LOAN AND SECURITY AGREEMENT

Security Agreement

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I/OMAGIC CORP | GMAC COMMERCIAL FINANCE LLC

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Title: LOAN AND SECURITY AGREEMENT
Governing Law: Michigan Date: 3/14/2005
Industry: Computer Peripherals Sector: Technology

EXECUTION COPY

LOAN AND SECURITY AGREEMENT

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GMAC COMMERCIAL FINANCE LLC ("LENDER"), a Delaware limited liability

company, with offices at 3000 Town Center, Suite 280, Southfield, Michigan 48075

and I/OMAGIC CORPORATION, a Nevada corporation ("BORROWER") with a principal

place of business at 4 Marconi, Irvine, California 92618, enter into this Loan

and Security Agreement on March 9, 2005 (the "AGREEMENT").

1. GENERAL LENDING TERMS

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The following are the general terms of the loans to be made under this

Agreement:

1.1 A revolving line of credit (the "REVOLVING LOANS") up to the lesser

of the Revolving Advance Limit or the Borrowing Base. The "Borrowing Base" is

initially (a) 85% of the aggregate outstanding amount of Eligible Accounts; PLUS

(b) the lesser of (i) 55% of the cost of Eligible Inventory, (ii) 85% of the

NOLV of Eligible Inventory, or (iii) $4,000,000; MINUS (c) the Availability

Reserves. The advance rate against Eligible Accounts will reduce by one

percentage point for each percentage point (or fraction thereof) that Dilution

exceeds 5%. Because Dilution as of the date of this Agreement is 26%, the

initial advance rate against Eligible Accounts will be 64%. PROVIDED, HOWEVER,

no advances shall be made against Eligible Inventory unless and until Lender is

satisfied, in its sole Discretion, with the results of an appraisal of

Borrower's Inventory. All Revolving Loans will be made in U.S. Dollars, and for

Borrowing Base purposes, Accounts denominated in Canadian Dollars will be

converted to U.S. Dollars at the prevailing exchange rate.

1.2 As provided in SECTIONS 3.2 AND 3.3 below, a $2,000,000 Letter of

Credit facility. The undrawn amount of all Outstanding Letters of Credit will be

reserved against availability under the Line of Credit (the "LC RESERVES"). In

addition to other reasonable, standard and customary charges, commissions, fees,

and costs charged by the issuing bank of any Letters of Credit, Borrower shall

pay Lender a fee on the first day of each month in arrears equal to three and

one-half percent (3.50%) per annum times the aggregate amount undrawn face

amount of all Letters of Credit as of the end of each day.

1.3 Subject to SECTIONS 3.4 AND SECTIONS 3.5 below, the applicable

interest rate on all Revolving Loans is, the Prime Pate plus three-quarters

percent (0.75%) per annum OR the LIBOR Rate plus three and one-half percent

(3.50%) per annum. The foregoing interest rates are referred to as the "BASE

RATES", or a "PRIME BASE RATE" or "LIBOR BASE RATE", as applicable.

1.4 This Agreement expires on March 8, 2008 (the "TERM").

1.5 Borrower shall pay Lender a closing fee of $25,000 upon execution

of this Agreement which fee shall be fully earned on the date paid and which is

in addition to the commitment fee previously paid by Borrower.

<PAGE>

1.6 Borrower shall pay Lender a collateral servicing fee of $1,000 on

the first day of each month in arrears, for every month or portion thereof that

this Agreement is in effect.

1.7 Borrower shall pay to Lender a monthly unused line fee in arrears

on the first day of each month equal to one-quarter of one percent (0.25%) per

annum times the Average Unused Portion of the Revolving Facility during the

immediately preceding month.

2. DEFINITIONS.

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In addition to the terms defined in this Agreement, the following terms

have the given definitions:

"ACCOUNT DEBTOR" means any obligor under, with respect to, or on

account of an Account.

"ACCOUNTS" means all presently existing and hereafter arising

"accounts" and "chattel paper" as such terms are defined in the Uniform

Commercial Code, including accounts receivable, contract rights, and all other

forms of obligations owing to Borrower arising out of the sale or lease of goods

or the rendition of services by Borrower, whether or not earned by performance,

all credit insurance, guaranties, supporting obligations and other security

therefor, as well as all goods returned to or reclaimed by Borrower, and

Borrower's Business Records relating to any of the foregoing.

"AVAILABILITY RESERVES" means such reserves as Lender from time to

time determines in its Discretion as being appropriate to reflect the

impediments to Lender's ability to realize upon the Collateral liabilities that

impact on the anticipated amount realizable from the Collateral. Without

limiting the generality of the foregoing, Availability Reserves may include (but

are not limited to) reserves based on the following:

(a) from and after the time Lender allows the inclusion of

Inventory in the Borrowing Base, rent for any leased location where Borrower's

Inventory is located for which an acceptable Collateral Access Agreement has not

been received by Lender;

(b) taxes and other governmental charges, including ad

valorem, personal property, sales, and other taxes which may have priority over

Lender's security interests;

consulting with counsel) could have priority over the Obligations by virtue of

any applicable law or regulation;

(d) from and after the time Lender allows the inclusion of

Inventory in the Borrowing Base, the Inventory Reserves;

(e) the LC Reserves; and

<PAGE>

(f) the Static Reserve.

"AVERAGE EXCESS AVAILABILITY" means the average daily Excess

Availability for the calendar months ending March 31 and September 30 of each

year.

"AVERAGE UNUSED PORTION OF THE REVOLVING FACILITY" means, for any

calendar month or portion thereof, the Revolving Advance Limit, less the average

Daily Balance of Revolving Loans that were outstanding during the month.

"BUSINESS DAY" means a day on which national banks are open for

business in Detroit, Michigan other than Saturdays and Sundays.

"BUSINESS RECORDS" means all of Borrower's books and records including

all of the following: ledgers, records indicating, summarizing or evidencing

Borrower's assets (including the Collateral) or liabilities; all information

relating to Borrower's business operations or financial condition; and all

computer programs, disk or tape files, printouts, runs or other computer

prepared information, and the equipment containing such information.

"CAPITAL EXPENDITURES" means, with respect to Borrower for any period,

the sum of the aggregate of all expenditures (whether paid in cash, capitalized

as an asset or accrued as a liability) by Borrower during such period which, in

accordance with GAAP, are or should be included in "capital expenditures" or

similar items reflected on the statements of cash flows of Borrower.

"CAPITAL LEASE" means a capital lease or a lease which should be

treated as a capital lease under GAAP.

"CLAIMS" means any demand, claim, action or cause of action, damage,

liability, loss, cost, debt, expense, obligation, tax, assessment, charge,

lawsuit, contract, agreement, undertaking or deficiency, of any kind or nature,

whether known or unknown, fixed, actual, accrued or contingent, liquidated or

unliquidated (including interest, penalties, attorneys' fees and other costs and

expenses incident to proceedings or investigations relating to any of the

foregoing or the defense of any of the foregoing), whether or not litigation has

commenced.

"COLLATERAL" means all of the following: Accounts; Equipment; General

Intangibles; Inventory; Negotiable Collateral; Business Records; Commercial Tort

Claims; any money or other assets of Borrower which hereafter come into the

possession, custody or control of Lender, including money on deposit in any

blocked accounts to the extent such funds are determined to not be Lender's

property; and all proceeds and products, whether tangible or intangible, of any

of the foregoing, including proceeds of insurance covering any or all of the

Collateral, Supporting Obligations, and any and all Accounts, Equipment, General

Intangibles, Inventory, Negotiable Collateral, Business Records, money, deposit

accounts or other tangible or intangible property resulting from the sale or

other disposition of the Collateral or any portion thereof or interest therein,

and the proceeds thereof.

<PAGE>

"COLLATERAL ACCESS AGREEMENT" means a written agreement between Lender

and the owner of any premises where Collateral is located on terms acceptable to

Lender in its Discretion, providing for among other things, a waiver of liens on

the subject Collateral and providing Lender access to and if applicable, the

right to occupy, the premises in connection with liquidating Collateral.

"COMMERCIAL TORT CLAIMS" has the meaning given in the UCC, and includes

without limitation Borrower's rights and claims arising under, in connection

with or related to (a) the lawsuit styled IOM HOLDINGS, INC. AND I/OMAGIC

CORPORATION V. LAWRENCE W. HOROWITZ, GREGORY B. BEAM, LAWRENCE M. CRON, HORWITZ

& CRON, KEVIN J. SENN, SENN PALUMBO MEULMANS LLP ET AL, Case Number 03CC07383,

Orange County California Superior Court and the claims on which such lawsuit is

based, and (b) to the extent Borrower has any rights therein, the arbitration

styled IOM HOLDINGS, INC. V. DEVELOPMENT SPECIALISTS, Inc., Ref. Number 73 Y 181

00168 04 LOPE, American Arbitration Association, and the claims on which such

arbitration is based.

"DAILY BALANCE" means, with respect to each day during the term of this

Agreement, the amount of Revolving Loans outstanding at the end of such day.

"DEBT" means with respect to Borrower, without duplication, at the date

of determination, (a) all indebtedness for borrowed money, including, (b) all

obligations for the deferred purchase price of property or services which

evidence indebtedness, (c) all obligations evidenced by notes, bonds, debentures

or other similar instruments, (d) all obligations created or arising under any

conditional sale or other title retention agreement with respect to property

acquired (whether or not the rights and remedies of the seller or lender under

such agreement in the event of default are limited to repossession or sale of

such property), (e) all obligations as lessee under leases that have been or

should be, in accordance with GAAP, recorded as capital leases, (f) all

obligations, contingent or otherwise, under acceptance, letter of credit and

similar facilities, (g) all obligation to purchase, redeem, retire, defease or

otherwise acquire for value any partnership or shareholder or other equity

interests, (h) all net financial obligations in respect of Hedge Arrangements

and all financial obligations under any similar contract, (i) all contingent

obligations, (j) all Debt referred to in clauses (a) through (i) above secured

by (or for which the holder of such Debt has an existing right, contingent or

otherwise, to be secured by) any encumbrance on property (including accounts and

contract rights), even though Borrower has not assumed or become liable for the

payment of such Debt, (k) the amount of all trade payables and other accrued

liabilities to the extent the same are past the due date thereof by more than 90

days (except to the extent that such payables and liabilities are being properly

contested with the person or entity to whom same are owing) and (l) any other

obligation arising under arrangements or agreements that, in substance, provide

financing to Borrower.

"DEPRECIATION & AMORTIZATION EXPENSE" means with respect to Borrower,

for any period, depreciation, amortization, depletion and other like reductions

to income for such period not involving any outlay of cash, determined on a

consolidated basis in accordance with GAAP.

"DILUTION" means the aggregate amount of credits, returned goods,

adjustments, deductions, setoffs and recoupments granted by Borrower or taken by

all Account Debtors in any calendar month divided by the aggregate amount of

Borrower's sales during the calendar month.

<PAGE>

"DISCRETION" means:

(a) Each reference in the Loan Documents to the exercise of

discretion or the like by the Lender shall be to the Lender's exercise of its

reasonable (from the perspective of a secured, asset-based lender) credit

judgment, in good faith, based upon Lender's consideration of any such factor as

the Lender, taking into account information of which Lender then has actual

knowledge, believes:

(i) Will or reasonably could be expected to

affect the value of the Collateral, the

enforceability of the Lender's liens,

security and collateral interests therein,

or the amount which Lender would likely

realize from the Collateral (taking into

account delays which may possibly be

encountered in the Lender's realizing upon

the Collateral and likely Expenses in

connection with the enforcement of remedies

and associated costs of collection);

(ii) Indicates that any report or financial

information delivered to the Lender by or on

behalf of Borrower is incomplete,

inaccurate, or misleading in any material

manner or was not prepared in accordance

with the requirements of this Agreement;

and/or

(iii) Constitutes an Event of Default or indicates

that an Event of Default will occur with the

passage of time.

(iv) Suggests a material increase in the

likelihood that Borrower will become the

subject of an Insolvency Proceeding.

(b) In the exercise of such judgment, as set forth in clause

(a) above, Lender also may take into account any of the following factors:

(i) Those included in, or tested by, the

definitions of Eligible Inventory or

Eligible Accounts;

(ii) The current financial and business climate

of the industry in which Borrower competes

(having regard for Borrower's position in

that industry);

(iii) General economic conditions which have a

material effect on Borrower's cost

structure;

(iv) Material Adverse Changes in Borrower's

assets;

(v) Material Adverse Changes in Borrowing Base

availability versus that which was

projected; and/or

<PAGE>

(vi) Such other factors as Lender determines as

having a material bearing on credit risks

associated with the providing of loans and

financial accommodations to the Borrower.

have acted in a reasonable manner in Lender's exercise of Discretion shall be on

the Borrower.

"DOLLARS" or "$" means lawful money of the United States of America.

"EBITDA" means for any Measurement Period, the following amount

determined in accordance with GAAP -

(a) Net Income for such period; PLUS

(b) Extraordinary losses; PLUS

(i) Interest Expense for such period;

(ii) Income Tax Expense for such period;

(iii) Depreciation & Amortization Expense for such

period; MINUS

(d) Extraordinary gains.

"ELIGIBLE ACCOUNTS" means Borrower's Accounts listed on Borrowing Base

Certificates delivered to Lender which Lender, in its Discretion, determines to

be an Eligible Account. Without limiting the generality of the immediately

preceding sentence, no Account will be a Eligible Account unless it meets all of

the following minimum requirements:

(a) The Account is valued at its face amount and represents a

complete, bona fide transaction for Eligible Inventory sold, delivered, and

accepted by the Account Debtor or for services rendered (but excluding any

amounts in the nature of a service charge added to the amount due on an invoice

because the invoice has not been paid when due) that requires no further act

under any circumstances on the part of the Borrower or any other person or

entity to make such Account payable by the Account Debtor, and the Account

arises from an arm's-length transaction in the ordinary course of Borrower's

business between Borrower and an Account Debtor that is not an affiliate,

partner, officer, or employee of Borrower, or a member of the family of any

partner, officer, or employee of Borrower.

(b) The Account is not unpaid more than the earlier of (A) 70

days past the invoice due date, or (B) 100 days from the earlier of (i) the date

on which the original invoice rendered in connection with such Account was

issued, and (ii) the date on which the Eligible Inventory was shipped to the

Account Debtor or the services performed.

shipped or delivered or provided to the Account Debtor on a final sale basis and

not on a bill and hold sale basis, a consignment sale basis, a guaranteed sale

basis, a sale or return basis, or on the basis of any other similar

understanding, and no part of such goods have been returned or rejected.

<PAGE>

(d) The Account is not evidenced by chattel paper or an

instrument of any kind.

(e) The Account Debtor with respect to the Account (A) is not

insolvent, (B) is not the subject of any bankruptcy or insolvency proceedings of

any kind or of any other proceeding or action, threatened or pending, which

might have a materially adverse effect on its business, and (C) is not, in

Lender's Discretion deemed ineligible for credit for other reasons (including,

without limitation, unsatisfactory past experience of Borrower or Lender with

the Account Debtor or unsatisfactory reputation of the Account Debtor).

(f) The Account Debtor is located in the United States of

America or Canada.

(g) The Account Debtor is not the government of the United

States of America or Canada, or any department, agency or instrumentality

thereof, or (B) if the Account Debtor is an entity mentioned in the preceding

clause, the Federal Assignment of Claims Act (or applicable similar legislation)

has been fully complied with so as to validly perfect Lender's first-priority

security interest to Lender's satisfaction.

(h) The Account is a valid, legally enforceable obligation of

the Account Debtor with respect thereto and is not subject to any dispute,

condition, contingency, setoff, recoupment, reduction, claim for credit,

allowance, adjustment, counterclaim or defense on the part of such Account

Debtor and no fact exists that may provide a basis for any of the foregoing in

the present or future (collectively, a "SETOFF"), other than in respect of

ordinary course of business adjustments such as price protection allowances,

returns, co-operative advertising allowances, and market development funds

credits; provided that except as otherwise provided in this Agreement, the

Account will be ineligible only to the extent of the Setoff.

(i) Unless otherwise agreed to in writing by Lender, the

Account is subject to a first-priority security interest in Lender's favor and

is not subject to any other lien, claim, encumbrance, or security interest

whatsoever (except as otherwise permitted by this Agreement or any other written

agreement between Lender and Borrower).

(j) The Account is evidenced by an invoice or other

documentation in form acceptable to Lender and arises from a contract, purchase

order, or release that is satisfactory in form and substance to Lender.

(k) Borrower has observed and complied with (A) all laws of

the United States of America (including the Fair Labor Standards Act) and (B)

all laws of the state in which the Account Debtor or the Account is located

which, if not observed and complied with, would deny to the Borrower access to

the courts of such state.

<PAGE>

(l) No representation or warranty contained in this Agreement

or any other agreement between Borrower and Lender, or in any Borrowing Base

Certificate with respect to such Account has been breached in any material

respect.

(m) The Account is not subject to any provision prohibiting

its assignment.

(n) The Account does not represent any manufacturer's or

supplier's credits, discounts, incentive plans, or other similar arrangements

entitling the Borrower to discounts on future purchases.

(o) The Eligible Inventory giving rise to the Account was not,

at the time of sale thereof, subject to any lien or encumbrance except in

Lender's favor.

(p) The Account is payable in Dollars.

In addition to the foregoing requirements, Accounts of any Account

Debtor that are otherwise eligible will be reduced to the extent of (a) any

accounts payable (including, without limitation, Lender's good faith estimate of

any contingent liabilities) by Borrower to such Account Debtor ("CONTRAS")

(provided that Lender, in its Discretion may determine that none of such

Accounts are Eligible Accounts if aggregate Contras and Setoffs represent 10% or

more of the total amount owing to Borrower from such Account Debtor); (b) that

portion of an Account representing a retainage or holdback by the Account

Debtor; and (c) Accounts owing by any Account Debtor that exceed 15% of

Borrower's total Accounts if the Account Debtor is not rated by Moody's

Investment Service or if the Account Debtor is rated as "speculative" or

"non-investment grade". Finally, all Accounts owing by a given Account Debtor

will be ineligible if more than 50% of the total Accounts owing by such Account

Debtor are otherwise ineligible.

Any Account that is at any time an Eligible Account and that

subsequently fails to meet any of the requirements set forth above will

immediately cease to be an Eligible Account and must be removed from the

Borrowing Base immediately.

"ELIGIBLE INVENTORY" means that portion of Borrower's Inventory

consisting of goods held for sale in the ordinary course of Borrower's business

that is listed on a Borrowing Base Certificate delivered to Lender in accordance

with this Agreement that Lender, in its Discretion, determines to be Eligible

Inventory. Without limiting the generality of the immediately preceding

sentence, no Inventory will be Eligible Inventory unless it meets all the

following minimum requirements:

(a) The Inventory has not been shipped, delivered, provided

to, purchased or sold by Borrower on a bill and hold, consignment sale,

guaranteed sale, or sale or return basis, or any other similar basis or

understanding.

(b) No Account has arisen with respect to such Inventory.

"progress billing" or similar basis prior to shipment to the customer.

<PAGE>

(d) The Inventory is valued at the lower of cost or market on

a first-in, first-out basis.

(e) The Inventory is in Borrower's possession, or if the

Inventory is located on premises not owned by the Borrower, the landlord or

owner has executed an acceptable Collateral Access Agreement.

(f) The Inventory is not subject to any royalty, copyright,

trademark, trade name, or licensing arrangement, or any law, rule, or regulation

that could limit or impair Lender's ability to exercise its rights with respect

to such Inventory.

(g) The Inventory is not packaging, labels, manuals or

supplies.

(h) The Inventory meets all standards imposed by any

governmental or agency, department, or division having regulatory authority over

such Inventory or its use or sale including, without limitation, standards set

forth in the Fair Labor Standards Act.

(i) No representation or warranty in this Agreement, any other

agreement between Borrower and Lender, or any Borrowing Base Certificate has

been breached, in any material respect, with respect to such Inventory.

(j) The Inventory is not obsolete (obsolete Inventory includes

Inventory that is not compatible with current computer software or hardware in

the market place) or slow-moving (no sales in last six months or quantities on

hand in excess of projected sales over the next six months), is of good and

merchantable quality, and is readily salable in the ordinary course of

Borrower's business.

(k) Except as otherwise permitted by this Agreement or any

other written agreement between Borrower and Lender, the Inventory is subject to

a first-priority security interest in Lender's favor and is not subject to any

other lien or encumbrance, except those which are subordinate to those of Lender

pursuant to the terms of a subordination agreement(s) acceptable in form and

substance acceptable to Lender.

Any Inventory that is at any time Eligible Inventory and that

subsequently fails to meet any of the requirements set forth above will cease to

be Eligible Inventory immediately and must be removed from the Borrowing Base

immediately.

"ENVIRONMENTAL LAWS" means the Comprehensive Environmental Response,

Compensation, and Liability Act of 1980, as amended, the Resource Conservation

and Recovery Act of 1976, the Hazardous Materials Transportation Act, the Toxic

Substances Control Act, the regulations pertaining to such statutes, and any

other safety, health or environmental statutes, laws, regulations or ordinances

of the United States or of any state, county or municipality in which Borrower

conducts its business or the Collateral is located.

<PAGE>

"EQUIPMENT" means all of Borrower's present and hereafter acquired

equipment, machinery, machine tools, motors, furniture, furnishings, fixtures,

motor vehicles, rolling stock, processors, tools, parts, dies, jigs, goods

(other than consumer goods, farm products or Inventory), wherever located, and

any interest of Borrower in any of the foregoing, and all attachments,

accessories, accessions, replacements, substitutions, additions and improvements

to any of the foregoing, wherever located.

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

amended, and the regulations thereunder.

"ERISA AFFILIATE" means each trade or business (whether or not

incorporated and whether or not foreign) which is or may hereafter become a

member of a group of which Borrower is a member and which is treated as a single

employer under ERISA Section 4001(b)(1), or IRC Section 414.

"EXCESS AVAILABILITY" means at any time, the amount of the Borrowing

Base minus the amount of the Revolving Loans.

"EXPENSES" means all fees and out-of-pocket disbursements incurred by

Lender, including reasonable out-of-pocket fees of counsel and court costs, in

any way arising from or in connection with this Agreement, any Loan Documents,

any of the Collateral, any of the Obligations or the business relationship

between Lender and Borrower, including, without limitation, (a) audit fees at

the per day rate provided for in SECTION 8.6 below; (b) all fees and expenses

(including recording fees and insurance policy fees) of Lender and counsel for

Lender for the preparation, examination, approval, negotiation, execution and

delivery of, or the closing of any of the transactions contemplated by, this

Agreement and any Loan Documents; (c) all fees and out-of-pocket disbursements

incurred by Lender, including reasonable attorneys' fees, in any way arising

from or in connection with any action taken by Lender to monitor, advise,

administer, enforce or collect any of the Obligations under this Agreement, any

Loan Documents or any other obligations of Borrower, whether joint, joint and

several, or several, under this Agreement (or any Loan Documents), or any other

existing or future document or agreement, or arising from or relating to the

business relationship between Lender and Borrower, or otherwise securing any of

the Obligations, including any actions to lift the automatic stay or to

otherwise in any way monitor or participate in any Insolvency Proceeding

involving Borrower; (d) all reasonable out-of-pocket expenses and fees

(including attorneys' fees) incurred in relation to, in connection with, in

defense of and/or in prosecution of any litigation instituted by Borrower or any

third party against or involving Lender arising from, relating to, or in

connection with any of the Obligations or the Borrower's other obligations, this

Agreement (or any Loan Documents), any of the Collateral, or the business

relationship between Lender and Borrower, including any so-called "Lender

liability" action, any claim and delivery or other action for possession of, or

foreclosure on, any of the Collateral, post-judgment enforcement of any rights

or remedies including enforcement of any judgments, and prosecution of any

appeals (whether discretionary or as of right and whether in connection with

pre-judgment or post-judgment matters); (e) all costs, expenses and fees

incurred by Lender or its agents in connection with any appraisals or

environmental assessments of all or any of the Collateral (and Borrower shall

fully cooperate with such appraisers and make their property available for

appraisal in connection with as many appraisals or environmental assessments as

Lender may reasonably request); (f) all fees described in SECTION 1 above, and

<PAGE>

(g) all costs, expenses and fees incurred by Lender and/or its counsel in

connection with consultants, expert witnesses or other professionals retained by

Lender and/or its counsel in order to assist, advise and/or give testimony with

respect to any matter relating to this Agreement or any Loan Documents, the

Collateral or the business relationship between Lender and Borrower (and

Borrower shall fully cooperate with such consultant, expert witness or other

professional and shall make their premises, books and records, accounting

systems, computer systems and other media for the recordation of information

available to such persons).

"FIXED CHARGES" means (without duplication) the sum of the following

for any Measurement Period for Borrower: scheduled principal and interest

payments on all Funded Debt and income taxes paid or payable, all as determined

according to GAAP for the applicable period.

"FIXED CHARGE COVERAGE RATIO" means, for any Measurement Period, the

ratio of (a) EBITDA minus internally funded Capital Expenditures to (b) Fixed

Charges.

"FUNDED DEBT" means, with respect to Borrowers without duplication, all

capital leases, all indebtedness that bears interest (whether current pay,

accrued or otherwise), including without limitation, the deferred purchase price

of property or services, all obligations to repurchase all or any portion of any

property transferred or sold and all other obligations arising under

arrangements or agreements that, in substance, provide financing.

"GAAP" means generally accepted accounting principles as adopted in the

United States of America applied on a consistent basis.

"GENERAL INTANGIBLES" means all of Borrower's present and future

general intangibles and other personal property (including commercial tort

claims, contract rights, rights arising under common law, statutes or

regulations, choses or things in action, goodwill, going concern value, patents,

trade names, trademarks, service marks, copyrights, blueprints, drawings,

purchase orders, customer lists, monies due or recoverable from pension funds,

monies due under any royalty or licensing agreements, route lists, infringement

claims, computer programs, computer discs, computer tapes, literature, reports,

catalogs, deposit accounts, insurance premium rebates, tax refunds and tax

refund claims) other than goods and Accounts, and Borrower's Business Records

relating to any of the foregoing.

"HAZARDOUS MATERIAL" means any substance, material, emission or waste

which is or hereafter becomes regulated or classified as a hazardous substance,

hazardous material, toxic substance or solid waste under any Environmental Law,

asbestos, petroleum products, urea formaldehyde, polychlorinated biphenyls

(PCBs), radon and any other hazardous or toxic substance, material, emission or

waste.

"HEDGE ARRANGEMENT" means for any period, any arrangement or

transaction which is a rate swap transaction, basis swap, forward rate

transaction, commodity swap, interest rate option, forward foreign exchange

transaction, cap transaction, floor transaction, collar transaction, currency

swap transaction, cross-currency rate swap transaction, currency option or any

other similar transaction (including any option with respect to any of such

transactions or arrangements) designed to protect or mitigate against risks in

interest, currency exchange or commodity price fluctuations.

<PAGE>

"INCOME TAX EXPENSE" means with respect to Borrower, for any period,

the aggregate of all federal, state and local taxes on Borrower's income for

such period, whether current or deferred, determined in accordance with GAAP.

"INTEREST EXPENSE" means with respect to Borrower, for any period,

without duplication, the aggregate amount of interest and other financing

charges expensed or accrued on account of such period with respect to Funded

Debt, including interest, discount and financing fees, commissions, discounts,

the interest or time value of money component of costs related to factoring or

securitizing receivables or monetizing inventory and other fees and charges

payable with respect to letters of credit, letters of guarantee and bankers'

acceptance financing, standby fees, the interest component of capital leases and

net payments (if any) pursuant to hedge arrangements involving interest, all as

determined in accordance with GAAP.

"INSOLVENCY PROCEEDING" means any proceeding commenced by or against

Borrower under any provision of the Bankruptcy Code, 11 U.S.C. ss.101 et. seq.,

or under any other bankruptcy or insolvency law, including assignments for the

benefit of creditors, formal or informal moratoria, compositions, extensions

generally with its creditors or proceedings seeking reorganization, liquidation,

arrangement or other similar relief.

"INVENTORY" means all present and future inventory in which Borrower

has any interest, including goods held for sale or lease or to be furnished

under a contract of service, Borrower's present and future raw materials, work

in process, finished goods and supplies and materials used in or consumed in

Borrower's business, goods which have been returned to, repossessed by or

stopped in transit by Borrower, packing and shipping materials, wherever

located, any documents of title representing any of the above, and Borrower's

Business Records relating to any of the foregoing.

"INVENTORY RESERVES" means such reserves as may be established from

time to time by Lender in its Discretion with respect to the determination of

what constitutes Eligible Inventory. Without limiting the generality of the

foregoing, Inventory Reserves may include (but are not limited to) reserves

based on the following: negative variances in excess of 5% in test counts or

cost verifications performed by Lender from time to time (as part of Lender's

periodic Examinations), obsolescence (determined based upon Inventory on hand

beyond a given number of days), or changes in Inventory composition or mix.

"LIBOR BASED LOANS" means that portion of the Loans on which interest

accrues at the LIBOR Base Rate.

"LIBOR RATE" means an annual rate of interest determined by Agent as

being the rate available at approximately 11:00 a.m. London time in the London

Interbank Market, as referenced by Reuters Screen "LIBOR", in accordance with

the usual practice in such market, for 30 day LIBOR loans in effect two Business

Days prior to the first Business Day of each calendar month for deposits of

dollars in amounts in excess of $1,000,000, as such rate may be adjusted by the

reserve percentage applicable during the succeeding month (or if more than one

<PAGE>

such percentage shall be applicable, the daily average of such percentages for

those days in such LIBOR Interest Period during which any such percentage shall

be so applicable) under regulations issued from time to time by the Board of

Governors of the Federal Reserve System (or an successor) for determining the

maximum reserve requirement (including without limitation, any emergency,

supplemental or other marginal reserve requirement) for a national bank with

respect to liabilities or assets consisting of or including "Eurocurrency

Liabilities" as such term is defined in Regulation D of the Board of Governs of

the Federal Reserve System, as in effect from time to time, having a term equal

to such LIBOR Interest Period ("EUROCURRENCY RESERVE REQUIREMENT"), as

reasonably applied to loans of this type. Such adjustment shall be effectuated

by calculating, and the LIBOR Rate shall be equal to, the quotient of (i) the

offered rate divided by (ii) one minus the Eurocurrency Reserve Requirement. The

LIBOR Rate will be adjusted as of the first calendar day of each month and shall

remain at such rate for the entire month.

"LIBOR RATE OPTION" is defined in SECTION 3.5 below.

"LINE OF CREDIT" means the revolving line of credit provided for in

this Agreement.

"LOAN DOCUMENTS" means, collectively, this Agreement, any notes, any

security agreements, pledge agreements, assignments, deeds of trust, mortgages

or other encumbrances or agreements which secure or relate to the Obligations or

the collateral security for the Obligations, any guaranties of the Obligations,

including, without limitation, any lock box or blocked account agreements and

any other agreements entered into between Borrower or any guarantor of the

Obligations and Lender relating to or in connection with this Agreement.

"LOANS" means the Revolving Loans and any other loans or advances made

by Lender to Borrower.

"MATERIAL ADVERSE CHANGE" means (a) a material adverse change in the

business, operations, results of operations, assets, liabilities or financial

condition of Borrower, including, without limitation, a material adverse change

in the business, operations, results or operations, assets, or liabilities since

the date of this Agreement, (b) the material impairment of Borrower's ability to

perform its obligations under the Loan Documents to which it is a party or of

the Lender to enforce the Obligations or realize upon the Collateral of

Borrower, (c) a material impairment of the Collateral, or (d) a material

impairment of the priority of the Lender's liens and security interests with

respect to the Collateral of Borrower.

"MEASUREMENT PERIOD" means as the 3 month period ending March 31, 2005,

the six month period ending on June 30, 2005, the 9 month period ending

September 30, 2005, the 12 months ending December 31, 2005 and thereafter the

twelve month period ending on March 31, June 30, September 30 and December 31 of

each year.

<PAGE>

"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in ERISA

Sections 3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees of

Borrower or any ERISA Affiliate.

"NEGOTIABLE COLLATERAL" means all of Borrower's present and future

letters of credit, notes, drafts, instruments, certificated and uncertificated

securities, documents, leases and chattel paper, and Borrower's Business Records

relating to any of the foregoing.

"NET INCOME" means, for any period, Borrower's net income for such

period, as determined in accordance with GAAP.

"NOLV" means the appraised orderly liquidation value as determined

annually by an appraiser acceptable to Lender, net of estimated costs of

liquidation.

"OBLIGATIONS" means all Loans, advances, debts, liabilities (including

all amounts charged to Borrower's loan account pursuant to any agreement

authorizing Lender to charge Borrower's loan account), obligations, fees, lease

payments, guaranties, reimbursement obligations in respect of Letters of Credit,

covenants and duties owing by Borrower to Lender of any kind and description for

the payment of money or otherwise, (whether pursuant to or evidenced by the Loan

Documents, by any note or other instrument or by any other agreement between

Lender and Borrower), whether direct or indirect, absolute or contingent, due or

to become due, now existing or hereafter arising, including any debt, liability

or obligation owing from Borrower to others which Lender may obtain by

assignment or otherwise, and all interest thereon, including any interest that,

but for the provisions of the Bankruptcy Code, would have accrued, and all

Expenses which Borrower is required to pay or reimburse pursuant to the Loan

Documents, by law or otherwise.

"OPERATING ACCOUNT" means account number 4042743 maintained by Borrower

at United National Bank or such other account as Borrower shall designate in

writing.

"OVERADVANCE" means if at any time and for any reason, the aggregate

amount of the outstanding Revolving Loans exceeds the Dollar or percentage

limitations set forth in SECTION 1 in this Agreement.

"PERMITTED LIENS" means:

(a) liens for taxes, assessments or governmental charges, and

liens incident to construction, which are either not delinquent or are being

contested in good faith by the Borrower by appropriate proceedings, which will

prevent foreclosure of such liens, and against which adequate reserves have been

provided, and upon demand by Lender, with adequate security being posted with

Lender;

(b) liens or deposits in connection with workers' compensation

or other insurance or to secure customs' duties, public or statutory obligations

in lieu of surety, stay or appeal bonds, or to secure performance of contracts

or bids (other than contracts for the payment of money borrowed), or deposits

required by law or governmental regulations or by any court order, decree,

judgment or rule as condition to the transaction of business or the exercise of

any right, privilege or license; or other liens or deposits of a like nature

made in the ordinary course of business; and

<PAGE>

(d) liens and security interests identified on SCHEDULE 2.

"PLAN" means any plan described in ERISA Section 3(2) maintained for

employees of Borrower or any ERISA Affiliate, other than a Multiemployer Plan.

"REPORTABLE EVENT" means a "reportable event" as that term is defined

and applied in connection with ERISA.

"REVOLVING ADVANCE LIMIT" means $10,000,000.

"STATIC RESERVE" means initially $1 million, with such amount reduced

to $500,000 if Lender is satisfied, in its Discretion, with the results of the

restatement of financial statements announced by Borrower on or about January

27, 2005.

"UCC" means the Uniform Commercial Code as adopted in Michigan.

3. LINE OF CREDIT, OTHER LOANS, INTEREST AND PAYMENTS

--------------------------------------------------

3.1 REVOLVING LINE OF CREDIT. From time to time prior to the expiration

of the Term, so long as an Event of Default has not occurred or if an Event of

Default has occurred, such Event of Default has been timely remedied, Lender

will, in its Discretion and subject to the terms and conditions set forth in

this Agreement, make Revolving Loans to Borrower in such amounts as Borrower may

request, provided that the aggregate principal amount of all Revolving Loans

shall not exceed the lesser of the Revolving Advance Limit or the Borrowing

Base.

Borrower may request from time to time Revolving Loan advances by

submitting a signed, completed Borrowing Base Certificate to Lender, in each

case given no later than 1:00 p.m. (Eastern time) on the Business Day of the

proposed Revolving Loan advance. Subject to the terms and conditions of this

Agreement, Lender will make the proceeds of each such requested Revolving Loan

advance available to Borrower on the day requested by transferring funds to

Borrower's Operating Account or as otherwise instructed by Borrower.

Lender shall not be obligated to make Revolving Loans to Borrower at

any time; each Revolving Advance which is made under this Agreement will be made

at the option of, and in the Discretion of, Lender. The Revolving Loans will not

be evidenced by a promissory note and a copy of Lender's books and records

related to the Revolving Loans shall constitute prima facie evidence of the

outstanding amount of Revolving Loans. The Revolving Loans will be due and

payable upon the earlier of the occurrence of an Event of Default or the

expiration of the Initial Term.

Should an Overadvance exist, Borrower shall immediately make principal

reduction payments of such excess to Lender as are required to reduce the

outstanding balance of the Revolving Loans such that no Overadvance exists.

<PAGE>

For each Revolving Loan made to Borrower via wire transfer, Borrower

shall pay Lender an Electronic Payment Fee of $25.00, or such other amount as

Lender shall customarily charge its Borrowers for the cost and expense of making

electronic transfers of funds.

3.2 LETTERS OF CREDIT. Subject to the terms and conditions hereof,

Lender shall cause the issuance of letters of credit ("LETTERS OF CREDIT") for

the account of the Borrowers from time to time during the Term of this

Agreement; PROVIDED, HOWEVER, that Agent will not be required to issue or cause

to be issued any Letters of Credit to the extent that the face amount of such

Letters of Credit would then cause the sum of the outstanding Obligations

(including Outstanding Letters of Credit) to exceed the lesser of (x) the

Revolving Advance Limit or (y) the Borrowing Base. The maximum amount of

Outstanding Letters of Credit shall not exceed $2,000,000 in the aggregate at

any time. All disbursements or payments related to Letters of Credit shall be

deemed to be Revolving Loans and shall bear interest as provided in Section 3.4.

3.3 ISSUANCE OF LETTERS OF CREDIT.

(a) Borrower may request that Lender issue or cause the

issuance of a Letter of Credit by delivering to Lender, a letter of credit

application in the form provided by Lender (a "LETTER OF CREDIT APPLICATION"),

properly completed to the satisfaction of Lender and the proposed issuing bank,

together with such other certificates, documents and other papers and

information as Lender may reasonably request.

(b) Each Letter of Credit shall, among other things, (i)

provide for the payment of sight drafts when presented for honor thereunder in

accordance with the terms thereof and when accompanied by the documents

described therein, and (ii) have an expiry date not later than twelve months

after such Letter of Credit's date of issuance and in no event later than the

last day of the Term. Each Letter of Credit Application and each Letter of

Credit shall be subject to the Uniform Customs and Practice for Documentary

Credits (1993 Revision), International Chamber of Commerce Publication No. 500,

and any amendments or revision thereof and, to the extent not inconsistent

therewith, the laws of the State of Michigan.

of Credit, Borrower shall indemnify, save and hold Lender harmless from any

loss, cost, expense or liability, including, without limitation, payments made

by Lender, and expenses and reasonable attorneys' fees incurred by Lender

arising out of, or in connection with, any Letters of Credit to be issued or

created for Borrower. Borrower shall be bound by Lender's or any issuing or

accepting bank's regulations and good faith interpretations of any Letter of

Credit issued or created for Borrower's account, although this interpretation

may be different from Borrower's; and, neither Lender nor any of its

correspondents shall be liable for any error, negligence, or mistakes, whether

of omission or commission, in following Borrower's instructions or those

contained in any Letter of Credit or of any modifications, amendments or

supplements thereto or in creating or paying any Letter of Credit, except for

Lender's or such correspondents' gross negligence or willful misconduct.

<PAGE>

(d) Borrower authorizes and directs any bank which issues a

Letter of Credit to name the Borrower as the "Account Party" therein and to

deliver to Lender all instruments, documents, and other writings and property

received by the bank pursuant to the Letter of Credit or in connection with any

acceptance and to accept and rely upon Lender's instructions and agreements with

respect to all matters arising in connection with the Letter of Credit, the

application therefor or any acceptance therefor.

(e) In connection with all Letters of Credit issued by or on

behalf of Lender under this Agreement, upon and during the continuance of an

Event of Default, Borrower hereby appoints Lender, or its designee, as its

attorney, with full power and authority (a) to sign and/or endorse Borrower's

name upon any warehouse or other receipts, letter of credit applications and

acceptances; (b) to sign the Borrower's name on bills of lading; (c) to clear

Inventory through Customs in the name of the Borrower or Lender or Lender's

designee, and to sign and deliver to Customs officials powers of attorney in the

name of the Borrower for such purpose; and (d) to complete in the Borrower's

name or Lender's, or in the name of Lender's designee, any order, sale or

transaction, obtain the necessary documents in connection therewith, and collect

the proceeds thereof. Neither Lender nor its attorneys will be liable for any

acts or omissions nor for any error of judgment or mistakes of fact or law,

except for Lender's or its attorney's gross negligence or willful misconduct.

This power, being coupled with an interest, is irrevocable as long as any

Letters of Credit remain outstanding.

(f) Borrower shall reimburse Lender for all out-of-pocket

charges, commissions, fees and costs of any bank that issues a Letter of Credit.

Such unpaid amounts shall be part of the Obligations and shall be secured by the

Collateral.

3.4 INTEREST RATE; DEFAULT INTEREST RATE. Through March 31, 2006, the

aggregate outstanding amount of all Obligations shall bear interest at the

applicable Base Rate set forth in SECTION 1.3 above and all interest shall be

payable on the first day of each month in arrears. Commencing April 1, 2006 and

continuing on the first day of October and April of each year, the applicable

rate of interest shall be determined based upon the Average Excess Availability

for the month then ended and the grid attached as SCHEDULE 3.4. The aggregate

outstanding amount of the Obligations shall bear interest, from and after the

occurrence of an Event of Default and without constituting a waiver of any such

Event of Default, at the rate of two percent (2.0%) per annum above the

applicable Base Rate. All interest payable under the Loan Documents shall be

computed on the basis of a three hundred sixty (360) day year for the actual

number of days elapsed, based on the aggregate amount of the Obligations that

are outstanding on each day. Interest shall continue to accrue until all of the

Obligations are paid in full.

3.5 LIBOR RATE OPTION. Provided no Event of Default has occurred and is

continuing, Borrower shall have the right to have up to 80% of the Revolving

Loans bear interest at a LIBOR Base Rate (the "LIBOR RATE OPTION"); PROVIDED,

THAT Loans accruing interest at a LIBOR Base Rate shall be in amounts not less

than $1,000,000 and in increments of $250,000. Borrower shall elect (or

continue) the LIBOR Rate Option in writing at least three (3) Business Days

prior to the first Business Day of each calendar month. If Borrower fails to

<PAGE>

timely elect the LIBOR Rate Option or timely notify that it wants to continue

the LIBOR Rate Option for a particular portion of the Loans, all Loans shall

accrue interest at the applicable Prime Base Rate during the succeeding calendar

month. If Borrower prepays any portion of the Revolving Loans on which interest

is accruing at the LIBOR Rate (the "LIBOR TRANCHE") other than on the last day

of each month, Borrower shall be obligated to pay Lender a so-called breakage

fee equal to the difference between interest calculated on the LIBOR Tranche

amount at the LIBOR Base Rate and interest calculated at the Prime Base Rate for

that portion of the month the LIBOR Tranche is paid.

3.6 CROSS-DEFAULTS AND CROSS-COLLATERALIZATION. A default under any

Loan or Loan Document is a default under any all other Loans and Loan Documents.

All Collateral secures all Obligations.

3.7 PAYMENTS. All payments, including any prepayments, by Borrower on

account of principal, interest, fees, or other Obligations must be made without

setoff or counterclaim to Lender at the address specified on the first page of

this Agreement in Dollars and in immediately available funds. If any payment

under this Agreement or any Note becomes due on a day other than a day which is

a Business Day, its maturity will be extended to the next succeeding Business

Day, and with respect to payments of principal and interest thereon, will be

payable at the then-applicable rate during such extension.

3.8 CREDITING PAYMENTS. For the purpose of calculating Borrowing Base

availability for Revolving Loans, the receipt by Lender of any wire transfer or

electronic funds transfer of funds, check or other item of payment shall be

applied immediately to provisionally reduce the Obligations, but such receipt

shall not be considered a payment on account unless such wire transfer or

electronic funds transfer is of immediately available federal funds and is made

to the appropriate deposit account of Lender or unless and until such check or

other item of payment is honored when presented for payment. For the purpose of

calculating interest, the receipt by Lender of any check or other item of

payment shall be deemed to have occurred two (2) Business Days after the date

Lender actually receives such item of payment and as to any wire transfer or

electronic funds transfer, two (2) Business Days after the date Lender actually

receives such item of payment. In the event any check or other item of payment

is not honored when presented for payment, Borrower shall be deemed not to have

made such payment. Notwithstanding anything to the contrary contained herein,

any wire transfer, electronic funds transfer, check or other item of payment

received by Lender after 1:00 p.m. Eastern time shall be deemed to have been

received by Lender as of the opening of business on the immediately following

Business Day.

3.9 PAYMENT MECHANICS. As an administrative convenience to Borrower to

ensure the timely payment of amounts owing by Borrower to Lender under this

Agreement, Borrower hereby requests Lender to advance for the account of

Borrower an amount each month sufficient to pay interest accrued on the

principal amount of the Obligations during the immediately preceding month and

all monthly principal installments or other payments due under any notes or

other Loan Document and amounts from time to time sufficient to pay all fees and

Expenses owing by Borrower under this Agreement. Borrower authorizes Lender, in

Lender's sole discretion, to make a Revolving Loan for Borrower's account of a

sum sufficient each month to pay, on the due date thereof, all interest accrued

<PAGE>

on the principal amount of the Obligations during the immediately preceding

month and all monthly principal installments or other payments due under any

notes or other Loan Documents and sums from time to time sufficient to pay, on

the due date thereof, all fees and Expenses owing by Borrower under this

Agreement, and Lender may apply the proceeds of each such Revolving Loan to the

payment of such interest, installments, fees and Expenses. Lender will provide

Borrower with an invoice or receipt for all items charged to the Revolving Loans

pursuant to this paragraph. Each such Revolving Loan shall thereafter accrue

interest at the rate then applicable under this Agreement. Lender, however,

shall not be obligated to make any Revolving Loan to pay interest, fees or

Expenses if making such Revolving Loan would create an Overadvance.

3.10 TERMINATION PREMIUM. If this Agreement is terminated or all

Obligations are paid in full prior to March 8, 2008, Borrower shall be obligated

to pay Lender a termination premium equal to the following (the "EARLY

TERMINATION PREMIUM"):

(a) 1.5% of the Revolving Advance Limit if this Agreement is

terminated or all Obligations are paid in full before March 8, 2006;

(b) 1.0% of the Revolving Advance Limit if this agreement is

terminated or all obligations are paid in full on or after March 8, 2006 but

before March 8, 2007;

terminated or all Obligations are paid in full on or after March 8, 2007 but

other than on March 8, 2008.

The Early Termination Premium will also be due and payable (i) in

connection with any termination of this Agreement upon the occurrence of an

Event of Default during any of the applicable periods set forth above, (ii) if

Borrower becomes subject to an Insolvency Proceeding, or (iii) in connection

with payment of the Obligations by any trustee, receiver, interim receiver,

administrator, custodian, debtor-in-possession or similar court appointed

otherwise legally authorized representative in any Insolvency Proceeding. The

Early Termination Premium is presumed to be a reasonable estimate of the amount

of damages sustained by the Lender as a result of the early termination of this

Agreement and Borrower agrees that such amount is reasonable under the

circumstances currently existing. The Early Termination Premium is part of the

Obligations and shall be secured by the Collateral. Notwithstanding the

foregoing, the Early Termination Fee will be waived if (a) both of the following

occur: (i) Obligations are paid in full more than 24 months after closing; and

(ii) Lender is paid out b

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