Procedures Addendum.

     4.15 Taxes . Pay promptly and within the time that they can be paid without late charge, penalty or interest all taxes, assessments and similar imposts and charges of every kind and nature lawfully levied, assessed or imposed upon Borrower or any Loan Party, and their property, except to the extent being contested in good faith and, if requested by Bank, bonded or reserved in an amount and manner reasonably satisfactory to Bank. If Borrower shall fail to pay such taxes and assessments within the time they can be paid without penalty, late charge or interest, and the same are not being contested in accordance with this Section, Bank shall have the option to do so, and Borrower agrees to repay Bank upon demand, with interest at the Applicable Interest Rate, all amounts so expended by Bank.

     4.16 [ Reserved .]

     4.17 Future Domestic Subsidiaries; Additional Collateral .

          (a) Within 30 days of the date such Person becomes a Domestic Subsidiary after the Effective Date, cause such Domestic Subsidiary to execute and deliver to the Bank a guaranty of the Indebtedness or a joinder to the Guaranty delivered on the Effective Date;

          (b) With respect to the tangible and intangible personal property of each Person which becomes a Domestic Subsidiary after the Effective Date, within 30 days of the date such Person becomes a Domestic Subsidiary, cause such Domestic Subsidiary to execute and deliver to the Bank a Security Agreement encumbering substantially all of the tangible and intangible personal property of such Domestic Subsidiary to secure the Indebtedness to the same extent covered by the Security Agreement delivered on the Effective Date, or a joinder to the Security Agreement delivered on the Effective Date;

          (c) With respect to real property owned, leased or otherwise acquired by Borrower or any Loan Party, upon the request of Bank, the Borrower and/or any Loan Party shall execute or cause to be executed, a first priority mortgage covering such property subject to Permitted Encumbrances of the types described in clauses (b), (d), (e) and (f) of the definition of Permitted Encumbrances (and Collateral Access Agreement in the case of leased property), together with such real estate due diligence and documentation as may be required by Bank, including, but not limited to, title insurance, survey, appraisal, environmental, insurance (including flood insurance where required); and

          (d) In each case, (i) such document of guaranty, security or mortgage shall be in form satisfactory to the Bank, together with such supporting documentation, including without limitation corporate authority items, certificates and opinions of counsel, as reasonably required by the Bank, and (ii) Borrower shall take, or cause to be taken, such steps as are necessary or advisable under applicable law to perfect the liens granted pursuant to such document.

     4.18 Registration of Intellectual Property Rights . Borrower and each other Loan Party shall promptly register or cause to be registered (to the extent not already registered) with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, those Intellectual Property rights listed in Schedule 3.25 to this Agreement or in any security agreement now or hereafter securing or purporting to secure any of the Indebtedness. Borrower and each other Loan Party shall register or cause to be registered with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, those additional Intellectual Property rights developed or acquired by Borrower or such other Loan Party from time to time prior to the sale or licensing of such product to any third party including, without limitation, revisions or additions to the Intellectual Property rights listed in Schedule 3.25 to this Agreement or in any agreement now or hereafter securing or purporting to secure any of the Indebtedness, except where the failure to do so would not have a Material Adverse Effect.

          (a) Borrower and each other Loan Party shall execute and deliver such additional instruments and documents from time to time as Bank shall request to perfect the Bank’s Liens upon the Intellectual Property now or hereafter securing or purporting to secure any of the Indebtedness.

          (b) Borrower and each other Loan Party shall (i) protect, defend and maintain the validity and enforceability of all trademarks, patents and copyrights and other Intellectual Property now or hereafter securing or purporting to secure any of the Indebtedness, except where the failure to do so would not have a Material Adverse Effect (ii) use commercially reasonable efforts to detect infringements of the same and promptly advise Bank in writing of material infringements detected and (iii) not allow any of the same to be abandoned, forfeited or dedicated to the public, except where the failure to do so would not have a Material Adverse Effect.

          (c) Bank shall have the right, but not the obligation, to take, at Borrower’s sole expense, any actions that Borrower is required under this Section to take but which Borrower fails to take.

     4.19 Intellectual Property . Borrower and each Loan Party will conduct their respective businesses and affairs without intentional infringement of any Intellectual Property of any other Person, except to the extent such infringement would not have a Material Adverse Effect.

SECTION 5. NEGATIVE COVENANTS

     Borrower covenants and agrees that, so long as Bank is committed to make any Loan or issue any Letter of Credit under this Agreement, and so long as any Indebtedness remains outstanding, it will not, and, as applicable, it will not allow any Loan Party within its control to, without the prior written consent of the Bank:

     5.1 Capital Structure, Business Purpose . Purchase, acquire or redeem any of its equity ownership interests except pursuant to and in conjunction with the Employee Benefit Plans, or enter into any reorganization or recapitalization or reclassify its equity ownership interests, or make any material change in its capital structure or general business purpose, except pursuant to the Permitted Reorganization.

     5.2 Mergers or Dispositions . (i) Change its name, enter into any merger or consolidation, whether or not the surviving entity thereunder, except for (a) mergers or consolidations of any Subsidiary into Borrower or any Guarantor so long as Borrower or Guarantor shall be the continuing or surviving entity; and (b) pursuant to the Permitted Reorganization; provided that at the time of each such merger or consolidation, both before and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing or result from such merger or consolidation, or (ii) sell, lease, transfer or dispose of all, substantially all, or any material part of its assets (whether in a single transaction or in a series of transactions) except for sales of Inventory in the ordinary course of business and except pursuant to the Permitted Reorganization.

     5.3 Guaranties . Guarantee, endorse, or otherwise become secondarily liable for or upon the obligations or Debt of others (whether directly or indirectly), except:

          (a) guaranties in favor of and satisfactory to Bank; and

          (b) endorsements for deposit or collection in the ordinary course of business.

     5.4 Debt . Become or remain obligated for any Debt, except:

          (a) Indebtedness and other Debt from time to time outstanding and owing to Bank;

          (b) current unsecured trade, utility or non-extraordinary accounts payable arising in the ordinary course of business;

          (c) Subordinated Debt, provided (i) at the time of and upon the issuance of such Subordinated Debt there is and will be immediately after such issuance Continuing Compliance, and (ii) Borrower complies with the provisions of Section 2.8 of the Loan Terms, Conditions and Procedures Addendum;

          (d) purchase money indebtedness incurred for the purpose of purchasing or acquiring fixed assets, so long as the amount of such purchase money indebtedness incurred by Borrower and its Subsidiaries does not exceed $1,000,000 of principal in the aggregate outstanding at any time;

          (e) Debt outstanding as of the date hereof more particularly described in Schedule 5.4 attached hereto;

          (f) any of Sheldon Canada’s obligations under the Intercompany Note;

          (g) Capitalized Lease Obligations not to exceed $1,000,000 in the aggregate outstanding at any time;

          (h) Debt with respect to the Existing Letters of Credit;

          (i) Debt that constitutes a renewal, refinancing or extension of any Debt referred to in this Section 5.4 (other than clause (h)); provided, that (i) no Lien existing at the time of such renewal reflecting an extension shall be extended to cover any property not already subject to such Lien and (ii) the principal amount of any Debt renewed, refinanced or extended shall not exceed the amount of such Debt outstanding immediately prior to such renewal, refinancing or extension; and

          (j) Additional Debt in an aggregate principal amount not to exceed $1,000,000 at any time outstanding.

     5.5 Encumbrances . Create, incur, assume or suffer to exist any Lien upon, or create, suffer or permit to exist any Lien upon any of its property or assets, including any real property, whether now owned or hereafter acquired, except for Permitted Encumbrances.

     5.6 Acquisitions . Purchase or otherwise acquire or become obligated for the purchase of all or substantially all of the assets or business interests of any Person or any shares of stock or other ownership interests of any Person, except pursuant to the Permitted Reorganization.

     5.7 Dividends . Declare or pay dividends on, or make any other Distribution (whether by reduction of capital or otherwise) in respect of any shares of its capital stock or other ownership interests, except (a) dividends and Distributions payable by a Subsidiary of Borrower to Borrower or by the Subsidiary of another Loan Party to such other Loan Party; (b) dividends and Distributions payable solely in stock; (c) the redemption, repurchase or acquisition of any shares of its capital stock payable upon an employee’s termination pursuant to its employee stock option, repurchase, or similar plan; and (d) Borrower’s dividend to be paid on or about March 31, 2008 in an amount not to exceed $300,000; provided, however, that after giving effect to such redemption, repurchase or acquisition, no Default or event of Default shall have occurred and be continuing.

     5.8 Investments . Make or allow to remain outstanding any investment (whether such investment shall be of the character of investment in shares of stock, evidences of indebtedness or other securities or otherwise) in, or any loans, advances or extensions of credit to, any Person, other than:

          (a) Borrower’s current ownership interests in those Subsidiaries of Borrower identified on Schedule 3.5 attached hereto;

          (b) any investment in direct obligations of the United States of America or any agency thereof, or in certificates of deposit issued by Bank, maintained consistent with Borrower’s or such Subsidiary’s business practices prior to the date hereof; provided, that no such investment shall mature more than ninety (90) days after the date when made or the issuance thereof; and

          (c) loans and advances by Borrower to Sheldon Canada evidenced by (and not, in aggregate amount at any time outstanding to exceed the face amount of) the Intercompany Note;

          (d) Investments made pursuant to the Permitted Reorganization;

          (e) Investments made in connection with the Employee Benefit Plans; and

          (f) Investments not described in clauses (a) through (e) above in an aggregate amount not to exceed $500,000 per annum.

     5.9 Transactions with Affiliates . Enter into any transaction with any of their stockholders, officers, employees, partners or any of their Affiliates, except subject to the terms hereof, transactions in the ordinary course of business and on terms not less favorable than would be usual and customary in similar transactions between Persons dealing at arm’s length.

     5.10 Defaults on Other Obligations . Fail to perform, observe or comply duly with any covenant, agreement or other obligation to be performed, observed or complied with by any Loan Party, subject to any grace periods provided therein, which failure could reasonably be expected to have a Material Adverse Effect.

     5.11 Prepayment of Debt . Prepay any Debt (or take any actions which impose an obligation to prepay), except, subject to the terms hereof or thereof, Indebtedness.

     5.12 Pension Plans . Except in compliance with this Agreement, enter into, maintain, or make contribution to, directly or indirectly, any Pension Plan that is subject to Title IV of ERISA.

     5.13 Subordinate Indebtedn ess . Subordinate any indebtedness due to it from any Person to indebtedness of other creditors of such Person.

     5.14 No Further Negative Pledges . Enter into or become subject to any agreement (other than this Agreement or the Loan Documents) which has the legal effect of (a) prohibiting the guaranteeing by any Loan Party of any obligations, (b) preventing the creation or assumption of any Lien upon the properties or assets of any Loan Party in favor of Bank, whether now owned or hereafter acquired, other than any Excluded Asset, or (c) requiring an obligation to become secured (or further secured) if another obligation is secured or further secured.

     5.15 Accounts Receivable . Sell or assign any Account, account receivable, note or trade acceptance, except to the Bank and except in the ordinary course of business.

     5.16 [ Reserved .]

     5.17 Acquire Fixed Assets . Acquire or expend for, or commit to acquire or expend for, fixed assets by lease (including any Capitalized Lease Obligations), purchase or otherwise if at the time of or upon the consummation of such acquisition or purchase there is not or will not be Continuing Compliance.

     5.18 Subordinated Debt . Make any direct or indirect payment of all or any part of any Subordinated Debt or take any other action or omit to take any other action in respect of any Subordinated Debt except in accordance with the Subordination Agreement. Except to the extent expressly provided in the Subordination Agreement, neither Borrower nor any Loan Party shall repurchase, redeem or retire in any way any instrument evidencing Subordinated Debt prior to maturity or enter into any agreement which could in any way be construed to amend, modify, alter or terminate any one or more instruments or agreements evidencing, governing, guaranteeing or otherwise relating to Subordinated Debt.

     5.19 Property Transfers . (a) Sell, lease, transfer or otherwise dispose of properties and assets, except for (i) sales of inventory in the ordinary course of business, (ii) the disposition of obsolete or worn-out property in the ordinary course of business, (iii) other dispositions of property or assets in the ordinary course of business which will not, individually or in the aggregate, have a Material Adverse Effect, (iv) the sale or transfer of the West Bend Property, (v) the sale or transfer of the Yoakum Property, or (vi) dispositions or other transfers of property or assets pursuant to the Permitted Reorganization; provided in the case of clauses (iv) and (v), Borrower complies with the provisions of Section 2.9 of the Loan Terms, Conditions and Procedures Addendum, or (b) enter into any sale-leaseback transaction.

     5.20 Off-Site Inventory and Equipment . Store Inventory or Equipment with a bailee, warehouseman, or similar third party unless the third party has been notified of Bank’s security interest and Bank (a) has received, subject to the terms of Section 3.2(b) of the Loan Terms, Conditions and Procedures Addendum, an acknowledgment from the third party that it is holding or will hold the Inventory or Equipment for Bank’s benefit or (b) is in possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment. Except for Inventory sold in the ordinary course of business and except for such other locations as Bank may approve in writing, Borrower shall keep the Inventory and Equipment only at the Loan Party Locations and such other locations of which Borrower gives Bank 10 days prior written notice.

     5.21 Government Regulation . (a) Be or become subject at any time to any law, regulation, or list of any government agency (including, without limitation, the U.S. Office of Foreign Asset Control list) that prohibits or limits Bank from making any advance or extension of credit to Borrower or from otherwise conducting business with Borrower, or (b) fail to provide documentary and other evidence of Borrower’s identity as may be requested by Bank at any time to enable Bank to verify Borrower’s identity or to comply with any applicable law or regulation, including, without limitation, Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318.

     5.22 Misrepresentation . Furnish Bank with any certificate or other document that contains any untrue statement by a Loan Party of a material fact or omits to state a material fact necessary to make such certificate or document not misleading in light of the circumstances under which it was furnished.

     5.23 Margin Stock . Apply any of the proceeds of any of the Loans to the purchase or carrying of any “margin stock” in violation of Regulation U of the Board of Governors of the Federal Reserve System, or any regulations, interpretations or rulings thereunder.

SECTION 6. EVENTS OF DEFAULT

     6.1 Events of Default . The occurrence or existence of any of the following conditions or events shall constitute an “Event of Default” hereunder:

          (a) upon non-payment of any interest due under the terms of this Agreement or under the Note within three (3) days of the date when due; upon non-payment of any principal or other sums due under the terms of this Agreement or under the Note, or under any other instrument or evidence of Indebtedness, whether under this Agreement, the Note, or otherwise, in any case, when due in accordance with the terms hereof or thereof; or if any Loan Party shall fail to pay, within five (5) days of the date when due, any indebtedness, obligation or liability whatsoever of any such Loan Party to Bank;

          (b) default in the observance or performance of any of the other conditions, covenants or agreements of Borrower set forth in this Agreement;

          (c) any representation or warranty made by any Loan Party in any Loan Document shall be untrue or incorrect in any material respect;

          (d) any default or event of default, as the case may be, in the observance or performance of any of the conditions, covenants or agreements of any Loan Party set forth in any Loan Document and continuation thereof beyond any applicable period of grace or cure provided with respect thereto;

          (e) any default by any Loan Party, in the payment of any Material Debt, or in the observance or performance of any conditions, covenants or agreements related or given with respect thereto, in each such case, continuing beyond any applicable grace or cure period;

          (f) the rendering of one or more judgments or decrees for the payment of money in excess of the Material Amount, against any Loan Party, and such judgment(s) or decree(s) shall remain unvacated, unbonded or unstayed, by appeal or otherwise, for a period of thirty (30) consecutive days after the date of entry; or if or if a writ of attachment or garnishment against the property of Borrower or any Loan Party shall be issued and not released or appealed and bonded in an amount and manner satisfactory to Bank within thirty (30) consecutive days after such issuance and levy;

          (g) if there shall be (i) any change in Borrower’s chief financial officer or chief executive officer, whether by reason of incapacity, death, resignation, termination or otherwise, or (ii) any change in the ownership of Borrower which results in any Person acquiring 25% or more of Borrower’s issued and outstanding common stock entitled to vote in the election of directors, which in either case, in Bank’s sole judgment, shall have a material adverse effect upon the future prospects for the successful operation by Borrower, of its businesses as conducted before such change, or its ability to pay and perform its liabilities and obligations under this Agreement, the Indebtedness, or the Loan Documents;

          (h) the failure by any Loan Party, to meet the minimum funding requirements under ERISA with respect to any Pension Plan established or maintained by it; the occurrence of any “reportable event”, as defined in ERISA, which could constitute grounds for termination by the PBGC of any Pension Plan subject to Title IV or for the appointment by the appropriate United States District Court of a trustee to administer such Pension Plan, and such reportable event is not corrected and such determination is not revoked within thirty (30) days after notice thereof has been given to the plan administrator or any Loan Party, as the case may be; or the institution of any proceedings by the PBGC to terminate any such Pension Plan or to appoint a trustee by the appropriate United States District Court to administer any such Pension Plan;

          (i) if any Loan Party, voluntarily suspend transaction of its business (other than with respect to a Permitted Reorganization), becomes insolvent or generally fails to pay, or admits in writing its inability to pay, its debts as they mature, or applies for, consents to, or acquiesces in the appointment of a trustee, receiver, liquidator, conservator or other custodian for any Loan Party, or a substantial part of its property, or makes a general assignment for the benefit of creditors; or in the absence of such application, consent or acquiescence, a trustee, receiver, liquidator, conservator or other custodian is appointed for any Loan Party, or for a substantial part of its property, and the same is not discharged within thirty (30) days; or any bankruptcy, reorganization, debt arrangement, or other proceedings under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is instituted by or against any Loan Party, and, if instituted against any Loan Party, the same is consented to or acquiesced in by any such Loan Party or otherwise remains undismissed for thirty (30) days; or any warrant of attachment is issued against any substantial part of the property of any Loan Party, which is not released within thirty (30) days of service thereof; or

          (j) if any Loan Document shall be terminated, revoked, or otherwise rendered void or unenforceable, in any case, without Bank’s prior written consent; or

          (k) if there occurs a material adverse change in Borrower’s prospects, business or financial condition, or if there is a material impairment in the Borrower’s ability to repay any portion of the Indebtedness or a material impairment in the perfection, value or priority of Bank’s security interests in the Collateral.

     6.2 Remedies Upon Event of Default . Upon the occurrence and at any time during the existence or continuance of any Event of Default, but without impairing or otherwise limiting the Bank’s right to demand payment of all or any portion of the Indebtedness which is payable on demand, at Bank’s option, Bank may give notice to Borrower declaring all or any portion of the Indebtedness remaining unpaid and outstanding, whether under the Note or otherwise, to be due and payable in full without presentation, demand, protest, notice of dishonor, notice of intent to accelerate, notice of acceleration or other notice of any kind, all of which are hereby expressly waived, whereupon all such Indebtedness shall immediately become due and payable. Furthermore, upon the occurrence of a Default or Event of Default and at any time during the existence or continuance of any Default or Event of Default, but without impairing or otherwise limiting the right of Bank, if reserved under any Loan Document, to make or withhold financial accommodations at its discretion, to the extent not yet disbursed, any commitment by Bank to make any further Loans to Borrower or issue any further Letters of Credit for Borrower’s account under this Agreement may be terminated by Bank upon notice to Borrower; provided, should such Default or Event of Default be cured to Bank’s satisfaction, Bank may, but shall be under no obligation to, reinstate any such commitment by written notice to Borrower. Notwithstanding the foregoing, in the case of an Event of Default under Section 6.1(i) , and notwithstanding the lack of any notice, demand