10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For The Quarterly Period Ended December 31, 2006

OR

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

From the transition period from                      to                     

Commission File Number 1-11570

ALLIED HEALTHCARE INTERNATIONAL INC.

(Exact name of Registrant as specified in its charter)

New York			13-3098275
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

555 Madison Avenue, New York, New York			10022
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (212) 750-0064

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES     NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer			Accelerated filer			Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES     NO

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class			Outstanding at February 1, 2007
Common Stock			44,957,492 Shares

ALLIED HEALTHCARE INTERNATIONAL INC.

FIRST QUARTER REPORT ON FORM 10-Q
TABLE OF CONTENTS

PART I
Item 1.			Financial Statements (Unaudited)					1
			Condensed Consolidated Balance Sheets – December 31, 2006 (Unaudited) and September 30, 2006					2
			Condensed Consolidated Statements of Operations (Unaudited) – For the Three Months Ended December 31, 2006 and December 31, 2005					3
			Condensed Consolidated Statements of Cash Flows (Unaudited) – For the Three Months Ended December 31, 2006 and December 31, 2005					4
			Notes to Condensed Consolidated Financial Statements (Unaudited)					5
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations					15
Item 3.			Quantitative and Qualitative Disclosures about Market Risk					24
Item 4.			Controls and Procedures					24
PART II
Item 6.			Exhibits					26

Forward-Looking Statements:    The Private Securities Litigation Reform Act of 1995 provides a ‘‘safe harbor’’ for forward-looking statements. Certain statements contained in this Quarterly Report may be forward-looking statements. These forward-looking statements are based on current expectations and projections about future events. Actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Factors that could cause actual results to differ from those implied by the forward-looking statements include: Allied Healthcare International Inc.’s (the ‘‘Company’’) ability to continue to recruit and retain qualified flexible healthcare staff; ability to enter into contracts with hospitals, other healthcare facility clients and local governmental social service departments on terms attractive to the Company; the ability to meet the performance criteria of the Company’s respiratory therapy contract; the general level of patient occupancy at hospital and healthcare facilities of the Company’s customers; dependence on the proper functioning of the Company’s information systems; the effect of existing or future government regulation of the healthcare industry, and the Company’s ability to comply with these regulations; the impact of medical malpractice and other claims asserted against the Company; the effect of regulatory change that may apply to the Company and that may increase costs and reduce revenue and profitability; the ability to use net operating loss carry forwards to offset net income; the effect that fluctuations in foreign currency exchange rates may have on the Company’s dollar-denominated results of operations; and the impairment of goodwill, of which the Company has a substantial amount on the balance sheet, may have the effect of decreasing earnings or increasing losses. Other factors that could cause actual results to differ from those implied by the forward-looking statements in this Quarterly Report include those described in the Company’s most recently filed SEC documents, such as its most recent annual report on Form 10-K, all quarterly reports on Form 10-Q and any current reports on Form 8-K filed since the date of the last Form 10-K. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Table of Contents

Part I

Item 1.	Financial Statements (Unaudited).

The Condensed Consolidated Financial Statements of Allied Healthcare International Inc. (the ‘‘Company’’) begin on page 2.

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ALLIED HEALTHCARE INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

			December 31, 2006 (Unaudited)						September 30, 2006
ASSETS
Current assets:
Cash and cash equivalents				$	7,610					$	3,583
Accounts receivable, less allowance for doubtful accounts of $1,910 and $1,713, respectively					28,707						29,641
Unbilled accounts receivable					13,483						11,823
Inventories					359						586
Deferred income taxes					989						691
Prepaid expenses and other assets					2,593						1,547
Total current assets					53,741						47,871
Property and equipment, net					27,510						27,076
Goodwill					117,801						112,710
Other intangible assets, net					6,519						6,655
Derivative asset					671						252
Deferred income taxes					—						197
Deferred financing costs and other assets					868						581
Total assets				$	207,110					$	195,342
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt				$	11,755					$	11,236
Accounts payable					2,139						4,739
Accrued expenses, inclusive of payroll and related expenses					35,288						31,005
Liabilities of discontinued operations					690						690
Taxes payable					2,648						1,366
Total current liabilities					52,520						49,036
Long-term debt					62,691						59,923
Deferred income taxes					103						—
Total liabilities					115,314						108,959
Commitments and contingencies (Note 12)
Shareholders’ equity:
Preferred stock, $.01 par value; authorized 10,000 shares, issued and outstanding – none					—						—
Common stock, $.01 par value; authorized 80,000 shares, issued 45,542 and 45,542 shares, respectively					455						455
Additional paid-in capital					239,139						238,944
Accumulated other comprehensive income					16,565						13,258
Accumulated deficit					(162,069	)					(163,980	)
					94,090						88,677
Less cost of treasury stock (585 shares)					(2,294	)					(2,294	)
Total shareholders’ equity					91,796						86,383
Total liabilities and shareholders’ equity				$	207,110					$	195,342

See notes to condensed consolidated financial statements.

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ALLIED HEALTHCARE INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

			Three Months Ended
			December 31, 2006						December 31, 2005
Revenues:
Net patient services				$	66,854					$	73,679
Net respiratory, medical equipment and supplies					6,156						2,176
Total revenues					73,010						75,855
Cost of revenues:
Patient services					46,755						51,144
Respiratory, medical equipment and supplies					3,797						986
Total cost of revenues					50,552						52,130
Gross profit					22,458						23,725
Selling, general and administrative expenses					18,894						18,131
Operating income					3,564						5,594
Interest income					40						32
Interest expense					(1,117	)					(954	)
Other income (expense)					64						(14	)
Foreign exchange gain (loss)					139						(41	)
Income before income taxes					2,690						4,617
Provision for income taxes					779						1,211
Net income				$	1,911					$	3,406
Basic and diluted net income per share of common stock				$	0.04					$	0.08
Weighted average number of common shares outstanding:
Basic					44,957						44,863
Diluted					45,079						45,215

See notes to condensed consolidated financial statements.

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ALLIED HEALTHCARE INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

			Three Months Ended
			December 31, 2006						December 31, 2005
Cash flows from operating activities:
Net income				$	1,911					$	3,406
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization					1,386						970
Amortization of intangible assets					433						448
Amortization of debt issuance costs					58						43
Provision for allowance for doubtful accounts					227						409
Gain on sale of fixed assets					—						(3	)
Stock based compensation costs					195						164
Deferred income taxes					(82	)					(86	)
Changes in operating assets and liabilities, excluding the effect of businesses acquired and sold:
Decrease in accounts receivable					2,025						5,076
Decrease (increase) in inventories					248						(35	)
Increase in prepaid expenses and other assets					(2,049	)					(1,521	)
Increase in accounts payable and other liabilities					2,897						1,957
Net cash provided by operating activities					7,249						10,828
Cash flows from investing activities:
Capital expenditures					(588	)					(7,205	)
Proceeds from sale of property and equipment					—						20
Payments for acquisitions – net of cash acquired					—						(923	)
Payments on acquisitions payable					(1,748	)					(1,780	)
Net cash used in investing activities					(2,336	)					(9,888	)
Cash flows from financing activities:
Payments on revolving loan, net					—						(2,624	)
Payments for financing fees					(242	)					—
Stock options exercised					—						134
Net cash used in financing activities					(242	)					(2,490	)
Effect of exchange rate on cash					(644	)					333
Increase (decrease) in cash					4,027						(1,217	)
Cash and cash equivalents, beginning of period					3,583						5,873
Cash and cash equivalents, end of period				$	7,610					$	4,656
Supplemental cash flow information:
Cash paid for interest				$	216					$	137
Cash paid for income taxes, net				$	403					$	442
Supplemental disclosure of investing and financing activities:
Details of business acquired in purchase transactions:
Fair value of assets acquired (including goodwill)										$	923
Net cash paid for acquisitions										$	923

See notes to condensed consolidated financial statements.

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ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(Unaudited)

1.	Basis of Presentation:

Allied Healthcare International Inc. and its subsidiaries (the ‘‘Company’’) is a leading provider of flexible, or temporary, healthcare staffing to the United Kingdom (‘‘U.K.’’) healthcare industry as measured by revenues, market share and number of staff. At December 31, 2006, the Company operated an integrated network of approximately 100 branches throughout most of the U.K. The Company’s healthcare staff consists principally of home health aides (known as carers in the U.K.), nurses and nurses aides, which comprise its staffing segment (‘‘Staffing’’). The Company focuses on placing its staff on a per diem basis in hospitals, nursing homes, care homes and private homes. The Company maintains a pool of over 22,000 nurses, nurses aides and home health aides. The Company also supplies unified oxygen services, including concentrators, directly to customers in the South East of England and Northern Ireland as well as cylindered gas in Scotland, which comprises its oxygen segment (‘‘Oxygen’’).

The Condensed Consolidated Financial Statements presented herein are unaudited and include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations of the interim periods pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (‘‘U.S.’’) have been condensed or omitted. The balance sheet at September 30, 2006 has been derived from the audited consolidated balance sheet at that date, but does not include all information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Form 10-K for the year ended September 30, 2006. Although the Company’s operations are not highly seasonal, the results of operations for the three months ended December 31, 2006 are not necessarily indicative of operating results for the full year.

2.	Stock-Based Compensation:

Stock Options

Under the shareholder approved 1992 Stock Option Plan and 2002 Stock Option Plan, the Company may grant incentive and non-qualified options to purchase its common stock to key employees, officers, directors and non-employee independent contractors. Effective with the adoption of the Company’s 2002 Stock Option Plan, no further options may be granted under the 1992 Stock Option Plan. Stock options are issued at an exercise price per share which is not less than the fair market value of the stock on the grant date and generally expire ten years from the grant date. Options granted under the plans generally may be exercised upon payment of the option price in cash or by delivery of shares of our common stock with a fair market value equal to the option price. Certain option awards provide for accelerated vesting if there is a change in control. Shares delivered under the 2002 Stock Option Plan will be available from authorized but unissued shares of common stock or from shares of common stock reacquired by the Company. Shares available for future grant under the 2002 Stock Option Plan were 1,687 shares at December 31, 2006.

For the three months ended December 31, 2006 and 2005, stock-based compensation cost recognized in selling, general and administrative expenses lowered income before income taxes by $195 and $164, respectively, and net income by $152 and $164, respectively. For the three months ended December 31, 2006, stock based compensation had a $0.01 impact on basic and diluted

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ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

earnings per share (EPS’’). For the three months ended December 31, 2005, stock based compensation had no impact on EPS. The Company recognizes compensation expense on a straight-line basis over the requisite service period. As of December 31, 2006, there was $1,069 of total unrecognized compensation cost related to share-based compensation awards, net of estimated forfeitures, which the Company expects to recognize over a weighted average period of approximately 1.3 years.

Following is a summary of stock option activity during the three months ended December 31, 2006:

Share Options			Share Options						Weighted- Average Exercise Price ($)						Weighted- Average Remaining Contractual Life In Years						Aggregate Intrinsic Value ($)
Outstanding at October 1, 2006					2,633						4.99
Granted					1,110						1.94
Forfeited					(396	)					2.54
Outstanding at December 31, 2006					3,347						4.27						7.0						1,148
Exercisable at December 31, 2006					2,364						5.04						5.9						385

The weighted average grant-date fair value of stock options granted during the three months ended December 31, 2006 and 2005 was $1.11 and $3.81, respectively. The total intrinsic value of options exercised during the three months ended December 31, 2005 was $71. For options exercised during the three months ended December 31, 2005, $134 was received in cash to cover the exercise price of the options exercised. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

			Three Months Ended December 31, 2006
Expected life (years)					5.6
Risk-free interest rate					4.6	%
Volatility					55.2	%
Expected dividend yield					0	%

The average risk-free interest rate is based on the three-year U.S. treasury security rate in effect as of the grant date. The Company determined expected volatility using a weighted average of its historical month-end close stock price. The expected life was determined using the simplified method.

Following is a summary of the status of the Company’s nonvested stock options as of December 31, 2006 and the activity for the three months ended December 31, 2006:

Nonvested Share Options			Share Options						Weighted-Average Grant-Date Fair Value ($)
Nonvested at October 1, 2006					285						2.98
Granted					1,110						1.11
Vested					(32	)					1.62
Forfeited					(380	)					1.54
Nonvested at December 31, 2006					983						1.47

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ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

The total fair value of share options vested during the three months ended December 31, 2006 and 2005 was $52 and $361, respectively.

3.	Cash and Cash Equivalents:

Included in cash and cash equivalents are amounts placed in escrow deposits for the potential payments on contingent consideration that is dependent upon future earnings of the Company’s acquisition of certain flexible staffing agencies. These escrow deposits totaled $490 and $468 at December 31, 2006 and September 30, 2006, respectively.

4.	Property and Equipment:

Property and equipment, including revenue-producing equipment, is carried at cost, net of accumulated depreciation and amortization. Revenue-producing equipment consists of oxygen cylinders, oxygen concentrators and oxygen valves. Depreciation for revenue-producing equipment is provided on the straight-line method over their estimated useful lives ranging from seven to twenty years. Leasehold improvements are amortized over the related lease terms or estimated useful lives, whichever is shorter. Computer software is amortized on a straight-line method over the estimated useful lives ranging from three to seven years.

Major classes of property and equipment, net, consist of the following at December 31, 2006 and September 30, 2006:

			December 31, 2006						September 30, 2006
Revenue producing equipment				$	19,525					$	18,121
Furniture, fixtures and equipment (including software)					29,551						28,212
Land, buildings and leasehold improvements					1,092						1,044
					50,168						47,377
Less, accumulated depreciation and amortization					22,658						20,301
				$	27,510					$	27,076

Depreciation and amortization of property and equipment for the three months ended December 31, 2006 and 2005 were $1,386 and $970, respectively. The net book value of revenue producing equipment was $13,964 and $13,182 at December 31, 2006 and September 30, 2006, respectively.

5.	Goodwill and Other Intangible Assets:

Goodwill and other intangible assets are carried at cost, net of accumulated amortization. In accordance with FAS No. 142, Goodwill and Other Intangible Assets, all goodwill and intangible assets deemed to have indefinite lives are not subject to amortization but are subject to annual impairment tests. The Company completed its annual impairment test required under FAS No. 142 during the fourth quarter of fiscal 2006 and determined there was an impairment to its recorded goodwill balance and recorded a pre tax impairment charge of $121,901 by using a combination of market multiple, comparable transaction and discounted cash flow methods.

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ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

The following table presents the changes in the carrying amount of goodwill for the three months ended December 31, 2006:

			Staffing						Oxygen						Total
Balance at September 30, 2006				$	112,538					$	172					$	112,710
Foreign exchange effect					5,083						8						5,091
Balance at December 31, 2006				$	117,621					$	180					$	117,801

Of the $117,801 goodwill amount, approximately $6,375 is deductible for U.K. income tax purposes.

Intangible assets subject to amortization are being amortized on the straight-line method and consist of the following:

						December 31, 2006
			Range Of Lives			Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
Customer relationships			5 – 12				$	10,462					$	3,954					$	6,508
Trade names			3					202						202						—
Non-compete agreements			2 – 3					236						225						11
Favorable leasehold interests			2 – 5					9						9						—
Total							$	10,909					$	4,390					$	6,519

						September 30, 2006
			Range Of Lives			Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
Customer relationships			5 – 12				$	10,000					$	3,371					$	6,629
Trade names			3					193						193						—
Non-compete agreements			2 – 3					225						199						26
Favorable leasehold interests			2 – 5					9						9						—
Total							$	10,427					$	3,772					$	6,655

Amortization expense for other intangible assets subject to amortization was $433 for the three months ended December 31, 2006. At December 31, 2006, estimated future amortization expense of other intangible assets still subject to amortization is as follows: approximately $1,290 for the nine months ending September 30, 2007 and $1,622, $1,581, $1,380 and $458 for the fiscal years ending September 30, 2008, 2009, 2010 and 2011, respectively.

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ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

6.	Accrued Expenses:

Accrued expenses consist of the following at December 31, 2006 and September 30, 2006:

			December 31, 2006						September 30, 2006
Payroll and related expenses				$	21,073					$	18,057
Acquisitions payable (on earned contingent consideration)					2,618	(A)					4,210	(A)
Professional fees					1,998						2,294
Interest payable					1,590						696
Other					8,009						5,748
				$	35,288					$	31,005

	(A)	At December 31, 2006 and September 30, 2006 includes $1,128 and $1,077, respectively, that is currently under negotiation with the owners of the previously acquired entity.

Related to the Company’s fiscal 2003 discontinued operations on the sale of two of its subsidiaries are recorded liabilities in the amount of $690 related to certain tax contingencies at December 31, 2006 and September 31, 2006.

7.	Reorganization:

In 2005 the Company was awarded two of contracts with the U.K Department of Health, both of which commenced in February 2006 and both of which cover the South East of England. The contracts required the set up of additional facilities in the South East of England, which was effected in the second quarter of fiscal 2006, and which has resulted in the Company incurring additional charges and capital expenditures as it commenced supplying under the new contracts. Due to transition problems in fiscal 2006 in transferring the oxygen cylinder business from community pharmacies, the Company has incurred higher than anticipated implementation expense to build the infrastructure and distribution network to absorb the increased volume of oxygen patients from the community based pharmacies. The Company is still facing a higher than anticipated cost structure with the conversion to the home delivery service model. These additional costs are expected to continue for the foreseeable future before cost efficiencies can be achieved.

In the fourth quarter of fiscal 2005, in response to the changing structure of the method of supply to the National Health Services, the Company reorganized its U.K. operations. As a result of this reorganization, and in accordance with FAS No. 146, ‘‘Accounting for Costs Associated with Exit or Disposal Activities,’’ the Company recognized pre-tax charges of $631 to satisfy existing lease obligations on the closure of several of its U.K. offices and $442 for severance and employee related costs in its fourth quarter of fiscal 2005. At December 31, 2006 and September 30, 2006, $242 and $315, respectively, to satisfy existing lease obligations on the closure of several of its U.K. offices has not been paid.

8.	Financial Instruments:

In February 2005, the Company entered into two interest rate swap agreements, which expire on July 20, 2009, the objective of which is to protect the Company against the potential rising of interest rates on its floating rate debt. The two interest rate swap agreements cover approximately $58,773 of the Company’s floating rate debt until January 21, 2008 and then decreases by $5,877

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ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

each six month period, in order to reflect the amortizing effect of the Company’s floating rate debt, until the end of the interest rate swap agreements. The interest rate under the swap agreements is fixed at 4.935% and is payable semi-annually. In the third quarter of fiscal 2005, the Company designated the two interest rate swap agreements as cash flow hedges. In accordance with FAS No. 133, Accounting for Certain Derivative Instruments and Certain Hedging Activities, as amended by FAS No. 138 and related implementation guidance (‘‘FAS No. 133’’), the Company calculated the fair value of the interest rate swap agreements to be an asset of $671 and $252 at December 31, 2006 and September 30, 2006, respectively. Prior to the cash flow hedge designation, changes in the value from period to period of the interest rate swap agreements was recorded as other expense or income, as appropriate. At December 31, 2006 and September 30, 2006, the effective portion of the income on the interest rate swap agreements designated as cash flow hedges was $524, net of $225 of income tax, and $272, net of $117 of income tax, respectively, and is included in other comprehensive income. For the three months ended December 31, 2006 and 2005, the Company recognized other income of $45, net of $19 of income tax, and other expense of $10, net of $4 of income tax, respectively, related to the cash flow hedge ineffectiveness. The Company will continue to assess the effectiveness of these cash flow hedges on a quarterly basis.

9.	Income Taxes:

The Company recorded a provision for income taxes amounting to $779 or 29.0% of income before income taxes for the three months ended December 31, 2006, compared to a provision of $1,211 or 26.2% of income before income taxes for the three months ended December 31, 2005. The difference in the effective tax rate between the three months ended December 31, 2006 and the three months ended December 31, 2005 is mainly due to permanent differences in the U.K. The Company records reserves for estimates of probable settlements relating to certain U.S. and U.K. tax matters. The results of these matters and negotiations with the taxing authorities may affect the ultimate settlement of these issues. These tax reserves are included in current liabilities.

10.	Earnings Per Share:

Basic earnings per share is computed using the weighted average number of common shares outstanding. Diluted EPS adjusts basic EPS for the effects of stock options and warrants only when such effect is dilutive. The Company uses the treasury stock method to calculate the effect of outstanding shares, which require it to compute total assumed proceeds as the sum of (a) the amount the employee must pay upon exercise of the award, (b) the amount of unrecognized share-based compensation costs attributed to future services and (c) the amount of tax benefits, if any, that would be credited to additional paid-in capital assuming exercise of the award. Share-based compensation awards for which total assumed proceeds exceed the average market price over the applicable period have an antidilutive effect on EPS and are excluded from the calculation of diluted EPS. At December 31, 2006 and 2005, the Company had outstanding stock options and warrants to purchase 3,397 and 1,014 shares, respectively, of common stock ranging in price from $1.92 to $7.25 and $5.65 to $7.25 per share, respectively, that were not included in the computation of diluted EPS because they were antidilutive.

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ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

The weighted average number of shares used in the basic and diluted earnings per share computations for the three months ended December 31, 2006 and 2005 are as follows:

			Three Months Ended December 31,
			2006						2005
Weighted average number of common shares outstanding as used in computation of basic EPS of common stock					44,957						44,863
Effect of dilutive securities – stock options and warrants treasury stock method					122						352
Shares used in computation of diluted EPS of common stock					45,079						45,215

11.	Comprehensive Income (Loss):

Components of comprehensive income (loss) include net income and all other non-owner changes in equity, such as the change in the cumulative translation adjustment and unrealized gains from cash flow hedging activities, which are the only items of other comprehensive income (loss) impacting the Company. The following table displays comprehensive income (loss) for the three months ended December 31, 2006 and 2005:

			Three Months Ended December 31,
			2006						2005
Net income				$	1,911					$	3,406
Change in cumulative translation adjustment					3,054						(4,417	)
Unrealized gains from cash flow hedging activities, net of income tax					253						49
Comprehensive income (loss), net of income taxes				$	5,218					$	(962	)

12.	Commitments and Contingencies:

Guarantees:

The Company’s senior credit facility is collateralized by a first priority lien on the assets of Allied Healthcare Group Holdings Limited and certain of its subsidiaries. Together with Allied Healthcare Group Holdings Limited and certain of its subsidiaries, the Company is guaranteeing the debt and other obligations of certain wholly-owned U.K. subsidiaries under the senior credit facility. At December 31, 2006 and September 30, 2006, the amounts guaranteed, which approximate the amounts outstanding, totaled $74,446 and $71,159, respectively. The Company has also granted the senior lenders a security interest in substantially all of its assets to secure the payment of its guarantee.

Employment Agreements

The Company has three employment agreements with its executive officers that provide for minimum aggregate annual compensation of approximately $1,210 in fiscal 2007.

Operating Leases

The Company has entered into various operating lease agreements for office space and equipment. Certain of these leases provide for renewal options. At December 31, 2006, the Company had $8,831 of lease obligations that reflect future minimum rental commitments required under operating leases that have non-cancelable lease terms.

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ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

Contingencies:

Some of the Company’s inactive subsidiaries were Medicare Part B suppliers who submitted claims to the designated carrier who is the U.S. government’s claims processing administrator. From time to time, the carrier may request an audit of Medicare Part B claims on a prepayment or postpayment basis. If the outcome of any audit results in a denial or a finding of an overpayment, then the affected subsidiary has appeal rights. Under postpayment audit procedures, the supplier generally pays the alleged overpayment and can pursue appeal rights for a refund of any paid overpayment incorrectly assessed against the supplier.

The Company believes that it has been in compliance, in all material respects, with the applicable provisions of the federal statutes, regulations and laws and applicable state laws, together with all applicable laws and regulations of other countries in which the Company operates. Due to the broad and sometimes vague nature of these laws and regulations, there can be no assurance that an enforcement action will not be brought against the Company, or that the Company will not be found to be in violation of one or more of these provisions. At present, the Company cannot anticipate what impact, if any, administrative or judicial interpretation of the applicable federal and state laws and those of other countries may have on the Company’s consolidated financial position, cash flows or results of operations.

The Company is involved in various legal proceedings and claims incidental to its normal business activities. The Company is vigorously defending its position in all such proceedings. Management believes these matters should not have a material adverse impact on the consolidated financial position, cash flows or results of operations of the Company.

The two contracts related to the Company’s Oxygen business in the South East of England contain minimum service criteria that the Company must adhere too. Failure to meet the service criteria under such contracts may result in severe financial penalties to the Company. At December 31, 2006, the Company believes it was in compliance, in all material respects, with the service criteria.

13.	Operations by Business Segments and Geographic Areas:

The Company’s operations are in the U.K. The U.K. operations derive its revenues from flexible healthcare services, consisting principally of home health aides, nurses and nurses aides, and supply of unified oxygen services, including concentrators, directly to customers in the South East of England and Northern Ireland as well as cylindered gas to Scotland.

The Company evaluates performance and allocates resources based on profit and loss from operations before corporate expenses, interest and income taxes. The accounting policies of the business segment are the same as those described for the Company.

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ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

The following tables present certain financial information by reportable business segment for the three months ended December 31, 2006 and 2005.

			Three Months Ended December 31, 2006
			Staffing						Oxygen						Total
Total revenues to unaffiliated customers				$	66,854					$	6,156					$	73,010
Segment operating profit				$	3,402					$	1,070					$	4,472
Unallocated corporate expenses																	(908	)
Interest and other expense, net																	(1,013	)
Foreign exchange gain																	139
Income before income taxes																$	2,690
Depreciation and amortization				$	1,276					$	542					$	1,818
Corporate depreciation and amortization																	1
Total depreciation and amortization																$	1,819
Identifiable assets, December 31, 2006				$	183,781					$	20,745					$	204,526
Corporate assets																	2,584
Total assets, December 31, 2006																$	207,110
Total Capital expenditures				$	14					$	574					$	588

			Three Months Ended December 31, 2005
			Staffing						Oxygen						Total
Total revenues to unaffiliated customers				$	73,679					$	2,176					$	75,855
Segment operating profit				$	5,555					$	812					$	6,367
Unallocated corporate expenses																	(773	)
Interest and other expense, net																	(936	)
Foreign exchange loss																	(41	)
Income before income taxes																$	4,617
Depreciation and amortization				$	1,223					$	193					$	1,416
Corporate depreciation and amortization																	2
Total depreciation and amortization																$	1,418
Identifiable assets, December 31, 2005				$	270,693					$	26,362					$	297,055
Corporate assets																	2,514
Total assets, December 31, 2005																$	299,569
Total Capital expenditures				$	2,138					$	5,067					$	7,205

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ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except per share data)
(Unaudited)

14.	Profit Sharing Plan:

The Company maintains a defined contribution plan, pursuant to Section 401(k) of the Internal Revenue Code, covering all U.S. employees who meet certain requirements. In addition to the U.S. plan, the Company’s U.K. subsidiaries also sponsor personal pension plans that operate as salary reduction plans. The Company expects to contribute $92 to such plans in fiscal 2007.

15.	Recent Accounting Standards:

In July 2006, the Financial Accounting Standards Board (the ‘‘FASB’’) issued Interpretation (‘‘FIN’’) No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. This Interpretation is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of FIN 48 on its consolidated financial position and results of operations.

In September 2006, the Securities and Exchange Commission (the ‘‘SEC’’) issued Staff Accounting Bulletin No. 108 (‘‘SAB No. 108’’). The interpretation in SAB No. 108 were issued to address diversity in practice in quantifying financial statement misstatements and the potential under current practice for the build up of improper amounts on the balance sheet. This interpretation establishes the staff’s approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the Company’s financial statements and the related financial statement disclosures. SAB No. 108 permits existing public companies to initially apply its provisions either by (i) restating prior financial statements or (ii) recording the cumulative effect as adjustments to the carrying values of assets and liabilities with an offsetting adjustment recorded to the opening balance of retained earnings. SAB No. 108 is effective for fiscal years ending after November 15, 2006. The Company is currently evaluating the impact of SAB No. 108 on its consolidated financial position and results of operations.

In September 2006. the FASB issued FAS No. 157, Fair Value Measurements (‘‘FAS No. 157’’). FAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also established a framework for measuring fair value in GAAP and expands disclosures about fair value measurement. FAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements. FAS No. 157 is effective for fiscal years ending after November 15, 2007 and interim periods within those fiscal years. The Company is currently evaluating the impact of FAS No. 157 on its consolidated financial position and results of operations.

In September 2006, the FASB issued FAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R) (‘‘FAS No. 158’’). FAS No. 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. FAS No.158 also requires an employer to measure the funded status of a plan as of the date of its year-end statements of financial position, with limited exceptions. FAS No. 158 is effective for fiscal years ending after December 15, 2006 for the initial recognition of the funded status of a defined benefit postretirement plan and the required disclosures. As the Company does not have defined benefit pension or other postretirement plans, FAS No. 158 will not be applicable to it.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion and analysis should be read in conjunction with the information contained in the Condensed Consolidated Financial Statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion contains, in addition to historical information, forward-looking statements that involve risks and uncertainty. Our actual results could differ materially from the results discussed in these forward-looking statements. Factors that could cause or contribute to such differences include those discussed on page 2 in this Quarterly Report on Form 10-Q under ‘‘Forward-Looking Statements.’’

We are a leading provider of flexible, or temporary, healthcare staffing to the United Kingdom (‘‘U.K.’’) healthcare industry as measured by revenues, market share and number of staff. At December 31, 2006, we operated an integrated network of approximately 100 branches throughout most of the U.K. Our healthcare staff consists principally of home health aides (known as carers in the U.K), nurses and nurses aides. We focus on placing our staff on a per diem basis in hospitals, nursing homes, care homes and private homes. We maintain a pool of over 22,000 nurses, nurses aides and home health aides. We also provide unified oxygen services, including concentrators, directly to customers in the South East of England and Northern Ireland as well as cylindered gas in Scotland.

The National Health Services (the ‘‘NHS’’) requires any healthcare staffing company that provides temporary staff to the NHS hospitals in a region to enter into a Framework Agreement setting forth, among other things, applicable quality standards and maximum payment rates. The introduction and further extension of the NHS Framework Agreements has continued to impact our financial results by reducing our margins from this source of business. In addition, we have experienced reduced revenues from the NHS as a result of the NHS Framework Agreements, as well as from the efforts of the NHS to source more of its work from its own employee base and its in-house agency (NHS Professionals). The reduction in demand from the NHS for healthcare staffing services as a result of overspending by the NHS Trusts (the NHS operates its hospitals through NHS Trusts, each of which operates one or more hospitals) has also impacted our financial results.

Critical Accounting Policies

The preparation of our financial statements in accordance with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures in a given reporting period. We believe the following accounting policies are critical areas affecting our financial condition and results of operations where estimates are required.

Accounts Receivable

We are required to estimate the collectibility of our accounts receivable, which requires a considerable amount of judgment in assessing the ultimate realization of these receivables, including the current credit-worthiness of each customer. Significant changes in required reserves may occur in the future as we continue to expand our business and as conditions in the marketplace change.

Our company maintains credit controls to ensure cash collection on a timely basis. The credit terms agreed with our customers range from 7 days to a maximum of 30 days from invoice date. We maintain a credit department which consists of 20-25 personnel who are targeted to collect outstanding receivables. We have established the following guidelines for the credit department to use as well as for us to assess the credit department’s performance:

	•	to maintain average days sales outstanding to below 35 days;

	•	to limit our overdues (greater than 90 days) within agreed targets; and

	•	to limit bad debt write off in the year within agreed targets.

We also apply a policy of withdrawing supply from customers who are significantly overdue. Many private customers are contracted on a ‘‘direct debit’’ basis where we can collect payment direct from customers’ bank accounts.

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We have devised a provisioning methodology based on the customer profile and historical credit risk across our U.K. business. Accounts receivable are written off when the credit control department determines the amount is no longer collectible. In addition, we do not have a threshold for account balance write-offs as our policy focuses on all balances, whatever the size.

Intangible Assets

We have significant amounts of goodwill and other intangible assets. The determination of whether or not goodwill has become impaired involves a significant amount of judgment. Changes in strategy and/or market conditions could significantly impact these judgments and require adjustments to recorded amounts of goodwill. We have recorded goodwill and separately identifiable intangible assets resulting from our acquisitions through December 31, 2006. Goodwill is tested for impairment annually in the fourth quarter of each fiscal year. A more frequent evaluation will be performed if indicators of impairment are present. We completed the annual impairment test of goodwill during the fourth quarter of fiscal 2006 and determined that there was impairment to our goodwill balance. As such, we recorded an impairment charge of $121.9 million in the fourth quarter of fiscal 2006 by using a combination of the market multiple, comparable transaction and discounted cash flow methods. If we are required to record a further impairment charge in the future, it could have an adverse impact on our consolidated financial position or results of operations.

Deferred Income Taxes

We account for deferred income taxes based upon differences between the financial reporting and income tax bases of our assets and liabilities. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. The determination of whether or not valuation allowances are required to be recorded involves significant estimates regarding the future profitability of our company, as well as potential tax strategies for the utilization of net operating loss carryforwards.

Contingencies

We are involved in various legal proceedings and claims incidental to our normal business activities. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies are made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters.

Revenue Recognition

Patient services and respiratory therapy revenues are recognized when services are performed and substantiated by proper documentation. For patient services, which are billed at fixed rates and account for approximately 92% of our company’s business, revenue is recognized upon completion of timesheets that also require the signature of the recipient of services. Revenues from the rental of home medical equipment are recognized over the rental period (typically on a month-to-month basis). Revenues from the sale of oxygen and supplies for use in respiratory therapy are recognized when products are delivered, a contractual arrangement exists, the sales price is either fixed or determinable and collection is reasonably assured.

We receive a majority of our revenue from the NHS and other U.K. governmental payors.

Purchase Accounting

We account for our acquisitions as purchase business combinations. At acquisition, preliminary values and useful lives are allocated based upon fair values that have been determined for assets acquired and liabilities assumed and management’s best estimates for values that have not yet been finalized. We obtain a third-party valuation in order to complete our purchase price allocations. Accordingly, final asset and liability fair values as well as useful lives may differ from management’s original estimates and could have an adverse impact on our consolidated financial position or results of operations.

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Results of Operations

Three Months Ended December 31, 2006 vs. Three Months Ended December 31, 2005

Revenues

Total revenues for the three months ended December 31, 2006 were $73.0 million compared to $75.9 million for the three months ended December 31, 2005, a decrease of $2.9 million or 3.8%. This was mainly due to a reduction in the flexible staffing division as a result of the decline in the demand from the NHS as overspending by the NHS Trusts in other areas has forced significant reductions in agency spending as well as price pressures arising from the extension of the NHS Framework Agreements ($6.8 million). The decrease was partially offset by an increase in revenue in respiratory, medical equipment and supplies resulting from the introduction of the unified oxygen supply contracts that commenced in the second quarter of fiscal 2006 ($3.9 million). Changes in foreign exchange had a favorable effect on revenue ($6.3 million).

Gross Profit

Total gross profit decreased by $1.3 million to $22.4 million for the three months ended December 31, 2006 from $23.7 million for the three months ended December 31, 2005, a decrease of 5.3%. The favorable effects of changes in foreign exchange offset the decrease by $1.9 million. As a percentage of total revenue, gross profit for the three months ended December 31, 2006 decreased to 30.8% from 31.3% for the comparable prior period. Gross margins for patient services decreased (30.1% for the three months ended December 31, 2006 versus 30.6% for the comparable prior period) mainly due to lower margins on the new NHS Framework Agreements. Gross margins in respiratory, medical equipment and supplies sales decreased (38.3% for the three months ended December 31, 2006 versus 54.7% for the comparable prior period) mainly due to the unified oxygen supply contracts that commenced in the second quarter of fiscal 2006.

Selling, General and Administrative Expenses

Total selling, general and administrative expenses increased by $0.8 million to $18.9 million for the three months ended December 31, 2006 from $18.1 million for the three months ended December 31, 2005, an increase of 4.2%. This increase was mainly due to additional costs in the respiratory, medial equipment and supplies business related to the implementation of the unified oxygen contracts that commenced in the second quarter of fiscal 2006 ($0.9 million). The increase was partially offset by lower overhead costs in the nursing segment ($0.2 million). Changes in foreign exchange had an unfavorable affect on selling, general and administrative costs ($1.6 million).

Interest Income

Total interest income for the three months ended December 31, 2006 was $0.04 million compared to $0.03 million for the three months ended December 31, 2005. The increase in interest income was mainly attributable changes in foreign exchange.

Interest Expense

Total interest expense for the three months ended December 31, 2006 was $1.1 million compared to $1.0 million for the three months ended December 31, 2005, which represents an increase of $0.1 million. This increase was principally due to changes in foreign exchange.

Provision for Income Taxes

We recorded a provision for income taxes amounting to $0.8 million or 29.0% of income before income taxes for the three months ended December 31, 2006, compared to a provision of $1.2 million or 26.2% of income before income taxes for the three months ended December 31, 2005. The difference in the effective tax rate between the three months ended December 31, 2006 and the three months ended December 31, 2005 is mainly due to permanent differences in the U.K.

Net Income

As a result of the foregoing, we recorded net income of $1.9 million for the three months ended December 31, 2006 compared to net income of $3.4 million for the three months ended December 31, 2005.

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Liquidity and Capital Resources

General

For the three months ended December 31, 2006, we generated $7.2 million of cash from operating activities. Cash requirements for the three months ended December 31, 2006 for capital expenditures ($0.6 million), payments for acquisitions payable ($1.7 million) and payments for financing fees ($0.2 million), were met through operating cash flows and cash on hand.

In January 2001, we initiated a stock repurchase program, whereby we may purchase up to approximately $1.0 million of our outstanding shares of common stock in open-market transactions or in privately-negotiated transactions. In May 2003, we initiated a second stock repurchase program, pursuant to which we may purchase up to an additional $3.0 million of our outstanding shares of common stock in open-market transactions or in privately-negotiated transactions. As of December 31, 2006, we had acquired 407,700 shares of our common stock for an aggregate purchase price of $1.3 million pursuant to our stock repurchase programs, which are reflected as treasury stock in the condensed consolidated balance sheet at December 31, 2006. In addition, as of December 31, 2006, we had acquired 177,055 shares of our common stock for an aggregate value of $1.0 million from certain of our executive officers. Such shares were acquired in fiscal 2004 and delivered to us as payment on promissory notes issued by us to them.

We believe the existing capital resources and those generated from operating activities and available under existing borrowing arrangements will be adequate to conduct our operations for the next twelve months.

Accounts Receivable

We maintain a cash management program that focuses on the reimbursement function, as growth in accounts receivable has been the main operating use of cash historically. At December 31, 2006 and September 30, 2006, $28.7 million (13.9%) and $29.6 million (15.2%), respectively, of our total assets consisted of accounts receivable. The decrease in the accounts receivable from fiscal year end is mainly due to timing of cash collections and lower volume of business.

Our goal is to maintain accounts receivable levels equal to or less than industry average, which would tend to mitigate the risk of negative cash flows from operations by reducing the required investment in accounts receivable and thereby increasing cash flows from operations. We maintain credit controls to ensure cash collection on a timely basis. Days sales outstanding (‘‘DSOs’’) is a measure of the average number of days taken by our company to collect its accounts receivable, calculated from the date services are rendered. At December 31, 2006 and September 30, 2006, our average DSOs were 35 and 36, respectively.

At December 31, 2006 gross receivables were $31.3 million, of which $19.6 million or 62.4% were represented by amounts due from U.K. governmental bodies, either the NHS or local governmental social service departments (the ‘‘SSD’’). At September 30, 2006 gross receivables were $32.1 million, of which $19.6 million or 61.0% were represented by amounts due from U.K. governmental bodies. The remaining accounts receivable balance is due from commercial payors (nursing homes, private hospitals and pharmacies) and private payors.

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The following table summarizes the accounts receivable aging by payor mix at December 31, 2006 and September 30, 2006 (dollars in thousands):

At December 31, 2006			0-30 Days						31-60 Days						61-90 Days						91-120 Days						121 Days And Over						AR At 12/31/2006
NHS				$	4,887					$	1,741					$	514					$	344					$	1,615					$	9,101
SSD					7,077						1,763						647						565						404						10,456
Commercial Payors					5,977						1,451						552						271						335						8,586
Private Payors					1,676						517						211						153						646						3,203
Gross AR at 12/31/06				$	19,617					$	5,472					$	1,924					$	1,333					$	3,000					$	31,346
Less: Surcharges(A)																																			(729	)
Less: Allowance For Doubtful Accounts																																			(1,910	)
Accounts Receivable, net																																		$	28,707

At September 30, 2006			0-30 Days						31-60 Days						61-90 Days						91-120 Days						121 Days And Over						AR At 9/30/2006
NHS				$	4,749					$	2,343					$	555					$	474					$	1,105					$	9,226
SSD					6,820						2,415						539						345						243						10,362
Commercial Payors					6,279						1,729						429						214						263						8,914
Private Payors					1,780						573						240						156						841						3,590
Gross AR at 9/30/06				$	19,628					$	7,060					$	1,763					$	1,189					$	2,452					$	32,092
Less: Surcharges(A)																																			(738	)
Less: Allowance For Doubtful Accounts																																			(1,713	)
Accounts Receivable, net																																		$	29,641

(A)	Surcharges represent interest charges to customers on overdue accounts. The surcharges are recognized in income only upon receipt of payment.

As discussed above under ‘‘Critical Accounting Policies – Accounts Receivable,’’ each fiscal year we undertake a review of our methodology and procedure for reserving for our doubtful accounts. This process also takes into account our actual experience of write offs in the period. The policy is then applied at each quarter end to arrive at a closing reserve for doubtful accounts.

Given the high percentage of U.K. governmental debt, the large number of customer accounts with low-value debt within the remainder of the accounts receivable ledger and the methodology for making provisions for doubtful accounts, we believe our provisioning method is prudent and appropriate to our business.

We provide nurses and home health aides on the basis of terms (payment due within 7 to 30 days of invoice) and prices (rate per hour) agreed to in advance with our customers. Time sheets are signed by clients for the work performed and then invoices are generated based on agreed billing rates. Consequently, there is no process for approval of invoices. Our credit control policies currently achieve an average collection of approximately 35 days from submission of invoices.

As our current operations are in the U.K. and the majority of accounts receivable is from U.K. governmental bodies for which payment terms and prices are agreed in advance, we have not recorded any contractual allowances. There have been agreements with the NHS to adjust rates (both increases and decreases) depending on the volume of hours utilized. Billing adjustments are reviewed quarterly based on actual volumes delivered and any entries are recognized during the appropriate period. No material adjustments have arisen based on volumes delivered.

Borrowings

General

In the fourth quarter of fiscal 2004, our U.K. subsidiary obtained a new senior credit facility, which was amended and restated in the first quarter of fiscal 2007 to provide for additional facilities.

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The senior credit facility is collateralized by a first priority lien on the assets of Allied Healthcare Group Holdings Limited (‘‘Allied Holdings’’) and certain of its subsidiaries. Together with Allied Holdings and certain of its subsidiaries, our company is guaranteeing the debt and other obligations of certain wholly-owned U.K. subsidiaries under the senior credit facility. In conjunction with the amendment to the senior credit facility, we have granted the senior lenders a security interest in substantially all of our assets to secure the payment of our guarantee.

The senior credit facility consists of the following:

	•	£18 ($35.2) million term loan A, maturing July 2009;

	•	until commencement of the invoice discount facility, a £20 ($39.2) million revolving loan B maturing July 2009 which may be drawn upon until June 2009;

	•	following commencement of the invoice discount facility, a £12.5 ($24.5) million revolving loan B1 and a £7.5 ($14.7) million invoice discounting facility B2, both of which mature July 2009 and may be drawn upon until June 2009; and

	•	£8.0 ($15.7) million revolving loan C maturing July 2009 which may be drawn upon until June 2009.

Repayment of the term loan A is made semi-annually until final maturity. Repayment of revolving loan B shall be on the last day of its interest period. Repayment of revolving loan B1 is on the last day of its interest period. Repayment of invoice discounting loan B2 shall be on the maturity date (July 2009). Repayment of revolving loan C shall be on the maturity date (July 2009) or, if earlier, the date that the other facilities are repaid. The loans bear interest at rates equal to LIBOR plus any bank mandatory costs (if applicable) plus 0.70% to 3.50% per annum (depending on consolidated debt to consolidated profit ratios). As of December 31, 2006, we had outstanding borrowings of $35.2 million and $39.2 million relating to term loan A and revolving loan B, respectively, under the senior credit facility, that bore interest at rates ranging from 5.66% to 6.05%.

The invoice discount facility commenced on January 11, 2007 and provides, among other things, the following:

	•	we can borrow on 85% of our approved flexible staffing accounts receivable, which excludes accounts receivable greater than 120 days, credit balances and reserves;

	•	no one debtor can exceed 10% of the outstanding approved accounts receivable; and

	•	accounts receivable relating to private individuals and the oxygen business is not fundable.

The senior credit facility agreement is based on the U.K.’s Loan Markets Association Multicurrency Term and Revolving Facilities agreement which is a standard form designed to be commercially acceptable to the corporate lending market.

Subject to certain exceptions, the senior credit facility prohibits or restricts the following, among other things:

	•	incurring liens and granting security interests in our assets or the assets of certain of our U.K. subsidiaries;

	•	incurring additional indebtedness;

	•	making certain fundamental corporate changes;

	•	paying dividends (including the payment of dividends to our company by our subsidiaries);

	•	making specified investments, acquisitions or disposals;

	•	repurchasing shares; and

	•	entering into certain transactions with affiliates.

The senior credit facility contains affirmative and negative financial covenants customarily found in agreements of this kind, including the maintenance of certain financial ratios, such as cash flow to debt

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service, earnings (before interest, taxes, depreciation and amortization) to interest expense, and net borrowings to earnings (before interest, taxes, depreciation and amortization). We are also obligated to ensure that the guarantors of the senior credit facility must not at any time represent less than 90% of the consolidated gross assets, turnover or earnings before interest and taxes of the U.K. subsidiaries. As of December 31, 2006, we were in compliance with such financial covenants.

The senior credit facility places limits on our ability to incur capital expenditures, requires us to separate the role of the chairman and the chief executive officer no later than August 1, 2007, and requires us to engage a consultant to review our operations and make recommendations with respect thereto.

In the fourth quarter of fiscal 2006, the senior credit facility was amended to provide an overdraft facility (‘‘Overdraft Facility’’) in the amount of £3.0 ($5.9) million for general corporate purposes. We had utilized the Overdraft Facility in the first quarter of fiscal 2007 and had no amounts outstanding as of December 31, 2006. The Overdraft Facility was repayable upon the earlier of demand from the bank or January 11, 2007. Interest on the Overdraft Facility was charged at the same rate as loans under the revolving loan B. In December 2006, the Overdraft Facility was rolled over and incorporated into our loan under the amended and restated senior credit facility.

Guarantees

The senior credit facility is secured by a first priority lien on the assets of the Allied Holdings and certain of its subsidiaries. Together with Allied Holdings and certain of its subsidiaries, our company is guaranteeing the debt and other obligations of certain wholly-owned U.K. subsidiaries under the senior credit facility. In conjunction with the amendment to the senior credit facility, we granted the lenders a security interest in substantially all of our assets to secure the payment of our guarantee. At December 31, 2006 and September 30, 2006, the amounts guaranteed, which approximates the amounts outstanding, totaled $74.4 million and $71.2 million, respectively.

Financial Instrument

In February 2005, we entered into two interest rate swap agreements, which expire on July 20, 2009, the objective of which is to protect us against the potential rising of interest rates on our floating rate debt. The two interest rate swap agreements cover approximately $58.8 million of our floating rate debt until January 21, 2008 and then decreases by $5.9 million each six month period, in order to reflect the amortizing effect of our floating rate debt, until the end of the interest rate swap agreements. The interest rate under the swap agreements is fixed at 4.935% and is payable semi-annually. In the third quarter of fiscal 2005, we designated the two interest rate swap agreements as cash flow hedges. In accordance with FAS No. 133, Accounting for Certain Derivative Instruments and Certain Hedging Activities, as amended by FAS No. 138 and related implementation guidance (FAS No. 133), we calculated the fair value of the interest rate swap agreements to be an asset of $0.7 million and $0.3 million at December 31, 2006 and September 30, 2006, respectively. Prior to the cash flow hedge designation, changes in the value from period to period of the interest rate swap agreements was recorded as other expense or income, as appropriate. At December 31, 2006 and September 30, 2006, the effective portion of the income on the interest rate swap agreements designated as cash flow hedges was $0.5 million, net of $0.2 million of income tax, and $0.3 million, net of $0.1 million of income tax , respectively, and is included in other comprehensive income. For the three months ended December 31, 2006 and 2005, we recognized other income of $45 thousand, net of $19 thousand of income tax and other expense of $10 thousand, net of $4 thousand of income tax, respectively, related to the cash flow hedge ineffectiveness. We will continue to assess the effectiveness of these cash flow hedges on a quarterly basis.

Commitments

Employment Agreements

We have three employment agreements with our executive officers that provide for minimum aggregate annual compensation of approximately $1.2 million in fiscal 2007.

In September 2001, we entered into an employment agreement with Timothy M. Aitken, our chairman and chief executive officer. The employment agreement has a three-year term (subject to automatic

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renewal for successive additional one-year periods unless either party provides the other with notice of intent to terminate the agreement at least 90 days before the then applicable termination date). The employment agreement provides that we will negotiate in good faith, commencing not less than 90 days prior to the anniversary date of the employment agreement, the amount, if any, of future salary increases. The salary of Mr. Aitken is currently $0.6 million. Mr. Aitken’s employment agreement provides that if his employment is terminated during the term of the agreement other than for cause, death or disability, or if, within six months of a ‘‘change in control’’ (as defined in the agreement) of our company, Mr. Aitken or the company terminates his employment, then (1) all stock options in the Company held by Mr. Aitken shall immediately vest and (2) Mr. Aitken will be entitled to receive a cash payment of 2.9 times his average annual base salary during the twelve months preceding the change of control or the termination of employment.

In September 2001, we entered into an employment agreement with Sarah L. Eames, which was modified in November 2004 and September 2005 and amended and restated in October 2006. Pursuant to her amended and restated employment agreement, Ms. Eames will serve as Executive Vice President of our company for a period of 18 months. The amended and restated employment agreement is subject to automatic renewal for successive periods of one year each unless terminated by either party on 90 days’ notice. Pursuant to her amended and restated employment agreement, Ms. Eames’ base salary is $0.3 million per annum. In addition she is entitle to receive $5 thousand for each trip of five business day or more that she makes to the U.K. on company business; however, the maximum amount payable to her in any calendar year for such trips is $50 thousand. Ms. Eames’ amended and restated employment agreement provides that if her employment is terminated during the term of the agreement other than for cause, death or disability, or if, within six months of a ‘‘change in control’’ (as defined in the amended and restated employment agreement) of our company, Ms. Eames or our company terminates her employment (other than for cause, death or disability), then (1) all stock options in our company held by Ms. Eames will immediately vest and (2) Ms. Eames will be entitled to receive a cash payment of 1.9 times her annual base salary during the twelve months preceding the termination of employment or the change in control.

In Deeds of Restrictive Covenants entered into in 1999 with one of our U.K. subsidiaries, Mr. Aitken and Ms. Eames have each agreed not to compete with us or our subsidiaries for twelve months following termination of employment without our prior written consent.

In July 2006 we entered into an employment agreement with Mr. Moffatt. Our employment agreement with Mr. Moffatt provides that, during the first six months thereof, either party may terminate the agreement upon one month’s written notice and, thereafter, either party may terminate the agreement upon six month’s written notice. Our employment with Mr. Moffatt further provides that Mr. Moffatt will not compete against us for a period of six months following the termination of his employment with us. Pursuant to his employment agreement, Mr. Moffatt currently receives a salary of £0.2 million (approximately $0.4 million). In addition, pursuant to his employment agreement with us, Mr. Moffatt receives a car allowance and we have agreed to make a payment equal to 15% of his annual salary towards his U.K.-based private pension fund.

Operating Leases

The Company has entered into various operating lease agreements for office space and equipment. Certain of these leases provide for renewal options.

22

Table of Contents

Contractual Cash Obligations

As described under ‘‘Borrowings,’’ and ‘‘Commitments’’ above, the following table summarizes our contractual cash obligations as of December 31, 2006 (dollars in thousands):

Fiscal			Total Debt Obligations(1)						Total Lease Obligations						Total Obligations
2007				$	11,755					$	2,451					$	14,206
2008					11,755						1,908						13,663
2009					50,936						1,560						52,496
2010					—						1,255						1,255
2011					—						847						847
Thereafter					—						810						810
				$	74,446					$	8,831					$	83,277

(1)	These amounts do not include interest payments. Based on current levels of debt, we expect to incur annual interest payments of approximately $4.3 million.

Lease obligations reflect future minimum rental commitments required under operating lease agreements as of December 31, 2006. Certain of these leases provide for renewal options.

Contingencies

Some of our inactive subsidiaries were Medicare Part B suppliers who submitted claims to the designated carrier who is the government’s claims processing administrator. From time to time, the carrier may request an audit of Medicare Part B claims on a prepayment or postpayment basis. If the outcome of any audit results in a denial or a finding of an overpayment, then the affected subsidiary has appeal rights. Under postpayment audit procedures, the supplier generally pays the alleged overpayment and can pursue appeal rights for a refund of any paid overpayment incorrectly assessed against the supplier.

We believe that we have been in compliance, in all material respects, with the applicable provisions of federal laws and regulations and applicable state laws, together with the applicable laws and regulations of other countries in which we operate. Due to the broad and sometimes vague nature of these laws and regulations, there can be no assurance that an enforcement action will not be brought against us, or that we will not be found to be in violation of one or more of these laws or regulations. At present, we cannot anticipate what impact, if any, administrative or judicial interpretations of applicable federal and state laws and the laws of other countries in which we operate may have on our financial position, cash flows and results of operations.

We are involved in various legal proceedings and claims incidental to our normal business activities. We are vigorously defending our position in all such proceedings. We believe that these matters should not have a material adverse impact on our consolidated financial position, cash flows or results of operations.

The two contracts related to our company’s oxygen business in the South East of England contain minimum service criteria that we must adhere too. Failure to meet the service criteria under such contracts may result in severe financial penalties to us. At December 31, 2006, we believe we were in compliance, in all material aspects, with the service criteria.

Impact of Recent Accounting Standards

See Note 15 of the Notes to Condensed Consolidated Financial Statements for our quarter ended December 31, 2006.

23

Table of Contents

Item 3.	Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Exchange

We face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our consolidated financial results. Currently, we do not hedge foreign currency exchange rate exposures.

The translation of the financial statement of our U.K. operations is impacted by fluctuations in foreign currency exchange rates. For the year to date fiscal 2007 period as compared to the year to date fiscal 2006 average rate, the translation of our U.K. financial statements into U.S. dollars resulted in increased revenues of $6.3 million, increased operating income of $0.4 million and increased net income of $0.2 million. We estimate that a 10% change in the exchange rate between the British pound and the U.S. dollar would have a $7.3 million, $0.5 million and $0.2 million impact on reported revenues, operating income and net income, respectively.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relate primarily to our cash equivalents and the senior credit facility. Our cash equivalents include highly liquid short-term investments purchased with initial maturities of 90 days or less. To manage our exposure to interest rate changes related to our senior credit facility, we use interest rate swap agreements.

In fiscal 2005, we entered into two interest rate swap agreements, which expire on July 20, 2009, the objective of which is to protect us against the potential rising of interest rates on our floating rate debt. The two interest rate swap agreements cover approximately $58.8 million of our floating rate debt until January 21, 2008 and then decreases by $5.9 million each six month period, in order to reflect the amortizing effect of our floating rate debt, until the end of the interest rate swap agreements. The interest rate under the swap agreements is fixed at 4.935% and is payable semi-annually. In the third quarter of fiscal 2005, we designated the two interest rate swap agreements as cash flow hedges. In accordance with FAS No. 133, we calculated the fair value of the interest rate swap agreements to be an asset of $0.7 million and $0.3 million at December 31, 2006 and September 30, 2006, respectively. Prior to the cash flow hedge designation, changes in the value from period to period of the interest rate swap agreements was recorded as other expense or income, as appropriate. At December 31, 2006 and September 30, 2006, the effective portion of the income on the interest rate swap agreements designated as cash flow hedges was $0.5 million, net of $0.2 million of income tax, and $0.3 million, net of $0.1 million of income tax , respectively, and is included in other comprehensive income. For the three months ended December 31, 2006 and 2005, we recognized other income of $45 thousand, net of $19 thousand of income tax and other expense of $10 thousand, net of $4 thousand of income tax, respectively, related to the cash flow hedge ineffectiveness. We will continue to assess the effectiveness of these cash flow hedges on a quarterly basis.

The interest rate on our remaining bank debt of $15.7 million is reset at least every month to reflect current market rates. Consequently, the carrying value of our variable rate bank debt approximates its fair value at December 31, 2006.

Item 4.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures.    Our company’s management, with the participation of our chief executive officer and our chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2006.

Under the rules of the Securities and Exchange Commission, ‘‘disclosure controls and procedures’’ are defined as controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information

24

Table of Contents

required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

At September 30, 2006, we identified a material weakness in our internal control over financial reporting related to the control of oxygen cylinders in the Allied Respiratory Limited business. A material weakness in internal control over financial reporting, as defined under standards established by the Public Company Accounting Oversight Board’s Auditing Standard No.2, is a control deficiency or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

In February 2006 the company was awarded two contracts to supply oxygen, using a mix of concentrators and clinical grade oxygen cylinders directly to patients homes, instead of the supply of oxygen in cylinders to pharmacies. In the legacy business we used some 80,000 cylinders to provide oxygen to pharmacies. They in turn distributed the oxygen to patient’s homes. The cylinders were not bar coded and the information systems to record the location of the cylinders were inadequate. As a result of having reorganized our Allied Respiratory Limited business to the new form of supply, substituting the use of cylinders only for concentrators and cylinders, in fiscal 2006 we wrote off 42,000 cylinders with a book value of $5.4 million. Most of these cylinders are still in the field and it is uneconomical to collect them for scrap value. However, it was apparent to management that the manual records were inadequate to enable us to recover these assets should it be economic to do so. Accordingly, based on the specific criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission, management determined that these control deficiencies constituted a material weakness.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework. Based on this evaluation, management concluded that the company’s internal control over financial reporting was ineffective as of September 30, 2006 because of the material weakness in the control of oxygen cylinders in the Allied Respiratory Limited business.

Remediation of Material Weakness

To rectify this weakness, in the quarter ended December 31, 2006, we started to bar code all the retained cylinders as they pass through our filling plant and we have adapted our computer systems to record the delivery and recovery of assets from patients. During the coming months we will review the effectiveness of these controls.

Accordingly, and based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2006.

Changes in Internal Control Over Financial Reporting.    Under the rules of the Securities and Exchange Commission, ‘‘internal control over financial reporting’’ is defined as a process designed by, or under the supervision of, an issuer’s principal executive and principal financial officers, and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

As a result of the remediation of material weakness, certain changes have been made to the company’s internal control structure, which management believes will strengthen its internal controls over the oxygen cylinders. There have not been any other changes in our internal control over financial reporting during the quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

25

Table of Contents

Part II

Item 6.	Exhibits

	10	.2				Sales Ledger Financing Agreement between Allied Healthcare Group Limited and Barclays Bank PLC.
	10	.3				Sales Ledger Financing Agreement between Allied Staffing Professionals Limited and Barclays Bank PLC.
	10	.4				Sales Ledger Financing Terms and Conditions Agreement between Allied Healthcare Group Limited and Barclays Bank PLC.
	10	.5				Sales Ledger Financing Terms and Conditions Agreement between Allied Staffing Professionals Limited and Barclays Bank PLC.
	31	.1				Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
	31	.2				Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
	32	.1				Section 1350 Certification of Chief Executive Officer.
	32	.2				Section 1350 Certification of Chief Financial Officer.

26

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 thereunto duly authorized.

Dated:   February 5, 2007

ALLIED HEALTHCARE INTERNATIONAL INC.

By:			/s/ David Moffatt
			David Moffatt
			Chief Financial Officer
			(Principal Financial Officer and Duly Authorized to Sign on Behalf of Registrant)

EX-10.2

                                                                  CONFORMED COPY

                                    BARCLAYS

                        Sales Ledger Financing Agreement

                                     Between

                                Barclays Bank PLC

                                       And

                         Allied Healthcare Group Limited

                                       At

                      Medicare House, Stone Business Park,
                           Brooms Road, Stone ST15 0TL

                       Company Registered Number 01689856

                         Agreement Date 12 December 2006

                 Commencement Date ____________________________

Signed As A Deed On 12 December 2006

By Barclays Bank PLC

Acting By


Alan Douglas                            Alan Douglas
- -------------------------------------   ----------------------------------------
Full Name of Attorney                   Signature of Attorney

In The Presence Of:


David Jeyes                             David Jeyes
- -------------------------------------   ----------------------------------------
Full Name of Witness                    Signature of Witness



                                                                  CONFORMED COPY

We have pleasure in offering a Confidential Invoice Discounting Facility to
Allied Healthcare Group Limited, on the following basis, and incorporating
Barclays Sales Ledger Financing Terms and Conditions:

Early Payment Facility                  You will have the benefit of an Early
                                        Payment from us, towards the Purchase
                                        Price of Approved Debts, at the
                                        percentage set out below.

Recourse Facility                       At the expiry of the Recourse Period any
                                        Early Payment in respect of an
                                        Outstanding Debt has to be returned to
                                        us.

Minimum Period of this Agreement        From the Commencement Date to the
(Condition 1.8)                         Termination Date

Minimum Notice Period to Terminate      6 months.
this Agreement
(Condition 1.8)

Early Payment Percentage                85% of Approved Debts.
(Condition 5.7(ii))

Early Payment Ceiling                   (pound)7,500,000
(Condition 5.7(i))

Prime Debtor Restriction                That no one debtor exceeds 10% of the
(Condition 5.7(iii) and Definition)     outstanding Approved Debts or such other
                                        percentages as may be notified by us to
                                        you.

Discount -                              Margin plus Base Rate.
(Condition 6.1)

Your Payment Terms                      30 days.
(Condition 13.2(I))

Permitted Currencies in addition to     n/a.
Sterling
(Condition 13.2(m))

                                        We do not require to be notified of
                                        sales to Associated Companies / Cash /
                                        Exports / Contra / Proforma

TERMS APPLICABLE ONLY TO U.K. DEBTS

U.K. Debts to which this Agreement      All U.K. Debts.
applies:
(Condition 1.6)

Recourse Period for each U.K.           120 days from the last day of the month
Recourse Debt.                          of issue of the relative invoice.
(Conditions 5.3 and 5.7(iv))

Minimum Level of Service Charges for    (pound)2,000 in each period of 1 month.
U.K. Debts
(Conditions 6.3 and 6.4)


                                        1



                                                                  CONFORMED COPY

THE COMMENCEMENT OF THE FACILITY WILL BE SUBJECT TO OUR SIGHT AND SATISFACTION
WITH THE FOLLOWING CONDITIONS:

We require the enclosed pre switch on stationery pack to be completed.

We receive a copy of your standard terms and conditions of sale which must be
acceptable to us including compliance with the requirements of the Data
Protection Act 1998.

1    THE FOLLOWING ARE STANDARD OPERATING CONDITIONS THAT SHALL APPLY FOR THE
     DURATION OF THE FACILITY:

1.1  We would draw your attention to clause number 26 of the Sales Ledger
     Financing Terms and Conditions, which will guide you through the additional
     standard operational conditions of your facility.

1.2  We are supplied with a monthly aged creditors listing.

1.3  The Early Payment Percentage shall become subject to review in the event
     that either during any rolling 3 month period credit notes shall exceed 5%
     of discounted turnover OR beyond recourse balances as at any month end
     shall exceed 8% of the discounted sales ledger. The early payment
     percentage shall be reduced by 1% for every 1% breach.

1.4  We will require you to retain monthly day book listings together with a
     month end aged debtors analysis.

1.5  Permanent placement invoicing should not exceed 2.00% of your sales ledger.

1.6  A reserve a (pound)110,000 will be offset against your availability. Such a
     reserve being retained in consideration of the Retrospective Rebates
     existing on the sales ledger. We reserve the right to adjust the reserve or
     unapproved debtors where contra balances exist at our sole discretion.

1.7  The maximum terms of trade should not exceed 60 days as terms in excess of
     these may result in the debtor concerned being handled on an unapproved
     basis only.

1.8  With reference to clause 26.24, the totals upload facility offered is in
     relation to invoice and credit notes total only, no cash.

1.9  The Early Payment Ceiling listed above, and any reserves and operating
     conditions referred to in this Agreement, apply in respect of the group as
     a whole with the group being defined for these purposes as Allied
     Healthcare Group Limited & Allied Staffing Professionals Limited.

1.10 We require any credit note uploads to be a net figure of the Credit Memos
     less the Debit Memos plus Adjustments as defined by your current system.

1.11 Any outstanding unallocated credits/cash within the end column will be
     taken into account when undertaking the monthly recourse adjustment.

1.12 Funding to Master Vendor debtors will be limited to 5% of the fundable
     ledger, a reserve will be held for any excess.

1.13 A reserve of (pound)1,600,000 in respect of outstanding debt to private
     individuals will be established and amended at our discretion. We require a
     report detailing the amount of debt outstanding to private individuals to
     accompany your month end reconciliation.


                                       2



                                                                  CONFORMED COPY

1.14 All invoices, credit notes, cash and sales ledger adjustments are to be
     processed through the Oracle system and a monthly sales ledger control
     completed and held to our order.

1.15 All manual invoices are to be processed through the Oracle system as an
     invoice and not as a debit memo.

1.16 A reserve of (pound)600,000 in respect of certain creditors will be
     established and held at our discretion.

2    THE FOLLOWING ARE ADDITIONAL BESPOKE CONDITIONS THAT SHALL APPLY FOR THE
     DURATION OF THE FACILITY:

2.1  Definitions

     2.1.1 For the purposes of this agreement, (a) unless a contrary intention
           appears, a term defined in the Facility Agreement dated 19 July 2004
           between Allied Healthcare Group Limited, Allied Healthcare Holdings
           Limited, Allied Healthcare International Inc, the Guarantors listed
           therein, Barclays Capital and Lloyds TSB Bank PLC as Arrangers and
           Ancillary Lenders, the Original Lenders listed therein and Barclays
           Bank PLC as Agent and Security Agent (the "ORIGINAL FACILITY
           AGREEMENT") ,as the same is amended from time to time, has the same
           meaning in this document: and (b) the principles of construction set
           out in the Original Facility Agreement shall have effect as if set
           out in this agreement.

     2.1.2 "AMENDED AGREEMENT" means the Original Facility Agreement as amended
           and restated on or around the Commencement Date.

           "MARGIN DETERMINATION DATE" means the Commencement Date and quarterly
           thereafter.

           "MARGIN DETERMINATION PERIOD" means each three month period ending on
           the Margin Determination Date.

2.2  Condition 1.7

     Condition 1.7 shall be amended such that reference to "the Agreement" shall
     include the Amended Agreement as varied, amended or extended and the
     penultimate sentence shall be deleted and replaced with the following:

     "The terms of the Amended Agreement as varied, amended or extended shall
     prevail over any inconsistency in this document and the conditions."

2.3  Margin

     The Margin applicable for the Discount referred to above shall be the rate
     per annum determined by reference to the ratio of Net Borrowings to EBITDA
     as shown in the most recent Compliance Certificate received by the Agent at
     least 5 Business Days before the Margin Determination Date.

     RATIO                                   MARGIN (% P.A.)
     -------------------------------------------------------
     Greater than 3.5:1.0                          2.25
     -------------------------------------------------------


                                       3



                                                                  CONFORMED COPY

     RATIO                                   MARGIN (% P.A.)
     -------------------------------------------------------
     Greater than 3.0:1.0 but less than or         1.75
     equal to 3.5:1.0
     -------------------------------------------------------
     Greater than 2.5:1.0 but less than or         1.25
     equal to 3.0:1.0
     -------------------------------------------------------
     Greater than 2.0:1.0 but less than or         1.00
     equal to 2.5:1.0
     -------------------------------------------------------
     Greater than 1.0:1.0 but less than or         0.80
     equal to 2.0:1.0
     -------------------------------------------------------
     Equal to or less than 1.0:1.0                 0.70
     -------------------------------------------------------

2.4  Representations and Warranties

     2.4.1 You hereby agree that every Notification Schedule delivered in
           accordance with this agreement shall be accompanied by a signed
           certificate to the effect that as at the date of such certificate the
           following conditions are satisfied:

           (a)  no Event of Default or Termination Event is continuing; and

           (b)  the Repeating Representations to be made by the Parent and each
                Obligor in accordance with the Amended Agreement are true in all
                material respects.

     2.4.2 Notwithstanding Condition 5.11 you may not draw from your Payment
           Account if on the date of proposed drawing the Bespoke Conditions
           4.1(a) and (b) are not satisfied.

2.5  Prepayment

     You hereby agree that the prepayment and cancellation provisions at Clause
     8 of the Amended Agreement shall apply as relevant to this agreement.

2.6  Undertakings

     2.6.1 Condition 14.1(b)(i) shall not apply in respect of any change or
           contemplated change in the directors.

     2.6.2 Condition 14.1(r) shall not apply.

2.7  Termination

     2.7.1 A new sub-clause shall be added to Condition 20.2 as follows:

           (ee) an Event of Default occurs and is continuing under the Amended
           Agreement.

     2.7.2 Sub-clause (e) of Condition 20.2 shall be deleted and replaced with
           the following:

           (e) any obligation of yours to a third party for repayment of
           borrowed money being declared due prior to its stated maturity date
           or not being paid when due provided that the sum declared due or
           unpaid is (when aggregated with all other such sums) in excess of
           (pound)1,000,000.


                                       4



                                                                  CONFORMED COPY

     2.7.3 Sub-clauses (f) and (g) of Condition 20.2 shall be deleted.

     2.7.4 The Termination Events in sub-clauses (a), (b) and (c) of Condition
           20.2 shall not occur if the breach or threatened breach is capable of
           remedy and is remedied within 10 Business Days of us giving notice to
           you or you becoming aware of the breach or threatened breach.


                                       5



                                                                  CONFORMED COPY

DATA PROTECTION ACT 1988

To confirm the consent of the company to this agreement, and to acknowledge the
opportunity to take independent advice as to all its terms the company has
executed this document as indicated below.

Signed As A Deed On 12 December 2006.By You

Allied Healthcare Group Limited

Acting By


David Moffatt                           David Moffatt
- -------------------------------------   ----------------------------------------
Full Name of Director                   Signature of Director


Paul Weston                             Paul Weston
- -------------------------------------   ----------------------------------------
Full Name of Director                   Signature of Director


                                       6

EX-10.3

                                                                  CONFORMED COPY

                                    BARCLAYS

                        Sales Ledger Financing Agreement

                                     Between

                                Barclays Bank PLC

                                       And

                      Allied Staffing Professionals Limited

                                       At

                      Medicare House, Stone Business Park,
                           Brooms Road, Stone ST15 0TL

                       Company Registered Number 02149723

                         Agreement Date 12 December 2006

                    Commencement Date _______________________

Signed As A Deed On 12 December 2006

By Barclays Bank PLC

Acting By

Alan Douglas                              Alan Douglas
- ---------------------------------------   --------------------------------------
Full Name of Attorney                     Signature of Attorney

In The Presence Of:

David Jeyes                               David Jeyes
- ---------------------------------------   --------------------------------------
Full Name of Witness                      Signature of Witness



                                                                  CONFORMED COPY

We have pleasure in offering a Confidential Invoice Discounting Facility to
Allied Staffing Professionals Limited, on the following basis, and incorporating
Barclays Sales Ledger Financing Terms and Conditions:

Early Payment Facility                    You will have the benefit of an Early
                                          Payment from us, towards the Purchase
                                          Price of Approved Debts, at the
                                          percentage set out below.

Recourse Facility                         At the expiry of the Recourse Period
                                          any Early Payment in respect of an
                                          Outstanding Debt has to be returned to
                                          us.

Minimum Period of this Agreement          From the Commencement Date to the
(Condition 1.8)                           Termination Date

Minimum Notice Period to Terminate this   6 months.
Agreement
(Condition 1.8)

Early Payment Percentage                  85% of Approved Debts.
(Condition 5.7(ii))

Early Payment Ceiling                     (pound)7,500,000
(Condition 5.7(i))

Prime Debtor Restriction                  That no one debtor exceeds 10% of the
(Condition 5.7(iii) and Definition)       outstanding Approved Debts or such
                                          other percentages as may be notified
                                          by us to you.

Discount -                                Margin plus Base Rate.
(Condition 6.1)

Your Payment Terms                        30 days.
(Condition 13.2(I))

Permitted Currencies in addition to       n/a.
Sterling
(Condition 13.2(m))

                                          We do not require to be notified of
                                          sales to Associated Companies / Cash /
                                          Exports / Contra / Proforma

TERMS APPLICABLE ONLY TO U.K. DEBTS

U.K. Debts to which this Agreement        All U.K. Debts.
applies:
(Condition 1.6)

Recourse Period for each U.K. Recourse    120 days from the last day of the
Debt.                                     month of issue of the relative
(Conditions 5.3 and 5.7(iv))              invoice.

Minimum Level of Service Charges for      (pound)1,000 in each period of 1
U.K. Debts                                month.
(Conditions 6.3 and 6.4)


                                        1



                                                                  CONFORMED COPY

THE COMMENCEMENT OF THE FACILITY WILL BE SUBJECT TO OUR SIGHT AND SATISFACTION
WITH THE FOLLOWING CONDITIONS:

We require the enclosed pre switch on stationery pack to be completed.

We receive a copy of your standard terms and conditions of sale which must be
acceptable to us including compliance with the requirements of the Data
Protection Act 1998.

1     THE FOLLOWING ARE STANDARD OPERATING CONDITIONS THAT SHALL APPLY FOR THE
      DURATION OF THE FACILITY:

1.1   We would draw your attention to clause number 26 of the Sales Ledger
      Financing Terms and Conditions, which will guide you through the
      additional standard operational conditions of your facility.

1.2   We are supplied with a monthly aged creditors listing.

1.3   The Early Payment Percentage shall become subject to review in the event
      that either during any rolling 3 month period credit notes shall exceed 5%
      of discounted turnover OR beyond recourse balances as at any month end
      shall exceed 8% of the discounted sales ledger. The early payment
      percentage shall be reduced by 1% for every 1% breach.

1.4   We will require you to retain monthly day book listings together with a
      month end aged debtors analysis.

1.5   Permanent placement invoicing should not exceed 2.00% of your sales
      ledger.

1.6   A reserve a (pound)110,000 will be offset against your availability. Such
      a reserve being retained in consideration of the Retrospective Rebates
      existing on the sales ledger. We reserve the right to adjust the reserve
      or unapproved debtors where contra balances exist at our sole discretion.

1.7   The maximum terms of trade should not exceed 60 days as terms in excess of
      these may result in the debtor concerned being handled on an unapproved
      basis only.

1.8   With reference to clause 26.24, the totals upload facility offered is in
      relation to invoice and credit notes total only, no cash.

1.9   The Early Payment Ceiling listed above, and any reserves and operating
      conditions referred to in this Agreement, apply in respect of the group as
      a whole with the group being defined for these purposes as Allied
      Healthcare Group Limited & Allied Staffing Professionals Limited.

1.10  We require any credit note uploads to be a net figure of the Credit Memos
      less the Debit Memos plus Adjustments as defined by your current system.

1.11  Any outstanding unallocated credits/cash within the end column will be
      taken into account when undertaking the monthly recourse adjustment.

1.12  Funding to Master Vendor debtors will be limited to 5% of the fundable
      ledger, a reserve will be held for any excess.

1.13  A reserve of (pound)1,600,000 in respect of outstanding debt to private
      individuals will be established and amended at our discretion. We require
      a report detailing the amount of debt outstanding to private individuals
      to accompany your month end reconciliation.


                                        2



                                                                  CONFORMED COPY

1.14  All invoices, credit notes, cash and sales ledger adjustments are to be
      processed through the Oracle system and a monthly sales ledger control
      completed and held to our order.

1.15  All manual invoices are to be processed through the Oracle system as an
      invoice and not as a debit memo.

1.16  A reserve of (pound)600,000 in respect of certain creditors will be
      established and held at our discretion.

2     THE FOLLOWING ARE ADDITIONAL BESPOKE CONDITIONS THAT SHALL APPLY FOR THE
      DURATION OF THE FACILITY:

2.1   Definitions

      2.1.1 For the purposes of this agreement, (a) unless a contrary intention
            appears, a term defined in the Facility Agreement dated 19 July 2004
            between Allied Healthcare Group Limited, Allied Healthcare Holdings
            Limited, Allied Healthcare International Inc, the Guarantors listed
            therein, Barclays Capital and Lloyds TSB Bank PLC as Arrangers and
            Ancillary Lenders, the Original Lenders listed therein and Barclays
            Bank PLC as Agent and Security Agent (the "ORIGINAL FACILITY
            AGREEMENT") ,as the same is amended from time to time, has the same
            meaning in this document: and (b) the principles of construction set
            out in the Original Facility Agreement shall have effect as if set
            out in this agreement.

      2.1.2 "AMENDED AGREEMENT" means the Original Facility Agreement as amended
            and restated on or around the Commencement Date.

            "MARGIN DETERMINATION DATE" means the Commencement Date and
            quarterly thereafter.

            "MARGIN DETERMINATION PERIOD" means each three month period ending
            on the Margin Determination Date.

2.2   Condition 1.7

      Condition 1.7 shall be amended such that reference to "the Agreement"
      shall include the Amended Agreement as varied, amended or extended and the
      penultimate sentence shall be deleted and replaced with the following:

      "The terms of the Amended Agreement as varied, amended or extended shall
      prevail over any inconsistency in this document and the conditions."

2.3   Margin

      The Margin applicable for the Discount referred to above shall be the rate
      per annum determined by reference to the ratio of Net Borrowings to EBITDA
      as shown in the most recent Compliance Certificate received by the Agent
      at least 5 Business Days before the Margin Determination Date.

     RATIO                                   MARGIN (% P.A.)
     -------------------------------------------------------
     Greater than 3.5:1.0                         2.25
     -------------------------------------------------------


                                        3



                                                                  CONFORMED COPY

     RATIO                                   MARGIN (% P.A.)
     -------------------------------------------------------
     Greater than 3.0:1.0 but less than or        1.75
     equal to 3.5:1.0
     -------------------------------------------------------
     Greater than 2.5:1.0 but less than or        1.25
     equal to 3.0:1.0
     -------------------------------------------------------
     Greater than 2.0:1.0 but less than or        1.00
     equal to 2.5:1.0
     -------------------------------------------------------
     Greater than 1.0:1.0 but less than or        0.80
     equal to 2.0:1.0
     -------------------------------------------------------
     Equal to or less than 1.0:1.0                0.70
     -------------------------------------------------------

2.4   Representations and Warranties

      2.4.1 You hereby agree that every Notification Schedule delivered in
            accordance with this agreement shall be accompanied by a signed
            certificate to the effect that as at the date of such certificate
            the following conditions are satisfied:

            (a)   no Event of Default or Termination Event is continuing; and

            (b)   the Repeating Representations to be made by the Parent and
                  each Obligor in accordance with the Amended Agreement are true
                  in all material respects.

      2.4.2 Notwithstanding Condition 5.11 you may not draw from your Payment
            Account if on the date of proposed drawing the Bespoke Conditions
            4.1(a) and (b) are not satisfied.

2.5   Prepayment

      You hereby agree that the prepayment and cancellation provisions at Clause
      8 of the Amended Agreement shall apply as relevant to this agreement.

2.6   Undertakings

      2.6.1 Condition 14.1(b)(i) shall not apply in respect of any change or
            contemplated change in the directors.

      2.6.2 Condition14.1(r) shall not apply.

2.7   Termination

      2.7.1 A new sub-clause shall be added to Condition 20.2 as follows:

            (ee) an Event of Default occurs and is continuing under the Amended
            Agreement.

      2.7.2 Sub-clause (e) of Condition 20.2 shall be deleted and replaced with
            the following:

            (e) any obligation of yours to a third party for repayment of
            borrowed money being declared due prior to its stated maturity date
            or not being paid when due provided that the sum declared due or
            unpaid is (when aggregated with all other such sums) in excess of
            (pound)1,000,000.


                                        4



                                                                  CONFORMED COPY

      2.7.3 Sub-clauses (f) and (g) of Condition 20.2 shall be deleted.

      2.7.4 The Termination Events in sub-clauses (a), (b) and (c) of Condition
            20.2 shall not occur if the breach or threatened breach is capable
            of remedy and is remedied within 10 Business Days of us giving
            notice to you or you becoming aware of the breach or threatened
            breach.


                                        5



                                                                  CONFORMED COPY

DATA PROTECTION ACT 1988

To confirm the consent of the company to this agreement, and to acknowledge the
opportunity to take independent advice as to all its terms the company has
executed this document as indicated below.

Signed As A Deed On 12 December 2006 By You

Allied Staffing Professionals Limited

Acting By

David Moffatt                                David Moffatt
- ------------------------------------------   -----------------------------------
Full Name of Director                        Signature of Director

Paul Weston                                  Paul Weston
- ------------------------------------------   -----------------------------------
Full Name of Director                        Signature of Director


                                        6

EX-10.4

[BARCLAYS LOGO]

SALES LEDGER FINANCING
Terms and Conditions



                                                          Sales Ledger Financing

BARCLAYS BANK PLC
SALES LEDGER FINANCING TERMS AND CONDITIONS (VERSION A/2005)
INCORPORATED INTO OUR SALES LEDGER FINANCING AGREEMENT

These Conditions are signed by the authorised signatories on behalf of each
party to indicate their incorporation into the Sales Ledger Financing Agreement
between:

(Party 1) Barclays Bank PLC and

(Party 2) Allied Healthcare Group Limited
          ----------------------------------------------------------------------

With the Commencement Date of the: ___________________ day of _________ 20 _____

Full Names of Authorised Signatory      Signature

- -------------------------------------   ----------------------------------------
(Party 1) Barclays Bank PLC

David Moffatt                           David Moffatt
- -------------------------------------   ----------------------------------------
(Party 2)

Paul Weston                             Paul Weston
- -------------------------------------   ----------------------------------------
(Party 2)


                                                                               3





Barclays Bank PLC
Sales Ledger Financing Terms and Conditions
Order of Clauses

1    Introduction
2    Notification To Us of Debts and Credit Notes
3    Purchase Price of Debts
4    Credit Lines
5    Debtors Control Account and Payment Account
6    Discount, Service Charges and Other Fees
7    Notices to Debtors
8    Debtor's Accounts and Collection of Debts
9    Your Agency
10   Trusts
11   Foreign Debts
12   Information and Documentation
13   Your Warranties to us
14   Your Undertakings to us
15   External Credit Insurance
16   Computerised Facilities
17   Recourse and Reassignment
18   Communications with Debtors and Third Parties
19   Partnerships and Sole Traders
20   Termination of the Agreement
21   Assignment, Delegation, Force Majeure and EMU
22   Waiver, Severance, Variation and Further Acts
23   Service of Notices and Process
24   Power To Act In Your Name
25   Definitions
26   Standard Confidential Invoice Discounting Terms & Conditions
27   Standard Factoring Terms & Conditions


                                                                               4



                                                          Sales Ledger Financing

Barclays Bank PLC
Standard Terms and Conditions

1.   INTRODUCTION

1.1. Certain words have the meanings given after each of them in Condition 25.1

1.2. The Sales Ledger Financing Agreement shows which of our facilities we shall
     be providing to you. Our Non Recourse Facility shall only be available in
     conjunction with at least one other of our services or facilities.

1.3. If we are not to provide you with our Collection Service, then you will be
     our agent for the collection of Debts. If we are not to provide you with
     our Ledger Management Facility you will be our agent for maintaining Debtor
     Ledgers. Each agency will be regulated by these Conditions.

1.4. Even if the Sales Ledger Financing Agreement specifies that notice of
     assignment will not normally be given to some or all of your Debtors, such
     notice may be given in the special circumstances which are described later.

1.5. If we are to provide a Sales Ledger Financing Facility we will require your
     sales ledger to be fully reconciled, clearly identifying all outstanding
     invoices and credit notes in an open item format with all cash and other
     credit items allocated to the appropriate invoices. We may require a
     satisfactory survey and a copy of your latest management accounts.

1.6. The Debts to which this Agreement applies are shown in the Sales Ledger
     Financing Agreement, together with such other Debts as we may subsequently
     agree with you in writing. We agree to purchase from you and you agree to
     sell to us all Debts to which this Agreement applies:

     (i)  which are in existence on the Commencement Date shown in the Sales
          Ledger Financing Agreement: and

     (ii) all such Debts created in future.

1.7. The whole Agreement between you and us shall comprise only

     (i)  this document

     (ii) our document entitled Sales Ledger Financing Agreement.

          All of which have been supplied or are available to you upon request.
          References to "the Agreement" shall include all or any of the above
          together with any variation, amendment or extension of it. The terms
          of this document and the conditions shall prevail over any
          inconsistency shown in any other document. All earlier sales ledger
          financing agreements between you and us and all discussions,
          quotations, warranties and representations by us however made shall be
          of no effect.

1.8. The contractual relationship between you and us set out in the Agreement
     shall begin on the Commencement Date and then continue for the Minimum
     Period, both of which are set out in the Sales Ledger Financing Agreement.

1.9. Our relationship with you is to be governed and interpreted by English law.
     You will submit to the jurisdiction of the English courts. However we may,
     in our discretion, use the courts of any other jurisdiction.

2.   NOTIFICATION TO US OF DEBTS AND CREDIT NOTES

2.1. On the Commencement Date you will deliver to us an Offer with the
     Notification Documents. Such Offer will include all Debts outstanding at
     that date (except those referred to in the Sales Ledger Financing Agreement
     as Non Notifiable Debts) and details of any relative credits. Thereafter,
     within seven days of the completion of each Contract of Sale you will issue
     invoices to your Debtors. At the same time, you will include the relative
     Debt in a Notification Schedule and deliver it to us with the appropriate
     Notification Documents, or in the appropriate application by ledgermaster.
     You will ensure that your ledgers record the sale of each Debt to us.


5



Sales Ledger Financing

2.2. Credit Notes issued to Debtors will be dealt with as follows:

     (i)   in the case of our Ledger Management Facility - all credit notes will
           be raised immediately when due and forwarded to us with the relevant
           Notification Schedule;

     (ii)  in the case of any facility or service which has not been selected in
           conjunction with our Ledger Management Facility - you will enter
           details of all credit notes on Notification Schedules and send us
           copies of the credit notes or complete the appropriate application
           via Ledgermaster.

3.   PURCHASE PRICE OF DEBTS

3.1. The Purchase Price of each Debt shall be the amount received by us towards
     the discharge of the Debt but less any trade, prompt settlement or
     retrospective discounts that may apply and less the Discount and less the
     Service Charge.

3.2. If you have our Non-Recourse Facility then the Purchase Price in respect of
     a Covered Debt shall be the amount for which we have assumed the Credit
     Risk, if this shall be greater than the amount referred to in Condition
     3.1.

3.3. The Purchase Price of any Debt expressed in a currency other than sterling
     will normally be paid in sterling unless otherwise agreed. Accordingly:

     (i)   we shall provisionally calculate the Purchase Price at the spot
           buying rate of exchange for the currency of the Purchase Price for
           the date we shall credit the Debt to the Debtor Control Account; and

     (ii)  we shall finally calculate the Purchase Price at the spot buying rate
           of exchange for the currency of the Purchase Price for the date that
           any part of the Purchase Price shall be credited to the Payment
           Account; and

     (iii) any exchange rate losses incurred by us shall be Your Responsibility
           and will accordingly be reflected in the Debtor Control Account and
           the Payment Account.

4.   CREDIT LINES

4.1. Where you have our Non-Recourse Facility, then at the end of the Credit
     Period we may exercise Recourse in respect of a Debt within the Credit Line
     for the amount of:

     (i)   the Value Added Tax included in the Debt; and

     (ii)  the First Loss; and

     (iii) any settlement, trade or retrospective discount taken or claimed.

     We may also exercise Recourse for amounts in excess of the Credit Line. We
     will then accept the Credit Risk for the remainder of the Covered Debt.

4.2. We will notify you of the Credit Line for each Outstanding Debtor as soon
     as convenient after the Commencement Date and thereafter as soon as
     convenient after a Credit Line has been requested by you. Prior to
     Notifying each Debtor's Debts to us, you must have a Credit Line or have
     submitted an application to us for one. Your application must be in the
     form and with the information required by us.


                                                                               6



                                                          Sales Ledger Financing

     All information given by you must be accurate. Credit Lines will be issued
     entirely at our discretion for the purpose of determining the terms upon
     which we will purchase Debts. They will apply only to Debtors with the
     names specified by you. Credit Lines shall, under no circumstances, be
     taken as our indication of the creditworthiness or otherwise of a Debtor.

4.3. We will advise you of Credit Lines by whatever means we consider
     appropriate. We may increase or decrease Credit Lines at any time. We will
     advise you of increases or decreases. Any Notified Debt within a Credit
     Line shall not be affected by a decrease, provided that the Contract of
     Sale shall have been completely performed before Notification to us of the
     Debt.

4.4. You will not reveal to anyone, including your Debtors, the terms, the
     amount or absence of any Credit Lines. As between you and us, such
     information shall be considered legally privileged. Where you have a
     Recourse Facility Credit Lines are set only for the purposes of
     establishing the amount of Early Payments that may be made.

4.5. Where a Credit Line has been established then Outstanding Debts shall be
     treated as Covered Debts in the order in which they shall become due for
     payment. Debts above a Credit Line shall be Approved Debts.

4.6. If we have designated a Debt as an Approved Debt, it (and all other Debts
     due by the same Debtor) shall forthwith and without notice to you be
     treated as Unapproved Debts in any of the following circumstances:

     (i)    you shall have been in breach of any warranty or undertaking to us
            relating to the Debt;

     (ii)   the Debt shall in any way have been disputed by the Debtor or
            subject to a claim by the Debtor to set-off or counterclaim;

     (iii)  it shall be a Non-Notifiable Debt;

     (iv)   the payment terms under the Contract of Sale shall be different from
            those shown on your application for a Credit Line (or if none is
            shown - from those appearing in the Sales Ledger Financing Agreement
            or as agreed by us in writing); or

     (v)    the Goods shall not have been delivered to the Debtor's carrier or
            premises or the Contract of Sale shall not have been fully completed
            (except for payment of the Debt) prior to the Notification to us of
            the Debt; or

     (vi)   the Credit Period shall expire after the date of termination of this
            Agreement or following a Termination Event; or

     (vii)  if the Debtor's failure to pay shall, in our reasonable opinion, be
            due to government action, political events, war, revolution,
            insurrection or to any default or failure by you; or

     (viii) the amount of the Debt shall be reduced as a result of any credit
            note, allowance or other credit being issued or made to or claimed
            by any Debtor for any reason (except a prompt payment discount not
            exceeding 5%);

     (ix)   if the Debtor shall deliver payment to you (except where you have
            our Agency to collect Debts).

4.7. Following a Debt becoming an Unapproved Debt under Condition 4.6 you will
     forthwith repay any Early Payment made in respect of it.

4.8. If you have our Non-Recourse Facility then, even though we may have
     credited the Purchase Price of a Covered debt to the Payment Account under
     Condition 5.2, we may debit the Purchase Price to that account if the Debt
     shall later become Unapproved, whilst still Outstanding.


7



Sales Ledger Financing

4.9.   Where you have a Non-Recourse Facility, we may treat an Outstanding
       Approved Debt as an Unapproved Debt at any time once less that 30 days
       shall remain unelapsed before the expiry of the Credit Period and such
       Debt has not become a Covered Debt.

4.10.  If you notify us of a Debt for which no Credit Line has been established
       then such Debt shall always be an Unapproved Debt until we notify you to
       the contrary.

5.     DEBTORS CONTROL ACCOUNT AND PAYMENT ACCOUNT

5.1.   We shall credit the Purchase Price of all Notified Debts, at their
       Notified Value, to your account in our ledgers known as the 'Debtor
       Control Account' but subject to such later adjustment to the value as may
       be needed.

5.2.   On the Payment Account Credit Date stated in Clause 26.26 or 27.21, we
       shall debit the Purchase Price to the Debtor Control Account and also
       credit it to the Payment Account. However where the Debtor is Insolvent
       we shall not deal with the Purchase Price in this way until a proof of
       debt has been admitted or the person with the duty to administer the
       Debtor's affairs has confirmed in writing the validity of the Debt.

5.3.   At the Expiry of the Recourse Period shown in the Sales Ledger Financing
       Agreement we shall exercise Recourse in respect of a Recourse Debt.

5.4.   We shall debit to the Debtor Control Account any of the following:

       (i)    the Notified amount of any credit note issued by you;

       (ii)   an amount equal to any cash discount taken or debit note issued or
              relied upon by a Debtor;

       (iii)  any adjustment to the value of the Debt, advised by you to us or
              to which we may reasonably consider the Debtor is entitled.

5.5.   We shall be entitled to debit the amount of Your Responsibility at any
       time to the Payment Account.

5.6.   You may, at any time, draw from the Payment Account any credit balance
       thereon, less deductions equal to:

       (i)    all credit balances on Debtor's accounts; and

       (ii)   any reserves which we are entitled to create; and

       (iii)  any items which we shall be entitled to debit to the Payment
              Account but shall not have done so. No interest shall accrue to
              you in respect of credit balances on the Payment Account.

5.7.   If you have our Early Payment Facility and you shall have complied to our
       satisfaction with our Pre-Conditions and your other obligation to us, you
       may also draw sums from the Payment Account up to the amount of your
       Availability. In calculating your Availability, the following
       requirements must be taken into account:

       (i)    the debit balance on the Payment Account must not exceed the Early
              Payment Ceiling (shown in the Sales Ledger Financing Agreement);
              and

       (ii)   the debit balance on the Payment Account must not exceed the Early
              Payment Percentage (shown in the Sales Ledger Financing Agreement)
              after deduction of the amounts referred to in Condition 5.6.; and


                                                                               8



                                                          Sales Ledger Financing

       (iii)  Early Payments will not be permitted in respect of Debts in excess
              of the Prime Debtor Restriction shown in the Sales Ledger
              Financing Agreement; and

       (iv)   your Availability will be reduced by the amount of any Early
              Payment made in respect of an Approved Debt or Recourse Debt whose
              Recourse Period has expired.

5.8.   The Early Payment Ceiling, the Early Payment Percentage and the Prime
       Debtor Restriction shall initially be those specified in the Sales Ledger
       Financing Agreement. Any or all of them may at any time be increased or
       decreased by us. You will be notified of such changes. Where you have
       Payment Accounts in different currencies, and your Availability has to be
       calculated, they shall be considered as if they had all been converted to
       sterling at our spot buying rate on the day on which your Availability is
       calculated. All such conversions and any Purchase Account in sterling
       shall be aggregated for the purpose of calculating your Availability.

5.9.   Any withdrawal by you from the Payment Account shall be in the currency
       of the Payment Account or in such other currency as we may agree. Payment
       may only be made by a remittance made payable to you or direct to your
       bank account. Early Payments shall be treated as being made on account of
       the Purchase Price of Debts in the order in which such Debts appear on
       your Notification Schedules and then in the order in which such
       Notification Schedules are entered on the Debtor Control Account.

5.10.  You will repay us on demand any amount by which the debit balance on the
       Payment Account shall exceed your Availability.

5.11.  You may not draw from your Payment Account whilst you are insolvent or
       Insolvency proceedings shall be pending or threatened against you.

5.12.  Upon the occurrence of a Termination Event or the ending of this
       Agreement we shall have the right to set-off all amounts owing by you to
       us (including Your Responsibility) against sums due by us to you. Such
       amounts together with any debit balance on the Payment Account, shall be
       treated as being consolidated in a single account. Any debit balance
       arising from such treatment shall become immediately payable to us and
       any credit balance shall immediately become payable to you. We may also,
       at any time, set-off the amount of any liability of you to us against any
       monies owing by us to you and/or combine any accounts recording
       transactions between you and us. Any obligation of yours expressed in a
       foreign currency may be converted into sterling, at our rate of exchange
       at the time of such set-off or combination of accounts.

5.13.  We will send you weekly statements of the Debtor Control Account and the
       Payment Account. These shall be treated as correct and binding on you,
       except for those errors which shall be manifest or of which we receive
       your written notice within 10 days of our despatch of such accounts to
       you.

5.14.  Following any demand by us to you for payment of any sum or in any
       proceedings you will be bound by a certificate signed by an Officer of
       ours holding our power of attorney as to the balance on the Payment
       Account or the Debtor Control Account any accrued or contingent charges,
       any credit balance on a Debtor's account or any loss or damage suffered
       by us. Such certificate shall be conclusive as to the correctness of the
       certified amount, in the absence of manifest error or error in law.

5.15.  Your obligations to us shall at all times continue without any right of
       set off or counterclaim against us until all the monies due from you to
       us shall have been paid.


9



Sales Ledger Financing

5.16.  All payments to be made by you to us shall be made free and clear of, and
       without deduction for or on account of, tax, unless you are required to
       make such a payment subject to the deduction or withholding of tax. In
       the latter case the sum payable by you, in respect of which such
       deduction or withholding is required to be made, shall be increased to
       the extent necessary to ensure that, after the making of such deduction
       or withholding, we receive and retain (free from any liability in respect
       of any such deduction or withholding) a net sum equal to the sum which we
       would have received and so retained had no such deduction or withholding
       been made or required to be made.

5.17.  On the Commencement Date you will make us an Offer in respect of each
       Debt then Outstanding. If we decide that we wish to accept your Offer
       (which will be entirely at our discretion) then we may do so by crediting
       the Notified Value of each accepted Debt to the Debtor Control Account.
       Upon such credit our ownership of each accepted Debt will be complete.
       You hereby transfer ownership of each Debt coming into existence after
       the Commencement Date. Such ownership will vest in us without further
       formality upon the Debt coming into existence.

6.     DISCOUNT, SERVICE CHARGES AND OTHER FEES

6.1.   The Discount shall accrue from day to day and be calculated at the rate
       specified in the Sales Ledger Financing Agreement in respect of each
       Early Payment from the date of its entry on the Payment Account. For such
       purposes, any debit to the Payment Account shall be treated as an Early
       Payment. The Discount shall be calculated on the daily debit balance on
       the Payment Account subject to the following adjustments. Any remittance
       received (other than a payment through BACS - the Bankers Automated
       Clearing System or CHAPS - the Clearing House Automated Payments System)
       which results in a credit to the Payment Account shall not be treated as
       reducing the debit balance on that account until the third Working Day
       after such credit. Discount shall be debited monthly to the Payment
       Account.

6.2.   Upon a Debt being Notified to us we shall debit the Payment Account with
       a Service Charge, for each Notified Debt, at the rates shown in the Sales
       Ledger Financing Agreement. For a Debt expressed in a currency other than
       sterling, the Debt shall nationally be converted to sterling at our spot
       buying rate for the day that we receive the Notification Schedule and the
       Service Charge applied to the converted amount. No refund of Service
       charges shall be made upon termination of the Agreement.

6.3.   If the total of all Service Charges in the period specified in the Sales
       Ledger Financing Agreement falls short of the sum stated for such period
       as the Minimum Service Charge then you will immediately pay us a sum
       equal to such shortfall. Should we consider such shortfall likely we may
       forthwith debit the anticipated shortfall to the Payment Account.

6.4.   Payments by us to you will be made either by cheque or BACS (Bank
       Automated Clearing System) or by Telegraphic Transfer. Payments by cheque
       or BACS will not be subject to an administration charge. Payments by
       Telegraphic Transfers will be subject to an administration charge by us.

6.5.   You will pay us all bank commissions and charges for:

       (i)    keeping any bank account held in trust for us;

       (ii)   collecting remittances for Foreign Debts and collecting and
              converting the proceeds of any Debt expressed in a currency other
              than sterling;

       (iii)  dealing with dishonoured remittances.


                                                                              10



                                                          Sales Ledger Financing

6.6.   After the Commencement Date you will pay us an arrangement fee for any
       variation of the Sales Ledger Financing Agreement requested by you or any
       additional service provided outside its scope. Should the balance on the
       Payment Account exceed your Availability, then we may also make an
       additional facility charge or increase our Service Charge and/or
       Discount.

6.7.   If we have a concern as to the operation of any facility which gives rise
       to our making exceptional visits to your premises or those of any other
       person then we shall raise a charge against you for our reasonable costs
       and expenses incurred.

6.8.   You will fully indemnify us against all costs and expenses payable by us
       in or arising out of any of the following:

       (i)    enforcing this Agreement;

       (ii)   the release of Debts from charges, trusts or other encumbrances;

       (iii)  dealing with disputes by Debtors;

       (iv)   issuing proceedings to collect any Debts, except those for which
              we shall continue to accept the Credit Risk;

       (v)    Assignments or re-assignments of Debts or Related Rights;

       (vi)   all costs and disbursements payable to any opponent or third party
              arising out of claims or proceedings; and you will upon request
              provide us, or we may debit the Payment Account with, such
              security for legal costs and disbursements as we may reasonably
              require.

6.9.   Where you have our Non-Recourse Facility, the following provisions shall
       apply to any Covered Debt to which the Revised VAT Bad Debt Scheme would
       apply but for its assignment to us:

       (i)    we may give notice to you of our intention to reassign all our
              interest in such Covered Debt. At the expiry of the period
              specified in such notice, or if none is so stated then at the time
              of our giving of such notice, all our interest in such Debt shall,
              without further formality, become revested in you. The
              consideration for such revesting shall be sums payable to us under
              subcondition (iv) of this Condition;

       (ii)   you will then use your best endeavours to recover sums available
              for the reduction of the amount of such Covered Debt, including
              any dividend or benefit from the estate of the Debtor;

       (iii)  we shall be at liberty to complete and lodge in your name a proof
              or statement of debt in the Insolvency of the Debtor;

       (iv)   you will pay to us any future sums (after deduction of the
              relevant Value Added Tax proportion thereof) that may be
              recovered by you in respect of such Covered Debt, whether from the
              estate of the Debtor or otherwise and meanwhile you will hold such
              sums in trust for us.

6.10.  All fees and charges are and shall be quoted exclusive of Value Added
       Tax, which shall be added where applicable.

7.     NOTICES TO DEBTORS

7.1.   Except where the Sales Ledger Financing Agreement or these Conditions
       provide to the contrary, you will give notice to each Debtor of the
       assignment to us of the Debts payable by that Debtor, including notices
       on invoices, statements and by general notices. The form of such notice
       will be decided by us. We may also give such notice, at any time, whether
       in your name or ours.


11



Sales Ledger Financing

8.     DEBTOR'S ACCOUNTS AND COLLECTION OF DEBTS

8.1.   Where we provide our Ledger Management Facility or where your agency to
       collect Debts or manage Debtor's accounts has been ended, we will manage
       your Debtor's accounts and provide you with information from them.

8.2.   We may, at all times, take any payment made by a Debtor or any credit or
       allowance given by you to reduce any Covered Debt in priority to any
       Approved or Unapproved Debt, despite any contrary appropriation by you or
       your Debtor. We may deal with any credit balance on a Debtor's Account in
       such manner as we consider appropriate, including paying such balance to
       the Debtor.

8.3.   We may accept payment from a Debtor which is less than the Notified value
       of the Debt in full discharge of it, if the amount of such shortfall
       shall be immaterial and the Purchase Price shall be accordingly reduced.

8.4.   Whether you act as our agent to collect Debts or you have the benefit of
       our Collection Service, subject to Condition 9.2, we shall, as the
       Purchaser of the Debts, at all times have the sole right of collecting
       and enforcing payment of all Debts, in whatever manner we shall consider
       necessary and prudent. Without affecting such right, we will try to
       collect Debts in the manner discussed between us.

8.5.   You will, if required by us, lend your name to any proceedings that we
       may institute. But we shall not be obliged to institute any proceedings.
       Without affecting the last sentence, where your Debtor is also a client
       of ours, we may use an Alternative Dispute Resolution Procedure. We may
       settle any claim in respect of a Debt (or any claim against us or you by
       way of reduction of a Debt) upon such terms as we shall think fit. You
       will accept any resulting reduction in the Purchase Price.

8.6.   You will make available to us on request and free of charge all evidence
       required by us in any proceedings or Alternative Dispute Resolution
       Procedure. You will ensure the attendance at any hearing of those
       witnesses that we or our legal advisers shall require.

9.     YOUR AGENCY

9.1.   If you do not have our Collection Service, we appoint you as our agent to
       collect Debts vested in us. If you do not have our Ledger Management
       Facility we appoint you as our agent to maintain the Debtor ledger. You
       will act promptly and efficiently in carrying out your duties as our
       agent. You will not hold yourself out as our agent for any other
       purposes.

9.2.   If we have appointed you as our agent to collect Debts vested in us and
       to maintain Debtor's ledgers then we will only exercise our rights under
       Condition 8.4. after prior notice to you.

9.3.   We may open a bank account in your name, where our officers are to be
       irrevocably appointed as the only authorised signatories; you will pay
       all receipts in respect of Debts into such bank account without otherwise
       banking or dealing with them.

9.4.   Where you have our agency to maintain the Debtor ledger then upon a Debt
       coming into existence you will promptly enter it into your accounting
       system and ledgers. Your ledgers must prominently indicate that the Debts
       have been Assigned to us. Where you have our agency to collect Debts, you
       will not appoint any third party to collect payment of Debts without our
       prior written consent.

9.5.   During your agency you will provide us with the following reports and
       information as at each month end by the 10th day of the immediately
       following month:


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                                                          Sales Ledger Financing

       (i)    an aged Debtor analysis, with copies of all Debtor statements; or

       (ii)   an open item aged Debtor listing with the names and addresses of
              all Debtors; and

       (iii)  a complete sales ledger reconciliation in the format required by
              us;

       (iv)   an aged creditor analysis;

       (v)    any other information requested by us.

9.6.   We may at any time withdraw your agency to collect debts. You will then
       immediately give notice to every Debtor, in such form as we shall
       require, of the withdrawal of your agency together with the Assignment of
       Debts to us. If you do not give the notice of Assignment within seven
       days of our withdrawal of your agency then all Covered Debts will become
       Unapproved Debts.

9.7.   Following such withdrawal of your agency:

       (i)    you will not hold yourself out as our agent for any purpose; and

       (ii)   you will ensure that Debtors pay all Debts direct to us; and

       (iii)  you will immediately deliver to us such of your ledgers, books of
              account, computer data, electronic records and all documents
              recording or evidencing Debts as we may require; and

       (iv)   we shall provide you with our Ledger Management and/or Collection
              Service, for which you will pay a Service Charge of two per cent
              of the Notified Value of those Outstanding Debts at the start date
              of such additional facilities and/or services and those Debts
              which are afterwards Notified to us.

9.8.   Your agency may be withdrawn by us at any time following a Termination
       Event and also automatically upon termination of this Agreement. We shall
       then collect all Debts or oversee their collection by a third party
       (whether acting in our or your name). In addition to any other fees and
       charges payable under this Agreement you will be responsible for our
       collect out fee of five per cent of the Notified Value of all Debts
       existing at such cancellation of your agency or Notified to us after such
       cancellation. This fee is to cover our additional work involved,
       including where appropriate the collection of Debts or overseeing their
       collection by a third party. Where we oversee the collection of Debts we
       may discharge the fees and expenses of the third party. The collect-out
       fee and third party fees and expenses so discharged are to be treated as
       a deduction in calculating the Purchase Price.

10.    TRUSTS

10.1.  From the moment that you shall receive any payment in or towards
       settlement of a Debt (or in settlement of claim under the Policy) you
       will hold it absolutely in trust for us. This will include all payments
       received as our agent and all sums paid into the bank account referred to
       in Condition 9.3 and any dividend from the estate of an Insolvent Debtor.
       We acknowledge having received intimation of such trust. We may at any
       time give notice to anyone of the existence of such trust.


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Sales Ledger Financing

10.2.  Upon receipt of any payment in or towards settlement of a Debt, you will
       immediately hand to us the identical cash, cheque, bill of exchange or
       other remittance or pay it into such bank account as we may specify. You
       will endorse over to us any such cheque, bill of exchange or other
       remittance if your endorsement is necessary to enable us to receive
       payment. You will give us such instructions and indemnities as we may
       require for the collection of non-transferable instruments for our
       benefit.

10.3.  Where any Debt or its Related Rights shall fail to vest in us you will
       hold them in trust for us.

10.4.  You will promptly notify us of all Returned Goods. At our request, you
       will set these aside marked with our name as owner and then deliver them
       to us, or deliver or deal with them as directed by us. We shall have the
       right, without notice, to enter into any premises where Returned Goods or
       any items comprised in the Related Rights are kept. We may then take
       possession of and sell any Returned Goods upon such terms and at such
       prices as we may decide. We shall credit the net proceeds in or towards
       the discharge of the Debts to which they relate. Upon request you will
       deliver the other Related Rights to us. We may deal with them as we see
       fit.

11.    FOREIGN DEBTS

11.1.  Where the invoice for a Foreign Debt is addressed to a Debtor in a
       country where we have a relationship either with a company offering
       factoring or invoice discounting services in respect of Debts owing by
       Debtors in that country or any other party approved of by us, our rights
       and obligations shall remain unchanged, except that:

       (i)    no Credit Line will be issued by us until:

              (a) the Credit Risk has been assessed and reported to us by either
              the Foreign Factor or such other party;

              (b) we have received an acknowledgment from the relative Debtor of
              receipt of notice of assignment and confirmation that we shall be
              paid direct, should the Sales Ledger Financing Agreement state
              that notice of assignment shall be given to Foreign Debtors.

       (ii)   we may assign the Foreign Debt to the Foreign Factor or such other
              party;

       (iii)  collection of the Foreign Debt may be carried out through the
              Foreign Factor or such other party; and

       (iv)   payment by a Debtor to the Foreign Factor or such other party
              shall not be treated as a receipt by us until the proceeds of such
              payment shall actually have been received by us;

       (v)    all Debts due by a Debtor shall be in the same currency, unless
              otherwise agreed with us;

       (vi)   all Debts on a Notification Schedule shall be in the same currency
              and addressed to Debtors in the same country;

       (vii)  you will use your best endeavours to carry out such administrative
              procedures as are required by Factors Chain International, the
              Foreign Factor or such other party as we may notify to you;

       (viii) you, your employees, agents and representatives (whether in U.K.
              or overseas) shall give all reasonable assistance to us, the
              Foreign Factor or such other party in connection with obtaining
              payment of Foreign Debts.


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                                                          Sales Ledger Financing

12.    INFORMATION AND DOCUMENTATION

12.1.  If you are a limited company, or a limited liability partnership you will
       supply us with a copy of your audited balance sheet, accounts and
       directors' report for each of your accounting reference periods (as
       defined in the Companies Act 1985) or such other financial reports as we
       may require.

12.2.  If you are a partnership or sole trader you will supply us with a copy of
       your balance sheet and accounts for each yearly accounting period. These
       are to be prepared and certified as true and correct by a firm of
       chartered or certified accountants.

12.3.  The items listed in Conditions 12.1 and 12.2 are to be sent to us as soon
       as they are available to you and in any event no later than four months
       from the end of such accounting period.

12.4.  You will provide us with your internal management accounts showing the
       financial results of your operation, with such verification and in such
       form and at such intervals as we may specify.

13.    YOUR WARRANTIES TO US

13.1.  It is of the essence of this Agreement that:

       (i)    all balance sheets, profit and loss accounts, management accounts,
              information and documents which either have been or may in future
              be supplied by you to us fairly represent your financial position,
              the value of the Debts and are otherwise accurate and correct in
              all material aspects, subject only to any qualification appearing
              on them;

       (ii)   you have provided us with all information that you knew or ought
              reasonably to have known would influence us in deciding whether or
              not to enter into this Agreement or the terms upon which we should
              enter into it; and

       (iii)  you have made, and will continue to make, all necessary
              notifications or registrations under the terms of the Data
              Protection Act 1998 (or its predecessor 1994 Act).

13.2.  The inclusion of a Debt in an Offer or a Notification Schedule delivered
       to us shall be treated as including all of the following warranties from
       you, namely that:

       (a)    you are the owner of the Debt and freely able to sell it to us and
              no other person (including a party providing stock finance) has
              any interest in it;

       (b)    the sale or Assignment of the Debt to us will not violate any law
              or agreement binding on you and following such sale or Assignment
              the Debt will not be available to your creditors should you become
              Insolvent;

       (c)    except in our favour, no mortgage, charge, lien, trust, option,
              hypothecation, encumbrance or any tracing or equitable rights
              affects the Debt or the Goods;

       (d)    the Goods have been Delivered or the services have been completely
              performed and the Goods are owned only by either you or the Debtor
              free from encumbrances or any third party tracing right;

       (e)    the Debt represents an existing, enforceable and undisputed
              obligation of the Debtor;

       (f)    the Notified value of the Debt represents its Contracted Value;


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Sales Ledger Financing

       (g)    the Debt arises out of a Contract of Sale in the ordinary course
              of your business;

       (h)    you are not and will not be in breach of any of your obligations
              to the Debtor;

       (i)    you have no financial obligations towards the Debtor;

       (j)    the Debtor has an established place of business and has bought the
              Goods for the purpose of its business and is not an Associate of
              yours;

       (k)    no right or claim of rescission, contra accounting, defence,
              set-off, counterclaim, adjustment or other right or claim (whether
              valid or alleged) exists to reduce or extinguish the Notified
              Value of the Debt or affect our ability, in our name, to collect
              the Debt;

       (l)    except as otherwise approved by us in writing (including the
              giving of a Credit Line in response to an application referring to
              your credit terms), the debt is payable in accordance with your
              payment terms set out in the Sales Ledger Financing Agreement,
              which are endorsed on every invoice, and which do not allow the
              Debtor to claim a prompt settlement or trade discount exceeding
              5.0% (five per cent) and is not subject to retrospective discount;

       (m)    the Debt arises under a Contract of Sale governed by English law
              (or such other law approved by us) obliging the Debtor to pay in
              sterling or a Permitted Currency referred to in the Sales Ledger
              Financing Agreement (or such other currency approved by us);

       (n)    the correct name and address of the Debtor appears on every
              invoice, credit note, application for a Credit Line and all other
              documentation sent to us;

       (o)    the person having the duty to administer the affairs of a Debtor
              upon its Insolvency will accept proof for the Notified amount of
              each Covered Debt;

       (p)    the original invoice has been delivered to the Debtor and, if the
              Sales Ledger Financing Agreement so states, with the required
              notice of Assignment of the Debt to us endorsed thereon;

       (q)    the Debt arises under a Contract of Sale with credit terms as to
              payment;

       (r)    the Debt is not subject to any withholding tax;

       (s)    that you have provided us with all additional information that
              might affect our designation of a Debt as Covered, Approved or
              Unapproved;

       (t)    except as notified to you, no reservation of title by any third
              party will apply to the Goods nor will there be any right for a
              third party to trace into such Goods or any Notified Debts.

14.    YOUR UNDERTAKINGS TO US

14.1.  You undertake throughout the duration of this Agreement and afterwards
       until all sums due to us have been discharged:

       (a)    to ensure that the warranties given to us upon Notifying us of a
              Debt shall remain unaltered but if there should be any breach of
              such warranties to Notify us immediately you become aware of such
              breach and without prejudicing our rights arising out of such
              breach;


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                                                          Sales Ledger Financing

       (b)    immediately upon becoming aware, to disclose to us;

              (i) details of any change or contemplated change in the directors
              or partners or the control or ownership of your company,
              partnership or business or of any guarantor or indemnifier of your
              obligations to us; or

              (ii) details of any threatened or pending Insolvency proceedings
              against you, or against any such guarantor or indemnifier; or

              (iii) details of any adverse credit information about a Debtor; or

              (iv) if any security-holder shall, or be entitled to, enforce its
              security over any part of your property, assets or undertaking; or

              (v) if any floating charge over your assets or undertaking shall
              crystallise or otherwise become converted into a fixed charge; or

              (vi) if any step shall be taken by any party towards your
              Insolvency.

       (c)    immediately upon our request to provide us with:

              (i) such information relating to Debtors as we may reasonably
              require;

              (ii) satisfactory evidence (including proof of delivery) of your
              complete performance of the Contract of Sale and of all your other
              obligations to the Debtor;

       (d)    not to Notify us, until we tell you, of any Debt which, at the
              Commencement Date, shall be:

              (i) payable by an Insolvent Debtor; or

              (ii) in the hands of a solicitor, debt collector or other third
              party for collection;

       (e)    not to Notify us, until we tell you, of any Debt existing at the
              Commencement Date or coming into existence after that date, which
              shall:

              (i) be payable by an Associate of yours; or

              (ii) arise from Goods supplied on approval or trial, evaluation,
              on sale or return or similar terms; or

              (iii) be within the category of Non-Notifiable Debts, specified in
              the Sales Ledger Financing Agreement or such other Debts as we may
              specify;

              (iv) arise from a Contract of Sale which treats:

              (1) ownership of the Goods or documents of title as being
              transferred to your Debtor whilst remaining in your possession or
              under your control (sometimes known as 'constructive delivery' or
              'call off' or 'bill and hold'); or

              (2) the due date for payment as being fixed by reference to the
              date upon which ownership passes and not to the date of Delivery;
              or

              (v) be evidenced by an invoice issued for part payment;


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Sales Ledger Financing

       (f)    to perform punctually all your further or continuing obligations
              to the Debtor (including installation, testing, maintenance,
              payment of carriage, shipping charges taxes and duties) and should
              you fail so to perform then to allow us, at your expense, to
              perform such obligations on such terms as we consider appropriate
              and to be bound by our performance;

       (g)    to tell us, promptly in writing with full particulars, of any
              dispute between you and your Debtor;

       (h)    not, without our prior consent, to vary the Contract of Sale
              following the relative Debt being Notified to us;

       (i)    to keep all books and records required by law together with full
              and accurate sales records of all supplies of goods and services
              to Debtors;

       (j)    if you do not have our Ledger Management Facility, to keep full
              and accurate debtor ledgers;

       (k)    to allow any employee, representative or agent of ours, at all
              reasonable times to enter any premises at which you carry on
              business, to inspect Goods and stocks and Contracts of Sale, to
              inspect, verify and check all such books, accounts, computer and
              other records, orders, correspondence and other documents as we
              may require and to copy (including computer disks), at your
              expense, such of them as we may require or to check or remove any
              software or hardware provided by us or any licensor of ours in
              connection with access to our computer facilities;

       (l)    not to Assign, mortgage, charge, declare in trust or otherwise
              deal with your existing or future Debts, or your rights under this
              Agreement;

       (m)    upon our request and in accordance with our instructions to
              exercise any reservation of title in your favour to Goods;

       (n)    to ensure that all Contracts of Sale shall, if applicable, state
              the nature and quantity of the Goods, payment terms, delivery
              dates, insurance terms and any installation, testing and after
              sales service or maintenance;

       (o)    to ensure that all information about your sole trader and
              unlimited partnership Debtors that you may process and/or transfer
              to us is accurate and such information and its transfer fully
              complies with the Data Protection Act 1998 including telling us of
              any amendments;

       (p)    immediately to advise each unincorporated Debtor that you will
              transfer details of them and of their account to us (whom you may
              describe as "our bank" or "our financiers") for the purposes of
              providing our services and for the following purposes:-

              o      obtaining credit insurance;

              o      making credit reference agency searches;

              o      credit control;

              o      assessment and analysis (including credit scoring, market,
                     product and statistical analysis);

              o      securitisation;

              o      protecting our interests;

       (q)    to tell each unincorporated Debtor that our identity and that of
              any credit reference agencies used by us will be readily available
              upon demand.


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                                                          Sales Ledger Financing

       (r)    that you will not without our written agreement make any repayment
              or reduction of any loan made to you or investment made in your
              business (other than loans or other forms of credit made by us and
              trade debts.)

       (s)    immediately upon becoming aware of changes to your business
              activities in the following areas disclose to us as appropriate.

              (i) free issue - all free issue materials must be identifiable
              both physically and by register including details of the quantity
              and source. All free issue must be covered by your Insurance or
              agreement evidenced that this is the liability of the debtor. In
              the event that free issue materials are not managed in this
              fashion we may introduce a reserve against your Payment Account.

              (ii) installation work - where installation takes place, the
              installation costs must be included on the product invoice and the
              invoice should not be raised or submitted to us until such time
              that installation has been satisfactorily completed.

              (iii) samples - invoices for sampled goods must clearly show that
              the invoices differ to normal sales. A quarterly return will be
              required detailing the outstanding invoices raised for goods
              issued as samples.

              (iv) self billing - we require notification of any debtor accounts
              which operate on a self billing basis in order that administration
              procedures can be implemented which will allow the accounts to be
              discounted. Following receipt of a self billing statement from the
              debtor you will raise a "memorandum invoice" to be submitted to us
              indicating the value of goods.

              (v) tooling - we will require you to maintain a tooling register
              to facilitate the identification and location of debtor tools in
              your possession. All tooling will be stored securely and
              separately and adequately insured. Evidence of levels of cover and
              premiums paid to date will be held to our order, alternatively
              your terms and conditions of trade will expressly state that
              insurance is the obligation of your debtors.

14.2.  You will indemnify us against all losses, expenses, costs, actions,
       claims, damages and demands arising out of the breach of any of your
       obligations to us or out of any claim, set off or counterclaim made by a
       Debtor or any other person (including claims for amounts overpaid or
       otherwise due by us to a Debtor).

14.3.  You will pay all stamp duty, registration and other similar taxes to
       which this Agreement or any Assignment, Re-assignment or any judgment
       given in connection with this Agreement may at any time become subject.

15.    EXTERNAL CREDIT INSURANCE

15.1.  If we require, as a condition of the Sales Ledger Financing Agreement,
       that you are to be insured under, or to make a proposal for, a policy of
       credit insurance then the provisions contained in conditions 15.2. to
       15.6. inclusive shall apply.

15.2.  You will obtain from the Insurer and execute and deliver to us the
       documentation necessary for the policy or the benefit of the Policy to be
       Assigned to us together with the original of the Policy.

15.3.  You warrant to us that:

       (i)    the proposal submitted by you to the Insurer (on the basis of
              which the Policy was issued) was in every way complete and
              correct; and

       (ii)   such proposal disclosed every fact or matter which you knew or
              ought to have known might influence the Insurer in relation to the
              issue of the Policy; and

       (iii)  at all times from the issue of the Policy you have fully complied
              with the terms and conditions of the Policy; and


19



Sales Ledger Financing

       (iv)   there has been no act or omission which might invalidate the
              Policy; and

       (v)    any Policy issued or intended to be issued covers all Debts vested
              in us, except to the extent otherwise agreed by us.

15.4.  You undertake, until the complete discharge of all your liabilities to
       us:

       (i)    to disclose, when submitting a proposal to the Insurer, every fact
              or matter which you know or ought to know might influence the
              Insurer in relation to the issue of the Policy; and

       (ii)   to fully comply with the terms and conditions of the Policy and to
              pay each premium upon demand by the Insurer; and

       (iii)  to ensure that there will be no act or omission, as a result of
              which the Policy may be invalidated or any claim rejected; and

       (iv)   to ensure that any sums received from the Insurer will be dealt
              with as if they were a remittance in discharge of an Outstanding
              Debt and hold them on the same trusts for our benefit; and

       (v)    to notify us promptly if the Policy shall be cancelled, become
              void or lapse or any event shall happen which may cause any such
              event; and

       (vi)   to send to us copies of all correspondence between you and the
              Insurers.

15.5.  If you should fail to pay any of the premiums or in any way to comply
       with the Policy then we may, but shall not be obliged to, make good your
       failure. The amount of any resulting payment made by us shall be debited
       to your Payment Account.

15.6.  Monies received by us, following a claim under the Policy, shall be
       treated as a payment from the Debtor to which the claim shall relate.

16.    COMPUTERISED FACILITIES

16.1.  In Condition 16 and its sub-conditions the following words shall have the
       meanings set out below:

       'ADOPTED PROTOCOL' - the accepted method for the interchange of Messages
       based on such protocol as may be agreed between you and us.

       'DATA' - any information processed into our computer facility in relation
       to your affairs.

       'MESSAGE' - Data structured in accordance with the Adopted Protocol and
       transmitted electronically between you and us, including where the
       context admits any part of such Data.

       'DATA LOG' - the complete record of Data interchanged representing the
       Messages between you and us.

16.2.  The terms of Condition 16 and its sub-conditions shall apply to all
       Messages between you and us using the Adopted Protocol.

16.3.  You undertake:

       (i)    at your sole risk and expense, to maintain on your computer and in
              a safe and efficient operating order, at such address as we may
              approve, a proprietary communications software package and modem
              which shall comply with the standards and requirements notified by
              us. You shall make suitable contingency arrangements to cover
              system or operating failures and suspension or withdrawal of the
              computerised facilities; and


                                                                              20



                                                          Sales Ledger Financing

       (ii)   to ensure that all Messages you send are correct and complete; and

       (iii)  to use the Computerised Facilities only for your own needs

16.4.  You shall have a non transferable licence

16.5.  In using the facilities you will use and comply with the requirements of
       Barclays Bank PLC's 'Messageway' system. You will not use any other
       intermediary.

16.6.  You and we undertake to each other:

       (i)    to notify the other promptly if it learns or suspects that there
              has occurred any failure or delay in receiving any Message, any
              error or fraud in or affecting the sending or receiving of any
              Message or any programming error or defect or corruption of any
              Message, and to co-operate with the other party in trying to
              remedy the same;

       (ii)   to take all appropriate steps and establish and maintain all
              appropriate procedures so as to ensure that as far as is
              reasonably practicable Messages are properly stored, are not
              accessible to unauthorised persons, are not altered, lost or
              destroyed, and are capable of being retrieved only by properly
              authorised persons;

       (iii)  to maintain adequate security and to maintain the computer virus
              free;

       (iv)   to take reasonable precautions to prevent unauthorised access to
              the facilities;

       (v)    to keep secret and confidential the method of operation of the
              facilities, all access telephone numbers, user numbers, passwords,
              test keys, access codes and security procedures;

       (vi)   to notify the other party immediately if it knows of or suspects
              any misuse of, or breach of secrecy in respect of, any of the
              same;

       (vii)  to ensure that every Message shall identify the sender and
              recipient and include a means of verifying the authenticity of the
              Message, either through a technique used in the Message itself or
              by some other means provided for in the Adopted Protocol;

       (viii) to ensure that all Messages are complete, accurate and secure
              against being altered in the course of transmission by the sender;

       (ix)   to accept the integrity of all Messages and to accord these the
              same status as would be applicable to a document or to information
              sent other than by electronic means, unless such Messages can be
              shown to have been corrupted as a result of technical failure;

       (x)    to ensure that where there is evidence that a Message has been
              corrupted or if any Message is identified or capable of being
              identified as incorrect it shall be re-transmitted by the sender
              as soon as practicable with a clear indication that it is a
              corrected Message;

       (xi)   where the recipient has reason to believe that a Message is not
              intended for it then the sender shall be notified and the
              recipient will delete the Message from its computer system.


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Sales Ledger Financing

16.7.  You and we shall maintain a Data Log of all Messages sent or received and
       make the same available to the other on request. This shall contain such
       Data as shall from time to time be agreed or, in the absence of such
       agreement, shall be the most complete record of Data which either of us
       shall consider reasonably practicable to maintain. Except to the extent
       otherwise agreed with you in writing, such Data Log shall be stored
       unmodified (save as may be necessary to correct any errors) until the
       first anniversary of the termination of this Agreement. The Data Log may
       be maintained on computer media or other suitable means provided that the
       Data can be readily retrieved and presented in readable form. Our master
       log of Messages and Data received or transmitted by us shall, in the
       absence of manifest error, be conclusive proof and evidence of the
       Messages sent or received by us in connection with or referable to the
       facilities and of the constituents of such Messages and the times at
       which they were sent or received. We may rely upon any Message ostensibly
       sent by you or on your behalf, even though it may not originate from you
       or that your employee or officer purporting to send the message shall
       lack authority.

16.8.  The copyright and all other rights in any software used or provided by us
       or our licensors in connection with the facilities and issued by us shall
       at all times remain vested in us or, if the terms of any contract that we
       have with any licensor otherwise specify, in such licensor. You will not
       copy such software without our prior written consent.

16.9.  You accept that information available from our Computerised Facilities
       will be subject to change before the close of business each day,
       particularly details of any Availability from the Payment Account.

16.10. We shall not be liable for or in respect of any loss, injury or damage or
       any failure to comply, or any delay in complying with our obligations
       hereunder or any other obligation in respect of the facilities which is
       caused directly or indirectly by:

       (i)    any downtime, unavailability, failure or malfunction of any
              computer hardware equipment or software, or of any telephone line
              or other communication system, service, link or equipment;

       (ii)   suspension of the facilities;

       (iii)  abnormal operating conditions;

       (iv)   any error, discrepancy or ambiguity in any Message received by us;

       (v)    abnormal operating conditions, act or omission of yours or of any
              third party.

16.11. We shall have the right, without liability to you and without notice, at
       any time and from time to time, to suspend the operation of the
       Computerised Facilities whereupon no further Messages shall be sent or
       enquiries made by either you or us until we shall have agreed to
       reactivate the facilities.

16.12. You shall indemnify us against all liabilities, damages and expenses
       arising out of the transmission by you or the receipt by us of incorrect
       or inaccurate information however caused.

16.13. We reserve the right to levy a charge for:

       (i)    any new electronically delivered services in future; or

       (ii)   reconfiguration of the computerised facilities due to
              mis-operation by you.


                                                                              22



                                                          Sales Ledger Financing

17.    RECOURSE AND REASSIGNMENT

17.1.  We may Reassign to you a Debt (including a Covered Debt) in any of the
       following circumstances:

       (a)    it being disputed by the Debtor; or

       (b)    it being subject or alleged to be subject to a right of set-off,
              counterclaim or reduction;

       (c)    your wrongly Notifying us of it or your committing any breach of
              warranty or undertaking relating to it;

       (d)    the Debtor claiming to reject or return the Goods;

       (e)    upon our requiring you to issue proceedings in your name to
              collect a Debt;

       (f)    the Debtor's Insolvency;

       (g)    upon it remaining unpaid, in whole or part, for 6 months or more
              from the date of its invoice.

17.2.  Reassignment shall be complete upon our debiting the Debtor Control
       Account for the amount of the Outstanding Debt.

17.3.  We may, at our discretion, exercise Recourse in respect of all or any
       Debts (including Covered Debts) upon or at any time following:

       (a)    the occurrence of a Termination Event (whether or not we exercise
              our right to terminate);

       (b)    termination of this Agreement.

              Except where you have a Non-Recourse Facility when we may not
              exercise Recourse in respect of those Covered Debts whose Payment
              Account Credit Date, referred to in the Sales Ledger Financing
              Agreement, shall have passed before events (a) and (b) immediately
              above.

18.    COMMUNICATIONS WITH DEBTORS AND THIRD PARTIES

18.1.  You authorise us to:

       (i)    communicate with your Debtors as we consider necessary, including
              the obtaining of the Debtor's consent to the taking up of
              references and the undertaking of Debt verifications;

       (ii)   provide your bank, auditors, accountants and other professional
              advisers with such information about your accounts with us as they
              may ask for;

       (iii)  obtain from your bank, auditors, accountants and other
              professional advisers such information as we may need.

18.2.  You confirm that you have authorised the persons referred to in Condition
       18.1. (iii) to give us such information.

18.3.  We may disclose this Agreement and any information which we have acquired
       under or in connection with this Agreement:

       (i)    to any actual or potential assignee, transferee or
              sub-participant;

       (ii)   to any rating agency, security trustee, agent and/or arranger in
              connection with any financing of any such assignee, transferee or
              sub participant; or

       (iii)  in any listing particulars, prospectus or offering circular.

18.4.  Telephone calls may be monitored or recorded to maintain high levels of
       security and quality of service.


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Sales Ledger Financing

19.    PARTNERSHIPS AND SOLE TRADERS

19.1.  Where you are formed as an unlimited partnership, the provisions of
       Condition 19.2 to 19.9 shall additionally apply.

19.2.  Your undertakings and warranties to us shall also be treated as given by
       each of your partners and their obligations to us shall be joint and
       several.

19.3.  You warrant that the persons signing this Agreement comprise all your
       partners.

19.4.  We shall have all of these entitlements:

       (i)    to release or conclude an arrangement or compromise with any one
              or more of your partners, without affecting our rights against the
              others;

       (ii)   to treat a notice or demand by us, to any of your partners as a
              notice or demand given to the others;

       (iii)  to treat a notice or demand by any of your partners as a notice or
              demand given by all of your partners (but we shall not be obliged
              to treat a notice or demand in such a way);

       (iv)   to treat the Agreement as binding upon any executor, administrator
              or personal representative of any of your partners and upon any
              committee, receiver, trustee, supervisor or other persons acting
              on behalf of any of you.

19.5.  If at any time a partner for any reason ceases or intends to cease to be
       a member of your partnership, you will immediately give us written notice
       of that fact.

19.6.  If you intend to:

       (i)    take in a new partner; or

       (ii)   change your trading style, or adopt another style; or

       (iii)  change your domicile to a legal jurisdiction outside England and
              Wales then you will immediately notify us of such intention and
              sign such documents we may require.

19.7.  Despite any change in the members of your partnership we may treat the
       Agreement as continuing and may account to the partnership or exercise
       all rights of set-off as if there had been no such change.

19.8.  You warrant that each partner's residential address is correctly stated
       in the Sales Ledger Financing Agreement.

19.9.  You will take all steps necessary to enable us to register this Agreement
       at the Bills of Sale Registry.

19.10. If you are a sole trader:

       (i)    Condition 19.4. (iv) shall apply as if the words 'of any of your
              partners' and 'any of' were replaced by 'you';

       (ii)   you will seek our consent before entering into a partnership with
              another person;

       (iii)  you will comply with Conditions 19.6.(ii) and (iii) and 19.9.


                                                                              24



                                                          Sales Ledger Financing

19.11. Using information about you:

       (i)    We will store and process information obtained by us or given by
              you in your dealings with us on the Barclays Group computers and
              in any other way. This will be used by us and other companies in
              the Barclays Group for assessment and analysis (including making
              payments, credit scoring, market and product analysis), recovering
              money and preparing statistics. We may also use such information
              to prevent fraud, bad debts and money laundering.

       (ii)   We and other members of the Barclays Group will inform you (by
              letter, telephone (including automated dialling), computer or
              e-mail) about products and services (including those of others)
              which may be of interest to you (although other members of the
              Group will only send marketing material to personal customers and
              individuals if we have their consent).

       (iii)  You consent to our making searches at our credit reference
              agencies or other enquiries in accordance with our normal
              procedures. You confirm your awareness that credit reference
              agencies will make a record of our searches which may be used to
              prevent fraud or money laundering or by other subscribers and to
              make credit decisions about you.

       (iv)   We may give information about you and how you manage your accounts
              to the following:

              o      people who provide services to us (including insurers) or
                     are acting as our agents on the understanding that they
                     will keep the information confidential;

              o      anyone to whom we may novate this Agreement or with whom we
                     may securitise in order to facilitate such transactions;

              o      any guarantors or indemnifiers of your obligations to us so
                     they are aware of the extent of such obligations;

              o      any bankers or advisers of yours to enable them to carry
                     out their services:

              o      any business providing a similar service to ours to whom
                     you may wish to transfer to facilitate such transfer:

       (v)    We may also give out information about you if we have a duty to do
              so or if the law allows us to do so.

       (vi)   For training and/or security purposes your telephone calls may be
              monitored and/or recorded.

       Otherwise we will keep in confidence any information about you. If you or
       your partners want to have details of the credit reference agencies and
       other third parties referred to above from whom we obtained and to whom
       we may give information please contact our Customer First Unit at
       Barclays Sales Financing, Aquila House, Breeds Place, Hastings TN34 3DG
       on 0800 389 2310. You have a legal right to these details. You also have
       a legal right to receive a copy of the information we hold about you if
       you apply in writing. A fee will be payable.

20.    TERMINATION OF THE AGREEMENT

20.1.  If you shall give us notice to terminate the Sales Ledger Financing
       Agreement of less than the Minimum Notice Period, referred to in the
       Sales Ledger Financing Agreement, or we agree with you to reduce such
       Minimum Notice Period, we may immediately debit the Payment Account with
       a sum equal to Service Charges and the Discount in the number of months
       immediately preceding our receipt of such notice as shall equal the
       difference between the Minimum Notice Period and the period of notice
       actually given.

       If during the Minimum Period of this Agreement (as indicated in the Sales
       Ledger Financing Agreement) you give us notice to terminate the Sales
       Ledger Financing Agreement, we may immediately debit the Payment Account
       with a sum equal to the Service Charges and the Discount in the number of
       months preceding our receipt of such notice as shall equal the number of
       months comprised in the Minimum Period plus the number of months
       comprised in the Minimum Notice Period less the


25



Sales Ledger Financing

       number of months elapsed from the Commencement Date to the date of notice
       less the period of notice actually given. Where the number of months so
       calculated is greater than the time actually elapsed since the
       Commencement Date, the Service Charges and Discount chargeable will be
       calculated using the average monthly charges actually charged in the time
       elapsed.

20.2.  We may immediately terminate this Agreement at any time after the
       happening of any of the following events:

       (a)    a breach or threatened breach by you of our Agreement with you;

       (b)    a breach or threatened breach by any of your Associates of any
              agreement between us and any of them;

       (c)    a breach or threatened breach of any agreement between you and any
              company in the Barclays Bank Group;

       (d)    any application by any creditor of yours for a garnishee order
              against us;

       (e)    any obligation of yours to a third party for repayment of borrowed
              money being declared due prior to its stated maturity date or not
              being paid when due;

       (f)    any change in your ownership, partners, control, constitution or
              composition whether direct or indirect, considered by us to
              prejudice our position;

       (g)    breach or termination by you or a third party of any
              representation or undertaking, in reliance upon which we have
              entered into this Agreement or made any payment under it;

       (h)    the termination of any waiver, consent or priority arrangement in
              our favour by the holder of a charge by way of security over any
              part of your assets;

       (i)    any breach of your obligations under or the termination of the
              Policy;

       (j)    your ceasing or threatening to cease to carry on Your Business
              referred to in the Sales Ledger Financing Agreement;

       (k)    your Insolvency or the Insolvency of any of your partners, if you
              are constituted as a limited liability partnership;

       (l)    the Insolvency or death of any person who has given a guarantee or
              indemnity in respect of any of your obligations to us, or the
              termination by that person of such guarantee or indemnity or the
              legal disability of that person.

20.3.  Upon your Insolvency or ceasing to trade we may:

       (i)    immediately debit the Payment Account with an additional Service
              Charge of five percent of the Notified value of the Outstanding
              Debts to cover our additional administrative work (except where we
              make a charge under condition 9.8); and

       (ii)   immediately increase the Discount Charge by two per cent.

20.4.  At any time, following either receipt of a notice from you to terminate
       the Agreement or a Termination Event (whether or not we exercise our
       right of immediate termination), we may, with or without notice to you,
       do any or all of the following:

       (i)    reduce the Early Payment Ceiling and/or the Early Payment
              Percentage, referred to in the Sales Ledger Financing Agreement,
              to zero or such other figure as we may decide;


                                                                              26



                                                          Sales Ledger Financing

       (ii)   require you to repay to us any Early Payments made in respect of
              Debts then Outstanding;

       (iii)  withdraw all or any Credit Lines;

       (iv)   immediately change the status of any Outstanding Covered Debts
              whose Payment Account Credit Date has not been reached to
              Unapproved Debts;

       (v)    make a special reserve against the Payment Account of such level
              as we may require to cover Your Responsibility to us;

       (vi)   reassign to you all or any Debts, after which they shall be
              removed from the Debtor Control Account and we shall have no
              further obligations to you in respect of them;

       (vii)  require you to pay to us immediately any debit balance on the
              Payment Account plus Discount accrued but not debited and the full
              amount of any credit balances on Debtors' accounts;

       (viii) delay seven Working Days, to allow for cheque clearances, before
              paying to you any credit balance on the Payment Account to which
              you may be otherwise entitled.

20.5.  Upon the ending of this Agreement, for whatever reason:

       (i)    all Outstanding Covered Debts, whose Payment Account Credit Date
              has not been reached, shall automatically become Unapproved Debts;
              and

       (ii)   you will not Notify us of any Debts arising on or after the date
              of termination; and

       (iii)  Recourse shall be treated as having occurred in respect of all
              Debts; and

       (iv)   you will pay us any debit balance on the Payment Account and all
              other sums due to us;

       (v)    you will be responsible for all credit balances on Debtors'
              accounts and will indemnify us in respect of all claims by Debtors
              for the same;

       (vi)   we shall pay you any credit balance on the Payment Account less
              Your Responsibility but allowing seven Working Days for cheque
              clearances.

20.6.  Except as otherwise provided, the ending of this Agreement shall not
       affect our respective rights and obligations in relation to or arising
       out of:

       (i)    any Debts which shall have come into existence prior to such
              termination; and

       (ii)   all transactions or events having their inception prior to such
              termination including the continued running of Discount and our
              rights of set off or combination of accounts. Such rights and
              obligations shall remain in full force and effect until all monies
              due from you shall have been received by us and all monies due
              from us to you shall have been paid.

20.7.  Any discharge of your obligations to us shall be of no effect to the
       extent that any receipt by us shall be subsequently set aside under
       insolvency law.

20.8.  During any period of notice you will continue to deliver Notification
       Schedules.


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Sales Ledger Financing

21.    ASSIGNMENT DELEGATION, FORCE MAJEURE AND EMU

21.1.  You consent to our novating to any other party any or all of our
       obligations rights and remedies. We may assign all or transfer any of our
       rights under this Agreement to such party as we may choose, including any
       Foreign Factor. This includes our rights to any Debt and or under our
       power of attorney. This Agreement shall be binding upon and enure to the
       benefit of our successors and assigns.

21.2.  Except where the context otherwise requires, references to 'we' or 'us'
       shall be treated as including our successors, assignees and transferees
       in the context of clauses conferring benefits and/or Rights on us; with
       respect to clauses imposing obligations or duties on us, such references
       shall only be treated as including such successors, assignees and
       transferees if (and only if) the relevant successor, assignee or
       transferee has specifically assumed such obligation.

21.3.  Where any successor, assignee or transferee seeks to claim under clauses
       conferring benefits and/or rights, it may do so in the full amount as if
       it were the original party to this Agreement and without being subjected
       to any limit on such benefit or right by reference to any loss suffered
       by us.

21.4.  If at any time you are obliged to indemnify or reimburse us in respect of
       any sum referred to in this Agreement, such sum shall be deemed to be a
       loss, cost and/or expense incurred by us, our assignee or transferee (as
       the case may be) for this purpose.

21.5.  We may at any time require you to complete and deliver a formal written
       Assignment of any Debt in a form approved by us.

21.6.  You will not, without our consent, delegate any of your duties under this
       Agreement or dispose of any part of your business, assets or undertaking
       (except in the ordinary course of your business).

21.7.  We shall not be liable to you for any consequential, special, secondary
       or indirect loss, injury or damage or any loss of or damage to goodwill,
       profits or anticipated savings (however caused). However nothing shall
       operate to excuse us from liability to any extent caused by our
       negligence or the fraud of any of our officers.

21.8.  We shall have no liability to you if we are delayed in or unable to
       perform our duties directly or indirectly because of an event of Force
       Majeure.

21.9.  You and we confirm to each other that, except as expressly agreed between
       you and us in writing, the occurrence or non-occurrence of an event
       associated with economic and monetary union in the European Community
       will not have the effect of altering any term of, or discharging or
       excusing performance under, this Agreement, nor give either you or us the
       right unilaterally to alter or terminate this Agreement. An 'event
       associated with economic and monetary union in the European Community'
       includes, without limitation:

       (i)    the introduction of a single or unified European currency;

       (ii)   the fixing of conversion rates between a member state's currency
              and a new currency or between the currencies of member states;

       (iii)  the substitution of a new currency for the ECU as the unit of
              account of the European Community;

       (iv)   the introduction of a new currency as lawful currency in a member
              state or the withdrawal from legal tender of any currency which,
              before that, was lawful currency in a member state; and/or


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                                                          Sales Ledger Financing

       (v)    the disappearance or replacement of a relevant price source for
              the ECU or the national currency of any member state, or the
              failure of the agreed sponsor or any successor to publish a
              relevant rate, index, price, page or screen.

22.    WAIVERS, SEVERENCE, VARIATIONS AND FURTHER ACTS

22.1.  The rights and remedies provided to us are cumulative and not exclusive
       of any rights or remedies provided by law. If we choose not to enforce or
       cannot enforce any term of the Agreement, whether against you or any
       Debtor, this will not affect our rights to enforce the rest of the
       Agreement or to enforce them at a later date. Likewise such rights and
       remedies shall not be affected if we compound with any Debtor.

22.2.  The terms of this Agreement are considered by both you and us to be
       reasonable. Should any provision be found to be valid only if some part
       of it were deleted then such provision shall apply as if it were so
       deleted. The remainder of this Agreement shall not be affected.

22.3.  Any variation to this Agreement, except as otherwise provided for herein,
       will only be valid if put in writing and signed on behalf of both you and
       us.

22.4.  You will execute any additional documents and do all other acts or things
       as may be needed by us for carrying out the purposes or intent of this
       Agreement.

22.5.  You will comply with any published procedures required by us for the
       day-to-day efficient working of the arrangements between you and us.

23.    SERVICE OF NOTICES AND PROCESS

23.1.  Any written notice from us to you and any proceedings issued by us
       requiring service on you may be given or served by delivery at or posting
       to:

       (i)    your address stated in the Sales Ledger Financing Agreement or to
              such other address of yours notified to and acknowledged by us as
              being effective for the purposes of this Agreement; or

       (ii)   your registered office (if you are a limited company or a limited
              liability partnership); or

       (iii)  any address last known to us at which you carried on business; or

       (iv)   if you are a partnership - the last known residential or business
              address of any partner; or

       (v)    if you are a sole trader - your last known residential or business
              address.

       Such notice may also be given by facsimile transmission or electronic
       medium to your number or address notified to us for communication by such
       means. If you are a limited company it may also be handed to any officer
       of yours. If you are an unlimited partnership or a limited liability
       partnership it may be handed to any partner. If you are a sole trader it
       may be handed to you personally.

23.2.  Any such notice or process shall be considered served:

       (i)    if delivered - at the time of delivery; or

       (ii)   if sent by post - 48 hours from the time of posting; or

       (iii)  if sent by facsimile transmission or electronic medium - at the
              time of transmission; or


29



Sales Ledger Financing

       (iv)   if handed over - at the time of handing over.

23.3.  Any notice in writing by you to us under this Agreement shall take effect
       at the time it is received by us at our registered office or at such
       other address of which we may notify you in writing for this purpose.

23.4.  We may at all times rely upon any signature or the act or communication
       of any person purporting to act on your behalf and the same shall be
       binding upon you.

24     POWER TO ACT IN YOUR NAME

24.1   By way of security for the performance of your obligations to us and for
       all sums which shall become due to us, you irrevocably appoint us and any
       of our managers or other officers at any time, jointly and each of them
       severally, as your true and lawful attorneys to act as we or they
       consider necessary or appropriate in order to:

       (a)    obtain payment of and give valid discharges for any Debt
              (including re-assigned Debts: or

       (b)    deal with any Debt: or

       (c)    perfect our title to any Debt: or

       (d)    secure performance of any of your obligations to us or to any
              Debtor

       For these purposes your attorneys may do any of the following:

       (i)    execute all necessary deeds, agreements and documents;

       (ii)   complete, negotiate or endorse all necessary instruments;

       (iii)  conduct or defend any proceedings;

       (iv)   settle any indebtedness

       (v)    take all other steps they consider requisite

24.2   This appointment shall continue both during and after the ending of this
       Agreement, until all sums due to us have been paid.

24.3   You also irrevocably appoint any assignee of ours as your attorney to
       perform any of the acts set out above.

24.4   We may appoint and remove a substitute attorney for any of the above
       matters. You will ratify and confirm whatever shall be done under these
       powers.

25.    DEFINITIONS

25.1.  In these Terms & Conditions, the Sales Ledger Financing Agreement and the
       user guides, the following expressions have the special meanings set out
       after each:

       AGREEMENT DATE - The day that the last of either you or us sign it.

       APPROVED DEBT - if you have our Early Payment Facility - a Debt
       designated by us as suitable for an Early Payment;- if you also have our
       Non-Recourse Facility - a Debt capable of being a Covered Debt if the
       Credit Line for the Debtor so allows.

       ASSIGNMENT - a transfer of ownership by whatever means and whether formal
       or informal.


                                                                              30



                                                          Sales Ledger Financing

       ASSOCIATE - any partnership, body corporate or other form of business
       association in which you or any of your directors, members, partners, or
       employees have a material interest; and - any other form of associate as
       defined by section 184 of the Consumer Credit Act 1974.

       AVAILABILITY - your right to request us to permit drawings from the
       Payment Account calculated in accordance with Condition 5.7.

       BASE RATE - where the Payment Account is in sterling - the sterling Base
       Rate quoted, from time to time, by Barclays Bank PLC (or its successors)
       or

       o      where the Payment Account is kept in a currency other than
              sterling - the Base Rate as quoted from time to time by Barclays
              Bank PLC (or its successors) for such currency.

       BEYOND RECOURSE BALANCES - Any debt that passed the specified period
       stated in the Sales Ledger Financing Agreement.

       COMMENCEMENT DATE - the date so stated in the Sales Ledger Financing
       Agreement and being the date for the commencement of the operation of
       this Agreement.

       CONTRACT OF SALE - a contract by you for the supply of goods or the
       provision of services or work done and materials supplied or hiring to a
       Debtor.

       CONTRACTED VALUE - [applicable only to our Non-Recourse Facility] - in
       relation to a Covered Debt - the amount payable by a Debtor in accordance
       with the Contract of Sale after taking into account any deduction,
       discount claim or allowance, however arising.

       COVERED DEBT - a Notified Debt within a Credit Line.

       CREDIT LINE - where you have our Non-Recourse Facility - in respect of
       each Debtor - the maximum Contracted Value of Outstanding Debts from
       which shall be deducted any First Loss and the Value Added Tax included
       in the Debt and in respect of the resulting balance we shall accept the
       Credit Risk; and

       o      where the Sales Ledger Financing Agreement indicates that Early
              Payment will be available by reference to the Credit Line - the
              total Value of Approved Covered Debts for which we will permit
              Early Payments at the Early Payment Percentage, unless otherwise
              stated.

       o      where you have our Recourse Facility - in respect of each Debtor,
              the total value of Approved Debts for which we will permit Early
              Payments at the Early Payment Percentage referred to in the Sales
              Ledger Financing Agreement.

       CREDIT PERIOD - in relation to an Approved Debt - the period specified in
       the Sales Ledger Financing Agreement (or such other period as may from
       time to time be notified to you in writing by us).

       CREDIT RISK - [applicable only to our Non-Recourse Facility] - the
       assumption by us of the risk that the Contracted Value of Debt, (less the
       Value Added Tax and any First Loss, designated by us as a Covered Debt),
       will not be paid by the expiry of the Credit Period, provided that all
       your other obligations to us shall have been complied with.

       DEBT - any obligation under a Contract of Sale (including any tax or duty
       payable), present, future or contingent, of any Debtor and all its
       Related Rights; a Debt, where the context permits, includes part of such
       obligation or part of such Related Rights.


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Sales Ledger Financing

       DEBTOR - a company, partnership (whether limited or unlimited), sole
       trader or other legal entity which is or may become indebted to you under
       a Contract of Sale.

       DELIVERED - in relation to Goods - delivered in the United Kingdom to the
       premises designated as the delivery point or carrier of the Debtor. In
       relation to services - fully completed. 'Deliver' and 'Delivery' are to
       be construed accordingly.

       DISCOUNT - a charge to be debited monthly and calculated on a day-to-day
       basis by applying the applicable percentage per annum set out in the
       Sales Ledger Financing Agreement over Base Rate to the debit balance on
       the Payment Account.

       EARLY PAYMENT - [applicable only to our Early Payment Facility] - any
       drawing on account of the Purchase Price of a Debt prior to the Payment
       Account Credit Date.

       EARLY PAYMENT CEILING - [applicable to our Early Payment Facility] - the
       amount shown in the Sales Ledger Financing Agreement as the Early Payment
       Ceiling, which will be used by us to calculate the Early Payment Limit or
       such other greater or lesser amount as we may from time-to-time advise
       you.

       FIRST LOSS - [applicable only to our Non-Recourse Facility] - in relation
       to each Debtor at any time - the amount exclusive of Value Added Tax
       specified in the Sales Ledger Financing Agreement for which we shall not
       accept the Credit Risk despite the designation of a Debt as a Covered
       Debt.

       FORCE MAJEURE - any circumstances outside our reasonable control
       including any exchange control, governmental or other official
       regulations or requirements, the outbreak of war, any terrorist act,
       revolution, civil insurrection, strike, lockout, industrial action or
       failure of postal or communication services.

       FOREIGN DEBT - a Debt which is evidenced by an invoice addressed to a
       Debtor in one of the markets referred to under Foreign Debts in the Sales
       Ledger Financing Agreement or such other market as may be agreed by us in
       writing.

       GOODS - goods or, where the context permits, services the subject of a
       Contract of Sale.

       INSOLVENCY - in relation to:

              (i) an individual - the issue of a petition for his bankruptcy or
              sequestration: or

              (ii) a company or limited liability partnership - the convening of
              a meeting to pass a resolution for voluntary winding up by reason
              of insolvency, or the servicing of a notice under Section 84(2A)
              of the Insolvency Act 1986 of a meeting to pass a resolution for a
              voluntary winding up by reason of insolvency; the appointment of a
              provisional liquidator; the making of a winding up order; the
              passing of a resolution for a voluntary winding up which would
              take effect as a creditors voluntary winding up; the issue of an
              application or petition for the appointment of an administrator
              under the Insolvecy Act 1986 the appointment of an administrator;
              any person giving notice of intention to appoint an administrator
              or the appointment of a receiver (whether in or out of court) or
              an administrative receiver of any of the assets or income of the
              company;

              (iii) a partnership - bankruptcy, winding up, the appointment of
              an administrator or any person giving notice of intention to
              appoint an administrator, or the issue of a petition for an
              administration order against the partnership;

              (iv) an individual (or in the case of a partnership, any person
              who is a member of it) a company, a partnership or a limited
              liability partnership; entering into or proposing to enter into a
              voluntary arrangement under the Insolvency Act 1986 or


                                                                              32



                                                          Sales Ledger Financing

              any informal arrangement generally for the benefit of the
              creditors; any part of its income, undertaking or assets, being
              subject to: (a) seizure, distress, execution or lien: or (b)
              enforcement of security rights; or (c) execution of legal process:
              the making of any statutory demand under the Insolvency Act 1986;
              the entry of any judgment, order or award which shall remain
              unsatisfied or whose terms shall not be complied with for seven
              days (except whilst any appeal shall be pending);

              o      taking any steps towards a moratorium pursuant to Section
                     1A and Schedule 1A of the Insolvency Act 1986 or pursuant
                     to paragraph 1A of schedule 1 of the Insolvent Partnerships
                     Order 1994.

                     And the taking of any steps or the commencement of any
                     proceedings in respect of any of the matters in this
                     definition.

       INSURER - the insurer by which the Policy referred to in Condition 15 is
       or shall be issued.

       NON-NOTIFIABLE DEBT - a Debt, belonging to us under this Agreement, which
       should not be Notified to us until we tell you, including all those
       referred to in the Sales Ledger Financing Agreement and in Condition
       14.1.(d) and (e) and such other Debts as we may specify at any time.

       NOTIFICATION DOCUMENTS - In relation to each book Debt:

              (a) if we so require, an exact copy of each invoice; and

              (b) such other documents and evidence of the despatch and delivery
              of the Goods or the performance of the services as we may require.

       NOTIFICATION SCHEDULE - in relation to a Debt not previously Notified to
       us - the notification by you to us of the existence of that Debt and the
       invoice or credit note relating to it, in such form and by such method as
       we may from time to time require.

       NOTIFIED/NOTIFY/NOTIFYING - inclusion of a Debt in either an Offer or a
       Notification Schedule.

       NOTIFIED VALUE - the amount of the Debt as shown in your Offer or
       Notification Schedule.

       OFFER - an offer to sell to us a Debt with its Related Rights upon the
       terms and conditions of this Agreement, with full title guarantee, which
       we shall be free to accept or reject in our absolute discretion and where
       more than one Debt is at the same time included in an offer each Debt
       shall be considered as subject to an offer independent of any other Debt.

       OUTSTANDING - in relation to a Debt - undischarged by payment.

       PAYMENT ACCOUNT CREDIT DATE - the date of receipt by us of payment for
       value from the Debtor.

       POLICY - any policy for credit insurance referred to in Condition 15.

       PRE-CONDITIONS - those conditions, if any, set out in the Sales Ledger
       Financing Agreement (if any) which must be complied with before an Early
       Payment can be made available.

       PRIME DEBTOR RESTRICTION - [applicable only to our Early Payment
       Facility] - the maximum amount of Outstanding Debts from a single Debtor
       against which we may allow Early Payments, such maximum amount being
       calculated at the percentage specified in the Sales Ledger Financing
       Agreement of the amount of all Outstanding Debts.

       PURCHASE PRICE - the amount payable by us to you for each Debt belonging
       to us.


33



Sales Ledger Financing

       REASSIGN/REASSIGNMENT - the transfer from us to you of our ownership of a
       Debt.

       RECOURSE - our right to require you to repay to us any Early Payment made
       in respect of a Recourse Debt at the expiry of the Recourse Period.

       RECOURSE DEBT - a Debt in respect of which we shall not accept the Credit
       Risk and where you have a Recourse Facility all Debts shall be Recourse
       Debts.

       RECOURSE PERIOD - the number of days shown in the Sales Ledger Financing
       Agreement (or such other period as we may from time to time tell you in
       writing) at the end of which we will exercise Recourse and treat such
       Debts as Unapproved Debts.

       RELATED RIGHTS - in relation to any Debt or Returned Goods - any of the
       following:

              (i) all your rights at law as an unpaid Vendor or under the
              Contract of Sale but without any obligation on us to complete a
              Contract of Sale;

              (ii) the benefit of all insurances;

              (iii) all negotiable and non-negotiable instruments, all
              securities, bonds, guarantees and indemnities;

              (iv) all your rights to any ledger, computer or electronic data or
              materials or document recording or evidencing a Debt or its
              Related Rights; and

              (v) all Returned Goods.

       RETURNED GOODS - any Goods relating to or purporting to comply with a
       Contract of Sale which any Debtor shall for any reason:

              (i) reject or give notice of rejection; or

              (ii) return or attempt to or wish to return to you or us; or

              (iii) which you or we recover from a Debtor.

       SERVICE CHARGE - a charge to you for the administration of the services
       and facilities provided by us.

       TERMINATION EVENT - an event, listed in Condition 20.2, entitling us
       immediately to end this Agreement without any period of notice.

       UNAPPROVED DEBT - a Debt which we designate as incapable of an Early
       Payment and where you have our Non-Recourse Facility, a Debt for which we
       will not accept the Credit Risk in each case even if previously
       designated as Approved Debts.

       UNITED KINGDOM/UK - the United Kingdom of Great Britain and Northern
       Ireland, the Channel Islands and the Isle of Man;

       UK DEBT - a Debt evidenced by an invoice addressed to a Debtor in the
       United Kingdom whether in sterling or in any other currency.

       US/WE - Barclays Bank PLC and where the context so permits our successors
       and assignees.


                                                                              34



                                                          Sales Ledger Financing

       VAT BAD DEBT SCHEME - the scheme and procedures established by H M
       Customs and Excise to enable suppliers of Goods to reclaim the value
       added tax element of Debts which become bad or doubtful.

       VESTED - in relation to a Debt, our ownership of that Debt by Assignment
       or the holding of the Debt on trust for us.

       WORKING DAY - a Day when both we and banks in England and Wales are open
       for the conduct of all normal business.

       YOU - the Customer named in the Sales Ledger Financing Agreement.

       YOUR RESPONSIBILITY - any sum payable or prospectively or contingently
       payable by you to us, whether or not arising under the Agreement,
       including liability as a debtor for any debt assigned to us by any of
       your suppliers or as an indemnifier of another client of ours or for the
       breach of your obligations to us and our reasonable estimate of such sums
       where the amount cannot be immediately ascertained.

25.2.  Any reference to these Conditions or to the Agreement is to them as
       amended, varied, supplemented, substituted or novated from time to time.

25.3.  Any reference to a statute includes any amendment or replacement or
       re-enactment of that statute, for the time being and any order and any
       subordinate legislation made under it.

25.4.  The singular includes the plural and vice versa, and reference to any
       gender shall include any other gender. References to a person or party
       shall be construed as references to any person, firm, company, limited
       liability partnership, corporation or any association or partnership
       (whether or not having separate legal personality) or two or more of the
       foregoing.

25.5.  The meaning of general words introduced by the word 'other' is not to be
       limited by reference to any preceding word indicating a particular class
       of acts, matters or things.

25.6.  Where in or in relation to any place outside England the meaning of a
       word or expression used in this Agreement is to be considered and such
       word or expression has no counterpart in that place, it is to have the
       meaning of its closest equivalent in that place.

25.7.  The interpretation and construction of the Agreement and these Conditions
       shall not be affected by any headings, since they are only provided for
       convenience.

25.8.  If you want to complain about the Sales Ledger Financing Agreement, terms
       and conditions booklets or the service you have received, you may do so
       in person, in writing, by post, fax, e-mail or by telephone.

       Details of our complaints handling procedures are available on request
       from any branch, Barclays Group Information Line on 0800 400 100 or on
       the web site at www.barclays.co.uk

26.    STANDARD CONFIDENTIAL INVOICE DISCOUNTING TERMS AND CONDITIONS

26.1.  Debts assigned are to be evidenced by copy invoices and credit notes, or
       suitable sales daybook listings, being supplied to ourselves along with
       the appropriate schedule of debts or via Ledgermaster Totals Upload. We
       should be supplied with copies of any credit notes that are raised on any
       debtor where there are debts outstanding that have been assigned to us.

26.2.  We will require to visit you from time to time in order to confirm that
       the ledger is being operated in accordance with the agreement and to
       fulfil our audit requirements.


35



Sales Ledger Financing

26.3.  You will provide by the 10th of each month, a sales ledger reconciliation
       as at the last working day of each month previous, such reconciliation to
       include:

       (1)    fully posted aged debtor analysis

       (2)    copy open item statements for each debtor, on a monthly basis,
              showing details of the outstanding debts assigned to us

       (3)    fully posted aged creditors analysis

       (4)    month end reconciliation form duly signed and authorised by an
              official signatory of the company.

26.4.  Your invoice stationery is printed with the full and correct company
       style, terms of trade and VAT number.

26.5.  You, as agent for ourselves, continue to collect monies from debtors in
       respect of assigned debts. Monies from such debtors should then be
       deposited by you for the credit of an account specified by us together
       with the counterfoil paying in slip.

26.6.  The banking of debtor cheques, or other forms of payment, into any bank
       account other than the Trust Account is strictly prohibited.

26.7.  All company bank statements, relating to all accounts, must be made
       available on request.

26.8.  Debt verification will be undertaken on your sales ledger. This procedure
       may be undertaken at your premises with the assistance of your personnel
       or, alternatively, through a third party acting on our behalf.

26.9.  An essential feature of the confidential facility is that although
       invoices will be assigned to us, the sales ledger will be maintained by
       you for and on behalf of us, the ledger items should therefore be clearly
       marked to identify the debts that have been assigned to ourselves.

26.10. No deposits are taken from debtors. Should any debtor choose to pay a
       deposit then we should be notified immediately. We may consider the need
       to hold a reserve against availability in respect of the deposit to
       protect ourselves against any possible offset claim by the debtor.

26.11. Prior to any form of legal action being instigated by you against a
       debtor whose debts are assigned to us, we require a written application
       stating the nature, value and reason for the legal action. We reserve the
       right to litigate whilst any reassignment of debts is conducted at our
       sole discretion.

26.12. You maintain written records detailing all written and verbal
       communication with debtors in relation to the collection of domestic
       debts. These records must be kept separately for each debtor and must be
       held to our order.

26.13. For every invoice raised you will supply or hold to our order the
       appropriate supporting documentation i.e signed delivery notes, carriers
       receipt notes, time sheets, satisfaction notes.

26.14. That no:

       (1)    debtors are to be handled on both cash and credit basis

       (2)    invoices are to be raised on sale or return trading terms

       (3)    goods are to be provided on an evaluation or trial basis.


                                                                              36



                                                          Sales Ledger Financing

26.15. All Debts and their Related Rights shall vest in us in accordance with
       this Agreement notwithstanding any charge, lien, trust or encumbrance
       existing now or in the future in favour of Barclays Bank PLC, all of
       which are hereby postponed or released to the extent necessary to enable
       this Agreement to have full effect.

26.16. Any charge, lien, trust or encumbrance in favour of Barclays Bank PLC
       shall in all other respects remain in full force and effect and in
       particular any monies due or prospectively due from us to you shall
       constitute a debt subject to any such charge in accordance with its terms
       and all Debts and their related rights which for any reason shall fail to
       vest in us or revest in you in accordance with this Agreement shall be
       and remain so subject.

26.17. Barclays Bank PLC may at any time give you 7 days notice in writing
       withdrawing the postponement or release contained in these Terms and
       Conditions. Such withdrawal shall not affect our rights in relation to
       any Debt or Related Rights which come into existence before the expiry of
       such notice.

26.18. No notice of assignment will be given, unless your Agency to collect
       Debts shall be withdrawn.

26.19. Invoices notified for which evidence of debt is not available will be
       handled on an unapproved basis only. This includes proof of order and
       proof of delivery and/or satisfaction.

26.20. Invoices notified for cash sales or for debtors with a mix of cash and
       credit terms will be handled on an unapproved basis only.

26.21. Invoices notified for debtor accounts which feature amounts of
       unallocated cash will be handled on an unapproved basis only.

26.22. Invoices notified for debtors where their terms of purchase prohibit
       assignment of the debt will be handled on an unapproved basis only/until
       such time that the debtor has confirmed in writing that they acknowledge
       the assignment and our position.

26.23. Invoices notified for sales involving evaluation or trial goods will be
       handled on an unapproved basis only/until such time that the debtor has
       confirmed in writing that they acknowledge the assignment and our
       position.

26.24. We may provide you with our Totals Upload facility. To support this you
       must be able to verify individual invoice and credit note totals uploaded
       to us against your computer accounting system and from hard copy day book
       listings. We reserve the right to remove the Totals Upload facility at
       our discretion.

26.25. If you enter into any new contracts before the commencement, or within
       the duration of this facility, we must examine the contracts and agree
       that they are acceptable.

26.26. The Payment Account Credit date for all debts will be the date of receipt
       by us of payment for value from the Debtor. Payment made into the trust
       account will be credited on the date following receipt into the trust
       account.

26.27. Should bill and hold become a feature of your business we will require a
       "bill and hold" report to be submitted with your month end
       reconciliation. We reserve the right to audit this report during our
       periodic audits and to introduce a reserve against your Payment Account
       in the event that you fail to supply a timely and accurate report
       detailing bill and hold.

26.28. We may hold a reserve against your Availability. We may retain the
       reserve in respect of any contra balance, advertising contributions,
       containers, deposits, equipment and tooling, free issue, retrospective
       rebates, discounts or other. We retain the right to adjust the reserve or
       unapprove debtors where any of these situations exist at our sole
       discretion.


37



Sales Ledger Financing

26.29. Any security which we hold for your liabilities to Barclays Bank PLC must
       remain in place for the duration of this facility. We will consider a
       breach of any other facilities granted by Barclays Bank PLC or any of its
       subsidiaries to you as a breach of this facility.

26.30. We require a copy of the terms and conditions of your major suppliers.
       Should these indicate that any retention of title is held over goods
       supplied to you, a limitation regarding such a retention of title may be
       required.

27.    STANDARD FACTORING TERMS AND CONDITIONS

27.1.  Correspondence to debtors must incorporate the following assignment
       clause:-

       "IMPORTANT NOTICE

       All invoices referred to have been assigned to Barclays Bank PLC, Aquila
       House, Breeds Place, Hastings, East Sussex TN34 3DG to whom payment must
       be made and whose receipt therefore alone is valid."

27.2.  You continue to despatch original invoices direct to your debtors with
       identical copies being forwarded to us together with the completed
       Notification schedule, or complete the appropriate application via
       ledgermaster.

       Your invoice stationery is printed reflecting the correct company style,
       terms of trade, VAT number and the following assignment clause on the
       original and all identical copies in a clear and prominent position:

       "IMPORTANT NOTICE

       The amount of this invoice has been assigned to Barclays Bank PLC, Aquila
       House, Breeds Place, Hastings, East Sussex TN34 3DG to whom payment must
       be made and whose receipt therefore alone is valid."

       The assignment clause should not be printed on credit notes. However it
       is necessary for the original and a copy of all future credit notes to be
       forwarded to ourselves on separate schedules, in accordance with our
       Terms and Conditions of Business.

27.3.  You will be provided with an alphabetical debtor listing detailing the
       full trading style and address together with a debtor reference number
       which will be assigned to each debtor account.

       The debtor reference number must be included on all invoices and credit
       notes submitted with the Notification Schedules to us. If you do not
       comply with this requirement the invoice or credit note will not be
       processed.

27.4.  For all new debtors you should complete and forward to us a Debtor
       Account Request form or upload the application via the ledgermaster
       system.

27.5.  For every invoice raised you will supply or hold to our order the
       appropriate supporting documentation i.e signed delivery notes, carriers
       receipt notes, time sheets, satisfaction notes

27.6.  That no:

       (1)    debtors are to be handled on both cash and credit basis

       (2)    invoices are to be raised on sale or return trading terms

       (3)    goods are to be provided on an evaluation or trial basis.

27.7.  Prior to any form of legal action being instigated by you against a
       debtor whose debts are assigned to us, we require a written application
       stating the nature, value and reason for the legal action. We reserve the
       right to litigate whilst any reassignment of debts is conducted at our
       sole discretion.


                                                                              38



                                                          Sales Ledger Financing

27.8.  If you have a service only facility, it will operate according to a
       Recourse Facility.

27.9.  All Debts and their Related Rights shall vest in us in accordance with
       this Agreement notwithstanding any charge, lien, trust or encumbrance
       existing now or in the future in favour of Barclays Bank PLC, all of
       which are hereby postponed or released to the extent necessary to enable
       this Agreement to have full effect.

27.10. Any charge, lien, trust or encumbrance in favour of Barclays Bank PLC
       shall in all other respects remain in full force and effect and in
       particular any monies due or prospectively due from us to you shall
       constitute a debt subject to any such charge in accordance with its terms
       and all Debts and their related rights which for any reason shall fail to
       vest in us or revest in you in accordance with this Agreement shall be
       and remain so subject.

27.11. Barclays Bank PLC may at any time give you 7 days notice in writing
       writhdrawing the postponement or release contained in these Terms &
       Conditions. Such withdrawal shall not affect our rights in relation to
       any Debt or Related Rights which come into existence before the expiry of
       such notice.

27.12. Notice will be given for your Debtors to pay us

27.13. Invoices raised which include trade discounts must be raised net, and any
       early settlement discounts offered must be evidenced on the face of all
       invoice copies.

27.14. Invoices notified for debtors who have a contra trading situation with
       you will be handled on an unapproved basis only.

27.15. Invoices notified for which evidence of debt is not available will be
       handled on an unapproved basis only. This includes proof of order and
       proof of delivery and/or satisfaction

27.16. Invoices notified for cash sales or for debtors with a mix of cash and
       credit terms will be handled on an unapproved basis only.

27.17. Invoices notified for debtor accounts which feature amounts of
       unallocated cash will be handled on an unapproved basis only.

27.18. Invoices notified for debtors where their terms of purchase prohibit
       assignment of the debt will be handled on an unapproved basis only/until
       such time that the debtor has confirmed in writing that they acknowledge
       the assignment and our position.

27.19. Invoices notified for sales involving evaluation or trial goods will be
       handled on an unapproved basis only/until such time that the debtor has
       confirmed in writing that they acknowledge the assignment and our
       position.

27.20. If you enter into any new contracts before the commencement, or within
       the duration of this facility, we must examine the contracts and agree
       that they are acceptable.

27.21. The Payment Account Credit date will be for all debts the date of receipt
       by us of payment for value from the Debtor. Where you have a Non-Recourse
       facility, for undisputed Covered Debts the expiry date of the Barclays
       Credit Period stated in Clause I17.

27.22. We may at any time require a satisfactory audit trail exercise to be
       conducted on your sales invoicing.

27.23. Any security which we hold for your liabilities to Barclays Bank PLC must
       remain in place for the duration of this facility. We will consider a
       breach of any other facilities granted by Barclays Bank PLC or any of its
       subsidiaries to you as a breach of this facility.

27.24. We require a copy of the terms and conditions of your major suppliers.
       Should these indicate that any retention of title is held over goods
       supplied to you, a limitation regarding such a retention of title may be
       required.


39



Published by Barclays Bank PLC. Business Banking Marketing Services.

Registered in England. Registered No: 1026167. Registered Office: 1 Churchill
Place, London E14 5HP.

RB1443. Item Ref. 9971652. 06/05. June 2005.

EX-10.5

[BARCLAYS LOGO]

SALES LEDGER FINANCING
Terms and Conditions



                                                          Sales Ledger Financing

BARCLAYS BANK PLC
SALES LEDGER FINANCING TERMS AND CONDITIONS (VERSION A/2005)
INCORPORATED INTO OUR SALES LEDGER FINANCING AGREEMENT

These Conditions are signed by the authorised signatories on behalf of each
party to indicate their incorporation into the Sales Ledger Financing Agreement
between:

(Party 1) Barclays Bank PLC and

(Party 2) Allied Staffing Professionals Limited
          ----------------------------------------------------------------------

With the Commencement Date of the: ___________________ day of _________ 20 _____

Full Names of Authorised Signatory      Signature

- -------------------------------------   ----------------------------------------
(Party 1) Barclays Bank PLC

David Moffatt                           David Moffatt
- -------------------------------------   ----------------------------------------
(Party 2)

Paul Weston                             Paul Weston
- -------------------------------------   ----------------------------------------
(Party 2)


3




Barclays Bank PLC
Sales Ledger Financing Terms and Conditions
Order of Clauses

1    Introduction
2    Notification To Us of Debts and Credit Notes
3    Purchase Price of Debts
4    Credit Lines
5    Debtors Control Account and Payment Account
6    Discount, Service Charges and Other Fees
7    Notices to Debtors
8    Debtor's Accounts and Collection of Debts
9    Your Agency
10   Trusts
11   Foreign Debts
12   Information and Documentation
13   Your Warranties to us
14   Your Undertakings to us
15   External Credit Insurance
16   Computerised Facilities
17   Recourse and Reassignment
18   Communications with Debtors and Third Parties
19   Partnerships and Sole Traders
20   Termination of the Agreement
21   Assignment, Delegation, Force Majeure and EMU
22   Waiver, Severance, Variation and Further Acts
23   Service of Notices and Process
24   Power To Act In Your Name
25   Definitions
26   Standard Confidential Invoice Discounting Terms & Conditions
27   Standard Factoring Terms & Conditions


4



                                                          Sales Ledger Financing

Barclays Bank PLC
Standard Terms and Conditions

1.   INTRODUCTION

1.1. Certain words have the meanings given after each of them in Condition 25.1

1.2. The Sales Ledger Financing Agreement shows which of our facilities we shall
     be providing to you. Our Non Recourse Facility shall only be available in
     conjunction with at least one other of our services or facilities.

1.3. If we are not to provide you with our Collection Service, then you will be
     our agent for the collection of Debts. If we are not to provide you with
     our Ledger Management Facility you will be our agent for maintaining Debtor
     Ledgers. Each agency will be regulated by these Conditions.

1.4. Even if the Sales Ledger Financing Agreement specifies that notice of
     assignment will not normally be given to some or all of your Debtors, such
     notice may be given in the special circumstances which are described later.

1.5. If we are to provide a Sales Ledger Financing Facility we will require your
     sales ledger to be fully reconciled, clearly identifying all outstanding
     invoices and credit notes in an open item format with all cash and other
     credit items allocated to the appropriate invoices. We may require a
     satisfactory survey and a copy of your latest management accounts.

1.6. The Debts to which this Agreement applies are shown in the Sales Ledger
     Financing Agreement, together with such other Debts as we may subsequently
     agree with you in writing. We agree to purchase from you and you agree to
     sell to us all Debts to which this Agreement applies:

     (i)  which are in existence on the Commencement Date shown in the Sales
          Ledger Financing Agreement: and

     (ii) all such Debts created in future.

1.7. The whole Agreement between you and us shall comprise only

     (i)  this document

     (ii) our document entitled Sales Ledger Financing Agreement.

          All of which have been supplied or are available to you upon request.
          References to "the Agreement" shall include all or any of the above
          together with any variation, amendment or extension of it. The terms
          of this document and the conditions shall prevail over any
          inconsistency shown in any other document. All earlier sales ledger
          financing agreements between you and us and all discussions,
          quotations, warranties and representations by us however made shall be
          of no effect.

1.8. The contractual relationship between you and us set out in the Agreement
     shall begin on the Commencement Date and then continue for the Minimum
     Period, both of which are set out in the Sales Ledger Financing Agreement.

1.9. Our relationship with you is to be governed and interpreted by English law.
     You will submit to the jurisdiction of the English courts. However we may,
     in our discretion, use the courts of any other jurisdiction.

2.   NOTIFICATION TO US OF DEBTS AND CREDIT NOTES

2.1. On the Commencement Date you will deliver to us an Offer with the
     Notification Documents. Such Offer will include all Debts outstanding at
     that date (except those referred to in the Sales Ledger Financing Agreement
     as Non Notifiable Debts) and details of any relative credits. Thereafter,
     within seven days of the completion of each Contract of Sale you will issue
     invoices to your Debtors. At the same time, you will include the relative
     Debt in a Notification Schedule and deliver it to us with the appropriate
     Notification Documents, or in the appropriate application by ledgermaster.
     You will ensure that your ledgers record the sale of each Debt to us.


                                                                               5



Sales Ledger Financing

2.2. Credit Notes issued to Debtors will be dealt with as follows:

     (i)   in the case of our Ledger Management Facility - all credit notes will
           be raised immediately when due and forwarded to us with the relevant
           Notification Schedule;

     (ii)  in the case of any facility or service which has not been selected in
           conjunction with our Ledger Management Facility - you will enter
           details of all credit notes on Notification Schedules and send us
           copies of the credit notes or complete the appropriate application
           via Ledgermaster.

3.   PURCHASE PRICE OF DEBTS

3.1. The Purchase Price of each Debt shall be the amount received by us towards
     the discharge of the Debt but less any trade, prompt settlement or
     retrospective discounts that may apply and less the Discount and less the
     Service Charge.

3.2. If you have our Non-Recourse Facility then the Purchase Price in respect of
     a Covered Debt shall be the amount for which we have assumed the Credit
     Risk, if this shall be greater than the amount referred to in Condition
     3.1.

3.3. The Purchase Price of any Debt expressed in a currency other than sterling
     will normally be paid in sterling unless otherwise agreed. Accordingly:

     (i)   we shall provisionally calculate the Purchase Price at the spot
           buying rate of exchange for the currency of the Purchase Price for
           the date we shall credit the Debt to the Debtor Control Account; and

     (ii)  we shall finally calculate the Purchase Price at the spot buying rate
           of exchange for the currency of the Purchase Price for the date that
           any part of the Purchase Price shall be credited to the Payment
           Account; and

     (iii) any exchange rate losses incurred by us shall be Your Responsibility
           and will accordingly be reflected in the Debtor Control Account and
           the Payment Account.

4.   CREDIT LINES

4.1. Where you have our Non-Recourse Facility, then at the end of the Credit
     Period we may exercise Recourse in respect of a Debt within the Credit Line
     for the amount of:

     (i)   the Value Added Tax included in the Debt; and

     (ii)  the First Loss; and

     (iii) any settlement, trade or retrospective discount taken or claimed.

     We may also exercise Recourse for amounts in excess of the Credit Line. We
     will then accept the Credit Risk for the remainder of the Covered Debt.

4.2. We will notify you of the Credit Line for each Outstanding Debtor as soon
     as convenient after the Commencement Date and thereafter as soon as
     convenient after a Credit Line has been requested by you. Prior to
     Notifying each Debtor's Debts to us, you must have a Credit Line or have
     submitted an application to us for one. Your application must be in the
     form and with the information required by us.


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                                                          Sales Ledger Financing

     All information given by you must be accurate. Credit Lines will be issued
     entirely at our discretion for the purpose of determining the terms upon
     which we will purchase Debts. They will apply only to Debtors with the
     names specified by you. Credit Lines shall, under no circumstances, be
     taken as our indication of the creditworthiness or otherwise of a Debtor.

4.3. We will advise you of Credit Lines by whatever means we consider
     appropriate. We may increase or decrease Credit Lines at any time. We will
     advise you of increases or decreases. Any Notified Debt within a Credit
     Line shall not be affected by a decrease, provided that the Contract of
     Sale shall have been completely performed before Notification to us of the
     Debt.

4.4. You will not reveal to anyone, including your Debtors, the terms, the
     amount or absence of any Credit Lines. As between you and us, such
     information shall be considered legally privileged. Where you have a
     Recourse Facility Credit Lines are set only for the purposes of
     establishing the amount of Early Payments that may be made.

4.5. Where a Credit Line has been established then Outstanding Debts shall be
     treated as Covered Debts in the order in which they shall become due for
     payment. Debts above a Credit Line shall be Approved Debts.

4.6. If we have designated a Debt as an Approved Debt, it (and all other Debts
     due by the same Debtor) shall forthwith and without notice to you be
     treated as Unapproved Debts in any of the following circumstances:

     (i)    you shall have been in breach of any warranty or undertaking to us
            relating to the Debt;

     (ii)   the Debt shall in any way have been disputed by the Debtor or
            subject to a claim by the Debtor to set-off or counterclaim;

     (iii)  it shall be a Non-Notifiable Debt;

     (iv)   the payment terms under the Contract of Sale shall be different from
            those shown on your application for a Credit Line (or if none is
            shown - from those appearing in the Sales Ledger Financing Agreement
            or as agreed by us in writing); or

     (v)    the Goods shall not have been delivered to the Debtor's carrier or
            premises or the Contract of Sale shall not have been fully completed
            (except for payment of the Debt) prior to the Notification to us of
            the Debt; or

     (vi)   the Credit Period shall expire after the date of termination of this
            Agreement or following a Termination Event; or

     (vii)  if the Debtor's failure to pay shall, in our reasonable opinion, be
            due to government action, political events, war, revolution,
            insurrection or to any default or failure by you; or

     (viii) the amount of the Debt shall be reduced as a result of any credit
            note, allowance or other credit being issued or made to or claimed
            by any Debtor for any reason (except a prompt payment discount not
            exceeding 5%);

     (ix)   if the Debtor shall deliver payment to you (except where you have
            our Agency to collect Debts).

4.7. Following a Debt becoming an Unapproved Debt under Condition 4.6 you will
     forthwith repay any Early Payment made in respect of it.

4.8. If you have our Non-Recourse Facility then, even though we may have
     credited the Purchase Price of a Covered debt to the Payment Account under
     Condition 5.2, we may debit the Purchase Price to that account if the Debt
     shall later become Unapproved, whilst still Outstanding.


                                                                               7



Sales Ledger Financing

4.9.   Where you have a Non-Recourse Facility, we may treat an Outstanding
       Approved Debt as an Unapproved Debt at any time once less that 30 days
       shall remain unelapsed before the expiry of the Credit Period and such
       Debt has not become a Covered Debt.

4.10.  If you notify us of a Debt for which no Credit Line has been established
       then such Debt shall always be an Unapproved Debt until we notify you to
       the contrary.

5.     DEBTORS CONTROL ACCOUNT AND PAYMENT ACCOUNT

5.1.   We shall credit the Purchase Price of all Notified Debts, at their
       Notified Value, to your account in our ledgers known as the 'Debtor
       Control Account' but subject to such later adjustment to the value as may
       be needed.

5.2.   On the Payment Account Credit Date stated in Clause 26.26 or 27.21, we
       shall debit the Purchase Price to the Debtor Control Account and also
       credit it to the Payment Account. However where the Debtor is Insolvent
       we shall not deal with the Purchase Price in this way until a proof of
       debt has been admitted or the person with the duty to administer the
       Debtor's affairs has confirmed in writing the validity of the Debt.

5.3.   At the Expiry of the Recourse Period shown in the Sales Ledger Financing
       Agreement we shall exercise Recourse in respect of a Recourse Debt.

5.4.   We shall debit to the Debtor Control Account any of the following:

       (i)    the Notified amount of any credit note issued by you;

       (ii)   an amount equal to any cash discount taken or debit note issued or
              relied upon by a Debtor;

       (iii)  any adjustment to the value of the Debt, advised by you to us or
              to which we may reasonably consider the Debtor is entitled.

5.5.   We shall be entitled to debit the amount of Your Responsibility at any
       time to the Payment Account.

5.6.   You may, at any time, draw from the Payment Account any credit balance
       thereon, less deductions equal to:

       (i)    all credit balances on Debtor's accounts; and

       (ii)   any reserves which we are entitled to create; and

       (iii)  any items which we shall be entitled to debit to the Payment
              Account but shall not have done so. No interest shall accrue to
              you in respect of credit balances on the Payment Account.

5.7.   If you have our Early Payment Facility and you shall have complied to our
       satisfaction with our Pre-Conditions and your other obligation to us, you
       may also draw sums from the Payment Account up to the amount of your
       Availability. In calculating your Availability, the following
       requirements must be taken into account:

       (i)    the debit balance on the Payment Account must not exceed the Early
              Payment Ceiling (shown in the Sales Ledger Financing Agreement);
              and

       (ii)   the debit balance on the Payment Account must not exceed the Early
              Payment Percentage (shown in the Sales Ledger Financing Agreement)
              after deduction of the amounts referred to in Condition 5.6.; and


8



                                                          Sales Ledger Financing

       (iii)  Early Payments will not be permitted in respect of Debts in excess
              of the Prime Debtor Restriction shown in the Sales Ledger
              Financing Agreement; and

       (iv)   your Availability will be reduced by the amount of any Early
              Payment made in respect of an Approved Debt or Recourse Debt whose
              Recourse Period has expired.

5.8.   The Early Payment Ceiling, the Early Payment Percentage and the Prime
       Debtor Restriction shall initially be those specified in the Sales Ledger
       Financing Agreement. Any or all of them may at any time be increased or
       decreased by us. You will be notified of such changes. Where you have
       Payment Accounts in different currencies, and your Availability has to be
       calculated, they shall be considered as if they had all been converted to
       sterling at our spot buying rate on the day on which your Availability is
       calculated. All such conversions and any Purchase Account in sterling
       shall be aggregated for the purpose of calculating your Availability.

5.9.   Any withdrawal by you from the Payment Account shall be in the currency
       of the Payment Account or in such other currency as we may agree. Payment
       may only be made by a remittance made payable to you or direct to your
       bank account. Early Payments shall be treated as being made on account of
       the Purchase Price of Debts in the order in which such Debts appear on
       your Notification Schedules and then in the order in which such
       Notification Schedules are entered on the Debtor Control Account.

5.10.  You will repay us on demand any amount by which the debit balance on the
       Payment Account shall exceed your Availability.

5.11.  You may not draw from your Payment Account whilst you are insolvent or
       Insolvency proceedings shall be pending or threatened against you.

5.12.  Upon the occurrence of a Termination Event or the ending of this
       Agreement we shall have the right to set-off all amounts owing by you to
       us (including Your Responsibility) against sums due by us to you. Such
       amounts together with any debit balance on the Payment Account, shall be
       treated as being consolidated in a single account. Any debit balance
       arising from such treatment shall become immediately payable to us and
       any credit balance shall immediately become payable to you. We may also,
       at any time, set-off the amount of any liability of you to us against any
       monies owing by us to you and/or combine any accounts recording
       transactions between you and us. Any obligation of yours expressed in a
       foreign currency may be converted into sterling, at our rate of exchange
       at the time of such set-off or combination of accounts.

5.13.  We will send you weekly statements of the Debtor Control Account and the
       Payment Account. These shall be treated as correct and binding on you,
       except for those errors which shall be manifest or of which we receive
       your written notice within 10 days of our despatch of such accounts to
       you.

5.14.  Following any demand by us to you for payment of any sum or in any
       proceedings you will be bound by a certificate signed by an Officer of
       ours holding our power of attorney as to the balance on the Payment
       Account or the Debtor Control Account any accrued or contingent charges,
       any credit balance on a Debtor's account or any loss or damage suffered
       by us. Such certificate shall be conclusive as to the correctness of the
       certified amount, in the absence of manifest error or error in law.

5.15.  Your obligations to us shall at all times continue without any right of
       set off or counterclaim against us until all the monies due from you to
       us shall have been paid.


                                                                               9



Sales Ledger Financing

5.16.  All payments to be made by you to us shall be made free and clear of, and
       without deduction for or on account of, tax, unless you are required to
       make such a payment subject to the deduction or withholding of tax. In
       the latter case the sum payable by you, in respect of which such
       deduction or withholding is required to be made, shall be increased to
       the extent necessary to ensure that, after the making of such deduction
       or withholding, we receive and retain (free from any liability in respect
       of any such deduction or withholding) a net sum equal to the sum which we
       would have received and so retained had no such deduction or withholding
       been made or required to be made.

5.17.  On the Commencement Date you will make us an Offer in respect of each
       Debt then Outstanding. If we decide that we wish to accept your Offer
       (which will be entirely at our discretion) then we may do so by crediting
       the Notified Value of each accepted Debt to the Debtor Control Account.
       Upon such credit our ownership of each accepted Debt will be complete.
       You hereby transfer ownership of each Debt coming into existence after
       the Commencement Date. Such ownership will vest in us without further
       formality upon the Debt coming into existence.

6.     DISCOUNT, SERVICE CHARGES AND OTHER FEES

6.1.   The Discount shall accrue from day to day and be calculated at the rate
       specified in the Sales Ledger Financing Agreement in respect of each
       Early Payment from the date of its entry on the Payment Account. For such
       purposes, any debit to the Payment Account shall be treated as an Early
       Payment. The Discount shall be calculated on the daily debit balance on
       the Payment Account subject to the following adjustments. Any remittance
       received (other than a payment through BACS - the Bankers Automated
       Clearing System or CHAPS - the Clearing House Automated Payments System)
       which results in a credit to the Payment Account shall not be treated as
       reducing the debit balance on that account until the third Working Day
       after such credit. Discount shall be debited monthly to the Payment
       Account.

6.2.   Upon a Debt being Notified to us we shall debit the Payment Account with
       a Service Charge, for each Notified Debt, at the rates shown in the Sales
       Ledger Financing Agreement. For a Debt expressed in a currency other than
       sterling, the Debt shall nationally be converted to sterling at our spot
       buying rate for the day that we receive the Notification Schedule and the
       Service Charge applied to the converted amount. No refund of Service
       charges shall be made upon termination of the Agreement.

6.3.   If the total of all Service Charges in the period specified in the Sales
       Ledger Financing Agreement falls short of the sum stated for such period
       as the Minimum Service Charge then you will immediately pay us a sum
       equal to such shortfall. Should we consider such shortfall likely we may
       forthwith debit the anticipated shortfall to the Payment Account.

6.4.   Payments by us to you will be made either by cheque or BACS (Bank
       Automated Clearing System) or by Telegraphic Transfer. Payments by cheque
       or BACS will not be subject to an administration charge. Payments by
       Telegraphic Transfers will be subject to an administration charge by us.

6.5.   You will pay us all bank commissions and charges for:

       (i)    keeping any bank account held in trust for us;

       (ii)   collecting remittances for Foreign Debts and collecting and
              converting the proceeds of any Debt expressed in a currency other
              than sterling;

       (iii)  dealing with dishonoured remittances.


10



                                                          Sales Ledger Financing

6.6.   After the Commencement Date you will pay us an arrangement fee for any
       variation of the Sales Ledger Financing Agreement requested by you or any
       additional service provided outside its scope. Should the balance on the
       Payment Account exceed your Availability, then we may also make an
       additional facility charge or increase our Service Charge and/or
       Discount.

6.7.   If we have a concern as to the operation of any facility which gives rise
       to our making exceptional visits to your premises or those of any other
       person then we shall raise a charge against you for our reasonable costs
       and expenses incurred.

6.8.   You will fully indemnify us against all costs and expenses payable by us
       in or arising out of any of the following:

       (i)    enforcing this Agreement;

       (ii)   the release of Debts from charges, trusts or other encumbrances;

       (iii)  dealing with disputes by Debtors;

       (iv)   issuing proceedings to collect any Debts, except those for which
              we shall continue to accept the Credit Risk;

       (v)    Assignments or re-assignments of Debts or Related Rights;

       (vi)   all costs and disbursements payable to any opponent or third party
              arising out of claims or proceedings; and you will upon request
              provide us, or we may debit the Payment Account with, such
              security for legal costs and disbursements as we may reasonably
              require.

6.9.   Where you have our Non-Recourse Facility, the following provisions shall
       apply to any Covered Debt to which the Revised VAT Bad Debt Scheme would
       apply but for its assignment to us:

       (i)    we may give notice to you of our intention to reassign all our
              interest in such Covered Debt. At the expiry of the period
              specified in such notice, or if none is so stated then at the time
              of our giving of such notice, all our interest in such Debt shall,
              without further formality, become revested in you. The
              consideration for such revesting shall be sums payable to us under
              subcondition (iv) of this Condition;

       (ii)   you will then use your best endeavours to recover sums available
              for the reduction of the amount of such Covered Debt, including
              any dividend or benefit from the estate of the Debtor;

       (iii)  we shall be at liberty to complete and lodge in your name a proof
              or statement of debt in the Insolvency of the Debtor;

       (iv)   you will pay to us any future sums (after deduction of the
              relevant Value Added Tax proportion thereof) that may be
              recovered by you in respect of such Covered Debt, whether from the
              estate of the Debtor or otherwise and meanwhile you will hold such
              sums in trust for us.

6.10.  All fees and charges are and shall be quoted exclusive of Value Added
       Tax, which shall be added where applicable.

7.     NOTICES TO DEBTORS

7.1.   Except where the Sales Ledger Financing Agreement or these Conditions
       provide to the contrary, you will give notice to each Debtor of the
       assignment to us of the Debts payable by that Debtor, including notices
       on invoices, statements and by general notices. The form of such notice
       will be decided by us. We may also give such notice, at any time, whether
       in your name or ours.


                                                                              11



Sales Ledger Financing

8.     DEBTOR'S ACCOUNTS AND COLLECTION OF DEBTS

8.1.   Where we provide our Ledger Management Facility or where your agency to
       collect Debts or manage Debtor's accounts has been ended, we will manage
       your Debtor's accounts and provide you with information from them.

8.2.   We may, at all times, take any payment made by a Debtor or any credit or
       allowance given by you to reduce any Covered Debt in priority to any
       Approved or Unapproved Debt, despite any contrary appropriation by you or
       your Debtor. We may deal with any credit balance on a Debtor's Account in
       such manner as we consider appropriate, including paying such balance to
       the Debtor.

8.3.   We may accept payment from a Debtor which is less than the Notified value
       of the Debt in full discharge of it, if the amount of such shortfall
       shall be immaterial and the Purchase Price shall be accordingly reduced.

8.4.   Whether you act as our agent to collect Debts or you have the benefit of
       our Collection Service, subject to Condition 9.2, we shall, as the
       Purchaser of the Debts, at all times have the sole right of collecting
       and enforcing payment of all Debts, in whatever manner we shall consider
       necessary and prudent. Without affecting such right, we will try to
       collect Debts in the manner discussed between us.

8.5.   You will, if required by us, lend your name to any proceedings that we
       may institute. But we shall not be obliged to institute any proceedings.
       Without affecting the last sentence, where your Debtor is also a client
       of ours, we may use an Alternative Dispute Resolution Procedure. We may
       settle any claim in respect of a Debt (or any claim against us or you by
       way of reduction of a Debt) upon such terms as we shall think fit. You
       will accept any resulting reduction in the Purchase Price.

8.6.   You will make available to us on request and free of charge all evidence
       required by us in any proceedings or Alternative Dispute Resolution
       Procedure. You will ensure the attendance at any hearing of those
       witnesses that we or our legal advisers shall require.

9.     YOUR AGENCY

9.1.   If you do not have our Collection Service, we appoint you as our agent to
       collect Debts vested in us. If you do not have our Ledger Management
       Facility we appoint you as our agent to maintain the Debtor ledger. You
       will act promptly and efficiently in carrying out your duties as our
       agent. You will not hold yourself out as our agent for any other
       purposes.

9.2.   If we have appointed you as our agent to collect Debts vested in us and
       to maintain Debtor's ledgers then we will only exercise our rights under
       Condition 8.4. after prior notice to you.

9.3.   We may open a bank account in your name, where our officers are to be
       irrevocably appointed as the only authorised signatories; you will pay
       all receipts in respect of Debts into such bank account without otherwise
       banking or dealing with them.

9.4.   Where you have our agency to maintain the Debtor ledger then upon a Debt
       coming into existence you will promptly enter it into your accounting
       system and ledgers. Your ledgers must prominently indicate that the Debts
       have been Assigned to us. Where you have our agency to collect Debts, you
       will not appoint any third party to collect payment of Debts without our
       prior written consent.

9.5.   During your agency you will provide us with the following reports and
       information as at each month end by the 10th day of the immediately
       following month:


12



                                                          Sales Ledger Financing

       (i)    an aged Debtor analysis, with copies of all Debtor statements; or

       (ii)   an open item aged Debtor listing with the names and addresses of
              all Debtors; and

       (iii)  a complete sales ledger reconciliation in the format required by
              us;

       (iv)   an aged creditor analysis;

       (v)    any other information requested by us.

9.6.   We may at any time withdraw your agency to collect debts. You will then
       immediately give notice to every Debtor, in such form as we shall
       require, of the withdrawal of your agency together with the Assignment of
       Debts to us. If you do not give the notice of Assignment within seven
       days of our withdrawal of your agency then all Covered Debts will become
       Unapproved Debts.

9.7.   Following such withdrawal of your agency:

       (i)    you will not hold yourself out as our agent for any purpose; and

       (ii)   you will ensure that Debtors pay all Debts direct to us; and

       (iii)  you will immediately deliver to us such of your ledgers, books of
              account, computer data, electronic records and all documents
              recording or evidencing Debts as we may require; and

       (iv)   we shall provide you with our Ledger Management and/or Collection
              Service, for which you will pay a Service Charge of two per cent
              of the Notified Value of those Outstanding Debts at the start date
              of such additional facilities and/or services and those Debts
              which are afterwards Notified to us.

9.8.   Your agency may be withdrawn by us at any time following a Termination
       Event and also automatically upon termination of this Agreement. We shall
       then collect all Debts or oversee their collection by a third party
       (whether acting in our or your name). In addition to any other fees and
       charges payable under this Agreement you will be responsible for our
       collect out fee of five per cent of the Notified Value of all Debts
       existing at such cancellation of your agency or Notified to us after such
       cancellation. This fee is to cover our additional work involved,
       including where appropriate the collection of Debts or overseeing their
       collection by a third party. Where we oversee the collection of Debts we
       may discharge the fees and expenses of the third party. The collect-out
       fee and third party fees and expenses so discharged are to be treated as
       a deduction in calculating the Purchase Price.

10.    TRUSTS

10.1.  From the moment that you shall receive any payment in or towards
       settlement of a Debt (or in settlement of claim under the Policy) you
       will hold it absolutely in trust for us. This will include all payments
       received as our agent and all sums paid into the bank account referred to
       in Condition 9.3 and any dividend from the estate of an Insolvent Debtor.
       We acknowledge having received intimation of such trust. We may at any
       time give notice to anyone of the existence of such trust.


                                                                              13



Sales Ledger Financing

10.2.  Upon receipt of any payment in or towards settlement of a Debt, you will
       immediately hand to us the identical cash, cheque, bill of exchange or
       other remittance or pay it into such bank account as we may specify. You
       will endorse over to us any such cheque, bill of exchange or other
       remittance if your endorsement is necessary to enable us to receive
       payment. You will give us such instructions and indemnities as we may
       require for the collection of non-transferable instruments for our
       benefit.

10.3.  Where any Debt or its Related Rights shall fail to vest in us you will
       hold them in trust for us.

10.4.  You will promptly notify us of all Returned Goods. At our request, you
       will set these aside marked with our name as owner and then deliver them
       to us, or deliver or deal with them as directed by us. We shall have the
       right, without notice, to enter into any premises where Returned Goods or
       any items comprised in the Related Rights are kept. We may then take
       possession of and sell any Returned Goods upon such terms and at such
       prices as we may decide. We shall credit the net proceeds in or towards
       the discharge of the Debts to which they relate. Upon request you will
       deliver the other Related Rights to us. We may deal with them as we see
       fit.

11.    FOREIGN DEBTS

11.1.  Where the invoice for a Foreign Debt is addressed to a Debtor in a
       country where we have a relationship either with a company offering
       factoring or invoice discounting services in respect of Debts owing by
       Debtors in that country or any other party approved of by us, our rights
       and obligations shall remain unchanged, except that:

       (i)    no Credit Line will be issued by us until:

              (a) the Credit Risk has been assessed and reported to us by either
              the Foreign Factor or such other party;

              (b) we have received an acknowledgment from the relative Debtor of
              receipt of notice of assignment and confirmation that we shall be
              paid direct, should the Sales Ledger Financing Agreement state
              that notice of assignment shall be given to Foreign Debtors.

       (ii)   we may assign the Foreign Debt to the Foreign Factor or such other
              party;

       (iii)  collection of the Foreign Debt may be carried out through the
              Foreign Factor or such other party; and

       (iv)   payment by a Debtor to the Foreign Factor or such other party
              shall not be treated as a receipt by us until the proceeds of such
              payment shall actually have been received by us;

       (v)    all Debts due by a Debtor shall be in the same currency, unless
              otherwise agreed with us;

       (vi)   all Debts on a Notification Schedule shall be in the same currency
              and addressed to Debtors in the same country;

       (vii)  you will use your best endeavours to carry out such administrative
              procedures as are required by Factors Chain International, the
              Foreign Factor or such other party as we may notify to you;

       (viii) you, your employees, agents and representatives (whether in U.K.
              or overseas) shall give all reasonable assistance to us, the
              Foreign Factor or such other party in connection with obtaining
              payment of Foreign Debts.


14



                                                          Sales Ledger Financing

12.    INFORMATION AND DOCUMENTATION

12.1.  If you are a limited company, or a limited liability partnership you will
       supply us with a copy of your audited balance sheet, accounts and
       directors' report for each of your accounting reference periods (as
       defined in the Companies Act 1985) or such other financial reports as we
       may require.

12.2.  If you are a partnership or sole trader you will supply us with a copy of
       your balance sheet and accounts for each yearly accounting period. These
       are to be prepared and certified as true and correct by a firm of
       chartered or certified accountants.

12.3.  The items listed in Conditions 12.1 and 12.2 are to be sent to us as soon
       as they are available to you and in any event no later than four months
       from the end of such accounting period.

12.4.  You will provide us with your internal management accounts showing the
       financial results of your operation, with such verification and in such
       form and at such intervals as we may specify.

13.    YOUR WARRANTIES TO US

13.1.  It is of the essence of this Agreement that:

       (i)    all balance sheets, profit and loss accounts, management accounts,
              information and documents which either have been or may in future
              be supplied by you to us fairly represent your financial position,
              the value of the Debts and are otherwise accurate and correct in
              all material aspects, subject only to any qualification appearing
              on them;

       (ii)   you have provided us with all information that you knew or ought
              reasonably to have known would influence us in deciding whether or
              not to enter into this Agreement or the terms upon which we should
              enter into it; and

       (iii)  you have made, and will continue to make, all necessary
              notifications or registrations under the terms of the Data
              Protection Act 1998 (or its predecessor 1994 Act).

13.2.  The inclusion of a Debt in an Offer or a Notification Schedule delivered
       to us shall be treated as including all of the following warranties from
       you, namely that:

       (a)    you are the owner of the Debt and freely able to sell it to us and
              no other person (including a party providing stock finance) has
              any interest in it;

       (b)    the sale or Assignment of the Debt to us will not violate any law
              or agreement binding on you and following such sale or Assignment
              the Debt will not be available to your creditors should you become
              Insolvent;

       (c)    except in our favour, no mortgage, charge, lien, trust, option,
              hypothecation, encumbrance or any tracing or equitable rights
              affects the Debt or the Goods;

       (d)    the Goods have been Delivered or the services have been completely
              performed and the Goods are owned only by either you or the Debtor
              free from encumbrances or any third party tracing right;

       (e)    the Debt represents an existing, enforceable and undisputed
              obligation of the Debtor;

       (f)    the Notified value of the Debt represents its Contracted Value;


                                                                              15



Sales Ledger Financing

       (g)    the Debt arises out of a Contract of Sale in the ordinary course
              of your business;

       (h)    you are not and will not be in breach of any of your obligations
              to the Debtor;

       (i)    you have no financial obligations towards the Debtor;

       (j)    the Debtor has an established place of business and has bought the
              Goods for the purpose of its business and is not an Associate of
              yours;

       (k)    no right or claim of rescission, contra accounting, defence,
              set-off, counterclaim, adjustment or other right or claim (whether
              valid or alleged) exists to reduce or extinguish the Notified
              Value of the Debt or affect our ability, in our name, to collect
              the Debt;

       (l)    except as otherwise approved by us in writing (including the
              giving of a Credit Line in response to an application referring to
              your credit terms), the debt is payable in accordance with your
              payment terms set out in the Sales Ledger Financing Agreement,
              which are endorsed on every invoice, and which do not allow the
              Debtor to claim a prompt settlement or trade discount exceeding
              5.0% (five per cent) and is not subject to retrospective discount;

       (m)    the Debt arises under a Contract of Sale governed by English law
              (or such other law approved by us) obliging the Debtor to pay in
              sterling or a Permitted Currency referred to in the Sales Ledger
              Financing Agreement (or such other currency approved by us);

       (n)    the correct name and address of the Debtor appears on every
              invoice, credit note, application for a Credit Line and all other
              documentation sent to us;

       (o)    the person having the duty to administer the affairs of a Debtor
              upon its Insolvency will accept proof for the Notified amount of
              each Covered Debt;

       (p)    the original invoice has been delivered to the Debtor and, if the
              Sales Ledger Financing Agreement so states, with the required
              notice of Assignment of the Debt to us endorsed thereon;

       (q)    the Debt arises under a Contract of Sale with credit terms as to
              payment;

       (r)    the Debt is not subject to any withholding tax;

       (s)    that you have provided us with all additional information that
              might affect our designation of a Debt as Covered, Approved or
              Unapproved;

       (t)    except as notified to you, no reservation of title by any third
              party will apply to the Goods nor will there be any right for a
              third party to trace into such Goods or any Notified Debts.

14.    YOUR UNDERTAKINGS TO US

14.1.  You undertake throughout the duration of this Agreement and afterwards
       until all sums due to us have been discharged:

       (a)    to ensure that the warranties given to us upon Notifying us of a
              Debt shall remain unaltered but if there should be any breach of
              such warranties to Notify us immediately you become aware of such
              breach and without prejudicing our rights arising out of such
              breach;


16



                                                          Sales Ledger Financing

       (b)    immediately upon becoming aware, to disclose to us;

              (i) details of any change or contemplated change in the directors
              or partners or the control or ownership of your company,
              partnership or business or of any guarantor or indemnifier of your
              obligations to us; or

              (ii) details of any threatened or pending Insolvency proceedings
              against you, or against any such guarantor or indemnifier; or

              (iii) details of any adverse credit information about a Debtor; or

              (iv) if any security-holder shall, or be entitled to, enforce its
              security over any part of your property, assets or undertaking; or

              (v) if any floating charge over your assets or undertaking shall
              crystallise or otherwise become converted into a fixed charge; or

              (vi) if any step shall be taken by any party towards your
              Insolvency.

       (c)    immediately upon our request to provide us with:

              (i) such information relating to Debtors as we may reasonably
              require;

              (ii) satisfactory evidence (including proof of delivery) of your
              complete performance of the Contract of Sale and of all your other
              obligations to the Debtor;

       (d)    not to Notify us, until we tell you, of any Debt which, at the
              Commencement Date, shall be:

              (i) payable by an Insolvent Debtor; or

              (ii) in the hands of a solicitor, debt collector or other third
              party for collection;

       (e)    not to Notify us, until we tell you, of any Debt existing at the
              Commencement Date or coming into existence after that date, which
              shall:

              (i) be payable by an Associate of yours; or

              (ii) arise from Goods supplied on approval or trial, evaluation,
              on sale or return or similar terms; or

              (iii) be within the category of Non-Notifiable Debts, specified in
              the Sales Ledger Financing Agreement or such other Debts as we may
              specify;

              (iv) arise from a Contract of Sale which treats:

              (1) ownership of the Goods or documents of title as being
              transferred to your Debtor whilst remaining in your possession or
              under your control (sometimes known as 'constructive delivery' or
              'call off' or 'bill and hold'); or

              (2) the due date for payment as being fixed by reference to the
              date upon which ownership passes and not to the date of Delivery;
              or

              (v) be evidenced by an invoice issued for part payment;


                                                                              17



Sales Ledger Financing

       (f)    to perform punctually all your further or continuing obligations
              to the Debtor (including installation, testing, maintenance,
              payment of carriage, shipping charges taxes and duties) and should
              you fail so to perform then to allow us, at your expense, to
              perform such obligations on such terms as we consider appropriate
              and to be bound by our performance;

       (g)    to tell us, promptly in writing with full particulars, of any
              dispute between you and your Debtor;

       (h)    not, without our prior consent, to vary the Contract of Sale
              following the relative Debt being Notified to us;

       (i)    to keep all books and records required by law together with full
              and accurate sales records of all supplies of goods and services
              to Debtors;

       (j)    if you do not have our Ledger Management Facility, to keep full
              and accurate debtor ledgers;

       (k)    to allow any employee, representative or agent of ours, at all
              reasonable times to enter any premises at which you carry on
              business, to inspect Goods and stocks and Contracts of Sale, to
              inspect, verify and check all such books, accounts, computer and
              other records, orders, correspondence and other documents as we
              may require and to copy (including computer disks), at your
              expense, such of them as we may require or to check or remove any
              software or hardware provided by us or any licensor of ours in
              connection with access to our computer facilities;

       (l)    not to Assign, mortgage, charge, declare in trust or otherwise
              deal with your existing or future Debts, or your rights under this
              Agreement;

       (m)    upon our request and in accordance with our instructions to
              exercise any reservation of title in your favour to Goods;

       (n)    to ensure that all Contracts of Sale shall, if applicable, state
              the nature and quantity of the Goods, payment terms, delivery
              dates, insurance terms and any installation, testing and after
              sales service or maintenance;

       (o)    to ensure that all information about your sole trader and
              unlimited partnership Debtors that you may process and/or transfer
              to us is accurate and such information and its transfer fully
              complies with the Data Protection Act 1998 including telling us of
              any amendments;

       (p)    immediately to advise each unincorporated Debtor that you will
              transfer details of them and of their account to us (whom you may
              describe as "our bank" or "our financiers") for the purposes of
              providing our services and for the following purposes:-

              o      obtaining credit insurance;

              o      making credit reference agency searches;

              o      credit control;

              o      assessment and analysis (including credit scoring, market,
                     product and statistical analysis);

              o      securitisation;

              o      protecting our interests;

       (q)    to tell each unincorporated Debtor that our identity and that of
              any credit reference agencies used by us will be readily available
              upon demand.


18



                                                          Sales Ledger Financing

       (r)    that you will not without our written agreement make any repayment
              or reduction of any loan made to you or investment made in your
              business (other than loans or other forms of credit made by us and
              trade debts.)

       (s)    immediately upon becoming aware of changes to your business
              activities in the following areas disclose to us as appropriate.

              (i) free issue - all free issue materials must be identifiable
              both physically and by register including details of the quantity
              and source. All free issue must be covered by your Insurance or
              agreement evidenced that this is the liability of the debtor. In
              the event that free issue materials are not managed in this
              fashion we may introduce a reserve against your Payment Account.

              (ii) installation work - where installation takes place, the
              installation costs must be included on the product invoice and the
              invoice should not be raised or submitted to us until such time
              that installation has been satisfactorily completed.

              (iii) samples - invoices for sampled goods must clearly show that
              the invoices differ to normal sales. A quarterly return will be
              required detailing the outstanding invoices raised for goods
              issued as samples.

              (iv) self billing - we require notification of any debtor accounts
              which operate on a self billing basis in order that administration
              procedures can be implemented which will allow the accounts to be
              discounted. Following receipt of a self billing statement from the
              debtor you will raise a "memorandum invoice" to be submitted to us
              indicating the value of goods.

              (v) tooling - we will require you to maintain a tooling register
              to facilitate the identification and location of debtor tools in
              your possession. All tooling will be stored securely and
              separately and adequately insured. Evidence of levels of cover and
              premiums paid to date will be held to our order, alternatively
              your terms and conditions of trade will expressly state that
              insurance is the obligation of your debtors.

14.2.  You will indemnify us against all losses, expenses, costs, actions,
       claims, damages and demands arising out of the breach of any of your
       obligations to us or out of any claim, set off or counterclaim made by a
       Debtor or any other person (including claims for amounts overpaid or
       otherwise due by us to a Debtor).

14.3.  You will pay all stamp duty, registration and other similar taxes to
       which this Agreement or any Assignment, Re-assignment or any judgment
       given in connection with this Agreement may at any time become subject.

15.    EXTERNAL CREDIT INSURANCE

15.1.  If we require, as a condition of the Sales Ledger Financing Agreement,
       that you are to be insured under, or to make a proposal for, a policy of
       credit insurance then the provisions contained in conditions 15.2. to
       15.6. inclusive shall apply.

15.2.  You will obtain from the Insurer and execute and deliver to us the
       documentation necessary for the policy or the benefit of the Policy to be
       Assigned to us together with the original of the Policy.

15.3.  You warrant to us that:

       (i)    the proposal submitted by you to the Insurer (on the basis of
              which the Policy was issued) was in every way complete and
              correct; and

       (ii)   such proposal disclosed every fact or matter which you knew or
              ought to have known might influence the Insurer in relation to the
              issue of the Policy; and

       (iii)  at all times from the issue of the Policy you have fully complied
              with the terms and conditions of the Policy; and


                                                                              19



Sales Ledger Financing

       (iv)   there has been no act or omission which might invalidate the
              Policy; and

       (v)    any Policy issued or intended to be issued covers all Debts vested
              in us, except to the extent otherwise agreed by us.

15.4.  You undertake, until the complete discharge of all your liabilities to
       us:

       (i)    to disclose, when submitting a proposal to the Insurer, every fact
              or matter which you know or ought to know might influence the
              Insurer in relation to the issue of the Policy; and

       (ii)   to fully comply with the terms and conditions of the Policy and to
              pay each premium upon demand by the Insurer; and

       (iii)  to ensure that there will be no act or omission, as a result of
              which the Policy may be invalidated or any claim rejected; and

       (iv)   to ensure that any sums received from the Insurer will be dealt
              with as if they were a remittance in discharge of an Outstanding
              Debt and hold them on the same trusts for our benefit; and

       (v)    to notify us promptly if the Policy shall be cancelled, become
              void or lapse or any event shall happen which may cause any such
              event; and

       (vi)   to send to us copies of all correspondence between you and the
              Insurers.

15.5.  If you should fail to pay any of the premiums or in any way to comply
       with the Policy then we may, but shall not be obliged to, make good your
       failure. The amount of any resulting payment made by us shall be debited
       to your Payment Account.

15.6.  Monies received by us, following a claim under the Policy, shall be
       treated as a payment from the Debtor to which the claim shall relate.

16.    COMPUTERISED FACILITIES

16.1.  In Condition 16 and its sub-conditions the following words shall have the
       meanings set out below:

       'ADOPTED PROTOCOL' - the accepted method for the interchange of Messages
       based on such protocol as may be agreed between you and us.

       'DATA' - any information processed into our computer facility in relation
       to your affairs.

       'MESSAGE' - Data structured in accordance with the Adopted Protocol and
       transmitted electronically between you and us, including where the
       context admits any part of such Data.

       'DATA LOG' - the complete record of Data interchanged representing the
       Messages between you and us.

16.2.  The terms of Condition 16 and its sub-conditions shall apply to all
       Messages between you and us using the Adopted Protocol.

16.3.  You undertake:

       (i)    at your sole risk and expense, to maintain on your computer and in
              a safe and efficient operating order, at such address as we may
              approve, a proprietary communications software package and modem
              which shall comply with the standards and requirements notified by
              us. You shall make suitable contingency arrangements to cover
              system or operating failures and suspension or withdrawal of the
              computerised facilities; and


20



                                                          Sales Ledger Financing

       (ii)   to ensure that all Messages you send are correct and complete; and

       (iii)  to use the Computerised Facilities only for your own needs

16.4.  You shall have a non transferable licence

16.5.  In using the facilities you will use and comply with the requirements of
       Barclays Bank PLC's 'Messageway' system. You will not use any other
       intermediary.

16.6.  You and we undertake to each other:

       (i)    to notify the other promptly if it learns or suspects that there
              has occurred any failure or delay in receiving any Message, any
              error or fraud in or affecting the sending or receiving of any
              Message or any programming error or defect or corruption of any
              Message, and to co-operate with the other party in trying to
              remedy the same;

       (ii)   to take all appropriate steps and establish and maintain all
              appropriate procedures so as to ensure that as far as is
              reasonably practicable Messages are properly stored, are not
              accessible to unauthorised persons, are not altered, lost or
              destroyed, and are capable of being retrieved only by properly
              authorised persons;

       (iii)  to maintain adequate security and to maintain the computer virus
              free;

       (iv)   to take reasonable precautions to prevent unauthorised access to
              the facilities;

       (v)    to keep secret and confidential the method of operation of the
              facilities, all access telephone numbers, user numbers, passwords,
              test keys, access codes and security procedures;

       (vi)   to notify the other party immediately if it knows of or suspects
              any misuse of, or breach of secrecy in respect of, any of the
              same;

       (vii)  to ensure that every Message shall identify the sender and
              recipient and include a means of verifying the authenticity of the
              Message, either through a technique used in the Message itself or
              by some other means provided for in the Adopted Protocol;

       (viii) to ensure that all Messages are complete, accurate and secure
              against being altered in the course of transmission by the sender;

       (ix)   to accept the integrity of all Messages and to accord these the
              same status as would be applicable to a document or to information
              sent other than by electronic means, unless such Messages can be
              shown to have been corrupted as a result of technical failure;

       (x)    to ensure that where there is evidence that a Message has been
              corrupted or if any Message is identified or capable of being
              identified as incorrect it shall be re-transmitted by the sender
              as soon as practicable with a clear indication that it is a
              corrected Message;

       (xi)   where the recipient has reason to believe that a Message is not
              intended for it then the sender shall be notified and the
              recipient will delete the Message from its computer system.


                                                                              21



Sales Ledger Financing

16.7.  You and we shall maintain a Data Log of all Messages sent or received and
       make the same available to the other on request. This shall contain such
       Data as shall from time to time be agreed or, in the absence of such
       agreement, shall be the most complete record of Data which either of us
       shall consider reasonably practicable to maintain. Except to the extent
       otherwise agreed with you in writing, such Data Log shall be stored
       unmodified (save as may be necessary to correct any errors) until the
       first anniversary of the termination of this Agreement. The Data Log may
       be maintained on computer media or other suitable means provided that the
       Data can be readily retrieved and presented in readable form. Our master
       log of Messages and Data received or transmitted by us shall, in the
       absence of manifest error, be conclusive proof and evidence of the
       Messages sent or received by us in connection with or referable to the
       facilities and of the constituents of such Messages and the times at
       which they were sent or received. We may rely upon any Message ostensibly
       sent by you or on your behalf, even though it may not originate from you
       or that your employee or officer purporting to send the message shall
       lack authority.

16.8.  The copyright and all other rights in any software used or provided by us
       or our licensors in connection with the facilities and issued by us shall
       at all times remain vested in us or, if the terms of any contract that we
       have with any licensor otherwise specify, in such licensor. You will not
       copy such software without our prior written consent.

16.9.  You accept that information available from our Computerised Facilities
       will be subject to change before the close of business each day,
       particularly details of any Availability from the Payment Account.

16.10. We shall not be liable for or in respect of any loss, injury or damage or
       any failure to comply, or any delay in complying with our obligations
       hereunder or any other obligation in respect of the facilities which is
       caused directly or indirectly by:

       (i)    any downtime, unavailability, failure or malfunction of any
              computer hardware equipment or software, or of any telephone line
              or other communication system, service, link or equipment;

       (ii)   suspension of the facilities;

       (iii)  abnormal operating conditions;

       (iv)   any error, discrepancy or ambiguity in any Message received by us;

       (v)    abnormal operating conditions, act or omission of yours or of any
              third party.

16.11. We shall have the right, without liability to you and without notice, at
       any time and from time to time, to suspend the operation of the
       Computerised Facilities whereupon no further Messages shall be sent or
       enquiries made by either you or us until we shall have agreed to
       reactivate the facilities.

16.12. You shall indemnify us against all liabilities, damages and expenses
       arising out of the transmission by you or the receipt by us of incorrect
       or inaccurate information however caused.

16.13. We reserve the right to levy a charge for:

       (i)    any new electronically delivered services in future; or

       (ii)   reconfiguration of the computerised facilities due to
              mis-operation by you.


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                                                          Sales Ledger Financing

17.    RECOURSE AND REASSIGNMENT

17.1.  We may Reassign to you a Debt (including a Covered Debt) in any of the
       following circumstances:

       (a)    it being disputed by the Debtor; or

       (b)    it being subject or alleged to be subject to a right of set-off,
              counterclaim or reduction;

       (c)    your wrongly Notifying us of it or your committing any breach of
              warranty or undertaking relating to it;

       (d)    the Debtor claiming to reject or return the Goods;

       (e)    upon our requiring you to issue proceedings in your name to
              collect a Debt;

       (f)    the Debtor's Insolvency;

       (g)    upon it remaining unpaid, in whole or part, for 6 months or more
              from the date of its invoice.

17.2.  Reassignment shall be complete upon our debiting the Debtor Control
       Account for the amount of the Outstanding Debt.

17.3.  We may, at our discretion, exercise Recourse in respect of all or any
       Debts (including Covered Debts) upon or at any time following:

       (a)    the occurrence of a Termination Event (whether or not we exercise
              our right to terminate);

       (b)    termination of this Agreement.

              Except where you have a Non-Recourse Facility when we may not
              exercise Recourse in respect of those Covered Debts whose Payment
              Account Credit Date, referred to in the Sales Ledger Financing
              Agreement, shall have passed before events (a) and (b) immediately
              above.

18.    COMMUNICATIONS WITH DEBTORS AND THIRD PARTIES

18.1.  You authorise us to:

       (i)    communicate with your Debtors as we consider necessary, including
              the obtaining of the Debtor's consent to the taking up of
              references and the undertaking of Debt verifications;

       (ii)   provide your bank, auditors, accountants and other professional
              advisers with such information about your accounts with us as they
              may ask for;

       (iii)  obtain from your bank, auditors, accountants and other
              professional advisers such information as we may need.

18.2.  You confirm that you have authorised the persons referred to in Condition
       18.1. (iii) to give us such information.

18.3.  We may disclose this Agreement and any information which we have acquired
       under or in connection with this Agreement:

       (i)    to any actual or potential assignee, transferee or
              sub-participant;

       (ii)   to any rating agency, security trustee, agent and/or arranger in
              connection with any financing of any such assignee, transferee or
              sub participant; or

       (iii)  in any listing particulars, prospectus or offering circular.

18.4.  Telephone calls may be monitored or recorded to maintain high levels of
       security and quality of service.


                                                                              23



Sales Ledger Financing

19.    PARTNERSHIPS AND SOLE TRADERS

19.1.  Where you are formed as an unlimited partnership, the provisions of
       Condition 19.2 to 19.9 shall additionally apply.

19.2.  Your undertakings and warranties to us shall also be treated as given by
       each of your partners and their obligations to us shall be joint and
       several.

19.3.  You warrant that the persons signing this Agreement comprise all your
       partners.

19.4.  We shall have all of these entitlements:

       (i)    to release or conclude an arrangement or compromise with any one
              or more of your partners, without affecting our rights against the
              others;

       (ii)   to treat a notice or demand by us, to any of your partners as a
              notice or demand given to the others;

       (iii)  to treat a notice or demand by any of your partners as a notice or
              demand given by all of your partners (but we shall not be obliged
              to treat a notice or demand in such a way);

       (iv)   to treat the Agreement as binding upon any executor, administrator
              or personal representative of any of your partners and upon any
              committee, receiver, trustee, supervisor or other persons acting
              on behalf of any of you.

19.5.  If at any time a partner for any reason ceases or intends to cease to be
       a member of your partnership, you will immediately give us written notice
       of that fact.

19.6.  If you intend to:

       (i)    take in a new partner; or

       (ii)   change your trading style, or adopt another style; or

       (iii)  change your domicile to a legal jurisdiction outside England and
              Wales then you will immediately notify us of such intention and
              sign such documents we may require.

19.7.  Despite any change in the members of your partnership we may treat the
       Agreement as continuing and may account to the partnership or exercise
       all rights of set-off as if there had been no such change.

19.8.  You warrant that each partner's residential address is correctly stated
       in the Sales Ledger Financing Agreement.

19.9.  You will take all steps necessary to enable us to register this Agreement
       at the Bills of Sale Registry.

19.10. If you are a sole trader:

       (i)    Condition 19.4. (iv) shall apply as if the words 'of any of your
              partners' and 'any of' were replaced by 'you';

       (ii)   you will seek our consent before entering into a partnership with
              another person;

       (iii)  you will comply with Conditions 19.6.(ii) and (iii) and 19.9.


24



                                                          Sales Ledger Financing

19.11. Using information about you:

       (i)    We will store and process information obtained by us or given by
              you in your dealings with us on the Barclays Group computers and
              in any other way. This will be used by us and other companies in
              the Barclays Group for assessment and analysis (including making
              payments, credit scoring, market and product analysis), recovering
              money and preparing statistics. We may also use such information
              to prevent fraud, bad debts and money laundering.

       (ii)   We and other members of the Barclays Group will inform you (by
              letter, telephone (including automated dialling), computer or
              e-mail) about products and services (including those of others)
              which may be of interest to you (although other members of the
              Group will only send marketing material to personal customers and
              individuals if we have their consent).

       (iii)  You consent to our making searches at our credit reference
              agencies or other enquiries in accordance with our normal
              procedures. You confirm your awareness that credit reference
              agencies will make a record of our searches which may be used to
              prevent fraud or money laundering or by other subscribers and to
              make credit decisions about you.

       (iv)   We may give information about you and how you manage your accounts
              to the following:

              o      people who provide services to us (including insurers) or
                     are acting as our agents on the understanding that they
                     will keep the information confidential;

              o      anyone to whom we may novate this Agreement or with whom we
                     may securitise in order to facilitate such transactions;

              o      any guarantors or indemnifiers of your obligations to us so
                     they are aware of the extent of such obligations;

              o      any bankers or advisers of yours to enable them to carry
                     out their services:

              o      any business providing a similar service to ours to whom
                     you may wish to transfer to facilitate such transfer:

       (v)    We may also give out information about you if we have a duty to do
              so or if the law allows us to do so.

       (vi)   For training and/or security purposes your telephone calls may be
              monitored and/or recorded.

       Otherwise we will keep in confidence any information about you. If you or
       your partners want to have details of the credit reference agencies and
       other third parties referred to above from whom we obtained and to whom
       we may give information please contact our Customer First Unit at
       Barclays Sales Financing, Aquila House, Breeds Place, Hastings TN34 3DG
       on 0800 389 2310. You have a legal right to these details. You also have
       a legal right to receive a copy of the information we hold about you if
       you apply in writing. A fee will be payable.

20.    TERMINATION OF THE AGREEMENT

20.1.  If you shall give us notice to terminate the Sales Ledger Financing
       Agreement of less than the Minimum Notice Period, referred to in the
       Sales Ledger Financing Agreement, or we agree with you to reduce such
       Minimum Notice Period, we may immediately debit the Payment Account with
       a sum equal to Service Charges and the Discount in the number of months
       immediately preceding our receipt of such notice as shall equal the
       difference between the Minimum Notice Period and the period of notice
       actually given.

       If during the Minimum Period of this Agreement (as indicated in the Sales
       Ledger Financing Agreement) you give us notice to terminate the Sales
       Ledger Financing Agreement, we may immediately debit the Payment Account
       with a sum equal to the Service Charges and the Discount in the number of
       months preceding our receipt of such notice as shall equal the number of
       months comprised in the Minimum Period plus the number of months
       comprised in the Minimum Notice Period less the


                                                                              25



Sales Ledger Financing

       number of months elapsed from the Commencement Date to the date of notice
       less the period of notice actually given. Where the number of months so
       calculated is greater than the time actually elapsed since the
       Commencement Date, the Service Charges and Discount chargeable will be
       calculated using the average monthly charges actually charged in the time
       elapsed.

20.2.  We may immediately terminate this Agreement at any time after the
       happening of any of the following events:

       (a)    a breach or threatened breach by you of our Agreement with you;

       (b)    a breach or threatened breach by any of your Associates of any
              agreement between us and any of them;

       (c)    a breach or threatened breach of any agreement between you and any
              company in the Barclays Bank Group;

       (d)    any application by any creditor of yours for a garnishee order
              against us;

       (e)    any obligation of yours to a third party for repayment of borrowed
              money being declared due prior to its stated maturity date or not
              being paid when due;

       (f)    any change in your ownership, partners, control, constitution or
              composition whether direct or indirect, considered by us to
              prejudice our position;

       (g)    breach or termination by you or a third party of any
              representation or undertaking, in reliance upon which we have
              entered into this Agreement or made any payment under it;

       (h)    the termination of any waiver, consent or priority arrangement in
              our favour by the holder of a charge by way of security over any
              part of your assets;

       (i)    any breach of your obligations under or the termination of the
              Policy;

       (j)    your ceasing or threatening to cease to carry on Your Business
              referred to in the Sales Ledger Financing Agreement;

       (k)    your Insolvency or the Insolvency of any of your partners, if you
              are constituted as a limited liability partnership;

       (l)    the Insolvency or death of any person who has given a guarantee or
              indemnity in respect of any of your obligations to us, or the
              termination by that person of such guarantee or indemnity or the
              legal disability of that person.

20.3.  Upon your Insolvency or ceasing to trade we may:

       (i)    immediately debit the Payment Account with an additional Service
              Charge of five percent of the Notified value of the Outstanding
              Debts to cover our additional administrative work (except where we
              make a charge under condition 9.8); and

       (ii)   immediately increase the Discount Charge by two per cent.

20.4.  At any time, following either receipt of a notice from you to terminate
       the Agreement or a Termination Event (whether or not we exercise our
       right of immediate termination), we may, with or without notice to you,
       do any or all of the following:

       (i)    reduce the Early Payment Ceiling and/or the Early Payment
              Percentage, referred to in the Sales Ledger Financing Agreement,
              to zero or such other figure as we may decide;


26



                                                          Sales Ledger Financing

       (ii)   require you to repay to us any Early Payments made in respect of
              Debts then Outstanding;

       (iii)  withdraw all or any Credit Lines;

       (iv)   immediately change the status of any Outstanding Covered Debts
              whose Payment Account Credit Date has not been reached to
              Unapproved Debts;

       (v)    make a special reserve against the Payment Account of such level
              as we may require to cover Your Responsibility to us;

       (vi)   reassign to you all or any Debts, after which they shall be
              removed from the Debtor Control Account and we shall have no
              further obligations to you in respect of them;

       (vii)  require you to pay to us immediately any debit balance on the
              Payment Account plus Discount accrued but not debited and the full
              amount of any credit balances on Debtors' accounts;

       (viii) delay seven Working Days, to allow for cheque clearances, before
              paying to you any credit balance on the Payment Account to which
              you may be otherwise entitled.

20.5.  Upon the ending of this Agreement, for whatever reason:

       (i)    all Outstanding Covered Debts, whose Payment Account Credit Date
              has not been reached, shall automatically become Unapproved Debts;
              and

       (ii)   you will not Notify us of any Debts arising on or after the date
              of termination; and

       (iii)  Recourse shall be treated as having occurred in respect of all
              Debts; and

       (iv)   you will pay us any debit balance on the Payment Account and all
              other sums due to us;

       (v)    you will be responsible for all credit balances on Debtors'
              accounts and will indemnify us in respect of all claims by Debtors
              for the same;

       (vi)   we shall pay you any credit balance on the Payment Account less
              Your Responsibility but allowing seven Working Days for cheque
              clearances.

20.6.  Except as otherwise provided, the ending of this Agreement shall not
       affect our respective rights and obligations in relation to or arising
       out of:

       (i)    any Debts which shall have come into existence prior to such
              termination; and

       (ii)   all transactions or events having their inception prior to such
              termination including the continued running of Discount and our
              rights of set off or combination of accounts. Such rights and
              obligations shall remain in full force and effect until all monies
              due from you shall have been received by us and all monies due
              from us to you shall have been paid.

20.7.  Any discharge of your obligations to us shall be of no effect to the
       extent that any receipt by us shall be subsequently set aside under
       insolvency law.

20.8.  During any period of notice you will continue to deliver Notification
       Schedules.


                                                                              27



Sales Ledger Financing

21.    ASSIGNMENT DELEGATION, FORCE MAJEURE AND EMU

21.1.  You consent to our novating to any other party any or all of our
       obligations rights and remedies. We may assign all or transfer any of our
       rights under this Agreement to such party as we may choose, including any
       Foreign Factor. This includes our rights to any Debt and or under our
       power of attorney. This Agreement shall be binding upon and enure to the
       benefit of our successors and assigns.

21.2.  Except where the context otherwise requires, references to 'we' or 'us'
       shall be treated as including our successors, assignees and transferees
       in the context of clauses conferring benefits and/or Rights on us; with
       respect to clauses imposing obligations or duties on us, such references
       shall only be treated as including such successors, assignees and
       transferees if (and only if) the relevant successor, assignee or
       transferee has specifically assumed such obligation.

21.3.  Where any successor, assignee or transferee seeks to claim under clauses
       conferring benefits and/or rights, it may do so in the full amount as if
       it were the original party to this Agreement and without being subjected
       to any limit on such benefit or right by reference to any loss suffered
       by us.

21.4.  If at any time you are obliged to indemnify or reimburse us in respect of
       any sum referred to in this Agreement, such sum shall be deemed to be a
       loss, cost and/or expense incurred by us, our assignee or transferee (as
       the case may be) for this purpose.

21.5.  We may at any time require you to complete and deliver a formal written
       Assignment of any Debt in a form approved by us.

21.6.  You will not, without our consent, delegate any of your duties under this
       Agreement or dispose of any part of your business, assets or undertaking
       (except in the ordinary course of your business).

21.7.  We shall not be liable to you for any consequential, special, secondary
       or indirect loss, injury or damage or any loss of or damage to goodwill,
       profits or anticipated savings (however caused). However nothing shall
       operate to excuse us from liability to any extent caused by our
       negligence or the fraud of any of our officers.

21.8.  We shall have no liability to you if we are delayed in or unable to
       perform our duties directly or indirectly because of an event of Force
       Majeure.

21.9.  You and we confirm to each other that, except as expressly agreed between
       you and us in writing, the occurrence or non-occurrence of an event
       associated with economic and monetary union in the European Community
       will not have the effect of altering any term of, or discharging or
       excusing performance under, this Agreement, nor give either you or us the
       right unilaterally to alter or terminate this Agreement. An 'event
       associated with economic and monetary union in the European Community'
       includes, without limitation:

       (i)    the introduction of a single or unified European currency;

       (ii)   the fixing of conversion rates between a member state's currency
              and a new currency or between the currencies of member states;

       (iii)  the substitution of a new currency for the ECU as the unit of
              account of the European Community;

       (iv)   the introduction of a new currency as lawful currency in a member
              state or the withdrawal from legal tender of any currency which,
              before that, was lawful currency in a member state; and/or


28



                                                          Sales Ledger Financing

       (v)    the disappearance or replacement of a relevant price source for
              the ECU or the national currency of any member state, or the
              failure of the agreed sponsor or any successor to publish a
              relevant rate, index, price, page or screen.

22.    WAIVERS, SEVERENCE, VARIATIONS AND FURTHER ACTS

22.1.  The rights and remedies provided to us are cumulative and not exclusive
       of any rights or remedies provided by law. If we choose not to enforce or
       cannot enforce any term of the Agreement, whether against you or any
       Debtor, this will not affect our rights to enforce the rest of the
       Agreement or to enforce them at a later date. Likewise such rights and
       remedies shall not be affected if we compound with any Debtor.

22.2.  The terms of this Agreement are considered by both you and us to be
       reasonable. Should any provision be found to be valid only if some part
       of it were deleted then such provision shall apply as if it were so
       deleted. The remainder of this Agreement shall not be affected.

22.3.  Any variation to this Agreement, except as otherwise provided for herein,
       will only be valid if put in writing and signed on behalf of both you and
       us.

22.4.  You will execute any additional documents and do all other acts or things
       as may be needed by us for carrying out the purposes or intent of this
       Agreement.

22.5.  You will comply with any published procedures required by us for the
       day-to-day efficient working of the arrangements between you and us.

23.    SERVICE OF NOTICES AND PROCESS

23.1.  Any written notice from us to you and any proceedings issued by us
       requiring service on you may be given or served by delivery at or posting
       to:

       (i)    your address stated in the Sales Ledger Financing Agreement or to
              such other address of yours notified to and acknowledged by us as
              being effective for the purposes of this Agreement; or

       (ii)   your registered office (if you are a limited company or a limited
              liability partnership); or

       (iii)  any address last known to us at which you carried on business; or

       (iv)   if you are a partnership - the last known residential or business
              address of any partner; or

       (v)    if you are a sole trader - your last known residential or business
              address.

       Such notice may also be given by facsimile transmission or electronic
       medium to your number or address notified to us for communication by such
       means. If you are a limited company it may also be handed to any officer
       of yours. If you are an unlimited partnership or a limited liability
       partnership it may be handed to any partner. If you are a sole trader it
       may be handed to you personally.

23.2.  Any such notice or process shall be considered served:

       (i)    if delivered - at the time of delivery; or

       (ii)   if sent by post - 48 hours from the time of posting; or

       (iii)  if sent by facsimile transmission or electronic medium - at the
              time of transmission; or


                                                                              29



Sales Ledger Financing

       (iv)   if handed over - at the time of handing over.

23.3.  Any notice in writing by you to us under this Agreement shall take effect
       at the time it is received by us at our registered office or at such
       other address of which we may notify you in writing for this purpose.

23.4.  We may at all times rely upon any signature or the act or communication
       of any person purporting to act on your behalf and the same shall be
       binding upon you.

24     POWER TO ACT IN YOUR NAME

24.1   By way of security for the performance of your obligations to us and for
       all sums which shall become due to us, you irrevocably appoint us and any
       of our managers or other officers at any time, jointly and each of them
       severally, as your true and lawful attorneys to act as we or they
       consider necessary or appropriate in order to:

       (a)    obtain payment of and give valid discharges for any Debt
              (including re-assigned Debts: or

       (b)    deal with any Debt: or

       (c)    perfect our title to any Debt: or

       (d)    secure performance of any of your obligations to us or to any
              Debtor

       For these purposes your attorneys may do any of the following:

       (i)    execute all necessary deeds, agreements and documents;

       (ii)   complete, negotiate or endorse all necessary instruments;

       (iii)  conduct or defend any proceedings;

       (iv)   settle any indebtedness

       (v)    take all other steps they consider requisite

24.2   This appointment shall continue both during and after the ending of this
       Agreement, until all sums due to us have been paid.

24.3   You also irrevocably appoint any assignee of ours as your attorney to
       perform any of the acts set out above.

24.4   We may appoint and remove a substitute attorney for any of the above
       matters. You will ratify and confirm whatever shall be done under these
       powers.

25.    DEFINITIONS

25.1.  In these Terms & Conditions, the Sales Ledger Financing Agreement and the
       user guides, the following expressions have the special meanings set out
       after each:

       AGREEMENT DATE - The day that the last of either you or us sign it.

       APPROVED DEBT - if you have our Early Payment Facility - a Debt
       designated by us as suitable for an Early Payment;- if you also have our
       Non-Recourse Facility - a Debt capable of being a Covered Debt if the
       Credit Line for the Debtor so allows.

       ASSIGNMENT - a transfer of ownership by whatever means and whether formal
       or informal.


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                                                          Sales Ledger Financing

       ASSOCIATE - any partnership, body corporate or other form of business
       association in which you or any of your directors, members, partners, or
       employees have a material interest; and - any other form of associate as
       defined by section 184 of the Consumer Credit Act 1974.

       AVAILABILITY - your right to request us to permit drawings from the
       Payment Account calculated in accordance with Condition 5.7.

       BASE RATE - where the Payment Account is in sterling - the sterling Base
       Rate quoted, from time to time, by Barclays Bank PLC (or its successors)
       or

       o      where the Payment Account is kept in a currency other than
              sterling - the Base Rate as quoted from time to time by Barclays
              Bank PLC (or its successors) for such currency.

       BEYOND RECOURSE BALANCES - Any debt that passed the specified period
       stated in the Sales Ledger Financing Agreement.

       COMMENCEMENT DATE - the date so stated in the Sales Ledger Financing
       Agreement and being the date for the commencement of the operation of
       this Agreement.

       CONTRACT OF SALE - a contract by you for the supply of goods or the
       provision of services or work done and materials supplied or hiring to a
       Debtor.

       CONTRACTED VALUE - [applicable only to our Non-Recourse Facility] - in
       relation to a Covered Debt - the amount payable by a Debtor in accordance
       with the Contract of Sale after taking into account any deduction,
       discount claim or allowance, however arising.

       COVERED DEBT - a Notified Debt within a Credit Line.

       CREDIT LINE - where you have our Non-Recourse Facility - in respect of
       each Debtor - the maximum Contracted Value of Outstanding Debts from
       which shall be deducted any First Loss and the Value Added Tax included
       in the Debt and in respect of the resulting balance we shall accept the
       Credit Risk; and

       o      where the Sales Ledger Financing Agreement indicates that Early
              Payment will be available by reference to the Credit Line - the
              total Value of Approved Covered Debts for which we will permit
              Early Payments at the Early Payment Percentage, unless otherwise
              stated.

       o      where you have our Recourse Facility - in respect of each Debtor,
              the total value of Approved Debts for which we will permit Early
              Payments at the Early Payment Percentage referred to in the Sales
              Ledger Financing Agreement.

       CREDIT PERIOD - in relation to an Approved Debt - the period specified in
       the Sales Ledger Financing Agreement (or such other period as may from
       time to time be notified to you in writing by us).

       CREDIT RISK - [applicable only to our Non-Recourse Facility] - the
       assumption by us of the risk that the Contracted Value of Debt, (less the
       Value Added Tax and any First Loss, designated by us as a Covered Debt),
       will not be paid by the expiry of the Credit Period, provided that all
       your other obligations to us shall have been complied with.

       DEBT - any obligation under a Contract of Sale (including any tax or duty
       payable), present, future or contingent, of any Debtor and all its
       Related Rights; a Debt, where the context permits, includes part of such
       obligation or part of such Related Rights.


                                                                              31



Sales Ledger Financing

       DEBTOR - a company, partnership (whether limited or unlimited), sole
       trader or other legal entity which is or may become indebted to you under
       a Contract of Sale.

       DELIVERED - in relation to Goods - delivered in the United Kingdom to the
       premises designated as the delivery point or carrier of the Debtor. In
       relation to services - fully completed. 'Deliver' and 'Delivery' are to
       be construed accordingly.

       DISCOUNT - a charge to be debited monthly and calculated on a day-to-day
       basis by applying the applicable percentage per annum set out in the
       Sales Ledger Financing Agreement over Base Rate to the debit balance on
       the Payment Account.

       EARLY PAYMENT - [applicable only to our Early Payment Facility] - any
       drawing on account of the Purchase Price of a Debt prior to the Payment
       Account Credit Date.

       EARLY PAYMENT CEILING - [applicable to our Early Payment Facility] - the
       amount shown in the Sales Ledger Financing Agreement as the Early Payment
       Ceiling, which will be used by us to calculate the Early Payment Limit or
       such other greater or lesser amount as we may from time-to-time advise
       you.

       FIRST LOSS - [applicable only to our Non-Recourse Facility] - in relation
       to each Debtor at any time - the amount exclusive of Value Added Tax
       specified in the Sales Ledger Financing Agreement for which we shall not
       accept the Credit Risk despite the designation of a Debt as a Covered
       Debt.

       FORCE MAJEURE - any circumstances outside our reasonable control
       including any exchange control, governmental or other official
       regulations or requirements, the outbreak of war, any terrorist act,
       revolution, civil insurrection, strike, lockout, industrial action or
       failure of postal or communication services.

       FOREIGN DEBT - a Debt which is evidenced by an invoice addressed to a
       Debtor in one of the markets referred to under Foreign Debts in the Sales
       Ledger Financing Agreement or such other market as may be agreed by us in
       writing.

       GOODS - goods or, where the context permits, services the subject of a
       Contract of Sale.

       INSOLVENCY - in relation to:

              (i) an individual - the issue of a petition for his bankruptcy or
              sequestration: or

              (ii) a company or limited liability partnership - the convening of
              a meeting to pass a resolution for voluntary winding up by reason
              of insolvency, or the servicing of a notice under Section 84(2A)
              of the Insolvency Act 1986 of a meeting to pass a resolution for a
              voluntary winding up by reason of insolvency; the appointment of a
              provisional liquidator; the making of a winding up order; the
              passing of a resolution for a voluntary winding up which would
              take effect as a creditors voluntary winding up; the issue of an
              application or petition for the appointment of an administrator
              under the Insolvecy Act 1986 the appointment of an administrator;
              any person giving notice of intention to appoint an administrator
              or the appointment of a receiver (whether in or out of court) or
              an administrative receiver of any of the assets or income of the
              company;

              (iii) a partnership - bankruptcy, winding up, the appointment of
              an administrator or any person giving notice of intention to
              appoint an administrator, or the issue of a petition for an
              administration order against the partnership;

              (iv) an individual (or in the case of a partnership, any person
              who is a member of it) a company, a partnership or a limited
              liability partnership; entering into or proposing to enter into a
              voluntary arrangement under the Insolvency Act 1986 or


32



                                                          Sales Ledger Financing

              any informal arrangement generally for the benefit of the
              creditors; any part of its income, undertaking or assets, being
              subject to: (a) seizure, distress, execution or lien: or (b)
              enforcement of security rights; or (c) execution of legal process:
              the making of any statutory demand under the Insolvency Act 1986;
              the entry of any judgment, order or award which shall remain
              unsatisfied or whose terms shall not be complied with for seven
              days (except whilst any appeal shall be pending);

              o      taking any steps towards a moratorium pursuant to Section
                     1A and Schedule 1A of the Insolvency Act 1986 or pursuant
                     to paragraph 1A of schedule 1 of the Insolvent Partnerships
                     Order 1994.

                     And the taking of any steps or the commencement of any
                     proceedings in respect of any of the matters in this
                     definition.

       INSURER - the insurer by which the Policy referred to in Condition 15 is
       or shall be issued.

       NON-NOTIFIABLE DEBT - a Debt, belonging to us under this Agreement, which
       should not be Notified to us until we tell you, including all those
       referred to in the Sales Ledger Financing Agreement and in Condition
       14.1.(d) and (e) and such other Debts as we may specify at any time.

       NOTIFICATION DOCUMENTS - In relation to each book Debt:

              (a) if we so require, an exact copy of each invoice; and

              (b) such other documents and evidence of the despatch and delivery
              of the Goods or the performance of the services as we may require.

       NOTIFICATION SCHEDULE - in relation to a Debt not previously Notified to
       us - the notification by you to us of the existence of that Debt and the
       invoice or credit note relating to it, in such form and by such method as
       we may from time to time require.

       NOTIFIED/NOTIFY/NOTIFYING - inclusion of a Debt in either an Offer or a
       Notification Schedule.

       NOTIFIED VALUE - the amount of the Debt as shown in your Offer or
       Notification Schedule.

       OFFER - an offer to sell to us a Debt with its Related Rights upon the
       terms and conditions of this Agreement, with full title guarantee, which
       we shall be free to accept or reject in our absolute discretion and where
       more than one Debt is at the same time included in an offer each Debt
       shall be considered as subject to an offer independent of any other Debt.

       OUTSTANDING - in relation to a Debt - undischarged by payment.

       PAYMENT ACCOUNT CREDIT DATE - the date of receipt by us of payment for
       value from the Debtor.

       POLICY - any policy for credit insurance referred to in Condition 15.

       PRE-CONDITIONS - those conditions, if any, set out in the Sales Ledger
       Financing Agreement (if any) which must be complied with before an Early
       Payment can be made available.

       PRIME DEBTOR RESTRICTION - [applicable only to our Early Payment
       Facility] - the maximum amount of Outstanding Debts from a single Debtor
       against which we may allow Early Payments, such maximum amount being
       calculated at the percentage specified in the Sales Ledger Financing
       Agreement of the amount of all Outstanding Debts.

       PURCHASE PRICE - the amount payable by us to you for each Debt belonging
       to us.


                                                                              33



Sales Ledger Financing

       REASSIGN/REASSIGNMENT - the transfer from us to you of our ownership of a
       Debt.

       RECOURSE - our right to require you to repay to us any Early Payment made
       in respect of a Recourse Debt at the expiry of the Recourse Period.

       RECOURSE DEBT - a Debt in respect of which we shall not accept the Credit
       Risk and where you have a Recourse Facility all Debts shall be Recourse
       Debts.

       RECOURSE PERIOD - the number of days shown in the Sales Ledger Financing
       Agreement (or such other period as we may from time to time tell you in
       writing) at the end of which we will exercise Recourse and treat such
       Debts as Unapproved Debts.

       RELATED RIGHTS - in relation to any Debt or Returned Goods - any of the
       following:

              (i) all your rights at law as an unpaid Vendor or under the
              Contract of Sale but without any obligation on us to complete a
              Contract of Sale;

              (ii) the benefit of all insurances;

              (iii) all negotiable and non-negotiable instruments, all
              securities, bonds, guarantees and indemnities;

              (iv) all your rights to any ledger, computer or electronic data or
              materials or document recording or evidencing a Debt or its
              Related Rights; and

              (v) all Returned Goods.

       RETURNED GOODS - any Goods relating to or purporting to comply with a
       Contract of Sale which any Debtor shall for any reason:

              (i) reject or give notice of rejection; or

              (ii) return or attempt to or wish to return to you or us; or

              (iii) which you or we recover from a Debtor.

       SERVICE CHARGE - a charge to you for the administration of the services
       and facilities provided by us.

       TERMINATION EVENT - an event, listed in Condition 20.2, entitling us
       immediately to end this Agreement without any period of notice.

       UNAPPROVED DEBT - a Debt which we designate as incapable of an Early
       Payment and where you have our Non-Recourse Facility, a Debt for which we
       will not accept the Credit Risk in each case even if previously
       designated as Approved Debts.

       UNITED KINGDOM/UK - the United Kingdom of Great Britain and Northern
       Ireland, the Channel Islands and the Isle of Man;

       UK DEBT - a Debt evidenced by an invoice addressed to a Debtor in the
       United Kingdom whether in sterling or in any other currency.

       US/WE - Barclays Bank PLC and where the context so permits our successors
       and assignees.


34



                                                          Sales Ledger Financing

       VAT BAD DEBT SCHEME - the scheme and procedures established by H M
       Customs and Excise to enable suppliers of Goods to reclaim the value
       added tax element of Debts which become bad or doubtful.

       VESTED - in relation to a Debt, our ownership of that Debt by Assignment
       or the holding of the Debt on trust for us.

       WORKING DAY - a Day when both we and banks in England and Wales are open
       for the conduct of all normal business.

       YOU - the Customer named in the Sales Ledger Financing Agreement.

       YOUR RESPONSIBILITY - any sum payable or prospectively or contingently
       payable by you to us, whether or not arising under the Agreement,
       including liability as a debtor for any debt assigned to us by any of
       your suppliers or as an indemnifier of another client of ours or for the
       breach of your obligations to us and our reasonable estimate of such sums
       where the amount cannot be immediately ascertained.

25.2.  Any reference to these Conditions or to the Agreement is to them as
       amended, varied, supplemented, substituted or novated from time to time.

25.3.  Any reference to a statute includes any amendment or replacement or
       re-enactment of that statute, for the time being and any order and any
       subordinate legislation made under it.

25.4.  The singular includes the plural and vice versa, and reference to any
       gender shall include any other gender. References to a person or party
       shall be construed as references to any person, firm, company, limited
       liability partnership, corporation or any association or partnership
       (whether or not having separate legal personality) or two or more of the
       foregoing.

25.5.  The meaning of general words introduced by the word 'other' is not to be
       limited by reference to any preceding word indicating a particular class
       of acts, matters or things.

25.6.  Where in or in relation to any place outside England the meaning of a
       word or expression used in this Agreement is to be considered and such
       word or expression has no counterpart in that place, it is to have the
       meaning of its closest equivalent in that place.

25.7.  The interpretation and construction of the Agreement and these Conditions
       shall not be affected by any headings, since they are only provided for
       convenience.

25.8.  If you want to complain about the Sales Ledger Financing Agreement, terms
       and conditions booklets or the service you have received, you may do so
       in person, in writing, by post, fax, e-mail or by telephone.

       Details of our complaints handling procedures are available on request
       from any branch, Barclays Group Information Line on 0800 400 100 or on
       the web site at www.barclays.co.uk

26.    STANDARD CONFIDENTIAL INVOICE DISCOUNTING TERMS AND CONDITIONS

26.1.  Debts assigned are to be evidenced by copy invoices and credit notes, or
       suitable sales daybook listings, being supplied to ourselves along with
       the appropriate schedule of debts or via Ledgermaster Totals Upload. We
       should be supplied with copies of any credit notes that are raised on any
       debtor where there are debts outstanding that have been assigned to us.

26.2.  We will require to visit you from time to time in order to confirm that
       the ledger is being operated in accordance with the agreement and to
       fulfil our audit requirements.


                                                                              35



Sales Ledger Financing

26.3.  You will provide by the 10th of each month, a sales ledger reconciliation
       as at the last working day of each month previous, such reconciliation to
       include:

       (1)    fully posted aged debtor analysis

       (2)    copy open item statements for each debtor, on a monthly basis,
              showing details of the outstanding debts assigned to us

       (3)    fully posted aged creditors analysis

       (4)    month end reconciliation form duly signed and authorised by an
              official signatory of the company.

26.4.  Your invoice stationery is printed with the full and correct company
       style, terms of trade and VAT number.

26.5.  You, as agent for ourselves, continue to collect monies from debtors in
       respect of assigned debts. Monies from such debtors should then be
       deposited by you for the credit of an account specified by us together
       with the counterfoil paying in slip.

26.6.  The banking of debtor cheques, or other forms of payment, into any bank
       account other than the Trust Account is strictly prohibited.

26.7.  All company bank statements, relating to all accounts, must be made
       available on request.

26.8.  Debt verification will be undertaken on your sales ledger. This procedure
       may be undertaken at your premises with the assistance of your personnel
       or, alternatively, through a third party acting on our behalf.

26.9.  An essential feature of the confidential facility is that although
       invoices will be assigned to us, the sales ledger will be maintained by
       you for and on behalf of us, the ledger items should therefore be clearly
       marked to identify the debts that have been assigned to ourselves.

26.10. No deposits are taken from debtors. Should any debtor choose to pay a
       deposit then we should be notified immediately. We may consider the need
       to hold a reserve against availability in respect of the deposit to
       protect ourselves against any possible offset claim by the debtor.

26.11. Prior to any form of legal action being instigated by you against a
       debtor whose debts are assigned to us, we require a written application
       stating the nature, value and reason for the legal action. We reserve the
       right to litigate whilst any reassignment of debts is conducted at our
       sole discretion.

26.12. You maintain written records detailing all written and verbal
       communication with debtors in relation to the collection of domestic
       debts. These records must be kept separately for each debtor and must be
       held to our order.

26.13. For every invoice raised you will supply or hold to our order the
       appropriate supporting documentation i.e signed delivery notes, carriers
       receipt notes, time sheets, satisfaction notes.

26.14. That no:

       (1)    debtors are to be handled on both cash and credit basis

       (2)    invoices are to be raised on sale or return trading terms

       (3)    goods are to be provided on an evaluation or trial basis.


36



                                                          Sales Ledger Financing

26.15. All Debts and their Related Rights shall vest in us in accordance with
       this Agreement notwithstanding any charge, lien, trust or encumbrance
       existing now or in the future in favour of Barclays Bank PLC, all of
       which are hereby postponed or released to the extent necessary to enable
       this Agreement to have full effect.

26.16. Any charge, lien, trust or encumbrance in favour of Barclays Bank PLC
       shall in all other respects remain in full force and effect and in
       particular any monies due or prospectively due from us to you shall
       constitute a debt subject to any such charge in accordance with its terms
       and all Debts and their related rights which for any reason shall fail to
       vest in us or revest in you in accordance with this Agreement shall be
       and remain so subject.

26.17. Barclays Bank PLC may at any time give you 7 days notice in writing
       withdrawing the postponement or release contained in these Terms and
       Conditions. Such withdrawal shall not affect our rights in relation to
       any Debt or Related Rights which come into existence before the expiry of
       such notice.

26.18. No notice of assignment will be given, unless your Agency to collect
       Debts shall be withdrawn.

26.19. Invoices notified for which evidence of debt is not available will be
       handled on an unapproved basis only. This includes proof of order and
       proof of delivery and/or satisfaction.

26.20. Invoices notified for cash sales or for debtors with a mix of cash and
       credit terms will be handled on an unapproved basis only.

26.21. Invoices notified for debtor accounts which feature amounts of
       unallocated cash will be handled on an unapproved basis only.

26.22. Invoices notified for debtors where their terms of purchase prohibit
       assignment of the debt will be handled on an unapproved basis only/until
       such time that the debtor has confirmed in writing that they acknowledge
       the assignment and our position.

26.23. Invoices notified for sales involving evaluation or trial goods will be
       handled on an unapproved basis only/until such time that the debtor has
       confirmed in writing that they acknowledge the assignment and our
       position.

26.24. We may provide you with our Totals Upload facility. To support this you
       must be able to verify individual invoice and credit note totals uploaded
       to us against your computer accounting system and from hard copy day book
       listings. We reserve the right to remove the Totals Upload facility at
       our discretion.

26.25. If you enter into any new contracts before the commencement, or within
       the duration of this facility, we must examine the contracts and agree
       that they are acceptable.

26.26. The Payment Account Credit date for all debts will be the date of receipt
       by us of payment for value from the Debtor. Payment made into the trust
       account will be credited on the date following receipt into the trust
       account.

26.27. Should bill and hold become a feature of your business we will require a
       "bill and hold" report to be submitted with your month end
       reconciliation. We reserve the right to audit this report during our
       periodic audits and to introduce a reserve against your Payment Account
       in the event that you fail to supply a timely and accurate report
       detailing bill and hold.

26.28. We may hold a reserve against your Availability. We may retain the
       reserve in respect of any contra balance, advertising contributions,
       containers, deposits, equipment and tooling, free issue, retrospective
       rebates, discounts or other. We retain the right to adjust the reserve or
       unapprove debtors where any of these situations exist at our sole
       discretion.


                                                                              37



Sales Ledger Financing

26.29. Any security which we hold for your liabilities to Barclays Bank PLC must
       remain in place for the duration of this facility. We will consider a
       breach of any other facilities granted by Barclays Bank PLC or any of its
       subsidiaries to you as a breach of this facility.

26.30. We require a copy of the terms and conditions of your major suppliers.
       Should these indicate that any retention of title is held over goods
       supplied to you, a limitation regarding such a retention of title may be
       required.

27.    STANDARD FACTORING TERMS AND CONDITIONS

27.1.  Correspondence to debtors must incorporate the following assignment
       clause:-

       "IMPORTANT NOTICE

       All invoices referred to have been assigned to Barclays Bank PLC, Aquila
       House, Breeds Place, Hastings, East Sussex TN34 3DG to whom payment must
       be made and whose receipt therefore alone is valid."

27.2.  You continue to despatch original invoices direct to your debtors with
       identical copies being forwarded to us together with the completed
       Notification schedule, or complete the appropriate application via
       ledgermaster.

       Your invoice stationery is printed reflecting the correct company style,
       terms of trade, VAT number and the following assignment clause on the
       original and all identical copies in a clear and prominent position:

       "IMPORTANT NOTICE

       The amount of this invoice has been assigned to Barclays Bank PLC, Aquila
       House, Breeds Place, Hastings, East Sussex TN34 3DG to whom payment must
       be made and whose receipt therefore alone is valid."

       The assignment clause should not be printed on credit notes. However it
       is necessary for the original and a copy of all future credit notes to be
       forwarded to ourselves on separate schedules, in accordance with our
       Terms and Conditions of Business.

27.3.  You will be provided with an alphabetical debtor listing detailing the
       full trading style and address together with a debtor reference number
       which will be assigned to each debtor account.

       The debtor reference number must be included on all invoices and credit
       notes submitted with the Notification Schedules to us. If you do not
       comply with this requirement the invoice or credit note will not be
       processed.

27.4.  For all new debtors you should complete and forward to us a Debtor
       Account Request form or upload the application via the ledgermaster
       system.

27.5.  For every invoice raised you will supply or hold to our order the
       appropriate supporting documentation i.e signed delivery notes, carriers
       receipt notes, time sheets, satisfaction notes

27.6.  That no:

       (1)    debtors are to be handled on both cash and credit basis

       (2)    invoices are to be raised on sale or return trading terms

       (3)    goods are to be provided on an evaluation or trial basis.

27.7.  Prior to any form of legal action being instigated by you against a
       debtor whose debts are assigned to us, we require a written application
       stating the nature, value and reason for the legal action. We reserve the
       right to litigate whilst any reassignment of debts is conducted at our
       sole discretion.


38



                                                          Sales Ledger Financing

27.8.  If you have a service only facility, it will operate according to a
       Recourse Facility.

27.9.  All Debts and their Related Rights shall vest in us in accordance with
       this Agreement notwithstanding any charge, lien, trust or encumbrance
       existing now or in the future in favour of Barclays Bank PLC, all of
       which are hereby postponed or released to the extent necessary to enable
       this Agreement to have full effect.

27.10. Any charge, lien, trust or encumbrance in favour of Barclays Bank PLC
       shall in all other respects remain in full force and effect and in
       particular any monies due or prospectively due from us to you shall
       constitute a debt subject to any such charge in accordance with its terms
       and all Debts and their related rights which for any reason shall fail to
       vest in us or revest in you in accordance with this Agreement shall be
       and remain so subject.

27.11. Barclays Bank PLC may at any time give you 7 days notice in writing
       writhdrawing the postponement or release contained in these Terms &
       Conditions. Such withdrawal shall not affect our rights in relation to
       any Debt or Related Rights which come into existence before the expiry of
       such notice.

27.12. Notice will be given for your Debtors to pay us

27.13. Invoices raised which include trade discounts must be raised net, and any
       early settlement discounts offered must be evidenced on the face of all
       invoice copies.

27.14. Invoices notified for debtors who have a contra trading situation with
       you will be handled on an unapproved basis only.

27.15. Invoices notified for which evidence of debt is not available will be
       handled on an unapproved basis only. This includes proof of order and
       proof of delivery and/or satisfaction

27.16. Invoices notified for cash sales or for debtors with a mix of cash and
       credit terms will be handled on an unapproved basis only.

27.17. Invoices notified for debtor accounts which feature amounts of
       unallocated cash will be handled on an unapproved basis only.

27.18. Invoices notified for debtors where their terms of purchase prohibit
       assignment of the debt will be handled on an unapproved basis only/until
       such time that the debtor has confirmed in writing that they acknowledge
       the assignment and our position.

27.19. Invoices notified for sales involving evaluation or trial goods will be
       handled on an unapproved basis only/until such time that the debtor has
       confirmed in writing that they acknowledge the assignment and our
       position.

27.20. If you enter into any new contracts before the commencement, or within
       the duration of this facility, we must examine the contracts and agree
       that they are acceptable.

27.21. The Payment Account Credit date will be for all debts the date of receipt
       by us of payment for value from the Debtor. Where you have a Non-Recourse
       facility, for undisputed Covered Debts the expiry date of the Barclays
       Credit Period stated in Clause I17.

27.22. We may at any time require a satisfactory audit trail exercise to be
       conducted on your sales invoicing.

27.23. Any security which we hold for your liabilities to Barclays Bank PLC must
       remain in place for the duration of this facility. We will consider a
       breach of any other facilities granted by Barclays Bank PLC or any of its
       subsidiaries to you as a breach of this facility.

27.24. We require a copy of the terms and conditions of your major suppliers.
       Should these indicate that any retention of title is held over goods
       supplied to you, a limitation regarding such a retention of title may be
       required.


                                                                              39



Published by Barclays Bank PLC. Business Banking Marketing Services.

Registered in England. Registered No: 1026167. Registered Office: 1 Churchill
Place, London E14 5HP.

RB1443. Item Ref. 9971652. 06/05. June 2005.

EX-31.1

Exhibit 31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

I, Timothy M. Aitken, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Allied Healthcare International Inc. (the ‘‘Registrant’’);

Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;

Based on my knowledge, the consolidated financial statements and other financial information included in this Quarterly Report fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Quarterly Report;

The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and we have:

(a)    designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;

(b)    designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluation;

(d)    disclosed in this Quarterly Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s first fiscal quarter ended December 31, 2006 that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors:

(a)    all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: February 5, 2007

/s/ Timothy M. Aitken                                
Timothy M. Aitken
Chief Executive Officer
(principal executive officer)

EX-31.2

Exhibit 31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

I, David Moffatt, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Allied Healthcare International Inc. (the ‘‘Registrant’’);

Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;

Based on my knowledge, the consolidated financial statements and other financial information included in this Quarterly Report fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Quarterly Report;

The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and we have:

(a)    designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;

(b)    designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluation;

(d)    disclosed in this Quarterly Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s first fiscal quarter ended December 31, 2006 that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors:

(a)    all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: February 5, 2007

/s/ David Moffatt                                        
David Moffatt
Chief Financial Officer
(principal financial officer)

EX-32.1

Exhibit 32.1

Section 1350 Certification of Chief Executive Officer

In connection with the Quarterly Report of Allied Healthcare International Inc. (the ‘‘Company’’) on Form 10-Q for the quarter ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the ‘‘Report’’), I, Timothy M. Aitken, Chief Executive Officer of the Company, certify, pursuant to 18. U.S.C. section. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)    The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as at and for the quarter ended December 31, 2006.

Date: February 5, 2007

/s/ Timothy M. Aitken                                        
Timothy M. Aitken
Chief Executive Officer of the Company

EX-32.2

Exhibit 32.2

Section 1350 Certification of Chief Financial Officer

In connection with the Quarterly Report of Allied Healthcare International Inc. (the ‘‘Company’’) on Form 10-Q for the quarter ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the ‘‘Report’’), I, David Moffatt, Chief Financial Officer of the Company, certify, pursuant to 18. U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)    The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as at and for the quarter ended December 31, 2006.

Date: February 5, 2007

/s/ David Moffatt                                                
David Moffatt
Chief Financial Officer of the Company