8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

^{______________}

FORM 8-K

^{______________}

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report: January 13, 2010

(Date of earliest event reported)

PROTECTIVE PRODUCTS OF AMERICA, INC.

(Exact name of registrant as specified in its charter)

Delaware	000-53580	26-3479709
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

1649 Northwest 136th Avenue
Sunrise, Florida	33323
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (954) 846-8222

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01.

Entry into a Material Definitive Agreement

The information provided pursuant to Item 1.03 of this Current Report on Form 8-K regarding the Asset Purchase Agreement (as defined below) and the DIP Credit Agreement (as defined below) is incorporated into this Item 1.01 by reference.

Item 1.03.

Bankruptcy or Receivership.

On January 13, 2010, Protective Products of America, Inc. (the “Company”) and its subsidiaries, CPC Holding Corporation of America, a Delaware corporation, Ceramic Protection Corporation of America, a Delaware corporation, Protective Products International Corp., a Florida corporation, and Protective Products of North Carolina, LLC, a North Carolina limited liability company (the “Subsidiaries”, and together with the Company, the “Debtors”) filed voluntary petitions for relief under chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Florida, Fort Lauderdale Division (the “Bankruptcy Court”) (Case No. 10-10711-BKC-JKO) (the “Bankruptcy Case”). The Debtors will continue to operate their businesses as “debtors in possession” under the jurisdiction of the Bankruptcy C ourt and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

On January 14, 2010, the Company issued a press release announcing the bankruptcy filing. A copy of the press release is filed herewith as Exhibit 99.1 and is incorporated herein by reference.

On January 13, 2010, the Debtors entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Protective Products Enterprises, Inc., an affiliate of Sun Capital Partners, Inc. (the “Purchaser”) pursuant to which the Debtors have agreed to sell to the Purchaser substantially all of their assets for a purchase price of $8 million plus the assumption of certain liabilities associated with the Debtors’ operations and the payment of certain cure amounts (subject to adjustment based on current inventory and accounts receivable at closing). The purchased assets exclude, among other things, income tax refunds for any period prior to the closing date under the Asset Purchase Agreement from the United States Department of Treasury, the Canadian tax authorities or otherwise in connection with the Debtors’ business (the “Tax Refunds”). The Asset Purchase Agreement is subjec t to approval by the Bankruptcy Court. The Purchaser entered into the Asset Purchase Agreement as a “stalking horse” bidder, and the purchase of the assets are subject to the Debtors’ solicitation of higher or otherwise better offers pursuant to specified bidding procedures and an auction process to be conducted under the supervision of the Bankruptcy Court. Under the Asset Purchase Agreement, the Purchaser will make a $500,000 deposit toward the purchase price, which will be returned to the Purchaser if the bidding procedures have not been approved by the Bankruptcy Court on or before January 19, 2010. The Debtors and the Purchaser have made customary representations, warranties and covenants in the Asset Purchase Agreement, including, among others, a covenant by the Debtors to operate their businesses in the ordinary course pending the closing of the sale to the Purchaser. The Purchaser may terminate the Asset Purchase Agreement if the Debtors enter into a definitive agreement regarding the sale of their assets in an alternative transaction, and, in such case, would be entitled to the return of the deposit, as well as a break-up fee of $320,000 upon the closing of such alternative transaction, and an expense reimbursement of up to $350,000, subject to the Bankruptcy Court’s allowance of such fee and reimbursement as an administrative expense. The Asset Purchase Agreement may also be terminated by either the Debtors or the Purchaser upon the occurrence of other specified events, including the right of the Purchaser to terminate for failure of the sale to close on or before February 25, 2010.

The foregoing description of the terms of the Asset Purchase Agreement is qualified in its entirety by reference to the Asset Purchase Agreement, a copy of which is filed herewith as Exhibit 10.1.

In connection with its chapter 11 filing, the Company has entered into a Superpriority Priming Debtor-in-Possession Credit Agreement dated as of January 13, 2010 (the “DIP Credit Agreement”) with its existing lender, Canadian Imperial Bank of Commerce (“CIBC”). The DIP Credit Agreement contemplates that CIBC will make available to the Company advances up to an aggregate amount of $665,000 (the “Operating Loan”) for payment of working capital expenses and administrative fees incurred prior to the closing of the sale of the Company’s assets under the Asset Purchase Agreement (or other Bankruptcy Court approved purchase agreement) pursuant to an approved budget (and subject to Bankruptcy Court approval as may be required). The DIP Credit Agreement further contemplates that, if the sale under the Asset Purchase Agreement (or other Bankruptcy Court approved purchase agreement) closes, CIBC will make available to the Company an additional advance of up to $75,000 (the “Wind Down Loan”) for expenses of administration incurred by the Company after the closing. The Operating Loan and the Wind Down Loan will bear interest at the rate of 14% per annum, and require payment of a 5% commitment fee.

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CIBC is entitled to an exit fee equal to 1% of the Operating Loan or Wind Down Loan, as applicable. The Operating Loan matures on the earliest to occur of (i) February 26, 2010, (ii) the date of the closing of the sale of the Company’s assets under a Bankruptcy Court approved purchase agreement, (iii) the effective date of a plan of reorganization, (iv) the date of the acceleration of the Operating Loan upon the occurrence of an event of default under the DIP Credit Agreement, or (v) the dismissal or conversion of the Bankruptcy Case to a chapter 7 proceeding under the Bankruptcy Code. The Wind Down Loan matures on the earliest to occur of (i) March 31, 2010, (ii) the date the Debtors receive the Tax Refunds, (iii) the effective date of a plan of reorganization, (iv) the date of the acceleration of the Wind Down Loan upon the occurrence of an event of default under the DIP Credit Agreement, or (v) the dism issal or conversion of the Bankruptcy Case to a chapter 7 proceeding under the Bankruptcy Code. Principal and accrued interest under the Operating Loan and the Wind Down Loan are payable on the applicable maturity date described above, subject to mandatory prepayments upon certain dispositions of collateral or upon the Company’s receipt of cash not contemplated by the budget or outside of the ordinary course of business. The Company’s obligations under the DIP Credit Agreement are secured by a lien on substantially all of the assets of the Company, as well as a superpriority administrative claim in the Bankruptcy Case. The DIP Credit Agreement contains various representations, warranties and covenants by the Company that are customary for transactions of this nature. The failure of the Company to satisfy certain deadlines in respect of the Bankruptcy Case and the sale of the Company’s assets (e.g., the entry of a final DIP Order, the approval of a Bid Procedures Order, the closing of the sale of the Company’s assets), as well as any breach by the Company of its representations, warranties or covenants made in the DIP Credit Agreement, or the conversion of the Bankruptcy Case to a case under chapter 7 of the Bankruptcy Code, will constitute an event of default under the DIP Credit Agreement.

The foregoing description of the terms of the DIP Credit Agreement is qualified in its entirety by reference to the DIP Credit Agreement, a copy of which is filed herewith as Exhibit 10.2.

Item 2.03.

Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The information provided in Item 1.03 of this Current Report on Form 8-K regarding the DIP Credit Agreement (as defined above) is incorporated by reference into this Item 2.03.

Item 2.04.

Triggering Events that Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.

Under the terms of the Company’s existing Credit Agreement (the “Credit Agreement”) with Canadian Imperial Bank of Commerce (“CIBC”), pursuant to which the Company has outstanding loans in the approximate amount (in US Dollars) of $7.6 million as of January 13, 2010, CIBC’s obligation to make additional advances to the Company terminated upon the filing of the Bankruptcy Case. The Credit Agreement provides that CIBC may accelerate the maturity of the outstanding loans thereunder upon the Company’s bankruptcy filing. These provisions may be affected by the DIP Credit Agreement.

Under the terms of the Company’s Subordinated, Convertible Debentures and Secured Subordinated Debentures and related documents (collectively, the “Debenture Documents”), the Company’s Chapter 11 filing may allow the maturity of the obligations evidenced by the Debenture Documents to be accelerated, and may allow for the exercise of various rights and remedies upon default.

The ability of creditors of the Debtors to seek remedies to enforce their rights under the Credit Agreement and the Debenture Documents described above is stayed as a result of the filing of the Bankruptcy Case, and the creditors’ rights of enforcement are subject to applicable provisions of the Bankruptcy Code.

Item 3.01

Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.

On January 14, 2010, the Company received a notice from the Toronto Stock Exchange (“TSX”), the exchange on which its shares of common stock are publicly traded, informing it that, based on the Company’s bankruptcy filing (S. 708, The Toronto Stock Exchange Company Manual) and the financial condition and/or operating results of the Company (S. 709, 710(a)(i), The Toronto Stock Exchange Company Manual), the TSX is reviewing the Company’s eligibility for continued listing on that exchange. The TSX further notified the Company that, effective immediately, its securities have been suspended from trading on the TSX until further notice. The Company is being reviewed pursuant to the TSX’s Expedited Review Process and a meeting has been scheduled for January 20, 2010 to consider whether or not to continue with the suspension of trading and to delist the securities of the Company. The Company will have the opportunity to make su bmissions regarding this matter at and prior to the hearing. The Company is evaluating its next steps and has not yet determined its response.

Item 9.01.

Financial Statements and Exhibits.

(d)  Exhibits.

Exhibit No.	Description
10.1	Asset Purchase Agreement with Protective Products Enterprises, Inc.
10.2	Superpriority Priming Debtor-In-Possession Credit Agreement with Canadian Imperial Bank of Commerce
99.1	Press release issued January 14, 2010

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

PROTECTIVE PRODUCTS OF AMERICA, INC.
By:	/s/ JASON WILLIAMS
	Jason Williams Chief Financial Officer

Date: January 14, 2010

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EX-10.1

EXECUTION COPY

Exhibit 10.1

ASSET PURCHASE AGREEMENT

dated as of January 13, 2010

among

PROTECTIVE PRODUCTS ENTERPRISES, INC.,

PROTECTIVE PRODUCTS OF AMERICA, INC.,

AND

THE OTHER SELLERS NAMED HEREIN

TABLE OF CONTENTS

Page

ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION

4

1.1

Definitions

4

1.2

Rules of Construction

14

ARTICLE II PURCHASE AND SALE; ASSUMPTION OF CERTAIN LIABILITIES

15

2.1

Purchase and Sale of Assets

15

2.2

Excluded Assets

16

2.3

Assignment and Assumption of Liabilities.

17

2.4

No Other Liabilities Assumed.

18

2.5

Limited Right to Make Revisions to Schedules to Sections 2.1 to 2.4

21

2.6

Sellers Actions With Respect to Contracts

22

2.7

Cure Amounts

24

2.8

Deemed Consents and Cures

24

ARTICLE III BASIC TRANSACTION

25

3.1

Purchase Price.

25

3.2

Payment of Purchase Price at Closing.

25

3.3

Valuation Firm

26

3.4

Purchaser's Deposit.

26

3.5

Allocation of Purchase Price

27

ARTICLE IV CLOSING

27

4.1

Closing

27

4.2

Closing/Post-Closing Payments.

27

4.3

Deliveries by Sellers

28

4.4

Deliveries by Purchaser

29

4.5

Form of Instruments

29

4.6

Further Assurances

30

4.7

Withholding

30

ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLERS

30

5.1

Organization, Standing

30

5.2

Subsidiaries

30

5.3

Validity of Agreement; Power

31

5.4

No Conflicts or Violations

31

5.5

Title to Assets; Assets Necessary to Business.

32

5.6

Brokers

32

5.7

Contracts

32

5.8

Financial Statements and Related Matters

32

5.9

Bank Accounts Schedule

33

5.10

Closing Date

33

1

ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER

33

6.1

Organization

33

6.2

Authority

33

6.3

Consents

33

6.4

Financing.

33

6.5

No Additional Representations

34

ARTICLE VII PRE-CLOSING COVENANTS

34

7.1

Consents and Approvals.

34

7.2

Access to Information and Facilities.

35

7.3

Notification of Certain Matters.

35

7.4

Bankruptcy Actions

36

7.5

Other Bids

37

7.6

Non-Seller Subsidiaries

37

7.7

Bankruptcy Matters

38

7.8

Financial Statements

38

7.9

Real Property.

38

7.10

Settlement Action

39

ARTICLE VIII CONDITIONS TO CLOSING

39

8.1

Conditions to Parties' Obligations

39

8.2

Conditions to Purchaser's Obligations

39

8.3

Conditions to Sellers' Obligations

43

ARTICLE IX TERMINATION

43

9.1

Termination

43

9.2

Breakup Fee and Expense Reimbursement

46

9.3

Effect of Termination or Breach

47

ARTICLE X POST-CLOSING COVENANTS

47

10.1

Employees

47

10.2

Employee Benefit Plans

48

10.3

WARN Act

48

10.4

Payroll Reporting and Withholding

48

10.5

Certain Consents

49

10.6

Name Changes

49

10.7

Accounts Receivable; Collections

49

10.8

Confidentiality

49

10.9

Access to Records and Information

50

10.10

Taxes

50

ARTICLE XI MISCELLANEOUS

51

11.1

Non-Survival of Representations and Warranties.

51

11.2

Expenses.

51

11.3

Amendment

52

11.4

Waivers

52

11.5

Notices

52

2

11.6

Counterparts; Electronic Execution

54

11.7

Headings

54

11.8

SUBMISSION TO JURISDICTION; WAIVER OF TRIAL BY JURY

54

11.9

Governing Law

54

11.10

Binding Nature; Assignment

54

11.11

No Third Party Beneficiaries

55

11.12

Construction

55

11.13

Public Announcements

55

11.14

Disclosure Schedules

55

11.15

Entire Understanding

56

11.16

Closing Actions

56

11.17

Conflict Between Transaction Documents

56

11.18

Time Periods

56

11.19

Final Schedules

56

EXHIBITS

Exhibit A	Form of Bidding Procedures Order
Exhibit B	Form of Sale Order
Exhibit C	Form of Assignment and Assumption Agreement
Exhibit D	Form of Bill of Sale
Exhibit E	Form of Intellectual Property Assignments

SCHEDULES

Schedule 1.1	Cure Amounts
Schedule 2.1(ii)	Assumed Avoidance Actions
Schedule 2.1(iii)	Assumed Bank Accounts
Schedule 2.1(v)	Assumed Facility Leases
Schedule 2.1(vi)	Assumed Equipment Leases
Schedule 2.1(x)	Assumed Contracts
Schedule 2.2(i)	Excluded Facility Leases
Schedule 2.2(ii)	Excluded Equipment Leases
Schedule 2.2(iii)	Miscellaneous Excluded Contracts
Schedule 2.2(xii)	Other Excluded Assets
Schedule 2.6(c)	Designated Contracts
Schedule 5.1	Foreign Qualifications
Schedule 5.2	Subsidiaries
Schedule 5.4	No Conflicts or Violations
Schedule 5.7	Contracts
Schedule 5.8	Financial Statements and Related Matters
Schedule 5.9	Bank Accounts
Schedule 8.2(e)	Required Approvals, Consents and Novations

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ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT is made and entered into as of this 13th day of January, 2010 (the "Effective Date"), by and among Protective Products Enterprises, Inc., a Delaware corporation ("Purchaser"), Protective Products of America, Inc., a Delaware corporation ("ParentCo"), CPC Holding Corporation of America, a Delaware corporation ("CPC"), Ceramic Protection Corporation of America, a Delaware corporation ("Ceramic Protection"), Protective Products International Corp., a Florida corporation ("PPIC"), and Protective Products of North Carolina LLC, a North Carolina limited liability company ("PPNC", and together with ParentCo, CPC, Ceramic Protection and PPIC, "Sellers", and each individually, a "Seller").

In consideration of the mutual covenants, agreements and warranties herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION

1.1

Definitions .  Unless otherwise defined herein, terms used herein shall have the meanings set forth below:

"Accounts Receivable" means all accounts and notes receivable (whether current or non-current) in respect of goods shipped, products sold or services rendered by any of the Sellers prior to the Closing Date.

"Acquired Assets" has the meaning set forth in Section 2.1 hereof.

"Acquisition Proposal" means a proposal (other than by Purchaser or its Affiliates) relating to any merger, consolidation, business combination, sale or other disposition of ten percent (10%) or more of the Acquired Assets pursuant to one (1) or more transactions, the sale of ten percent (10%) or more of the outstanding shares of capital stock or equity interests of any Seller (including by way of a tender offer, or plan of reorganization or liquidation) or a similar transaction or business combination involving one (1) or more Third Parties and any Seller.

"Actual Current Assets Amount" has the meaning set forth in Section 3.1 hereof.

"Affiliate" of any particular Person means any other Person controlling, controlled by or under common control with such particular Person, where "control" means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether by contract, through the ownership of voting securities or otherwise.

"Affiliated Group" means an "affiliated group" as defined in Section 1504 of the Code (or any analogous combined, consolidated or unitary group defined under state, local or foreign income Tax Law) of which any Seller is or has been a member.

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"Agreement" means this Asset Purchase Agreement, including all of the Exhibits and the Schedules hereto, as the same may be amended from time to time in accordance with its terms.

"Allocation" has the meaning set forth in Section 3.5 hereof.

"Assignment and Assumption Agreements" has the meaning set forth in Section 4.3(b) hereof.

"Assumed Contracts" has the meaning set forth in Section 2.1(x).

"Assumed Equipment Leases" has the meaning set forth in Section 2.1(vi).

"Assumed Executory Contracts" means the Assumed Contracts and the Assumed Leases.

"Assumed Facility Leases" has the meaning set forth in Section 2.1(v).

"Assumed Leased Facilities" means the Leased Facilities identified in the Assumed Facility Leases.

"Assumed Leases" has the meaning set forth in Section 2.1(vi).

"Assumed Obligations" has the meaning set forth in Section 2.3(a) hereof.

"Assumption Notice" has the meaning set forth in Section 2.6(c) hereof.

"Auction" means the auction conducted by Sellers pursuant to the Bidding Procedures Order for substantially all of the Acquired Assets in the event a Qualified Bid is timely received prior to the Bid Deadline (as defined in the Bidding Procedures Order).

"Auction Deadline Date" means February 18, 2010.

"Avoidance Actions" means any causes of action arising under Chapter 5 of the Bankruptcy Code, including, without limitation, any and all preference or avoidance claims and actions of any of the Sellers, including, without limitation, all such claims and actions arising under Sections 544, 547, 548, 549, and 550, respectively, of the Bankruptcy Code.

"Bankruptcy Code" means Title 11 of the United States Code.

"Bankruptcy Court" means the United States Bankruptcy Court for the Southern District of Florida.

"Bid Deadline" means February 15, 2010, as such date may be extended by the Bankruptcy Court up to an additional five (5) Business Days.

"Bidding Procedures Order" means the order of the Bankruptcy Court, in the form of Exhibit A.

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"Bidding Procedures Order Deadline Date" means January 19, 2010, as such date may be extended by the Bankruptcy Court up to an additional five (5) Business Days.

"Books and Records" means all records and lists of the Business, including (i) all inventory, merchandise, analysis reports, marketing reports, research and development materials and creative material pertaining to the Acquired Assets, the Facilities or the Business, (ii) all records relating to customers, suppliers or personnel of Sellers or of the Business (including customer lists, mailing lists, e-mail address lists, recipient lists, sales records, correspondence with customers, customer files and account histories, supply lists and records of purchases from and correspondence with suppliers), (iii) all records relating to all product, business and marketing plans of Sellers, (iv) all accounting records, Tax records and Tax Returns and (v) all books, ledgers, files, reports, plans, drawings and operating records of every kind; provided, however , that "Books and Records" shall not include the originals of any Seller's minute books, stock books or Tax Returns, or any attorney client communication or attorney work product relating to the negotiation and consummation of the transactions contemplated hereby.

"Breakup Fee" has the meaning set forth in Section 8.2(d)(iii) herein.

"Business" means the activities carried on by Sellers, including the design, manufacturing, distribution and sale of products used for anti-ballistic and other protection for personnel and vehicles in the military and law enforcement markets.

"Business Day" means any day other than Saturday, Sunday and any day that is a legal holiday or a day on which banking institutions in the State of Florida are authorized by Law to close.

"Cash Amount" has the meaning set forth in Section 3.1 hereof.

"Ceramic Protection" has the meaning set forth in the preamble hereto.

"CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. §9601 et seq.) and any Laws promulgated thereunder.

"Chapter 11 Cases" means the cases commenced by Sellers under Chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court.

"Claim" has the meaning set forth in Section 101(5) of the Bankruptcy Code.

"Closing" has the meaning set forth in Section 4.1 hereof.

"Closing Date" has the meaning set forth in Section 4.1 hereof.

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

"Collective Bargaining Agreement" means any Contract or other binding agreement or arrangement (written or oral) with any labor union or organization, works council or other employee representative.

6

"Company Systems" means the computer systems, including software, hardware, networks, interfaces, platforms and related systems owned or used by Sellers.  

"Contract" means any agreement, license, contract, commitment, Collective Bargaining Agreement or other binding arrangement or understanding, whether written or oral, and with respect to any Contract to which any Seller is a party, such contract which any Seller is permitted under the Bankruptcy Code to assume and assign other than an Employee Benefit Plan.

"Contract Retention Period" has the meaning set forth in Section 2.6(c) hereof.

"CPC" has the meaning set forth in the preamble hereto.

"Cure Amount" means any costs of cure with respect to the Assumed Executory Contracts and the Designated Contracts that become an Assumed Executory Contract pursuant to Section 2.6(c), which estimates of amounts are set forth next to each Contract of the Sellers on Schedule 1.1 (the "Cure Amounts", or with respect to an individual Assumed Executory Contract, the "Cure Amount") (for the avoidance of doubt, it is agreed and understood that to the extent no amount is set forth next to an Assumed Executory Contract or Designated Contract on Schedule 1.1, the Cure Amount is deemed to be zero).

"Current Assets Amount" means an amount determined as of the Closing equal to the amount (valued at the lesser of book or fair market value) of receivables and inventory.

"Deferred Prosecution Agreement" means the agreement entered into between Ceramic Protection and the United States of America on January 12, 2010 regarding Ceramic Protection's supply Agreement dated March 10, 2005 with ArmorWorks, Inc.

"Deposit" has the meaning set forth in Section 3.4(a) hereof.

"Designated Contracts" has the meaning set forth in Section 2.6(c) hereof.

"Designated Remaining Executory Contract Obligations" has the meaning set forth in Section 2.6(c) hereof.

"DIP Credit Agreement" means that certain Superpriority Priming Debtor-In-Possession Credit Agreement, dated as of January 13, 2010, among ParentCo, the guarantors named therein and Canadian Imperial Bank of Commerce as lender.

"DIP Facility" means the credit facility governed by the DIP Credit Agreement and the DIP Order which is provided to the Sellers by the existing lenders of Sellers.

"DIP Order" means, collectively, those certain interim and or final orders entered by the Bankruptcy Court approving the DIP Facility in form acceptable to Sellers.

"Disclosure Schedules" has the meaning set forth in Section 11.14 hereof.

"Effective Date" has the meaning set forth in the preamble hereto.

7

"Electronic Delivery" has the meaning set forth in Section 11.6 hereof.

"Employee Benefit Plan" means any "employee benefit plan" (as defined in ERISA §3(3)) and any other benefit or compensation plan, program, agreement or arrangement maintained, sponsored, or contributed or required to be contributed to by any Seller or any ERISA Affiliate or with respect to which any Seller or any ERISA Affiliate has any Liability.

"Environmental Laws" means, whenever in effect, all federal, state, provincial, local and foreign statutes, Laws (including CERCLA and analogous state Laws), ordinances, directives and other provisions having the force or effect of law, all judicial and administrative Orders and determinations, all contractual obligations and all common law, in each case concerning public health and safety, worker health and safety, or pollution or protection of the environment.

"ERISA Affiliate" means any Person that, at any relevant time, is or was treated as a single employer with any Seller for purposes of Code § 414.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and all Laws issued thereunder.

"Escrow Agent" has the meaning set forth in Section 3.4(a) hereof.

"Escrow Agreement" has the meaning set forth in Section 3.4(a) hereof.

"Excluded Assets" has the meaning set forth in Section 2.2 hereof.

"Excluded Contracts" has the meaning set forth in Section 2.2(iii) hereof.

"Excluded Environmental Liabilities" means any Liability (including any investigatory, corrective or remedial obligation) arising under Environmental Laws and relating to (i) Sellers or any predecessor or Affiliate of any Seller, (ii) the operation of the Business prior to the Closing, (iii) any Excluded Asset, (iv) any property, facility, or location other than the Assumed Leased Facilities, or (v) any operations, events, conditions, or circumstances occurring or existing on or prior to the Closing Date, including any Release, threatened Release, treatment, storage, disposal, or arrangement for disposal of or any exposure of any Person to Hazardous Substances occurring or existing on or prior to the Closing Date (whether or not constituting a breach of any representation or warranty herein and whether or not set forth on any Disclosure Schedule).

"Excluded Equipment Leases" has the meaning set forth in Section 2.2(ii) hereof.

"Excluded Facility Leases" has the meaning set forth in Section 2.2(i) hereof.

"Excluded Leases" has the meaning set forth in Section 2.2(ii) hereof.

"Excluded Liabilities" has the meaning set forth in Section 2.4 hereof.

"Exhibits" means the exhibits attached hereto.

8

"Expense Reimbursement" has the meaning set forth in Section 8.2(d)(iii)(B) hereof.

"Facilities" means collectively the premises at which Sellers operate.

"Facility Leases" means all right, title and interest of Sellers in all leases, subleases, licenses, concessions and other agreements (written or oral) and all amendments, modifications, extensions, renewals, guaranties and other agreements with respect thereto, including the right to all security deposits and other amounts and instruments deposited by or on behalf of any Seller thereunder, pursuant to which a Seller holds a leasehold or subleasehold estate in, or is granted the right to use or occupy, a Leased Facility.

"Final Order" means an Order as to which the time to file an appeal, a motion for rehearing or reconsideration or a petition for writ of certiorari has expired and no such appeal, motion or petition is pending.

"GAAP" means, at a given time, United States generally accepted accounting principles, consistently applied.

"Government Contract" means any Contract (including but not limited to any prime contract, subcontract, letter contract, purchase order, task order, delivery order, teaming agreement or letter of intent) that is (a) between ParentCo or any of its Subsidiaries and a Governmental Authority or (b) is entered into by ParentCo or any of its Subsidiaries as a subcontractor (at any tier) in connection with a Contract between another entity and a Governmental Authority.

"Governmental Authority" means any federal, state, local, municipal, foreign, supranational or other governmental or quasi-governmental authority of any nature (including any governmental agency, branch, bureau, commission, department, official or entity and any court or other tribunal), or any administrative, executive, judicial, legislative, police, regulatory or taxing authority, or arbitral body.

"Hazardous Substances" means any wastes, pollutants, contaminants or chemicals, any industrial, toxic or otherwise hazardous materials, substances or wastes, any explosive or radioactive substances, and any other substance with respect to which Liability or standards of conduct may be imposed under applicable Law, including petroleum and petroleum related substances, products, by products and wastes, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon, urea, formaldehyde, mold, lead based paint, noise, odor and radiation.

"Highest and Best Bid" has the meaning set forth in Section 8.2(d)(iii)(H) hereof.

"Indebtedness" means, with respect to any Person as of any date of determination, without duplication: (i) all obligations of such Person for borrowed money or in respect of loans or advances, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments or debt securities, (iii) all obligations in respect of letters of credit and bankers' acceptances issued for the account of such Person, (iv) all obligations arising from cash/book overdrafts, (v) all obligations arising from deferred compensation arrangements,

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(vi) all obligations of such Person secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, (vii) all Guaranties of such Person in connection with any of the foregoing, (viii) all capital lease obligations, (ix) all deferred rent, (x) all indebtedness for the deferred purchase price of property or services with respect to which a Person is liable, contingently or otherwise, as obligor or otherwise (other than trade payables incurred in the Ordinary Course of Business which are not past due), (xi) all obligations under conditional sale or other title retention agreements relating to property or assets purchased by such Person, (xii) all obligations (determined on the basis of actual, not notional, obligations) with respect to interest rate protection agreements, inter est rate swap agreements, foreign currency exchange agreements, or other interest or exchange rate hedging agreements or arrangements, (xiii) all other liabilities classified as non-current liabilities in accordance with GAAP as of the date of determination of such Indebtedness, (xiv) all trade or other payables more than thirty (30) days past due and (xv) all fees, accrued and unpaid interest, premiums or penalties related to any of the foregoing.

"Intellectual Property" means all of the following in any jurisdiction throughout the world: (i) patents, patent applications and patent disclosures, together with all reissuances, continuations, continuations in part, revisions, divisionals, extensions and reexaminations thereof, (ii) trademarks, service marks, designs, trade dress, logos, slogans, trade names, internet domain names, corporate names, all applications, registrations and renewals in connection therewith, and all translations, adaptations, derivations and combinations of any of the foregoing, together with all goodwill associated with any of the foregoing, (iii) copyrights, mask works and copyrightable works, and all applications, registrations and renewals in connection therewith, (iv) trade secrets and confidential information (including formulations, ideas, research and development, information, know-how, inventio ns, technology, formulas, compositions, manufacturing and production processes and techniques, technical data, financial and marketing plans, customer and supplier lists and information, designs, drawings, plans, proposals and specifications), (v) computer software and systems (including source code, executable code, data, databases and related documentation), websites, URLs, email addresses, and telephone numbers, (vi) copies and tangible embodiments of any of the foregoing in whatever form or medium and (vii) other proprietary and intellectual property rights.

"Inventory" means all inventory of any kind or nature, whether or not prepaid, and wherever located, held or owned by any Seller, including all raw materials, work in process, semi-finished and finished products, replacement and spare parts, packaging materials, operating supplies, in-transit or consigned inventory, and fuels and other and similar items.

"Law" means any law, statute, regulation, code, constitution, ordinance, treaty, rule of common law, or Order of, administered or enforced by or on behalf of, any Governmental Authority.

"Leased Facilities" means any land, buildings, structures, improvements, fixtures or other interest in real property which any Seller has the right to use, or which is used or intended to be used by any Seller or used or intended to be used in, or otherwise related to, the Business.

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"Liability" means any obligation or liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether determined or determinable, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due and regardless of when asserted), including any liability for Taxes, product liability or infringement liability.

"Lien" or "Liens" means any lien (statutory or otherwise), hypothecation, encumbrance, security interest, interest, mortgage, pledge, restriction, charge, instrument, license, preference, priority, security agreement, easement, covenant, encroachment, option, right of recovery, right of pre-emption, right of first refusal or other Third Party right, Tax (including foreign, federal, state and local Tax), Order of any Governmental Authority, of any kind or nature (including (i) any conditional sale or other title retention agreement and any lease having substantially the same effect as any of the foregoing, (ii) any assignment or deposit arrangement in the nature of a security device, (iii) any claim based on any theory that any Purchaser is a successor, transferee or continuation of Sellers or the Business, and (iv) any leasehold interest, license or other right, in favor of a Third Party or a Seller, to use any portion of the Acquired Assets), whether secured or unsecured, choate or inchoate, filed or unfiled, scheduled or unscheduled, noticed or unnoticed, recorded or unrecorded, contingent or non-contingent, material or non-material, known or unknown.

"Material Adverse Change" or "Material Adverse Effect" means, any event, change, condition or matter that, individually or in the aggregate is or could reasonably be expected to be materially adverse to, or materially impair the revenue or anticipated revenue of the Business or impairs the value of, the Acquired Assets or results in a material adverse effect or change in the operation, results of operations, condition (financial or otherwise) or prospects of the Acquired Assets or the Business, taken as a whole, or which materially impairs the ability of Sellers to perform their obligations under this Agreement or has a material adverse effect on or prevents or materially delays the consummation of the transactions contemplated hereby; excluding, however, any effect resulting, whether directly or indirectly, from the bankruptcy, insolvency or deteriorating financia l condition of Seller, but specifically including, however, (i) the failure of any of R. Patrick Caldwell, Jason Williams or Neil Schwartzman to remain employed by any of the Sellers and (ii) any event, change, condition or matter that, individually or in the aggregate is or could reasonably be expected to cause the aggregate revenue of Purchaser from Ibiley Manufacturing Corp., Carter Enterprises LLC and the U.S. Marine Corp. from the Closing Date through February 28, 2011 to be less than Seventeen Million Five Hundred Thousand Dollars ($17,500,000).  For avoidance of doubt the occurrence of any of the events set forth in (i) or (ii) above shall be a "Material Adverse Change" and "Material Adverse Effect".  

"Minimum Cash Amount" has the meaning set forth in Section 8.2(d)(iii)(G).

"Miscellaneous Excluded Contracts" has the meaning set forth in Section 2.2(iii) hereof.

"Notice" means any summons, citation, directive, Order, claim, litigation, proceeding, letter or other communication, written or oral, actual or threatened, from the United States Environmental Protection Agency or any other Governmental Authority, or any other

11

entity or any individual, and shall include the imposition of any Lien on property owned, leased, occupied or used by any Seller pursuant to any Environmental Law.

"Order" means any award, decision, decree, order, injunction, ruling, judgment, or consent of or entered, issued, made or rendered by any Governmental Authority.

"Ordinary Course of Business" means the operation of the Business by Sellers in the usual and ordinary course in the manner Sellers operated prior to the commencement of the Chapter 11 Cases (including with respect to quantity and frequency).

"ParentCo" has the meaning set forth in the preamble hereto.

"Permits" means licenses, permits, approvals, franchises, bonds, accreditations, certificates of occupancy, authorizations, operating permits, registrations, plans and the like.

"Person" means any corporation, partnership (including any limited partnership and any limited liability partnership), joint venture, limited liability company, organization, trust, entity, authority or natural person.

"Petition Date" means January 13, 2010, which is the date of the filing of the Chapter 11 petitions of Sellers.

"PPIC" has the meaning set forth in the preamble hereto.

"PPNC" has the meaning set forth in the preamble hereto.

"Proceeding" means any action, claim, charge, complaint, dispute, demand, grievance, action, litigation, audit, investigation, review, inquiry, arbitration, liability, damage, suit in equity or at law, administrative, regulatory or quasi-judicial proceeding, account, cost, expense, setoff, contribution, attorney's fee or cause of action of whatever kind or character.

"Proration Items" has the meaning set forth in Section 10.10(e) hereof.

"Purchase Price" has the meaning set forth in Section 3.1 hereof.

"Purchaser" has the meaning set forth in the preamble hereto.

"Purchaser Cure Amounts Cap" has the meaning set forth in Section 2.3(a)(i).

"Qualified Bid" or "Qualified Bids" has the meaning set forth in Section 7.4(c) hereof.

"Qualifying Bid" has the meaning set forth in Section 8.2(d)(iii)(G) hereof.

"Release" means any release, emission, disposal, leaching or migration into the environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Substances) or any structure, facility or property.

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"Rehired Employees" means each employee of Sellers who accepts an offer of employment by Purchaser as described in Section 10.1 hereof.

"Rejection Notice" has the meaning set forth in Section 2.6(c) hereof.

"Restricted Names" has the meaning set forth in Section 10.6 hereof.

"Rule" or "Rules" means the Federal Rules of Bankruptcy Procedure.

"Sale Motion" has the meaning set forth in Section 7.4(a) hereof.

"Sale Order" means the Order of the Bankruptcy Court, in substantially the same form (but with the same substance, including, for avoidance of doubt, all provisions that would in any manner impact Purchaser) of Exhibit B, to be entered by the Bankruptcy Court pursuant to Sections 363, 365 and 1146(c) of the Bankruptcy Code, which Order, amongst other approvals, approves the sale of the Business and the Acquired Assets to Purchaser or the applicable Bidder with the Highest and Best Bid, free and clear of all Liens pursuant to Section 363(f) of the Bankruptcy Code and finds that the Purchaser has acted in "good faith" within the meaning of section 363(m) of the Bankruptcy Code.

"Sale Order Deadline" means February 22, 2010, as such date may be extended by the Bankruptcy Court up to an additional five (5) Business Days.

"Scheduled Contracts" has the meaning set forth in Section 2.6(a) hereof.

"Schedules" means the schedules attached hereto (including the Disclosure Schedules).

"Seller" or "Sellers" have the meanings set forth in the preamble hereto.

"Seller Termination for Purchaser Breach" has the meaning set forth in Section 8.2(d)(iii)(A).

"Subsidiary" means, with respect to any Person, any corporation a majority of the total voting power of shares of stock of which is entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one (1) or more of the other Subsidiaries of that Person or a combination thereof, or any partnership, limited liability company, association or other business entity a majority of the partnership or other similar ownership interest of which is at the time owned or controlled, directly or indirectly, by that Person or one (1) or more Subsidiaries of that Person or a combination thereof.  For purposes of this definition, a Person is deemed to have a majority ownership interest in a partnership, limited liability company, association or other bu siness entity if such Person is allocated a majority of the gains or losses of such partnership, limited liability company, association or other business entity or is or controls the managing director or general partner of such partnership, limited liability company, association or other business entity.

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"Target Current Assets Amount" means Seven Million Nine Hundred Thousand Dollars ($7,900,000).

"Tax" and, with correlative meaning, "Taxes" mean with respect to any Person (i) all federal, state, local, county, foreign and other taxes, assessments or other government charges, including any income, alternative or add-on minimum tax, estimated, gross income, gross receipts, sales, use, ad valorem, value added, transfer, capital stock, franchise, profits, license, registration, recording, documentary, intangibles, conveyancing, gains, withholding, payroll, employment, social security (or similar), unemployment, disability, excise, severance, stamp, occupation, premium, property (real and personal), environmental or windfall profit tax, customs duty or other tax, governmental fee or other like assessment, charge or tax of any kind whatsoever, together with any interest, penalty, addition to tax or additional amount imposed by any Governmental Authori ty (domestic or foreign) responsible for the imposition of any such tax, whether such Tax is disputed or not, (ii) Liability for the payment of any amounts of the type described in clause (i) above relating to any other Person as a result of being party to any agreement to indemnify such other Person, being a successor or transferee of such other Person, or being a member of the same affiliated, consolidated, combined, unitary or other group with such other Person, or (iii) Liability for the payment of any amounts of the type described in clause (i) arising as a result of being (or ceasing to be) a member of any Affiliated Group (or being included (or required to be included) in any Tax Return relating thereto).

"Tax Return" means any report, return, declaration, claim for refund or other information or statement supplied or required to be supplied by any Person relating to Taxes, including any schedules or attachments thereto and any amendments thereof.

"Third Party" means any Person other than Sellers, Purchaser or any of their respective Affiliates.

"Transaction Documents" means this Agreement, and all other agreements, instruments, certificates and other documents to be entered into or delivered by any party in connection with the transactions contemplated to be consummated pursuant to this Agreement.

"Undisputed Payment" has the meaning set forth in Section 3.3 hereof

"Valuation Firm" means a valuation firm mutually agreed upon by Purchaser and Sellers as determined in good faith, which valuation firm shall not be one of the ten largest accounting firms in the United States.

"WARN Act" means the Worker Adjustment and Refraining Notification Act of 1988, as amended.

1.2

Rules of Construction .  Unless the context otherwise clearly indicates, in this Agreement:

(a)

the singular includes the plural;

(b)

"includes" and "including" are not limiting;

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(c)

"may not" is prohibitive and not permissive; and

(d)

"or" is not exclusive.

ARTICLE II
PURCHASE AND SALE; ASSUMPTION OF CERTAIN LIABILITIES

2.1

Purchase and Sale of Assets .  Subject to the terms and conditions set forth in this Agreement, at the Closing, Sellers shall sell, contribute, convey, assign, transfer and deliver to Purchaser, free and clear of all Liens, whether arising prior to, on or subsequent to the Petition Date, and Purchaser shall purchase, acquire and take assignment and delivery of, for the consideration specified in Article III, all rights, titles and interests of every kind and nature of Sellers (including indirect and other forms of beneficial ownership) in and to all of the properties, assets and rights (contractual or otherwise) of Sellers as of the Closing Date other than the Excluded Assets, whether tangible or intangible, real or personal and wherever located and by whomever possessed, whether or not listed below but including fo r the avoidance of doubt all of the following properties, assets and rights of the Sellers (all of the assets to be sold, assigned, transferred and delivered pursuant to this Section 2.1 shall be referred to herein as the "Acquired Assets"):

(i)

all Accounts Receivable and all claims, including deposits, advances, prepaid and other current assets, rights under warranties and guaranties, rights in respect of promotional allowances, vendor rebates and to other refunds, causes of action, rights of recovery, rights of set-off and rights of recoupment of every kind and nature (whether known or unknown or contingent or non-contingent); the right to receive and retain mail, Accounts Receivable payments and other communications of Sellers; and the right to bill and receive payment for products shipped or delivered and services performed but unbilled or unpaid as of the Closing;

(ii)

any rights, claims or causes of action of Sellers against third parties arising out of events occurring prior to the Closing Date (including, for the avoidance of doubt, those arising out of events occurring prior to the Petition Date), including any rights under or pursuant to any and all warranties, representations and guarantees made by suppliers, manufacturers and contractors relating to products sold, or services provided, to Sellers, including all Avoidance Actions against or otherwise involving any counterparty to any Assumed Contract or the Persons set forth on Schedule 2.1(ii);

(iii)

all bank accounts set forth on Schedule 2.1(iii), safety deposit boxes, lock boxes and the like;

(iv)

all Inventory;

(v)

all of Sellers' rights existing under the Facility Leases set forth on Schedule 2.1(v) (the "Assumed Facility Leases"), including all rights to security deposits held pursuant thereto;

(vi)

the equipment leases set forth on Schedule 2.1(vi) (the "Assumed Equipment Leases", together with the Assumed Facility Leases, the "Assumed Leases");

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(vii)

all tangible personal property, including all machinery, equipment (including all transportation and office equipment), vehicles, computers, mobile phones, personal digital assistants, fixtures, trade fixtures, computer equipment, hardware, peripherals, information technology infrastructure, telephone systems, furniture, office supplies, production supplies, spare parts, other miscellaneous supplies, and other tangible personal property of any kind owned by Sellers, wherever located, including all such items which are located in any building, warehouse, office or other space leased, owned or occupied by Sellers or any other space where any of Sellers' properties and or any other assets may be situated;

(viii)

all Intellectual Property owned, licensed, used or held for use by Sellers, along with all income, royalties, damages and payments due or payable to Sellers as of the Closing or thereafter, including damages and payments for past, present or future infringements or misappropriations thereof or other conflicts therewith, the right to sue and recover for past, present or future infringements or misappropriations thereof or other conflicts therewith, and any and all corresponding rights that, now or hereafter, may be secured throughout the world, including all copies and tangible embodiments of any such Intellectual Property in Sellers' possession or control;

(ix)

all Company Systems;

(x)

all rights of Sellers under the Contracts of each Seller set forth on Schedule 2.1(x) (the "Assumed Contracts"), including all security deposits thereunder, all contractual rights of Sellers to indemnification, exculpation, advancement or reimbursement of expenses, and all rights to proceeds under insurance policies;

(xi)

all Books and Records and all advertising, marketing and promotional materials and all other printed or written materials;

(xii)

all Permits, licenses, certifications and approvals from all permitting, licensing, accrediting and certifying agencies, and the rights to all data and records of Sellers held by such permitting, licensing and certifying agencies;

(xiii)

all goodwill as a going concern and all other intangible property of Sellers; and

(xiv)

all such other properties, assets and rights (contractual or otherwise) of Sellers as of the Closing Date, whether tangible or intangible, real or personal and wherever located and by whomever possessed which are not otherwise expressly set forth above as Acquired Assets and are not Excluded Assets.

2.2

Excluded Assets .  Notwithstanding anything to the contrary in this Agreement, the following assets of Sellers shall be retained by Sellers and are not being sold or assigned to Purchaser hereunder (all of the following are referred to collectively as the "Excluded Assets"):

(i)

all Facility Leases of Sellers other than the Assumed Facility Leases (the "Excluded Facility Leases"), including the Facility Leases set forth on Schedule 2.2(i);

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(ii)

all equipment leases of Sellers other than the Assumed Equipment Leases (the "Excluded Equipment Leases", together with the Excluded Facility Leases, the "Excluded Leases"), including the equipment leases set forth on Schedule 2.2(ii);

(iii)

all Contracts of Sellers other than the Assumed Contracts, including those set forth on Schedule 2.2(iii) (the "Miscellaneous Excluded Contracts", and together with the Excluded Leases, the "Excluded Contracts"), together with all claims and causes of actions with respect to or arising in connection with such Excluded Contracts;

(iv)

all cash (including checking account balances, certificates of deposit and other time deposits and petty cash) net of overdrafts and marketable and other securities;

(v)

all assets, rights, pre-payments, deposits and refunds of any Employee Benefit Plan of each Seller;

(vi)

originals of each Seller's minute books, stock books and corporate seals;

(vii)

the equity securities or other ownership interest of each of Sellers;

(viii)

all Tax refunds, rebates, credits and similar items relating to any period, or portion of any period, on or prior to the Closing Date or any Tax Return;

(ix)

all Avoidance Actions other than Avoidance Actions which are against or otherwise involving any counterparty to any Assumed Contract or the Persons set forth on Schedule 2.1(ii);

(x)

all assets and properties located at 101 Lake Drive, Newark, Delaware, 19702 and 465 Pencader Drive, Newark, Delaware, 19702 other than saleable and useable soft body armor products located therein (which such soft body armor products shall, for avoidance of doubt, be an Acquired Asset);

(xi)

 all bank accounts other than those set forth on Schedule 2.1(iii); and

(xii)

all other assets listed on Schedule 2.2(xii).

2.3

Assignment and Assumption of Liabilities.

(a)Subject to the terms and conditions set forth in this Agreement, including Section 2.3 hereto, Purchaser shall assume from Sellers and thereafter be responsible for the payment, performance or discharge of only the following liabilities and obligations of Sellers (all such liabilities and obligations assumed pursuant to this Section 2.3(a) shall be referred to herein as the "Assumed Obligations"):

(i)

Cure Amounts in an aggregate amount up to but not to exceed (i) Fifty Thousand Dollars ($50,000) plus (ii) any costs of cure with respect to that certain Leased

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Facility located at 1649 NW 136^th Ave, Building J, Sunrise, Florida  33323-2802 if and only if such Facility Lease is ultimately determined by Purchaser to be an Assumed Executory Contract (or a Designated Contract that becomes an Assumed Executory Contract pursuant to Section 2.6(c)) (the aggregate amount of (i) plus (ii), the "Purchaser Cure Amounts Cap");

(ii)

all obligations under the Assumed Executory Contracts first arising after the Closing Date but specifically excluding any liability or obligation relating to or arising out of such Assumed Executory Contracts as a result of (A) any breach of such Assumed Executory Contracts occurring on or prior to the Closing Date, (B) any violation of Law, breach of warranty, tort or infringement occurring on or prior to the Closing Date; or (C) any charge, complaint, action, suit, proceeding, hearing, investigation, Claim or demand based on any occurrence prior to the Closing Date;

(iii)

with respect to the Rehired Employees, the obligations with respect to any unpaid wages and salaries, unused vacation or sick leave earned and accrued (to the extent not paid) as of the Closing Date, but not including any wages, bonus, retention or severance obligations or arising from any violation of Law by a Seller prior to the Closing Date;

(iv)

all Liabilities and obligations relating to the Acquired Assets that first arise after the Closing Date as a result of, or in connection with, Purchaser's ownership and/or use of the Acquired Assets after the Closing;

(v)

the Designated Remaining Executory Contract Obligations; and

(vi)

Ceramic Protection's obligations to pay Two Hundred Sixty Seven Thousand Dollars ($267,000) to the U.S. Attorney's Office for the District of Delaware under the Deferred Prosecution Agreement.

For the avoidance of doubt, the Assumed Obligations shall not include any item listed in Sections 2.4(a)(i)-2.4(a)(xxi).

(b)

Section 2.3(a) shall not limit any claims or defenses Purchaser may have against any party other than Sellers.  The transactions contemplated by this Agreement shall in no way expand the rights or remedies of any Third Party against Purchaser or Sellers as compared to the rights and remedies which such Third Party would have had against Sellers absent the Chapter 11 Cases and had Purchaser not assumed such Assumed Obligations.

2.4

No Other Liabilities Assumed.

(a)

Purchaser shall not be the successor to any or all of Sellers, and each Seller acknowledges and agrees that pursuant to the terms and provisions of this Agreement, Purchaser will not assume, nor in any way be liable or responsible for, any claim or Liability of any Seller (including Liabilities relating to the pre-petition or post-petition operation of the Business, the Excluded Assets or to the Acquired Assets (and the use thereof)), whether relating to or arising out of the Business, the Excluded Assets, the Acquired Assets or otherwise, and whether or not listed below, including any Indebtedness, Employee Benefit Plan, Collective Bargaining Agreement or other Liability of any Seller or any predecessor or Affiliate of any Seller whatsoever or any ERISA Affiliate other than the Assumed Obligations (any such obligations,

18

the "Excluded Liabilities"); provided, that, in furtherance and not in limitation of the foregoing, the Assumed Obligations do not include, and Purchaser is expressly not assuming, any of the following Liabilities, whenever or wherever arising:

(i)

all claims or Liabilities of any Seller that relate to any of the Excluded Assets, including executory Contracts and unexpired Leases that are not Assumed Executory Contracts;

(ii)

all Liabilities of any Seller relating to Taxes (including with respect to the Business or the Acquired Assets or otherwise) including Taxes that may arise as a result of (i) any claim, audit, investigation, assessment, or adjustment for any amount of Tax proposed, asserted, or assessed by any taxing authority, court or other Governmental Authority against any Seller or (ii) the sale of the Acquired Assets or the assumption of the Assumed Obligations pursuant to this Agreement and any deferred Taxes of any nature;

(iii)

all Liabilities for Taxes now or hereafter attributable to the Acquired Assets or the Business for any taxable periods (or the portion thereof) ending on or before the Closing Date;

(iv)

all accounts payable of Sellers or any predecessor or Affiliate of Sellers arising prior to the Closing, except for Cure Amounts payable by Purchaser pursuant to Section 2.7;

(v)

all Liabilities in respect of Indebtedness of Sellers or any predecessor or Affiliate of any Seller;

(vi)

all Excluded Environmental Liabilities (regardless of whether such Liabilities accrue to Sellers or to Purchaser in the first instance);

(vii)

all Liabilities pursuant to the WARN Act relating to any action or inaction of Sellers prior to or upon the Closing;

(viii)

except for Cure Amounts payable by Purchaser as contemplated in Section 2.7 of this Agreement, all Liabilities of Sellers resulting from, caused by or arising out of, or which relate to, directly or indirectly, the conduct of Sellers (or any of their current or former officers, directors, employees or agents) anywhere or ownership or lease of any properties or assets or any properties or assets previously used by Sellers at any time, or other actions, omissions or events occurring prior to the Closing and which (i) constitute, may constitute or are alleged to constitute a tort, breach of contract or violation of any Law or (ii) relate to any and all Proceedings against Sellers whether past, present, future, known or unknown, liquidated or unliquidated, accrued or unaccrued, pending or threatened, including, for avoidance of doubt, all Liabilities arising out of or relating to the litig ation filed in (A) the Ontario Superior Court of Justice, with the caption ArmorWorks Enterprises, LLC v. Ceramic Protection Corporation, CPC Holding Corporation of America, Ceramic Protection Corporation of America, Protective Products International Corp., Protective Products of North Carolina, LLC, Larry Moeller, Stephen Giordanella, Keith J. Engel, Brian Stafford, Henry H. Shelton, Richard Torykian, Sr., and Dennis DeConcini, 08-CV-351396PD1 and (B) the United States District

19

Court for the Eastern District of Virginia, with the caption Marcus Treiber and Alvin S. Church v. Protective Products International Corp., 3:09CV303;

(ix)

all Liabilities arising out of any Proceeding commenced against Sellers or any predecessor or Affiliate of any Seller after the Closing and arising out of or relating to any occurrence or event happening prior to the Closing;

(x)

all Liabilities under any Assumed Executory Contract which arises after the Closing but arises out of or relates to any breach that occurred prior to the Closing;

(xi)

all Liabilities arising out of or relating to any infringement or misappropriation of, or other conflict with, the Intellectual Property of any Third Party arising out of or related to the conduct of the Business or any act or omission of any Seller or any predecessor or Affiliate of any Seller prior to the Closing;

(xii)

all Liabilities arising out of, or relating to, any indemnification obligations of any Seller, including indemnification obligations pursuant to supply agreements, service agreements, purchase agreements, leases and any other type of Contract, and Liabilities to indemnify, reimburse or advance amounts to any officer, director, employee or agent of Sellers;

(xiii)

all Liabilities with respect to the employees or former employees, or both (or their representatives) of any Seller arising prior to the Closing Date, including payroll, wages, salaries, bonuses, commissions, benefits, retention or stay bonus arrangements, other compensation, sick leave, worker's compensation, unemployment benefits, pension benefits, employee stock option or profit sharing plans, health care plans or benefits, or any other employee plans or benefits or other compensation of any kind to any employee, and obligations of any kind, including Liabilities arising under any Collective Bargaining Agreement, the WARN Act, or employment, severance, retention or termination agreement with any employee, consultant or contractor (or their representatives) of any Seller;

(xiv)

all Liabilities relating to or arising under or in connection with any Employee Benefit Plan or any other employee benefit or compensation plan, program, agreement or arrangement at any time maintained, sponsored or contributed or required to be contributed to by any Seller or any ERISA Affiliate, or with respect to which any Seller or any ERISA Affiliate has any Liability;

(xv)

all Liabilities arising out of or relating to services, products or product or service warranties of Sellers or any predecessor(s) or Affiliate(s) of any Seller to the extent provided, developed, designed, manufactured, marketed, sold or distributed prior to the Closing;

(xvi)

all Liabilities of any Seller to any current, former or prospective shareholder or other equity interest holder of any Seller, including all Liabilities of Sellers related to the right to or issuance of any capital stock or other equity securities;

(xvii)

all Liabilities for any legal, accounting, investment banking, reorganization, restructuring (including bankruptcy administrative expenses), brokerage or

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similar fees or expenses incurred by any Seller in connection with, resulting from or attributable to the transactions contemplated by this Agreement, the Chapter 11 Cases or otherwise;

(xviii)

except for the Designated Remaining Executory Contract Obligations, all Liabilities of Sellers arising out of, or relating to, any Designated Contract, unless and until (and only to the extent that) such Designated Contract is assumed by Purchaser;

(xix)

all Liabilities of Sellers or any predecessor or Affiliate of any Seller based upon such Person's acts or omissions occurring after the Closing;

(xx)

all Cure Amounts in excess of the Purchaser Cure Amounts Cap; and

(xxi)

all Liabilities of Sellers to Purchaser, its Affiliates, and its Affiliates' agents, advisors and representatives, whether under the Transaction Agreements or otherwise.

(c)

The parties acknowledge and agree that disclosure of any Liability on any Schedule to this Agreement or otherwise shall not create an Assumed Obligation or other Liability of Purchaser, except where such disclosed obligation has been expressly assumed by Purchaser as an Assumed Obligation and is not listed in Sections 2.4(a)(i)-2.4(a)(xxi).

(d)

Subsequent to the Closing, Sellers jointly and severally agree to indemnify and hold Purchaser harmless with respect to the Excluded Assets and Excluded Liabilities, including any loss, Liability, Tax, cost or expense (including legal fees and expenses and court costs) arising out of or in connection with, or otherwise relating to, the Excluded Assets, the Excluded Environmental Liabilities (regardless of whether such Liabilities are technical Liabilities of any Seller or Affiliate) and the Excluded Liabilities.

2.5

Limited Right to Make Revisions to Schedules to Sections 2.1 to 2.4 .  Notwithstanding anything in this Agreement to the contrary, Purchaser may revise the Schedules to Sections 2.1 to 2.4 at any time on or before five (5) days prior to the Auction for the following purposes (but for no other purpose without the consent of the Sellers):  (i) to exclude from the definition of Acquired Asset, (ii) to exclude from the definition of Excluded Liabilities, (iii) to add to the definition of Excluded Asset or Assumed Obligation, as applicable, any asset or property, or any portion, part or parcel of any such asset or property (other than Scheduled Contracts, which shall be governed by Section 2.6) or Excluded Liability not otherwise included therein, as the case may be, and as a result thereof, Sellers agree to give required notice to any Third Party that should receive notice with respect to such asset or property or as otherwise reasonably requested by Purchaser.  In no event shall Purchaser be entitled (other than with respect to Scheduled Contracts, which shall be governed by Section 2.6): (i) to add to the definition of Acquired Assets, (ii) to exclude from the definition of Excluded Assets, (iii) to exclude from the definition of Assumed Obligations, in each case, any asset, property or obligation, as the case may be, without the consent of the Sellers and the lender under the DIP Credit Facility.  For purposes of clarification, nothing in this Section 2.5 shall limit Purchaser's rights under Section 2.6.

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2.6

Sellers Actions With Respect to Contracts

(a)

Sellers' Obligation to Maintain Scheduled Contracts Until Closing.  From and after the Effective Date, Sellers shall not reject or alter (or attempt to alter) the terms of any executory Contracts or unexpired leases to which any Seller is a party (collectively, the "Scheduled Contracts") unless otherwise agreed to in writing by Purchaser or as provided below in Section 2.6(d) of this Agreement.  Sellers shall provide timely and proper written notice of the motion seeking entry of the Sale Order to all parties to Scheduled Contracts and take all other actions necessary to cause such Scheduled Contracts to be assumed by Sellers and assigned to Purchaser pursuant to Section 365 of the Bankruptcy Code to the extent that such Scheduled Contracts are Assumed Executory Contracts at Closing or are assumed and assigned to Purchaser pursuant to Section 2.6(c) of this Agreement.

(b)

Excluding or Adding Assumed Executory Contracts Prior to Closing.  At the Closing, Sellers shall, pursuant to the Sale Order and the Assignment and Assumption Agreement(s) and other transfer and assignment documents reasonably requested by Purchaser, assume and sell and assign to Purchaser (the consideration for which is included in the Purchase Price), all Assumed Executory Contracts which may be assigned by any such Seller to Purchaser pursuant to Sections 363 and 365 of the Bankruptcy Code and which shall be set forth on the Schedules delivered pursuant to Section 2.1 of this Agreement.  Purchaser shall have the right in its sole and absolute discretion to notify Sellers in writing of (i) any Assumed Executory Contract that it does not wish to assume up to two (2) days prior to Closing or (ii) a Scheduled Contract that it wishes to add as an Assumed Executory Contra ct up to five (5) days prior to the Closing.  At the sole discretion and instruction of Purchaser, any such previously considered Assumed Executory Contract that Purchaser no longer wishes to assume shall be automatically deemed removed from the Schedules related to Assumed Executory Contracts, automatically deemed added to the Schedules related to Excluded Contracts, and rejected by Sellers in accordance with Section 2.6(d).  At the sole discretion and instruction of Purchaser, any such previously considered Excluded Contract that Purchaser wishes to assume as an Assumed Executory Contract shall be automatically deemed added to the Schedules related to Assumed Executory Contracts, automatically deemed removed from the Schedules related to Excluded Contracts, and assumed by Sellers to sell and assign to Purchaser.

(c)

Designated Contracts.  At least two (2) days prior to the Closing, Purchaser shall deliver to Sellers Schedule 2.6(c), which shall comprise a list of Scheduled Contracts that Purchaser wishes to designate as "Designated Contracts".  The Designated Contracts shall be automatically deemed removed from all Schedules related to Assumed Executory Contracts and Excluded Contracts, and shall not be Assumed Executory Contracts or Excluded Contracts as of the Closing Date.  Except as otherwise set forth in Section 2.6(d), Sellers shall not seek to reject the Designated Contracts for a period of ninety (90) days following the Closing Date (the "Contract Retention Period").  Purchaser may, at its sole discretion and at any time during the Contract Retention Period, deliver to Sellers one (1) or more written notices (each, a " ;Rejection Notice") notifying Sellers of its intent not to assume any Designated Contract(s).  Upon receipt of a Rejection Notice, notwithstanding anything in this Agreement to the contrary, the Designated Contract(s) identified in such Rejection Notice shall automatically be deemed Excluded Contracts for all purposes under this Agreement.  Purchaser may, at its sole discretion and at any time during the Contract Retention Period, deliver to Sellers one (1) or more written

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notices (each, an "Assumption Notice") requesting assumption and assignment of any Designated Contract(s).  Upon receipt of an Assumption Notice, Sellers shall, subject to Purchaser's demonstrating adequate assurance of future performance thereunder, take all actions reasonably necessary to seek to assume and assign to Purchaser pursuant to Section 365 of the Bankruptcy Code the Designated Contract(s) set forth in the applicable Assumption Notice.  To the extent that any Designated Contract is a Facility Lease, Seller hereby grants Purchaser a license to use and possess the Facility which is leased pursuant to such Facility Lease.  Such license shall commence on the Closing Date and shall terminate on the earlier of the date such Facility Lease is rejected and the last day of the Contract Retention Period.  Notwithstanding anything in this Agreement to the contrary, on the d ate any Designated Contract is assumed and assigned to Purchaser pursuant to this Section 2.6(c), such Contract shall be deemed an Assumed Executory Contract for all purposes under this Agreement.  With respect to any Designated Contract (including, without limitation, any Facility Lease covered by the license set forth above), (i) Purchaser shall perform all of Sellers' ordinary course obligations under such Designated Contract from and after the Closing Date, (ii) with respect to any Facility Lease which is a Designated Contract, Purchaser shall pay all rent (including without limitation, all base rent, additional rent and other rent under such Facility Lease) owing under the Lease from and after the Closing Date, (iii) with respect to any Facility Lease which is a Designated Contract, Purchaser shall indemnify and hold Seller harmless from any liability of Sellers under such Facility Lease first arising from and after the Closing Date until the later of (a) the earlier of the date such De signated Contract is assigned to Purchaser, the date Purchaser delivers a Rejection Notice with respect to such Designated Contract, or the last day of the Contract Retention Period and (b) the date Purchaser vacates the licensed premises under such Facility Lease and (iv) Purchaser shall compensate Sellers for the ordinary course costs of such Designated Contract in accordance with the terms of such contract, in each case first arising after the Closing Date and actually incurred by Sellers in performing obligations after the Closing under such Designated Contract until the earlier of the date such Designated Contract is assigned to Purchaser, the date Purchaser delivers a Rejection Notice with respect to such Designated Contract, or the last day of the Contract Retention Period (provided that with respect to any Facility Lease which is a Designated Contract, Purchaser shall continue to pay all such costs until Purchaser has actually vacated the licensed premises covered by such Facility Lease) (the "< U>Designated Remaining Executory Contract Obligations"); provided, however, Purchaser shall not be responsible for any liability or obligation relating to or arising out of such Designated Contracts as a result of (A) any breach by Sellers of such Designated Contracts occurring on or prior to the Closing Date or during the Contract Retention Period (provided that such breach is not caused by the breach by Purchaser of its obligations under this Section), (B) any violation of Law, breach of warranty, tort or infringement, in each case by Sellers, occurring on or prior to the Closing Date or during the Contract Retention Period (provided that such violation is not caused by any act or omission of Purchaser after the Closing), or (C) any charge, complaint, action, suit, proceeding, hearing, investigation, Claim or demand against the Sellers (provided that such matters do not arise from the act or omission of the Purchaser after the Closing).  The covenants set forth in this Section 2.6(c)< /U> shall survive the Closing.

(d)

Rejection of Excluded Contracts.  As soon as practicable after the Closing Date, Seller shall reject all Excluded Contracts.  With respect to the Designated Contracts, on the date that Purchaser provides a Rejection Notice with respect to any Designated Contract, such Designated Contract will be deemed an Excluded Contract for all purposes under this

23

Agreement, Sellers shall immediately reject such Excluded Contract, and all obligations arising thereafter in connection with such Excluded Contract shall be considered Excluded Liabilities under this Agreement.  Upon the expiration of the Contract Retention Period, all Designated Contracts that have not been deemed Assumed Executory Contracts pursuant to an Assumption Notice and have not been subject of a Rejection Notice shall be automatically deemed to be Excluded Contracts, Sellers shall immediately reject such Excluded Contracts, and all obligations arising thereafter in connection with such Excluded Contracts shall be considered Excluded Liabilities under this Agreement.  To the extent that any executory Contract or unexpired lease relating to the Business is not identified prior to the Closing Date or is not an Assumed Executory Contract, an Excluded Contract or a Designated Contract on the Closing Date, Purchaser shall, upon discovery of such executory Contract or unexpired lease, in its sole discretion, determine whether such executory Contract or unexpired lease shall be deemed an Assumed Executory Contract, an Excluded Contract or a Designated Contract and, if determined by Purchaser to be an Excluded Contract, Sellers shall immediately reject any such executory Contract or unexpired lease.  The covenants set forth in this Section 2.6(d) shall survive the Closing.

2.7

Cure Amounts .  Purchaser will be responsible for paying all Cure Amounts set forth on Schedule 1.1 in an aggregate amount up to but not to exceed the Purchaser Cure Amounts Cap in connection with the assignment and assumption of the Assumed Executory Contracts and any Designated Contract which is assumed and assigned to Purchaser pursuant to Section 2.6(c).  Sellers will be responsible for paying all Cure Amounts set forth on Schedule 1.1 in excess of the Purchaser Cure Amounts Cap in connection with the assignment and assumption of the Assumed Executory Contracts and any Designated Contract which is assumed and assigned to Purchaser pursuant to Section 2.6(c).  Within three (3) days after the Bid Deadline, Sellers shall provide to Purchaser an update to Schedule 1.1.  Sellers hereby agree that Purchaser, at its option, may pay any suc h cure in excess of the Purchaser Cure Amounts Cap and deduct the amount of any such cures paid by Purchaser in excess of the Purchaser Cure Amounts Cap from the amount otherwise payable to Sellers at the Closing.  To the full extent that any cure obligations are asserted against Purchaser (other than those Purchaser agrees to pay pursuant to the terms of this Agreement), Sellers agree to pay such amounts and to fully indemnify for and hold Purchaser harmless from any costs, expenses or other Liabilities resulting from such assertion.  In the event that Sellers fail to pay such amount(s), Purchaser may pay such amount(s) (on behalf of Sellers) and offset such amount(s) against any amount(s) Purchaser may owe Sellers.  Sellers hereby agree and acknowledge that the foregoing provision is in addition to, and not in derogation of, any statutory or other remedy that Purchaser may have against Sellers.

2.8

Deemed Consents and Cures .  For all purposes of this Agreement (including all representations and warranties of Sellers contained herein), Sellers shall be deemed to have obtained all required consents in respect of the assignment of any Assumed Executory Contract if, and to the extent that, pursuant to the Sale Order or other Bankruptcy Court Order, Sellers are authorized to assume and assign to Purchaser, and Purchaser is authorized to accept, such Assumed Executory Contracts pursuant to Section 365 of the Bankruptcy Code, and any applicable Cure Amount has been satisfied by Purchaser or Sellers as provided in this Agreement.  If the consent required to effectuate the assignment of any Assumed Executory Contracts to Purchaser cannot be obtained pursuant to the Sale Order or other Bankruptcy Court

24

Order, then the parties shall endeavor to obtain such consent pursuant to Sections 4.6, 7.1 and 10.5.

ARTICLE III
BASIC TRANSACTION

3.1

Purchase Price.   The aggregate purchase price for the Acquired Assets (the "Purchase Price") is the sum of (a) (i) cash in an amount of Eight Million Dollars ($8,000,000) minus (ii) if and only if, the Actual Current Assets Amount of the Sellers as mutually agreed by the Sellers and Purchaser as of the Closing (the "Actual Current Assets Amount") is less then an amount equal to the Target Current Assets Amount minus One Hundred Thousand Dollars ($100,000), the amount equal to (X) the Target Current Assets Amount minus (Y) the Actual Current Assets Amount minus (Z) One Hundred Thousand Dollars ($100,000), plus (iii) if and only if, the Actual Current Assets Amount is greater then amount equal t o the Target Current Assets Amount plus One Hundred Thousand Dollars ($100,000), the amount equal to (X) the Actual Current Assets Amount minus (Y) the Target Current Assets Amount minus (Z) One Hundred Thousand Dollars ($100,000), payable as set forth in Section 3.2 below (the "Cash Amount") plus (b) the Cure Amounts to be made by Purchaser pursuant to the terms hereof, plus (c) Purchaser's assumption of the Assumed Obligations.  For the avoidance of doubt and by way of example of the calculation of the adjustment to the Cash Amount:

(i)

Assume the Actual Current Assets Amount is $7,500,000.  Since $7,500,000 is less than $7,800,000 (i.e. $7,900,000 less $100,000), the Cash Amount would be decreased by $300,000, which is equal to $7,900,000 minus $7,500,000 minus $100,000.

(ii)

Assume the Actual Current Assets Amount is $8,200,000.  Since $8,200,000 is greater than $8,000,000 (i.e. $7,900,000 plus $100,000), the Cash Amount would be increased by $200,000, which is equal to $8,200,000 minus $7,900,000 minus $100,000.

(iii)

If the Actual Current Assets Amount is between $8,000,000 and $7,800,000 (i.e. $7,900,000 plus or minus $100,000), then, the Cash Amount shall be $8,000,000.

3.2

Payment of Purchase Price at Closing.   At the Closing, Purchaser shall be assigned the Acquired Assets and Assumed Obligations, and (i) an amount equal to the Cash Amount less Two Hundred Sixty Seven Thousand Dollars ($267,000) less the Deposit shall be paid by Purchaser by wire transfer of immediately available funds to an account designated by ParentCo and (ii) Two Hundred Sixty Seven Thousand Dollars ($267,000) shall be paid, in full and absolute satisfaction of Purchaser's Assumed Obligation under Section 2.3(a)(vi) by electronic funds transfer of immediately available funds to the account set forth in writing by the U.S. Attorney's Office for the District of Delaware.  At the Closing, the Deposit shall be delivered to Sellers and shall be applied as a credit to the Cash Amount.  At the Closing, Purchaser shall pay the Cash Amount taking into consideration and paying to Sellers the undisputed portion (if any) of the difference, whether positive or negative, between the Actual Current Assets Amount and the Target Current Assets Amount (plus or minus One Hundred Thousand Dollars ($100,000), as applicable as set forth in Section 3.1).  

3.3

Valuation Firm.  If at Closing the Sellers and Purchaser are unable to mutually agree upon the Actual Current Assets Amount, the parties shall submit to the Valuation Firm for

25

review and resolution all matters (but only such matters) that remain in dispute with respect to the determination of the Actual Current Assets Amount and Purchaser shall pay to Sellers the minimum of cash included in the Cash Amount which is not disputed by Purchaser (such minimum amount, the "Undisputed Payment").  The parties shall instruct the Valuation Firm to make a final determination of the Actual Current Assets Amount and the Cash Amount in accordance with the guidelines and procedures set forth in this Agreement.  The parties will cooperate with the Valuation Firm during the term of its engagement.  The parties shall instruct the Valuation Firm not to assign a value to any item in dispute greater than the greatest value for such item assigned by Purchaser, on the one hand, or Sellers, on the other hand, or less than the smallest value for such item assigned by Pur chaser, on the one hand, or Sellers, on the other hand.  The parties shall also instruct the Valuation Firm to make its determination based solely on presentations by Purchaser and Sellers which are in accordance with the guidelines and procedures set forth in this Agreement (i.e., not on the basis of an independent review).  The Actual Current Assets Amount, and the resulting Cash Amount calculated with reference thereto shall become final and binding on the parties on the date the Valuation Firm delivers its final resolution in writing to the parties (which final resolution shall be requested by the parties to be delivered not more than 15 days following submission of such disputed matters).  An amount equal to the difference between the Cash Amount less the Undisputed Payment shall be paid by Purchaser to Sellers within three (3) Business Days after such final and binding determination by wire transfer in immediately available funds.   The fees and expenses of t he Valuation Firm shall be allocated to the parties as determined (as set forth in the final determination) by the Valuation Firm based upon the relative success (in terms of percentages) of each party's claims.  For example, if the final determination reflects a 60-40 compromise of the parties' claims, the Valuation Firm would allocate expenses 40% to the party whose claims were determined to be 60% successful and 60% to the party whose claims were determined to be 40% successful.  All amounts to be paid to Sellers hereunder may be paid directly to ParentCo (on behalf of and for the benefit of Sellers) and any rights and decisions of Sellers may be made by ParentCo on behalf of and for the benefit of Sellers.

3.4

Purchaser's Deposit.

(a)

In order to secure the performance by Purchaser of its obligations under this Agreement, within one (1) Business Day after the execution and delivery of this Agreement by Sellers and Purchaser, Purchaser shall deliver to Sellers' counsel, as escrow agent, a cash earnest money deposit in the amount of Five Hundred Thousand Dollars ($500,000) (the "Deposit").  Upon receipt of a W-9 form executed by Purchaser, together with an escrow agreement (the "Escrow Agreement") in form satisfactory to the parties and Berger Singerman, P.A., (the "Escrow Agent"), Escrow Agent shall invest same in accordance with the Escrow Agreement.

(b)

Notwithstanding anything to the contrary set forth in this Agreement or otherwise, the Deposit shall be delivered to Purchaser in the event the Bidding Procedures Order fails to be issued by the Bankruptcy Court on or before January 19, 2010.  If the Bidding Procedures Order is issued by the Bankruptcy Court on or before January 19, 2010, then, Sections 3.2, 3.4, 9.2, and 9.3 shall govern the disposition of the Deposit.

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3.5

Allocation of Purchase Price .  Purchaser shall, within the later of (i) ninety (90) days after the Closing Date, or (ii) thirty (30) days prior to the date by which Sellers' federal income Tax Returns must be filed, prepare and deliver to Sellers a schedule allocating the Purchase Price (and any other items that are required for federal, state and other applicable income tax purposes to be treated as part of the Purchase Price) among the Acquired Assets (such schedule, the "Allocation"), in accordance with Section 1060 of the Code and the treasury regulations thereunder (and any similar provision of state, local, or foreign Law).  The Allocation shall be binding upon Sellers.  Purchaser and Sellers shall report and file all Tax Returns (including amended Tax Returns and claims for refund) in a manner that is consistent with the Allocation, and shall take no position c ontrary thereto or inconsistent therewith unless required by applicable Law (including as a result of a successful challenge to the allocation in any audits or examinations by any Governmental Authority or any other Proceeding).  Purchaser and Sellers shall cooperate in the filing of any forms (including Internal Revenue Service Form 8594 under Section 1060 of the Code) with respect to such Allocation.  Notwithstanding any other provision of this Agreement, the terms and provisions of this Section 3.5 shall survive the Closing without limitation.

ARTICLE IV
CLOSING

4.1

Closing .  Upon the terms and subject to the satisfaction of the conditions contained in this Agreement, the closing of the transaction contemplated by this Agreement (the "Closing") will take place at the offices of Berger Singerman P.A., Florida, 350 Las Olas Boulevard, Suite 1000, Fort Lauderdale, Florida 33301, at 10:00 A.M. Eastern Time as soon as practicable after the date on which the conditions set forth in Article VIII have been satisfied or waived but no later than three (3) days thereafter; or on such other date or place as Purchaser and ParentCo may determine (the "Closing Date").

4.2

Closing/Post-Closing Payments.

(a)

On the Closing Date:

(i)

Purchaser shall pay the Cash Amount or, if the Cash Amount is not agreed to, the Undisputed Payment less Two Hundred Sixty Seven Thousand Dollars ($267,000) less the Deposit by wire transfer of immediately available funds to an account designated by ParentCo at least two (2) Business Days prior to Closing;

(ii)

Purchaser shall pay Two Hundred Sixty Seven Thousand Dollars ($267,000) in full and absolute satisfaction of Purchaser's Assumed Obligation under Section 2.3(a)(vi) by electronic funds transfer of immediately available funds to the account set forth in writing by the U.S. Attorney's Office for the District of Delaware;

(iii)

Purchaser shall pay Cure Amounts with respect to the Assumed Executory Contracts in an aggregate amount not to exceed the Purchaser Cure Amounts Cap;

(iv)

Sellers shall pay all Cure Amounts with respect to the Assumed Executory Contracts in excess of the Purchaser Cure Amounts Cap; provided at Purchaser's

27

election any Cure Amounts required to be paid by Sellers hereunder may be assumed by Purchaser and paid directly by Purchaser when due and deducted from the Purchase Price.

(b)

After the Closing Date, Sellers shall pay all Cure Amounts with respect to all Designated Contracts that Purchaser assumes in accordance with Section 2.6(c) hereof, provided, however, with respect to such Designated Contracts assumed and assigned to Purchaser in accordance with Section 2.6(c) hereof, Purchaser shall pay the portion of the Cure Amounts, if any, equal to the difference between the Purchaser Cure Amounts Cap and the Cure Amounts paid by Purchaser pursuant to Section 4.2(a)(iii).  

4.3

Deliveries by Sellers .  At the Closing, Sellers shall deliver or procure delivery to Purchaser of:

(a)

physical possession of all of the Acquired Assets capable of passing by delivery with the intent that title in such Acquired Assets shall pass by and upon delivery;

(b)

one (1) or more assignments and assumptions of the Assumed Obligations, in the form attached hereto as Exhibit C (collectively, the "Assignment and Assumption Agreements"), duly executed by the applicable Seller or Sellers;

(c)

one (1) or more bills of sale, in the form attached hereto as Exhibit D, conveying in the aggregate all of the owned personal property of Sellers included in the Acquired Assets, duly executed by Sellers;

(d)

Intellectual Property assignments in the forms attached hereto as Exhibit E each duly executed by the applicable Seller or Sellers and each in recordable form to the extent necessary to assign such rights;

(e)

an assignment and assumption of lease with respect to each of the Assumed Facility Leases;

(f)

a certified copy of the Sale Order;

(g)

certificates of title and title transfer documents to all titled motor vehicles;

(h)

an assignment and assumption agreement with respect to Sellers' Permits and warranties, whereby Sellers shall assign to Purchaser all of their respective rights in and to any Permits and warranties relating (directly or indirectly) to the Acquired Assets or the Business;

(i)

such documentation as may be necessary to change the authorized signatories on any bank accounts or powers of attorney relating (directly or indirectly) to the Acquired Assets;

(j)

certified copies of the resolutions of the board of directors of each Seller authorizing the execution, delivery and performance of this Agreement and the other agreements contemplated hereby and the consummation of the transactions contemplated hereby and thereby;

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(k)

an affidavit from each Seller, sworn under penalty of perjury and dated as of the Closing Date, in form and substance required under the Treasury Regulations issued pursuant to Section 1445 of the Code stating that such Seller is not a foreign person as defined in Section 1445 of the Code;

(l)

copies of all Third Party approvals and governmental approvals obtained pursuant to Section 7.1 or otherwise required by Section 8.2(e);

(m)

all of the Books and Records;

(n)

originals (or, to the extent originals are not available, copies) of all Assumed Executory Contracts (together with all amendments, supplements or modifications thereto);

(o)

evidence of the required name changes of Sellers and their Affiliates as more fully set forth in Section 10.6 of this Agreement;

(p)

the certificate required by Section 8.2(c).

(q)

such other instruments as are necessary to transfer all of Sellers' rights and title in and to the Acquired Assets to Purchaser in accordance with the provisions hereof; and

(r)

such other documents or instruments as are required to be delivered by any Seller at the Closing pursuant to the terms hereof or that Purchaser reasonably requests prior to the Closing Date to effect the transactions contemplated hereby.

4.4

Deliveries by Purchaser .  At the Closing, Purchaser will deliver to Sellers:

(a)

the Assignment and Assumption Agreements duly executed by Purchaser;

(b)

certified copies of the resolutions of the board of directors of Purchaser authorizing the execution, delivery and performance of this Agreement and the other agreements contemplated hereby and the consummation of the transactions contemplated hereby and thereby;

(c)

the certificate required by Section 8.3(c);

(d)

the payments required to be made by Purchaser to Sellers (or ParentCo) as set forth in Section 4.2(a) of this Agreement; and

(e)

such other documents or instruments as are required to be delivered by Purchaser at the Closing pursuant to the terms hereof or that any Seller reasonably requests prior to the Closing Date to effect the transactions contemplated hereby.

4.5

Form of Instruments .  To the extent that a form of any document to be delivered hereunder is not attached as an Exhibit hereto, such documents shall be in form and substance, and shall be executed and delivered in a manner, reasonably satisfactory to Purchaser and Sellers.

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4.6

Further Assurances .  From time to time prior to and after the Closing and without further consideration, (i) Sellers, upon the request of Purchaser, shall execute and deliver such documents and instruments of conveyance and transfer as Purchaser may reasonably request in order to consummate more effectively the purchase and sale of the Acquired Assets as contemplated hereby, to transfer to Purchaser all of Sellers' rights in and to the Acquired Assets and to permit Purchaser to perfect, record or protect its interests in the Acquired Assets, or to otherwise more fully consummate the transactions contemplated by this Agreement and (ii) Purchaser, upon the reasonable request of Sellers, shall execute and deliver such documents and instruments of contract or lease assumption as Sellers may reasonably request in order to confirm any Purchaser's Liability for the Assumed Obligations or otherwise to more fully consummate the transactions contemplated by this Agreement.  Sellers shall provide notice of the transactions contemplated by this Agreement and the Chapter 11 Cases to all parties entitled to such notice, including all environmental authorities in jurisdictions applicable to Sellers and all other Persons with current or potential claims with respect to any Excluded Environmental Liabilities or other Liabilities or obligations arising under Environmental Laws.

4.7

Withholding   Notwithstanding anything herein to the contrary, Purchaser shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to each Seller such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code and the rules and regulations promulgated thereunder, or any provision of state, local or foreign Tax Law.  To the extent that amounts are so withheld by Purchaser, as the case may be, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to each Seller in respect of which such deduction and withholding was made by Purchaser.

ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLERS

Sellers jointly and severally represent and warrant on the date of this Agreement and on the Closing Date to Purchaser as follows:

5.1

Organization, Standing  .  Each Seller is a legal entity duly organized, validly existing and in good standing under the Laws of the state of its organization, to the Knowledge of Seller, is qualified to do business in every jurisdiction in which it is required to be qualified and has all requisite corporate or similar power and authority and all Permits necessary to own, lease and operate its respective properties and assets and to carry on its business as presently conducted and is qualified to do business and is in good standing or with active status as a foreign corporation in each jurisdiction where the ownership, leasing or operation of its assets or properties or conduct of its business requires such qualification, except where the failure to be so qualified, in good standing or to have such power or authority, has not had and would not reasonably be expected to have, indivi dually or in the aggregate, a Material Adverse Effect.  All jurisdictions in which Sellers are qualified to do business are set forth on Schedule 5.1.

5.2

Subsidiaries  .  Schedule 5.2 sets forth each Subsidiary of ParentCo (i) its name and jurisdiction of organization, (ii) the number of authorized, issued and outstanding shares or equivalent thereof for each class of its capital stock or other equity interests and the holders thereof and (iii) the names and titles of its officers and directors.  All of the issued and

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outstanding shares of capital stock or other equity interests of each Subsidiary of ParentCo have been duly authorized and are validly issued, fully paid, and non-assessable.  Except as set forth on Schedule 5.2, ParentCo or one (1) or more of its Subsidiaries hold of record and own beneficially all of the outstanding shares of each Subsidiary of Sellers free and clear of any restrictions on transfer, Taxes, Liens, options, warrants, purchase rights, Contracts, commitments, equities, claims, and demands.  There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require ParentCo or any of its Subsidiaries to sell, transfer, or otherwise dispose of any capital stock or other equity interests of any of its Subsidiaries or that could require any Subsidiary of ParentCo to issue, se ll, or otherwise cause to become outstanding any of its own capital stock or other equity interest (other than pursuant to this Agreement).  There are no outstanding stock appreciation, phantom stock, profit participation, or similar rights with respect to any Subsidiary of ParentCo.  There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of any capital stock of any Subsidiary of ParentCo.  No Seller is in default under or in violation of any provision of its charter or bylaws or other similar organizational documents.  Neither ParentCo nor any of its Subsidiaries controls directly or indirectly or has any direct or indirect equity participation in any corporation, partnership, trust, or other business association that is not a Subsidiary of ParentCo. Except as set forth on Schedule 5.2, no Seller is a member of (nor is any portion of the Business conducted through) any partnership or a participation in any joint venture or simila r arrangement.  Except as set forth on Schedule 5.2, neither ParentCo nor any of its Subsidiaries owns or has any right to acquire, directly or indirectly, any outstanding capital stock of, or other equity interests in, any Person.

5.3

Validity of Agreement; Power .  Subject to any necessary authorization from the Bankruptcy Court, each Seller has full power and authority to execute and deliver the Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby.  The board of directors (or similar governing body) of each Seller has duly approved the Transaction Documents to which such Person is a party and has duly authorized the execution and delivery of such Transaction Documents and the consummation of the transactions contemplated thereby.  No other corporate or organizational proceedings on the part of any Seller are necessary to approve and authorize the execution and delivery of the Transaction Documents to which such Person is a party and the consummation of the transactions contemplated thereby.  All Transaction Documents to which any Seller is a party have been duly executed and delivered by such Person, except such Transaction Documents that are required by the terms hereof to be executed and delivered by such Person after the date hereof, in which case such Transaction Documents will be duly executed and delivered by such Person at or prior to the Closing, and, subject to any necessary authorization from the Bankruptcy Court, all Transaction Documents constitute, or will constitute, as the case may be, the valid and binding agreements of Sellers, enforceable against Sellers in accordance with their terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium and other Laws affecting creditors' rights generally from time to time in effect, and to general equitable principles.

5.4

No Conflicts or Violations .  Except as set forth on Schedule 5.4, and to the extent any of the foregoing is not enforceable due to operation of the Sale Order, the execution, delivery and performance of the Transaction Documents and the consummation of the transactions contemplated thereby by Sellers do not and shall not conflict with, result in any breach, default

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or violation of, give rise to a right of modification, termination, acceleration or loss of a material benefit under, result in the creation of any Lien or Liability under, require any authorization, consent, approval, exemption or other action by or notice or declaration to, or filing with, any Governmental Authority, under (i) any provision of the articles of incorporation or bylaws or other equivalent organizational document of any Seller, (ii) any Contract to which any Seller is a party to or by which it is bound or (iii) any determination or Order of any Governmental Authority or Law applicable to any Seller or its property or assets.

5.5

Title to Assets; Assets Necessary to Business.

(a)

Sellers have good and valid title to, or a valid leasehold interest in or all rights to use, all assets reflected under the heading "assets" on the face of the Sellers' unaudited consolidated and consolidating balance sheet as of November 30, 2009, and as such balance sheet will be adjusted through the Closing Date to reflect transactions occurring in the Ordinary Course of Business since such date.

(b)

The Acquired Assets constitute all of the assets, including all Contracts, Permits and properties, necessary to conduct the Business as presently conducted.  Following the Closing, Purchaser shall have the right to use all of the Acquired Assets free and clear of any Liens of any kind.  Each asset that is material to the operation of the Business as presently conducted is an Acquired Asset.

(c)

Subject to Bankruptcy Court approval and the Sale Order, Sellers have the power and the right to sell, assign and transfer and, at the Closing, Sellers will sell and deliver to Purchaser all of Sellers' rights in and to the Acquired Assets, free and clear of all Liens.

(d)

The Transaction Documents, when duly executed and delivered by Sellers to Purchaser at the Closing, will effectively transfer to Purchaser all of Sellers' rights and title to the Acquired Assets, subject only to the Assumed Obligations and the Assumed Contracts.

5.6

Brokers

.  Bayshore Partners, LLC, the broker dealer affiliate of Farlie Turner & Co., is the Sellers’ exclusive financial advisor and investment banker and the only intermediary broker entitled to a transaction fee in connection with the transactions contemplated hereby and will be paid from the proceeds of the sale in accordance with the terms of the Bankruptcy Court’s order approving the retention by the Sellers of Bayshore Partners, LLC.

5.7

Contracts .  Schedule 5.7 sets forth each Contact and Government Contract to which any Seller is a party or bound by involving more than Ten Thousand Dollars ($10,000) or that is otherwise material to the assets, operations or financial condition of Sellers, taken as a whole.  Set forth on Schedule 5.7 next to each Contract is the related Cure Amount as set forth on Schedule 1.1.  Schedule 5.7 sets forth the following information with respect to each of the Government Contracts: contract name; contract number; contracting agency or prime contractor (as applicable); contract award date; and basis of payment.

5.8

Financial Statements and Related Matters .  Set forth on Schedule 5.8 are copies of Sellers' (i) unaudited consolidated and consolidating balance sheet as of November 30, 2009 and

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the related statements of income and cash flows for the eleven (11)-month period then ended, (ii) audited consolidated and consolidating balance sheets and statements of income and cash flows for the fiscal year ended December 31, 2008, and (iii) unaudited consolidated and consolidating balance sheets and statements of income and cash flows for the fiscal year ended December 31, 2008.  Each of the foregoing financial statements (including in all cases the notes thereto, if any) is accurate and complete in all material respects, is consistent with the Books and Records (which, in turn, are accurate and complete), presents fairly Sellers' financial condition and results of operations as of the times and for the periods referred to therein, and has been prepared in accordance with GAAP, subject in the case of unaudited financial statements to changes resulting from normal year-end adjustments for recurring ac cruals (which shall not be material individually or in the aggregate) and to the absence of footnote disclosure.

5.9

Bank Accounts Schedule .  Schedule 5.9 lists all bank accounts, safety deposit boxes and lock boxes (designating each authorized signatory with respect thereto) for each Seller and specifically identifies which bank accounts are for collection or disbursement of payables and receivables from third parties and which are for payroll purposes.

5.10

Closing Date .  All of the representations and warranties contained in this Article V and elsewhere in this Agreement and all information delivered in any Schedule, attachment or Exhibit hereto or in any writing delivered by Sellers to Purchaser are true and correct on the date of this Agreement and shall be true and correct on the Closing Date as though then made and as though the Closing Date was substituted for the date of this Agreement throughout such representations and warranties.

ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser represents and warrants to Sellers on the date of this Agreement and on the Closing Date that the statements contained in this Article VI are correct and complete.

6.1

Organization .  Purchaser is a corporation validly existing and in good standing under the Laws of the State of Delaware and has the full power and authority to execute, deliver and perform this Agreement and to consummate all transactions contemplated hereby.

6.2

Authority .  The execution, delivery and performance by Purchaser of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action on the part of Purchaser and do not and will not violate any provisions of its organizational documents, any applicable Law or any contract or Order binding upon Purchaser.  This Agreement constitutes a valid and binding agreement of Purchaser, enforceable against Purchaser in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium and other Laws affecting creditors' rights generally from time to time in effect, and to general equitable principles.

6.3

Consents .  No notice to, filing with, authorization of, exemption by, or consent (other than the approval of the Bankruptcy Court) of any Person is required in order for Purchaser to consummate the transactions contemplated hereby.

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6.4

Financing.  Purchaser shall have at the Closing sufficient cash or other sources of immediately available funds (not conditioned on third party approvals or other commitments) to enable it to fulfill its obligations hereunder.

6.5

No Additional Representations .  Purchaser acknowledges that Purchaser has had the opportunity to independently and personally inspect and conduct its due diligence with respect to the Acquired Assets and the Business of Sellers and that Purchaser has entered into this Agreement based upon its ability to conduct such due diligence and to make such examination and inspection.  The Acquired Assets are to be accepted by Purchaser at Closing in their then present condition, "AS IS, WITH ALL FAULTS, AND WITHOUT ANY WARRANTY WHATSOEVER, EXPRESS OR IMPLIED".  Notwithstanding anything contained herein to the contrary, except as expressly set forth in Article V, it is understood and agreed that Sellers, Sellers' agents, brokers, directors, officers or employees have not made and are not now making, and they specifically disclaim, any warranties, represent ations or guaranties of any kind or character, express or implied, oral or written, past, present or future, with respect to the Acquired Assets.  EXCEPT AS EXPRESSLY SET FORTH IN Article V, SELLERS MAKE NO REPRESENTATIONS OR WARRANTIES (EXPRESS OR IMPLIED) OF ANY KIND TO PURCHASER, INCLUDING, WITHOUT LIMITATION, THE PHYSICAL OR FINANCIAL CONDITION OF THE ACQUIRED ASSETS OR THEIR SUITABILITY FOR ANY PARTICULAR PURPOSE OR OF MERCHANTABILITY OR THE FINANCIAL PROSPECTS FOR THE BUSINESS AND PURCHASER SHALL RELY ON ITS OWN DUE DILIGENCE AND INVESTIGATIONS OF THE ACQUIRED ASSETS AND THE BUSINESS OF SELLERS IN DETERMINING WHETHER TO ACQUIRE THE ACQUIRED ASSETS. THE PROVISIONS OF THIS SECTION 6.5 ARE A MATERIAL PART OF THE CONSIDERATION FOR SELLERS ENTERING INTO THIS AGREEMENT, AND SHALL SURVIVE CLOSING.  Nothing in this Section 6.5 shall in anyway or under any legal theory limit Purchaser's right to terminate this Agreement pursuant to Section 9.1 hereof.

ARTICLE VII
PRE-CLOSING COVENANTS

7.1

Consents and Approvals.

(a)

Consents.  Sellers shall, at their sole cost and expense, use reasonable best efforts (i) to obtain all necessary consents and approvals, as reasonably requested by Purchaser, to consummate the purchase and sale of the Acquired Assets and the assignment of the Assumed Obligations, together with any other necessary consents and approvals to consummate the transactions contemplated hereby, including obtaining entry of the Bidding Procedures Order and Sale Order without modification except as Purchaser may consent, (ii) to make, as reasonably requested by Purchaser, all filings, applications, statements and reports to all authorities that are required to be made prior to the Closing Date by or on behalf of Sellers or any of their Affiliates pursuant to any applicable Law in connection with this Agreement and the transactions contemplated hereby and (iii) to obtain, as requested by Purchaser, all required consents and approvals (if any) necessary to assign and transfer Sellers' Permits to Purchaser at Closing and, to the extent that one (1) or more of Sellers' Permits are not transferable, to assist Purchaser in obtaining replacements therefor.  In the event that any of Sellers' Permits or any Assumed Contracts are not transferable or replacements therefor are not obtainable on or before the

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Closing, but such Permits, Assumed Contracts, consents and approvals to transfer, or replacements therefore are obtainable after the Closing, Sellers shall continue to use such commercially reasonable efforts in cooperation with Purchaser after the Closing as may be required to obtain all required consents and approvals to transfer, or obtain replacements for, such Permits or Assumed Contracts after Closing and shall do all things necessary to give Purchaser the benefits that would be obtained under such Permits and Assumed Contracts, in each case at Sellers' sole cost and expense.  Purchaser shall give any other notices to, make any other filings with, and use reasonable best efforts to cooperate with Sellers to obtain, any other authorizations, consents and approvals in connection with the matters contemplated by this Section  7.1(a).

(b)

Governmental Consents.  Each of the parties shall give any other notices to, make any other filings with, and use reasonable best efforts to obtain, any other authorizations, consents and approvals of any Governmental Authority (including any novation necessary in respect of any Government Contract) in connection with the matters contemplated by this Agreement.

7.2

Access to Information and Facilities.   Sellers agree that, prior to the Closing Date, Purchaser, each lender to Purchaser, if any, and their respective representatives shall, upon reasonable notice and so long as such access does not unreasonably interfere with the business operations of any Seller, have reasonable access during normal business hours to all Facilities and shall be entitled to make such reasonable investigation of the properties, businesses and operations of Sellers (including conducting a physical inventory of the Inventory) and such examination of the Books and Records and financial condition of Sellers as it reasonably requests and to make extracts and copies to the extent necessary of the Books and Records; provided, that no investigation pursuant to this Section 7.2 shall affect any representations or warranties made herein or the conditions to the obligations of the respective parties to consummate the transactions contemplated by this Agreement.

7.3

Notification of Certain Matters.

(a)

Sellers shall give notice to Purchaser of (i) the occurrence or nonoccurrence of any event that would be likely to cause either (A) any representation or warranty of Sellers contained in this Agreement, or in connection with the transactions contemplated hereunder, to be untrue or inaccurate in any material respect at any time from the date hereof to the Closing or (B) directly or indirectly, any Material Adverse Effect on any Seller, or (ii) any material failure of any Seller to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder.  Notwithstanding the foregoing, the delivery of any notice pursuant to this Section 7.3(a) shall not (x) be deemed to amend or supplement any of the Disclosure Schedules contemplated hereby, (y) be deemed to cure any breach of any representation, warranty, covenant or agreement or to satisfy any condition, or (z) limit or otherwise affect the remedies available hereunder to the party receiving such notice.  Further, Sellers shall give notice to Purchaser of any breach of, default, or event of default under (regardless of whether such breach, default or event of default is otherwise waived by the lender under the DIP Credit Facility), the DIP Facility or if the DIP Facility is otherwise terminated.

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(b)

To the extent not already included, Sellers shall add Purchaser, and Purchaser's counsel, to Sellers' so-called "Rule 2002 notice list" and otherwise provide notice to Purchaser of all matters that are required to be served on Sellers' creditors pursuant to the Bankruptcy Code and Rules.

(c)

Purchaser and Sellers acknowledge that certain of the representations and warranties of Sellers affirmatively require that Sellers list certain factual information on the Disclosure Schedules.  Sellers shall be permitted to update the Disclosure Schedules on or prior to the Closing Date.  No additional disclosure or update by Sellers pursuant to this Section 7.3(c), however, shall be deemed to amend or supplement the Disclosure Schedules or to prevent or cure any misrepresentation, breach of warranty, breach of covenant, or right of Purchaser to terminate this Agreement.

7.4

Bankruptcy Actions

(a)

Sellers shall commence the Chapter 11 Cases not later than two (2) Business Days after the Effective Date.

(b)

Simultaneously with the filing of the motion for entry of the Bidding Procedures Order on the Bankruptcy Court's docket or such earlier time as Sellers shall determine, Sellers shall file with the Bankruptcy Court a motion, in form and substance approved by Purchaser, to approve the transaction contemplated hereby ("Sale Motion"), which motion shall seek the Bankruptcy Court's approval of this Agreement, Sellers' performance under this Agreement and the assumption and the assignment of the Assumed Executory Contracts, which shall be set forth on an exhibit thereto and include the amounts necessary to cure defaults under each of such Assumed Executory Contracts, and shall provide that the applicable Purchaser's promise to perform following the Closing obligations under the Assumed Executory Contracts constituting the only required adequate assurance of future performance required p ursuant to Section 365(f)(2) of the Bankruptcy Code, and shall provide that Purchaser's promise to perform following the Closing all obligations under the Assumed Executory Contracts shall constitute the only required adequate assurance of future performance required pursuant to Section 365(f)(2) of the Bankruptcy Code.

(c)

Sellers shall use their reasonable best efforts to: (i) file a motion for entry of the Bidding Procedures Order by January 13, 2010, (i) obtain entry of the Bidding Procedures Order by the Bidding Procedures Order Deadline Date, (iii) require that Bids are due no later than the Bid Deadline, (iv) require that the Auction (to the extent required by the Bankruptcy Court), during which Sellers will solicit qualified bids ("Qualified Bids") from other prospective purchasers for the sale of all or substantially all of the Acquired Assets, on terms and conditions, in each instance, no less favorable to Sellers in any respects then contained in this Agreement and in accordance with the procedures set forth in the Bidding Procedures Order, shall be held no later than the Auction Deadline Date, (v) obtain entry of the Sale Order by no later than the Sale Order Deadline, and (vi) consummate the Closing as soon as practicable after the approval of the Sale Order and no later than February 22, 2010, provided that the Sale Order has been entered by the Bankruptcy Court and no request for stay of the Sale Order is pending.

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(d)

Sellers will provide Purchaser with a reasonable opportunity to review and comment upon all motions, applications, petitions, schedules and supporting papers, in each case which relate to or affect the transactions contemplated by this Agreement, prepared by Sellers (including forms of Orders and Notices to interested parties) prior to the filing thereof in the Chapter 11 Cases.  All motions, applications, petitions, schedules and supporting papers prepared by Sellers and relating (directly or indirectly) to the transactions contemplated by this Agreement to be filed on behalf of Sellers after the date hereof must be reasonably satisfactory in form and substance to Purchaser in its own discretion.

(e)

Sellers agree that they will promptly take such actions as are reasonably requested by Purchaser to assist in obtaining entry of the Sale Order and the Bidding Procedures Order, including furnishing affidavits or other documents or information for filing with the Bankruptcy Court for purposes, among others, of providing necessary assurances of performance by Sellers of their obligations under this Agreement and the Transaction Documents and demonstrating that Purchaser is a good faith buyer under Section 363(m) of the Bankruptcy Code.

(f)

Sellers shall execute such documents and use their reasonable best efforts to take or cause to be taken all actions and do or cause to be done all things reasonably necessary, proper or advisable to consummate the transactions contemplated by this Agreement (including to put Purchaser in actual possession and operating control of the Acquired Assets, to effectuate, record or perfect the transfer of the Acquired Assets to Purchaser, to confirm the title of the Acquired Assets in Purchaser, to assist Purchaser in exercising rights relating thereto, to use commercially reasonable efforts to obtain all consents, approvals and authorizations of Third Parties, to make all filings with and give all notices to Third Parties which may be necessary or required in order to effectuate the transactions contemplated hereby, and to use commercially reasonable efforts to obtain landlords' estoppels and landlords' lenders' waivers).  Sellers shall use commercially reasonable efforts to fulfill or obtain the fulfillment of the conditions set forth in Sections 8.1 and 8.2 of this Agreement.

7.5

Other Bids .  Purchaser acknowledges that pursuant to the Bidding Procedures Order, and after entry of the Bidding Procedures Order on the Bankruptcy Court's docket, Sellers will solicit bids ("Bids") from other prospective purchasers (collectively, "Bidders") for the sale of all or substantially all of the Acquired Assets, on terms and conditions containing representations and warranties, covenants, termination rights, financing and due diligence contingencies substantially similar to (and in no way less favorable to Sellers than) those in this Agreement (it being agreed and understood that such Bid shall modify this Agreement as needed to comply in all respects with the Bidding Procedures Order in accordance with the procedures set forth in the Bidding Procedures Order; provided, however, that following completion of the Auction (at which Purchase r is the successful bidder) until the Closing, no Seller shall, directly or indirectly, through any officer, director, employee, agent, professional or advisor, solicit any Acquisition Proposal or participate in any negotiations or discussions with respect to any Acquisition Proposal except with a Person designated as the Backup Bidder (as defined in the Bidding Procedures Order) at the Auction, and no Seller nor any of the Sellers' Affiliates shall (i) execute an agreement with respect to an Acquisition Proposal or (ii) seek or support Bankruptcy Court approval of a motion or Order inconsistent in any material respect with the transactions contemplated by this Agreement.

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7.6

Non-Seller Subsidiaries.  To the extent that any Affiliate of any Seller (other than an Affiliate which is a Seller) owns any property, assets, rights, titles or interests of any kind and nature relating to the Business, each Seller hereby covenants that it will (and it will cause its Affiliates to), from time to time, prior to or subsequent to the Closing, without further consideration, do, execute, acknowledge and deliver, or cause to be done, executed, acknowledged and delivered, all further acts, conveyances, transfers, assignments and assurances as reasonably may be required to convey or transfer to Purchaser or, at its option, one (1) of its Subsidiaries, any such property, assets, rights, titles or interests free and clear of all Liens and Liabilities.

7.7

Bankruptcy Matters

(a)

Sellers and Purchaser acknowledge that this Agreement and the sale of the Acquired Assets and the assumption and assignment of the Assumed Contracts are subject to Bankruptcy Court approval.  Sellers and Purchaser acknowledge that (i) to obtain such approval, Sellers must demonstrate that they have taken reasonable steps to obtain the highest and otherwise best offer possible for the Acquired Assets, and that such demonstration shall include giving notice of the transactions contemplated by this Agreement to creditors and interested parties as ordered by the Bankruptcy Court, and (ii) Purchaser must provide adequate assurance of future performance under the to-be-assigned Executory Contracts.

(b)

In the event an appeal is taken or a stay pending appeal is requested, from either the Bidding Procedures Order or the Sale Order, Sellers shall immediately notify Purchaser of such appeal or stay request and shall promptly provide to Purchaser a copy of the related Notice of appeal or Order of stay.  Sellers shall also provide Purchaser with written notice of any motion or application filed in connection with any appeal from either of such Orders.

(c)

From and after the Effective Date, Sellers shall not take any action which is intended to (or is reasonably likely to), or fail to take any action the intent (or the reasonably likely result) of which failure to act is to, result in the reversal, voiding, modification or staying of Bidding Procedures Order or this Agreement.  If Purchaser is the Successful Bidder (as defined in the Bidding Procedures Order) at the Auction, Sellers shall not take any action which is intended to (or is reasonably likely to), or fail to take any action the intent (or the reasonably likely result) of which failure to act is to, result in the reversal, voiding, modification or staying of the Sale Order or this Agreement.

7.8

Financial Statements .  Sellers shall promptly deliver to Purchaser copies of all financial statements and other information Sellers are required to deliver to the lenders under the DIP Facility.

7.9

Real Property.   From and after the date of this Agreement through (i) the effective date of assignment for the leases that are Designated Contracts assumed by Purchaser after the Closing, and (ii) the Closing for all Facility Leases that are not Designated Contracts:

(a)

Maintenance of Real Property.  Sellers shall maintain the Lease Facilities, including all of the improvements thereon, in substantially the same condition as of the date of this Agreement, ordinary wear and tear excepted, and shall not demolish or remove any of the

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existing improvements, or erect new improvements on the real property or any portion thereof, without the prior written consent of Purchaser.

(b)

Leases.  Seller shall not amend, modify, extend, renew or terminate any Facility Lease, and shall not enter into any new lease, sublease, license or other agreement for the use or occupancy of any real property, without the prior written consent of Purchaser.

7.10

Settlement Action .  Prior to Closing, the Sellers shall communicate and cooperate with the Purchaser and the United States in every respect to facilitate the dismissal with prejudice of all court proceedings related to the Deferred Prosecution Agreement.  Following the Closing, Sellers shall communicate and cooperate with the Purchaser and the United States in every respect to facilitate the dismissal with prejudice of all court proceedings related to the Deferred Prosecution Agreement.

ARTICLE VIII
CONDITIONS TO CLOSING

8.1

Conditions to Parties' Obligations .  The obligations of Purchaser and Sellers under this Agreement are subject to satisfaction of the following conditions precedent on or before the Closing Date, any one or more of which may be waived (but only in writing) by Purchaser or Sellers (provided that no such waiver shall be deemed to have cured any breach of any representation, warranty or covenant made in this Agreement):

(a)

Required Approvals.  All authorizations, consents, filings and approvals necessary to permit the parties to perform the transactions contemplated hereby shall have been duly obtained, made or given, shall be in form and substance, reasonably satisfactory to Parties, shall not be subject to the satisfaction of any condition that has not been satisfied or waived and shall be in full force and effect.  All terminations or expirations of waiting periods imposed (and any extension thereof) by any Governmental Authority necessary for the transactions contemplated under this Agreement, if any, shall have occurred.

(b)

No Order or Proceeding.  No Order shall be issued by and no Proceeding shall be pending before any Governmental Authority seeking or threatening to restrain or prohibit the consummation of the transactions contemplated by this Agreement, or involving a claim that consummation thereof would result in the violation of any Law of any Governmental Authority having appropriate jurisdiction.

8.2

Conditions to Purchaser's Obligations .  The obligations of Purchaser under this Agreement are subject to satisfaction of the following conditions precedent on or before the Closing Date, any one or more of which may be waived (but only in writing) by Purchaser (provided that no such waiver shall be deemed to have cured any breach of any representation, warranty or covenant made in this Agreement):

(a)

Accuracy of Representations and Warranties.  Sellers shall make all of the representations and warranties set forth in Article V on and as of the Closing Date, and such representations and warranties shall be true and correct as of the Closing Date in all material respects.

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(b)

Performance of Covenants.  Sellers shall have performed and complied in all respects with the obligations and covenants required by this Agreement to be performed or complied with by Sellers on or prior to the Closing Date.

(c)

Officer's Certificate.  Sellers shall deliver to Purchaser a certificate signed by each Seller, dated the date of the Closing Date, (in form and substance reasonably satisfactory to Purchaser), certifying that the conditions specified in Sections 8.1 and 8.2 have been satisfied as of the Closing;

(d)

Bankruptcy Condition.

(i)

The Bidding Procedures Order shall have been entered on the docket of the Bankruptcy Court as soon as practicable and no later than the Bidding Procedures Order Deadline Date.  The Sale Order shall have been entered on the docket of the Bankruptcy Court as soon as practicable and no later than the Sale Order Deadline shall become effective immediately, notwithstanding Rules 6004(h) and 6006(d) of the Federal Rules of Bankruptcy Procedure, and no request for stay of the Sale Order is pending, and no such stay is in effect.

(ii)

The Sale Order shall approve and authorize the assumption and assignment of the Assumed Executory Contracts and the Assumed Executory Contracts shall have been actually assumed and assigned to Purchaser such that the Assumed Executory Contracts will be in full force and effect from and after the Closing with non-debtor parties being barred and enjoined from asserting against Purchaser, among other things, defaults, breaches or claims of pecuniary losses existing as of the Closing or by reason of the Closing.

(iii)

The Bidding Procedures Order shall provide:

(A)

Upon the first to occur of (i) the date any Seller consummates an Acquisition Proposal or (ii) the date any Seller consummates a plan under the Bankruptcy Code, and only if the first to occur of (i) or (ii) above shall have occurred on or prior to the date which is the one (1) year anniversary of the date of termination of this Agreement, then, Sellers shall immediately pay (in cash) to Purchaser a breakup fee equal to Three Hundred and Twenty Thousand Dollars ($320,000) (the "Breakup Fee") with Sellers being jointly and severally liable for such payment; provided, however, that the Breakup Fee shall not be payable to Purchaser if this Agreement is terminated by Sellers pursuant to Section 9.1(c) or Section 9.1(l) and the Purchaser does not have a right to terminate this Agreement pursuant to Article IX (such termination by Sellers pursuant to Section 9.1(c) or Section 9.1(l) when Purchaser does not have a right to terminate this Agreement pursuant to Article IX, a "Seller Termination for Purchaser Breach").

(B)

If the transactions contemplated hereby are not consummated for any reason other than the material breach by Purchaser of this Agreement, Sellers shall pay (in cash) to Purchaser, upon the first to occur of (i) the date any Seller consummates an Acquisition Proposal or (ii) the date any Seller consummates a plan under the Bankruptcy Code, an amount equal to all reasonable costs and out-of-pocket expenses incurred by Purchaser in connection with its legal, environmental, accounting and business due diligence and the preparation and negotiation of this Agreement (the "Expense Reimbursement") with Sellers

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being jointly and severally liable for such payment, not to exceed in the aggregate the sum of $350,000; provided, however, that the Expense Reimbursement shall not be payable to Purchaser if this Agreement is terminated by a Seller Termination for Purchaser Breach.

(C)

That Sellers are authorized without further Bankruptcy Court action to pay any amounts that become due and payable to Purchaser pursuant to this Agreement (including the Breakup Fee and Expense Reimbursement), and that pursuant to Section 364(c)(1) of the Bankruptcy Code, Purchaser shall have a super-priority administrative expense priority claim payable out of Sellers' cash or other collateral securing Sellers' obligations (which shall be senior to any and all claims of any creditors of or holders of equity interests in Sellers, including pre-petition and post-petition amounts owing to Sellers' pre-petition and post-petition senior secured lenders) for such amounts that shall be due and payable as provided in Sections 8.2(d)(iii)(A) and (B) of this Agreement;

(D)

No party submitting any other offer to purchase the Acquired Assets or a Qualifying Bid shall be entitled to any expense reimbursement, breakup, or termination or similar fee or payment;

(E)

Prior to receipt by a prospective Bidder of any information (including business and financial information and access to representatives of Sellers) from Sellers, each Bidder will be required to execute an appropriate confidentiality agreement and deliver evidence reasonably satisfactory to Sellers establishing such potential Bidders' financial capability to timely consummate a purchase of the all the Acquired Assets;

(F)

As part of any Bid, each Bidder shall submit a copy of this form of asset purchase agreement marked to show changes, along with any other bid package requirements to ParentCo and Purchaser and place into escrow a cash deposit of no less than Five Hundred Thousand Dollars ($500,000);

(G)

(1)  a Bid will not be considered by Sellers as qualified for the Auction unless such Bid is for an amount equal to or more than the aggregate of the sum of (w) Eight Million Dollars ($8,000,000) in cash; (x) the dollar value of the Breakup Fee in cash, (y) the dollar value of the Expense Reimbursement in cash, and (z) One Hundred Thousand Dollars ($100,000) in cash (such amount, the "Minimum Cash Amount"), (2) any overbid Bids thereafter must be higher than the then existing lead Bid in increments valued at not less than One Hundred Thousand Dollars ($100,000), provided, however, that the consideration for such overbids in excess of the Minimum Cash Amount need not be cash, provided, further, however, any overbid Bids by Purchaser thereafter shall only be required to be equal to the sum of (A) the then existing leadi ng Bid, plus (B) consideration valued at One Hundred Thousand Dollars ($100,000) less (C) the dollar value of the Breakup Fee less (D) the dollar value of the Expense Reimbursement; provided, further, however, a higher Bid will not be considered by Sellers as qualified for the Auction if (I) such Bid contains additional representations and warranties, covenants, closing conditions, termination rights other than as may be included in this Agreement (it being agreed and understood that such Bid shall modify this Agreement as needed to comply in all respects with the Bidding Procedures Order and will remove provisions that apply only to the Purchaser as the stalking horse bidder such as breakup fee and expense reimbursement); (II) such Bid is not received by Sellers and Purchaser in writing on or prior to

41

the Bid Deadline, and (III) such Bid does not contain evidence that the Person submitting it has received unconditional debt and/or equity funding commitments (or has unrestricted and fully available cash) sufficient in the aggregate to finance the purchase contemplated thereby, including proof of deposit into escrow of no less than Five Hundred Thousand Dollars ($500,000) in cash.  (Each Bid which meets the foregoing criteria constitutes, as applicable, a "Qualifying Bid");

(H)

If one (1) or more Qualifying Bids are submitted in accordance with the Bidding Procedures Order, Sellers will conduct the Auction no later than the Auction Deadline Date in accordance with the Bidding Procedures Order.  At the Auction, Sellers shall have the right to select the highest and best Bid from Purchaser and any Person who submitted a Qualifying Bid pursuant to Section 8.2(d)(iii)(G) (the "Highest and Best Bid"), which will be determined by Sellers considering, among other things: (1) the number, type and nature of any changes to this Agreement requested by each Bidder; (2) the extent to which such modifications are likely to delay closing of the sale of the Acquired Assets and the cost to Sellers of such modifications or delay; (3) the total consideration to be received by Sellers; (4) the likelihood of the Bidder's ability to close a transaction and the timing thereof; and (5) the net benefit to the estate, taking into account Purchaser's rights to the Breakup Fee and Expense Reimbursement (for the avoidance of doubt, Sellers hereby agree that the value attributed by Sellers to any Bid made by Purchaser at the Auction shall at least be equal to the sum of the following (w) the dollar value of the cash consideration contained in such Bid, (x) the dollar value of any additional consideration contained in such Bid), (y) the dollar value of the Breakup Fee, and (z) the dollar value of the Expense Reimbursement. For avoidance of doubt, the Highest and Best Bid must include cash in an amount no less then the Minimum Cash Amount (it being agreed that the Minimum Cash Amount for Purchaser shall be reduced by the dollar value of the Expense Reimbursement and Breakup Fee);

(I)

At the Auction, Purchaser shall have the right to submit further higher Bids based upon the terms and provisions of this Agreement;

(J)

Unless otherwise agreed to by Purchaser in its sole discretion, only the Persons who submitted Qualified Bids and Purchaser may participate in the Auction;

(K)

Sellers shall not contest that Purchaser has the right to assert that it has standing to contest the Highest and Best Bid selected by Sellers;

(L)

Sellers are authorized and directed to instruct the successful bidder at the Auction to pay the Breakup Fee and Expense Reimbursement directly to Purchaser by wire transfer of immediately available good funds to an account specified by Purchaser at the Closing of such transaction with the successful bidder.  To the extent for any reason the successful bidder at Auction fails to pay the Breakup Fee and Expense Reimbursement directly to Purchaser at the Closing of such transaction with the successful bidder, the Sellers are authorized and directed to pay the Breakup Fee and Expense Reimbursement to Purchaser in accordance with the terms of this Agreement without further order of the Bankruptcy Court.

42

(e)

Receipt of Required Consents.  Sellers shall have delivered duly executed copies of all Third Party approvals and governmental approvals, consents and novations listed on Schedule 8.2(e).

(f)

Closing Deliveries.  Sellers shall have delivered to Purchaser the items set forth in Section 4.3 of this Agreement.

(g)

Cure Costs

.  If a cure obligation (pursuant to Section 365 of the Bankruptcy Code) is not set forth on Schedule 1.1, or if any Assumed Executory Contract is subject to a cure in excess of the amount set forth next to such Assumed Executory Contract on Schedule 1.1, Sellers shall have paid the amount of such cure or the excess of such cure over the amount set forth on Schedule 1.1.

(h)

No Material Adverse Change.  There shall not have been a Material Adverse Change since November 30, 2009.

8.3

Conditions to Sellers' Obligations .  The obligations of Sellers under this Agreement are subject to the satisfaction of the following conditions precedent on or before the Closing Date, any one or more of which may be waived (but only in writing) by Sellers (provided that no such waiver shall be deemed to have cured any breach of any representation, warranty or covenant made in this Agreement):

(a)

Accuracy of Representations and Warranties.  Purchaser shall make all of the representations and warranties set forth in Article VI on and as of the Closing Date, and such representations and warranties shall be true and correct as of the Closing Date in all material respects (except for those representations and warranties made as of a specified date, which shall be true and correct as of that date).

(b)

Performance of Covenants.  Purchaser shall have performed and complied in all respects with the obligations and covenants required by this Agreement to be performed or complied with by Purchaser on or prior to the Closing Date.

(c)

Officer's Certificate.  Purchaser shall deliver to Sellers a certificate signed by Purchaser, dated the date of the Closing Date (in form and substance reasonably satisfactory to Sellers), certifying that the conditions specified in Sections 8.1 and 8.3 have been satisfied as of the Closing;

(d)

Bankruptcy Court Approval.  The Bankruptcy Court shall have entered an order approving the execution of this Agreement by Sellers and the consummation by Sellers of the transactions contemplated herein that is not subject to Rules 6004(h) and 6006(d) of the Federal Rules of Bankruptcy Procedure.

(e)

Consideration.  Purchaser shall have delivered the payments specified in Section 3.1.

(f)

Closing Deliveries.  Purchaser shall have delivered to Sellers the items set forth in Section 4.4 of this Agreement.

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ARTICLE IX
TERMINATION

9.1

Termination .  This Agreement may be terminated prior to the Closing as follows:

(a)

by mutual written agreement of Purchaser and Sellers;

(b)

by Purchaser or Sellers if there shall be in effect a Final Order restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby;

(c)

by Purchaser or Sellers (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein), if there shall have been a material breach or misrepresentation of any of the representations or warranties or a material breach of any of the covenants set forth in this Agreement on the part of the other party, which breach is not cured within ten (10) days following written notice to the party committing such breach or which breach, by its nature, cannot be cured prior to the Closing (provided, for avoidance of doubt, that such ten 10-day cure period shall not apply to the termination rights described in Section 9.1(k) and Section 9.1(l) of this Agreement);

(d)

by Purchaser (provided that Purchaser is not then in material breach of any representation, warranty, covenant or other agreement contained herein) if it shall have reasonably determined that one (1) or more conditions set forth in Section 8.2 has not been or cannot be fulfilled or satisfied prior to the date specified in such condition (if such condition specifies a date other than the Closing Date by which such condition must be satisfied);

(e)

by Purchaser if any Seller (i) designates any Person other than Purchaser as the successful bidder of the Auction, (ii) seeks or supports Bankruptcy Court approval of an Acquisition Proposal (other than to or by Purchaser) or (iii) executes and delivers an agreement or understanding of any kind with respect to an Acquisition Proposal;

(f)

by Purchaser or Sellers (i) if the Bankruptcy Court enters an order approving any Acquisition Proposal (other than the sale of the Business and the Acquired Assets to Purchaser) or (ii) any Seller files with the Bankruptcy Court and seeks approval from the Bankruptcy Court of a "plan of reorganization" pursuant to the Bankruptcy Code;

(g)

by Purchaser as a result of (i) the failure of the Bankruptcy Court to have entered an order in a form reasonably satisfactory to Purchaser approving the DIP Credit Agreement by January 19, 2010, (ii) Sellers not filing a motion for approval of the DIP Credit Agreement within one day of commencement of the Chapter 11 Cases, or (iii) the Bankruptcy Court entering an order approving any debtor in possession financing other than the financing under the DIP Credit Agreement;

(h)

by Purchaser as a result of (i) the failure of the Bankruptcy Court to have entered the Bidding Procedures Order by no later than the Bidding Procedures Order Deadline Date (or such later date as Purchaser may determine in its sole discretion), or (ii) following the entry of the Bidding Procedures Order but prior to the entry of the Sale Order, the Bidding Procedures Order ceases to be in full force and effect, or is revoked, rescinded, vacated,

44

materially modified, reversed or stayed, or otherwise rendered ineffective by a court of competent jurisdiction;

(i)

by Purchaser if the Sellers fail to comply with the terms of the Bidding Procedures Order, including the failure of Sellers to (i) require that Bids be due no later than the  date set forth in the Bidding Procedures Order or (ii) have held the Auction by no later than the date set forth in the Bidding Procedures Order;

(j)

by Purchaser as a result of (i) the failure of the Bankruptcy Court to enter the Sale Order by no later than the Sale Order Deadline, or (ii) the date the Sale Order ceases to be in full force and effect, or is revoked, rescinded, vacated, materially modified, reversed or stayed, or otherwise rendered ineffective by a court of competent jurisdiction;

(k)

by Purchaser on any day on or after February 25, 2010 if the Closing shall not have been consummated by such date (or by such later date as shall be mutually agreed to by Purchaser and Sellers in writing), unless the Closing has not occurred due to a material failure of Purchaser to perform or observe its obligations as set forth in this Agreement required to be performed or observed by it on or before the Closing Date;

(l)

by Sellers on any day on or after February 22, 2010, provided that Sellers are not then in material breach of any representation, warranty, covenant or other agreement contained herein and Purchaser does not have any right to terminate this Agreement pursuant to this Article IX, if all of the conditions set forth in Article VIII have been satisfied or waived in writing by the appropriate parties hereto on the date of termination, and the Closing shall not have been consummated within three (3) Business Days following the date that written notice is provided by Sellers to Purchaser specifically indicating that all of the conditions set forth in Article VIII have been satisfied or waived in writing by the appropriate parties hereto, including, as applicable, by Sellers' delivery of final and fully executed documents listed in Section 4.3 in .pdf or electronic form to Sell ers' and Purchaser's respective legal counsel to be held in "escrow" pending Closing, other than (i) the deliveries required by Purchaser pursuant to Section 8.3(f) of this Agreement (and other than deliverables referenced in Section 4.4(e) of this Agreement) and (ii) the payment by Sellers of the amounts required to be paid pursuant to Section 8.2(g) of this Agreement, and pending (A) the physical transfer from Sellers to Purchaser of the deliveries required pursuant to Sections 4.3(a), (m), and (n) of this Agreement simultaneously with the Closing and (B) release of the other deliveries required by Article VIII of this Agreement from "escrow" upon receipt by Sellers of the payments required to be made by Purchaser in satisfaction of Section 8.3(e) of this Agreement and delivery by Purchaser of the documents listed in Sections 4.4(a), (b) and (c) of this Agreement;

(m)

by Purchaser if there has been a breach of, default under, or event of default under Section 7.01(b) of the DIP Credit Agreement specifically relating to Sections 5.04, 5.05, 5.07, 5.11, 5.13, 6.04, 6.05, 6.07, 6.08, 6.13, 6.14 or 6.15 of the DIP Credit Agreement or an event of default under Sections 7.01(a), (j), (l), (m), (n) or (u) of the DIP Credit Agreement (regardless of whether such breach, default or event of default is otherwise waived by the lender under the DIP Credit Facility but provided that such breach, default or event of default is not cured by Sellers within two (2) days of the date on which Sellers receive notice of such breach) or if the DIP Facility is otherwise terminated, provided that if one (1) or more Qualifying Bids

45

are submitted in accordance with the Bidding Procedures Order, Purchaser must exercise the termination right set forth in this Section 9.1(m) for such specified breach of, default of or event of default under the DIP Credit Facility on the date such Qualifying Bid(s) are submitted;

(n)

by Sellers (provided that no Seller is then in material breach of any representation, warranty, covenant or other agreement contained herein) if it shall have reasonably determined that one (1) or more conditions set forth in Section 8.3 has not been or cannot be fulfilled or satisfied prior to the date specified in such condition (if such condition specifies a date other than the Closing Date by which such condition must be satisfied);

(o)

by Purchaser if any of the Chapter 11 Case is dismissed or converted into a case under Chapter 7 of the Bankruptcy Code and neither such dismissal nor conversion expressly contemplates the transactions provided for in this Agreement, or a trustee is appointed for Sellers and such trustee rejects the transactions contemplated by this Agreement;

(p)

by Purchaser, if Sellers withdraw or seek authority to withdraw the motion for entry of the Bidding Procedures Order or the Sale Motion, or announce any stand-alone plan of reorganization or liquidation (or supporting any such plan filed by any other party);

(q)

by Purchaser, if the Chapter 11 Cases are not commenced within five (5) Business Days of the Effective Date;

(r)

by Purchaser within two (2) days of receipt of a written good faith notice from Sellers that the Disclosure Schedules to be provided to Purchaser pursuant to Section 11.19 are final, if Purchaser is not satisfied with the Disclosure Schedules in its sole discretion.

9.2

Breakup Fee and Expense Reimbursement

(a)

Upon the first to occur of (i) the date any Seller consummates an Acquisition Proposal or (ii) the date any Seller consummates a plan under the Bankruptcy Code, and only if the first to occur of (i) or (ii) above shall have occurred on or prior to the date which is the one (1) year anniversary of the date of termination of this Agreement, Sellers, jointly and severally, shall immediately pay (in cash) to Purchaser the amount of the Breakup Fee; provided, however, that the Breakup Fee shall not be payable to Purchaser if this Agreement has been terminated by a Seller Termination for Purchaser Breach.

(b)

Sellers shall pay (in cash) to Purchaser the Expense Reimbursement upon the first to occur of (i) the date any Seller consummates an Acquisition Proposal or (ii) the date any Seller consummates a plan under the Bankruptcy Code; provided, however, that the Expense Reimbursement shall not be payable to Purchaser if this Agreement has been terminated by a Seller Termination for Purchaser Breach.

(c)

Sellers' obligation to pay the Breakup Fee and the Expense Reimbursement pursuant to this Section 9.2 shall survive termination of this Agreement and shall constitute an administrative expense (which shall be a super-priority administrative expense claim senior to all other administrative expense claims and payable out of Sellers' cash or other collateral securing Sellers' obligations to its senior secured lenders, prior to any recovery by such lenders) of Sellers under Section 364(c)(1) of the Bankruptcy Code.

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(d)

In the event Sellers properly terminate this Agreement by a Seller Termination for Purchaser Breach, then, Sellers shall receive the Deposit as liquidated damages and as Sellers' sole and exclusive remedy for the breach by Purchaser of this Agreement as further described in Section 9.3 below.

(e)

In addition to any rights the Purchaser may have to the Breakup Fee and Expense Reimbursement as set forth herein, in the event Purchaser or Sellers properly terminate this Agreement for any reason other than by Sellers by a Seller Termination for Purchaser Breach, then, Purchaser shall receive a return of the Deposit upon such termination and neither party shall have any liability under this Agreement.

9.3

Effect of Termination or Breach

.  If the transactions contemplated hereby are not consummated (a) this Agreement shall become null and void and of no further force and effect, except (i) for this Section 9.3, (ii) for the provisions of Sections 11.1, 11.8, 11.9, 11.10, 11.11, and 11.12 hereof, and (iii) that, subject to any applicable limitations set forth in this Agreement, the termination of this Agreement for any cause shall not relieve any party hereto from any Liability which at the time of termination had already accrued to any other party hereto or which thereafter may accrue in respect of any act or omission of such party prior to such termination; and (b) if this Agreement is terminated by Purchaser pursuant to a termination right set forth in this Article IX or by Sellers for any reason other than the termination of this Agreement by a Sel ler Termination for Purchaser Breach, Sellers shall not be entitled to any damages, losses, or payment from Purchaser, and Purchaser shall have no further Liability of any kind to Sellers, any of their Affiliates, or any Third Party on account of this Agreement.  The parties hereby agree that is impossible to determine accurately the amount of damages that Sellers would suffer if the transactions contemplated hereby were not consummated as a result of a breach of this Agreement by the Purchaser.  As a result, notwithstanding anything in this Agreement to the contrary, Sellers hereby agree that, in the event of a termination of this Agreement by a Seller Termination for Purchaser Breach, (i) the Deposit shall be delivered to Sellers as liquidated damages against the Purchaser for all Liabilities of Purchaser under this Agreement and (ii) such liquidated damages shall be the sole and exclusive remedy, at Law and equity, of the Sellers against the Purchaser for the Purchaser's breach and such t ermination and Purchaser shall have no further Liability of any kind to Sellers, any of their Affiliates, or any third Party on account of this Agreement.

ARTICLE X
POST-CLOSING COVENANTS

10.1

Employees.   Prior to the Closing, Sellers shall terminate the employment of all employees of the Business.  Purchaser shall offer employment immediately prior to the Closing (but contingent on the occurrence of the Closing) to such employees of Sellers actively employed or engaged principally in the Business as of the Closing Date as determined by Purchaser in its sole discretion (such employees who accept such offer of employment and commence active employment with Purchaser, the "Rehired Employees") on terms and conditions of employment (including compensation and benefits) as determined by Purchaser in its sole discretion.  Nothing contained in this Agreement shall confer upon any Rehired Employee any right to any term or condition of employme nt or to continuance of employment by Purchaser or any of its Affiliates,

47

nor shall anything herein interfere with the right of Purchaser or any of its Affiliates to terminate the employment of any employee, including any Rehired Employee, at any time, with or without notice and for any or no reason, or restrict Purchaser or any of its Affiliates in modifying any of the terms or conditions of employment of any employee, including any Rehired Employee, after the Closing.  Except for the Assumed Obligations, Sellers shall be responsible for (and Sellers shall jointly and severally indemnify and hold Purchaser harmless from and against), any and all wages, bonuses, commissions, employee benefits, retention or stay bonus arrangements, and other compensation (including all obligations under any Employee Benefit Plans other than the accrued vacation specifically assumed under Section 2.3(a)(iii)) due to the employees of Sellers arising out of their employment with Sellers prior to and as of the Closing.

10.2

Employee Benefit Plans .  Except for accrued vacation specifically assumed under Section 2.3(a)(iii), Purchaser shall not assume any Employee Benefit Plan or any Liability thereunder or related thereto and Purchaser shall provide only those benefits to Rehired Employees as of or after the Closing as Purchaser shall determine.  Except for obligations relating solely to accrued vacation specifically assumed under Section 2.3(a)(iii) (and other than any Liability arising as a result of any breach of any representation or warranty or covenant hereunder), Sellers shall jointly and severally indemnify, defend and hold harmless Purchaser from and against any and all obligations, claims, or Liabilities at any time arising under or in connection with any Employee Benefit Plan.  With respect to all claims by or benefits due to current and former employees, office rs, directors or contractors of any Seller whenever arising under or in connection with any Employee Benefit Plan, whether insured or otherwise (including life insurance, medical and disability programs, retirement and pension plans), Sellers shall, at their own expense, honor, process, administer or pay or cause their respective insurance carriers (as applicable) to honor, process, administer or pay such claims or benefits, regardless of whether such claims are made or such benefits are due before or after the Closing, in accordance with the terms and conditions of such Employee Benefit Plans without regard to the employment by Purchaser of any such employees after the Closing.  Nothing contained in this Agreement, express or implied: (a) shall be construed to establish, amend, or modify any benefit or compensation plan, program, agreement or arrangement; (b) shall alter or limit the ability of Purchaser or any of its Affiliates to amend, modify or terminate any benefit or compensation plan, program, a greement or arrangement at any time assumed, established, sponsored or maintained by any of them; or (c) is intended to confer upon any Person (including employees, retirees, or dependents or beneficiaries of employees or retirees) any rights as a third party beneficiary of this Agreement.  

10.3

WARN Act .  Sellers will indemnify and hold Purchaser harmless from any Liability with respect to any employees of the Sellers under the WARN Act due solely to Sellers' actions or omissions occurring prior to or upon the Closing.  Provided that the Company provides Purchaser with a true and accurate list, by date and location, of employee layoffs implemented by Sellers in the ninety (90) days preceding the Closing, Purchaser will indemnify and hold Sellers harmless from any Liability with respect to any employees employed by Purchaser after the Closing under the WARN Act due, in whole or in part, to Purchaser's actions or omissions occurring after the Closing Date.

10.4

Payroll Reporting and Withholding .  Purchaser shall adopt the "standard procedure" for preparing and filing IRS Forms W-2 (Wage and Tax Statements), as described in

48

Revenue Procedure 2004-53.  Under this procedure, Purchaser as the successor employer shall provide Forms W-2 to all Rehired Employees reflecting all wages paid and Taxes withheld by Purchaser as the successor employer for the portion of the calendar year beginning on the day after the Closing Date.  Sellers as the predecessor employer shall provide Forms W-2 to all Rehired Employees reflecting all wages paid and Taxes withheld by Sellers for the portion of the calendar year ending on the Closing Date.  Purchaser shall adopt the "standard procedure" of Rev. Proc. 2004-53 for purposes of IRS Forms W-4 (Employee's Withholding Allowance Certificate) and W-5 (Earned Income Credit Advance Payment Certificate).  Under this procedure, Sellers shall keep on file the Forms W-4 and W-5 provided by the Rehired Employees for the period required by applicable Law concerning record retention.  P urchaser shall obtain new IRS Forms W-4 and W-5 with respect to each Rehired Employee.

10.5

Certain Consents.  If a consent of a Third Party which is required in order to assign any Acquired Asset (or claim, right or benefit arising thereunder or resulting therefrom) is not obtained prior to the Closing Date, or if an attempted assignment would be ineffective or would adversely affect the ability of any Seller to convey its interest in question to Purchaser, Sellers will cooperate with Purchaser and use commercially reasonable efforts in any lawful arrangement to provide that Purchaser shall receive the interests of any Seller in the benefits of such Acquired Asset.  If any consent or waiver is not obtained before the Closing Date and the Closing is nevertheless consummated, each Seller agrees to continue to use commercially reasonable efforts to obtain all such consents as have not been obtained prior to such date.

10.6

Name Changes.  At or prior to the Closing, each Seller shall take all necessary action to change its name and the names of all Affiliates of Sellers to a name that does not include the word "Protective", "Ceramic" or any other name or mark included in the Intellectual Property used in the conduct of the Business as presently conducted by Sellers (including any name set forth on the signature pages to this Agreement) or any translations, adaptations, derivations or combinations of any of the foregoing or any name or mark confusingly similar thereto (collectively, the "Restricted Names").  Sellers shall promptly notify Purchaser of such name change(s) and the new name(s) chosen by each Seller and all Affiliates of Seller, as applicable.  From and after Closing, Sellers and all Affiliates of Sellers shall cease all use of any Restricted Name, including by removing all Restricted Names from all letterhead, stationary, signage and tangible assets included in the Excluded Assets.

10.7

Accounts Receivable; Collections.  After the Closing, Sellers shall permit, and hereby authorize, Purchaser to collect, in the name of Sellers, all Accounts Receivable constituting part of the Acquired Assets and to endorse with the name of any applicable Seller for deposit in Purchaser's account any checks or drafts received in payment thereof.  Sellers shall promptly deliver to Purchaser any cash, checks or other property that they may receive after the Closing in respect of any Accounts Receivable or other asset constituting part of the Acquired Assets.

10.8

Confidentiality.  Following the Closing, Sellers shall maintain as confidential and shall not use or disclose (except as required by Law or as authorized in writing by Purchaser) (a) any information or materials relating to the Business, operations and affairs of Sellers, and (b) any materials developed by Purchaser or any of its representatives (including its accountants, advisors, environmental, labor, employee benefits and any other consultants, lenders and legal

49

counsel).  Except as otherwise permitted and provided above, in the event any Seller is required by Law to disclose any such confidential information, such Seller shall promptly notify Purchaser in writing, which notification shall include the nature of the legal requirement and the extent of the required disclosure, and shall cooperate with Purchaser to obtain a protective order and otherwise preserve the confidentiality of such information consistent with applicable Law.  Information subject to the confidentiality obligations in this Section 10.8 does not include any information which (x) at the time of disclosure is generally available to or known by the public (other than as a result of its disclosure in breach of this Agreement) or (y) becomes available on a non-confidential basis from a Person who is not known to be bound by a confidentiality agreement with Purchaser or its Affiliates, or who is not otherwise prohibited from transmitting the information.

10.9

Access to Records and Information.  Between the Closing Date and the fifth anniversary of the Closing Date, Sellers shall have reasonable access to all of the books and records relating to the Business or the Acquired Assets, including all information pertaining to the Assumed Contracts, in the possession of Purchaser to the extent that such access may reasonably be required by Seller in connection with the Assumed Liabilities or the Excluded Liabilities, or other matters relating to or affected by the operation of the Business and the Acquired Assets.  Such access shall be afforded by Purchaser upon receipt of reasonable advance notice and during normal business hours; provided, however, that (i) any such access shall be conducted in such a manner as not to interfere unreasonably with the operation of the business of Purchaser or its Affiliates, and (ii)  Purchaser shall not be required to take any action which would constitute a waiver of the attorney-client privilege, and (iii) Purchaser need not supply Sellers with any information which Buyer is under a legal obligation not to supply.  Sellers shall be solely responsible for any costs or expenses incurred by Sellers pursuant to this Section 10.9 and for all out-of-pocket expenses incurred by Purchaser pursuant to this Section 10.9.  If Purchaser shall desire to dispose of any such books and records upon or prior to the expiration of such period, Purchaser shall, prior to such disposition, give Sellers a reasonable opportunity at Sellers' expense, to segregate and remove such books and records as Sellers may select.  After the Closing, Sellers and the Canadian Imperial Bank of Commerce (as lender under the DIP Credit Facility and pre-petition lender to Sellers) shall have reasonable access to the senior management personnel of Purchaser to the extent that such access may reasonably be req uired in connection with any Tax refunds, rebates, credits and similar items which are Excluded Assets hereunder and which relate to any period, or portion of any period, on or prior to the Closing Date.  Such access shall be afforded by Purchaser upon receipt of reasonable advance notice and during normal business hours; provided, however, that (i) any such access shall be conducted in such a manner as not to interfere unreasonably with the operation of the business of Purchaser or its Affiliates, and (ii)  Purchaser shall not be required to take any action which would constitute a waiver of the attorney-client privilege, and (iii) Purchaser need not supply Sellers or the Canadian Imperial Bank of Commerce with any information which Purchaser is under a legal obligation not to supply.  Sellers and the Canadian Imperial Bank of Commerce shall be responsible for their respective costs or expenses incurred by them pursuant to this Section 10.9. All out-of-pocket expenses incurre d by Purchaser pursuant to this Section 10.9 shall be reimbursed by Sellers or the Canadian Imperial Bank of Commerce, as the case may be, to the extent such expenses were incurred by Purchaser as a result of the exercise or rights by Sellers or the Canadian Imperial Bank of Commerce under this Section 10.9.

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10.10

Taxes

(a)

On or prior to the Closing, Sellers shall pay all sales taxes, use taxes, payroll taxes, and other Taxes owed or owing with respect to the Acquired Assets or the Business and attributable to taxable periods or portions thereof prior to the Closing.

(b)

Any sales, use, purchase, transfer, franchise, deed, fixed asset, stamp, documentary stamp, use or other Taxes and recording charges due and which may be payable by reason of the sale of the Acquired Assets or the assumption of the Assumed Obligations under this Agreement or the transactions contemplated herein shall be borne fifty percent (50%) by Purchaser and fifty percent (50%) by Sellers and timely paid.

(c)

All Tax-sharing agreements or similar agreements with respect to or involving any Seller shall be terminated as of the Closing Date and, on and after the Closing Date, Purchaser shall not be bound thereby or have any Liability thereunder.

(d)

Purchaser and Sellers shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns and any audit, litigation or other Proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party's request) the provision of records and information that are reasonably relevant to any such audit, litigation or other Proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.  All costs and expenses incurred in connection with this Section 10.10(d) shall be borne by the party who is subject to such Proceeding.

(e)

Personal property Taxes, real property Taxes and other similar Taxes (the "Proration Items") with respect to the Acquired Assets for any taxable period commencing before the Closing Date and ending after the Closing Date shall be prorated on a per diem basis between the Purchaser and the Sellers as of the Closing Date.  The amount of the Proration Items attributable to the Sellers shall be equal to the amount of Tax for the period multiplied by a fraction, the numerator of which shall be the number of days from the beginning of the period through and including the Closing Date and the denominator of which shall be the number of days in the period.  The amount of all such Proration Items attributable to the Sellers shall be estimated as of the Closing Date and paid over to Purchaser at the Closing; provided, however, that final payments with respect to the P roration Items that are not able to be calculated as of the Closing Date shall be calculated and Sellers shall pay over any additional amount as soon as practicable after the Closing Date but no later than five (5) Business Days after determination of such addition amounts.

ARTICLE XI
MISCELLANEOUS

11.1

Non-Survival of Representations and Warranties.  The representations and warranties respectively made by Sellers and Purchaser in this Agreement and in any certificate delivered hereunder will expire as of the Closing. Subsequent to Closing, no claim with respect to any breach of any representation or warranty contained in this Agreement may be pursued or maintained (either hereunder or otherwise) against any other party.  The parties hereto agree that

51

the covenants contained in this Agreement to be performed at or after the Closing shall survive the Closing hereunder, and each party hereto shall be liable to the other after the Closing for any breach thereof.  

11.2

Expenses.

(a)

Except as otherwise provided herein, each party hereto shall bear its own costs and expenses, including attorneys' fees, with respect to the transactions contemplated hereby.  Notwithstanding the foregoing, in the event of any Proceeding to interpret or enforce this Agreement, the prevailing party in such Proceeding (i.e., the party who, in light of the issues contested or determined in the Proceeding, was more successful) shall be entitled to have and recover from the non-prevailing party such costs and expenses (including all court costs and reasonable attorneys' fees) as the prevailing party may incur in the pursuit or defense thereof.

(b)

The parties hereto agree that if any claims for commissions, fees or other compensation, including brokerage fees, finder's fees, or commissions are ever asserted against Purchaser or Sellers in connection with this transaction, all such claims shall be handled and paid by the party whose actions form the basis of such claim and such party shall indemnify (with counsel reasonably satisfactory to the party(ies) entitled to indemnification) and hold the other harmless from and against any and all such claims or demands asserted by any Person, firm or corporation in connection with the transaction contemplated hereby.

11.3

Amendment.  This Agreement may not be amended, modified or supplemented except by a written instrument signed by ParentCo (on behalf of itself and Sellers) and Purchaser.

11.4

Waivers.  The failure of a party hereto at any time or times to require performance of any provision hereof shall in no manner affect its right at a later time to enforce the same.  No waiver by a party of any condition or of any breach of any term, covenant, representation or warranty contained in this Agreement shall be effective unless in writing by ParentCo, in the case of a waiver by any Seller, or Purchaser, in the case of any waiver by Purchaser, and no waiver in any one (1) or more instances shall be deemed to be a further or continuing waiver of any such condition or breach of other instances or a waiver of any other condition or breach of any other term, covenant, representation or warranty.

11.5

Notices.  All notices, requests, demands and other communications permitted or required to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed conclusively to have been given (a) when personally delivered, (b) when sent by facsimile (with hard copy to follow) during a Business Day (or on the next business day if sent after the close of normal business hours or on any non-Business Day), (c) when sent by electronic mail (with hard copy to follow) during a business day (or on the next Business Day if sent after the close of normal business hours or on any non-Business Day), (d) one (1) Business Day after being sent by reputable overnight express courier (charges prepaid), or (e) three (3) Business Day following mailing by certified or registered mail, postage prepaid and return receipt requested.  Unless another add ress is specified in writing, notices, requests, demands and communications to the parties shall be sent to the addresses indicated below:

52

To Sellers:  

Protective Products of America, Inc.

1649 NW 136th Avenue
Sunrise, FL 33323

Attn:

R. Patrick Caldwell, CEO

Jason A. Williams, CFO

Fax:

(954) 846-8306

E-mail: pcaldwell@body-armor.com

jwilliams@body-armor.com

with copy to:

Berger Singerman, P.A.

200 South Biscayne Boulevard

10^th Floor

Miami, Florida 33131

Attn:

Jordi Guso, Esq.

Fax:

(305) 714-4340

E-mail: jguso@bergersingerman.com

With a copy to:

Farlie Turner & Co.

401 East Las Olas Boulevard

Suite 1160

Fort Lauderdale, Florida 33301

Attn:

Steven Zuckerman

Scott Saunders

Fax:

(954) 358-3838

Email:

szuckerman@farlieturner.com

ssaunders@farlieturner.comTo Purchaser:

To Purchaser:

Protective Products Enterprises, Inc.

5200 Town Center Circle, Suite 600

Boca Raton, FL 33486

Attn:

C. Deryl Couch

Jason H. Neimark

G. Brian McGee

Fax:

(561) 394-0540

E-mail: dcouch@suncappart.com

 jneimark@suncappart.com

 bmcgee@suncappart.com

With copies to:

Sun Capital Partners Management V, Inc.

5200 Town Center Circle, Suite 600

Boca Raton, FL 33486

Attn:

C. Deryl Couch

Jason H. Neimark

G. Brian McGee

Fax:

(561) 394-0540

E-mail: dcouch@suncappart.com

53

 jneimark@suncappart.com

 bmcgee@suncappart.com

and

Kirkland & Ellis LLP

300 North LaSalle Street

Chicago, IL 60654

Attn:

Douglas C. Gessner, P.C.

Jeremy S. Liss

Fax:

(312) 861-2200

E-mail: douglas.gessner@kirkland.com

 jeremy.liss@kirkland.com

11.6

Counterparts; Electronic Execution.  This Agreement and any signed agreement or instrument entered into in connection with this Agreement, and any amendments hereto or thereto, may be executed in one (1) or more counterparts, all of which shall constitute one and the same instrument.  Any such counterpart, to the extent delivered by means of a facsimile machine or by .pdf, .tif, .gif, .peg or similar attachment to electronic mail (any such delivery, an "Electronic Delivery") shall be treated in all manner and respects as an original executed counterpart and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person.  At the request of any party hereto, each other party hereto or thereto shall re-execute the original form of this Agreement and deliver such form to all other parti es.  No party hereto shall raise the use of Electronic Delivery to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of Electronic Delivery as a defense to the formation of a contract, and each such party forever waives any such defense, except to the extent such defense relates to lack of authenticity.

11.7

Headings.  The headings preceding the text of the Articles and Sections of this Agreement and the Exhibits and the Schedules are for convenience only and shall not be deemed part of this Agreement.

11.8

SUBMISSION TO JURISDICTION; WAIVER OF TRIAL BY JURY.  THE PARTIES HEREBY AGREE THAT ANY AND ALL CLAIMS, ACTIONS, CAUSES OF ACTION, SUITS, AND PROCEEDINGS RELATING TO THIS AGREEMENT OR THE OTHER AGREEMENTS CONTEMPLATED HEREIN SHALL BE FILED AND MAINTAINED ONLY IN THE BANKRUPTCY COURT, AND THE PARTIES HEREBY CONSENT TO THE JURISDICTION OF SUCH COURT.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY LITIGATION, ACTION, PROCEEDING, CROSS-CLAIM, OR COUNTERCLAIM IN ANY COURT (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF, RELATING TO OR IN CONNECTION WITH (I) THIS AGREEMENT OR THE VALIDITY, PERFORMANCE, INTERPRETATION, COLLECTION OR ENFORCEMENT HEREOF OR (II) THE ACTIONS OF THE PARTIES IN THE NEGOTIATION, AUTHORIZATION, EXECUTION, DELIVERY, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.

11.9

Governing Law.  This Agreement shall be governed by and construed in accordance with the Laws of the Delaware (regardless of the Laws that might otherwise govern

54

under applicable Delaware principles of conflicts of Law) as to all matters, including matters of validity, construction, effect, performance and remedies.

11.10

Binding Nature; Assignment.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto without prior written consent of the other parties (which shall not be unreasonably withheld or delayed); except (a) that Purchaser may assign any of its rights and obligations hereunder to any Affiliate or Subsidiary of Purchaser (whether wholly owned or otherwise) or to its lender and, following the Closing, in whole or in part to any successor-in-interest to any Person acquiring all or any portion of the Business or the Acquired Assets; (b) the rights and interests of Sellers hereunder may be assigned to a trustee appointed under Chapter 11 or Chapter 7 of the Bankruptcy Cod e; (c) this Agreement may be assigned to any entity appointed as a successor to Sellers pursuant to a confirmed Chapter 11 plan; and (d) as otherwise provided in this Agreement.  Sellers hereby agree that Purchaser may grant a security interest in its rights and interests hereunder to its lenders, and Sellers will sign a consent with respect thereto if so requested by Purchaser or its lender, and that the terms of this Agreement shall be binding upon any subsequent trustee appointed under Chapter 11 or Chapter 7 of the Bankruptcy Code.

11.11

No Third Party Beneficiaries.  This Agreement is solely for the benefit of the parties hereto and nothing contained herein, express or implied, is intended to confer on any Person other than the parties hereto or their successors and permitted assigns, any rights, remedies, obligations, claims, or causes of action under or by reason of this Agreement.  Neither Sellers, nor their successors and permitted assigns, shall have any right to specific performance hereunder.

11.12

Construction.  The language used in this Agreement will be deemed to be the language chosen by the parties to this Agreement to express their mutual intent, and no rule of strict construction shall be applied against any party.  Any reference to any federal, state, local or foreign statute or Law shall be deemed also to refer to all rules and Laws promulgated thereunder, unless the context requires otherwise. Whenever a party's consent, approval or satisfaction is required under this Agreement, the decision as to whether or not to consent or approve or be satisfied shall be in the sole and exclusive discretion of such party, and such party's decision shall be final and conclusive.

11.13

Public Announcements.  Except as required by Law or in connection with the Chapter 11 Cases, neither Sellers nor Purchaser shall issue any press release or public announcement concerning this Agreement or the transactions contemplated hereby without obtaining the prior written approval of the other parties hereto relating to the contents and manner of presentation and publication thereof, which approval will not be unreasonably withheld, delayed or conditioned.  Prior to making any public disclosure required by applicable Law, the disclosing parties shall give the other party a copy of the proposed disclosure and reasonable opportunity to comment on the same.  Notwithstanding the foregoing, Purchaser shall not be restricted from making any public announcements or issuing any press releases after the Closing.

55

11.14

Disclosure Schedules.  The information disclosed in any Schedules provided pursuant to this Agreement (collectively, the "Disclosure Schedules") shall be deemed to relate to and to qualify, if applicable, only the particular representation or warranty set forth in the corresponding numbered Section in this Agreement and shall not be deemed to relate to or to qualify any other representation or warranty.  Nothing in the Disclosure Schedules shall be deemed adequate to disclose an exception, if applicable, to a representation or warranty made herein, however, unless the Disclosure Schedules identify the exception with reasonable particularity and describe the relevant facts in reasonable detail.  The mere listing (or inclusion of a copy) of a document or other item shall not be deemed adequate to disclose an exception to a representation or warranty made herein (unless the representation or warranty has to do with the existence of the document or other item itself).  

11.15

Entire Understanding.  This Agreement, the Exhibits and the Schedules set forth the entire agreement and understanding of the parties hereto in respect to the transactions contemplated hereby and the Agreement, the Exhibits and the Schedules supersede all prior agreements, arrangements and understandings relating to the subject matter hereof and are not intended to confer upon any other Person any rights or remedies hereunder.

11.16

Closing Actions. All deliveries, payments and other transactions and documents relating to the Closing shall be interdependent, and none shall be effective unless and until all are effective (except to the extent that the party entitled to the benefit thereof has waived satisfaction or performance thereof as a condition precedent to the Closing).

11.17

Conflict Between Transaction Documents.  The parties hereto agree and acknowledge that to the extent any terms and provisions of this Agreement are in any way inconsistent with or in conflict with any term, condition or provision of any other agreement or document referred to herein, this Agreement shall govern and control.

11.18

Time Periods. Unless specified otherwise, any action required hereunder to be taken within a certain number of days shall be taken within that number of calendar days (and not Business Days); provided, however, that if the last day for taking such action falls on a day that is not a Business Day, the period during which such action may be taken shall be automatically extended to the next Business Day.

11.19

Final Schedules Notwithstanding anything to the contrary, Purchaser and Sellers acknowledge that as of the date of this Agreement the Disclosure Schedules have not been finalized.  Sellers hereby agree and acknowledge that Purchaser may terminate this Agreement pursuant to Section 9.1(r) if it is not satisfied with the conten ts of the Disclosure Schedules.  Sellers agree to provide Purchaser with a final draft of the Disclosure Schedules within five (5) days after the date hereof.

[SIGNATURE PAGES FOLLOW]

56

IN WITNESS WHEREOF, the parties hereto have caused this Asset Purchase Agreement to be executed and delivered on the date first above written.

PURCHASER:

PROTECTIVE PRODUCTS ENTERPRISES, INC.

SELLERS:

PROTECTIVE PRODUCTS OF AMERICA, INC.

CPC HOLDING CORPORATION OF AMERICA

CERAMIC PROTECTION CORPORATION OF AMERICA

PROTECTIVE PRODUCTS INTERNATIONAL CORP.

PROTECTIVE PRODUCTS OF NORTH CAROLINA LLC

Signature Page to Asset Purchase Agreement

EX-10.2

EXECUTION COPY

EXHIBIT 10.2

SUPERPRIORITY PRIMING DEBTOR-IN-POSSESSION CREDIT AGREEMENT

dated as of January 13, 2010

among

PROTECTIVE PRODUCTS OF AMERICA, INC.

as debtor and debtor-in-possession and as the Borrower,

THE GUARANTORS NAMED HEREIN,

each as debtor and debtor-in-possession,

AND

CANADIAN IMPERIAL BANK OF COMMERCE

as Lender

TABLE OF CONTENTS

Page

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

2

1.01

Defined Terms

2

1.02

Other Interpretive Provisions

15

1.03

Accounting Terms

16

1.04

Rounding

16

1.05

Times Of Day

16

ARTICLE II

THE LOANS

16

2.01

The Loans

16

2.02

Borrowing of the Loans

17

2.03

Prepayments

17

2.04

Repayment of the Loans

18

2.05

Interest

18

2.06

Fees and Expenses

18

2.07

Computation Of Interest And Fees

19

2.08

Evidence Of Indebtedness

19

2.09

Payments

19

2.10

Security and Superpriority Claim

19

ARTICLE III

TAXES AND YIELD PROTECTION

20

3.01

Taxes

20

3.02

Survival

21

ARTICLE IV

CONDITIONS PRECEDENT TO LOANS

21

4.01

Conditions Of Initial Borrowing

21

4.02

Conditions To All Borrowings

23

ARTICLE V

AFFIRMATIVE COVENANTS

24

5.01

Statements

24

5.02

Certificates; Other Information

24

5.03

Notices

26

5.04

Preservation Of Existence; Business, Etc

26

5.05

Maintenance Of Properties

27

5.06

Maintenance Of Insurance

27

-i-

TABLE OF CONTENTS

(continued)

Page

5.07

Compliance With Laws

27

5.08

Books and Records

27

5.09

Inspection Rights

27

5.10

Use Of Proceeds; Maximum Cash-On-Hand

27

5.11

Compliance With Environmental Laws

28

5.12

Further Assurances

28

5.13

Compliance With Terms Of Leaseholds

28

ARTICLE VI

NEGATIVE COVENANTS

28

6.01

Liens

28

6.02

Indebtedness

30

6.03

Investments

30

6.04

Fundamental Changes

31

6.05

Dispositions

31

6.06

Restricted Payments

31

6.07

Change in Nature of Business

32

6.08

Transactions With Affiliates

32

6.09

Burdensome Agreements

32

6.10

Budget Compliance

32

6.11

Amendments Of Organization Documents

32

6.12

Accounting Changes

32

6.13

Partnerships, Etc

32

6.14

Speculative Transactions

32

6.15

Formation Of Subsidiaries

32

6.16

Other Action

32

ARTICLE VII

EVENTS OF DEFAULT AND REMEDIES

33

7.01

Events Of Default

33

7.02

Remedies Upon Event of Default

37

7.03

Application of Funds

37

ARTICLE VIII

MISCELLANEOUS

38

8.01

Amendments, Etc

38

-ii-

TABLE OF CONTENTS

(continued)

Page

8.02

Notices and Other Communications; Facsimile Copies;

38

8.03

No Waiver; Cumulative Remedies

40

8.04

Expenses; Indemnity; Damage; Waiver

40

8.05

Payments Set Aside

41

8.06

Successors and Assigns Generally

42

8.07

Right of Setoff

42

8.08

Interest Rate Limitation

42

8.09

Counterparts; Integration; Effectiveness

42

8.10

Survival Of Representations and Warranties

42

8.11

Severability

43

8.12

USA Patriot Act Notice

43

8.13

Governing Law; Jurisdiction; Etc

43

8.14

WAIVER OF JURY TRIAL

44

-iii-

SIGNATURES

S-1

EXHIBITS

Exhibit A	Budget
Exhibit B	Notice of Borrowing
Exhibit C	Compliance Certificate
Exhibit D	Interim Order

SCHEDULES

Schedule 7.01(h)

Pension Plan Contributions

-iv-

EXECUTION COPY

SUPERPRIORITY PRIMING DEBTOR-IN-POSSESSION CREDIT AGREEMENT

This SUPERPRIORITY PRIMING DEBTOR-IN-POSSESSION CREDIT AGREEMENT (this “Agreement”) is entered into as of January 13, 2010, among PROTECTIVE PRODUCTS OF AMERICA, INC., a Delaware corporation and a debtor and debtor in possession in a case pending under Chapter 11 of the Bankruptcy Code, as the borrower (the “Borrower”), the Guarantors party hereto, and CANADIAN IMPERIAL BANK OF COMMERCE, a Canadian chartered bank, as lender (the “Lender”).

PRELIMINARY STATEMENTS:

1.

On January 13, 2010 (the “Filing Date”), Borrower and each of its direct and indirect subsidiaries and certain of its affiliates filed voluntary petitions with the Bankruptcy Court initiating the Cases and have continued in the possession of their respective assets and in the management of their respective businesses pursuant to Sections 1107 and 1108 of the Bankruptcy Code.

2.

Borrower has requested that the Lender provide a secured superpriority priming debtor-in-possession credit facility to the Borrower in the aggregate principal amount of up to $740,000 (the “DIP Credit Facility”) having priority over all Existing Liens encumbering the Business Assets including Liens securing the Prepetition Facility (the “Primed Liens”).

3.

The DIP Credit Facility shall be comprised of (a) an Operating Facility in an aggregate principal amount of up to $665,000, which can be drawn by the Borrower in installments as provided herein; and (b) a Wind Down Loan in the principal amount of up to $75,000.

4.

The proceeds of the Operating Loan will be used (i) to pay related fees and expenses associated with negotiation, execution and delivery of this Agreement and the other Loan Documents, (ii) for working capital and other general corporate purposes of the Loan Parties subject to the Budget and to the extent not prohibited hereunder, (iii) to pay fees and expenses of the Loan Parties’ advisors and the advisors to any Creditor’s Committee, in each case associated with the Cases, subject to the Budget and to the extent not prohibited hereunder, and incurred prior to the closing of the Sale, and (iv) to make any other payments permitted to be made in the Orders or in the First Day Orders or by the Bankruptcy Court to the extent permitted under the Budget and not prohibited by this Agreement, or as otherwise consented to by the Lender, other than in respect of wind down expenses post closing of the Sale.  The proceeds of the Wind Down Loan will be used to pay expenses of the administration of the Cases incurred after the closing of the Sale.

In consideration of the premises and other valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS

1.01

Defined Terms.  As used in this Agreement, the following terms shall have the meanings set forth below:

“Act” has the meaning set forth in Section 8.12.

“Affiliate” means, with respect to any Person, any other Person Controlling, Controlled by or under common control with such particular Person.

“Agreement” means this Credit Agreement.

“Avoidance Actions” means any causes of action arising under Chapter 5 of the Bankruptcy Code, including, without limitation, any and all preference or avoidance claims of any of the Sellers, including, without limitation, all such claims and actions arising under Sections 544, 547, 548, 549 and 550, respectively, of the Bankruptcy Code, but excluding the proceeds realized from such claims and actions.

“Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy,” as now and hereafter in effect, or any successor statute.

“Bankruptcy Court” means the United States Bankruptcy Court for the Southern District of Florida, or such other court having jurisdiction over the Cases.

“Bankruptcy Rules” means the Federal Rules of Bankruptcy Procedure, the local rules of the Bankruptcy Court and the procedures and requirements of the UST.

“Bid Procedures Order” has the meaning assigned to it in Section 4.01(i).

“Borrower” has the meaning specified in the introductory paragraphs to this Agreement.

“Borrowing” means any borrowing or advance made to the Borrower by the Lender under the DIP Credit Facility or pursuant to a Notice of Borrowing.

“Budget” means, initially, the budget for the Loan Parties in form and substance satisfactory to the Lender and attached hereto as Exhibit A.

“Business” means the activities carried on by the Loan Parties, including the design, manufacturing, distribution and sale of products used for anti-ballistic and other protection for personnel and vehicles in the military and law enforcement markets.

“Business Assets” means all rights, titles and interests of every kind and nature of the Loan Parties (including indirect and other forms of beneficial ownership) in and to all of the properties, assets and rights (contractual or otherwise) of the Loan Parties, whether tangible or intangible, real, personal or mixed and wherever located and by whomever possessed.

2

“Business Day” means a day of the year on which banks are not required or authorized by law to close in the City of Toronto, Province of Ontario, Canada.

“Carve Out Expenses” means (i) amounts payable pursuant to 28 U.S.C. § 1930 and (ii) allowed reasonable fees and expenses of attorneys, accountants and other professionals retained in the Cases pursuant to Sections 327, 328, 330, 331 and 1103 of the Bankruptcy Code, in an aggregate amount not to exceed the amount set forth in the Budget for such fees and expenses.

“Capitalized Leases” means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases.

“Cases” means the cases of Borrower and the Guarantors currently pending under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court.

“Cash Collateral” means “cash collateral” as such term is defined in Section 363(a) of the Bankruptcy Code, or any successor provision.

“Cash Collateral Order” means to the extent such relief is not incorporated into the Interim Order or the Final DIP Order, a separate order authorizing the use of the Prepetition Lender’s cash collateral, as defined in Section 363(a) of the Bankruptcy Code on terms and conditions acceptable to the Prepetition Lender in its sole discretion.

“Cash Equivalents” means any of the following types of Investments:

(a)

readily marketable obligations issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof having maturities of not more than 360 days from the date of acquisition thereof; provided that the full faith and credit of the United States of America is pledged in support thereof;

(b)

time deposits with, or insured certificates of deposit or bankers’ acceptances of, any commercial bank that (i) (A) is a Lender or (B) is organized under the laws of the United States of America, any state thereof or the District of Columbia or is the principal banking subsidiary of a bank holding company organized under the laws of the United States of America, any state thereof or the District of Columbia, and is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described in clause (c) of this definition and (iii) has combined capital and surplus of at least $1,000,000,000, in each case with maturities of not more than 360 days from the date of acquisition thereof;

(c)

commercial paper in an aggregate amount of no more than $10,000,000 per issuer outstanding at any time issued by any Person organized under the laws of any state of the United States of America and rated at least “Prime-1” (or the then equivalent grade) by Moody’s or at least “A-1” (or the then equivalent grade) by S&P, in each case with maturities of not more than 270 days from the date of acquisition thereof; and

(d)

Investments, classified in accordance with GAAP as Current Assets of any Loan Party, in money market investment programs registered under the Investment Company Act of 1940, which are administered by financial institutions that have the highest

3

rating obtainable from either Moody’s or S&P, and the portfolios of which are limited solely to Investments of the character, quality and maturity described in clauses (a), (b) and (c) of this definition.

“Ceramic” means Ceramic Protection Corporation of America, a Delaware corporation and debtor and debtor in possession.

“CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended.

“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority.

“Change of Control” means, an event or series of events by which:

(a)

means, at any time (i) any Person or “group” (with the meaning of Rules 13d-3 and 13d-5 under the Exchange Act) shall have acquired beneficial ownership of the greater of 35% or more on a fully diluted basis of the voting and/or economic interests in the Equity Interests of the Borrower or (b) shall have obtained the power (whether or not exercised) to elect a majority of the members of the board of directors (or similar governing body) of the Borrower;

(b)

a majority of the members of the board of directors or other equivalent governing body of the Borrower cease to be composed of individuals who were members of that board or equivalent governing body on the Closing Date or who were approved by a majority of such directors; or

(c)

Borrower shall cease, directly or indirectly, to own and control legally and beneficially all of the Equity Interests in the Guarantors.

“Change of Management” means (i) at any time prior to the closing of the Sale, R. Patrick Caldwell, Jason Williams or Neil Schwartzman do not have the same positions and responsibilities with the Borrower, respectively, that such officers had as of the Filing Date, or (ii) any of the Borrower’s board of directors are removed.

“Closing Date” means the first date all the conditions precedent in Section 4.01 are satisfied or waived in accordance with Section 8.03.

“Code” means the United States Internal Revenue Code of 1986, as amended.

“Collateral” means all of the “Collateral” and/or “DIP Collateral” referred to in the Orders or the Collateral Documents and all of the other property and assets that are or are intended under the terms of the Orders or the Collateral Documents to be subject to Liens in favor of the Lender; but expressly excluding the Avoidance Actions.  

4

“Collateral Documents” means, collectively, the Orders, and any security agreement, pledge agreement, guaranty, mortgage, collateral assignment, security agreement supplement, deposit account control agreement or other similar agreement delivered to the Lender pursuant to or in connection with the Loans or this Agreement from time to time, and each of the other agreements, instruments or documents that creates or purports to create a Lien in favor of the Lender to secure the Loans; provided, however, that such agreements, instruments or documents shall not evidence or secure the Prepetition Facility.

“Commitment” means the commitment of Lender to make both the Operating Loan and Wind Down Loan in an aggregate amount not to exceed $740,000, subject to the terms and conditions of this Agreement.

“Company Intellectual Property” all Intellectual Property necessary for the operation of the Loan Parties’ business as presently conducted.

“Compliance Certificate” means a certificate substantially in the form of Exhibit C.

“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise.  “Controlling” and “Controlled” have meanings correlative thereto.

“CPC Holding” means CPC Holding Corporation of America, a Delaware corporation and debtor and debtor in possession.

“Creditor’s Committee” means any official committee appointed in the Cases.

“Current Assets” means, with respect to any Person, all assets of such Person that, in accordance with GAAP, would be classified as current assets on the balance sheet of a company conducting a business the same as or similar to that of such Person, after deducting appropriate and adequate reserves therefrom in each case in which a reserve is proper in accordance with GAAP.

“Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

“Default Rate” means, with respect to any of the Obligations, an interest rate equal to the interest rate otherwise applicable to the Loans plus 3.0% per annum.

“Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property by any Person (or the granting of any option or other right to do any of the foregoing), including any sale, assignment, transfer or other disposal, with or without recourse, of any Equity Interests owned by such

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Person, or any notes or accounts receivable or any rights and claims associated therewith.

“Dollar” and “$” mean lawful money of the United States.

“Employee Benefit Plan” means any “employee benefit plan” (as defined in ERISA §3(3)) and any other benefit or compensation plan, program, agreement or arrangement maintained, sponsored, or contributed or required to be contributed to by a Loan Party or any ERISA Affiliate or with respect to which a Loan Party or any ERISA Affiliate has any Liability.

“Environmental Laws” means, whenever in effect, all federal, state, provincial, local and foreign statutes, Laws (including CERCLA and analogous state Laws), ordinances, directives and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all common law, in each case concerning public health and safety, worker health and safety, or pollution or protection of the environment.

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower, any other Loan Party directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Substances, (c) exposure to any Hazardous Substances, (d) the release or threatened release of any Hazardous Substances into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“Environmental Permit” means any permit, approval, identification number, license or other authorization required under any Environmental Laws.

“Equity Interests” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.

“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with any Loan Party within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b)

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a withdrawal by any Loan Party or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by any Loan Party or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Employee Benefit Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Loan Party or any ERISA Affiliate or (g) the failure of any Loan Party or any ERISA Affiliate to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan.

“Event of Default” has the meaning specified in Section 7.01.

“Exchange Act” means the Securities Exchange Act of 1934.

“Excluded Taxes” means, with respect to the Lender, Taxes imposed on or measured by its overall net income (however denominated), and franchise Taxes imposed on it (in lieu of net income Taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which the Lender’s Office is located.

“Existing Liens” means all Liens encumbering the Business Assets.

“Extraordinary Receipt” means any cash received by or paid to or for the account of any Person not included in a line item in the Budget or not in the ordinary course of business, including, without limitation, pension plan reversions, all tax refunds (including, without limitation, the Tax Refunds), proceeds of insurance, condemnation awards (and payments in lieu thereof), indemnity payments and any purchase price adjustments.

“Filing Date” has the meaning assigned in the recitals hereto.

“First Day Orders” has the meaning set forth in Section 4.01(f).

“Final DIP Order” means the Final DIP Order of the Bankruptcy Court in the Cases authorizing and approving this Credit Agreement and the other Loan Documents under Sections 364(c) and (d) of the Bankruptcy Code and entered at or after a final hearing, in form and substance satisfactory to the Lender.

“Foreign Lender” means any Lender that is not a “United States person” within the meaning of Section 7701(a)(30) of the Code.

“GAAP” means, at a given time, United States generally accepted accounting principles, consistently applied.

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“Governmental Authority” means any federal, state, local, municipal, foreign, supranational or other governmental or quasi-governmental authority of any nature (including any governmental agency, branch, bureau, commission, department, official or entity and any court or other tribunal), or any administrative, executive, judicial, legislative, police, regulatory or taxing authority, or arbitral body.

“Guarantee” means, as to any Person, any (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness payable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness of the payment of such Indebtedness, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness, or (iv) entered into for the purpose of assur ing in any other manner the obligee in respect of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness of any other Person, whether or not such Indebtedness is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any Guarantee at any time shall be deemed to be an amount then equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.

“Guarantors” means, collectively, CPC Holding, Ceramic, PPIC, and PPNC each of which shall Guarantee the Obligations as set forth in the Orders.

“Hazardous Substances” means any wastes, pollutants, contaminants or chemicals, any industrial, toxic or otherwise hazardous materials, substances or wastes, any explosive or radioactive substances, and any other substance with respect to which Liability or standards of conduct may be imposed under applicable Law, including petroleum and petroleum related substances, products, by products and wastes, asbestos or asbestos containing materials, polychlorinated biphenyls, radon, urea, formaldehyde, mold, lead based paint, noise, odor and radiation.

“Indebtedness” means, without duplication, the aggregate amount of all obligations, liabilities and indebtedness of a Person which would be classified under GAAP as indebtedness for borrowed money upon the consolidated balance sheet of such Person, including without duplication, whether or not so classified, all long-term borrowings, the current portion of long-term borrowings, short-term borrowings, obligations under Capitalized Leases, obligations under any hedging agreement and all obligations, contingent or otherwise, of any of the foregoing arising from any Guarantee made by such Person in respect of any of the foregoing.

“Indemnified Taxes” means Taxes other than Excluded Taxes.

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“Indemnitee” has the meaning specified in Section 8.04.

“Intellectual Property” means all of the following in any jurisdiction throughout the world: (i) patents, patent applications and patent disclosures, together with all reissuances, continuations, continuations in part, revisions, divisionals, extensions and reexaminations thereof, (ii) trademarks, service marks, designs, trade dress, logos, slogans, trade names, internet domain names, corporate names, all applications, registrations and renewals in connection therewith, and all translations, adaptations, derivations and combinations of any of the foregoing, together with all goodwill associated with any of the foregoing, (iii) copyrights, mask works and copyrightable works, and all applications, registrations and renewals in connection therewith, (iv) trade secrets and confidential information (including formulations, ideas, research and development, information, know-how, inventio ns, technology, formulas, compositions, manufacturing and production processes and techniques, technical data, financial and marketing plans, customer and supplier lists and information, designs, drawings, plans, proposals and specifications), (v) computer software and systems (including source code, executable code, data, databases and related documentation), websites, URLs, email addresses, and telephone numbers, (vi) copies and tangible embodiments of any of the foregoing in whatever form or medium and (vii) other proprietary and intellectual property rights.

“Interest Payment Date” means the Maturity Date.

“Interest Period” means, with respect to (a) the Operating Loan, the period commencing on the Closing Date and ending on the applicable Maturity Date and (b) the Wind Down Loan, the period commencing on the funding of the Wind Down Loan and ending on the applicable Maturity Date.  Interest shall accrue from and including the first day of the Interest Period to but excluding the last day of the Interest Period.

“Interim Order” means the order of the Bankruptcy Court in the Cases in substantially the form attached hereto as Exhibit D authorizing and approving this Credit Agreement on an interim basis under Sections 364(c) and (d) of the Bankruptcy Code and entered at a preliminary hearing under Federal Rule of Bankruptcy Procedure 4001, in form and substance satisfactory to the Lender and the Borrower.

“Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests or debt of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person and any arrangement pursuant to which the investor incurs debt of the type referred to in the definition of “Indebtedness” set forth in this Section 1.01 in respect of such Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit of, or all of a substantial part of the business being conducted by, such Person. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

“Laws” means, collectively, all international, foreign, federal, state and local

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statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

“Lender” has the meaning specified in the introductory paragraph hereto.

“Lending Office” means the Lender’s address, as set out in Section 8.02 (as may be changed pursuant thereto) and, as appropriate, the account maintained by the Lender identified in writing by the Lender to the Borrower.

“Liability” means any obligation or liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether determined or determinable, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due and regardless of when asserted), including any liability for Taxes, product liability or infringement liability.

“Lien” means any mortgage, pledge, hypothecation, collateral assignment, deposit arrangement, encumbrance, lien (statutory or other) or charge or preference or priority over assets or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).

“Loans” means the Operating Loan and the Wind Down Loan and “Loan” means either of them.

“Loan Documents” means, collectively, this Agreement, the Collateral Documents and the Notice of Borrowing.

“Loan Parties” means, collectively, the Borrower and each Guarantor.

“Material Adverse Change” or “Material Adverse Effect” means, any event, change, condition or matter that, individually or in the aggregate is or could reasonably be expected to be materially adverse to, or materially impair the revenue or anticipated revenue of the Business or impairs the value of, the Business Assets or results in a material adverse effect or change in the operation, results of operations, condition (financial or otherwise) or prospects of the Business Assets or the Business, taken as a whole, or which materially impairs the ability of the Loan Parties to perform their obligations under the Agreement or any other Loan Document or has a material adverse effect on or prevents or materially delays the consummation of the transactions contemplated by the Loan Documents or impairs the rights or remedies of the Lender under any Loan Document.

“Material Customer” means the United States Marine Corps., Ibiley Manufacturing Corp. and Carter Enterprises LLC or any customer representing over ten percent (10%) of the aggregate revenue of the Loan Parties as of the date of determination.

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“Material Customer Termination Event” means any material contract with any Material Customer is terminated or amended in a manner that is materially adverse to the Loan Parties.

“Maturity Date” means the Operating Loan Maturity Date or the Wind Down Loan Maturity Date, as applicable.

“Maximum Rate” has the meaning specified in Section 8.07.

“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

“Net Cash Proceeds” means with respect to any Disposition by any Loan Party, or any Extraordinary Receipt received or paid to the account of any Loan Party, the sum of cash and Cash Equivalents received in connection with such transaction (including any cash or Cash Equivalents received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received), net of the out-of-pocket expenses incurred by any Loan Party in connection with such transaction.

“Notice of Borrowing” means a written request by the Borrower for an advance under the Operating Loan or the Wind Down Loan, as applicable, substantially in the form of Exhibit B.

“Obligations” means all Borrowings, advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to the Loans, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including all Loans, interest, fees, expenses, charges and disbursements. Without limiting the generality of the foregoing, the Obligations of the Loan Parties under the Loan Documents include (a) the obligation to pay principal, interest, charges, expenses, fees, attorneys’ fees and disbursements, indemnities and other amounts payable by any Loan Party under any Loan Document and (b) the obligation of any Loan Party to reimburse any amount in respect of any of obligation described in clause (a) that the Lender, in its sole discreti on, may elect to pay or advance on behalf of such Loan Party.  In no event shall the term “Obligations” include any obligations of the Loan Parties under the Prepetition Facility.

“Operating Loan” means advances to the Borrower pursuant to Notices of Borrowing in an aggregate amount not to exceed $665,000 in accordance with this Agreement, the Budget and the Orders.

“Operating Loan Maturity Date” means the earliest of (i) February 26, 2010, (ii) the date of the closing of a Sale, (iii) the effective date of a Plan of Reorganization, as specified in such plan or plans, (iv) the date of the acceleration of the Operating Loan pursuant to Section 7.02, or (v) the dismissal, or conversion of one or more of the Cases to Chapter 7 of the Bankruptcy Code, pursuant to Section 1112 of the Bankruptcy Code.

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“Orders” means the Interim Order, the Final DIP Order and, to the extent such relief is not incorporated into the Interim Order or the Final DIP Order, as applicable, the Cash Collateral Order.

“Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

“Other Taxes” means all present or future stamp or documentary Taxes or any other excise or property Taxes, charges or similar levies arising from any payment made under any Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to any Loan Document.

“PBGC” means the Pension Benefit Guaranty Corporation.

“Pension Funding Rules” shall mean the rules of the Code and ERISA regarding minimum required contributions (including any installment payment thereof) to Pension Plans and Multiemployer Plans and set forth in, with respect to plan years ending prior to the effective date as to any such Plan of the Pension Protection Act of 2006, Sections 401(a)(29) and 412 of the Code and Part 3, Subtitle I, of Title I of ERISA each as in effect prior to the Pension Protection Act of 2006 and, thereafter, Sections 412 and 430 through 436 of the Code and Part 3, Subtitle I, of Title I of ERISA each as in effect from time to time.

“Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by any Loan Party or any ERISA Affiliate or to which any Loan Party or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“Plan of Reorganization” means a plan of reorganization in respect of the Cases.

“PPIC” means Protective Products International Corp., a Florida corporation and debtor and debtor in possession.

“PPNC” means Protective Products of North Carolina LLC, a North Carolina limited liability company and debtor and debtor in possession.

“Prepetition Facility” means that certain Amended and Restated Credit

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Agreement (as amended, restated, supplemented or otherwise modified from time to time (including any forbearance agreements thereto)), dated as of January 30, 2009, among Borrower and Canadian Imperial Bank of Commerce, as agent and lender, and all documents, instruments and agreements (including, without limitation, all collateral and security documents) executed or delivered in connection therewith (as the credit agreement and each other document, instrument and agreement has been amended, waived, modified, supplemented or restated prior to the Filing Date).

“Prepetition Lender” means Canadian Imperial Bank of Commerce as lender and agent under the Prepetition Facility.

“Primed Liens” has the meaning assigned in the recitals hereto.

“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents, sub-agents, servicers, trustees, attorneys and advisors of such Person and of such Person’s Affiliates.

“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30-day notice period has been waived.

“Responsible Officer” means the chief executive officer, president, chief financial officer, treasurer or assistant treasurer or other officer or manager of any Loan Party.  Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any capital stock or other Equity Interest of a Loan Party or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, defeasance, acquisition, cancellation or termination of any such capital stock or other Equity Interest, or on account of any return of capital to a Loan Parties’ stockholders, partners or members (or the equivalent of any thereof) other than to another Loan Party, or on account of any option, warrant or other right to acquire any such dividend or other distribution or payment.

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto.

“Sale” means the sale of the Loan Parties’ assets pursuant to the Sale Order.

“Sale Order” means an order of the Bankruptcy Court authorizing the sale of substantially all of the assets of the Loan Parties to Sun Capital, or to a higher or better bidder pursuant to the Bid Procedures Order.

“SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

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“Stalking Horse Bid” means the asset purchase agreement among Sun Capital and the Loan Parties for the purchase and sale of substantially all of the Loan Parties’ assets, subject to entry of the Sale Order, or such other asset purchase agreement between the Loan Parties and a qualified third party entered into in accordance with the Bid Procedures Order and this Agreement.

“Sun Capital” means Protective Products Enterprises, Inc. or any Affiliate thereof submitting a Stalking Horse Bid.

“Superpriority Claim” means a claim under Section 364(c)(1) of the Bankruptcy Code against Borrower or any Guarantor in any of the Cases which is an administrative expense claim having priority over any or all administrative expenses, including, without limitation, administrative expenses of the kind specified in Sections 503(b), 506(c) or 507(b) of the Bankruptcy Code.

“Tax” and, with correlative meaning, “Taxes” mean with respect to any Person (i) all federal, state, local, county, foreign and other taxes, assessments or other government charges, including any income, alternative or add-on minimum tax, estimated, gross income, gross receipts, sales, use, ad valorem, value added, transfer, capital stock, franchise, profits, license, registration, recording, documentary, intangibles, conveyancing, gains, withholding, payroll, employment, social security (or similar), unemployment, disability, excise, severance, stamp, occupation, premium, property (real and personal), environmental or windfall profit tax, customs duty or other tax, governmental fee or other like assessment, charge or tax of any kind whatsoever, together with any interest, penalty, addition to tax or additional amount imposed by any Governmental Authori ty (domestic or foreign) responsible for the imposition of any such tax, whether such Tax is disputed or not, (ii) Liability for the payment of any amounts of the type described in clause (i) above relating to any other Person as a result of being party to any agreement to indemnify such other Person, being a successor or transferee of such other Person, or being a member of the same affiliated, consolidated, combined, unitary or other group with such other Person, or (iii) Liability for the payment of any amounts of the type described in clause (i) arising as a result of being (or ceasing to be) a member of any Affiliated Group (or being included (or required to be included) in any Tax Return relating thereto).

“Tax Refunds” means the income tax refunds of the Loan Parties for the year ended December 31, 2006 (or any earlier or later period) from the United States Department of Treasury in connection with the Loan Parties’ 2006 or 2007 form 1120X filings (or filings for any earlier or later period) as same may be adjusted from time to time, which income tax refunds are expected to be in the approximate aggregate amount of not less than $3,080,000, plus accrued interest thereon, and any other Tax refunds payable to the Loan Parties.

“Threshold Amount” means $100,000.

“Transaction” means the execution, delivery and performance by the Loan Parties of this Agreement and the other Loan Documents to which they may be a party, the creation of the Liens in the Collateral in favor of the Lender, the borrowing of the Loans and the use of the proceeds thereof.

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“UCC” means the Uniform Commercial Code then in effect in each applicable jurisdiction.

“Unaccrued Indemnity Claims” means claims for indemnification that may be asserted by the Lender or any other Indemnitee under the Loan Documents that are unaccrued and contingent.

“United States” and “U.S.” mean the United States of America.

“UST” means the United States Trustee appointed to serve in the Cases.

“Variance Report” has the meaning specified in Section 5.01(b).

“Wind Down Loan” means an advance to the Borrower pursuant to a Notice of Borrowing in an amount not to exceed $75,000 to be used to pay expenses of the administration of the Cases incurred after the closing of the Sale.

“Wind Down Loan Maturity Date” means the earliest of (i) March 31, 2010, (ii) the date of the receipt by Borrowers of the Tax Refunds, (iii) the effective date of a Plan of Reorganization, as specified in such plan or plans, (iv) the date of the acceleration of the Wind Down Loan pursuant to Section 7.02, or (v) the dismissal, or conversion of one or more of the Cases to Chapter 7 of the Bankruptcy Code, pursuant to Section 1112 of the Bankruptcy Code.

1.02

Other Interpretive Provisions.  With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

(a)

The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.”  The word “or” is not exclusive.  The word “will” shall be construed to have the same meaning and effect as the word “shall.”  Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendme nts, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “herein,” “hereof” and “hereunder,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words “asset” and & #147;property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

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(b)

In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”

(c)

Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

1.03

Accounting Terms.

(a)

Generally.  All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, except as otherwise specifically prescribed herein.

(b)

Changes in GAAP.  If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Loan Party or the Lender shall so request, the Lender and the Loan Party shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Lender); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Loan Party shall provide to the Lender financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

1.04

Rounding.  Any financial ratios required to be maintained by the Loan Party pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

1.05

Times Of Day.  Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).

ARTICLE II
THE LOANS

2.01

The Loans.

(a)

Subject to the terms and conditions of this Agreement, and during the term of this Agreement, the Lender agrees to make the Loans to the Borrower pursuant to Notices of Borrowing as follows: (i) the first Notice of Borrowing shall be in an amount not to exceed the amount of the Operating Loan authorized to be available to the Borrower pursuant to the Interim Order, (ii) the second Notice of Borrowing shall be in an amount not to exceed the unfunded portion of the Operating Loan, if any, authorized to be available to the Borrower pursuant to the Final Order, and (iii) the third Notice of Borrowing shall be in an amount not to

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exceed the amount of the Wind Down Loan; provided that under no circumstance shall Lender be required to advance to the Borrower pursuant to Notices of Borrowing an aggregate amount greater than the sum of the principal amounts of the Operating Loan and Wind Down Loan.

(b)

Amounts borrowed pursuant to this Section 2.01 that are repaid subject to the terms and conditions of this Agreement may not be reborrowed at any time during the term of this Agreement.

(c)

Notwithstanding anything to the contrary contained in this Agreement, the Lender shall not be required to advance the Wind Down Loan to the Borrower if (i) the amount of the proceeds realized from the sale of assets pursuant to the Sale Order equal or exceed the aggregate of (x) the amount necessary to repay all Obligations arising under the Operating Loan, (y) the then outstanding amount owed in respect of the Prepetition Facility, and (z) $75,000, or (ii) the Loan Parties have received the Tax Refunds, and in each case of (i) or (ii), the Commitment shall be terminated.

2.02

Borrowing of the Loans.  Advances under the Loans shall be made upon the Borrower’s irrevocable notice to the Lender pursuant to a written Notice of Borrowing, delivered not later than 1:00 p.m. on the Business Day prior to the requested date for the funding of Loans.  The Notice of Borrowing shall be appropriately completed and signed by a Responsible Officer of the Borrower.

2.03

Prepayments

(a)

Optional.  The Borrower may, upon notice to the Lender at any time or from time to time, voluntarily prepay the Loans in whole or in part without premium or penalty; provided that (A) such notice must be received by the Lender not later than 1:00 p.m. one Business Day prior to any date of prepayment of the Loans; and (B) any partial prepayment shall be in a principal amount of $50,000 or a whole multiple of $50,000 in excess thereof or, if less, the entire principal amount thereof then outstanding.  Each such notice shall specify the date and amount of such prepayment.  If such notice is given by the Borrower, the Borrower shall make such prepayment, the payment amount specified in such notice shall be due and payable on the date specified therein and each such prepayment shall be paid to the Lender.  Any repayment may not be re-borrowed.

(b)

Mandatory.

(i)

If any Loan Party Disposes of any Collateral (other than any Disposition of any Collateral permitted by Section 6.05 (b), (c), (d), (f), (g) or (h), the Borrower shall within one Business Day after receiving such proceeds prepay an aggregate principal amount of the Loans equal to 100% of such Net Cash Proceeds.

(ii)

Upon any Extraordinary Receipt received by or paid to or for the account of any Loan Party, and not otherwise included in clause (i) of this Section 2.03(b), the Borrower shall prepay an aggregate principal amount of the Loans equal to 100% of all Net Cash Proceeds received therefrom within one Business Day upon receipt thereof by any Loan Party.  Notwithstanding anything contained herein, the Loans shall

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be automatically and permanently reduced by the amount of any prepayments made or required to be made under this Section 2.03(b).

(iii)

Each prepayment of the Loans pursuant to this Section 2.03(b) shall be applied as follows: first, to reimburse the Lender for any reasonable costs and expenses incurred by it (including reasonable legal fees and expenses), and second, shall be applied to prepay the Loans outstanding at such time until the Loans and the Obligations (other than Unaccrued Indemnity Claims) are paid in full, the amount remaining, if any, after the prepayment in full of the Loans and Obligations may be retained by the Borrower for use in the ordinary course of its business, subject to the Orders, any other order of the Bankruptcy Court, the Bankruptcy Code and other applicable Laws.

2.04

Repayment of the Loans.  The Borrower shall repay to the Lender on the applicable Maturity Date the principal amount of the Operating Loan and Wind Down Loan, all interest accrued thereon, together with all other Obligations (other than Unaccrued Indemnity Claims) outstanding on such date.

2.05

Interest.

(a)

Subject to the provisions of subsection (b) below, the Loans shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to 14.0 %.

(b)

(i)

If any amount payable by any Loan Party under any Loan Document is not paid when due (with regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then such amount shall thereafter bear interest at the Default Rate to the fullest extent permitted by applicable Laws.

(ii)

Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.

(c)

Interest on the Loans shall be due and payable in arrears on the Maturity Date applicable thereto.  Interest hereunder shall be due and payable in accordance with the terms hereof.

2.06

Fees and Expenses.  (a)  On the Closing Date, the Borrower shall pay to the Lender from the proceeds of the initial Borrowing of the Operating Loan a commitment fee equal to 5.0 % of the amount of the Commitment.

(b)

Exit Fee.  The Borrower shall pay to the Lender an exit fee equal to 1.0 % of the Operating Loan or Wind Down Loan, as applicable, which exit fee shall be fully earned upon the Closing Date.

(c)

Expenses.  On the Closing Date, the Borrower shall pay to the Lender from the proceeds of the initial Borrowing of the Operating Loan all then accrued fees and expenses of the Lender arising under or relating to this Agreement, the Loan Documents and

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the Transaction (including the reasonable and documented fees and expenses of Blake, Cassels & Graydon LLP and Shutts & Bowen LLP).

2.07

Computation Of Interest And Fees.  All computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed.  Interest shall accrue on any Loan for the day on which the Loan is made, and shall not accrue on such Loan, or any portion thereof, for the day on which the Loan or such portion is paid; provided that such Loan that is repaid on the same day on which it is made shall bear interest for one day.  Each determination by the Lender of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.

2.08

Evidence Of Indebtedness.  

(a)

Any Loan made to the Borrower by the Lender shall be evidenced by one or more accounts or records maintained by the Lender in the ordinary course of business.  The accounts or records maintained by the Lender shall be conclusive absent manifest error of the amount of such Loan made by the Lender to the Borrower and the interest and payments thereon.  Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations.

2.09

Payments

(a)

Generally.  All payments to be made by the Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff.  All payments by the Borrower hereunder shall be made to the Lender, at the Lender’s Lending Office in Dollars and in immediately available funds not later than 1:00 p.m. on the date specified herein.  All payments received by the Lender after 1:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue.

(b)

Authorization.  The Borrower hereby authorizes the Lender, if and to the extent payment owed to the Lender is not made when due hereunder to charge from time to time against any or all of the Borrower’s accounts with the Lender any amount so due. The Borrower hereby authorizes the Lender, from time to time without prior notice to the Borrower, to add all interest and fees (when due and payable), all fees and expenses required to be reimbursed by the Borrower under this Agreement and the other Loan Documents (as and when incurred), and all other payments as and when due and payable under any Loan Document, to the Loans, which amounts thereafter shall be included within the Loans and shall accrue interest at the rate then applicable to the Loans.

(c)

Insufficient Payment.  Whenever any payment received by the Lender under this Agreement or any of the other Loan Documents is insufficient to pay in full all amounts due and payable to the Lender under or in respect of this Agreement and the other Loan Documents on any date, such payment shall be applied by the Lender in the order of priority set forth in Section 8.03.

2.10

Security and Superpriority Claim.  Upon entry of the Interim Order or the Final DIP Order, whichever is then in effect, as security for the prompt payment and

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performance of all Obligations of the Loan Parties, the Loan Parties have granted, in accordance with the provisions of the Collateral Documents and the Interim Order or the Final DIP Order, whichever is then in effect, and Lender shall have, a security interest in all of the right, title and interest of the Loan Parties in and to all of the Collateral.  This Agreement shall constitute a security agreement under the UCC.  Additionally, upon entry of the Interim Order or the Final DIP Order, whichever is then in effect, the Lender shall have a Superpriority Claim for repayment of the Obligations.  In the event and to the extent that the provisions of this Section 2.10 shall conflict with what is set forth in the Orders, the Orders shall govern.

ARTICLE III
TAXES AND YIELD PROTECTION

3.01

Taxes.

(a)

Any and all payments by or on account of any obligation of the Loan Parties hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required by applicable law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Loan Parties shall make such deductions and (iii) the Loan Parties shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

(b)

Payment of Taxes By The Loan Parties.  Without limiting the provisions of subsection (a) above, the Loan Parties shall timely pay any Indemnified or Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(c)

Indemnification By The Borrower.  The Borrower shall indemnify the Lender, within 10 days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 3.01) paid by the Lender, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  A certificate as to the amount of such payment or liability delivered to the Borrower by Lender shall be conclusive absent manifest error.

(d)

Evidence of Payments.  As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Loan Parties to a Governmental Authority, the Loan Parties shall deliver to the Lender the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Lender.

(e)

Status of Lender.  To the extent that the Lender is a Foreign Lender that is entitled to an exemption from or reduction of withholding Tax under the law of the jurisdiction in which the Borrower is resident for Tax purposes, any treaty to which such

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jurisdiction is a party, or the Bankruptcy Code with respect to payments hereunder or under any other Loan Document, such payments shall be made without withholding or at a reduced rate of withholding.

(f)

Compensation For Losses.  Upon demand of the Lender from time to time, the Borrower shall promptly compensate the Lender for and hold the Lender harmless from any loss, cost or expense incurred by it as a result of any failure by the Borrower (for a reason other than the failure of the Lender to make any Loan) to prepay or borrow the Loans on the date or in the amount notified by the Borrower; including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain the Loans or from fees payable to terminate the deposits from which such funds were obtained.

3.02

Survival.  This Article III shall survive repayment of all Obligations hereunder.

ARTICLE IV
CONDITIONS PRECEDENT TO LOANS

4.01

Conditions Of Initial Borrowing.  The obligation of the Lender to fund the initial Borrowing of the Operating Loan to the Borrower is subject to satisfaction, or waiver in accordance with Section 8.03, of the following conditions precedent:

(a)

The Lender shall have received each of the following, each of which shall be originals or telecopies (followed promptly by originals), each dated on or as of a recent date prior to the Closing Date, each in form and substance satisfactory to the Lender and in such number of copies as may be requested by the Lender:

(i)

duly executed counterparts of this Agreement;

(ii)

such duly executed certificates of resolutions or consents, incumbency certificates and/or other duly executed certificates of Responsible Officers of each Loan Party as the Lender may reasonably require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party or is to be a party;

(iii)

such documents and duly executed certifications as the Lender may reasonably require to evidence that each Loan Party is duly organized or formed, and that each Loan Party is validly existing and in good standing in the jurisdiction where it is formed;

(iv)

a certificate signed by a Responsible Officer of the Borrower certifying (A) that the conditions specified in Section 4.01 have been satisfied and (B) since December 29, 2009, there has been no change, event, circumstance or development that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect upon the Loan Parties, excluding their respective petitions for bankruptcy protection;

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(v)

the Budget; and

(vi)

a Notice of Borrowing relating to the Loan;

(b)

The Closing Date shall have occurred on or before January 20, 2010;

(c)

All governmental authorizations and all third party consents and approvals necessary in connection with the Transaction and the other transactions contemplated thereby shall have been obtained (without the imposition of any conditions that are not reasonably acceptable to the Lender) and shall remain in effect; all applicable governmental filings shall have been made and all applicable waiting periods in connection with the Transaction shall have expired without, in either case, any action being taken by any Governmental Authority, and no Law or regulation shall be applicable in the reasonable judgment of the Lender that restrains, prevents or imposes materially adverse conditions upon the Transaction or the other transactions contemplated thereby or the rights of the Loan Parties freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired b y any of them;

(d)

The Interim Order and Cash Collateral Order shall have been entered by the Bankruptcy Court, shall be in full force and effect and shall not have been amended, modified, stayed or reversed, without the prior written consent of the Lender;

(e)

All of the “first day orders” and related orders submitted on or about the date of the commencement of the Cases shall be in form and substance reasonably satisfactory to the Lender and, as entered, shall not deviate from the form thereof approved by the Lender in any material respect which is adverse to the interests of the Lender (such orders hereinafter being referred to as “First Day Orders”);

(f)

The Lender shall have determined in its reasonable discretion that there has not occurred since December 29, 2009 any change, event, circumstance or development that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect, exclusive of the commencement of the Cases;

(g)

The Lender shall have been given access to all information it reasonably requests related to the Loan Parties, their business, customers, assets, liabilities, operations, financial condition and prospects (other than attorney-client privileged information) and the Loan Parties shall have made their advisors and senior management available to the Lender to discuss the same as the Lender may reasonably request;

(h)

The Loan Parties shall have received and, subject to Bankruptcy Court approval, accepted a Stalking Horse Bid in form and substance satisfactory to the Lender, to purchase all or substantially all of the assets and businesses of the Loan Parties, which bid provides for a purchase price consideration payable in cash in an amount not less than $8,000,000 with the closing of such transaction to occur on or before February 26, 2010;

(i)

There shall have been an order entered in the Cases, in form and substance satisfactory to the Lender, designating Sun Capital as the “stalking-horse” bidder to

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purchase all or substantially all of the Loan Parties’ assets or businesses, pursuant to the asset purchase agreement dated as of January 13, 2010, which order (i) approves auction and sale procedures for the sale of such assets or businesses for a purchase price consideration payable in cash in an amount sufficient to repay in full all Obligations and all obligations owing under the Prepetition Facility, and (ii) provides that the hearing to approve such sale shall occur on or before February 19, 2010 (the “Bid Procedures Order”);

(j)

There shall have been no amendment or revocation by any Loan Party of any of the Tax Refund documents and powers of attorney delivered by the Loan Parties to the Prepetition Lender and no Loan Party shall have taken any steps to do any of the foregoing;

(k)

The Orders shall contain a provision, in form and substance satisfactory to the Lender and the Prepetition Lender, providing for the payment of the Tax Refund to the Lender and the Prepetition Lender, to be applied against the Obligations and the obligations owing under the Prepetition Facility in accordance with this Agreement or as such parties may otherwise agree;

4.02

Conditions To All Borrowings.  In addition to the conditions set out in Section 4.01, the obligation of the Lender to fund any Borrowing to the Borrower under the DIP Credit Facility including the initial Borrowing of the Operating Loan is subject to satisfaction, or waiver in accordance with Section 8.03, of the following conditions precedent:

(a)

The representations and warranties of the Loan Parties contained in any Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct in all material respects (provided that if any representation or warranty already includes a materiality or material adverse effect qualifier, such representation or warranty shall be true and correct in all respects) on and as of the date of such Borrowing, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct in all material respects (provided that if any representation or warranty already includes a materiality or material adverse effect qualifier, such representation or warranty shall be true and correct in all respects) as of such earlier date;

(b)

As of the date of the Loan, no Default or Event of Default has occurred and is continuing, or would result from such proposed Borrowing or from the application of the proceeds therefrom;

(c)

The Lender shall have received a Notice of Borrowing; and

(d)

The Interim Order, Final DIP Order and/or Cash Collateral Order, as applicable, shall be in full force and effect and shall not have been amended, modified, stayed or reversed without the prior written consent of the Lender or the Prepetition Lender, as applicable.

4.03

Condition To The Wind Down Loan.  In addition to the conditions set out in Sections 4.01 and 4.02, the obligation of the Lender to fund any Borrowing to the Borrower under the Wind Down Loan is subject to satisfaction, or waiver in accordance with Section 8.03,

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of the condition that the Sale authorized by the Sale Order shall have closed and all Obligations relating to the Operating Loan shall have been paid in full.

ARTICLE V
AFFIRMATIVE COVENANTS

So long as the Lender shall have any Commitment hereunder or any Loan or other Obligation hereunder which is accrued and payable shall remain unpaid or unsatisfied each Loan Party shall:

5.01

Statements.  Deliver to the Lender, in form reasonably satisfactory to the Lender:

(a)

within 15 days after the end of each fiscal month commencing with the fiscal month ending January 31, 2010, an updated monthly operating report in the form required to be filed with the Bankruptcy Court pursuant to the Bankruptcy Rules and certified by a Responsible Officer in accordance with the requirements of the Bankruptcy Code and the Bankruptcy Rules;

(b)

not later than Wednesday of each week (or if such day is not a Business Day, the next succeeding Business Day), a variance report, in form and substance satisfactory to the Lender (a “Variance Report”) setting forth (i) actual cash receipts, (ii) actual disbursements, and (iii) a reconciliation of all cash on deposit (including all outstanding items), in each case for the calendar week period most recently ended prior to the date when such Variance Report is due, setting forth all variances from the correlated line item and period set forth in the Budget.  Each Variance Report shall  be certified by the Responsible Officer as being prepared in good faith and fairly presenting in all material respects the information set forth therein;

(c)

within 5 days of receipt, copies of any requests by professionals for payment of fees and/or expenses under any interim compensation or similar procedures; and

(d)

promptly after the same is available, copies of all pleadings, motions, applications, judicial information, financial information and other documents filed by or on behalf of a Loan Party with the Bankruptcy Court in the Cases, or distributed by or on behalf of a Loan Party to any official committee appointed in the Cases.

As to any information contained in materials furnished pursuant to Section 5.01, the Borrower shall not be separately required to furnish such information under Section 5.02.

5.02

Certificates; Other Information.  Deliver to the Lender, in form satisfactory to the Lender:

(a)

concurrently with the delivery of the financial statements referred to in Section 5.01(a), a duly completed Compliance Certificate signed by a Responsible Officer of the Borrower;

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(b)

promptly after any written request by the Lender, copies of any detailed audit reports, final management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of any Loan Party by independent accountants in connection with the accounts or books of any Loan Party, or any audit of any of them;

(c)

promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of any Loan Party, and copies of all annual, regular, periodic and special reports and registration statements which any Loan Party may file or be required to file with the SEC under Section 13 or 15(d) of the Exchange Act, or with any Governmental Authority, or with any national securities exchange, and in any case not otherwise required to be delivered to the Lender pursuant hereto;

(d)

promptly after the furnishing thereof, copies of any statement or report furnished to any holder of debt securities of any Loan Party pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lender pursuant to any other clause of this Section 5.02;

(e)

promptly and in any event within three Business Days, notice of (i) any Material Customer Termination Event and (ii) if the same involves any substantial likelihood of having a Material Adverse Effect, any significant adverse change in any Loan Party’s relationship with, or any significant event or circumstance which is likely to adversely affect any Loan Party’s relationship with, any customer (or related group of customers), or any supplier which, in either case, is material to the operations of any Loan Party;

(f)

promptly and in any event within five Business Days after receipt thereof by any Loan Party, copies of each notice or other correspondence received from the SEC (or comparable agency in any applicable non-U.S. jurisdiction) concerning any investigation or possible investigation or other inquiry by such agency regarding financial or other operational results of any Loan Party;

(g)

promptly upon receipt thereof, copies of all notices, requests and other documents received by any Loan Party under or pursuant to any instrument, indenture, or loan or credit or similar agreement, in respect of Indebtedness having an aggregate principal amount in excess of the Threshold Amount;

(h)

promptly after the assertion or occurrence thereof, notice of any Environmental Liability of or any noncompliance by any Loan Party with any Environmental Law or Environmental Permit that could (i) exceed the Threshold Amount or (ii) cause any property to be subject to any material restrictions on ownership, occupancy, use or transferability under any Environmental Laws;

(i)

promptly after the assertion or occurrence thereof, notice of any action or claim or threatened action or claim by any Person against any Loan Party relating to any Intellectual Property of any Loan Party, or of any infringement of the Company Intellectual Property, or of any termination or revocation of, or default under, any license agreement.

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(j)

promptly after the receipt thereof, copies of all Revenue Agent Reports (Internal Revenue Service Form 886), or other written proposals of the Internal Revenue Service, that propose, determine or otherwise set forth positive adjustments to the federal income Tax liability of the affiliated group (within the meaning of Section 1504(a)(1) of the Code) of which the Borrower is a member aggregating $100,000 or more; and

(k)

promptly, such additional non-privileged information regarding the business, financial, legal or corporate affairs (including, without limitation, customers, assets, liabilities, operations, financial condition and prospects (other than attorney-client privileged information)) of a Loan Party, or compliance with the terms of the Loan Documents, as the Lender may from time to time reasonably request in writing.

5.03

Notices.  Promptly notify the Lender (in each case, in any event within two (2) Business Days after the Loan Party obtains knowledge thereof):

(a)

of the occurrence of any Default or Event of Default;

(b)

of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect;

(c)

of the occurrence of any ERISA Event;

(d)

of any material change in accounting policies or financial reporting practices by any Loan Party;

(e)

of the occurrence of any Disposition of property or assets, or receipt of any Extraordinary Receipt, for which the Borrower is required to make a mandatory repayment pursuant to Section 2.03(b)(iii); and

(f)

of any material setoff, claims (including with respect to any Environmental Liability), withholdings or other defenses to which any of the Collateral, or any of the Lender’s rights with respect to the Collateral, in any material respect, are subject.

Each notice pursuant to Sections 5.03(a) through (f) shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the Borrower has taken and proposes to take with respect thereto.  Each notice pursuant to Section 5.03(a) shall describe with particularity the nature of the Default or Event of Default any and all provisions of this Agreement and any other Loan Document that have been breached.

5.04

Preservation Of Existence; Business, Etc.  (a) Preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization; (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; (c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect; and

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(d) maintain and operate its business in substantially the manner in which it was conducted and operated as of the Filing Date, except as necessary to comply with the Bankruptcy Code.

5.05

Maintenance Of Properties.  Maintain, preserve, protect and repair all of its material properties and equipment necessary in the operation of its business so that same are in good working order and condition, ordinary wear and tear excepted.

5.06

Maintenance Of Insurance.  Maintain with financially sound and reputable insurance companies, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by the Loan Party consistent with its historical practice and use commercially reasonable efforts to cause such insurance companies to agree to provide for not less than 30 days’ prior notice to the Lender of termination, lapse or cancellation of such insurance.

5.07

Compliance With Laws.  Comply in all material respects with the requirements of all Laws applicable to it or its business or property and all orders, writs, injunctions and decrees binding on it or its business or property, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; (b) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect; (c) Borrower has disclosed in writing such non-compliance to the Prepetition Lender in connection with the Prepetition Facility; or (d) Borrower has disclosed such non-compliance by filing written notice thereof with the SEC.

5.08

Books and Records.  (a) Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of the financial transactions and matters involving the assets and business of the Loan Party; and (b) maintain such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over the Loan Party.

5.09

Inspection Rights.  Permit representatives and independent contractors of the Lender to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, managers, and independent public accountants and advisors (at which an authorized representative of the Loan Party shall be entitled to be present), all at the expense of the Borrower and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Loan Party; provided, however, that during the continuance of an Event of Default, the Lender (or any of their respective representatives or independent contractors) may do any of the foregoing at the reasonable expense of the Borrower (provided that it has b een supplied with reasonable backup documentation) at any time during normal business hours and without advance notice.

5.10

Use Of Proceeds; Maximum Cash-On-Hand.  Use the proceeds of the Borrowings (i) to pay related fees and expenses associated with negotiation, execution and delivery of this Agreement and the other Loan Documents, (ii) for working capital and other general corporate purposes of the Borrower and the Guarantors consistent with the Budget and to the extent not prohibited hereunder, (iii) to pay fees and expenses of the Loan Parties’ advisors

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and the advisors to any official committee, in each case associated with the Cases subject to the restrictions thereon set forth in the Orders and requirements of the Bankruptcy Code, (iv) to make other payments permitted to be made in the Orders or in the First Day Orders, and (v) to make such other payments as are authorized by the Bankruptcy Court and approved by the Lender.

5.11

Compliance With Environmental Laws.  Comply, and cause all lessees and other Persons operating or occupying its properties to comply, in all material respects, with all applicable Environmental Laws and Environmental Permits; obtain and renew all Environmental Permits necessary for its operations and properties; and conduct any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action required under Environmental Laws.

5.12

Further Assurances.  Promptly upon request by the Lender, (i) correct any material defect or error in the execution, acknowledgment, filing or recordation of any Loan Document, and (ii) execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further deeds, certificates, assurances and other instruments as the Lender may reasonably require from time to time in order to (A) carry out more effectively the purposes of the Loan Documents and the Orders, (B) to the fullest extent permitted by applicable law, subject any Loan Party’s properties, assets, rights or interests now or hereafter intended to be covered by any of the Collateral Documents to the Liens of the Collateral Documents and Orders, (C) perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and any of the Liens intended to be crea ted thereunder and (D) assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively unto the Lender the rights and Liens granted or now or hereafter intended to be granted to the Lender under the Orders, any Loan Document, or under any other instrument executed in connection with any Loan Document to which any Loan Party is or is to be a party.

5.13

Compliance With Terms Of Leaseholds.  Make all material post-petition payments and otherwise perform all material post-petition obligations in respect of all leases of real property to which any Loan Party is a party, as may be required pursuant to Section 365 of the Bankruptcy Code.

ARTICLE VI
NEGATIVE COVENANTS

So long as the Lender shall have any Commitment hereunder, or any Loan or other Obligation hereunder which is accrued and payable shall remain unpaid or unsatisfied, each of the Loan Parties shall not directly or indirectly:

6.01

Liens.  Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, or sign or file or suffer to exist under the Uniform Commercial Code of any jurisdiction a financing statement that names the Borrower or any Loan Party as debtor, or sign or suffer to exist any security agreement authorizing any secured party thereunder to file such financing statement, or assign any accounts or other right to receive income, other than, the following:

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(a)

Liens pursuant to any Loan Document and the Orders;

(b)

the Primed Liens;

(c)

Lien existing on the date hereof in favor of US Bancorp in respect of specific equipment;

(d)

Liens for Taxes not yet due or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;

(e)

landlords’, carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business which, to the extent not subject to Section 362 of the Bankruptcy Code, are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person;

(f)

pledges or deposits in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security legislation, other than any Lien imposed by ERISA;

(g)

deposits to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety bonds (other than bonds related to judgments or litigation), performance bonds and other obligations of a like nature incurred or arising in the ordinary course of business;

(h)

Liens securing judgments for the payment of money not constituting an Event of Default under Section 7.01 or securing appeal or other surety bonds related to such judgments;

(i)

Liens securing Indebtedness permitted under Section 6.03(e); provided that (i) such Liens do not at any time encumber any property other than the property financed by such Indebtedness, (ii) the Indebtedness secured thereby does not exceed the cost of the property being acquired on the date of acquisition and (iii) with respect to Capitalized Leases, such Liens do not at any time extend to or cover any Collateral or assets other than the assets subject to such Capitalized Leases;

(j)

banker’s liens, rights of setoff and other similar Liens in favor of depository institutions existing solely with respect to cash and Cash Equivalents on deposit in one or more accounts maintained by the Loan Parties;

(k)

any interest or title of a licensor, sublicensor, lessor or sublessor with respect to any assets under any license or lease agreement entered into in the ordinary course of business;

(l)

licenses, sublicenses, leases or subleases with respect to any assets granted to third Persons in the ordinary course of business; provided that the same (i) do not in

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any material respect interfere with the business of the Borrower or the Loan Parties or materially detract from the value of the relative assets of the Borrower or the Loan Parties;

(m)

Liens which arise under Article 4 of the Uniform Commercial Code in any applicable jurisdictions on items in collection and documents and proceeds related thereto; and

(n)

precautionary filings of financing statements under the Uniform Commercial Code of any applicable jurisdictions in respect of operating leases or consignments entered into by the Loan Parties in the ordinary course of business.

6.02

Indebtedness.  Create, incur, assume or suffer to exist any Indebtedness, except:

(a)

Indebtedness under the Loan Documents;

(b)

Indebtedness under the Prepetition Facility;

(c)

Indebtedness for Carve-Out Expenses;

(d)

Guarantees in respect of Indebtedness otherwise permitted hereunder;

(e)

Indebtedness in respect of Capitalized Leases and purchase money obligations for fixed or capital assets existing on the Filing Date and not to exceed the amount of such Indebtedness on the Filing Date; and

(f)

other Indebtedness outstanding on the Filing Date and not to exceed the amount of such Indebtedness on the Filing Date.

6.03

Investments.  Make or hold any Investments, except:

(a)

Investments held by the Loan Party in the form of cash or Cash Equivalents;

(b)

advances to officers, directors and employees of the Loan Parties in an aggregate amount not to exceed $20,000 at any time outstanding, for travel, entertainment, and analogous ordinary business purposes to the extent consistent with the Budget;

(c)

Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss;

(d)

Guarantees permitted by Section 6.02(d);

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(e)

other Investments existing on the Filing Date and not to exceed the amount of such Investments on the Filing Date; and

(f)

prepaid expenses or lease, utility and other similar deposits, in each case made in the ordinary course of business and to the extent provided for in the Budget.

6.04

Fundamental Changes.  Without the consent of the Lender, merge, dissolve, liquidate, consolidate with or into another Person, or Dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except as contemplated by the Sale Order.

6.05

Dispositions.  Without the consent of the Lender and except as permitted or contemplated by the Sale Order, make any Disposition or enter into any agreement to make any Disposition, except:

(a)

Dispositions of obsolete or worn out property or property no longer used or useful in the business of the Loan Parties, whether now or hereafter owned or leased, in the ordinary course of business of such Loan Party;

(b)

Dispositions of inventory in the ordinary course of business;

(c)

Dispositions of equipment, software or real property to the extent that (i) such property is exchanged for credit against the purchase price of similar replacement property or (ii) the proceeds of such Disposition are reasonably promptly applied to the purchase price of such replacement property;

(d)

the licensing of intellectual property to third Persons other than an Affiliate on customary terms in the ordinary course of business;

(e)

the sale, lease, sub-lease, license, sub-license or consignment of personal property of the Loan Parties in the ordinary course of business;

(f)

the settlement or write-off of accounts receivable or sale of overdue accounts receivable for collection in the ordinary course of business consistent with past practice;

(g)

sale, exchange or other disposition of cash and Cash Equivalents in the ordinary course of business in accordance with the Budget;

(h)

Dispositions by the Loan Parties not otherwise permitted under this Section 6.05; provided that (i) at the time of such Disposition, no Default shall exist or would result from such Disposition, (ii) the aggregate book value of all property Disposed of in reliance on this clause (h) shall not exceed $50,000 and (iii) 100% of the purchase price for such asset shall be paid to the Loan Parties in cash; and

provided, however, that any Disposition pursuant to Section 6.05(a) through Section 6.05(h) shall be for fair market value.

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6.06

Restricted Payments.  Declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, or issue or sell any Equity Interests or accept any capital contributions.

6.07

Change in Nature of Business.  Engage in any line of business different from the lines of business currently conducted by such Loan Party on the Filing Date.

6.08

Transactions With Affiliates.  Enter into, amend, waive or terminate any transaction of any kind with any Affiliate, whether or not in the ordinary course of business, unless such act is done on fair and reasonable terms substantially as favorable to the Loan Party as would be obtainable by the Loan Party in a comparable arm’s length transaction with a Person other than an Affiliate; provided that the foregoing restriction shall not apply to (a) transactions between or among the Borrower and any of the Loan Parties or between and among any Loan Parties and (b) transactions, arrangements, fees reimbursements and indemnities specifically and expressly permitted between or among such parties under this Agreement.

6.09

Burdensome Agreements.  Enter into or permit to exist any Contractual Obligation (other than this Agreement, any other Loan Document, and the loan documents under the Prepetition Facility) that conflicts with the provisions of this Agreement or the Loan Documents.

6.10

Budget Compliance.  Except as authorized in writing by the Lender, permit the cumulative total of actual disbursements for any line item in the Budget as of the end of any weekly period to be more than 110% of the cumulative total disbursements projected in the Budget for such line item through the end of such weekly period.

6.11

Amendments Of Organization Documents.  Amend any of its Organization Documents in a manner that would be adverse to the rights or interests of the Lender.

6.12

Accounting Changes.  Make any change in (i) its accounting policies or reporting practices in a manner that could materially affect the results of computation of any financial ratio or data for a given reporting period, except (x) as required by generally accepted accounting principles, (y) as required for compliance with the Sarbanes-Oxley Act or (z) as pre-approved by the Lender, or (ii) its fiscal year.

6.13

Partnerships, Etc.  Become a general partner in any general or limited partnership or joint venture.

6.14

Speculative Transactions.  Engage in any transaction involving commodity options or futures contracts for speculative purposes or any similar speculative transactions, which are, in any case, inconsistent with prior practice and not otherwise made in the ordinary course of business.

6.15

Formation Of Subsidiaries.  Organize or invest in any new Subsidiary.

6.16

Other Action.  Take or omit to take any action that would result in a breach of any of the representations or warranties under the Loan Documents.

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ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES

7.01

Events Of Default.  Any of the following shall constitute an Event of Default:

(a)

Non-Payment.  The Borrower or any other Loan Party fails to pay (i) when and as required to be paid herein, any amount of principal of, or accrued interest upon, the Loan, or (ii) within five (5) Business Days after the same becomes due, any other amount payable hereunder or under any other Loan Document; or

(b)

Covenants.  The Borrower or any Loan Party fails to perform or observe any term, covenant or agreement contained in any Loan Agreement and such failure continues for five (5) Business Days after notice thereof is delivered by Lender; or

(c)

Representations and Warranties.  Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of the Borrower or any other Loan Party herein, in any other Loan Document, or in any document delivered in connection herewith or therewith shall be incorrect or misleading in any material respect when made or deemed made; or

(d)

Cross-Default.  Any Loan Party (A) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) and, except in the case of any such payment due at scheduled maturity or by acceleration, such payment is not made within any applicable grace period, in respect of any Indebtedness or Guarantee incurred postpetition (other than Indebtedness hereunder), having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than the Threshold Amount, or (B) fails to observe or perform any other agreement or condition relating to any such Indebtedness or Guarantee or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness or the beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity, or such Guarantee to become payable or cash collateral in respect thereof to be demanded; or

(e)

License Agreements.  Any Loan Party defaults under any royalty agreement or license agreement (other than a default not enforceable as a result of the Cases); or any material royalty agreement or license agreement of any Loan Party is terminated.

(f)

Inability To Pay Postpetition Debts.  Any Loan Party becomes unable or admits in writing its inability or fails generally to pay its debts incurred postpetition as they become due; or

33

(g)

Judgments.  After the Filing Date, there is entered against any Loan Party (i) a final judgment or order for the payment of money in an aggregate amount exceeding $100,000 (to the extent not covered by independent third-party insurance as to which the insurer is rated at least “A” by A.M. Best Company, has been notified of the potential claim and has not disputed coverage), or (ii) any one or more non-monetary final judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, such judgment or order is not subject to a stay of enforcement by virtue of Section 362(a) of the Bankruptcy Code or an applicable order.

(h)

ERISA.  Any Loan Party shall; (i) engage, or permit any ERISA Affiliate to engage, in any non-exempt “prohibited transaction”, as that term is defined in Section 406 of ERISA and Section 4975 of the Code, (ii) terminate, or permit any member of the Controlled Group to terminate, any Pension Plan, (iii) (x) maintain, or permit any ERISA Affiliate to maintain, or (y) become obligated to contribute to or permit any ERISA Affiliate to become obligated to contribute to, any Multiemployer Plan or Pension Plan not disclosed on Schedule 7.01(h), (iv) incur, or permit any ERISA Affiliate to incur, any withdrawal liability to any Multiemployer Plan; (v) suffer any ERISA Event or fail promptly to notify the Lender of the occurrence of any ERISA Event, (vi) fail to comply, with the requirements of ERISA or the Code or other applicable laws in respect of any Employee Benefit Plan, (vii) f ail to meet, or permit any ERISA Affiliate to fail to meet, any minimum funding requirements under ERISA or the Code or postpone or delay any funding requirement with respect of any Employee Benefit Plan, (viii) receive an unfavorable determination letter from the Internal Revenue Service regarding the qualification of a Employee Benefit Plan under Section 401(A) of the Code, or (ix) fail to make a required payment under the Pension Funding Rules applicable to any Pension Plan on or before the due date for such payment, and, as a result of any event or condition described in clauses (i) - (ix) above, together with all other such events or conditions described in clauses (i) - (ix) above), any Loan Party shall incur, or in the opinion of the Lender be reasonably likely to incur, a liability to any Loan Party in excess of $100,000 or result in the imposition of a Lien on the property of any Loan Party pursuant to the Pension Funding Rules or Section 4068 of ERISA; or

(i)

Invalidity Of Loan Documents.  Any material provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Loan Party or any other Person contests in any manner the validity or enforceability of any provision of any Loan Document; or any Loan Party denies that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any Loan Document; or

(j)

Change Of Management/Control.  There occurs any (i) Change of Management or (ii) Change of Control; or

(k)

Collateral Document.  Any Collateral Document, after delivery thereof, and after giving effect to the Interim Order and the Final DIP Order shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority Lien on and security interest in the Collateral purported to be covered thereby pursuant to the terms and conditions herein and therein; or any Loan Party contests in any manner the validity,

34

perfection or priority of any lien or security interest in the Collateral purported to be covered thereby; or

(l)

Appointment of Trustee or Examiner.  An order (which has not been stayed) with respect to any of the Cases shall be entered by the Bankruptcy Court appointing, or any Loan Party, without the consent of the Lender, shall file an application for an order with respect to any Case seeking the appointment of, (i) a trustee under Section 1104 of the Bankruptcy Code, or (ii) an examiner under Section 1106(b) of the Bankruptcy Code; or

(m)

Chapter 7 Order.  An order with respect to any of the Cases shall be entered by the Bankruptcy Court converting such Case to a Chapter 7 case or any Loan Party shall file a motion or not oppose a motion seeking such relief, unless such motion is consented to by the Lender; or

(n)

Relief from Automatic Stay.  Other than with respect to the Prepetition Facility, the Bankruptcy Court shall enter an order or orders granting relief from the automatic stay applicable under Section 362 of the Bankruptcy Code to the holder or holders of any security interest (other than the Lender) to permit foreclosure (or the granting of a deed in lieu of foreclosure or the like) on or affecting any Collateral of any Loan Party, or relating to any leased premises where any Collateral is located, in any case which has a value in excess of the Threshold Amount in the aggregate or permits any Person (other than the Lender) to commence or continue any litigation against any of the Loan Parties involving a potential liability not covered by insurance in excess of the Threshold Amount in the aggregate; or

(o)

Modifications to Bankruptcy Court Orders; Priority; Liens.  An order with respect to any of the Cases shall be entered by the Bankruptcy Court without the express prior written consent of the Lender (i) to revoke, reverse, stay, modify, supplement or amend the Orders, the Bid Procedures Order or the Sale Order, (ii) to permit any administrative expense or any claim (now existing or hereafter arising, of any kind or nature whatsoever) to have administrative priority as to any Loan Party equal or superior to the Superpriority Claim, except as set forth in the Orders, or (iii) to grant or permit the grant of a Lien on the Collateral other than a Permitted Lien or any Lien in favor of the Lender; or

(p)

Payment of Prepetition Indebtedness.  Any Loan Party shall make any payment of principal or interest or otherwise on account of any prepetition Indebtedness or trade payable (excluding payments on account of the Prepetition Facility and payments effected by a setoff of obligations as permitted by Section 553 of the Bankruptcy Code) without the express prior written consent of the Lender and the approval of the Bankruptcy Court, other than as provided for in any First Day Orders; or

(q)

Collateral.  Any Loan Party or other Person shall file a motion in the Cases (i) to recover from any portions of the Collateral any costs or expenses of preserving or disposing of such Collateral under Section 506(c) of the Bankruptcy Code, to cut off rights in the Collateral under Section 552(b) of the Bankruptcy Code, or (ii) to take any other action or actions materially adverse to the Lender or its rights and remedies hereunder or under any of the other Loan Documents or the Lender’s interest in any of the Collateral; or

35

(r)

Use of Cash Collateral.  The Lender under the Prepetition Facility shall have delivered written notice to the Borrower of any failure to comply by the Borrower or any of the Loan Parties with the material terms, conditions or covenants of the Cash Collateral Order; or

(s)

Challenges.  The Borrowers, any creditor, the UST or any other party in interest in the Cases shall (a) challenge, contest, object to or dispute the extent, validity, priority or enforceability of, or seek to avoid, as the case may be (i) the Liens securing the Loans or the Prepetition Facility, (ii) the amounts owed to the Lender or the Prepetition Lender in respect of the Loans and the Prepetition Facility, other than disputes limited solely to manifest errors in mathematical calculation, or (iii) repayment of the Loans or the Prepetition Facility, or (b) request that the payment of the respective claims of the Lender or the Prepetition Lender be subordinated to the payment of any other creditor or party in interest, other than as provided with respect to the Carve-Out Expenses.

(t)

Bankruptcy Court Orders.  An order shall be entered by the Bankruptcy Court (i) confirming a Plan of Reorganization in any of the Cases which does not (A) contain a provision and payment in full in cash of all Obligations of the Loan Parties hereunder and under the other Loan Documents on or before the effective date of such plan or plans upon entry thereof and (B) provide for the continuation of the Liens and security interests granted to the Lender for the benefit of the Lender and priorities until the Plan of Reorganization’s effective date; or (ii) dismissing any of the Cases, which order does not contain a provision for payment in full in cash of all Obligations of the Borrower hereunder and under the other Loan Documents upon entry thereof, or any of the Loan Parties shall file a motion or not oppose a motion seeking such relief, unless such motion is consented to by the Len der; or

(u)

Final DIP Order.  The Final DIP Order shall not have been entered by the Bankruptcy Court on or before February 9, 2010; or

(v)

Filing of Motion for Entry of Bid Procedure Order.  The Loan Parties shall fail to file on the Filing Date a motion in form and substance satisfactory to the Lender requesting entry of a Bid Procedures Order; or

(w)

Approval of Bid Procedures Motion.  The Loan Parties shall fail to obtain entry of the Bid Procedures Order in form or substance satisfactory to the Lender on or before January 19, 2010; or

(x)

Stalking Horse Bid.  The Loan Parties or Sun Capital have terminated the Stalking Horse Bid and, as of the effective date of such termination, the Loan Parties have not entered into a replacement Stalking Horse Bid;

(y)

Replacement Stalking Horse Bid.  Prior to entering into any replacement Stalking Horse Bid, the Loan Parties fail to provide Lender with at least two (2) Business Days notice of the identity of the Person submitting the replacement Stalking Horse Bid, the terms thereof, and such other information as Lender may reasonably request in regard to the replacement Stalking Horse Bid;

36

(z)

Auction.  The Loan Parties shall fail to conduct an auction in compliance with the requirements of the Bid Procedures Order on or before February 18, 2010; provided that if there are no qualified bidders other than the “stalking-horse” bidder, it shall not constitute an Event of Default if an auction is not conducted;

(aa)

Sale Closing Date.  The closing of the Sale pursuant to the Sale Order shall have not occurred on or before February 26, 2010; or

(bb)

Sale Proceeds.  The Loan Parties shall have accepted as a bid or bids that, when aggregated, would fail to provide the Loan Parties on the closing date or dates thereof with an amount in cash equal to or greater than the amount provided under the Stalking Horse Bid submitted by Sun Capital.

7.02

Remedies Upon Event of Default.  If any Event of Default occurs and is continuing, with five (5) Business Days’ prior written notice to the Borrower (with a copy to counsel for the Borrower, counsel for the Creditor’s Committee, and the UST) and without further order of or application to the Bankruptcy Court, the Lender may take any or all of the following actions:

(a)

terminate the Commitment hereunder and declare the unpaid principal amount of the Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; and

(b)

exercise all rights and remedies with respect to the Collateral available to the Lender under the Loan Documents, the Orders, the UCC and other applicable Laws including taking possession of and selling all or any part of the Collateral and applying the proceeds realized from such sale to repayment of the Loans in accordance with Section 7.03; and

In the event and to the extent that the provisions of this Section 7.02 conflict with what is set forth in the Orders, the Orders shall govern.

7.03

Application of Funds.  After the exercise of remedies provided for in Section 7.02, any amounts received on account of the Obligations shall be applied by the Lender in the following order:

First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (other than principal and interest but including fees, charges and disbursements of counsel to the Lender and amounts payable under Article III) payable to the Lender;

Second, to payment of that portion of the Obligations constituting accrued and unpaid interest on the Loans, and other Obligations;

Third, to payment of that portion of the Obligations constituting unpaid principal of the Loans;

37

Fourth, to the payment of all other Obligations of the Loan Parties owing under or in respect of the Loan Documents that are then due and payable to the Lender on such date; and

Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full (excluding, for this purpose, any Unaccrued Indemnity Claims), shall be held and applied by the Borrower in accordance with the Orders of the Bankruptcy Court including the Cash Collateral Order, the Bankruptcy Code or as otherwise required by Law.

ARTICLE VIII
MISCELLANEOUS

8.01

Amendments, Etc.  No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Borrower or any other Loan Party therefrom, shall be effective unless in writing signed by the Lender and the Borrower or the applicable Loan Party, as the case may be, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

8.02

Notices and Other Communications; Facsimile Copies;

(a)

Notices Generally.  Except as provided in Subsection (b) below, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail, sent by telecopier as follows:

(i)

if to the Borrower or the Loan Parties c/o the Borrower:

Protective Products of America, Inc.
1649 Northwest 136th Avenue
Sunrise, Florida
USA  33323

Attention:

R. Patrick Caldwell
Fax:

(954) 846-8306
E-Mail:

pcaldwell@body-armor.com

with a copy to:

Berger Singerman

200 South Biscayne Boulevard

Suite 1000

Miami, FL  33131

Attention:

Jordi Guso
Fax:

(305) 714-4340
E-mail:

JGuso@bergersingerman.com

(ii)

if to the Lender:

Canadian Imperial Bank of Commerce

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199 Bay Street, 6th floor
Commerce Court West, Toronto, ON
M5L 1A2

Attention:

Jack McMurray

General Manager, Special Loans
Fax:

(416) 214-8749
E-mail:

jack.mcmurray@cibc.ca

with copies to (which shall not constitute a notice hereunder):

Shutts & Bowen LLP
1500 Miami Center
201 South Biscayne Boulevard
Miami, FL  33131

Attention:

Larry Glick
Fax:

(305) 347-7831
E-Mail:

lglick@shutts.com

and

Blake, Cassels & Graydon LLP
199 Bay Street
Suite 2800
Commerce Court West
Toronto, ON  M5L 1A9

Attention:

Milly Chow
Fax:

416-863-2653
Email:

milly.chow@blakes.com

Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received.  Notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient).  Notices delivered through electronic communications to the extent provided in Subsection (b) below shall be effective as provided in such Subsection (b).

(b)

Electronic Communications.  Notices and other communications may be delivered or furnished by e-mail.  Notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.

39

(c)

Change Of Address, Etc.  Each of the Loan Parties and the Lender may change its address, telecopier number or email address for notices and other communications hereunder by notice to the other parties hereto.

(d)

Reliance By Lender.  The Lender shall be entitled to rely and act upon any notices purportedly given by or on behalf of the Loan Parties even if such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein.  The Borrower shall indemnify the Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower.

8.03

No Waiver; Cumulative Remedies.  No failure by the Lender to exercise, and no delay in exercising, any right, remedy, power or privilege hereunder or any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges herein provided, and provided under each other Loan Document, are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

8.04

Expenses; Indemnity; Damage; Waiver

(a)

Costs and Expenses.  The Loan Parties agree to pay on demand (i) all reasonable documented out-of-pocket costs and expenses of the Lender (including any sub-agent or servicer of the Lender) in connection with the preparation, execution, delivery, administration, modification and amendment of, or any consent or waiver under, the Loan Documents (whether or not the transactions contemplated hereby or thereby shall be consummated) (including, without limitation, (A) all reasonable documented fees and expense of counsel due diligence, collateral review, arrangement, syndication (other than fees payable to syndicate members), transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses and (B) the reasonable documented out-of-pocket fees and expenses of counsel for the Lender, with respect to advising the same as to its rights and responsibilities, or the perfection, protection, interpretation or preservation of rights or interests, under the Loan Documents, with respect to negotiations with any Loan Party or with other creditors of any Loan Party and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors’ rights generally and any proceeding ancillary thereto), and (ii) all reasonable documented out-of-pocket costs and expenses of the Lender in connection with the enforcement or protection of its rights in connection with the Loan Documents, whether in any action, suit or litigation, or any bankruptcy, insolvency or other similar proceeding affecting creditors’ rights generally and all reasonable documented out-of-pocket costs and expenses of the Lender with respect to any negotiations arising out of any Default (including, without limitation, the fees and expenses of counsel for the Lender with respect thereto).  T he Borrower further agrees to pay any stamp or Other Taxes that may be payable in connection with the execution or delivery of any Loan Document.

(b)

Indemnification by the Borrower.  The Loan Parties shall indemnify the Lender and each Related Party of any of the foregoing Persons (each such Person

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being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), incurred by any Indemnitee or asserted against any Indemnitee by any third party or by any Loan Party arising out of, in connection with, or as a result of (i) the execution or delivery of any Loan Document or any agreement or instrument contemplated thereby, the performance by the parties hereto of their respective obligations thereunder or the consummation of the transactions contemplated thereby, (ii) any Loan or the use or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Substances on or from any property owned or operated by the Loan Parties, or any Environmental Liability related in any way to the Loan Parties, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the any Loan Party or any of the Loan Parties’ directors, shareholders or creditors, and regardless of whether any Indemnitee is a party thereto and whether or not any of the transactions contemplated under any of the Loan Documents is consummated, in all cases, whether or not caused by or arising, in whole or in part, out of the negligence of the Indemnitee; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee.

(c)

Waiver of Consequential Damages, Etc.  To the fullest extent permitted by applicable law, the Loan Parties shall not assert, and hereby waive, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, any Loan Document, the transactions contemplated thereby, any Loan or the use of the proceeds thereof.  No Indemnitee referred to in Subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems.

(d)

Payment of Costs.  If any Loan Party fails to pay when due any costs, expenses or other amounts payable by it under any Loan Document, including, without limitation, fees and expenses of counsel and indemnities, such amount may be paid on behalf of such Loan Party by the Lender, in its sole discretion, and added to the Obligations.

(e)

Payments.  All amounts due under this Section 8.04 shall be payable not later than ten (10) Business Days after written demand therefor.

(f)

Survival.  The agreements in this Section 8.04 shall survive the repayment, satisfaction or discharge of the Loans and all other Obligations.

8.05

Payments Set Aside.  To the extent that any payment by or on behalf of a Loan Party is made to the Lender, or the Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Lender) to be repaid to a trustee, receiver or any other party, then to the extent of such

41

recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred.

8.06

Successors and Assigns Generally.  The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that no Loan Party may assign or otherwise transfer any of its rights or obligations under the Loan Documents without the prior written consent of the Lender.

8.07

Right of Setoff.  If an Event of Default shall have occurred and be continuing, and subject to the Orders, the Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by the Lender to or for the credit or the account of any Loan Party against any and all of the Obligations, irrespective of whether or not the Lender shall have made any demand under the Loan Documents.  The rights of the Lender under this Section are in addition to other rights and remedies (including other rights of setoff) that the Lender may have.  The Lender agrees to notify the Loan Party promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.

8.08

Interest Rate Limitation.  Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the “Maximum Rate”).  If the Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Loan Party.  In determining whether the interest contracted for, charged, or received by the Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and sp read in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.

8.09

Counterparts; Integration; Effectiveness.  This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.  Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Lender and when the Lender shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto.  Delivery of an executed counterpart of a

42

signature page of this Agreement by telecopy or electronic mail in portable document format (.pdf) shall be effective as delivery of a manually executed counterpart of this Agreement.

8.10

Survival Of Representations and Warranties.  All representations and warranties made in any Loan Document or other document delivered pursuant thereto or in connection therewith shall survive the execution and delivery thereof.  Such representations and warranties have been or will be relied upon by the Lender, regardless of any investigation made by the Lender or on its behalf and notwithstanding that the Lender may have had notice or knowledge of any Default at the time of any Borrowing, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied.

8.11

Severability.  If any provision of the Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of the Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions.  The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

8.12

USA Patriot Act Notice.  The Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow the Lender to identify the Borrower in accordance with the Act.

8.13

Governing Law; Jurisdiction; Etc.

(a)

GOVERNING LAW.  THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF, AND, TO THE EXTENT APPLICABLE, THE BANKRUPTCY CODE.

(b)

SUBMISSION TO JURISDICTION.  EACH LOAN PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE JURISDICTION OF THE BANKRUPTCY COURT, OR IN THE EVENT THAT THE BANKRUPTCY COURT DOES NOT HAVE JURISDICTION OVER ANY MATTER OR IF IT HAS JURISDICTION BUT DOES NOT EXERCISE SUCH JURISDICTION FOR ANY REASON, THEN TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW YORK CITY, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT TO WHICH IT IS A PARTY, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN THE BANKRUPTCY COURT, ANY SUCH NEW YORK STATE COURT

43

OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT.  EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING HEREIN SHALL AFFECT ANY RIGHT THAT LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO ANY LOAN DOCUMENT IN THE COURTS OF ANY JURISDICTION.

(c)

WAIVER OF VENUE.  THE BORROWER AND EACH OTHER LOAN PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH IT IS A PARTY IN ANY NEW YORK STATE OR FEDERAL COURT.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

(d)

SERVICE OF PROCESS.  EACH LOAN PARTY IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 8.02. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF THE LENDER, OR ITS AGENT, TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

8.14

WAIVER OF JURY TRIAL.  EACH OF THE LOAN PARTIES AND THE LENDER IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE ACTIONS OF THE LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

Loan Parties:

PROTECTIVE PRODUCTS OF AMERICA, INC.

CPC HOLDING CORPORATION OF AMERICA

CERAMIC PROTECTION CORPORATION OF AMERICA

Signature Page for DIP Credit Agreement

PROTECTIVE PRODUCTS INTERNATIONAL CORP.

PROTECTIVE PRODUCTS OF NORTH CAROLINA, LLC

Signature Page for DIP Credit Agreement

Signature Page for DIP Credit Agreement

EX-99.1

EXHIBIT 99.1

Protective Products of America, Inc. Files Voluntary Petition for Chapter 11 Reorganization and Seeks Approval of Sale to an Affiliate of Sun Capital Partners

SUNRISE, Fla., Jan. 14, 2010 (GLOBE NEWSWIRE) -- Protective Products of America, Inc. (TSX:PPA), a leading manufacturer and distributor of advanced products in ballistics protection, today announced that PPA and each of its four subsidiaries have filed a voluntary petition for Chapter 11 reorganization, which also calls for the approval of their agreement to sell substantially all of their assets and business as a going concern to an affiliate of Sun Capital Partners, Inc. ("Sun Capital"), a leading private investment firm. Under the terms of the agreement, the transaction is subject to a higher and better offer by another party in approximately 35 days. The Chapter 11 proceedings are pending in the Southern District of Florida. PPA is a publicly traded company on the Toronto Stock Exchange.

"We are pleased with our agreement to be acquired by Sun Capital in connection with our bankruptcy cases and with Bankruptcy Court approval," said Patrick Caldwell, PPA's Chief Executive Officer. "The firm is a premier global private equity firm with over $8 billion in assets under management, and has managed the successful turnaround of over 100 portfolio companies over the past 15 years."

PPA intends to maintain all normal business operations throughout the administration of the bankruptcy cases. Subject to Bankruptcy Court approval, PPA will use the cash flow from its ongoing operations together with additional financing from its existing lender, Canadian Imperial Bank of Commerce, to meet its working capital needs throughout the reorganization process. PPA has filed a motion with the Bankruptcy Court seeking to establish auction and sale procedures to facilitate a quick and orderly sale of substantially all of PPA's and its subsidiaries' assets, using the 35-day timeline set forth in the purchase agreement with Sun Capital. The reorganization and acquisition will eliminate PPA's funded indebtedness and substantially reduce its other liabilities.

PPA has filed a series of first day motions in the Bankruptcy Court in Ft. Lauderdale, Florida, seeking to ensure that it will not have any interruption in maintaining and honoring all of its commitments to its employees and customers. The motions also address PPA's continued ability to pay its vendors, the retention of various professional advisors and other matters.

About Protective Products of America, Inc.

Protective Products of America, Inc. ("PPA" or "Company"), formerly known as Ceramic Protection Corporation, is headquartered in Sunrise, Florida. The Company, together with its subsidiaries, is engaged in the design, manufacture and marketing of advanced products used to provide ballistic protection for personnel and vehicles in the military and law enforcement markets. The Company's product portfolio includes concealable soft body armor products for law enforcement and the Modular Tactical Vest ("MTV"), a ballistic system for military personnel. PPA produces and sells body armor to several branches of the U.S. armed forces, federal agencies, and local and state police forces. Visit www.protectiveproductsofamerica.com for more company information.

Safe Harbor Language

This report contains forward-looking statements including those concerning the reorganization process and the proposed transaction with Sun Capital Partners. These statements are based on current expectations that involve a number of risks and uncertainties that could cause actual results to differ from those anticipated. These risks include, but are not limited to, uncertainties associated with the reorganization process and with the transactions agreements with Sun Capital, as well as general risks pertaining to the Company including those relating to the defense industry, commodity prices, exchange rate fluctuations, and risks resulting from potential delays, appeals or changes related to government orders in the defense sector.

CONTACT:  Protective Products of America, Inc.

          Neil E. Schwartzman

          954-846-8222

          nschwartzman@body-armor.com