Exhibit 10.1

Execution Version

LOGO [g235785g01d46.jpg]

 

 

 

REVOLVING CREDIT

AND

SECURITY AGREEMENT

AMONG

FLOTEK INDUSTRIES, INC.,

CESI CHEMICAL, INC.,

CESI MANUFACTURING, LLC,

MATERIAL TRANSLOGISTICS, INC.,

SOONER ENERGY SERVICES, LLC

TELEDRIFT COMPANY,

TURBECO, INC.,

USA PETROVALVE, INC.,

(as Borrowers),

VARIOUS LENDERS,

AND

PNC BANK, NATIONAL ASSOCIATION

(as Lender and as Agent)

 

 

 

September 23, 2011

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TABLE OF CONTENTS

 

I

 

DEFINITIONS

     1     

1.1

  

Accounting Terms

     1     

1.2

  

General Terms

     1     

1.3

  

Uniform Commercial Code Terms

     27     

1.4

  

Certain Matters of Construction

     28   

II

 

ADVANCES, PAYMENTS

     29     

2.1

  

Revolving Advances

     29     

2.2

  

Procedure for Revolving Advances Borrowing

     30     

2.3

  

Disbursement of Advance Proceeds

     32     

2.4

  

[Reserved.]

     32     

2.5

  

Maximum Advances

     32     

2.6

  

Repayment of Advances

     32     

2.7

  

Repayment of Excess Advances

     33     

2.8

  

Statement of Account

     33     

2.9

  

Letters of Credit

     33     

2.10

  

Issuance of Letters of Credit

     34     

2.11

  

Requirements For Issuance of Letters of Credit

     34     

2.12

  

Disbursements, Reimbursement

     35     

2.13

  

Repayment of Participation Advances

     36     

2.14

  

Documentation

     36     

2.15

  

Determination to Honor Drawing Request

     37     

2.16

  

Nature of Participation and Reimbursement Obligations

     37     

2.17

  

Indemnity

     38     

2.18

  

Liability for Acts and Omissions

     39     

2.19

  

Additional Payments

     40     

2.20

  

Manner of Borrowing and Payment

     41     

2.21

  

Mandatory Prepayments

     42     

2.22

  

Use of Proceeds

     43     

2.23

  

Defaulting Lender

     43   

III

 

INTEREST AND FEES

     44     

3.1

  

Interest

     44     

3.2

  

Letter of Credit Fees

     45     

3.3

  

[Reserved.]

     45     

3.4

  

Fee Letter

     45     

3.5

  

Computation of Interest and Fees

     46     

3.6

  

Maximum Charges

     46     

3.7

  

Increased Costs

     47     

3.8

  

Basis For Determining Interest Rate Inadequate or Unfair

     47     

3.9

  

Capital Adequacy

     48     

3.10

  

Gross Up for Taxes

     48     

3.11

  

Withholding Tax Exemption

     49   

 

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IV

 

COLLATERAL: GENERAL TERMS

     50     

4.1

  

Security Interest in the Collateral

     50     

4.2

  

Perfection of Security Interest

     50     

4.3

  

Disposition of Assets

     50     

4.4

  

Preservation of Collateral

     50     

4.5

  

Ownership of Collateral

     51     

4.6

  

Defense of Agent’s and Lenders’ Interests

     51     

4.7

  

Books and Records

     52     

4.8

  

Financial Disclosure

     52     

4.9

  

Compliance with Laws

     52     

4.10

  

Inspection of Premises

     53     

4.11

  

Insurance

     53     

4.12

  

Failure to Pay Insurance

     54     

4.13

  

Payment of Taxes

     54     

4.14

  

Payment of Leasehold Obligations

     54     

4.15

  

Receivables

     54     

4.16

  

Inventory

     57     

4.17

  

Maintenance of Equipment

     57     

4.18

  

Exculpation of Liability

     58     

4.19

  

Environmental Matters

     58     

4.20

  

Financing Statements

     60     

4.21

  

Vehicle Titles

     60   

V

 

REPRESENTATIONS AND WARRANTIES

     60     

5.1

  

Authority

     60     

5.2

  

Formation and Qualification

     61     

5.3

  

Survival of Representations and Warranties

     61     

5.4

  

Tax Returns

     61     

5.5

  

Financial Statements

     62     

5.6

  

Entity Name

     62     

5.7

  

O.S.H.A. and Environmental Compliance

     63     

5.8

  

Solvency; No Litigation, Violation, Indebtedness or Default

     63     

5.9

  

Patents, Trademarks, Copyrights and Licenses

     64     

5.10

  

Licenses and Permits

     65     

5.11

  

Default of Indebtedness

     65     

5.12

  

No Default

     65     

5.13

  

No Burdensome Restrictions

     65     

5.14

  

No Labor Disputes

     65     

5.15

  

Margin Regulations

     66     

5.16

  

Investment Company Act

     66     

5.17

  

Disclosure

     66     

5.18

  

Delivery of Convertible Senior Notes Documentation

     66     

5.19

  

Swaps

     66     

5.20

  

Conflicting Agreements

     66     

5.21

  

Application of Certain Laws and Regulations

     66     

5.22

  

Business and Property of Borrowers

     67     

5.23

  

Section 20 Subsidiaries

     67   

 

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5.24

  

Anti-Terrorism Laws

     67     

5.25

  

Trading with the Enemy

     68     

5.26

  

Inactive Subsidiaries

     68   

VI

 

AFFIRMATIVE COVENANTS

     68     

6.1

  

Payment of Fees

     68     

6.2

  

Conduct of Business and Maintenance of Existence and Assets

     68     

6.3

  

Violations

     68     

6.4

  

Government Receivables

     68     

6.5

  

Financial Covenants

     69     

6.6

  

Execution of Supplemental Instruments

     69     

6.7

  

Payment of Indebtedness

     69     

6.8

  

Standards of Financial Statements

     69     

6.9

  

[Reserved]

     69     

6.10

  

Exercise of Rights

     69     

6.11

  

Nature of Business

     69     

6.12

  

Subsidiaries

     69     

6.13

  

Post-Closing Obligations

     70   

VII

 

NEGATIVE COVENANTS

     70     

7.1

  

Merger, Consolidation, Acquisition and Sale of Assets

     70     

7.2

  

Creation of Liens

     70     

7.3

  

Guarantees

     70     

7.4

  

Investments

     71     

7.5

  

Loans

     71     

7.6

  

Capital Expenditures

     71     

7.7

  

Dividends

     71     

7.8

  

Indebtedness

     71     

7.9

  

Nature of Business

     72     

7.10

  

Transactions with Affiliates

     72     

7.11

  

[Reserved.]

     72     

7.12

  

Subsidiaries

     72     

7.13

  

Fiscal Year and Accounting Changes

     73     

7.14

  

Pledge of Credit

     73     

7.15

  

Amendment of Organizational Documents

     73     

7.16

  

Compliance with ERISA

     73     

7.17

  

Prepayment of Indebtedness

     73     

7.18

  

Anti-Terrorism Laws

     73     

7.19

  

Membership/Partnership Interests

     74     

7.20

  

Trading with the Enemy Act

     74     

7.21

  

Convertible Senior Notes

     74     

7.22

  

Other Agreements

     74     

7.23

  

Inactive Subsidiaries

     74   

VIII

 

CONDITIONS PRECEDENT

     74     

8.1

  

Conditions to Initial Advances

     74     

8.2

  

Conditions to Each Advance

     78   

 

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IX

 

INFORMATION AS TO CREDIT PARTIES

     79     

9.1

  

Disclosure of Material Matters

     79     

9.2

  

Schedules

     79     

9.3

  

Environmental Reports

     80     

9.4

  

Litigation

     80     

9.5

  

Material Occurrences

     80     

9.6

  

Government Receivables

     80     

9.7

  

Annual Financial Statements

     80     

9.8

  

Quarterly Financial Statements

     81     

9.9

  

Monthly Financial Statements

     81     

9.10

  

Other Reports

     81     

9.11

  

Additional Information

     81     

9.12

  

Projected Operating Budget

     81     

9.13

  

Variances From Operating Budget

     82     

9.14

  

Notice of Suits, Adverse Events

     82     

9.15

  

ERISA Notices and Requests

     82     

9.16

  

Additional Documents

     83     

9.17

  

Appraisals and Field Examinations

     83   

X

 

EVENTS OF DEFAULT

     83     

10.1

  

Nonpayment

     83     

10.2

  

Breach of Representation

     83     

10.3

  

Financial Information

     83     

10.4

  

Judicial Actions

     83     

10.5

  

Noncompliance

     83     

10.6

  

Judgments

     84     

10.7

  

Bankruptcy

     84     

10.8

  

Inability to Pay

     84     

10.9

  

Subsidiary Bankruptcy

     84     

10.10

  

Material Adverse Effect

     84     

10.11

  

Lien Priority

     84     

10.12

  

Convertible Senior Loan Default

     84     

10.13

  

Enforceability of Intercreditor Agreement

     85     

10.14

  

Cross Default

     85     

10.15

  

Breach of Guaranty

     85     

10.16

  

Change of Control

     85     

10.17

  

Invalidity

     85     

10.18

  

Licenses

     85     

10.19

  

Seizures

     85     

10.20

  

Operations

     85     

10.21

  

Pension Plans

     86   

XI

 

LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT

     86     

11.1

  

Rights and Remedies

     86     

11.2

  

Agent’s Discretion

     87     

11.3

  

Setoff

     88     

11.4

  

Rights and Remedies not Exclusive

     88   

 

-iv-

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11.5

  

Allocation of Payments After Event of Default

     88   

XII

 

WAIVERS AND JUDICIAL PROCEEDINGS

     89     

12.1

  

Waiver of Notice

     89     

12.2

  

Delay

     89     

12.3

  

Jury Waiver

     89   

XIII

 

EFFECTIVE DATE AND TERMINATION

     89     

13.1

  

Term

     89     

13.2

  

Termination

     90   

XIV

 

REGARDING AGENT

     90     

14.1

  

Appointment

     90     

14.2

  

Nature of Duties

     90     

14.3

  

Lack of Reliance on Agent and Resignation

     91     

14.4

  

Certain Rights of Agent

     91     

14.5

  

Reliance

     92     

14.6

  

Notice of Default

     92     

14.7

  

Indemnification

     92     

14.8

  

Agent in its Individual Capacity

     92     

14.9

  

Delivery of Documents

     93     

14.10

  

Borrowers’ Undertaking to Agent

     93     

14.11

  

No Reliance on Agent’s Customer Identification Program

     93     

14.12

  

Other Agreements

     93   

XV

 

BORROWING AGENCY PROVISION AND COMMON ENTERPRISE

     93     

15.1

  

Borrowing Agency Provisions

     93     

15.2

  

Waiver of Subrogation

     94     

15.3

  

Common Enterprise

     94   

XVI

 

MISCELLANEOUS

     95     

16.1

  

Governing Law

     95     

16.2

  

Entire Understanding

     95     

16.3

  

Successors and Assigns; Participations; New Lenders

     98     

16.4

  

Application of Payments

     100     

16.5

  

Indemnity

     100     

16.6

  

Notice

     101     

16.7

  

Survival

     103     

16.8

  

Severability

     103     

16.9

  

Expenses

     104     

16.10

  

Injunctive Relief

     104     

16.11

  

Consequential Damages

     104     

16.12

  

Captions

     104     

16.13

  

Counterparts; Facsimile Signatures

     104     

16.14

  

Construction

     104     

16.15

  

Confidentiality; Sharing Information

     104     

16.16

  

Publicity

     105   

 

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16.17

  

Certifications From Banks and Participants; US PATRIOT Act

     105     

16.18

  

No Advisory or Fiduciary Relationship

     105     

16.19

  

Non-Applicability of Chapter 346

     106     

16.20

  

BORROWERS’ WAIVER OF RIGHTS UNDER TEXAS DECEPTIVE TRADE PRACTICES ACT

     106   

 

-vi-

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LIST OF EXHIBITS AND SCHEDULES

 

Exhibits    Exhibit 1.2(a)    Borrowing Base Certificate Exhibit 1.2(b)   
Compliance Certificate Exhibit 2.1(a)    Revolving Credit Note Exhibit 5.5(b)   
Financial Projections Exhibit 8.1(1)    Financial Condition Certificate Exhibit
16.3    Commitment Transfer Supplement Schedules    Schedule 1.1    Lenders’
Commitments Schedule 1.2    Permitted Encumbrances Schedule 4.5    Equipment and
Inventory Locations Schedule 4.15(h)-1    Petty Cash Accounts Schedule 4.15(h)-2
   Deposit and Investment Accounts Schedule 4.19    Real Property Schedule 5.1
   Consents Schedule 5.2(a)    States of Qualification and Good Standing
Schedule 5.2(b)    Subsidiaries Schedule 5.2(c)    Accrued and Unpaid Dividends
Schedule 5.4    Federal Tax Identification Number Schedule 5.6    Prior Names
Schedule 5.8(b)    Litigation Schedule 5.8(d)    Plans Schedule 5.9   
Intellectual Property, Source Code Escrow Agreements Schedule 5.10    Licenses
and Permits Schedule 5.13    Material Contracts Schedule 5.14    Labor Disputes
Schedule 5.22    Business of Borrowers Schedule 6.13    Post-Closing Obligations
Schedule 7.3    Guarantees

 

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REVOLVING CREDIT

AND

SECURITY AGREEMENT

Revolving Credit and Security Agreement dated as of September 23, 2011 among
FLOTEK INDUSTRIES, INC., a corporation organized under the laws of the State of
Delaware (“Holdings”), CESI CHEMICAL, INC., a corporation organized under the
laws of Oklahoma (“CESI Chemical”), CESI MANUFACTURING, LLC, a limited liability
company formed under the laws of the State of Oklahoma (“CESI Manufacturing”),
MATERIAL TRANSLOGISTICS, INC., a corporation organized under the laws of the
State of Texas (“MTI”), SOONER ENERGY SERVICES, LLC, a limited liability company
formed under the laws of the State of Oklahoma (“Sooner Energy”), TELEDRIFT
COMPANY, a corporation organized under the laws of the State of Delaware
(“Teledrift”), TURBECO, INC., a corporation organized under the laws of the
State of Texas (“Turbeco”), USA PETROVALVE, INC., corporation organized under
the laws of the State of Texas (“USA Petrovalve”; and together with Holdings,
CESI Chemical, CESI Manufacturing, MTI, Sooner Energy, Teledrift, and Turbeco,
individually, each a “Borrower” and jointly and severally, the “Borrowers”), the
financial institutions which are now or which hereafter become a party hereto
(collectively, the “Lenders” and individually a “Lender”) and PNC BANK, NATIONAL
ASSOCIATION (“PNC”), as agent for itself and as agent for the other Lenders
(PNC, together with its successors and assigns in such capacity, the “Agent”).

IN CONSIDERATION of the mutual covenants and undertakings herein contained, and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Borrowers, Lenders and Agent hereby agree as follows:

 

I DEFINITIONS.

1.1 Accounting Terms. As used in this Agreement, the Other Documents or any
certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 1.2 or elsewhere in this
Agreement and accounting terms partly defined in Section 1.2 to the extent not
defined, shall have the respective meanings given to them under GAAP; provided,
however, whenever such accounting terms are used for the purposes of determining
compliance with financial covenants in this Agreement, such accounting terms
shall be defined in accordance with GAAP as consistently applied in preparation
of the audited financial statements of Borrowers for the fiscal year ended
December 31, 2010.

1.2 General Terms. For purposes of this Agreement the following terms shall have
the following meanings set forth below:

“2008 Notes” shall mean the Convertible Senior Unsecured Notes issued by
Holdings on February 14, 2008, at par, in an aggregate original principal amount
of $115,000,000, as the same may be amended, replaced or otherwise modified in
accordance with this Agreement.

“2010 Notes” shall mean the Convertible Senior Secured Notes issued by Holdings
on March 31, 2010, at par, in an aggregate original principal amount of
$36,000,000, as the same may be amended, replaced or otherwise modified in
accordance with the terms of the Intercreditor Agreement.

 

-1-

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“Accountants” shall have the meaning set forth in Section 9.7 hereof.

“Acquisition Agreement” shall mean any purchase agreement entered into by any
Borrower in connection with a Permitted Acquisition, in each case, including all
exhibits, annexes, schedules and attachments thereto.

“Advance Rates” shall have the meaning set forth in Section 2.1.

“Advances” shall mean collectively, the Revolving Advances and Letters of
Credit.

“Affiliate” of any Person shall mean (a) any Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with
such Person, or (b) any Person who is a director, managing member, general
partner or officer (i) of such Person, (ii) of any Subsidiary of such Person or
(iii) of any Person described in clause (a) above. For purposes of this
definition, control of a Person shall mean the power, direct or indirect, (x) to
vote (A) with respect to any Person (other than Holdings or any Borrower), ten
percent (10%) or more of the Equity Interests having ordinary voting power for
the election of directors of such Person or other Persons performing similar
functions for any such Person, or (B) with respect to Holdings or any Borrower,
twenty percent (20%) or more of the Equity Interests having ordinary voting
power for the election of directors of such Person or other Persons performing
similar functions for any such Person, or (y) to direct or cause the direction
of the management and policies of such Person whether by ownership of Equity
Interests, contract or otherwise.

“Agent” shall have the meaning set forth in the preamble to this Agreement and
shall include its successors and assigns.

“Agreement” shall mean this Revolving Credit and Security Agreement, as the same
may be amended, amended and restated, extended, supplemented and/or otherwise
modified from time to time.

“Alternate Base Rate” shall mean, for any day, a rate per annum equal to the
higher of (i) the Base Rate in effect on such day, (ii) the Federal Funds Open
Rate in effect on such day plus 1/2 of 1% and (iii) the Daily LIBOR Rate plus
1%. For purposes of this definition, “Daily LIBOR Rate” shall mean, for any day,
the rate per annum determined by Agent by dividing (x) the Published Rate by
(y) a number equal to 1.00 minus the Reserve Percentage. For the purposes of
this definition, “Published Rate” shall mean the rate of interest published each
Business Day in The Wall Street Journal “Money Rates” listing under the caption
“London Interbank Offered Rates” for a one month period (or, if no such rate is
published therein for any reason, then the Published Rate shall be the
Eurodollar rate for a one month period as published in another publication
determined by Agent).

“Anti-Terrorism Laws” shall mean any Applicable Laws relating to terrorism or
money laundering, including Executive Order No. 13224, the USA PATRIOT Act, the
Applicable Laws comprising or implementing the Bank Secrecy Act, and the
Applicable Laws administered by the United States Treasury Department’s Office
of Foreign Asset Control (as any of the foregoing Applicable Laws may from time
to time be amended, renewed, extended, or replaced).

 

-2-

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“Applicable Law” shall mean all laws, rules and regulations applicable to the
Person, conduct, transaction, covenant, Other Document or contract in question,
including all applicable common law and equitable principles; all provisions of
all applicable state, federal and foreign constitutions, statutes, rules,
regulations, treaties, directives and orders of any Governmental Body, and all
orders, judgments and decrees of all courts and arbitrators.

“Authority” shall have the meaning set forth in Section 4.19(d).

“Authorized Officer” shall mean the President, Executive Vice President, Finance
Treasurer, or other authorized officer approved by Agent.

“Average Undrawn Availability” shall mean, for any calendar month, the sum of
Undrawn Availability for each day of such calendar month, divided by the number
of days in such calendar month.

“Base Rate” shall mean the base commercial lending rate of PNC as publicly
announced to be in effect from time to time, such rate to be adjusted
automatically, without notice, on the effective date of any change in such rate.
This rate of interest is determined from time to time by PNC as a means of
pricing some loans to its customers and is neither tied to any external rate of
interest or index nor does it necessarily reflect the lowest rate of interest
actually charged by PNC to any particular class or category of customers of PNC.

“Benefited Lender” shall have the meaning set forth in Section 2.20(d).

“Blocked Accounts” shall have the meaning set forth in Section 4.15(h).

“Blocked Account Bank” shall have the meaning set forth in Section 4.15(h).

“Blocked Person” shall have the meaning set forth in Section 5.24(b) hereof.

“Borrower” or “Borrowers” shall have the meaning set forth in the introductory
paragraph to this Agreement and shall extend to all permitted successors and
assigns of such Person.

“Borrowers’ Account” shall have the meaning set forth in Section 2.8.

“Borrowing Agent” shall mean Holdings.

“Borrowing Base Certificate” shall mean a certificate in substantially the form
of Exhibit 1.2(a) and in detail satisfactory to Agent in its sole discretion,
duly executed by an Authorized Officer of the Borrowing Agent and delivered to
the Agent, appropriately completed, by which such officer shall certify to Agent
the Formula Amount, Undrawn Availability, and Borrower’s Average Undrawn
Availability, and calculations thereof as of the date of such certificate.

 

-3-

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“Business Day” shall mean any day other than Saturday or Sunday or a legal
holiday on which commercial banks are authorized or required by law to be closed
for business in East Brunswick, New Jersey and, if the applicable Business Day
relates to any Eurodollar Rate Loans, such day must also be a day on which
dealings are carried on in the London interbank market.

“Capital Expenditures” shall mean expenditures made or liabilities incurred for
the acquisition of any fixed assets or improvements, replacements, substitutions
or additions thereto which have a useful life of more than one year, including
the total principal portion of Capitalized Lease Obligations, which, in
accordance with GAAP, would be classified as capital expenditures.

“Capitalized Lease Obligation” shall mean any Indebtedness of Borrower or any of
its Subsidiaries represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP.

“CERCLA” shall mean the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. §§9601 et seq.

“CESI Chemical” shall have the meaning set forth in the introductory paragraph
hereto.

“CESI Manufacturing” shall have the meaning set forth in the introductory
paragraph hereto.

“Change in Law” means the occurrence, after the date of this Agreement, of any
of the following: (a) the adoption or taking effect of any law, rule, regulation
or treaty, (b) any change in any law, rule, regulation or treaty or in the
administration, interpretation or application thereof by any Governmental Body
or (c) the making or issuance of any request, guideline or directive (whether or
not having the force of law) by any Governmental Body; provided that,
notwithstanding anything herein to the contrary, (i) the Dodd-Frank Act and all
requests, rules, guidelines or directives thereunder or issued in connection
therewith and (ii) all requests, rules, guidelines or directives promulgated by
the Bank for International Settlements, the Basel Committee on Banking
Supervision (or any successor or similar authority) or the United States
regulatory authorities, in each case pursuant to Basel III, shall in each case
be deemed to be a “Change in Law”, regardless of the date enacted, adopted or
issued.

“Change of Control” shall mean the occurrence of any of the following events
subsequent to the Closing Date: any “person” or “group” (as such terms are
defined in Sections 13(d) and 14(d) of the Exchange Act) other than another
Borrower or the Permitted Investors, shall own, directly or indirectly, Equity
Interests in any Borrower representing a majority of the aggregate ordinary
voting power represented by the issued and outstanding Equity Interests of any
Borrower, respectively (including for the purposes of the calculation of
percentage ownership, any Equity Interests into which any Equity Interests of
any Borrower held by any of such “person” or “group” that are convertible or for
which any such Equity Interests of any Borrower or of any other Person may be
exchanged and any Equity Interests issuable to such “person” or “group” upon
exercise of any warrants, options or similar rights which may at the time of
calculation be held by such “person” or “group”) or to have the power, directly
or indirectly, to vote or direct the voting securities having a majority of the
ordinary voting power for the election of directors of any Borrower (other than
pursuant to proxies or consents solicited by Holdings in connection with a
meeting of the stockholders of Holdings or a written consent in lieu thereof).

 

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“Charges” shall mean all taxes, charges, fees, imposts, levies or other
assessments, including all net income, gross income, gross receipts, sales, use,
ad valorem, value added, transfer, franchise, profits, inventory, capital stock,
license, withholding, payroll, employment, social security, unemployment,
excise, severance, stamp, occupation and property taxes, custom duties, fees,
assessments, liens, claims and charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts, imposed by
any taxing or other authority, domestic or foreign (including the Pension
Benefit Guaranty Corporation or any environmental agency or superfund), upon the
Collateral, any Borrower or any of its Affiliates.

“Closing Date” shall have the meaning set forth in Section 8.1.

“Code” shall mean the Internal Revenue Code of 1986, as the same may be amended
or supplemented from time to time, and any successor statute of similar import,
and the rules and regulations thereunder, as from time to time in effect.

“Collateral” shall mean and include, all personal property assets of Borrowers,
including, without limitation:

(a) all Receivables;

(b) all Equipment;

(c) all General Intangibles;

(d) all Inventory;

(e) all Investment Property;

(f) all Subsidiary Stock;

(g) all of each Borrower’s right, title and interest in and to, whether now
owned or hereafter acquired and wherever located, (i) its respective goods and
other property including, but not limited to, all merchandise returned or
rejected by Customers, relating to or securing any of the Receivables; (ii) all
of each Borrower’s rights as a consignor, a consignee, an unpaid vendor,
mechanic, artisan, or other lienor, including stoppage in transit, setoff,
detinue, replevin, reclamation and repurchase; (iii) all additional amounts due
to any Borrower from any Customer relating to the Receivables; (iv) other
property, including warranty claims, relating to any goods securing the
Obligations; (v) all of each Borrower’s contract rights, rights of payment which
have been earned under a contract right, instruments (including promissory
notes), documents, chattel paper (including electronic chattel paper), warehouse
receipts, deposit accounts, letters of credit and money; (vi) all commercial
tort claims (whether now existing or hereafter arising); (vii) if and when
obtained by a Borrower, all real and personal property of third parties in which
any Borrower has been granted a lien or security interest as security for the
payment or enforcement of Receivables; (viii) all letter of credit rights
(whether or not the respective letter of credit is evidenced by a writing);
(ix) all supporting obligations; and (x) any

 

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other goods, personal property or real property now owned or hereafter acquired
in which a Borrower has expressly granted a security interest or may in the
future grant a security interest to Agent (in its capacity as such) hereunder,
or in any amendment or supplement hereto or thereto, or under any other
agreement between Agent (in its capacity as such) and any Borrower;

(h) all of each Borrower’s ledger sheets, ledger cards, files, correspondence,
records, books of account, business papers, computers, computer software (owned
by any Borrower or in which it has an interest), computer programs, tapes, disks
and documents relating to (a), (b), (c), (d), (e), (f), or (g) of this
Paragraph; and

(i) all proceeds and products of (a), (b), (c), (d), (e), (f), (g), and (h) in
whatever form, including, but not limited to: cash, deposit accounts (whether or
not comprised solely of proceeds), certificates of deposit, insurance proceeds
(including hazard, flood and credit insurance), negotiable instruments and other
instruments for the payment of money, chattel paper, security agreements,
documents, eminent domain proceeds, condemnation proceeds and tort claim
proceeds;

provided that, notwithstanding the foregoing, the Collateral shall not include
any (i) General Intangible, Leasehold Interest, permit, license or other rights
under contracts instruments or other documents if (but only to the extent that)
the grant of a security interest therein would constitute a violation of a valid
and enforceable restriction in favor of a third party (except to the extent such
prohibition is unenforceable pursuant to the provisions of Article 9 of the
Uniform Commercial Code), unless and until any required consents shall have been
obtained, (ii) equipment owned by any Borrower that is subject to a purchase
money lien or a capital lease obligation if (but only to the extent that and
only for so long as such purchase money Indebtedness or capital lease restricts
the granting of a Lien therein to Agent) the grant of a security interest
therein would constitute a violation of a valid and enforceable restriction in
favor of a third party, unless any required consents shall have been obtained,
or (iii) monies, checks, securities or other items on deposit or otherwise held
in deposit accounts or trust accounts specifically and exclusively used for
payroll, payroll taxes, deferred compensation and other employee wage and
benefit payments to or for the direct benefit of such Borrower’s employees
(collectively, the “Excluded Property”); provided, that, notwithstanding any of
the foregoing, the term “Collateral” shall include any and all proceeds arising
from such Excluded Property to the extent that the assignment or encumbering of
such proceeds is not subject to the same or similar prohibitions or
restrictions.

“Collateral Assignment of Acquisition Agreement” shall mean any document
collaterally assigning a Borrower’s rights and remedies under any Acquisition
Agreement to Agent, the terms and conditions of which shall be satisfactory to
Agent in its sole discretion.

“Commitment Percentage” of any Lender shall mean the percentage set forth below
such Lender’s name Schedule 1.1 hereto, as same may be adjusted upon any
assignment by a Lender pursuant to Section 16.3(c) or (d) hereof.

“Commitment Transfer Supplement” shall mean a document in substantially the form
of Exhibit 16.3 hereto, properly completed and otherwise in form and substance
satisfactory to Agent by which the Purchasing Lender purchases and assumes a
portion of the obligation of Lenders to make Advances under this Agreement.

 

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“Compliance Certificate” shall mean a compliance certificate in substantially
the form of Exhibit 1.2(b) hereto and in detail satisfactory to Agent in its
sole discretion, to be signed by an Authorized Officer of Borrowing Agent, which
shall state that, among other things, based on an examination sufficient to
permit such officer to make an informed statement, no Default or Event of
Default exists, or if such is not the case, specifying such Default or Event of
Default, its nature, when it occurred, whether it is continuing and the steps
being taken by Borrowers with respect to such default and, such certificate
shall have appended thereto calculations which set forth Borrowers’ compliance
with the requirements or restrictions imposed by Sections 6.5, 7.4, 7.5, 7.6,
7.7, 7.8, and 7.10.

“Consents” shall mean all filings and all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental Bodies and
other third parties, domestic or foreign, necessary to carry on any Borrower’s
business or necessary (including to avoid a conflict or breach under any
agreement, instrument, other document, license, permit or other authorization)
for the execution, delivery or performance of this Agreement, the Other
Documents, the Convertible Senior Notes, or any agreement executed in connection
with a Permitted Acquisition, including any Consents required under all
Applicable Laws.

“Consigned Inventory” shall mean Inventory of any Borrower that is in the
possession of another Person on a consignment, sale or return, or other basis
that does not constitute a final sale and acceptance of such Inventory.

“Controlled Group” shall mean, at any time, each Borrower and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control and all other entities which, together with
any Borrower, are treated as a single employer under Section 414 of the Code.

“Convertible Senior Agents” shall mean collectively, any collateral agent and
indenture trustee under each of the Convertible Senior Notes.

“Convertible Senior Debt Payments” shall mean and include all cash actually
expended to make payments of principal and interest on the Convertible Senior
Loan.

“Convertible Senior Lenders” shall mean collectively, the holders of the
Convertible Senior Notes, and their permitted successors and assigns; and
“Convertible Senior Lender” shall mean each of them individually.

“Convertible Senior Loan” shall mean the loans evidenced by the Convertible
Senior Notes.

“Convertible Senior Notes” shall mean collectively, (i) the 2008 Notes and
(ii) the 2010 Notes.

 

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“Convertible Senior Notes Documentation” shall mean any agreement evidencing the
Convertible Senior Loan, including, without limitation, the Convertible Senior
Notes and the Intercreditor Agreement (as applicable), and all security
agreements, guaranty agreements and other documents, agreements and instruments
executed in connection therewith, in each case, as the same may be amended,
amended and restated, replaced, renewed, extended, supplemented and/or otherwise
modified from time to time in accordance with this Agreement, any indenture,
supplemental indenture or exchange related thereto or executed in connection
therewith.

“Credit Party” shall mean, at each relevant time of determination, (i) each
Borrower, (ii) each Guarantor, and (iii) any other Person that is now or
hereafter becomes a party to this Agreement as a “Borrower” or party to any
Other Document as a “Guarantor”; and “Credit Parties” means collectively all
such Persons.

“Customer” shall mean and include the account debtor with respect to any
Receivable and/or the prospective purchaser of goods, services or both with
respect to any contract or contract right, and/or any party who enters into or
proposes to enter into any contract or other arrangement with any Borrower,
pursuant to which such Borrower is to deliver any personal property or perform
any services.

“Customs” shall have the meaning set forth in Section 2.11(b) hereof.

“Default” shall mean an event, circumstance or condition which, with the giving
of notice or passage of time or both, would constitute an Event of Default.

“Default Rate” shall have the meaning set forth in Section 3.1 hereof.

“Defaulting Lender” shall have the meaning set forth in Section 2.23(a) hereof.

“Depository Accounts” shall have the meaning set forth in Section 4.15(h)
hereof.

“Designated Lender” shall have the meaning set forth in Section 16.2(c) hereof.

“Dodd-Frank Act” shall mean the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Pub. L. 111-203, H.R. 4173) signed into law on July 21, 2010, as
amended from time to time.

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

“Domestic Rate Loan” shall mean any Advance that bears interest based upon the
Alternate Base Rate.

“Drawing Date” shall have the meaning set forth in Section 2.12(b) hereof.

“Earnings Before Interest and Taxes” shall mean for any period the sum of
(i) net income (or loss) of Holdings and its Subsidiaries on a consolidated
basis for such period (excluding extraordinary gains, plus (ii) all interest
expense of Holdings and its Subsidiaries on a consolidated basis for such
period, plus (iii) all charges against income of Holdings and its Subsidiaries
for such period for federal, state and local taxes.

 

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“EBITDA” shall mean for any period the sum of (i) Earnings Before Interest and
Taxes for such period, plus (ii) depreciation expenses for such period, plus
(iii) amortization expenses for such period.

“Eligible Inventory” shall mean and include as to Borrowers, Inventory
(excluding work-in process) held for sale comprised solely of (a) chemicals used
in oil and gas well cementing, stimulation, acidizing, drilling and production,
(b) pumping system components, electric submersible pumps, gas separators,
production valves and related products, (c) spare replacements parts that
(i) are not held for sale or lease, (ii) are in a category or of a type of
Collateral addressed or identified in the most recent NOLV Appraisal accepted by
Agent and (iii) are used to maintain Borrowers’ Inventory and Equipment and
(d) mud motors and “measurement while drilling” products that do not, in Agent’s
opinion (exercised in its Permitted Discretion), constitute Rental Fleet Tools,
in each case, valued at the lower of cost or market value, determined on an
average cost basis, which is not, in Agent’s opinion (exercised in its Permitted
Discretion), obsolete, slow moving or unmerchantable and which Agent, in its
Permitted Discretion, shall not deem ineligible Inventory, based on such
considerations as Agent may from time to time deem appropriate including whether
the Inventory is subject to a perfected, first priority security interest in
favor of Agent and no other Lien (other than a Permitted Encumbrance). Without
limiting the foregoing, Inventory shall not be Eligible Inventory if it (i) does
not conform to all standards imposed by any Governmental Body which has
regulatory authority over such goods or the use or sale thereof, (ii) is in
transit, (iii) is comprised of Rental Fleet Tools, (iv) is located outside the
United States or at a location that is not otherwise in compliance with this
Agreement, (v) constitutes Consigned Inventory, (vi) is the subject of an
Intellectual Property Claim; (vii) is subject to a License Agreement or other
agreement that limits, conditions or restricts Borrower’s or Agent’s right to
sell or otherwise dispose of such Inventory, unless Agent is a party to a
Licensor/Agent Agreement with the Licensor under such License Agreement; or
(viii) or is situated at a location not owned by Borrower unless the owner or
occupier of such location has executed in favor of Agent a Lien Waiver Agreement
or reserves are established pursuant to Section 2.1(a)(iv) of this Agreement in
an amount equal to at least three (3) months rent for such location.
Notwithstanding anything herein to the contrary, (i) Eligible Inventory shall
not include Inventory being acquired pursuant to a trade Letter of Credit if
such trade Letter of Credit remains outstanding and (ii) no Inventory shall be
Eligible Inventory to the extent such Inventory was acquired by a Borrower
pursuant to an acquisition (including, without limitation, a Permitted
Acquisition), unless Agent has completed field examinations and received
appraisals with respect to such Inventory, the results of which are reasonably
satisfactory in form and substance to Agent.

“Eligible Receivables” shall mean and include with respect to each Borrower,
each Receivable of such Borrower arising in the Ordinary Course of Business and
which Agent, in its Permitted Discretion, shall deem to be an Eligible
Receivable, based on such considerations as Agent may from time to time deem
appropriate. A Receivable shall not be deemed eligible unless such Receivable is
subject to Agent’s first priority perfected security interest and no other Lien
(other than Permitted Encumbrances), and is evidenced by an invoice or other
documentary evidence satisfactory to Agent. In addition, no Receivable shall be
an Eligible Receivable if:

(a) it arises out of a sale made by Borrower to an Affiliate of Borrower or to a
Person controlled by an Affiliate of Borrower;

 

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(b) it is due or unpaid more than ninety (90) days after the original invoice
date;

(c) fifty percent (50%) or more of the Receivables from such Customer are not
deemed Eligible Receivables hereunder. Such percentage may, in Agent’s Permitted
Discretion, be increased or decreased from time to time;

(d) any covenant, representation or warranty contained in this Agreement with
respect to such Receivable has been breached;

(e) the Customer shall (i) apply for, suffer, or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property or call a meeting of its
creditors, (ii) admit in writing its inability, or be generally unable, to pay
its debts as they become due or cease operations of its present business,
(iii) make a general assignment for the benefit of creditors, (iv) commence a
voluntary case under any state or federal bankruptcy laws (as now or hereafter
in effect), (v) adjudicate a bankrupt or insolvent, (vi) file a petition seeking
to take advantage of any other law providing for the relief of debtors,
(vii) acquiesce to, or fail to have dismissed, any petition which is filed
against it in any involuntary case under such bankruptcy laws, or (viii) take
any action for the purpose of effecting any of the foregoing;

(f) the sale related to such Receivable is to a Customer with respect to a
location outside the United States of America or Canada (other than the Province
of Quebec), unless the sale is on letter of credit, guaranty or acceptance
terms, in each case acceptable to Agent in its sole discretion;

(g) the sale to the Customer is on a bill-and-hold, progress bill, guaranteed
sale, sale-and-return, sale on approval, consignment or any other repurchase or
return basis or is evidenced by chattel paper;

(h) Agent believes, in the exercise of its Permitted Discretion, that collection
of such Receivable is insecure or that such Receivable may not be paid by reason
of the Customer’s financial inability to pay;

(i) the Customer is the United States of America, any state or any department,
agency or instrumentality of any of them, unless the applicable Borrower assigns
its right to payment of such Receivable to Agent pursuant to the Assignment of
Claims Act of 1940, as amended (31 U.S.C. Sub-Section 3727 et seq. and 41 U.S.C.
Sub-Section 15 et seq.) or has otherwise complied with other applicable statutes
or ordinances;

(j) the goods giving rise to such Receivable have not been delivered to and
accepted by the Customer or the services giving rise to such Receivable have not
been fully performed by the applicable Borrower and accepted by the Customer or
the Receivable otherwise does not represent a final sale;

(k) the Receivables of the Customer exceed a credit limit determined by Agent,
in its Permitted Discretion, to the extent such Receivable exceeds such limit;

 

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(l) the Receivable is subject to any offset, deduction, defense, dispute, or
counterclaim, the Customer is also a creditor or supplier of a Borrower or the
Receivable is contingent in any respect or for any reason, but with respect to a
Receivable subject to a deduction or claim, only to the extent of the maximum
potential amount of such deduction or claim against the applicable Receivable;

(m) the applicable Borrower has made any agreement with any Customer for any
deduction therefrom, except for discounts or allowances made in the Ordinary
Course of Business of Borrower for prompt payment, all of which discounts or
allowances are reflected in the calculation of the face value of each respective
invoice related thereto, but with respect to a Receivable subject to a deduction
or claim, only to the extent of the maximum potential amount of such deduction
or claim against the applicable Receivable;

(n) any return, rejection or repossession of the merchandise has occurred or the
rendition of services has been disputed;

(o) such Receivable is not payable to a Borrower; or

(p) such Receivable is not otherwise satisfactory to Agent as determined in by
Agent in the exercise of its Permitted Discretion.

Notwithstanding anything herein to the contrary, no Receivables shall be
Eligible Receivables to the extent such Receivables were acquired by a Borrower
pursuant to an acquisition (including, without limitation, a Permitted
Acquisition), unless Agent has completed field examinations with respect to such
Receivable, the results of which are reasonably satisfactory in form and
substance to Agent.

“Environmental Complaint” shall have the meaning set forth in Section 4.19(d)
hereof.

“Environmental Laws” shall mean all federal, state and local environmental, land
use, zoning, health, chemical use, safety and sanitation laws, statutes,
ordinances and codes relating to the protection of the environment and/or
governing the use, storage, treatment, generation, transportation, processing,
handling, production or disposal of Hazardous Substances and the rules,
regulations, policies, guidelines, interpretations, decisions, orders and
directives of federal, state and local governmental agencies and authorities
with respect thereto.

“Equipment” shall mean and include as to each Borrower, all of such Borrower’s
goods (other than Inventory) whether now owned or hereafter acquired and
wherever located including all equipment, machinery, apparatus, motor vehicles,
fittings, furniture, furnishings, fixtures, parts, accessories and all
replacements and substitutions therefor or accessions thereto.

“Equity Interests” of any Person shall mean any and all shares, rights to
purchase, options, warrants, general, limited or limited liability partnership
interests, member interests, participation or other equivalents of or interest
in (regardless of how designated) equity of such Person, whether voting or
nonvoting, including common stock, preferred stock, convertible securities or
any other “equity security” (as such term is defined in Rule 3a11-1 of the
General Rules and Regulations promulgated by the SEC under the Exchange Act).

 

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“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time and the rules and regulations promulgated thereunder.

“Eurodollar Rate” shall mean for any Eurodollar Rate Loan for the then current
Interest Period relating thereto the interest rate per annum (rounded upwards,
if necessary, to the nearest 1/100 of 1%) determined by Agent by dividing
(i) the rate which appears on the Bloomberg Page BBAM1 (or on such other
substitute Bloomberg page that displays rates at which US dollar deposits are
offered by leading banks in the London interbank deposit market), or the rate
which is quoted by another source selected by Agent which has been approved by
the British Bankers’ Association as an authorized information vendor for the
purpose of displaying rates at which US dollar deposits are offered by leading
banks in the London interbank deposit market (an “Alternative Source”), at
approximately 11:00 a.m., London time two (2) Business Days prior to the first
day of such Interest Period (or if there shall at any time, for any reason, no
longer exist a Bloomberg Page BBAM1 (or any substitute page) or any Alternative
Source, a comparable replacement rate determined by the Agent at such time
(which determination shall be conclusive absent manifest error)) for an amount
comparable to such Eurodollar Rate Loan and having a borrowing date and a
maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus
the Reserve Percentage.

The Eurodollar Rate shall be adjusted with respect to any Eurodollar Rate Loan
that is outstanding on the effective date of any change in the Reserve
Percentage as of such effective date. The Agent shall give prompt notice to the
Borrowing Agent of the Eurodollar Rate as determined or adjusted in accordance
herewith, which determination shall be conclusive absent manifest error.

“Eurodollar Rate Loan” shall mean an Advance at any time that bears interest
based on the Eurodollar Rate.

“Event of Default” shall have the meaning set forth in Article X hereof.

“Exchange Act” shall have the mean the Securities Exchange Act of 1934, as
amended.

“Excluded Property” shall have the meaning provided in the definition of
“Collateral”.

“Executive Order No. 13224” shall mean the Executive Order No. 13224 on
Terrorist Financing, effective September 24, 2001, as the same has been, or
shall hereafter be, renewed, extended, amended or replaced.

“Federal Funds Effective Rate” for any day shall mean the rate per annum (based
on a year of 360 days and actual days elapsed and rounded upward to the nearest
1/100 of 1%) announced by the Federal Reserve Bank of New York (or any
successor) on such day as being the weighted average of the rates on overnight
federal funds transactions arranged by federal funds brokers on the previous
trading day, as computed and announced by such Federal Reserve Bank (or any
successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the “Federal Funds
Effective Rate” as of the date of this Agreement; provided that, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
“Federal Funds Effective Rate” for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.

 

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“Federal Funds Open Rate” for any day shall mean the rate per annum (based on a
year of 360 days and actual days elapsed) which is the daily federal funds open
rate as quoted by ICAP North America, Inc. (or any successor) as set forth on
the Bloomberg Screen BTMM for that day opposite the caption “OPEN” (or on such
other substitute Bloomberg Screen that displays such rate), or as set forth on
such other recognized electronic source used for the purpose of displaying such
rate as selected by PNC (an “Alternate Source”) (or if such rate for such day
does not appear on the Bloomberg Screen BTMM (or any substitute screen) or on
any Alternate Source, or if there shall at any time, for any reason, no longer
exist a Bloomberg Screen BTMM (or any substitute screen) or any Alternate
Source, a comparable replacement rate determined by the PNC at such time (which
determination shall be conclusive absent manifest error); provided however, that
if such day is not a Business Day, the Federal Funds Open Rate for such day
shall be the “open” rate on the immediately preceding Business Day. If and when
the Federal Funds Open Rate changes, the rate of interest with respect to any
advance to which the Federal Funds Open Rate applies will change automatically
without notice to the Borrowers, effective on the date of any such change.

“Fee Letter” shall mean that certain Fee Letter, dated the date hereof, among
Agent and the Borrowers, as the same may be amended, restated, supplemented or
modified from time to time.

“Fixed Charge Coverage Ratio” shall mean and include, with respect to any fiscal
period, the ratio of (a) EBITDA of Holdings and its Subsidiaries on a
consolidated basis, minus Unfinanced Capital Expenditures made during such
period, minus cash taxes paid during such period, minus all cash distributions
and cash dividends made during such period to (b) all Senior Debt Payments plus
all Convertible Senior Debt Payments made in cash during such period.

“Foreign Subsidiary” of any Person, shall mean any Subsidiary of such Person
that is not organized or incorporated in the United States or any State or
territory thereof.

“Formula Amount” shall have the meaning set forth in Section 2.1(a).

“GAAP” shall mean accounting principles generally accepted in the United States
of America in effect from time to time.

“General Intangibles” shall mean and include as to each Borrower, all of such
Borrower’s general intangibles, whether now owned or hereafter acquired,
including all payment intangibles, all choses in action, causes of action,
corporate or other business records, inventions, designs, patents, patent
applications, equipment formulations, manufacturing procedures, quality control
procedures, trade names, trademarks, trademark applications, service marks,
trade secrets, goodwill, copyrights, design rights, software, computer
information, source codes, codes, records and updates, registrations, licenses,
franchises, customer lists, tax refunds, tax refund claims, computer programs,
all claims under guaranties, security interests or other security held by or
granted to a Borrower to secure payment of any of the Receivables by a Customer
(other than to the extent covered by Receivables) all rights of indemnification
and all other intangible property of every kind and nature (other than
Receivables).

“Governmental Acts” shall have the meaning set forth in Section 2.17(a).

 

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“Governmental Body” shall mean any nation or government, any state or other
political subdivision thereof or any entity, authority, agency, division or
department exercising the legislative, judicial, regulatory or administrative
functions of or pertaining to a government.

“Gross-Up Payment” shall have the meaning set forth in Section 3.10 hereof.

“Guarantor” shall mean each Subsidiary (other than Foreign Subsidiaries or the
Inactive Subsidiaries) of Holdings that is not a “Borrower” hereunder and any
other Person who may hereafter guarantee payment or performance of the whole or
any part of the Obligations; and “Guarantors” means collectively all such
Persons.

“Guarantor Security Agreement” shall mean any security agreement executed by any
Guarantor in favor of Agent securing the Guaranty of such Guarantor, in form and
substance satisfactory to Agent.

“Guaranty” shall mean any guaranty of the Obligations executed by a Guarantor in
favor of Agent for its benefit and for the ratable benefit of the Lenders, in
form and substance satisfactory to Agent.

“Hazardous Discharge” shall have the meaning set forth in Section 4.19(d)
hereof.

“Hazardous Substance” shall mean, without limitation, any flammable explosives,
radon, radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous
materials, Hazardous Wastes, hazardous or Toxic Substances or related materials
as defined in CERCLA, the Hazardous Materials Transportation Act, as amended (49
U.S.C. Sections 1801, et seq.), RCRA, Articles 15 and 27 of the New York State
Environmental Conservation Law or any other applicable Environmental Law and in
the regulations adopted pursuant thereto.

“Hazardous Wastes” shall mean all waste materials subject to regulation under
CERCLA, RCRA or applicable state law, and any other applicable Federal and state
laws now in force or hereafter enacted relating to hazardous waste disposal.

“Hedge Liabilities” shall have the meaning provided in the definition of
“Lender-Provided Interest Rate Hedge”.

“Holdings” shall have the meaning set forth in the introductory paragraph
hereto.

“ISP98 Rules” shall have the meaning set forth in Section 2.10(b).

“Inactive Subsidiaries” shall mean collectively, Flotek Ecuador Management, LLC,
a Texas limited liability company, Flotek Ecuador Investments, LLC, a Texas
limited liability company, and FlotekChemical Ecuador CIA, LTDA.

“Indebtedness” of a Person at a particular date shall mean all obligations of
such Person which in accordance with GAAP would be classified upon a balance
sheet as liabilities (except capital stock and surplus earned or otherwise) and
in any event, without limitation by reason of enumeration, shall include all
indebtedness, debt and other similar monetary obligations of such

 

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Person whether direct or guaranteed, and all premiums, if any, due at the
required prepayment dates of such indebtedness, and all indebtedness secured by
a Lien on assets owned by such Person, whether or not such indebtedness actually
shall have been created, assumed or incurred by such Person. Any indebtedness of
such Person resulting from the acquisition by such Person of any assets subject
to any Lien shall be deemed, for the purposes hereof, to be the equivalent of
the creation, assumption and incurring of the indebtedness secured thereby,
whether or not actually so created, assumed or incurred.

“Ineligible Security” shall mean any security which may not be underwritten or
dealt in by member banks of the Federal Reserve System under Section 16 of the
Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended.

“Intellectual Property” shall mean property constituting under any Applicable
Law a patent, patent application, copyright, trademark, service mark, trade
name, mask work, trade secret or license or other right to use any of the
foregoing.

“Intellectual Property Claim” shall mean the assertion by any Person of a claim
(whether asserted in writing, by action, suit or proceeding or otherwise) that
any Borrower’s ownership, use, marketing, sale or distribution of any Inventory,
Equipment, Intellectual Property or other property or asset is violative of any
ownership of or right to use any Intellectual Property of such Person.

“Intellectual Property Security Agreement” shall mean that certain Intellectual
Property Security Agreement, dated as of the Closing Date between Borrowers and
Agent, the terms and conditions of which shall be satisfactory to Agent in its
sole discretion.

“Intercreditor Agreement” shall mean that certain Lien Subordination and
Intercreditor Agreement by and among Borrowers, Agent and the Convertible Senior
Agents, which shall be in form and substance satisfactory to Agent in its sole
discretion.

“Interest Period” shall mean the period provided for any Eurodollar Rate Loan
pursuant to Section 2.2(b).

“Interest Rate Hedge” shall mean an interest rate exchange, collar, cap, swap,
adjustable strike cap, adjustable strike corridor or similar agreements entered
into by any Credit Party in order to provide protection to, or minimize the
impact upon, any Credit Party and/or their respective Subsidiaries of increasing
floating rates of interest applicable to Indebtedness.

“Inventory” shall mean and include as to each Borrower, all of such Borrower’s
now owned or hereafter acquired goods, merchandise and other personal property,
wherever located, to be furnished under any consignment arrangement, contract of
service or held for sale or lease, all raw materials, work in process, finished
goods and materials and supplies of any kind, nature or description which are or
might be used or consumed in such Borrower’s business or used in selling or
furnishing such goods, merchandise and other personal property, and all
documents of title or other documents representing them.

“Inventory Advance Rate” shall have the meaning set forth in
Section 2.1(a)(y)(ii) hereof.

 

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“Investment Property” shall mean and include as to each Borrower, all of such
Borrower’s now owned or hereafter acquired securities (whether certificated or
uncertificated), securities entitlements, securities accounts, commodities
contracts and commodities accounts.

“Issuer” shall mean any Person who issues a Letter of Credit and/or accepts a
draft pursuant to the terms hereof.

“Lender” and “Lenders” shall have the meaning ascribed to such term in the
preamble to this Agreement and shall include each Person which becomes a
transferee, successor or assign of any Lender pursuant to Section 16.3(c).

“Lender Default” shall have the meaning set forth in Section 2.23(a).

“Lender-Provided Interest Rate Hedge” shall mean an Interest Rate Hedge which is
provided by any Lender and with respect to which the Agent confirms meets the
following requirements: such Interest Rate Hedge (i) is documented in a standard
International Swap Dealer Association Master Agreement, (ii) provides for the
method of calculating the reimbursable amount of the provider’s credit exposure
thereunder in a reasonable and customary manner, and (iii) is entered into for
hedging (rather than speculative) purposes. The liabilities of the Borrower to
the provider of any Lender-Provided Interest Rate Hedge (the “Hedge
Liabilities”) shall be “Obligations” hereunder, guaranteed obligations under any
Guaranty and secured obligations under any Guarantor Security Agreement and
otherwise treated as Obligations for purposes of each of the Other Documents.
The Liens securing the Hedge Liabilities shall be pari passu with the Liens
securing all other Obligations under this Agreement and the Other Documents.

“Letter of Credit Application” shall have the meaning set forth in
Section 2.10(a).

“Letter of Credit Fees” shall have the meaning set forth in Section 3.2.

“Letter of Credit Borrowing” shall have the meaning set forth in
Section 2.12(d).

“Letter of Credit Sublimit” shall mean $5,000,000.

“Letters of Credit” shall have the meaning set forth in Section 2.9.

“License Agreement” shall mean any agreement between any Borrower and a Licensor
pursuant to which such Borrower is authorized to use any Intellectual Property
in connection with the manufacturing, marketing, sale or other distribution of
any Inventory of such Borrower or otherwise in connection with such Borrower’s
business operations.

“Licensor” shall mean any Person from whom any Borrower obtains the right to use
(whether on an exclusive or non-exclusive basis) any Intellectual Property in
connection with such Borrower’s manufacture, marketing, sale or other
distribution of any Inventory or otherwise in connection with such Borrower’s
business operations.

 

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“Licensor/Agent Agreement” shall mean an agreement between Agent and a Licensor,
in form and content satisfactory to Agent, by which Agent is given the
unqualified right, vis-a-vis such Licensor, to enforce Agent’s Liens with
respect to and to dispose of any Borrower’s Inventory with the benefit of any
Intellectual Property applicable thereto, irrespective of such Borrower’s
default under any License Agreement with such Licensor.

“Lien” shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, security interest, lien (whether statutory or otherwise), Charge,
claim or encumbrance, or preference, priority or other security agreement or
preferential arrangement held or asserted in respect of any asset of any kind or
nature whatsoever including any conditional sale or other title retention
agreement, any lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
under the Uniform Commercial Code or comparable law of any jurisdiction.

“Lien Waiver Agreement” shall mean an agreement which is executed in favor of
Agent by a Person who owns or occupies premises at which any Collateral may be
located from time to time and by which such Person shall waive any Lien (or
subordinate its Liens to the Liens in favor of Agent (for the benefit of the
Lenders) created by this Agreement and the Other Documents) that such Person may
ever have with respect to any of the Collateral and shall authorize Agent from
time to time to enter upon the premises, or otherwise have access, to inspect or
remove the Collateral from such premises or to use such premises to store or
dispose of such Inventory and which agreement shall be in form and substance
satisfactory to Agent in its sole discretion.

“Material Adverse Effect” shall mean a material adverse effect on (a) the
financial condition, results of operations, assets, business or properties of
the Credit Parties, taken as a whole, (b) the Borrowers’ (taken as a whole)
ability to duly and punctually pay or perform the Obligations in accordance with
the terms thereof, (c) the value of the Collateral, or Agent’s Liens on the
Collateral or the priority of any such Lien or (d) the practical realization of
the benefits of Agent’s and each Lender’s rights and remedies under this
Agreement and the Other Documents.

“Material Contract” shall mean any agreement, document, instrument, contract or
other arrangement to which Holdings or any of its Subsidiaries is a party (other
than this Agreement and the Other Documents) concerning an amount in excess of
$1,000,000 for which the nonperformance, cancellation or failure to renew could
reasonably be expected to have a Material Adverse Effect, together with those
agreements and arrangements listed on Schedule 5.13 (if any), as each is
amended, restated, supplemented, renewed, replaced or otherwise modified from
time to time to the extent permitted by this Agreement.

“Maximum Face Amount” shall mean, with respect to any outstanding Letter of
Credit, the face amount of such Letter of Credit including all automatic
increases provided for in such Letter of Credit, whether or not any such
automatic increase has become effective.

“Maximum Revolving Advance Amount” shall mean $35,000,000.

“Maximum Undrawn Amount” shall mean with respect to any outstanding Letter of
Credit, the amount of such Letter of Credit that is or may become available to
be drawn, including all automatic increases provided for in such Letter of
Credit, whether or not any such automatic increase has become effective.

 

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“Modified Commitment Transfer Supplement” shall have the meaning set forth in
Section 16.3(d).

“MTI” shall have the meaning set forth in the introductory paragraph hereto.

“Multiemployer Plan” shall mean a “multiemployer plan” as defined in
Sections 3(37) and 4001(a)(3) of ERISA.

“Multiple Employer Plan” shall mean a Plan which has two or more contributing
sponsors (including any Borrower or any member of the Controlled Group) at least
two of whom are not under common control, as such a plan is described in
Section 4064 of ERISA.

“NOLV Appraisal” shall have the meaning set forth in Section 9.17.

“Negative Pledge” shall mean collectively, those certain Negative Pledge
Agreements, in each case, dated as of the Closing Date, between the Credit
Parties named therein and Agent, in recordable form and otherwise in form and
substance satisfactory to Agent.

“Non-Defaulting Lender” shall have the meaning set forth in Section 2.23(b).

“Obligations” shall mean and include any and all loans, advances, debts,
liabilities, including, the liabilities of any Borrower to the provider of any
Lender-Provided Interest Rate Hedge, obligations, covenants and duties owing by
any Borrower to Lenders or Agent or to any other direct or indirect subsidiary
or affiliate of Agent or any Lender of any kind or nature, present or future
(including any interest or other amounts accruing thereon after maturity, or
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding relating to any Borrower, whether
or not a claim for post-filing or post-petition interest or other amounts is
allowed in such proceeding), whether or not evidenced by any note, guaranty or
other instrument, whether arising under any agreement, instrument or document,
(including this Agreement and the Other Documents) whether or not for the
payment of money, whether arising by reason of an extension of credit, opening
of a letter of credit, loan, equipment lease or guarantee, under any interest or
currency swap, future, option or other similar agreement, or in any other
manner, whether arising out of overdrafts or deposit or other accounts or
electronic funds transfers (whether through automated clearing houses or
otherwise) or out of the Agent’s or any Lenders non-receipt of or inability to
collect funds or otherwise not being made whole in connection with depository
transfer check or other similar arrangements, whether direct or indirect
(including those acquired by assignment or participation), absolute or
contingent, joint or several, due or to become due, now existing or hereafter
arising, contractual or tortious, liquidated or unliquidated, regardless of how
such indebtedness or liabilities arise or by what agreement or instrument they
may be evidenced or whether evidenced by any agreement or instrument, including,
but not limited to, any and all of each Borrower’s Indebtedness and/or
liabilities under this Agreement, the Other Documents or under any other
agreement between Agent or Lenders and a Borrower and any amendments,
extensions, renewals or increases and all costs and expenses of Agent and any
Lender incurred in the documentation, negotiation, modification, enforcement,
collection or otherwise in connection with any of the foregoing, including but
not limited to reasonable attorneys’ fees and expenses and all obligations of
any Borrower to Agent or Lenders to perform acts or refrain from taking any
action.

 

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“Order” shall have the meaning set forth in Section 2.18.

“Organizational Documents” means (i) with respect to any corporation, its
certificate or articles of incorporation or organization, as amended, and its
by-laws, as amended, (ii) with respect to any limited partnership, its
certificate of limited partnership, as amended, and its partnership agreement,
as amended, (iii) with respect to any general partnership, its partnership
agreement, as amended, and (iv) with respect to any limited liability company,
its articles of organization, as amended, and its operating agreement, as
amended. In the event any term or condition of this Agreement or any Other
Document requires any Organizational Document to be certified by a secretary of
state or similar governmental official, the reference to any such
“Organizational Document” shall only be to a document of a type customarily
certified by such governmental official.

“Ordinary Course of Business” shall mean, with respect to any Borrower, the
ordinary course of such Borrower’s business as conducted on the Closing Date.

“Other Documents” shall mean, collectively, each Negative Pledge, the Revolving
Credit Note, the Fee Letter, the Questionnaire, any Collateral Assignment of
Acquisition Agreement, the Pledge Agreements, the Intellectual Property Security
Agreement, any Guaranty, any Guarantor Security Agreement, any Lender-Provided
Interest Rate Hedge, the Intercreditor Agreement, any lien subordination
agreements, and any and all other agreements, instruments and documents,
including guaranties, pledges, powers of attorney, consents, interest or
currency swap agreements or other similar agreements and all other writings
heretofore, now or hereafter executed by any Credit Party and/or delivered to
Agent or any Lender in respect of the transactions contemplated by this
Agreement (and shall include any amendment, restatement, renewal, supplement,
ratification, confirmation, reaffirmation or other modification of any of the
foregoing).

“Out-of-Formula Loans” shall have the meaning set forth in Section 16.2(c).

“Parent” of any Person shall mean a corporation or other entity owning, directly
or indirectly at least fifty percent (50%) of the shares of stock or other
ownership interests having ordinary voting power to elect a majority of the
members of the board of directors of the Person, or any other similar governing
body of such Person.

“Participant” shall mean each Person who, pursuant to Section 16.3(b) shall be
granted the right by any Lender to participate in any of the Advances and who
shall have entered into a participation agreement in form and substance
satisfactory to such Lender.

“Participation Advance” shall have the meaning set forth in Section 2.12(d).

“Participation Commitment” shall mean each Lender’s obligation to buy a
participation of the Letters of Credit issued hereunder.

“Payee” shall have the meaning set forth in Section 3.10.

 

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“Payment Office” shall mean initially Two Tower Center Boulevard, East
Brunswick, New Jersey 08816; thereafter, such other office of Agent, if any,
which it may designate by notice to Borrowing Agent and to each Lender to be the
Payment Office.

“PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA or any successor.

“Pension Benefit Plan” shall mean at any time any employee pension benefit plan
(including a Multiple Employer Plan, but not a Multiemployer Plan) which is
covered by Title IV of ERISA or is subject to the minimum funding standards
under Section 412 of the Code and either (i) is maintained by any member of the
Controlled Group for employees of any member of the Controlled Group; or
(ii) has at any time within the preceding five years been maintained by any
entity which was at such time a member of the Controlled Group for employees of
any entity which was at such time a member of the Controlled Group.

“Permitted Acquisition” shall mean any acquisition by any Borrower, whether by
purchase, merger or otherwise, of all or substantially all of the assets of, all
of the Equity Interests of, or a business line or unit or a division of, any
Person. Any such acquisition must meet, at a minimum, the following conditions
(unless waived in writing by Agent):

(a) Agent shall have received at least thirty (30) Business Days’ prior written
notice of such proposed acquisition, which notice shall include a reasonably
detailed description of such proposed acquisition;

(b) all transactions in connection therewith shall be consummated in accordance
with all Applicable Laws and in conformity with all applicable Governmental
Acts;

(c) immediately prior to, and after giving effect thereto, no Default or Event
of Default shall have occurred and be continuing or would result therefrom;

(d) the business and assets acquired by such Borrower, or in the case of a joint
venture, formed, in such acquisition shall be clear and free of all Liens (other
than Permitted Encumbrances);

(e) any Person or assets or division as acquired in accordance herewith shall be
in same business or lines of business in which Borrowers are engaged as of the
Closing Date or businesses or lines of business that are reasonably related or
incidental thereto;

(f) the acquisition shall have been approved by the board of directors or other
governing body or controlling Person of the Person acquired or the Person from
whom such assets or division is acquired;

(g) in the case of a merger or consolidated, the applicable Borrower shall be
the continuing and surviving entity;

(h) at or prior to the closing of such acquisition, Agent shall be granted a
first priority perfected Lien (subject to Permitted Encumbrances) in the assets
and Equity Interests of such acquisition target or newly formed Subsidiary of
the applicable Borrower in connection with such acquisition and such acquisition
target or newly formed Subsidiary shall become a Borrower hereunder or a
Guarantor (to be determined by Agent in its sole discretion), in each case,
pursuant to Section 7.12;

 

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(i) immediately prior to, and after giving effect thereto, Holdings and its
Subsidiaries on a consolidated basis shall be in pro forma compliance with the
financial covenants set forth in Section 6.5 of this Agreement;

(j) concurrently with the delivery of the notice referred to in clause
(a) above, Borrowing Agent shall have delivered to Agent, in form and substance
satisfactory to Agent in its sole discretion:

(i) a pro forma consolidated balance sheet, income statement and cash flow
statement of Holdings and its Subsidiaries on a consolidated basis (the
“Permitted Acquisition Pro Forma”), based on recent financial statements, which
shall be complete and shall fairly present in all material respects the assets,
liabilities, financial condition and results of operations of Holdings and its
Subsidiaries in accordance with GAAP consistently applied, but taking into
account such Permitted Acquisition, and such Permitted Acquisition Pro Forma
shall reflect that (y) on a pro forma basis, Holdings and its Subsidiaries would
have complied with all financial covenants set forth in Section 6.5 of this
Agreement (after giving effect to such Permitted Acquisition and all Revolving
Advances funded in connection therewith as if made on the first day of such
period), and (z) on a pro forma basis, no Default or Event of Default has
occurred and is continuing or would result after giving effect to such proposed
Acquisition; and

(ii) a certificate of an Authorized Officer of Holdings to the effect that
Holdings and its Subsidiaries on a consolidated basis will be solvent upon the
consummation of the proposed acquisition;

(k) on or prior to the date of such proposed acquisition, Agent shall have
received, in form and substance reasonably satisfactory to Agent, copies of the
acquisition agreement and related agreements and instruments, and all opinions,
certificates, lien search results and other documents reasonably requested by
Agent;

(l) after giving effect to such acquisition, Borrowers shall have an Undrawn
Availability of at least $10,000,000 (as evidenced by a Borrowing Base
Certificate and any supplemental schedules, in form and substance satisfactory
to Agent, calculated as of the date of such acquisition); and

(m) the aggregate consideration (including the amount of any liabilities assumed
by Holdings and/or its Subsidiaries), paid by Holdings and/or its Subsidiaries
(i) for any such acquisition shall not exceed $5,000,000 and (ii) for all such
acquisitions made during the term of this Agreement shall not exceed
$15,000,000.

“Permitted Acquisition Pro Forma” shall have the meaning provided in the
definition of “Permitted Acquisition”.

 

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“Permitted Discretion” shall mean, with respect to any Person, a determination
or judgment made by such Person in the exercise of reasonable (in the business
of secured asset- based lending) credit or business judgment and in good faith.

“Permitted Encumbrances” shall mean:

(a) Liens in favor of Agent for the benefit of Agent and Lenders;

(b) Liens for taxes, assessments or other governmental charges not delinquent or
being Properly Contested;

(c) Liens disclosed in the financial statements referred to in Section 5.5, the
existence of which Agent has consented to in writing;

(d) deposits or pledges to secure obligations under worker’s compensation,
social security or similar laws, or under unemployment insurance;

(e) deposits or pledges to secure bids, tenders, contracts (other than contracts
for the payment of money), leases, statutory obligations, surety and appeal
bonds and other obligations of like nature arising in the Ordinary Course of
Business;

(f) Liens arising by virtue of the rendition, entry or issuance against any
Borrower or any Subsidiary, or any property of Borrower or any Subsidiary, of
any judgment, writ, order, or decree for so long as each such Lien (x) is in
existence for less than twenty (20) consecutive days after it first arises or is
being Properly Contested and (y) is at all times junior in priority to any Liens
in favor of Agent;

(g) mechanics’, workers’, materialmen’s or other like Liens arising in the
Ordinary Course of Business with respect to obligations which are not due or
which are being Properly Contested;

(h) Liens placed upon fixed assets hereafter acquired to secure a portion of the
purchase price thereof, provided that (x) any such lien shall not encumber any
other property of any Borrower and (y) the aggregate amount of Indebtedness
secured by such Liens incurred as a result of such purchases during any fiscal
year shall not exceed the amount provided for in Section 7.6;

(i) other Liens incidental to the conduct of any Borrower’s business or the
ownership of its property and assets which were not incurred in connection with
the borrowing of money or the obtaining of advances or credit, and which do not
in the aggregate materially detract from Agent’s or Lenders’ rights in and to
the Collateral or the value of any Borrower’s property or assets or which do not
materially impair the use thereof in the operation of any Borrower’s business;

(j) Liens disclosed on Schedule 1.2; provided that, such Liens shall secure only
those obligations which they secure on the Closing Date and shall not
subsequently apply to any other property or assets of any Borrower; and

 

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(k) Liens securing the 2010 Notes, provided that, the Intercreditor Agreement is
in full force and effect and has not been breached or repudiated by the
Convertible Senior Agents or any Convertible Senior Lender.

“Permitted Investors” means all of the following, without duplication: (i) the
members of management of the Borrowers on the Closing Date, and (ii) the holders
of the Equity Interests of Borrowers as of the Closing Date.

“Person” shall mean any individual, sole proprietorship, partnership,
corporation, business trust, joint stock company, trust, unincorporated
organization, association, limited liability company, limited liability
partnership, institution, public benefit corporation, joint venture, entity or
Governmental Body (whether federal, state, county, city, municipal or otherwise,
including any instrumentality, division, agency, body or department thereof).

“Petrovalve Delaware” shall mean Petrovalve, Inc., a Delaware corporation.

“Plan” shall mean any employee benefit plan within the meaning of Section 3(3)
of ERISA (including a Pension Benefit Plan), maintained for employees of any
Borrower or any member of the Controlled Group or any such Plan to which any
Borrower or any member of the Controlled Group is required to contribute on
behalf of any of its employees.

“Pledge Agreements” shall mean collectively (i) that certain Pledge Agreement
entered into by Holdings on or about the Closing Date in favor of Agent with
respect to the Equity Interests issued by its Subsidiaries, (ii) that certain
Pledge Agreement entered into by CESI Chemical in favor of Agent with respect to
the Equity Interests issued by its Subsidiaries, (iii) that certain Pledge
Agreement entered into by Flotek International in favor of Agent with respect to
the Equity Interests issued by its Subsidiaries, (iv) that certain Pledge
Agreement entered into by Petrovalve Delaware on or about the Closing Date in
favor of Agent with respect to the Equity Interests in its Subsidiaries,
(v) that certain Pledge Agreement entered into by CESI Manufacturing on or about
the Closing Date in favor of Agent with respect to the Equity Interests in
Sooner Energy, and (vi) any other pledge agreement executed in favor of Agent
after the Closing Date, in each case, in form and substance satisfactory to
Agent in its sole discretion.

“PNC” shall have the meaning set forth in the preamble to this Agreement and
shall extend to all of its successors and assigns.

“Pro Forma Balance Sheet” shall have the meaning set forth in Section 5.5(a)
hereof.

“Pro Forma Financial Statements” shall have the meaning set forth in
Section 5.5(b) hereof.

“Properly Contested” shall mean, in the case of any Indebtedness or Lien, as
applicable, of any Person (including any taxes) that is not paid as and when due
or payable by reason of such Person’s bona fide dispute concerning its liability
to pay same or concerning the amount thereof,

 

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(i) such Indebtedness or Lien, as applicable, is being properly contested in
good faith by appropriate proceedings promptly instituted and diligently
conducted; (ii) such Person has established appropriate reserves as shall be
required in conformity with GAAP; (iii) the non-payment of such Indebtedness
will not have a Material Adverse Effect and will not result in the forfeiture of
any assets of such Person; (iv) no Lien is imposed upon any of such Person’s
assets with respect to such Indebtedness unless such Lien is at all times junior
and subordinate in priority to the Liens in favor of the Agent (except only with
respect to property taxes that have priority as a matter of applicable state
law) and enforcement of such Lien is stayed during the period prior to the final
resolution or disposition of such dispute; (v) if such Indebtedness or Lien, as
applicable, results from, or is determined by the entry, rendition or issuance
against a Person or any of its assets of a judgment, writ, order or decree,
enforcement of such judgment, writ, order or decree is stayed pending a timely
appeal or other judicial review; and (vi) if such contest is abandoned, settled
or determined adversely (in whole or in part) to such Person, such Person
forthwith pays such Indebtedness and all penalties, interest and other amounts
due in connection therewith.

“Projections” shall have the meaning set forth in Section 5.5(b) hereof.

“Purchasing CLO” shall have the meaning set forth in Section 16.3(d) hereof.

“Purchasing Lender” shall have the meaning set forth in Section 16.3(c) hereof.

“Questionnaire” shall mean that certain Questionnaire and Perfection Certificate
and the responses thereto provided by Borrowing Agent on behalf of the Credit
Parties and delivered to Agent, and all amendments, supplements and
modifications to the foregoing.

“RCRA” shall mean the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901
et seq., as same may be amended from time to time.

“Real Property” shall mean collectively, each of the owned and leased premises
identified on Schedule 4.19 hereto or which is hereafter owned or leased by any
Credit Party.

“Receivables” shall mean and include, as to any Borrower, all of such Borrower’s
accounts, contract rights, instruments (including those evidencing indebtedness
owed to a Borrower by its Affiliates), documents, chattel paper (including
electronic chattel paper), general intangibles relating to accounts, drafts and
acceptances, credit card receivables and all other forms of obligations owing to
such Borrower arising out of or in connection with the sale or lease of
Inventory or the rendition of services, all supporting obligations, guarantees
and other security therefor, whether secured or unsecured, now existing or
hereafter created, and whether or not specifically sold or assigned to Agent
hereunder.

“Receivables Advance Rate” shall have the meaning set forth in
Section 2.1(a)(y)(i) hereof.

“Register” shall have the meaning set forth in Section 16.3(e).

“Regulations” shall have the meaning set forth in Section 3.11(a).

 

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“Reimbursement Obligation” shall have the meaning set forth in Section 2.12(b)
hereof.

“Release” shall have the meaning set forth in Section 5.7(c)(i) hereof.

“Rental Fleet Tools” shall mean Inventory owned by a Borrower which is held for
rental to Customers. Any stabilizers, reamers, wipers, jars, shock subs,
wireless survey “measurement whole drilling” tools and mud motors shall
constitute “Rental Fleet Tools” unless Borrowers establish their respective
status as Eligible Inventory to the satisfaction of Agent in its Permitted
Discretion.

“Reportable Event” shall mean a reportable event described in Section 4043(c) of
ERISA or the regulations promulgated thereunder.

“Required Lenders” shall mean Lenders holding at least fifty-one percent
(51%) of the Advances and, if no Advances are outstanding, shall mean Lenders
holding at least fifty-one percent (51%) of the Commitment Percentages;
provided, however, if there are fewer than three (3) Lenders, Required Lenders
shall mean all Lenders.

“Reserve Percentage” shall mean as of any day the maximum percentage in effect
on such day as prescribed by the Board of Governors of the Federal Reserve
System (or any successor) for determining the reserve requirements (including
supplemental, marginal and emergency reserve requirements) with respect to
Eurocurrency funding (currently referred to as “Eurocurrency Liabilities”.

“Revolving Advances” shall mean Advances made other than Letters of Credit.

“Revolving Credit Note” shall mean the promissory note referred to in
Section 2.1(a) hereof.

“Revolving Interest Rate” shall mean an interest rate per annum equal to (a) the
sum of the Alternate Base Rate plus one percent (1.00%) with respect to Domestic
Rate Loans and (b) the sum of the Eurodollar Rate plus two percent (2.00%) with
respect to Eurodollar Rate Loans.

“SEC” shall mean the Securities and Exchange Commission or any successor
thereto.

“Section 20 Subsidiary” shall mean the Subsidiary of the bank holding company
controlling PNC, which Subsidiary has been granted authority by the Federal
Reserve Board to underwrite and deal in certain Ineligible Securities.

“Securities Act” shall mean the Securities Act of 1933, as amended.

“Senior Debt Payments” shall mean and include all cash actually expended by any
Borrower to make (a) interest payments on any Advances hereunder, plus
(b) payments for all fees, commissions and charges set forth herein and with
respect to any Advances, plus (c) capitalized lease payments, plus (d) payments
with respect to any other Indebtedness for borrowed money (other than
Convertible Senior Debt Payments).

 

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“Settlement Date” shall mean the Closing Date and thereafter Wednesday or
Thursday of each week or more frequently if Agent deems appropriate unless such
day is not a Business Day in which case it shall be the next succeeding Business
Day.

“Sooner Energy” shall have the meaning set forth in the introductory paragraph
hereto.

“Subordination Agreement(s)” shall mean (a) any agreement among any Borrower, a
subordinating creditor of such Borrower and Agent, on behalf other Lenders,
pursuant to which, among other things, the Indebtedness owing and/or any Lien
granted to such subordinated creditor is subordinated to the prior payment and
satisfaction of the Obligations and Loan of Agent and (b) any note, indenture,
note purchase agreement or similar instrument or agreement, pursuant to which
the Indebtedness evidenced thereby or issued thereunder is subordinated to the
Obligations by the express terms of such note, indenture, note purchase
agreement or similar instrument or agreement, in each case, in form and
substance satisfactory to Agent in its sole discretion.

“Subsidiary” of any Person shall mean a corporation or other entity, the Equity
Interests of which, having ordinary voting power (other than Equity Interests
having such power only by reason of the happening of a contingency) to elect a
majority of the members of the board of directors (or other body performing
similar functions) of such entity are owned, directly or indirectly, by such
Person. References to Subsidiaries of any Borrower in the provisions of this
Agreement shall not be construed to imply any consent by Agent or Lenders to the
formation or acquisition of any such Subsidiaries other than as expressly
permitted hereunder.

“Subsidiary Stock” shall mean all of the issued and outstanding Equity Interests
of any Subsidiary owned by any Borrower (not to exceed 65% of the Equity
Interests with voting rights of any Foreign Subsidiary).

“Teledrift” shall have the meaning set forth in the introductory paragraph
hereto.

“Term” shall have the meaning set forth in Section 13.1 hereof.

“Termination Event” shall mean (i) a Reportable Event with respect to any Plan
or Multiemployer Plan; (ii) the withdrawal of Borrower or any member of the
Controlled Group from a Plan or Multiemployer Plan during a plan year in which
such entity was a “substantial employer” as defined in Section 4001(a)(2) of
ERISA; (iii) the providing of notice of intent to terminate a Plan in a distress
termination described in Section 4041(c) of ERISA; (iv) the institution by the
PBGC of proceedings to terminate a Plan or Multiemployer Plan; (v) any event or
condition (a) which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan or
Multiemployer Plan, or (b) that may result in termination of a Multiemployer
Plan pursuant to Section 4041A of ERISA; or (vi) the partial or complete
withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of any
Borrower or any member of the Controlled Group from a Multiemployer Plan.

“Toxic Substance” shall mean and include any material present on the Real
Property which has been shown to have significant adverse effect on human health
or which is subject to regulation under the Toxic Substances Control Act (TSCA),
15 U.S.C. §§ 2601 et seq., applicable state law, or any other applicable Federal
or state laws now in force or hereafter enacted relating to toxic substances.
“Toxic Substance” includes but is not limited to asbestos, polychlorinated
biphenyls (PCBs) and lead-based paints.

 

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“Trading with the Enemy Act” shall mean the foreign assets control regulations
of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as
amended) and any enabling legislation or executive order relating thereto.

“Transactions” shall have the meaning set forth in Section 5.5(a) hereof.

“Transferee” shall have the meaning set forth in Section 16.3(d) hereof.

“Trigger Period” shall mean the period commencing on the day that a Default or
an Event of Default occurs or Borrowers’ Average Undrawn Availability has been
less than $7,500,000 (as evidenced by a Borrowing Base Certificate and any
supporting schedules, in form and substance satisfactory to Agent, calculated as
of the last day of such of such calendar month).

“Turbeco” shall have the meaning set forth in the introductory paragraph hereto.

“UCP” shall have the meaning set forth in Section 2.10(b).

“Undrawn Availability” at a particular date shall mean an amount equal to
(a) the lesser of (i) the Formula Amount or (ii) the Maximum Revolving Advance
Amount, minus the amount of reserves (if any) established in accordance with
section 2.1(a)(y)(iv), minus (b) the sum of (i) the outstanding amount of
Advances plus (ii) all amounts due and owing to any Borrower’s trade creditors
which are sixty (60) days or more past due, plus (iii) fees and expenses for
which Borrowers are liable but which have not been paid or charged to Borrowers’
Account, plus (iv) all other past due Indebtedness (excluding trade payables)
included in the calculation of clause (iii) above.

“Unfinanced Capital Expenditures” shall mean all Capital Expenditures of
Borrower other than those made utilizing financing provided by the applicable
seller or third party lenders. For the avoidance of doubt, Capital Expenditures
made by a Borrower utilizing Revolving Advances shall be deemed Unfinanced
Capital Expenditures.

“Uniform Commercial Code” shall have the meaning set forth in Section 1.3
hereof.

“USA PATRIOT Act” shall mean the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001,
Public Law 107-56, as the same has been, or shall hereafter be, renewed,
extended, amended or replaced.

“USA Petrovalve” shall have the meaning set forth in the introductory paragraph
hereto.

“Week” shall mean the time period commencing with the opening of business on a
Wednesday and ending on the end of business the following Tuesday.

 

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1.3 Uniform Commercial Code Terms. All terms used herein and defined in the
Uniform Commercial Code as adopted in the State of Texas from time to time (the
“Uniform Commercial Code”) shall have the meaning given therein unless otherwise
defined herein. Without limiting the foregoing, the terms “accounts”, “chattel
paper”, “commercial tort claims”, “instruments”, “general intangibles”, “goods”,
“payment intangibles”, “proceeds”, “supporting obligations”, “securities”,
“investment property”, “documents”, “deposit accounts”, “software”, “letter of
credit rights”, “inventory”, “equipment” and “fixtures”, as and when used in the
description of Collateral shall have the meanings given to such terms in
Articles 8 or 9 of the Uniform Commercial Code. To the extent the definition of
any category or type of collateral is expanded by any amendment, modification or
revision to the Uniform Commercial Code, such expanded definition will apply
automatically as of the date of such amendment, modification or revision.

1.4 Certain Matters of Construction. The terms “herein”, “hereof” and
“hereunder” and other words of similar import refer to this Agreement as a whole
and not to any particular section, paragraph or subdivision. All references
herein to Articles, Sections, Exhibits and Schedules shall be construed to refer
to Articles and Sections of, and Exhibits and Schedules to, this Agreement. Any
pronoun used shall be deemed to cover all genders. Wherever appropriate in the
context, terms used herein in the singular also include the plural and vice
versa. All references to statutes and related regulations shall include any
amendments of same and any successor statutes and regulations. Unless otherwise
provided, all references to any instruments or agreements to which Agent is a
party, including references to any of the Other Documents, shall include any and
all modifications or amendments thereto and any and all extensions or renewals
thereof. All references herein to the time of day shall mean the time in New
York, New York, unless expressly indicated otherwise. Unless otherwise provided,
all financial calculations shall be performed with Inventory valued on a
first-in, first-out basis. Whenever the words “including” or “include” shall be
used, such words shall be understood to mean “including, without limitation” or
“include, without limitation”. A Default or Event of Default shall be deemed to
exist at all times during the period commencing on the date that such Default or
Event of Default occurs to the date on which such Default or Event of Default is
waived in writing pursuant to this Agreement or, in the case of a Default, is
cured within any period of cure expressly provided for in this Agreement; and an
Event of Default shall “continue” or be “continuing” until such Event of Default
has been waived in writing by the Required Lenders. Any Lien referred to in this
Agreement or any of the Other Documents as having been created in favor of
Agent, any agreement entered into by Agent pursuant to this Agreement or any of
the Other Documents, any payment made by or to or funds received by Agent
pursuant to or as contemplated by this Agreement or any of the Other Documents,
or any act taken or omitted to be taken by Agent, shall, unless otherwise
expressly provided, be created, entered into, made or received, or taken or
omitted, for the benefit or account of Agent and Lenders. Wherever the phrase
“to the best of Borrowers’ knowledge” or words of similar import relating to the
knowledge or the awareness of any Borrower are used in this Agreement or Other
Documents, such phrase shall mean and refer to (i) the actual knowledge of an
Authorized Officer of any Borrower or (ii) the knowledge that an Authorized
Officer would have obtained if he had engaged in good faith and diligent
performance of his duties, including the making of such reasonably specific
inquiries as may be necessary of the employees or agents of such Borrower and a
good faith attempt to ascertain the existence or accuracy of the matter to which
such phrase relates. All covenants hereunder shall be given independent effect
so that if a particular action or condition is not permitted by any of such
covenants, the fact that it would be permitted by an exception to, or otherwise
within the limitations of, another covenant shall not avoid the occurrence of a
default if such action is taken or condition exists. In addition, all
representations

 

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and warranties hereunder shall be given independent effect so that if a
particular representation or warranty proves to be incorrect or is breached, the
fact that another representation or warranty concerning the same or similar
subject matter is correct or is not breached will not affect the incorrectness
of a breach of a representation or warranty hereunder.

 

II ADVANCES, PAYMENTS.

2.1 Revolving Advances.

(a) Amount of Revolving Advances. Subject to the terms and conditions set forth
in this Agreement including Section 2.1(b), each Lender, severally and not
jointly, will make Revolving Advances to Borrowers in aggregate amounts
outstanding at any time equal to such Lender’s Commitment Percentage of the
lesser of (x) the Maximum Revolving Advance Amount less the aggregate Maximum
Undrawn Amount of all outstanding Letters of Credit or (y) an amount equal to
the sum of:

(i) up to eighty-five percent (85%), subject to the provisions of Section 2.1(b)
hereof (“Receivables Advance Rate”), of Eligible Receivables, plus

(ii) up to the lesser of (A) seventy-percent (70%), subject to the provisions of
Section 2.1(b) hereof, of the Eligible Inventory (“Inventory Advance Rate” and
together with the Receivables Advance Rate, collectively, the “Advance Rates”),
(B) eighty-five percent (85%), subject to the provisions of Section 2.1(b)
hereof, of the value percentage of the appraised net orderly liquidation value
of Eligible Inventory (as evidenced by an Inventory appraisal satisfactory to
Agent in its sole discretion exercised in good faith) or (C) $20,000,000 in the
aggregate at any one time, minus

(iii) the aggregate Maximum Undrawn Amount of all outstanding Letters of Credit,
minus

(iv) such reserves as Agent may deem proper and necessary in the exercise of its
Permitted Discretion from time to time.

The amount derived from the sum of (x) Sections 2.1(a)(y)(i) and (ii) minus
(y) Section 2.1 (a)(y)(iv) at any time and from time to time shall be referred
to as the “Formula Amount”. Subject to the provisions of Section 2.1(b), the
Formula Amount applicable at any time shall be calculated as set forth in the
Borrowing Base Certificate delivered pursuant to Section 9.2 and approved by
Agent in its sole discretion. The Revolving Advances shall be evidenced by one
or more secured promissory notes, substantially in the form attached hereto as
Exhibit 2.1(a) (as the same may be amended, amended and restated, renewed,
replaced, supplemented and/or otherwise modified from time to time,
collectively, the “Revolving Credit Note”).

(b) Discretionary Rights. The Advance Rates may be increased or decreased by
Agent at any time and from time to time in the exercise of its Permitted
Discretion. Each Borrower consents to any such increases or decreases and
acknowledges that decreasing the Advance Rates or increasing or imposing
reserves may limit or restrict Advances requested by Borrowing Agent. At all
times prior to the occurrence and continuance of an Event of Default, the Agent
shall endeavor to give the Borrowing Agent notice of any modification of the
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Rates at least three (3) Business Days prior to the Agent’s implementation of
such modification thereof, provided, however, no Loan Party, nor any of their
respective Affiliates shall have any right of action whatsoever against Agent
for, and Agent shall not be liable for any damages resulting from, the failure
of Agent to provide the notice contemplated in this sentence. The rights of
Agent under this subsection are subject to the provisions of Section 16.2(b).

2.2 Procedure for Revolving Advances Borrowing.

(a) Borrowing Agent on behalf of any Borrower may notify Agent prior to 10:00
a.m. on a Business Day of a Borrower’s request to incur, on that day, a
Revolving Advance hereunder. Should any amount required to be paid as interest
hereunder, or as fees or other charges under this Agreement or any other
agreement with Agent or Lenders, or with respect to any other Obligation, become
due, same shall be deemed a request for a Revolving Advance maintained as a
Domestic Rate Loan as of the date such payment is due, in the amount required to
pay in full such interest, fee, charge or Obligation under this Agreement or any
other agreement with Agent or Lenders, and such request shall be irrevocable.

(b) Notwithstanding the provisions of subsection (a) above, in the event any
Borrower desires to obtain a Eurodollar Rate Loan, Borrowing Agent shall give
Agent written notice by no later than 10:00 a.m. on the day which is three
(3) Business Days prior to the date such Eurodollar Rate Loan is to be borrowed,
specifying (i) the date of the proposed borrowing (which shall be a Business
Day), (ii) the type of borrowing and the amount on the date of such Advance to
be borrowed, which amount shall be in an aggregate principal amount that is not
less than $1,000,000 and integral multiples of $500,000 in excess thereof, and
(iii) the duration of the first Interest Period therefor. Interest Periods for
Eurodollar Rate Loans shall be for one (1), two (2), or three (3) months;
provided, if an Interest Period would end on a day that is not a Business Day,
it shall end on the next succeeding Business Day unless such day falls in the
next succeeding calendar month in which case the Interest Period shall end on
the next preceding Business Day. No Eurodollar Rate Loan shall be made available
to Borrower during the continuance of a Default or an Event of Default. After
giving effect to each requested Eurodollar Rate Loan, including those which are
converted from a Domestic Rate Loan under Section 2.2(d), there shall not be
outstanding more than four (4) Eurodollar Rate Loans, in the aggregate.

(c) Each Interest Period of a Eurodollar Rate Loan shall commence on the date
such Eurodollar Rate Loan is made and shall end on such date as Borrowing Agent
may elect as set forth in subsection (b)(iii) above provided that the exact
length of each Interest Period shall be determined in accordance with the
practice of the interbank market for offshore Dollar deposits and no Interest
Period shall end after the last day of the Term.

Borrowing Agent shall elect the initial Interest Period applicable to a
Eurodollar Rate Loan by its notice of borrowing given to Agent pursuant to
Section 2.2(b) or by its notice of conversion given to Agent pursuant to
Section 2.2(d), as the case may be. Borrowing Agent shall elect the duration of
each succeeding Interest Period by giving irrevocable written notice to Agent of
such duration not later than 10:00 a.m. on the day which is three (3) Business
Days prior to the last day of the then current Interest Period applicable to
such Eurodollar Rate Loan. If Agent does not receive timely notice of the
Interest Period elected by Borrowing Agent with respect to any Eurodollar Rate
Loan, Borrowing Agent shall be deemed to have elected to convert such Eurodollar
Rate Loan to a Domestic Rate Loan subject to Section 2.2(d) hereinbelow.

 

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(d) Provided that no Default or Event of Default shall have occurred and be
continuing, Borrowing Agent may, on the last Business Day of the then current
Interest Period applicable to any outstanding Eurodollar Rate Loan, or on any
Business Day with respect to Domestic Rate Loans, convert any such loan into a
loan of another type in the same aggregate principal amount provided that any
conversion of a Eurodollar Rate Loan shall be made only on the last Business Day
of the then current Interest Period applicable to such Eurodollar Rate Loan. If
Borrowing Agent desires to convert a loan, Borrowing Agent shall give Agent
written notice by no later than 10:00 a.m. (i) on the day which is three
(3) Business Days’ prior to the date on which such conversion is to occur with
respect to a conversion from a Domestic Rate Loan to a Eurodollar Rate Loan, or
(ii) on the day which is one (1) Business Day prior to the date on which such
conversion is to occur with respect to a conversion from a Eurodollar Rate Loan
to a Domestic Rate Loan, specifying, in each case, the date of such conversion,
the loans to be converted and if the conversion is from a Domestic Rate Loan to
a Eurodollar Rate Loan, the duration of the first Interest Period therefor.

(e) At its option and upon written notice given prior to 10:00 a.m. at least
three (3) Business Days’ prior to the date of such prepayment, any Borrower may
prepay the Eurodollar Rate Loans in whole at any time or in part from time to
time with accrued interest on the principal being prepaid to the date of such
repayment. Such Borrower shall specify the date of prepayment of Advances which
are Eurodollar Rate Loans and the amount of such prepayment. In the event that
any prepayment of a Eurodollar Rate Loan is required or permitted on a date
other than the last Business Day of the then current Interest Period with
respect thereto, such Borrower shall indemnify Agent and Lenders therefor in
accordance with Section 2.2(f) hereof.

(f) Each Borrower shall indemnify Agent and Lenders and hold Agent and Lenders
harmless from and against any and all losses or expenses that Agent and Lenders
may sustain or incur as a consequence of any prepayment, conversion of or any
default by any Borrower in the payment of the principal of or interest on any
Eurodollar Rate Loan or failure by any Borrower to complete a borrowing of, a
prepayment of or conversion of or to a Eurodollar Rate Loan after notice thereof
has been given, including, but not limited to, any interest payable by Agent or
Lenders to lenders of funds obtained by it in order to make or maintain its
Eurodollar Rate Loans hereunder. A certificate as to any additional amounts
payable pursuant to the foregoing sentence submitted by Agent or any Lender to
Borrowing Agent shall be conclusive absent manifest error.

(g) Notwithstanding any other provision hereof, if any Applicable Law, or any
change therein or in the interpretation or application thereof, shall make it
unlawful for any Lender (for purposes of this subsection (g), the term “Lender”
shall include any Lender and the office or branch where any Lender or any
corporation or bank controlling such Lender makes or maintains any Eurodollar
Rate Loans) to make or maintain its Eurodollar Rate Loans, the obligation of
Lenders to make Eurodollar Rate Loans hereunder shall forthwith be cancelled and
Borrowers shall, if any affected Eurodollar Rate Loans are then outstanding,
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request from Agent, either pay all such affected Eurodollar Rate Loans or
convert such affected Eurodollar Rate Loans into loans of another type. If any
such payment or conversion of any Eurodollar Rate Loan is made on a day that is
not the last day of the Interest Period applicable to such Eurodollar Rate Loan,
Borrowers shall pay Agent, upon Agent’s request, such amount or amounts as may
be necessary to compensate Lenders for any loss or expense sustained or incurred
by Lenders in respect of such Eurodollar Rate Loan as a result of such payment
or conversion, including (but not limited to) any interest or other amounts
payable by Lenders to lenders of funds obtained by Lenders in order to make or
maintain such Eurodollar Rate Loan. A certificate as to any additional amounts
payable pursuant to the foregoing sentence submitted by Lenders to Borrowing
Agent shall be conclusive absent manifest error.

2.3 Disbursement of Advance Proceeds. All Advances shall be disbursed from
whichever office or other place Agent may designate from time to time and,
together with any and all other Obligations of Borrowers to Agent or Lenders,
shall be charged to Borrowers’ Account on Agent’s books. During the Term,
Borrowers may use the Revolving Advances by borrowing, prepaying and
reborrowing, all in accordance with the terms and conditions hereof. The
proceeds of each Revolving Advance requested by Borrowing Agent on behalf of any
Borrower or deemed to have been requested by any Borrower under Section 2.2(a)
hereof shall, with respect to requested Revolving Advances to the extent Lenders
make such Revolving Advances, be made available to the applicable Borrower on
the day so requested by way of credit to such Borrower’s operating account at
PNC, or such other bank as Borrowing Agent may designate following notification
to Agent, in immediately available federal funds or other immediately available
funds or, with respect to Revolving Advances deemed to have been requested by
any Borrower, be disbursed to Agent to be applied to the outstanding Obligations
giving rise to such deemed request.

2.4 [Reserved.]

2.5 Maximum Advances. The aggregate balance of Revolving Advances outstanding at
any time shall not exceed the lesser of (a) the Maximum Revolving Advance Amount
or (b) the Formula Amount less, in each case, the aggregate Maximum Undrawn
Amount of all issued and outstanding Letters of Credit.

2.6 Repayment of Advances.

(a) The Advances shall be due and payable in full on the last day of the Term
subject to earlier prepayment as herein provided.

(b) Each Borrower recognizes that the amounts evidenced by checks, notes, drafts
or any other items of payment relating to and/or proceeds of Collateral may not
be collectible by Agent on the date received. In consideration of Agent’s
agreement to conditionally credit Borrowers’ Account as of the next Business Day
following the Agent’s receipt of those items of payment, each Borrower agrees
that, in computing the charges under this Agreement, all items of payment shall
be deemed applied by Agent on account of the Obligations one (1) Business Day
after (i) the Business Day following the Agent’s receipt of such payments via
wire transfer or electronic depository check or (ii) in the case of payments
received by Agent in any other form, the Business Day such payment constitutes
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Agent’s account. Agent is not, however, required to credit Borrowers’ Account
for the amount of any item of payment which is unsatisfactory to Agent and Agent
may charge Borrowers’ Account for the amount of any item of payment which is
returned to Agent unpaid.

(c) All payments of principal, interest and other amounts payable hereunder, or
under any of the Other Documents shall be made to Agent at the Payment Office
not later than 1:00 p.m. on the due date therefor in lawful money of the United
States of America in federal funds or other funds immediately available to
Agent. Agent shall have the right to effectuate payment on any and all
Obligations due and owing hereunder by charging Borrowers’ Account or by making
Advances as provided in Section 2.2 hereof.

(d) Borrowers shall pay principal, interest, and all other amounts payable
hereunder, or under any related agreement, without any deduction whatsoever,
including, but not limited to, any deduction for any setoff or counterclaim.

2.7 Repayment of Excess Advances. The aggregate balance of Advances outstanding
at any time in excess of the maximum amount of Advances permitted hereunder
shall be immediately due and payable without the necessity of any demand, at the
Payment Office, whether or not a Default or Event of Default has occurred.

2.8 Statement of Account. Agent shall maintain, in accordance with its customary
procedures, a loan account (“Borrowers’ Account”) in the name of Borrowers in
which shall be recorded the date and amount of each Advance made by Agent and
the date and amount of each payment in respect thereof; provided, however, the
failure by Agent to record the date and amount of any Advance shall not
adversely affect Agent or any Lender. Each month, Agent shall send to Borrowing
Agent a statement showing the accounting for the Advances made, payments made or
credited in respect thereof, and other transactions between Agent and Borrowers,
during such month. The monthly statements shall be deemed correct and binding
upon Borrowers in the absence of manifest error and shall constitute an account
stated between Lenders and Borrowers unless Agent receives a written statement
of Borrowers’ specific exceptions thereto within thirty (30) days after such
statement is received by Borrowing Agent. The records of Agent with respect to
the loan account shall be conclusive evidence absent manifest error of the
amounts of Advances and other charges thereto and of payments applicable
thereto.

2.9 Letters of Credit. Subject to the terms and conditions hereof, Agent shall
issue or cause the issuance of standby and/or trade letters of credit (“Letters
of Credit”) for the account of any Borrower; provided, however, that Agent will
not be required to issue or cause to be issued any Letters of Credit to the
extent that the issuance thereof would then cause the sum of (i) the outstanding
Revolving Advances plus (ii) the Maximum Undrawn Amount of all outstanding
Letters of Credit to exceed the lesser of (x) the Maximum Revolving Advance
Amount or (y) the Formula Amount. The Maximum Undrawn Amount of all outstanding
Letters of Credit shall not exceed in the aggregate at any time the Letter of
Credit Sublimit. All disbursements or payments related to Letters of Credit
shall be deemed to be Domestic Rate Loans consisting of Revolving Advances and
shall bear interest at the Revolving Interest Rate for Domestic Rate Loans;
Letters of Credit that have not been drawn upon shall not bear interest.

 

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2.10 Issuance of Letters of Credit.

(a) Borrowing Agent, on behalf of Borrowers, may request Agent to issue or cause
the issuance of a Letter of Credit by delivering to Agent, at the Payment
Office, prior to 10:00 a.m., at least five (5) Business Days’ prior to the
proposed date of issuance, Agent’s form of Letter of Credit Application (the
“Letter of Credit Application”) completed to the satisfaction of Agent; and,
such other certificates, documents and other papers and information as Agent may
reasonably request. Borrowing Agent, on behalf of Borrowers, also has the right
to give instructions and make agreements with respect to any application, any
applicable letter of credit and security agreement, any applicable letter of
credit reimbursement agreement and/or any other applicable agreement, any letter
of credit and the disposition of documents, disposition of any unutilized funds,
and to agree with Agent upon any amendment, extension or renewal of any Letter
of Credit.

(b) Each Letter of Credit shall, among other things, (i) provide for the payment
of sight drafts, other written demands for payment, or acceptances of usance
drafts when presented for honor thereunder in accordance with the terms thereof
and when accompanied by the documents described therein and (ii) have an expiry
date not later than twelve (12) months after such Letter of Credit’s date of
issuance and in no event later than the last day of the Term. Each standby
Letter of Credit shall be subject either to the Uniform Customs and Practice for
Documentary Credits as most recently published by the International Chamber of
Commerce at the time a Letter of Credit is issued (the “UCP”) or the
International Standby Practices (ISP98-International Chamber of Commerce
Publication Number 590) (the “ISP98 Rules”)), and any subsequent revision
thereof at the time a standby Letter of Credit is issued, as determined by
Agent, and each trade Letter of Credit shall be subject to the UCP.

(c) Agent shall use its reasonable efforts to notify Lenders of the request by
Borrowing Agent for a Letter of Credit hereunder.

2.11 Requirements For Issuance of Letters of Credit.

(a) Borrowing Agent shall authorize and direct any Issuer to name the applicable
Borrower as the “Applicant” or “Account Party” of each Letter of Credit. If
Agent is not the Issuer of any Letter of Credit, Borrowing Agent shall authorize
and direct the Issuer to deliver to Agent all instruments, documents, and other
writings and property received by the Issuer pursuant to the Letter of Credit
and to accept and rely upon Agent’s instructions and agreements with respect to
all matters arising in connection with the Letter of Credit, the application
therefor or any acceptance therefor.

(b) In connection with all Letters of Credit issued or caused to be issued by
Agent under this Agreement, each Borrower hereby appoints Agent, or its
designee, as its attorney, with full power and authority if an Event of Default
shall have occurred, (i) to sign and/or endorse such Borrower’s name upon any
warehouse or other receipts, letter of credit applications and acceptances,
(ii) to sign such Borrower’s name on bills of lading; (iii) to clear Inventory
through the United States of America Customs Department (“Customs”) in the name
of such Borrower or Agent or Agent’s designee, and to sign and deliver to
Customs officials powers of attorney in the name of such Borrower for such
purpose; and (iv) to complete in

 

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Borrower’s name or Agent’s, or in the name of Agent’s designee, any order, sale
or transaction, obtain the necessary documents in connection therewith, and
collect the proceeds thereof. Neither Agent nor its attorneys will be liable for
any acts or omissions nor for any error of judgment or mistakes of fact or law,
except for Agent’s or its attorney’s willful misconduct. This power, being
coupled with an interest, is irrevocable as long as any Letters of Credit remain
outstanding.

2.12 Disbursements, Reimbursement.

(a) Immediately upon the issuance of each Letter of Credit, each Lender shall be
deemed to, and hereby irrevocably and unconditionally agrees to, purchase from
Agent a participation in such Letter of Credit and each drawing thereunder in an
amount equal to such Lender’s Commitment Percentage of the Maximum Face Amount
of such Letter of Credit and the amount of such drawing, respectively.

(b) In the event of any request for a drawing under a Letter of Credit by the
beneficiary or transferee thereof, Agent will promptly notify Borrowing Agent.
Provided that Borrowing Agent shall have received such notice, Borrowers shall
reimburse (such obligation to reimburse Agent shall sometimes be referred to as
a “Reimbursement Obligation”) Agent prior to 12:00 noon, on each date that an
amount is paid by Agent under any Letter of Credit (each such date, a “Drawing
Date”) in an amount equal to the amount so paid by Agent. In the event Borrowers
fail to reimburse Agent for the full amount of any drawing under any Letter of
Credit by 12:00 noon, on the Drawing Date, Agent will promptly notify each
Lender thereof, and Borrowers shall be deemed to have requested that a Revolving
Advance maintained as a Domestic Rate Loan be made by the Lenders to be
disbursed on the Drawing Date under such Letter of Credit, subject to the amount
of the unutilized portion of the lesser of Maximum Revolving Advance Amount or
the Formula Amount, less, in each case, the Maximum Undrawn Amount of all
Letters of Credit and subject to Section 8.2 hereof. Any notice given by Agent
pursuant to this Section 2.12(b) may be oral if immediately confirmed in
writing; provided that, the lack of such an immediate confirmation shall not
affect the conclusiveness or binding effect of such notice.

(c) Each Lender shall upon any notice pursuant to Section 2.12(b) make available
to Agent an amount in immediately available funds equal to its Commitment
Percentage of the amount of the drawing, whereupon the participating Lenders
shall (subject to Section 2.12(d)) each be deemed to have made a Revolving
Advance maintained as a Domestic Rate Loan to Borrowers in that amount. If any
Lender so notified fails to make available to Agent the amount of such Lender’s
Commitment Percentage of such amount by no later than 2:00 p.m., on the Drawing
Date, then interest shall accrue on such Lender’s obligation to make such
payment, from the Drawing Date to the date on which such Lender makes such
payment (i) at a rate per annum equal to the Federal Funds Effective Rate during
the first three days following the Drawing Date and (ii) at a rate per annum
equal to the rate applicable to Revolving Advances maintained as a Domestic Rate
Loans on and after the fourth day following the Drawing Date. Agent will
promptly give notice of the occurrence of the Drawing Date, but failure of Agent
to give any such notice on the Drawing Date or in sufficient time to enable any
Lender to effect such payment on such date shall not relieve such Lender from
its obligation under this Section 2.12(c), provided that such Lender shall not
be obligated to pay interest as provided in Section 2.12(c) (i) and (ii) until
and commencing from the date of receipt of notice from Agent of a drawing.

 

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(d) With respect to any unreimbursed drawing that is not converted into a
Revolving Advance maintained as a Domestic Rate Loan to Borrowers in whole or in
part as contemplated by Section 2.12(b), because of Borrowers’ failure to
satisfy the conditions set forth in Section 8.2 (other than any notice
requirements) or for any other reason, Borrowers shall be deemed to have
incurred from Agent a borrowing (each a “Letter of Credit Borrowing”) in the
amount of such drawing. Such Letter of Credit Borrowing shall be due and payable
on demand (together with interest) and shall bear interest at the rate per annum
applicable to a Revolving Advance maintained as a Domestic Rate Loan. Each
Lender’s payment to Agent pursuant to Section 2.12(c) shall be deemed to be a
payment in respect of its participation in such Letter of Credit Borrowing and
shall constitute a “Participation Advance” from such Lender in satisfaction of
its Participation Commitment under this Section 2.12.

(e) Each Lender’s Participation Commitment shall continue until the last to
occur of any of the following events: (x) Agent ceases to be obligated to issue
or cause to be issued Letters of Credit hereunder; (y) no Letter of Credit
issued or created hereunder remains outstanding and uncancelled and (z) all
Persons (other than the Borrowers) have been fully reimbursed for all payments
made under or relating to Letters of Credit.

2.13 Repayment of Participation Advances.

(a) Upon (and only upon) receipt by Agent for its account of immediately
available funds from Borrowers (i) in reimbursement of any payment made by the
Agent under the Letter of Credit with respect to which any Lender has made a
Participation Advance to Agent, or (ii) in payment of interest on such a payment
made by Agent under such a Letter of Credit, Agent will pay to each Lender, in
the same funds as those received by Agent, the amount of such Lender’s
Commitment Percentage of such funds, except Agent shall retain the amount of the
Commitment Percentage of such funds of any Lender that did not make a
Participation Advance in respect of such payment by Agent.

(b) If Agent is required at any time to return to any Borrower, or to a trustee,
receiver, liquidator, custodian, or any official in any insolvency proceeding,
any portion of the payments made by Borrowers to Agent pursuant to
Section 2.13(a) in reimbursement of a payment made under the Letter of Credit or
interest or fee thereon, each Lender shall, on demand of Agent, forthwith return
to Agent the amount of its Commitment Percentage of any amounts so returned by
Agent plus interest at the Federal Funds Effective Rate.

2.14 Documentation. Each Borrower agrees to be bound by the terms of the Letter
of Credit Application and by Agent’s interpretations of any Letter of Credit
issued for such Borrower’s account and by Agent’s written regulations and
customary practices relating to letters of credit, though Agent’s
interpretations may be different from such Borrower’s own. In the event of a
conflict between the Letter of Credit Application and this Agreement, this
Agreement shall govern. It is understood and agreed that, except in the case of
gross negligence or willful misconduct (as determined by a court of competent
jurisdiction in a final non-appealable judgment), Agent shall not be liable for
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omission or commission (INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO ANY ACT
OR NEGLIGENCE OR STRICT LIABILITY), in following Borrowing Agent’s or any
Borrower’s instructions or those contained in the Letters of Credit or any
modifications, amendments or supplements thereto.

2.15 Determination to Honor Drawing Request. In determining whether to honor any
request for drawing under any Letter of Credit by the beneficiary thereof, Agent
shall be responsible only to determine that the documents and certificates
required to be delivered under such Letter of Credit have been delivered and
that they comply on their face with the requirements of such Letter of Credit
and that any other drawing condition appearing on the face of such Letter of
Credit has been satisfied in the manner so set forth.

2.16 Nature of Participation and Reimbursement Obligations. Each Lender’s
obligation in accordance with this Agreement to make the Revolving Advances or
Participation Advances as a result of a drawing under a Letter of Credit, and
the obligations of Borrowers to reimburse Agent upon a draw under a Letter of
Credit, shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of this Section 2.16 under all
circumstances, including the following circumstances:

(i) any set-off, counterclaim, recoupment, defense or other right which such
Lender may have against Agent, any Borrower or any other Person for any reason
whatsoever;

(ii) the failure of any Borrower or any other Person to comply, in connection
with a Letter of Credit Borrowing, with the conditions set forth in this
Agreement for the making of a Revolving Advance, it being acknowledged that such
conditions are not required for the making of a Letter of Credit Borrowing and
the obligation of the Lenders to make Participation Advances under Section 2.12;

(iii) any lack of validity or enforceability of any Letter of Credit;

(iv) any claim of breach of warranty that might be made by Borrower or any
Lender against the beneficiary of a Letter of Credit, or the existence of any
claim, set-off, recoupment, counterclaim, cross claim, defense or other right
which any Borrower or any Lender may have at any time against a beneficiary, any
successor beneficiary or any transferee of any Letter of Credit or the proceeds
thereof (or any Persons for whom any such transferee may be acting), Agent or
any Lender or any other Person, whether in connection with this Agreement, the
transactions contemplated herein or any unrelated transaction (including any
underlying transaction between any Borrower or any Subsidiaries of such Borrower
and the beneficiary for which any Letter of Credit was procured);

(v) the lack of power or authority of any signer of (or any defect in or forgery
of any signature or endorsement on) or the form of or lack of validity,
sufficiency, accuracy, enforceability or genuineness of any draft, demand,
instrument, certificate or other document presented under or in connection with
any Letter of Credit, or any fraud or alleged fraud in connection with any
Letter of Credit, or the transport of any property or provisions of services
relating to a Letter of Credit, in each case even if Agent or any of Agent’s
Affiliates has been notified thereof;

 

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(vi) payment by Agent under any Letter of Credit against presentation of a
demand, draft or certificate or other document which does not comply with the
terms of such Letter of Credit (unless such payment is the result of Agent’s
gross negligence or willful misconduct);

(vii) the solvency of, or any acts or omissions by, any beneficiary of any
Letter of Credit, or any other Person having a role in any transaction or
obligation relating to a Letter of Credit, or the existence, nature, quality,
quantity, condition, value or other characteristic of any property or services
relating to a Letter of Credit;

(viii) any failure by the Agent or any of Agent’s Affiliates to issue any Letter
of Credit in the form requested by Borrowing Agent, unless the Agent has
received written notice from Borrowing Agent of such failure within three
(3) Business Days after the Agent shall have furnished Borrowing Agent a copy of
such Letter of Credit and such error is material and no drawing has been made
thereon prior to receipt of such notice;

(ix) any Material Adverse Effect on any Credit Party;

(x) any breach of this Agreement or any Other Document by any party thereto;

(xi) the occurrence or continuance of an insolvency proceeding with respect to
Borrower or any Guarantor;

(xii) the fact that a Default or Event of Default shall have occurred and be
continuing;

(xiii) the fact that the Term shall have expired or this Agreement or the
Obligations hereunder shall have been terminated; and

(xiv) any other circumstance or happening whatsoever, whether or not similar to
any of the foregoing.

2.17 Indemnity.

(a) In addition to amounts payable as provided in Section 16.5, Borrower hereby
agrees to protect, indemnify, pay and save harmless Agent and any of Agent’s
Affiliates that have issued a Letter of Credit from and against any and all
claims, demands, liabilities, damages, taxes, penalties, interest, judgments,
losses, costs, charges and expenses (including reasonable fees, expenses and
disbursements of counsel and allocated costs of internal counsel) which the
Agent or any of Agent’s Affiliates may incur or be subject to as a consequence,
direct or indirect, of the issuance of any Letter of Credit, other than as a
result of (A) the gross negligence or willful misconduct of the Agent as
determined by a final and non-appealable judgment of a court of competent
jurisdiction or (b) the wrongful dishonor by the Agent or any of Agent’s
Affiliates of a proper demand for payment made under any Letter of Credit,

 

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(INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO ANY ACT OR INACTION ARISING FROM
AGENT’S NEGLIGENCE OR STRICT LIABILITY), except if such dishonor resulted from
any act or omission, whether rightful or wrongful, of any present or future de
jure or de facto Governmental Body (all such acts or omissions herein called
“Governmental Acts”).

(b) In addition, each Borrower hereby agrees to indemnify each Lender and to
hold each Lender harmless from any loss or expense which such Lender may sustain
or incur as a consequence of (i) default by any Borrower in payment when due of
the principal amount of or interest on any Eurodollar Rate Loan, (ii) default by
any Borrower in making a borrowing of, conversion into or continuation of
Eurodollar Rate Loans after Borrowing Agent has given a notice requesting the
same in accordance with the provisions of this Agreement, (iii) default by any
Borrower in making any prepayment after Borrowing Agent has given a notice
thereof in accordance with the provisions of this Agreement or (iv) the making
of a prepayment (whether voluntary, mandatory, as a result of acceleration or
otherwise) of Eurodollar Rate Loans on a day which is not the last day of an
Interest Period with respect thereto, including, without limitation, in each
case, any such loss or expense arising from the reemployment of funds obtained
by it or from fees payable to terminate the deposits from which such funds were
obtained. A certificate as to any amounts that a Lender is entitled to receive
under this Section 2.17 submitted by such Lender, through the Agent, to
Borrowing Agent shall be conclusive in the absence of clearly demonstrable error
and all such amounts shall be paid by Borrowers promptly upon demand by such
Lender. This covenant shall survive the termination of this Agreement and the
payment of the Revolving Credit Note and all other amounts payable hereunder.

2.18 Liability for Acts and Omissions. As between Borrowers and Agent and
Lenders, each Borrower assumes all risks of the acts and omissions of, or misuse
of the Letters of Credit by, the respective beneficiaries of such Letters of
Credit (INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO ANY ACT OR INACTION
ARISING FROM AGENT’S NEGLIGENCE OR STRICT LIABILITY). In furtherance and not in
limitation of the respective foregoing, Agent shall not be responsible for:
(i) the form, validity, sufficiency, accuracy, genuineness or legal effect of
any document submitted by any party in connection with the application for an
issuance of any such Letter of Credit, even if it should in fact prove to be in
any or all respects invalid, insufficient, inaccurate, fraudulent or forged
(even if Agent shall have been notified thereof); (ii) the validity or
sufficiency of any instrument transferring or assigning or purporting to
transfer or assign any such Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) the failure of the beneficiary of
any such Letter of Credit, or any other party to which such Letter of Credit may
be transferred, to comply fully with any conditions required in order to draw
upon such Letter of Credit or any other claim of any Borrower against any
beneficiary of such Letter of Credit, or any such transferee, or any dispute
between or among any Borrower and any beneficiary of any Letter of Credit or any
such transferee; (iv) errors, omissions, interruptions or delays in transmission
or delivery of any messages, by mail, cable, facsimile, telex or otherwise,
whether or not they be in cipher; (v) errors in interpretation of technical
terms; (vi) any loss or delay in the transmission or otherwise of any document
required in order to make a drawing under any such Letter of Credit or of the
proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter
of Credit of the proceeds of any drawing under such Letter of Credit; or
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Agent, including any governmental acts, and none of the above shall affect or
impair, or prevent the vesting of, any of Agent’s rights or powers hereunder.
Nothing in the preceding sentence shall relieve Agent from liability for Agent’s
gross negligence or willful misconduct (as determined by a court of competent
jurisdiction in a final non-appealable judgment) in connection with actions or
omissions described in such clauses (i) through (viii) of such sentence. In no
event shall Agent or Agent’s Affiliates be liable to any Borrower for any
indirect, consequential, incidental, punitive, exemplary or special damages or
expenses (including without limitation attorneys’ fees), or for any damages
resulting from any change in the value of any property relating to a Letter of
Credit.

Without limiting the generality of the foregoing, Agent and each of its
Affiliates (i) may rely on any oral or other communication believed in good
faith by Agent or such Affiliate to have been authorized or given by or on
behalf of the applicant for a Letter of Credit, (ii) may honor any presentation
if the documents presented appear on their face substantially to comply with the
terms and conditions of the relevant Letter of Credit; (iii) may honor a
previously dishonored presentation under a Letter of Credit, whether such
dishonor was pursuant to a court order, to settle or compromise any claim of
wrongful dishonor, or otherwise, and shall be entitled to reimbursement to the
same extent as if such presentation had initially been honored, together with
any interest paid by Agent or its Affiliates; (iv) may honor any drawing that is
payable upon presentation of a statement advising negotiation or payment, upon
receipt of such statement (even if such statement indicates that a draft or
other document is being delivered separately), and shall not be liable for any
failure of any such draft or other document to arrive, or to conform in any way
with the relevant Letter of Credit; (v) may pay any paying or negotiating bank
claiming that it rightfully honored under the laws or practices of the place
where such bank is located; and (vi) may settle or adjust any claim or demand
made on Agent or its Affiliate in any way related to any order issued at the
applicant’s request to an air carrier, a letter of guarantee or of indemnity
issued to a carrier or any similar document (each an “Order”) and honor any
drawing in connection with any Letter of Credit that is the subject of such
Order, notwithstanding that any drafts or other documents presented in
connection with such Letter of Credit fail to conform in any way with such
Letter of Credit.

In furtherance and extension and not in limitation of the specific provisions
set forth above, any action taken or omitted by Agent under or in connection
with the Letters of Credit issued by it or any documents and certificates
delivered thereunder, if taken or omitted in good faith and without gross
negligence or intentional misconduct (as determined by a court of competent
jurisdiction in a final non-appealable judgment), shall not put Agent under any
resulting liability to Borrower or any Lender.

2.19 Additional Payments. Any sums expended by Agent or any Lender due to any
Borrower’s failure to perform or comply with its obligations under this
Agreement or any Other Document including any Borrower’s obligations under
Sections 4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof, may be charged to Borrowers’
Account as a Revolving Advance and added to the Obligations.

 

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2.20 Manner of Borrowing and Payment.

(a) Each borrowing of Revolving Advances shall be advanced according to the
applicable Commitment Percentages of Lenders.

(b) Each payment (including each prepayment) by any Borrower on account of the
principal of and interest on the Revolving Advances, shall be applied to the
Revolving Advances pro rata according to the applicable Commitment Percentages
of Lenders. Except as expressly provided herein, all payments (including
prepayments) to be made by any Borrower on account of principal, interest and
fees shall be made without set off or counterclaim and shall be made to Agent on
behalf of the Lenders to the Payment Office, in each case on or prior to 1:00
p.m., in Dollars and in immediately available funds.

(c) (i) Notwithstanding anything to the contrary contained in Sections 2.20(a)
and (b) hereof, commencing with the first Business Day following the Closing
Date, each borrowing of Revolving Advances shall be advanced by Agent and each
payment by Borrower on account of Revolving Advances shall be applied first to
those Revolving Advances advanced by Agent. On or before 1:00 p.m., on each
Settlement Date commencing with the first Settlement Date following the Closing
Date, Agent and Lenders shall make certain payments as follows: (I) if the
aggregate amount of new Revolving Advances made by Agent during the preceding
Week (if any) exceeds the aggregate amount of repayments applied to outstanding
Revolving Advances during such preceding Week, then each Lender shall provide
Agent with funds in an amount equal to its applicable Commitment Percentage of
the difference between (w) such Revolving Advances and (x) such repayments and
(II) if the aggregate amount of repayments applied to outstanding Revolving
Advances during such Week exceeds the aggregate amount of new Revolving Advances
made during such Week, then Agent shall provide each Lender with funds in an
amount equal to its applicable Commitment Percentage of the difference between
(y) such repayments and (z) such Revolving Advances.

(ii) Each Lender shall be entitled to earn interest at the applicable Revolving
Interest Rate on outstanding Advances which it has funded.

(iii) Promptly following each Settlement Date, Agent shall submit to each Lender
a certificate with respect to payments received and Advances made during the
Week immediately preceding such Settlement Date. Such certificate of Agent shall
be conclusive in the absence of manifest error.

(d) If any Lender or Participant (a “Benefited Lender”) shall at any time
receive any payment of all or part of its Advances, or interest thereon, or
receive any Collateral in respect thereof (whether voluntarily or involuntarily
or by set-off) in a greater proportion than any such payment to and Collateral
received by any other Lender, if any, in respect of such other Lender’s
Advances, or interest thereon, and such greater proportionate payment or receipt
of Collateral is not expressly permitted hereunder, such benefited Lender shall
purchase for cash from the other Lenders a participation in such portion of each
such other Lender’s Advances, or shall provide such other Lender with the
benefits of any such Collateral, or the proceeds thereof, as shall be necessary
to cause such benefited Lender to share the excess payment or benefits of such
Collateral or proceeds ratably with each of the other Lenders; provided,
however, that if all or any portion of such excess payment or benefits is
thereafter recovered from such benefited Lender, such purchase shall be
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extent of such recovery, but without interest. Each Lender so purchasing a
portion of another Lender’s Advances may exercise all rights of payment
(including rights of set-off) with respect to such portion as fully as if such
Lender were the direct holder of such portion.

(e) Unless Agent shall have been notified by telephone, confirmed in writing, by
any Lender that such Lender will not make the amount which would constitute its
applicable Commitment Percentage of the Advances available to Agent, Agent may
(but shall not be obligated to) assume that such Lender shall make such amount
available to Agent on the next Settlement Date and, in reliance upon such
assumption, make available to Borrowers a corresponding amount. Agent will
promptly notify Borrowing Agent of its receipt of any such notice from a Lender.
If such amount is made available to Agent on a date after such next Settlement
Date, such Lender shall pay to Agent on demand an amount equal to the product of
(i) the daily average Federal Funds Open Rate (computed on the basis of a year
of 360 days) during such period as quoted by Agent, times (ii) such amount,
times (iii) the number of days from and including such Settlement Date to the
date on which such amount becomes immediately available to Agent. A certificate
of Agent submitted to any Lender with respect to any amounts owing under this
paragraph (e) shall be conclusive, in the absence of manifest error. If such
amount is not in fact made available to Agent by such Lender within three
(3) Business Days after such Settlement Date, Agent shall be entitled to recover
such an amount, with interest thereon at the rate per annum then applicable to
such Revolving Advances hereunder, on demand from Borrowers; provided, however,
that Agent’s right to such recovery shall not prejudice or otherwise adversely
affect Borrowers’ rights (if any) against such Lender.

2.21 Mandatory Prepayments.

(a) Subject to Section 4.3 hereof, when any Borrower sells or otherwise disposes
of any Collateral other than Inventory in the Ordinary Course of Business,
Borrowers shall repay the Advances in an amount equal to the net proceeds of
such sale (i.e., gross proceeds less the reasonable costs of such sales or other
dispositions), such repayments to be made promptly but in no event more than one
(1) Business Day following receipt of such net proceeds, and until the date of
payment, such proceeds shall be held in trust for Agent. The foregoing shall not
be deemed to be implied consent to any such sale otherwise prohibited by the
terms and conditions hereof. Such repayments shall be applied to the outstanding
Advances in such order as Agent may determine, subject to Borrowers’ ability to
reborrow Revolving Advances in accordance with the terms hereof.

(b) In the event of any issuance or other incurrence of Indebtedness or Equity
Interests (including any capital contribution by Holdings, Borrowers or any of
their respective Subsidiaries), Borrowers shall, no later than one (1) Business
Day after the receipt by such Borrower, Holdings or any of their respective
Subsidiaries of (a) the cash proceeds from any such issuance or incurrence of
Indebtedness and (b) the net cash proceeds of any issuance of Equity Interests,
as the case may be, repay the Advances in an amount equal to such cash proceeds
or net cash proceeds, as applicable. Such repayments will be applied to the
outstanding Advances in such order as Agent may determine, subject to Borrowers’
ability to reborrow Revolving Advances in accordance with the terms hereof. The
foregoing shall not be deemed to be implied consent to any such issuance or
incurrence of Indebtedness or Equity Interest prohibited by the terms and
conditions hereof.

 

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(c) In the event that Borrowers, Holdings or any of their respective Affiliates
receives or is entitled to any refund, return or other repayment of the purchase
consideration paid under the Acquisition Agreement (or any portion thereof),
Borrowers shall cause all such amounts to be remitted directly to Agent (or, if
such amounts are nonetheless received by Borrowers, Holdings or any such
Affiliate, Borrowers shall, no later than one (1) Business Day after such
receipt, cause all such amounts to be remitted to Agent) for repayment of the
Obligations, until all Obligations have been indefeasibly paid in full. Such
repayments shall be applied in such order as Agent may determine in its sole
discretion. Notwithstanding the foregoing, payments received by Borrowers
pursuant to any escrow agreement executed in connection with an Acquisition
Agreement in respect of a breach by the sellers thereunder of any
representation, warranty, covenant or agreement set forth in or made by such
sellers pursuant to such Acquisition Agreement, shall be remitted to Agent and
applied by Agent to the Revolving Advances, subject to Borrowers’ ability to
reborrow Revolving Advances in accordance with the terms hereof.

2.22 Use of Proceeds.

(a) Borrowers shall apply the proceeds of Advances to (i) pay fees and expenses
relating to this transaction, (ii) finance Permitted Acquisitions, (iii) finance
Capital Expenditures permitted pursuant to the terms hereof, and (iv) provide
for its working capital needs and reimburse drawings under Letters of Credit.

(b) Without limiting the generality of Section 2.22(a) above, none of the Credit
Parties, nor any other Person which may in the future become party to this
Agreement or the Other Documents as a Credit Party, intends to use nor shall
they use any portion of the proceeds of the Advances, directly or indirectly,
for any purpose in violation of the Trading with the Enemy Act.

2.23 Defaulting Lender.

(a) Notwithstanding anything to the contrary contained herein, in the event any
Lender (x) has refused (which refusal constitutes a breach by such Lender of its
obligations under this Agreement) to make available its portion of any Advance
or (y) notifies either Agent or Borrowing Agent that it does not intend to make
available its portion of any Advance (if the actual refusal would constitute a
breach by such Lender of its obligations under this Agreement) (each, a “Lender
Default”), all rights and obligations hereunder of such Lender (a “Defaulting
Lender”) as to which a Lender Default is in effect and of the other parties
hereto shall be modified to the extent of the express provisions of this
Section 2.23 while such Lender Default remains in effect.

(b) Advances shall be incurred pro rata from Lenders (the “Non-Defaulting
Lenders”) which are not Defaulting Lenders based on their respective Commitment
Percentages, and no Commitment Percentage of any Lender or any pro rata share of
any Advances required to be advanced by any Lender shall be increased as a
result of such Lender Default. Amounts received in respect of principal of any
type of Advances shall be applied to reduce the applicable Advances of each
Lender (other than any Defaulting Lender) pro rata based on the aggregate of the
outstanding Advances of that type of all Lenders at the time of such
application; provided,

 

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that, Agent shall not be obligated to transfer to a Defaulting Lender any
payments received by Agent for the Defaulting Lender’s benefit, nor shall a
Defaulting Lender be entitled to the sharing of any payments hereunder
(including any principal, interest or fees). Amounts payable to a Defaulting
Lender shall instead be paid to or retained by Agent. Agent may hold and, in its
discretion, re-lend to Borrower the amount of such payments received or retained
by it for the account of such Defaulting Lender.

(c) A Defaulting Lender shall not be entitled to give instructions to Agent or
to approve, disapprove, consent to or vote on any matters relating to this
Agreement and the Other Documents. All amendments, waivers and other
modifications of this Agreement and the Other Documents may be made without
regard to a Defaulting Lender and, for purposes of the definition of “Required
Lenders”, a Defaulting Lender shall be deemed not to be a Lender and not to have
either Advances outstanding or a Commitment Percentage.

(d) Other than as expressly set forth in this Section 2.23, the rights and
obligations of a Defaulting Lender (including the obligation to indemnify Agent)
and the other parties hereto shall remain unchanged. Nothing in this
Section 2.23 shall be deemed to release any Defaulting Lender from its
obligations under this Agreement and the Other Documents, shall alter such
obligations, shall operate as a waiver of any default by such Defaulting Lender
hereunder, or shall prejudice any rights which any Borrower, Agent or any Lender
may have against any Defaulting Lender as a result of any default by such
Defaulting Lender hereunder.

(e) In the event a Defaulting Lender retroactively cures to the satisfaction of
Agent the breach which caused a Lender to become a Defaulting Lender, such
Defaulting Lender shall no longer be a Defaulting Lender and shall be treated as
a Lender under this Agreement.

 

III INTEREST AND FEES.

3.1 Interest. Interest on Advances shall be payable in arrears on the first day
of each month with respect to Domestic Rate Loans and, with respect to
Eurodollar Rate Loans, at the end of each Interest Period. Interest charges
shall be computed on the actual principal amount of Advances outstanding during
the month at a rate per annum equal to the applicable Revolving Interest Rate.
Whenever, subsequent to the date of this Agreement, the Alternate Base Rate is
increased or decreased, the Revolving Interest Rate for Domestic Rate Loans
shall be similarly changed without notice or demand of any kind by an amount
equal to the amount of such change in the Alternate Base Rate during the time
such change or changes remain in effect. The Eurodollar Rate shall be adjusted
with respect to Eurodollar Rate Loans without notice or demand of any kind on
the effective date of any change in the Reserve Percentage as of such effective
date. Upon and after the occurrence of an Event of Default, and during the
continuation thereof, (i) at the option of Agent or at the direction of Required
Lenders, the Obligations other than Eurodollar Rate Loans shall bear interest at
the Revolving Interest Rate for Domestic Rate Loans plus two (2%) percent per
annum and (ii) Eurodollar Rate Loans shall bear interest at the Revolving
Interest Rate for Eurodollar Rate Loans plus two percent (2%) percent per annum
(as applicable, the “Default Rate”).

 

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3.2 Letter of Credit Fees.

(a) Borrowers shall pay (x) to Agent, for the ratable benefit of Lenders, fees
for each Letter of Credit for the period from and excluding the date of issuance
of same to and including the date of expiration or termination, equal to the
average daily face amount of each outstanding Letter of Credit multiplied by two
percent (2%) per annum, such fees to be calculated on the basis of a 360-day
year for the actual number of days elapsed and to be payable quarterly in
arrears on the first day of each quarter and on the last day of the Term, and
(y) to the Issuer, a fronting fee of one quarter of one percent (0.25%) per
annum, together with any and all administrative, issuance, amendment, payment
and negotiation charges with respect to Letters of Credit and all fees and
expenses as agreed upon by the Issuer and Borrowing Agent in connection with any
Letter of Credit, including in connection with the opening, amendment or renewal
of any such Letter of Credit and any acceptances created thereunder and shall
reimburse Agent for any and all fees and expenses, if any, paid by Agent to the
Issuer (all of the foregoing fees, the “Letter of Credit Fees”). All such
charges shall be deemed earned in full on the date when the same are due and
payable hereunder and shall not be subject to rebate or pro-ration upon the
termination of this Agreement for any reason. Any such charge in effect at the
time of a particular transaction shall be the charge for that transaction,
notwithstanding any subsequent change in the Issuer’s prevailing charges for
that type of transaction. All Letter of Credit payable hereunder shall be deemed
earned in full on the date when the same are due and payable hereunder and shall
not be subject to rebate or pro-ration upon the termination of this Agreement
for any reason. Upon and after the occurrence of an Event of Default, and during
the continuation thereof, at the option of Agent or at the direction of Required
Lenders, the Letter of Credit Fees described in clause (x) of this
Section 3.2(a) shall be increased by an additional two percent (2%) per annum.

On demand, Borrowers will cause cash to be deposited and maintained in an
account with Agent, as cash collateral, in an amount equal to one hundred and
five percent (105%) of the Maximum Undrawn Amount of all outstanding Letters of
Credit for which Agent has not fully implemented the deduction from the Formula
Amount contemplated by Section 2.1(a)(y)(iii) hereof, and each Borrower hereby
irrevocably authorizes Agent, in its discretion, on such Borrower’s behalf and
in such Borrower’s name, to open such an account and to make and maintain
deposits therein, or in an account opened by such Borrower, in the amounts
required to be made by such Borrower, out of the proceeds of Receivables or
other Collateral or out of any other funds of such Borrower coming into any
Lender’s possession at any time. Agent will invest such cash collateral (less
applicable reserves) in such short-term money-market items as to which Agent and
such Borrower mutually agree and the net return on such investments shall be
credited to such account and constitute additional cash collateral. No Borrower
may withdraw amounts credited to any such account except upon the occurrence of
all of the following: (x) payment and performance in full of all Obligations,
(y) expiration of all Letters of Credit and (z) termination of this Agreement.

3.3 [Reserved.]

3.4 Fee Letter. Borrowers shall pay the amounts required to be paid in the Fee
Letter in the manner and at the times required by the Fee Letter, as such Fee
Letter may be amended and restated from time to time.

 

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3.5 Computation of Interest and Fees. Interest and fees hereunder shall be
computed on the basis of a year of 360 days and for the actual number of days
elapsed. If any payment to be made hereunder becomes due and payable on a day
other than a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and interest thereon shall be payable at the Revolving
Interest Rate for Domestic Rate Loans during such extension.

3.6 Maximum Charges. In no event whatsoever shall interest and other charges
charged hereunder exceed the highest rate permissible under law. In the event
interest and other charges as computed hereunder would otherwise exceed the
highest rate permitted under law, such excess amount shall be first applied to
any unpaid principal balance owed by Borrowers, and if the then remaining excess
amount is greater than the previously unpaid principal balance, Lenders shall
promptly refund such excess amount to Borrowers and the provisions hereof shall
be deemed amended to provide for such permissible rate. Notwithstanding anything
to the contrary contained in this Agreement or in any Other Document, all
agreements which either now are or which shall become agreements among Credit
Parties, Agent and the Lenders are hereby limited so that in no contingency or
event whatsoever shall the total liability for payments in the nature of
interest, additional interest and other charges exceed the applicable limits
imposed by any applicable usury laws. If any payments in the nature of interest,
additional interest and other charges made under this Agreement or any Other
Document are held to be in excess of the limits imposed by any applicable usury
laws, it is agreed that any such amount held to be in excess shall be considered
payment of principal hereunder, and the indebtedness evidenced hereby shall be
reduced by such amount so that the total liability for payments in the nature of
interest, additional interest and other charges shall not exceed the applicable
limits imposed by any applicable usury laws, in compliance with the desires of
Credit Parties and Agent. In addition, unless preempted by federal law, the
Revolving Interest Rate or Default Rate, as applicable, from time to time in
effect hereunder may not exceed the “weekly ceiling” from time to time in effect
under Chapter 303 of the Texas Finance Code, as amended from time to time. The
foregoing provisions shall never be superseded or waived and shall control every
other provision of this Agreement or any Other Document and all agreements among
Borrowers and Agent and the Lenders, or their respective successors and assigns.
If the applicable state or federal law is amended in the future to allow a
greater rate of interest to be charged under this Agreement than is presently
allowed by applicable state or federal law, then the limitation of interest
hereunder shall be increased to the maximum rate of interest allowed by
applicable state or federal law as amended, which increase shall be effective
hereunder on the effective date of such amendment, and all interest charges
owing to Lender by reason thereof shall be payable in accordance with
Section 3.1 of this Agreement. If by operation of this provision, Borrowers
would be entitled to a refund of interest paid pursuant to this Agreement, each
Lender agrees that it shall pay to Borrowers upon Agent’s request such Lender’s
Revolving Advance Commitment Percentage, of such interest to be refunded, as
determined by Agent.

 

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3.7 Increased Costs. In the event that any Applicable Law or any Change in Law,
or compliance by any Lender (for purposes of this Section 3.7, the term “Lender”
shall include Agent or any Lender and any corporation or bank controlling Agent
or any Lender) and the office or branch where Agent or any Lender (as so
defined) makes or maintains any Eurodollar Rate Loans with any request or
directive (whether or not having the force of law) from any central bank or
other financial, monetary or other authority, shall:

(a) subject Agent or any Lender to any tax of any kind whatsoever with respect
to this Agreement or any Other Document or change the basis of taxation of
payments to Agent or any Lender of principal, fees, interest or any other amount
payable hereunder or under any Other Documents (except for changes in the rate
of tax on the overall net income of Agent or any Lender by the jurisdiction in
which it maintains its principal office);

(b) impose, modify or hold applicable any reserve, special deposit, assessment
or similar requirement against assets held by, or deposits in or for the account
of, advances or loans by, or other credit extended by, any office of Agent or
any Lender, including pursuant to Regulation D of the Board of Governors of the
Federal Reserve System; or

(c) impose on Agent or any Lender or the London interbank Eurodollar market any
other condition with respect to this Agreement or any Other Document;

(i) and the result of any of the foregoing is to increase the cost to Agent or
any Lender of making, renewing or maintaining its Advances hereunder by an
amount that Agent or such Lender deems to be material or to reduce the amount of
any payment (whether of principal, interest or otherwise) in respect of any of
the Advances by an amount that Agent or such Lender deems to be material, then,
in any case Borrowers shall promptly pay Agent or such Lender, upon its demand,
such additional amount as will compensate Agent or such Lender for such
additional cost or such reduction, as the case may be, provided that the
foregoing shall not apply to increased costs which are reflected in the
Eurodollar Rate, as the case may be. Agent or such Lender shall certify the
amount of such additional cost or reduced amount to Borrowing Agent, and such
certification shall be conclusive absent manifest error.

3.8 Basis For Determining Interest Rate Inadequate or Unfair. In the event that
Agent or any Lender shall have determined that:

(a) reasonable means do not exist for ascertaining the Eurodollar Rate
applicable pursuant to Section 2.2 hereof for any Interest Period; or

(b) Dollar deposits in the relevant amount and for the relevant maturity are not
available in the London interbank Eurodollar market, with respect to an
outstanding Eurodollar Rate Loan, a proposed Eurodollar Rate Loan, or a proposed
conversion of a Domestic Rate Loan into a Eurodollar Rate Loan, then Agent shall
give Borrowing Agent prompt written or telephonic notice of such determination.
If such notice is given, (i) any such requested Eurodollar Rate Loan shall be
made as a Domestic Rate Loan, unless Borrowing Agent shall notify Agent no later
than 10:00 a.m. two (2) Business Days prior to the date of such proposed
borrowing, that its request for such borrowing shall be cancelled or made as an
unaffected type of Eurodollar Rate Loan, (ii) any Domestic Rate Loan or
Eurodollar Rate Loan which was to have been converted to an affected type of
Eurodollar Rate Loan shall be continued as or converted into a Domestic Rate
Loan, or, if Borrowing Agent shall notify Agent, no later than 10:00 a.m. two
(2) Business Days prior to the proposed conversion, shall be maintained as an
unaffected type of Eurodollar Rate Loan, and (iii) any outstanding affected
Eurodollar Rate Loans shall be converted into a Domestic Rate Loan, or, if
Borrowing Agent shall notify Agent, no later than 10:00 a.m. two (2) Business
Days

 

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prior to the last Business Day of the then current Interest Period applicable to
such affected Eurodollar Rate Loan, shall be converted into an unaffected type
of Eurodollar Rate Loan, on the last Business Day of the then current Interest
Period for such affected Eurodollar Rate Loans. Until such notice has been
withdrawn, Lenders shall have no obligation to make an affected type of
Eurodollar Rate Loan or maintain outstanding affected Eurodollar Rate Loans and
no Borrower shall have the right to convert a Domestic Rate Loan or an
unaffected type of Eurodollar Rate Loan into an affected type of Eurodollar Rate
Loan.

3.9 Capital Adequacy.

(a) In the event that Agent or any Lender shall have determined that any
Applicable Law or guideline regarding capital adequacy, or any change therein,
or any change in the interpretation or administration thereof by any
Governmental Body, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Agent or any Lender
(for purposes of this Section 3.9, the term “Lender” shall include Agent or any
Lender and any corporation or bank controlling Agent or any Lender) and the
office or branch where Agent or any Lender (as so defined) makes or maintains
any Eurodollar Rate Loans with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on Agent or any Lender’s capital as a consequence of its obligations
hereunder to a level below that which Agent or such Lender could have achieved
but for such adoption, change or compliance (taking into consideration Agent’s
and each Lender’s policies with respect to capital adequacy) by an amount deemed
by Agent or any Lender to be material, then, from time to time, Borrowers shall
pay upon demand to Agent or such Lender such additional amount or amounts as
will compensate Agent or such Lender for such reduction. In determining such
amount or amounts, Agent or such Lender may use any reasonable averaging or
attribution methods. The protection of this Section 3.9 shall be available to
Agent and each Lender regardless of any possible contention of invalidity or
inapplicability with respect to the Applicable Law or condition.

(b) A certificate of Agent or such Lender setting forth such amount or amounts
as shall be necessary to compensate Agent or such Lender with respect to
Section 3.9(a) hereof when delivered to Borrowing Agent shall be conclusive
absent manifest error.

3.10 Gross Up for Taxes. If any Borrower shall be required by Applicable Law to
withhold or deduct any taxes from or in respect of any sum payable under this
Agreement or any of the Other Documents to Agent, or any Lender, assignee of any
Lender, or Participant (each, individually, a “Payee” and collectively, the
“Payees”), (a) the sum payable to such Payee or Payees, as the case may be,
shall be increased as may be necessary so that, after making all required
withholding or deductions, the applicable Payee or Payees receives an amount
equal to the sum it would have received had no such withholding or deductions
been made (the “Gross-Up Payment”), (b) such Borrower shall make such
withholding or deductions, and (c) such Borrower shall pay the full amount
withheld or deducted to the relevant taxation authority or other authority in
accordance with Applicable Law. Notwithstanding the foregoing, no Borrower shall
be obligated to make any portion of the Gross-Up Payment that is attributable to
any withholding or deductions that would not have been paid or claimed had the
applicable Payee or Payees properly claimed a complete exemption with respect
thereto pursuant to Section 3.11 hereof.

 

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3.11 Withholding Tax Exemption.

(a) Each Payee that is not incorporated under the Laws of the United States of
America or a state thereof (and, upon the written request of Agent, each other
Payee) agrees that it will deliver to Borrowing Agent and Agent two (2) duly
completed appropriate valid Withholding Certificates (as defined under
§1.1441-1(c)(16) of the Income Tax Regulations (“Regulations”)) certifying its
status (i.e., U.S. or foreign person) and, if appropriate, making a claim of
reduced, or exemption from, U.S. withholding tax on the basis of an income tax
treaty or an exemption provided by the Code. The term “Withholding Certificate”
means a Form W-9; a Form W-8BEN; a Form W-8ECI; a Form W-8IMY and the related
statements and certifications as required under §1.1441-1(e)(2) and/or (3) of
the Regulations; a statement described in §1.871-14(c)(2)(v) of the Regulations;
or any other certificates under the Code or Regulations that certify or
establish the status of a payee or beneficial owner as a U.S. or foreign person.

(b) Each Payee required to deliver to Borrowing Agent and Agent a valid
Withholding Certificate pursuant to Section 3.11(a) hereof shall deliver such
valid Withholding Certificate as follows: (A) each Payee which is a party hereto
on the Closing Date shall deliver such valid Withholding Certificate at least
five (5) Business Days prior to the first date on which any interest or fees are
payable by any Borrower hereunder for the account of such Payee; (B) each Payee
shall deliver such valid Withholding Certificate at least five (5) Business Days
before the effective date of such assignment or participation (unless Agent in
its sole discretion shall permit such Payee to deliver such Withholding
Certificate less than five (5) Business Days before such date in which case it
shall be due on the date specified by Agent). Each Payee which so delivers a
valid Withholding Certificate further undertakes to deliver to Borrowing Agent
and Agent two (2) additional copies of such Withholding Certificate (or a
successor form) on or before the date that such Withholding Certificate expires
or becomes obsolete or after the occurrence of any event requiring a change in
the most recent Withholding Certificate so delivered by it, and such amendments
thereto or extensions or renewals thereof as may be reasonably requested by
Borrowing Agent or Agent.

(c) Notwithstanding the submission of a Withholding Certificate claiming a
reduced rate of or exemption from U.S. withholding tax required under
Section 3.11(b) hereof, Agent shall be entitled to withhold United States
federal income taxes at the full 30% withholding rate if in its reasonable
judgment it is required to do so under the due diligence requirements imposed
upon a withholding agent under §1.1441-7(b) of the Regulations. Further, Agent
is indemnified under §1.1461-1(e) of the Regulations against any claims and
demands of any Payee for the amount of any tax it deducts and withholds in
accordance with regulations under §1441 of the Code.

 

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IV COLLATERAL: GENERAL TERMS

4.1 Security Interest in the Collateral. To secure the prompt payment and
performance to Agent and each Lender of the Obligations, each Borrower hereby
assigns, pledges and grants to Agent for its benefit and for the ratable benefit
of each Lender a continuing security interest in and to and Lien on all of its
Collateral, whether now owned or existing or hereafter acquired or arising and
wheresoever located. Each Borrower shall mark its books and records as may be
necessary or appropriate to evidence, protect and perfect Agent’s security
interest and shall cause its financial statements to reflect such security
interest. Each Borrower shall promptly provide Agent with written notice of all
commercial tort claims, such notice to contain the case title together with the
applicable court and a brief description of the claim(s). Upon delivery of each
such notice, such Borrower shall be deemed to hereby grant to Agent a security
interest and lien in and to such commercial tort claims and all proceeds
thereof.

4.2 Perfection of Security Interest. Each Borrower shall take all action that
may be necessary or desirable, or that Agent may request, so as at all times to
maintain the validity, perfection, enforceability and priority of Agent’s
security interest in and Lien on the Collateral or to enable Agent to protect,
exercise or enforce its rights hereunder and in the Collateral, including, but
not limited to, (i) immediately discharging all Liens other than Permitted
Encumbrances, (ii) obtaining Lien Waiver Agreements, (iii) delivering to Agent,
endorsed or accompanied by such instruments of assignment as Agent may specify,
and stamping or marking, in such manner as Agent may specify, any and all
chattel paper, instruments, letters of credits and advices thereof and documents
evidencing or forming a part of the Collateral, (iv) entering into warehousing,
lockbox and other custodial arrangements satisfactory to Agent, and
(v) executing and delivering financing statements, control agreements,
instruments of pledge, mortgages, notices and assignments, in each case in form
and substance satisfactory to Agent, relating to the creation, validity,
perfection, maintenance or continuation of Agent’s security interest and Lien in
the Collateral (including in respect of all Collateral acquired by any Borrower
after the Closing Date) under the Uniform Commercial Code or other Applicable
Law. By its signature hereto, each Borrower hereby authorizes Agent to file
against such Borrower, one or more financing, continuation or amendment
statements pursuant to the Uniform Commercial Code in form and substance
satisfactory to Agent (which statements may have a description of collateral
which is broader than that set forth herein). All charges, expenses and fees
Agent may incur in doing any of the foregoing, and any local taxes relating
thereto, shall be charged to Borrowers’ Account as a Revolving Advance of a
Domestic Rate Loan and added to the Obligations, or, at Agent’s option, shall be
paid to Agent for its benefit and for the ratable benefit of Lenders immediately
upon demand.

4.3 Disposition of Assets. Each Borrower will safeguard and protect all
Collateral for Agent’s general account and make no disposition thereof whether
by sale, lease or otherwise except (a) the sale of Inventory in the Ordinary
Course of Business and (b) the disposition or transfer of Equipment in the
Ordinary Course of Business during any fiscal year having an aggregate fair
market value of not more than $500,000 and only to the extent that (i) the
proceeds of any such disposition are used to acquire replacement Equipment which
is subject to Agent’s first priority security interest or (ii) the proceeds of
which are remitted to Agent to be applied pursuant to Section 2.21.

4.4 Preservation of Collateral. In addition to the rights and remedies set forth
in Section 11.1 hereof, Agent: (a) may at any time take such steps as Agent
deems necessary to protect Agent’s interest in and to preserve the Collateral,
including the hiring of such security guards or the placing of other security
protection measures as Agent may deem appropriate; (b)

 

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may employ and maintain at any of any Borrower’s premises a custodian who shall
have full authority to do all acts necessary to protect Agent’s interests in the
Collateral; (c) after the occurrence and during the continuation of a Default or
an Event of Default, may lease warehouse facilities to which Agent may move all
or part of the Collateral; (d) may use any Borrower’s owned or leased lifts,
hoists, trucks and other facilities or equipment for handling or removing the
Collateral; and (e) shall have, and is hereby granted, a right of ingress and
egress to the places where the Collateral is located, and may proceed over and
through any of Borrower’s owned or leased property. Each Borrower shall
cooperate fully with all of Agent’s efforts to preserve the Collateral and will
take such actions to preserve the Collateral as Agent may direct. All of Agent’s
expenses of preserving the Collateral, including any expenses relating to the
bonding of a custodian, shall be charged to Borrowers’ Account as a Revolving
Advance maintained as a Domestic Rate Loan and added to the Obligations.

4.5 Ownership of Collateral.

(a) With respect to the Collateral, at the time the Collateral becomes subject
to Agent’s security interest: (i) each Borrower is, and shall remain the sole
owner of and fully authorized and able to sell, transfer, pledge and/or grant a
first priority security interest in each and every item of its respective
Collateral to Agent; and, except for Permitted Encumbrances the Collateral shall
be free and clear of all Liens and encumbrances whatsoever; (ii) each document
and agreement executed by each Borrower or delivered to Agent or any Lender in
connection with this Agreement shall be true and correct in all respects;
(iii) all signatures and endorsements of each Borrower that appear on such
documents and agreements shall be genuine and such Borrower shall have full
capacity to execute same; and (iv) each Borrower’s Equipment and Inventory shall
be located as set forth on Schedule 4.5 and shall not be removed from such
location(s) without the prior written consent of Agent except with respect to
the sale of Inventory in the Ordinary Course of Business and Equipment to the
extent permitted in Section 4.3 hereof.

(b) (i) There is no location at which any Borrower has any Inventory (except for
Inventory in transit) other than those locations listed on Schedule 4.5;
(ii) Schedule 4.5 hereto contains a correct and complete list, as of the Closing
Date, of the legal names and addresses of each warehouse at which Inventory of
any Borrower is stored; none of the receipts received by any Borrower from any
warehouse states that the goods covered thereby are to be delivered to bearer or
to the order of a named Person or to a named Person and such named Person’s
assigns; (iii) Schedule 4.5 hereto sets forth a correct and complete list as of
the Closing Date of (A) each place of business of each Borrower and (B) the
chief executive office of each Borrower; and (iv) Schedule 4.5 hereto sets forth
a correct and complete list as of the Closing Date of the location, by state and
street address, of all Real Property owned or leased by any Borrower, together
with the names and addresses of any landlords.

4.6 Defense of Agent’s and Lenders’ Interests. Until (a) payment and performance
in full of all of the Obligations and (b) termination of this Agreement and the
Other Documents, Agent’s interests in the Collateral shall continue in full
force and effect. During such period no Borrower shall, without Agent’s prior
written consent, pledge, sell (except Inventory in the Ordinary Course of
Business and Equipment to the extent permitted in Section 4.3 hereof), assign,
transfer, create or suffer to exist a Lien upon or encumber or allow or suffer
to be encumbered in any way except for Permitted Encumbrances, any part of the
Collateral. Each

 

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Borrower shall defend Agent’s interests in the Collateral against any and all
Persons whatsoever. At any time following demand by Agent for payment of all
Obligations, Agent shall have the right to take possession of the indicia of the
Collateral and the Collateral in whatever physical form contained, including:
labels, stationery, documents, instruments and advertising materials. If Agent
exercises this right to take possession of the Collateral, Borrowers shall, upon
demand, assemble it in the best manner possible and make it available to Agent
at a place reasonably convenient to Agent. In addition, with respect to all
Collateral, Agent and Lenders shall be entitled to all of the rights and
remedies set forth herein and further provided by the Uniform Commercial Code or
other Applicable Law. Each Borrower shall, and Agent may, at its option,
instruct all suppliers, carriers, forwarders, warehousers or others receiving or
holding cash, checks, Inventory, documents or instruments in which Agent holds a
security interest to deliver same to Agent and/or subject to Agent’s order and
if they shall come into any Borrower’s possession, they, and each of them, shall
be held by such Borrower in trust as Agent’s trustee, and such Borrower will
immediately deliver them to Agent in their original form together with any
necessary endorsement.

4.7 Books and Records. Each Borrower shall (a) keep proper books of record and
account in which full, true and correct entries will be made of all dealings or
transactions of or in relation to its business and affairs; (b) set up on its
books accruals with respect to all taxes, assessments, charges, levies and
claims; (c) on a reasonably current basis set up on its books, from its
earnings, allowances against doubtful Receivables, advances and investments and
all other proper accruals (including by reason of enumeration, accruals for
premiums, if any, due on required payments and accruals for depreciation,
obsolescence, or amortization of properties), which should be set aside from
such earnings in connection with its business; and (d) obtain Lien Waiver
Agreements with respect to all premises leased by a Borrower where books and
records are stored. All determinations pursuant to this subsection shall be made
in accordance with, or as required by, GAAP consistently applied in the opinion
of such independent public accountant as shall then be regularly engaged by
Borrowers.

4.8 Financial Disclosure. Each Borrower hereby irrevocably authorizes and
directs all accountants and auditors employed by such Borrower at any time
during the Term to exhibit and deliver to Agent and each Lender copies of any of
such Borrower’s financial statements, trial balances or other accounting records
of any sort in the accountant’s or auditor’s possession, and to disclose to
Agent and each Lender any information such accountants may have concerning such
Borrower’s financial status and business operations, provided that Agent and
Lenders shall provide Borrowers with prior notice of communications with such
accountants or auditors so long as no Default or Event of Default shall have
occurred. Each Borrower hereby authorizes all Governmental Bodies to furnish to
Agent and each Lender copies of reports or examinations relating to such
Borrower, whether made by such Borrower or otherwise; however, Agent and each
Lender will attempt to obtain such information or materials directly from such
Borrower prior to obtaining such information or materials from such accountants
or Governmental Bodies.

4.9 Compliance with Laws. Each Borrower shall comply in all material respects
with all Applicable Laws with respect to the Collateral or any part thereof or
to the operation of such Borrower’s business the non-compliance with which could
reasonably be expected to have a Material Adverse Effect. Each Borrower may,
however, contest or dispute any Applicable Laws in any reasonable manner,
provided that any related Lien is inchoate or stayed and sufficient

 

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reserves are established to the reasonable satisfaction of Agent to protect
Agent’s Lien on or security interest in the Collateral. The assets of the
Borrowers at all times shall be maintained in accordance with the requirements
of all insurance carriers which provide insurance with respect to the assets of
the Borrowers so that such insurance shall remain in full force and effect.

4.10 Inspection of Premises. At all reasonable times and upon advance notice
(except that no notice shall be required upon the occurrence and continuance of
a Default or Event of Default), Agent and each Lender shall have full access to
and the right to audit, check, inspect and make abstracts and copies from each
Borrower’s books, records, audits, correspondence and all other papers relating
to the Collateral and the operation of each Borrower’s business. Agent, any
Lender and their agents may enter upon any premises of any Borrower at any time
during business hours and at any other reasonable time, and from time to time,
for the purpose of inspecting the Collateral and any and all records pertaining
thereto and the operation of Borrower’s business.

4.11 Insurance. The assets and properties of each Borrower at all times shall be
maintained in accordance with the requirements of all insurance carriers which
provide insurance with respect to the assets and properties of such Borrower so
that such insurance shall remain in full force and effect. Each Borrower shall
bear the full risk of any loss of any nature whatsoever with respect to the
Collateral. At each Borrower’s own cost and expense in amounts and with carriers
acceptable to Agent, each Borrower shall (a) keep all its insurable properties
and properties in which such Borrower has an interest insured against the
hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to such Borrower’s
including business interruption insurance; (b) maintain a bond in such amounts
as is customary in the case of companies engaged in businesses similar to such
Borrower insuring against larceny, embezzlement or other criminal
misappropriation of insured’s officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of such
Borrower either directly or through authority to draw upon such funds or to
direct generally the disposition of such assets; (c) maintain public and product
liability insurance against claims for personal injury, death or property damage
suffered by others; (d) maintain all such worker’s compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which such Borrower is engaged in business; (e) furnish Agent with (i) copies of
all policies and evidence of the maintenance of such policies by the renewal
thereof at least thirty (30) days before any expiration date, and
(ii) appropriate lender loss payable endorsements in form and substance
satisfactory to Agent, naming Agent as an additional insured and lender loss
payee as its interests may appear with respect to all insurance coverage
referred to in clauses (a), and (c) above, and providing (A) that all proceeds
thereunder shall be payable to Agent, (B) no such insurance shall be affected by
any act or neglect of the insured or owner of the property described in such
policy, and (C) that such policy and loss payable clauses may not be cancelled,
amended or terminated unless at least thirty (30) days’ prior written notice is
given to Agent. In the event of any loss thereunder, the carriers named therein
hereby are directed by Agent and the applicable Borrower to make payment for
such loss to Agent and not to such Borrower and Agent jointly. If any insurance
losses are paid by check, draft or other instrument payable to any Borrower and
Agent jointly, Agent may endorse such Borrower’s name thereon and do such other
things as Agent may deem advisable to reduce the same to cash. Agent is hereby
authorized to adjust and compromise claims under insurance coverage referred to
in clauses (a),

 

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and (b) above. All loss recoveries received by Agent upon any such insurance may
be applied to the Obligations, in such order as Agent in its sole discretion
shall determine. Any surplus shall be paid by Agent to Borrowers or applied as
may be otherwise required by law. Any deficiency thereon shall be paid by
Borrowers to Agent, on demand.

4.12 Failure to Pay Insurance. If any Borrower fails to obtain insurance as
hereinabove provided, or to keep the same in force, Agent, if Agent so elects,
may obtain such insurance and pay the premium therefor on behalf of such
Borrower, and charge Borrowers’ Account therefor as a Revolving Advance of a
Domestic Rate Loan and such expenses so paid shall be part of the Obligations.

4.13 Payment of Taxes. Each Borrower will pay, when due, all taxes, assessments
and other Charges lawfully levied or assessed upon such Borrower or any of the
Collateral including real and personal property taxes, assessments and charges
and all franchise, income, employment, social security benefits, withholding,
and sales taxes (unless such taxes, assessments and other Charges are being
Properly Contested). If any tax by any Governmental Body is or may be imposed on
or as a result of any transaction between any Borrower and Agent or any Lender
which Agent or any Lender may be required to withhold or pay or if any taxes,
assessments, or other Charges remain unpaid after the date fixed for their
payment, or if any claim shall be made which, in Agent’s or any Lender’s
opinion, may possibly create a valid Lien on the Collateral, Agent may without
notice to Borrowers pay the taxes, assessments or other Charges and each
Borrower hereby indemnifies and holds Agent and each Lender harmless in respect
thereof. Agent will not pay any taxes, assessments or Charges to the extent that
any applicable Borrower has Properly Contested those taxes, assessments or
Charges. The amount of any payment by Agent under this Section 4.13 shall be
charged to Borrowers’ Account as a Revolving Advance maintained as a Domestic
Rate Loan and added to the Obligations and, until Borrowers shall furnish Agent
with an indemnity therefor (or supply Agent with evidence satisfactory to Agent
that due provision for the payment thereof has been made), Agent may hold
without interest any balance standing to Borrowers’ credit and Agent shall
retain its security interest in and Lien on any and all Collateral held by
Agent.

4.14 Payment of Leasehold Obligations. Each Borrower shall at all times pay,
when and as due, its rental obligations under all leases under which it is a
tenant, and shall otherwise comply, in all material respects, with all other
terms of such leases and keep them in full force and effect and, at Agent’s
request will provide evidence of having done so.

4.15 Receivables.

(a) Nature of Receivables. Each of the Receivables shall be a bona fide and
valid account representing a bona fide indebtedness incurred by the Customer
therein named, for a fixed sum as set forth in the invoice relating thereto
(provided that, immaterial or unintentional invoice errors shall not be deemed
to be a breach hereof) with respect to an absolute sale or lease and delivery of
goods upon stated terms of a Borrower (or, for Receivables acquired pursuant to
an Acquisition Agreement, the sellers thereunder), or work, labor or services
theretofore rendered by a Borrower (or, for Receivables acquired pursuant to an
Acquisition Agreement, the sellers thereunder) as of the date each Receivable is
created. Same shall be due and owing in accordance with the applicable
Borrower’s standard terms of sale without dispute, setoff or counterclaim except
as may be stated on the accounts receivable schedules delivered by Borrowers to
Agent.

 

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(b) Solvency of Customers. Each Customer, to the best of each Borrower’s
knowledge, as of the date each Receivable is created, is and will be solvent and
able to pay all Receivables on which the Customer is obligated in full when due
or with respect to such Customers of any Borrower who are not solvent such
Borrower has set up on its books and in its financial records bad debt reserves
adequate to cover such Receivables.

(c) Location of Borrowers. The Borrowers’ chief executive office is located at
2930 W. Sam Houston Parkway N. – Suite 300, Houston, TX 77043. Until written
notice is given to Agent by Borrowing Agent of any other office at which any
Borrower keeps its records pertaining to Receivables, all such records shall be
kept at such executive office.

(d) Collection of Receivables. Until Borrower’s authority to do so is terminated
by Agent (which notice Agent may give at any time following the occurrence of an
Event of Default or a Default or when Agent in its sole discretion deems it to
be in Lenders’ best interest to do so), each Borrower will, at such Borrower’s
sole cost and expense, but on Agent’s behalf and for Agent’s account, collect as
Agent’s property and in trust for Agent all amounts received on Receivables and
shall not commingle such collections with any Borrower’s funds or use the same
except to pay Obligations Each Borrower shall deposit in the Blocked Account or,
upon request by Agent, deliver to Agent, in original form and on the date of
receipt thereof, all checks, drafts, notes, money orders, acceptances, cash and
other evidences of Indebtedness.

(e) Notification of Assignment of Receivables. At any time following the
occurrence of an Event of Default or a Default, or at such other times as Agent
determines, is necessary or appropriate, Agent shall have the right to send
notice of the assignment of, and Agent’s security interest in and Lien on, the
Receivables to any and all Customers or any third party holding or otherwise
concerned with any of the Collateral. Thereafter, Agent shall have the sole
right to collect the Receivables, take possession of the Collateral, or both.
Agent’s actual collection expenses, including, but not limited to, stationery
and postage, telephone and telegraph, secretarial and clerical expenses and the
salaries of any collection personnel used for collection, may be charged to
Borrowers’ Account and added to the Obligations.

(f) Power of Agent to Act on Borrowers’ Behalf. Agent shall have the right to
receive, endorse, assign, and/or deliver in the name of Agent or any Borrower
any and all checks, drafts and other instruments for the payment of money
relating to the Receivables, and each Borrower hereby waives notice of
presentment, protest and non-payment of any instrument so endorsed. Each
Borrower hereby constitutes Agent or Agent’s designee as such Borrower’s
attorney with power (i) to endorse such Borrower’s name upon any notes,
acceptances, checks, drafts, money orders or other evidences of payment or
Collateral; (ii) to sign such Borrower’s name on any invoice or bill of lading
relating to any of the Receivables, drafts against Customers, assignments and
verifications of Receivables, in each case, upon and during the continuance of a
Default or an Event of Default; (iii) to send verifications of Receivables to
any Customer; (iv) to authorize the filing of financing statements and to sign
such Borrower’s name on any documents or instruments deemed necessary or
appropriate by Agent to preserve, protect, or perfect Agent’s interest in the
Collateral and to file same; (v) to demand payment of the

 

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Receivables; (vi) to enforce payment of the Receivables by legal proceedings or
otherwise upon and during the continuance of a Default or an Event of Default;
(vii) to exercise all of such Borrower’s rights and remedies with respect to the
collection of the Receivables and any other Collateral upon and during the
continuance of a Default or an Event of Default; (viii) to settle, adjust,
compromise, extend or renew the Receivables upon and during the continuance of a
Default or an Event of Default; (ix) to settle, adjust or compromise any legal
proceedings brought to collect Receivables upon and during the continuance of a
Default or an Event of Default; (x) to prepare, file and sign such Borrower’s
name on a proof of claim in bankruptcy or similar document against any Customer
upon and during the continuance of a Default or an Event of Default; (xi) to
prepare, file and sign such Borrower’s name on any notice of Lien, assignment or
satisfaction of Lien or similar document in connection with the Receivables upon
and during the continuance of a Default or an Event of Default; and (xii) to do
all other acts and things necessary to carry out this Agreement. All acts of
said attorney or designee are hereby ratified and approved, and said attorney or
designee shall not be liable for any acts of omission or commission nor for any
error of judgment or mistake of fact or of law (INCLUDING, WITHOUT LIMITATION,
WITH RESPECT TO ANY ACT OR INACTION ARISING FROM AGENT’S OR LENDER’S NEGLIGENCE
OR STRICT LIABILITY), unless done maliciously or with gross (not mere)
negligence (as determined by a court of competent jurisdiction in a final
non-appealable judgment); this power being coupled with an interest is
irrevocable while any of the Obligations remain unpaid. Agent shall have the
right at any time following the occurrence of an Event of Default or Default, to
change the address for delivery of mail addressed to any Borrower to such
address as Agent may designate and to receive, open and dispose of all mail
addressed to any Borrower.

(g) No Liability. Neither Agent nor any Lender shall, under any circumstances or
in any event whatsoever, have any liability for any error or omission or delay
of any kind (INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO ANY ACT OR INACTION
ARISING FROM AGENT’S OR ANY LENDER’S NEGLIGENCE OR STRICT LIABILITY) occurring
in the settlement, collection or payment of any of the Receivables or any
instrument received in payment thereof, or for any damage resulting therefrom.
Following the occurrence of an Event of Default or Default Agent may, without
notice or consent from any Borrower, sue upon or otherwise collect, extend the
time of payment of, compromise or settle for cash, credit or upon any terms any
of the Receivables or any other securities, instruments or insurance applicable
thereto and/or release any obligor thereof. Agent is authorized and empowered to
accept following the occurrence of an Event of Default or Default the return of
the goods represented by any of the Receivables, without notice to or consent by
any Borrower, all without discharging or in any way affecting any Borrower’s
liability hereunder.

(h) Establishment of a Lockbox Account, Dominion Account. All proceeds of
Collateral shall be deposited by Borrowers into either (i) a lockbox account,
dominion account or such other “blocked account” (“Blocked Accounts”)
established at a bank or banks (each such bank, a “Blocked Account Bank”)
pursuant to an arrangement with such Blocked Account Bank as may be selected by
Borrowing Agent and be acceptable to Agent or (ii) depository accounts
(“Depository Accounts”) established at the Agent for the deposit of such
proceeds. Each applicable Borrower, Agent and each Blocked Account Bank shall
enter into a deposit account control agreement in form and substance
satisfactory to Agent directing such Blocked Account

 

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Bank to transfer such funds so deposited to Agent, either to any account
maintained by Agent at said Blocked Account Bank or by wire transfer to
appropriate account(s) of Agent; provided, however, that no such deposit account
control agreement shall be required with respect to (i) deposit accounts
maintained solely for the payment of payroll, payroll taxes and benefits and
(ii) the deposit accounts listed on Schedule 4.15(h)-1 so long as the aggregate
balance of the accounts listed on such schedule does not exceed $125,000 at any
time, which balance shall be promptly reported to Agent upon Agent’s request and
immediately reported to Agent in the event any such balance exceeds $125,000 for
more than one (1) Business Day. All funds deposited in such Blocked Accounts
shall immediately become the property of Agent and Borrowing Agent shall obtain
the agreement by such Blocked Account Bank to waive any offset rights against
the funds so deposited. For the avoidance of doubt, to the extent any funds so
deposited in a Blocked Account or a Depository Account remain after application
to the outstanding Advances in accordance with this Agreement, Borrowing Agent
may deliver a written request to Agent to transfer such excess funds to
Borrowers’ operating account and, upon such transfer, such funds shall not be
deemed property of Agent. Neither Agent nor any Lender assumes any
responsibility for such blocked account arrangement, including any claim of
accord and satisfaction or release with respect to deposits accepted by any
Blocked Account Bank thereunder. Borrowing Agent shall notify each Customer of
any Borrower to send all future payments owed to a Borrower by such Customer,
including, but not limited to, payments on any Receivable, to a Blocked Account
or Depository Account, (i) with respect to any Person that is a Customer of any
Borrower on the Closing Date, within thirty (30) days of the Closing Date and
(ii) with respect to any Person that is not a Customer on the Closing Date,
promptly upon such Person becoming a Customer of a Borrower. If any Borrower
shall receive any collections or other proceeds of the Collateral, such Borrower
shall hold such collections or proceeds in trust for the benefit of Agent and
deposit such collections or proceeds into a Blocked Account or Depository
Account within one (1) Business Day following such Borrower’s receipt thereof.
All Deposit Accounts, investment accounts and other bank accounts of any Credit
Party, including, without limitation, all Blocked Accounts and Depository
Accounts are described and set forth on Schedule 4.15(h)-2 hereto.

(i) Adjustments. No Borrower will, without Agent’s consent, compromise or adjust
any Receivables (or extend the time for payment thereof) or accept any returns
of merchandise or grant any additional discounts, allowances or credits thereon
except for those compromises, adjustments, returns, discounts, credits and
allowances as have been heretofore customary in the business of such Borrower.

4.16 Inventory. To the extent Inventory held for sale or lease has been produced
by any Borrower, it has been and will be produced by such Borrower in accordance
with the Federal Fair Labor Standards Act of 1938, as amended, and all rules,
regulations and orders thereunder.

4.17 Maintenance of Equipment. The Equipment shall be maintained in good
operating condition and repair (reasonable wear and tear excepted) and all
necessary replacements of and repairs thereto shall be made so that the value
and operating efficiency of the Equipment shall be maintained and preserved. No
Borrower shall use or operate the Equipment in violation of any law, statute,
ordinance, code, rule or regulation. Each Borrower shall have the right to sell
Equipment to the extent set forth in Section 4.3 hereof.

 

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4.18 Exculpation of Liability. Nothing herein contained shall be construed to
constitute Agent or any Lender as any Borrower’s agent for any purpose
whatsoever, nor shall Agent or any Lender be responsible or liable for any
shortage, discrepancy, damage, loss or destruction of any part of the Collateral
wherever the same may be located and regardless of the cause thereof (INCLUDING,
WITHOUT LIMITATION, WITH RESPECT TO ANY ACT OR INACTION ARISING FROM AGENT’S OR
ANY LENDER’S NEGLIGENCE OR STRICT LIABILITY). Neither Agent nor any Lender,
whether by anything herein or in any assignment or otherwise, assume any of any
Borrower’s obligations under any contract or agreement assigned to Agent or such
Lender, and neither Agent nor any Lender shall be responsible in any way for the
performance by any Borrower of any of the terms and conditions thereof.

4.19 Environmental Matters.

(a) Borrowers shall ensure that the Real Property and all operations and
businesses conducted thereon remains in material compliance with all
Environmental Laws and they shall not place or permit to be placed any Hazardous
Substances on any Real Property except in accordance with Applicable Law or
appropriate governmental authorities.

(b) Borrowers shall establish and maintain a system to assure and monitor
continued compliance with all applicable Environmental Laws which system shall
include periodic reviews of such compliance.

(c) Borrowers shall (i) employ in connection with the use of the Real Property
appropriate technology necessary to maintain compliance with any applicable
Environmental Laws and (ii) to the extent required by any applicable
Environmental Laws, dispose of any and all Hazardous Waste generated at the Real
Property only at facilities and with carriers that maintain valid permits under
RCRA and any other applicable Environmental Laws.

(d) In the event any Borrower or any of their respective Subsidiaries obtains,
gives or receives written notice of any Release or threat of Release of a
reportable quantity of any Hazardous Substances at the Real Property (any such
event being hereinafter referred to as a “Hazardous Discharge”) or receives with
respect to Environmental Laws or Hazardous Discharge, any notice of violation,
request for information or notification that it is potentially responsible for
investigation or cleanup of Hazardous Discharge at the Real Property, demand
letter or complaint, order, citation, or other written notice with regard to any
Hazardous Discharge or violation of Environmental Laws affecting the Real
Property or such Borrower’s interest therein (any of the foregoing is referred
to herein as an “Environmental Complaint”) from any Person, including any state
agency responsible in whole or in part for environmental matters in the state in
which the Real Property is located or the United States Environmental Protection
Agency (any such person or entity hereinafter the “Authority”), then Borrowing
Agent shall, and shall cause such Subsidiary, as applicable, within five
(5) Business Days, give written notice of same to Agent detailing facts and
circumstances of which any Borrower is aware giving rise to the Hazardous
Discharge or Environmental Complaint. Such information is to be provided to
allow Agent to protect its security interest in and Lien on the Real Property
and the Collateral and is not intended to create nor shall it create any
obligation upon Agent or any Lender with respect thereto.

 

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(e) Borrowing Agent shall promptly forward to Agent copies of any request for
information, notification of potential liability, demand letter relating to
potential responsibility with respect to the investigation or cleanup of
Hazardous Substances at any other site owned, operated or used by any Borrower
to dispose of Hazardous Substances and shall continue to forward copies of
material correspondence between any Borrower and the Authority regarding such
claims to Agent until the claim is settled. Borrowing Agent shall promptly
forward to Agent copies of all documents and reports concerning a Hazardous
Discharge at the Real Property that any Borrower is required to file under any
Environmental Laws. Such information is to be provided solely to allow Agent to
protect Agent’s security interest in and Lien on the Real Property and the
Collateral.

(f) As required by Environmental Law, Borrowers shall respond promptly to any
Hazardous Discharge or Environmental Complaint and take all necessary in order
to comply with Environmental Laws. If any Borrower shall fail to respond
promptly to any Hazardous Discharge or Environmental Complaint or any Borrower
shall fail to comply with any of the requirements of any Environmental Laws,
Agent on behalf of Lenders may, but without the obligation to do so, for the
sole purpose of protecting Agent’s interest in the Collateral: (A) give such
notices or (B) enter onto the Real Property (or authorize third parties to enter
onto the Real Property) and take such actions as Agent (or such third parties as
directed by Agent) deem reasonably necessary or advisable, to clean up, remove,
mitigate or otherwise deal with any such Hazardous Discharge or Environmental
Complaint. All reasonable costs and expenses incurred by Agent and Lenders (or
such third parties) in the exercise of any such rights, including any sums paid
in connection with any judicial or administrative investigation or proceedings,
fines and penalties, together with interest thereon from the date expended at
the Default Rate for Domestic Rate Loans constituting Revolving Advances shall
be paid upon demand by Borrowers, and until paid shall be added to and become a
part of the Obligations secured by the Liens created by the terms of this
Agreement or any other agreement between Agent, any Lender and any Borrower.

(g) Promptly upon the written request of Agent from time to time, Borrowers
shall provide Agent, at Borrowers’ expense, with an environmental site
assessment or environmental audit report prepared by an environmental
engineering firm acceptable in the reasonable opinion of Agent, to assess with a
reasonable degree of certainty the existence of a Hazardous Discharge and the
potential costs in connection with abatement, cleanup and removal of any
Hazardous Substances found on, under, at or within the Real Property. Any report
or investigation of such Hazardous Discharge proposed and acceptable to an
appropriate Authority that is charged to oversee the clean-up of such Hazardous
Discharge shall be acceptable to Agent. If such estimates, individually or in
the aggregate, exceed $100,000, Agent shall have the right to require Borrowers
to post a bond, letter of credit or other security reasonably satisfactory to
Agent to secure payment of these costs and expenses.

(h) Borrowers shall defend and indemnify Agent and Lenders and hold Agent,
Lenders and their respective employees, agents, directors and officers harmless
from and against all loss, liability (INCLUDING, WITHOUT LIMITATION, ANY STRICT
LIABILITY), damage and expense, claims, costs, fines and penalties, including
attorney’s fees, suffered or incurred by Agent or Lenders under or on account of
any Environmental Laws, including the assertion of any Lien thereunder, with
respect to any Hazardous Discharge, the presence of any

 

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Hazardous Substances affecting the Real Property, whether or not the same
originates or emerges from the Real Property or any contiguous real estate,
including any loss of value of the Real Property as a result of the foregoing
(INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO ANY ACT OR INACTION ARISING FROM
AGENT’S OR LENDER’S NEGLIGENCE OR STRICT LIABILITY), except to the extent such
loss, liability , damage and expense is attributable to any Hazardous Discharge
resulting from actions on the part of Agent or any Lender. Borrowers’
obligations under this Section 4.19 shall arise upon the discovery of the
presence of any Hazardous Substances at the Real Property, whether or not any
federal, state, or local environmental agency has taken or threatened any action
in connection with the presence of any Hazardous Substances. Borrowers’
obligation and the indemnifications hereunder shall survive the termination of
this Agreement.

(i) For purposes of Section 4.19 and 5.7, all references to Real Property shall
be deemed to include all of each Borrower’s right, title and interest in and to
its owned and leased premises.

4.20 Financing Statements. Except as respect to the financing statements filed
by Agent and the financing statements described on Schedule 1.2, no financing
statement covering any of the Collateral or any proceeds thereof is on file in
any public office.

4.21 Vehicle Titles. With respect to each vehicle, trailer or other item of
Collateral subject to a certificate of title statute (each a “Vehicle Title”)
acquired after the Closing Date, Borrowers shall deliver to Agent, in form and
substance satisfactory to Agent: (i) all necessary fully-executed, notarized
powers of attorney authorizing Automotive Resources International to perfect
Liens on behalf of Agent; (ii) an original title properly endorsed to such
Borrower for each such item of Collateral; (iii) all other necessary
documentation or information required by Applicable Law, including without
limitation, vehicle descriptions, odometer statements and owner and lienholder
identification information; and (iv) evidence that Agent’s Lien has been duly
noted thereon. For the avoidance of doubt, Agent shall retain possession of all
original Vehicle Titles reflecting Agent as the lienholder thereunder.

 

V REPRESENTATIONS AND WARRANTIES.

Each Borrower represents and warrants as follows:

5.1 Authority. Each Borrower has full power, authority and legal right to enter
into this Agreement and the Other Documents and to perform all its respective
Obligations hereunder and thereunder. This Agreement, the Intercreditor
Agreement and the Other Documents have been duly executed and delivered by each
Borrower, and this Agreement, the Intercreditor Agreement and the Other
Documents constitute the legal, valid and binding obligation of such Borrower,
enforceable in accordance with their terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, moratorium or similar laws
affecting creditors’ rights generally. The execution, delivery and performance
of this Agreement and of the Other Documents (a) are within the applicable
Borrower’s corporate, or limited liability company powers, as the case may be,
have been duly authorized by all necessary corporate or company action, as
applicable, are not in contravention of law or the terms of such Borrower’s
Organizational Documents or of any material agreement or undertaking to which
such Borrower

 

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is a party or by which such Borrower is bound, including any Acquisition
Agreement or the Convertible Senior Notes Documentation, (b) will not conflict
with or violate any law or regulation, or any judgment, order or decree of any
Governmental Body, (c) will not require the Consent of any Governmental Body or
any other Person, except those Consents set forth on Schedule 5.1 hereto, all of
which will have been duly obtained, made or compiled prior to the Closing Date
and which are in full force and effect and (d) will not conflict with, nor
result in any breach in any of the provisions of or constitute a default under
or result in the creation of any Lien except Permitted Encumbrances upon any
asset of such Borrower under the provisions of any agreement, charter document,
instrument, by-law, operating agreement or other instrument to which such
Borrower is a party or by which it or its property is a party or by which it may
be bound, including under the provisions of the Convertible Senior Notes
Documentation or any Acquisition Agreement.

5.2 Formation and Qualification.

(a) Each Borrower is duly incorporated or formed, as applicable, and in good
standing under the laws of the state listed on Schedule 5.2(a), and is qualified
to do business and is in good standing in the states listed on Schedule 5.2(a)
which constitute all states in which qualification and good standing are
necessary for such Borrower to conduct its business and own its property and
where the failure to so qualify could reasonably be expected to have a Material
Adverse Effect on such Borrower. Each Borrower has delivered to Agent true and
complete copies of its Organizational Documents and will promptly notify Agent
of any amendment or changes thereto.

(b) The only Subsidiaries of Holdings and each Borrower are listed on Schedule
5.2(b). The Equity Interests of each Borrower are presently held by the Persons
identified on Schedule 5.2(b), in the numbers of interests set forth thereon.

(c) All accrued but unpaid dividends owing on account of the Equity Interests of
each Borrower as of the Closing Date are set forth on Schedule 5.2(c).

5.3 Survival of Representations and Warranties. All representations and
warranties of the Credit Parties contained in this Agreement and the Other
Documents shall be true at the time of such Borrower’s execution of this
Agreement and the Other Documents, and shall survive the execution, delivery and
acceptance thereof by the parties thereto and the closing of the transactions
described therein or related thereto.

5.4 Tax Returns. Each Borrower’s federal tax identification number is set forth
on Schedule 5.4. Each Borrower has filed all federal, state, local and foreign
(if applicable) tax returns and other reports each is required by law to file
and has paid all taxes, assessments, fees and other governmental charges that
are due and payable. To the best knowledge of Borrowers, the provision for taxes
on the books of each Borrower is adequate for all years not closed by applicable
statutes, and for its current fiscal year, and no Borrower has knowledge of any
deficiency or additional assessment in connection therewith not provided for on
its books, and the charges, accruals and reserves on the books of Holdings and
its Subsidiaries in respect of federal, state and local and/or foreign taxes for
all such years and for the current fiscal year.

 

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5.5 Financial Statements.

(a) The pro forma balance sheet of Holdings and its Subsidiaries on a
consolidated basis (the “Pro Forma Balance Sheet”) furnished to Agent on the
Closing Date reflects the consummation of the transactions contemplated under
this Agreement and under the Convertible Senior Notes (collectively, the
“Transactions”) and fairly reflects the financial condition, results of
operations and cash flows of Holdings and its Subsidiaries as of the Closing
Date after giving effect to the Transactions, and has been prepared in
accordance with GAAP, consistently applied. The Pro Forma Balance Sheet has been
certified by an Authorized Officer of Holdings as being based on the information
available to Borrowers as of the date of delivery thereof, and presents fairly
in all material respects on a pro forma basis the estimated financial position,
results of operations and cash flows of Holdings and its Subsidiaries on a
consolidated basis. All financial statements referred to in this subsection
5.5(a), including the related schedules and notes thereto, have been prepared,
in accordance with GAAP, except as may be disclosed in such financial
statements.

(b) The twelve-month cash flow projections of Holdings and its Subsidiaries on a
consolidated basis and its projected balance sheets as of the Closing Date,
copies of which are annexed hereto as Exhibit 5.5(b) (the “Projections”) were
prepared by an Authorized Officer of Holdings, are based on underlying
assumptions which provide a reasonable basis for the projections contained
therein and reflect Holdings’ judgment based on present circumstances of the
most likely set of conditions and course of action for the projected period. The
cash flow Projections together with the Pro Forma Balance Sheet, are referred to
as the “Pro Forma Financial Statements”.

(c) The consolidated balance sheets of Holdings, its Subsidiaries and such other
Persons described therein (including the accounts of all Subsidiaries for the
respective periods during which a subsidiary relationship existed) as of
December 31, 2010, and the related statements of income, changes in
stockholder’s equity, and changes in cash flow for the period ended on such
date, all accompanied by reports thereon containing opinions without
qualification by independent certified public accountants, copies of which have
been delivered to Agent, have been prepared in accordance with GAAP,
consistently applied (except for changes in application in which such
accountants concur) and present fairly the financial position of Holdings and
its Subsidiaries at such date and the results of their operations for such
period. Since December 31, 2010 there has been no change in the condition,
financial or otherwise, of Holdings or its Subsidiaries as shown on the
consolidated balance sheet as of such date and no change in the aggregate value
of machinery, equipment and Real Property owned by Holdings and its
Subsidiaries, except changes which could not reasonably be expected to cause a
Material Adverse Effect or changes in the Ordinary Course of Business, none of
which individually or in the aggregate could reasonably be expected to cause a
Material Adverse Effect.

5.6 Entity Name. No Borrower has been known by any other corporate name in the
past five years and no Borrower sells Inventory or provides services under any
other name except as set forth on Schedule 5.6, nor has any Borrower been the
surviving Person of a merger or consolidation or acquired all or substantially
all of the assets of any Person during the preceding five (5) years.

 

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5.7 O.S.H.A. and Environmental Compliance.

(a) Each Borrower has duly complied with, and its facilities, business, assets,
property, leaseholds, Real Property and Equipment are in compliance in all
material respects with, the provisions of the Federal Occupational Safety and
Health Act, the Environmental Protection Act, RCRA and all other Environmental
Laws; there have been no outstanding citations, written notices or orders of
non-compliance issued to any Borrower or relating to its business, assets,
property, leaseholds or Equipment under any such laws, rules or regulations.

(b) Each Borrower has been issued all required federal, state and local
licenses, certificates or permits relating to all applicable Environmental Laws.

(c) (i) There are no visible signs of releases, spills, discharges, leaks or
disposal (collectively referred to as “Releases”) of Hazardous Substances at,
upon, under or within any Real Property or any premises leased by any Borrower
which could reasonably be expected to cause or give rise to a Material Adverse
Effect; (ii) there are no underground storage tanks or polychlorinated biphenyls
on the Real Property; (iii) to the best of Borrowers’ knowledge, the Real
Property has never been used as a treatment, storage or disposal facility of
Hazardous Waste; and (iv) to the best of Borrowers’ knowledge, no Hazardous
Substances are present on the Real Property, excepting such quantities as are
(x) handled in accordance with all applicable manufacturer’s instructions and
governmental regulations and in proper storage containers and as are necessary
for the operation of the commercial business of Borrowers or their respective
tenants or (y) in material compliance with all applicable Environmental Laws.

5.8 Solvency; No Litigation, Violation, Indebtedness or Default.

(a) Each Borrower is, and after giving effect to the Transactions, will be
solvent, able to pay its debts as they mature, and has, and after giving effect
to the Transactions, will have capital sufficient to carry on its business and
all businesses in which it is about to engage, and (i) as of the Closing Date,
the fair present saleable value of its assets, calculated on a going concern
basis, is in excess of the amount of its liabilities and (ii) subsequent to the
Closing Date, the fair saleable value of its assets (calculated on a going
concern basis) will be in excess of the amount of its liabilities.

(b) Except as disclosed in Schedule 5.8(b), no Borrower has (i) any pending or
threatened litigation, arbitration, actions or proceedings which could
reasonably be expected to cause or result in a Material Adverse Effect, or
(ii) any liabilities or indebtedness for borrowed money other than the
Obligations.

(c) No Borrower is in violation of any applicable statute, law, rule, regulation
or ordinance in any respect which could reasonably be expected to have a
Material Adverse Effect, nor is any Borrower in violation of any order of any
court, Governmental Body or arbitration board or tribunal.

 

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(d) No Borrower, nor any member of the Controlled Group, maintains or
contributes to any Plan other than (i) as of the Closing Date, those listed on
Schedule 5.8(d) hereto and (ii) thereafter, as permitted under this Agreement.
Except as set forth on Schedule 5.8(d), (i) no Plan has incurred any
“accumulated funding deficiency,” as defined in Section 302(a)(2) of ERISA and
Section 412(a) of the Code, whether or not waived, and each Borrower and each
member of the Controlled Group has met all applicable minimum funding
requirements under Section 302 of ERISA in respect of each Plan; (ii) each Plan
which is intended to be a qualified plan under Section 401(a) of the Code as
currently in effect has been determined by the Internal Revenue Service to be
qualified under Section 401(a) of the Code and the trust related thereto is
exempt from federal income tax under Section 501(a) of the Code; (iii) neither
any Borrower nor any member of the Controlled Group has incurred any liability
to the PBGC other than for the payment of premiums, and there are no premium
payments which have become due which are unpaid; (iv) no Plan has been
terminated by the plan administrator thereof nor by the PBGC, and there is no
occurrence which would cause the PBGC to institute proceedings under Title IV of
ERISA to terminate any Plan; (v) at this time, the current value of the assets
of each Plan exceeds the present value of the accrued benefits and other
liabilities of such Plan and neither any Borrower nor any member of the
Controlled Group knows of any facts or circumstances which would materially
change the value of such assets and accrued benefits and other liabilities;
(vi) neither any Borrower nor any member of the Controlled Group has breached
any of the responsibilities, obligations or duties imposed on it by ERISA with
respect to any Plan; (vii) neither any Borrower nor any member of a Controlled
Group has incurred any liability for any excise tax arising under Section 4972
or 4980B of the Code, and no fact exists which could give rise to any such
liability; (viii) neither any Borrower nor any member of the Controlled Group
nor any fiduciary of, nor any trustee to, any Plan, has engaged in a “prohibited
transaction” described in Section 406 of the ERISA or Section 4975 of the Code
nor taken any action which would constitute or result in a Termination Event
with respect to any such Plan which is subject to ERISA; (ix) each Borrower and
each member of the Controlled Group has made all contributions due and payable
with respect to each Plan; (x) there exists no event described in
Section 4043(b) of ERISA, for which the thirty (30) day notice period has not
been waived; (xi) neither any Borrower nor any member of the Controlled Group
has any fiduciary responsibility for investments with respect to any plan
existing for the benefit of persons other than employees or former employees of
any Borrower and any member of the Controlled Group; (xii) neither any Borrower
nor any member of the Controlled Group maintains or contributes to any Plan
which provides health, accident or life insurance benefits to former employees,
their spouses or dependents, other than in accordance with Section 4980B of the
Code; (xiii) neither any Borrower nor any member of the Controlled Group has
withdrawn, completely or partially, from any Multiemployer Plan so as to incur
liability under the Multiemployer Pension Plan Amendments Act of 1980 and there
exists no fact which would reasonably be expected to result in any such
liability; and (xiv) no Plan fiduciary (as defined in Section 3(21) of ERISA)
has any liability for breach of fiduciary duty or for any failure in connection
with the administration or investment of the assets of a Plan.

5.9 Patents, Trademarks, Copyrights and Licenses. All patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, copyrights, copyright applications, design rights, trade names,
trade name applications, domain names, domain name applications, assumed names,
trade secrets and licenses (except for ‘shrink wrap’ licenses in respect of
mass-marketed software licenses generally commercially available) owned or
utilized by any Borrower are set forth on Schedule 5.9, are valid and have been
duly registered or filed with all appropriate Governmental Bodies and constitute
all of the intellectual property rights which are necessary for the operation of
its business; to the best of Borrowers’ knowledge,

 

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there is no objection to or pending challenge to the validity of any such
patent, trademark, copyright, design rights, trade name, trade name application,
trade secret, domain name, domain name applications or license (except for
‘shrink wrap’ licenses in respect of mass-marketed software licenses generally
commercially available) and no Borrower is aware of any grounds for any
challenge, except as set forth in Schedule 5.9 hereto. Each to the best of
Borrowers’ knowledge, each patent, patent application, patent license,
trademark, trademark application, trademark license, service mark, service mark
application, service mark license, trade name, trade name application, domain
name, domain name application, design rights, copyright, copyright application
and copyright license owned or held by any Borrower and all trade secrets used
by any Borrower consist of original material or property developed by such
Borrower or was lawfully acquired by such Borrower from the proper and lawful
owner thereof. Each of such items has been maintained so as to preserve the
value thereof from the date of creation or acquisition thereof. With respect to
all software used by any Borrower, which is the property of such Borrower, such
Borrower is in possession of all source and object codes related to each piece
of software or is the beneficiary of a source code escrow agreement, each such
source code escrow agreement being listed on Schedule 5.9 hereto.

5.10 Licenses and Permits. Except as set forth in Schedule 5.10, each Borrower
(a) is in compliance with and (b) has procured and is now in possession of, all
material licenses or permits required by any applicable federal, state,
provincial or local law, rule or regulation for the operation of its business in
each jurisdiction wherein it is now conducting or proposes to conduct business
and where such noncompliance or failure to procure such licenses or permits
could have a Material Adverse Effect.

5.11 Default of Indebtedness. No Borrower is in default in the payment of the
principal of or interest on any Indebtedness or under any instrument or
agreement under or subject to which any Indebtedness has been issued and no
event has occurred under the provisions of any such instrument or agreement
which with or without the lapse of time or the giving of notice, or both,
constitutes or would constitute an event of default thereunder.

5.12 No Default. No Borrower is in default in the payment or performance of any
of its contractual obligations.

5.13 No Burdensome Restrictions. No Borrower is party to any contract or
agreement the performance of which could have a Material Adverse Effect. Each
Borrower has heretofore delivered to Agent true and complete copies of all
Material Contracts to which it is a party or to which it or any of its
properties is subject. No Borrower has agreed or consented to cause or permit in
the future (upon the happening of a contingency or otherwise) any of its
property, whether now owned or hereafter acquired, to be subject to a Lien which
is not a Permitted Encumbrance.

5.14 No Labor Disputes. No Borrower is involved in any labor dispute; there are
no strikes or walkouts or union organization of any Borrower’s employees
threatened or in existence and no labor contract is scheduled to expire during
the Term other than as set forth on Schedule 5.14 hereto.

 

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5.15 Margin Regulations. No Borrower is engaged, nor will it engage, principally
or as one of its important activities, in the business of extending credit for
the purpose of “purchasing” or “carrying” any “margin stock” within the
respective meanings of each of the quoted terms under Regulation U of the Board
of Governors of the Federal Reserve System as now and from time to time
hereafter in effect. No part of the proceeds of any Advance will be used for
“purchasing” or “carrying” “margin stock” as defined in Regulation U of such
Board of Governors.

5.16 Investment Company Act. No Borrower is an “investment company” registered
or required to be registered under the Investment Company Act of 1940, as
amended, nor is it controlled by such a company.

5.17 Disclosure. No representation or warranty made by any Borrower in this
Agreement, the Convertible Senior Notes Documentation or in any Acquisition
Agreement, or in any financial statement, report, certificate or any other
document furnished in connection herewith or therewith contains any untrue
statement of fact or omits to state any fact necessary to make the statements
herein or therein not misleading. There is no fact known to any Borrower or
which reasonably should be known to any Borrower which such Borrower has not
disclosed to Agent in writing with respect to the transactions contemplated by
any Acquisition Agreement, the Convertible Senior Notes Documentation or this
Agreement which could reasonably be expected to have a Material Adverse Effect.

5.18 Delivery of Convertible Senior Notes Documentation. Agent has received
complete copies of all Convertible Senior Notes Documentation (including all
exhibits, schedules and disclosure letters referred to therein or delivered
pursuant thereto, if any) and all amendments thereto, waivers relating thereto
and other side letters or agreements affecting the terms thereof. None of such
documents and agreements has been amended or supplemented, nor have any of the
provisions thereof been waived, except pursuant to a written agreement or
instrument which has heretofore been delivered to Agent.

5.19 Swaps. No Borrower is a party to, nor will it be a party to, any swap
agreement whereby such Borrower has agreed or will agree to swap interest rates
or currencies unless same provides that damages upon termination following an
event of default thereunder are payable on an unlimited “two-way basis” without
regard to fault on the part of either party.

5.20 Conflicting Agreements. No provision of any mortgage, indenture, contract,
agreement, judgment, decree or order binding on any Borrower or affecting the
Collateral conflicts with, or requires any Consent which has not already been
obtained to, or would in any way prevent the execution, delivery or performance
of, the terms of this Agreement or the Other Documents.

5.21 Application of Certain Laws and Regulations. Neither any Borrower nor any
Affiliate of any Borrower is subject to any law, statute, rule or regulation
which regulates the incurrence of any Indebtedness, including laws, statutes,
rules or regulations relative to common or interstate carriers or to the sale of
electricity, gas, steam, water, telephone, telegraph or other public utility
services.

 

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5.22 Business and Property of Borrowers. Upon and after the Closing Date,
Borrowers do not propose to engage in any business other than those described on
Schedule 5.22. On the Closing Date, each Borrower will own all the property and
possess all of the rights and Consents necessary for the conduct of the business
of such Borrower.

5.23 Section 20 Subsidiaries. Borrowers do not intend to use and shall not use
any portion of the proceeds of the Advances, directly or indirectly, to purchase
during the underwriting period, or for thirty (30) days thereafter, Ineligible
Securities being underwritten by a Section 20 Subsidiary.

5.24 Anti-Terrorism Laws.

(a) General. Neither any Borrower nor any Affiliate of any Borrower is in
violation of any Anti-Terrorism Law or engages in or conspires to engage in any
transaction that evades or avoids, or has the purpose of evading or avoiding, or
attempts to violate, any of the prohibitions set forth in any Anti-Terrorism
Law.

(b) Executive Order No. 13224. No Borrower nor any Affiliate of a Borrower or
their respective agents acting or benefiting in any capacity in connection with
the Advances or other transactions hereunder, is any of the following (each a
“Blocked Person”):

(i) a Person that is listed in the annex to, or is otherwise subject to the
provisions of, the Executive Order No. 13224;

(ii) a Person owned or controlled by, or acting for or on behalf of, any Person
that is listed in the annex to, or is otherwise subject to the provisions of,
the Executive Order No. 13224;

(iii) a Person or entity with which any Lender is prohibited from dealing or
otherwise engaging in any transaction by any Anti-Terrorism Law;

(iv) a Person or entity that commits, threatens or conspires to commit or
supports “terrorism” as defined in the Executive Order No. 13224;

(v) a Person or entity that is named as a “specially designated national” on the
most current list published by the U.S. Treasury Department Office of Foreign
Asset Control at its official website or any replacement website or other
replacement official publication of such list, or

(vi) a Person or entity who is affiliated or associated with a Person or entity
listed above.

No Borrower or to the knowledge of any Borrower, any of its agents acting in any
capacity in connection with the Advances or other transactions hereunder
(i) conducts any business or engages in making or receiving any contribution of
funds, goods or services to or for the benefit of any Blocked Person, or
(ii) deals in, or otherwise engages in any transaction relating to, any property
or interests in property blocked pursuant to the Executive Order No. 13224.

 

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5.25 Trading with the Enemy. No Borrower has engaged, nor does any Borrower
intend to engage, in any business or activity prohibited by the Trading with the
Enemy Act.

5.26 Inactive Subsidiaries. No Inactive Subsidiary (i) owns or hold any assets
(other than, with respect to Flotek Ecuador Investments, LLC and Flotek Ecuador
Management, LLC, the Equity Interests in FlotekChemical Ecuador CIA, LTDA),
(ii) has any liabilities, and (iii) conducts any business operations, and the
Inactive Subsidiaries will not do any of the foregoing after the Closing Date
without the prior written consent of Lender.

 

VI AFFIRMATIVE COVENANTS.

Each Borrower hereby covenants and agrees that on the Closing Date and
thereafter, until all of the Obligations (other than indemnification and other
contingent Obligations, in each case, not yet due and payable or in respect of
which no assertion of liability and no claim or demand for payment has been
made) incurred hereunder, are indefeasibly paid in full, termination of this
Agreement and all Letters of Credit issued hereunder have expired, terminated or
been fully collateralized in cash in an amount and manner satisfactory to Agent
in its sole discretion (and as applicable shall cause its Subsidiaries) to:

6.1 Payment of Fees. Pay to Agent on demand all usual and customary fees and
expenses which Agent incurs in connection with (a) the forwarding of Advance
proceeds and (b) the establishment and maintenance of any Blocked Accounts or
Depository Accounts as provided for in Section 4.15(h). Agent may, without
making demand, charge Borrowers’ Account for all such fees and expenses.

6.2 Conduct of Business and Maintenance of Existence and Assets. (a) Conduct
continuously and operate actively its business according to good business
practices and maintain all of its properties useful or necessary in its business
in good working order and condition (reasonable wear and tear excepted and
except as may be disposed of in accordance with the terms of this Agreement),
including all licenses, patents, copyrights, design rights, trade names, domain
names, trade secrets and trademarks and take all actions necessary to enforce
and protect the validity of any intellectual property right or other right
included in the Collateral; (b) keep in full force and effect its existence and
comply in all material respects with the laws and regulations governing the
conduct of its business where the failure to do so could reasonably be expected
to have a Material Adverse Effect; and (c) make all such reports and pay all
such franchise and other taxes and license fees and do all such other acts and
things as may be lawfully required to maintain its rights, licenses, leases,
powers and franchises under the laws of the United States or any political
subdivision thereof where the failure to do so could reasonably be expected to
have a Material Adverse Effect.

6.3 Violations. Promptly notify Agent in writing of any violation of any law,
statute, regulation or ordinance of any Governmental Body, or of any agency
thereof, applicable to any Borrower which could reasonably be expected to cause
a Material Adverse Effect.

6.4 Government Receivables. Take all steps necessary to protect Agent’s interest
in the Collateral under the Federal Assignment of Claims Act, the Uniform
Commercial Code and all other applicable state or local statutes or ordinances
and deliver to Agent appropriately endorsed, any instrument or chattel paper
connected with any Receivable arising out of contracts between any Borrower and
the United States, any state or any department, agency or instrumentality of any
of them.

 

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6.5 Financial Covenants.

(a) Fixed Charge Coverage Ratio. Cause to be maintained, a Fixed Charge Coverage
Ratio of not less than 1.10 to 1.00 (i) as of September 30, 2011, for the three
(3) month period then ending, (ii) as of December 31, 2011, for the six
(6) month period then ending, (iii) as of March 31, 2012, for the nine (9) month
period then ending and (iv) as of June 30, 2012 and as of the last day of each
fiscal quarter thereafter, for the twelve (12) month period then ending.

6.6 Execution of Supplemental Instruments. Execute and deliver to Agent from
time to time, upon demand, such supplemental agreements, statements, assignments
and transfers, or instructions or documents relating to the Collateral, and such
other instruments as Agent may request, in order that the full intent of this
Agreement may be carried into effect.

6.7 Payment of Indebtedness. Pay, discharge or otherwise satisfy at or before
maturity (subject, where applicable, to specified grace periods and, in the case
of the trade payables, to normal payment practices) all its obligations and
liabilities of whatever nature, except when the failure to do so could not
reasonably be expected to have a Material Adverse Effect or when the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and each Borrower shall have provided for such reserves as Agent may
reasonably deem proper and necessary in the exercise of its Permitted
Discretion, subject at all times to any applicable subordination arrangement in
favor of Lenders.

6.8 Standards of Financial Statements. Cause all financial statements referred
to in Sections 9.7, 9.8, 9.9, 9.10, 9.11, 9.12 and 9.13 as to which GAAP is
applicable to fairly reflect the financial condition, results of operations and
cash flows of Holdings and its Subsidiaries (subject, in the case of interim
financial statements, to normal year-end audit adjustments) prepared in
reasonable detail and in accordance with GAAP applied consistently throughout
the periods reflected therein (except as concurred in by such reporting
accountants or officer, as the case may be, and disclosed therein).

6.9 [Reserved].

6.10 Exercise of Rights. Enforce all of its rights under any Acquisition
Agreement including, but not limited to, all indemnification rights and pursue
all remedies available to it with diligence and in good faith in connection with
the enforcement of any such rights.

6.11 Nature of Business. Carry on its business in substantially the same manner
and in substantially the same fields of enterprise as set forth in Section 5.22.

6.12 Subsidiaries. Holdings agrees that it shall cause each of its Subsidiaries
existing as of the Closing Date (other than those Subsidiaries that are
“Borrowers” hereunder or Foreign Subsidiaries) to guarantee the payment and
performance of the Obligations and to assign, pledge and grant to Agent for its
benefit and for the ratable benefit of each Lender a continuing security
interest and Lien in and to all of its personal property as security for the
payment and

 

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performance of the Obligations. Contemporaneously with the creation or
acquisition of any Subsidiary after the Closing Date, Holdings agrees that it
shall cause such Subsidiary to join this Agreement as a “Borrower” hereunder or
guarantee the payment and performance of the Obligations (to be determined in
Agent’s sole discretion) and grant to Agent for its benefit and for the ratable
benefit of each Lender a continuing security interest and Lien in and to all of
its property as security for the payment and performance of the Obligations.
Holdings shall not permit any of its domestic Subsidiaries existing as of the
Closing Date, or permit any Subsidiary created or acquired after the Closing
Date, to be or become a Foreign Subsidiary without the prior written consent of
Agent and Required Lenders.

6.13 Post-Closing Obligations. Borrowers shall cause the conditions set forth on
Schedule 6.13 hereto to be satisfied in full, on or before the date specified
for each such condition, time being of the essence, in a manner satisfactory, in
form and substance as applicable, to Agent in its Permitted Discretion.

 

VII NEGATIVE COVENANTS.

Each Borrower hereby covenants and agrees that on the Closing Date and
thereafter, until all of the Obligations (other than indemnification and other
contingent Obligations, in each case, not yet due and payable or in respect of
which no assertion of liability and no claim or demand for payment has been
made) incurred hereunder, are indefeasibly paid in full, termination of this
Agreement and all Letters of Credit issued hereunder have expired, terminated or
been fully collateralized in cash in an amount and manner satisfactory to Agent
in its sole discretion, it shall not (and as applicable shall not permit any
Subsidiary to):

7.1 Merger, Consolidation, Acquisition and Sale of Assets.

(a) Enter into any merger, consolidation or other reorganization with or into
any other Person or acquire all or a substantial portion of the assets or Equity
Interests of any Person or permit any other Person to consolidate with or merge
with it, except in connection with a Permitted Acquisition. Notwithstanding the
foregoing, and in each case (a) any Borrower may merge or be consolidated into
any other Borrower, (b) any Guarantor may merge or be consolidated into any
other Guarantor or any Borrower (provided in the case of a Guarantor merging or
consolidating into any Borrower, such Borrower shall be the continuing or
surviving person).

(b) Sell, lease, transfer or otherwise dispose of any of its properties or
assets, except (i) dispositions of Inventory and Equipment to the extent
expressly permitted by Section 4.3, (ii) transfers among Guarantors and any
transfer from a Guarantor to a Borrower, (iii) transfers among Borrowers, and
(iv) any other sales or dispositions expressly permitted by this Agreement.

7.2 Creation of Liens. Create or suffer to exist any Lien or transfer upon or
against any of its property or assets now owned or hereafter acquired, except
Permitted Encumbrances.

7.3 Guarantees. Become liable or permit any of their respective Subsidiaries to
become liable upon the obligations or liabilities of any Person by assumption,
endorsement or guaranty thereof or otherwise (other than to Lenders) except
(a) as disclosed on Schedule 7.3, (b) and (b) the endorsement of checks in the
Ordinary Course of Business.

 

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7.4 Investments. Purchase or acquire obligations or Equity Interests of, or any
other interest in, any Person, except:

(a) obligations issued or guaranteed by the United States of America or any
agency thereof;

(b) commercial paper with maturities of not more than 180 days and a published
rating of not less than A-1 or P-1 (or the equivalent rating);

(c) certificates of time deposit and bankers’ acceptances having maturities of
not more than 180 days and repurchase agreements backed by United States
government securities of a commercial bank if (i) such bank has a combined
capital and surplus of at least $500,000,000, or (ii) its debt obligations, or
those of a holding company of which it is a Subsidiary, are rated not less than
A (or the equivalent rating) by a nationally recognized investment rating
agency;

(d) U.S. money market funds that invest solely in obligations issued or
guaranteed by the United States of America or an agency thereof; and

(e) investments in any Credit Party to the extent permitted by Section 7.8(e)
hereof.

7.5 Loans. Make advances, loans or extensions of credit to any Person, including
any Parent, Subsidiary or Affiliate, except with respect to (a) the extension of
commercial trade credit in connection with the sale of Inventory in the Ordinary
Course of Business, (b) loans to its employees in the Ordinary Course of
Business not to exceed the aggregate amount of $100,000 at any time outstanding
and (c) loans to Credit Parties to the extent permitted by Section 7.8(e).

7.6 Capital Expenditures. Contract for, purchase or make any expenditure or
commitments for Capital Expenditures (a) in the fiscal year ending December 31,
201l, in an aggregate amount in excess of $10,000,000, and (b) in any fiscal
year thereafter, in an aggregate amount in excess of $14,000,000. For purposes
of this Section 7.6, the amount of “lost in hole” revenue of Borrower shall be
subtracted from the amounts deemed or paid for Capital Expenditures.

7.7 Dividends. Declare, pay or make any dividend or distribution on any shares
of the common stock or preferred stock of any Borrower that is a corporation
(other than dividends or distributions payable in its stock, or split-ups or
reclassifications of its stock) or apply any of its funds, property or assets to
the purchase, redemption or other retirement of any common or preferred stock,
or of any options to purchase or acquire any such shares of common or preferred
stock of any Borrower that is a corporation, other than dividends paid to
another Borrower.

7.8 Indebtedness. Create, incur, assume or suffer to exist any Indebtedness
(exclusive of trade debt) except in respect of (a) Indebtedness to Lenders
(including any Lender-Provided Interest Rate Hedge); (b) Indebtedness incurred
for Capital Expenditures permitted under Section

 

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7.6 hereof; (c) Indebtedness due under the Convertible Senior Notes as in effect
on the Closing Date; (d) purchase money Indebtedness in an amount, when
aggregated with Indebtedness permitted pursuant to subsection Section 7.8(e)
hereof, not to exceed $1,000,000 in the aggregate; (e) unsecured Indebtedness in
an amount, when aggregated with purchase money Indebtedness permitted pursuant
to Section 7.8(d) hereof, not to exceed $1,000,000 in the aggregate, so long as
such Indebtedness is unsecured, on terms and conditions satisfactory to Agent in
its sole discretion, and subordinated in right of payment to the payment in full
of the Obligations pursuant to the terms of a Subordination Agreement;
(f) Indebtedness of any Credit Party to any other Credit Party in an aggregate
amount not to exceed $500,000; (g) unsecured Indebtedness subject only to
Permitted Encumbrances (other than sections (j) and (k) of the definition of
Permitted Encumbrances) that is assumed in connection with a Permitted
Acquisition, so long as such Indebtedness does not exceed $1,500,000 in the
aggregate during the Term or $500,000 for any Permitted Acquisition; and
(h) Indebtedness that is due under any Interest Rate Hedge, so long as such
Interest Rate Hedge (i) is provided by a financial institutions acceptable to
Agent in its sole discretion, (ii) is documented in a standard International
Swap Dealer Association Agreement, (iii) provides for the method of calculating
the reimbursable amount of the provider’s credit exposure in a reasonable and
customary manner, (iv) is entered into for hedging (rather than speculative)
purposes.

7.9 Nature of Business. Substantially change the nature of the business in which
it is presently engaged, nor except as specifically permitted hereby purchase or
invest, directly or indirectly, in any assets or property other than in the
Ordinary Course of Business for assets or property which are useful in,
necessary for and are to be used in its business as presently conducted.

7.10 Transactions with Affiliates. Directly or indirectly, purchase, acquire or
lease any property from, or sell, transfer or lease any property to, or
otherwise enter into any transaction or deal with, any Affiliate, except
transactions disclosed to the Agent, which are in the Ordinary Course of
Business, on an arm’s-length basis on terms and conditions no less favorable
than terms and conditions which would have been obtainable from a Person other
than an Affiliate.

7.11 [Reserved.]

7.12 Subsidiaries.

(a) Form any Subsidiary unless (i) such Subsidiary (A) expressly joins in this
Agreement as a “Borrower” and becomes jointly and severally liable for the
obligations of Borrowers hereunder, under the Revolving Credit Note, and under
any other agreement among Borrowers and Lenders, or (B) becomes a “Guarantor” by
executing a Guaranty and Guarantor Security Agreement (to be determined by Agent
in its sole discretion), and (ii) Agent shall have received all documents,
including legal opinions, it may reasonably require to establish compliance with
each of the foregoing conditions.

(b) Enter into any partnership, joint venture or similar arrangement.

 

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7.13 Fiscal Year and Accounting Changes. Change its fiscal year from
December 31, or make any change (i) in accounting treatment and reporting
practices except as required by GAAP or (ii) in tax reporting treatment except
as required by law.

7.14 Pledge of Credit . Now or hereafter pledge Agent’s or any Lender’s credit
on any purchases or for any purpose whatsoever or use any portion of any Advance
in or for any business other than such Borrower’s business as conducted on the
date of this Agreement.

7.15 Amendment of Organizational Documents. Amend, modify or waive any term or
material provision of its Organizational Documents in any manner that adversely
affects Agent or any Lender, unless required by law.

7.16 Compliance with ERISA. (i) (x) Maintain, or permit any member of the
Controlled Group to maintain, or (y) become obligated to contribute, or permit
any member of the Controlled Group to become obligated to contribute, to any
Plan, other than those Plans disclosed on Schedule 5.8(d) or any other Plan for
which Agent has provided its prior written consent, (ii) engage, or permit any
member of the Controlled Group to engage, in any non-exempt “prohibited
transaction”, as that term is defined in section 406 of ERISA and Section 4975
of the Code, (iii) incur, or permit any member of the Controlled Group to incur,
any “accumulated funding deficiency”, as that term is defined in Section 302 of
ERISA or Section 412 of the Code, (iv) terminate, or permit any member of the
Controlled Group to terminate, any Plan where such event could result in any
liability of any Borrower or any member of the Controlled Group or the
imposition of a lien on the property of any Borrower or any member of the
Controlled Group pursuant to Section 4068 of ERISA, (v) assume, or permit any
member of the Controlled Group to assume, any obligation to contribute to any
Multiemployer Plan not disclosed on Schedule 5.8(d), (vi) incur, or permit any
member of the Controlled Group to incur, any withdrawal liability to any
Multiemployer Plan; (vii) fail promptly to notify Agent of the occurrence of any
Termination Event, (viii) fail to comply, or permit a member of the Controlled
Group to fail to comply, with the requirements of ERISA or the Code or other
Applicable Laws in respect of any Plan, (ix) fail to meet, or permit any member
of the Controlled Group to fail to meet, all minimum funding requirements under
ERISA or the Code or postpone or delay or allow any member of the Controlled
Group to postpone or delay any funding requirement with respect of any Plan.

7.17 Prepayment of Indebtedness. Except as permitted pursuant to Section 7.21
hereof, at any time, directly or indirectly, prepay any Indebtedness (other than
to Lenders), or repurchase, redeem, retire or otherwise acquire any Indebtedness
of any Credit Party.

7.18 Anti-Terrorism Laws. No Borrower shall, until satisfaction in full of the
Obligations and termination of this Agreement, nor shall it permit any Affiliate
or agent to:

(a) Conduct any business or engage in any transaction or dealing with any
Blocked Person, including the making or receiving any contribution of funds,
goods or services to or for the benefit of any Blocked Person.

(b) Deal in, or otherwise engage in any transaction relating to, any property or
interests in property blocked pursuant to the Executive Order No. 13224.

 

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(c) Engage in or conspire to engage in any transaction that evades or avoids, or
has the purpose of evading or avoiding, or attempts to violate, any of the
prohibitions set forth in the Executive Order No. 13224, the USA PATRIOT Act or
any other Anti-Terrorism Law. Each Borrower shall deliver to Lenders any
certification or other evidence requested from time to time by any Lender in its
sole discretion, confirming such Borrower’s compliance with this Section.

7.19 Membership/Partnership Interests. Elect to treat or permit any of its
Subsidiaries to (x) treat its limited liability company membership interests or
partnership interests, as the case may be, as securities as contemplated by the
definition of “security” in Section 8-102(15) and by Section 8-103 of Article 8
of Uniform Commercial Code or (y) certificate its limited liability company
membership interests or partnership interests, as the case may be.

7.20 Trading with the Enemy Act. Engage in any business or activity in violation
of the Trading with the Enemy Act.

7.21 Convertible Senior Notes. At any time, directly or indirectly, pay, prepay,
repurchase, redeem, retire or otherwise acquire, or make any payment on account
of any principal of, or premium payable in connection with the repayment or
redemption of the Convertible Senior Notes, except (a) regularly scheduled cash
payments of interest due and owing to Convertible Senior Lenders under the
Convertible Senior Notes or (b) as expressly permitted in writing by Agent.

7.22 Other Agreements. Enter into any material amendment, waiver or modification
of the Convertible Senior Notes Documentation or any related agreements.

7.23 Inactive Subsidiaries. Cause the Inactive Subsidiaries at any time to
(a) own any assets (other than, with respect to Flotek Ecuador Investments, LLC
and Flotek Ecuador Management, LLC, the Equity Interests of FlotekChemical
Ecuador CIA, LTDA, (b) incur or suffer to exist any liabilities, or (c) engage
in any business activity.

 

VIII CONDITIONS PRECEDENT.

8.1 Conditions to Initial Advances. Lenders shall not be required to make the
initial Advances or otherwise extend credit to Borrowers hereunder, until the
date that each of the following conditions precedent have been satisfied or
waived in a manner and pursuant to documentation satisfactory to Agent in its
sole discretion (the first date all such conditions having been satisfied being
herein called the “Closing Date”):

(a) Negative Pledge Agreements. Agent shall have received the Negative Pledge
Agreements, in each case, duly executed by the parties named therein and in
recordable form;

(b) Pledge Agreements; Pledged Membership Interests; Unit Powers; Pledged Notes.
Receipt by Agent of (i) the Pledge Agreements, each in form and substance
satisfactory to Agent and duly executed by the parties named therein, (ii) any
certificates representing the membership interests of Equity Interests pledged
pursuant to the Pledge Agreements, together with an undated unit (or analogous)
power for each such membership interest executed in blank

 

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by a duly authorized officer of the pledgor thereof, and (iii) each promissory
note (if any) pledged to Agent pursuant to the Pledge Agreements endorsed
(without recourse) in blank (or accompanied by an executed transfer form in
blank) by the pledgor thereof;

(c) Intellectual Property Security Agreement. Agent shall have received the
Intellectual Property Security Agreement, in form and substance satisfactory to
Agent and duly executed by the parties named therein;

(d) Revolving Credit Note. Agent shall have received the Revolving Credit Note
duly executed and delivered by an authorized officer of each Borrower;

(e) Filings, Registrations and Recordings. Agent shall have received (i) a
completed Questionnaire, duly executed by an Authorized Officer of each Credit
Party, together with all attachments contemplated thereby, (ii) evidence that
(x) the existing revolving credit facility provided by Whitebox Advisors, LLC,
et al., has been indefeasibly paid in full and (y) all liens and security
interests in favor of Whitebox Advisors, LLC have been properly terminated,
together with such supporting documentation as Agent may request in the exercise
of its Permitted Discretion, and (iii) each document (including any Uniform
Commercial Code financing statement) required by this Agreement, any related
agreement or under law or reasonably requested by the Agent to be filed,
registered or recorded in order to create, in favor of Agent, a perfected
security interest in or lien upon the Collateral shall have been properly filed,
registered or recorded in each jurisdiction in which the filing, registration or
recordation thereof is so required or requested, and Agent shall have received
an acknowledgment copy, or other evidence satisfactory to it, of each such
filing, registration or recordation and satisfactory evidence of the payment of
any necessary fee, tax or expense relating thereto;

(f) Organizational Proceedings of the Credit Parties. Agent shall have received
a copy of the resolutions in form and substance reasonably satisfactory to
Agent, of the Board of Directors or other governing body of each Credit Party
authorizing (i) the execution, delivery and performance of this Agreement and
the Other Documents to which such Credit Party is a party, and (ii) the granting
by such Credit Party of the security interests in and liens upon the Collateral
in each case certified by the Secretary or an Assistant Secretary of each Credit
Party as of the Closing Date; and, such certificate shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded as of the date of such certificate;

(g) Incumbency Certificates of the Credit Parties. Agent shall have received a
certificate of the Secretary or an Assistant Secretary of each Credit Party,
dated the Closing Date, as to the incumbency and signature of the officers of
each Credit Party executing this Agreement, the Other Documents to which such
Credit Party is a party, any certificate or other documents to be delivered by
it pursuant hereto, together with evidence of the incumbency of such Secretary
or Assistant Secretary;

(h) Certificates. Agent shall have received a copy of each Credit Party’s
Organizational Documents, and all amendments thereto, certified by the Secretary
of State or other appropriate official of its jurisdiction of incorporation or
formation, as the case may be, and all agreements of the Credit Parties’
shareholders or members, as applicable, certified as accurate and complete by
the Secretary of such Credit Party;

 

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(i) Good Standing Certificates. Agent shall have received good standing
certificates for each Credit Party dated not more than ten (10) days prior to
the Closing Date, issued by the Secretary of State or other appropriate official
of each Credit Party’s jurisdiction of incorporation or formation, as the case
may be, and each jurisdiction where the conduct of each Credit Party’s business
activities or the ownership of its properties necessitates qualification;

(j) Legal Opinion. Agent shall have received the executed legal opinion of
(i) Doherty & Doherty LLP and (ii) Crowe & Dunlevy PC, in each case, in form and
substance satisfactory to Agent, which opinions shall cover such matters
incident to the transactions contemplated by this Agreement, the Revolving
Credit Note, the Other Documents, and related agreements as Agent may reasonably
require and Borrowers hereby authorize and direct such counsel to deliver such
opinions to Agent and Lenders;

(k) No Litigation. (i) No litigation, investigation or proceeding before or by
any arbitrator or Governmental Body shall be continuing or threatened against
any Credit Party or against the officers or directors of any Credit Party (A) in
connection with this Agreement, the Other Documents, the Convertible Senior
Notes Documentation or any of the transactions contemplated thereby and which,
in the reasonable opinion of Agent, is deemed material or (B) which could, in
the reasonable opinion of Agent, have a Material Adverse Effect; and (ii) no
injunction, writ, restraining order or other order of any nature materially
adverse to any Credit Party or the conduct of its business or inconsistent with
the due consummation of the Transactions shall have been issued by any
Governmental Body;

(l) Financial Condition Certificates. Agent shall have received an executed
Financial Condition Certificate in the form of Exhibit 8.1(l).

(m) Collateral Examination. Agent shall have completed Collateral examinations
and received appraisals, the results of which shall be satisfactory in form and
substance to Lenders, of the Receivables, Inventory, General Intangibles, and
Equipment of Borrower and all books and records in connection therewith;

(n) Fees. Agent shall have received all fees payable to Agent and Lenders on or
prior to the Closing Date hereunder, including pursuant to Article III hereof;

(o) Pro Forma Financial Statements. Agent shall have received a copy of the Pro
Forma Financial Statements which shall be satisfactory in all respects to
Lenders;

(p) Convertible Senior Notes Documentation. Agent shall have received final
executed copies of the Convertible Senior Notes Documentation, and all related
agreements, documents and instruments as in effect on the Closing Date,
certified by an Authorized Officer as being true, correct and complete, all of
which shall be satisfactory in form and substance to Agent in its sole
discretion;

 

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(q) Intercreditor Agreement. Agent shall have entered into a Intercreditor
Agreement with Borrowers and the Convertible Senior Agents which shall set forth
the basis upon which the Convertible Senior Agents and the Convertible Senior
Lenders may receive, and Borrowers may make, payments under the Convertible
Senior Notes, which basis shall be satisfactory in form and substance to Agent
in its sole discretion;

(r) Insurance. Agent shall have received in form and substance satisfactory to
Agent, certified copies of the Borrowers’ casualty insurance policies, together
with loss payable endorsements on Agent’s standard form of loss payee
endorsement naming Agent as lender loss payee, and certified copies of the
Borrowers’ liability insurance policies, together with endorsements naming Agent
as an additional insured;

(s) Payment Instructions. Agent shall have received written instructions from
Borrowing Agent directing the application of proceeds of the initial Advances
made pursuant to this Agreement;

(t) Blocked Accounts. Agent shall have received duly executed agreements
establishing the Blocked Accounts or Depository Accounts with financial
institutions acceptable to Agent for the collection or servicing of the
Receivables and proceeds of the Collateral;

(u) Consents. Agent shall have received any and all Consents necessary to permit
the effectuation of the transactions contemplated by this Agreement and the
Other Documents; and, Agent shall have received such Consents and waivers of
such third parties as might assert claims with respect to the Collateral, as
Agent and its counsel shall deem necessary;

(v) No Adverse Material Change. (i) since December 31, 2010, there shall not
have occurred any event, condition or state of facts which could reasonably be
expected to have a Material Adverse Effect and (ii) no representations made or
information supplied to Agent or Lenders shall have been proven to be inaccurate
or misleading in any material respect;

(w) Lien Waiver Agreements. Agent shall have received a Lien Waiver Agreement
satisfactory to Agent in its sole discretion with respect to all premises leased
by any Credit Party at which Inventory and/or books and records are located;

(x) Other Documents. Agent shall have received all Other documents, duly
executed by the parties named therein and in form and substance satisfactory to
Agent in is sole discretion;

(y) Contract and Diligence Review. Agent shall have (i) reviewed all Material
Contracts of the Credit Parties including, without limitation, books and
records, Organizational Documents, third party financing agreements (including,
without limitation all Convertible Senior Notes Documentation), leases, union
contracts, labor contracts, vendor supply contracts, representation/agency
agreements, license agreements and distributorship agreements, (ii) performed
background checks on members of each Credit Party’s management team,
(iii) received and reviewed all OFAC due diligence, and (iv) reviewed each
Credit Party’s corporate and legal structure, and such contracts, agreements,
background checks and review shall be satisfactory in all respects to Agent;

 

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(z) Closing Certificate. Agent shall have received a closing certificate signed
by an Authorized Officer of each Credit Party dated as of the date hereof,
stating that (i) all representations and warranties set forth in this Agreement
and the Other Documents are true and correct on and as of such date, (ii) each
Credit Party on such date in compliance with all the terms and provisions set
forth in this Agreement and the Other Documents to which it is a party (iii) on
such date no Default or Event of Default has occurred or is continuing and no
default under any document or agreement pursuant to which a Credit Party has
been extended credit or other financial accommodation or is a guarantor of same
has occurred or is continuing;

(aa) Borrowing Base. Agent shall have received evidence from Borrowers that the
aggregate amount of Eligible Receivables and Eligible Inventory is sufficient in
value and amount to support Advances in the amount requested by Borrower on the
Closing Date;

(bb) Undrawn Availability. After giving effect to the initial Advances
hereunder, Borrowers shall have Undrawn Availability of at least $10,000,000, as
evidenced by a Borrowing Base Certificate satisfactory to Agent in is sole
discretion; and

(cc) Prefund Examination. Agent shall have completed a prefunding examination of
the Collateral, which examination shall be satisfactory to Agent in its sole
discretion;

(dd) Compliance with Laws. Agent shall be reasonably satisfied that each Credit
Party is in compliance with all pertinent federal, state, local or territorial
regulations, including those with respect to the Federal Occupational Safety and
Health Act, the Environmental Protection Act, ERISA and the Trading with the
Enemy Act.

(ee) Vehicle Title Liens. With respect to Vehicle Title, Borrowers shall have
delivered to Agent, in form and substance satisfactory to Agent: (i) all
necessary fully-executed, notarized powers of attorney authorizing Automotive
Resources International to perfect liens on behalf of Agent; (ii) an original
title properly endorsed to such Borrower for each such item of Collateral;
(iii) all other necessary documentation or information required by applicable
state law, including without limitation, vehicle descriptions, odometer
statements and owner and lienholder identification information; and
(iv) evidence that Agent’s Lien has been duly noted thereon.

(ff) Other. All corporate and other proceedings, and all documents, instruments
and other legal matters in connection with the Transactions shall be
satisfactory in form and substance to Agent and its counsel.

8.2 Conditions to Each Advance. The agreement of Lenders to make any Advance
requested to be made on any date (including the initial Advance), is subject to
the satisfaction of the following conditions precedent as of the date such
Advance is made:

(a) Representations and Warranties. Each of the representations and warranties
made by the Credit Parties in or pursuant to this Agreement, the Other Documents
and any related agreements to which it is a party, and each of the
representations and warranties contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement, the Other Documents or any related agreement shall be true and
correct in all material respects on and as of such date as if made on and as of
such date;

 

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(b) No Default. No Event of Default or Default shall have occurred and be
continuing on such date, or would exist after giving effect to the Advances
requested to be made, on such date; provided, however that Agent, in its sole
discretion, may continue to make Advances notwithstanding the existence of an
Event of Default or Default and that any Advances so made shall not be deemed a
waiver of any such Event of Default or Default; and

(c) Maximum Advances. In the case of any type of Advance requested to be made,
after giving effect thereto, the aggregate amount of such type of Advance shall
not exceed the maximum amount of such type of Advance permitted under this
Agreement.

Each request for an Advance by any Borrower hereunder shall constitute a
representation and warranty by each Borrower as of the date of such Advance that
the conditions contained in this subsection shall have been satisfied.

 

IX INFORMATION AS TO CREDIT PARTIES.

Borrowers shall, and shall cause their respective Subsidiaries to, until
satisfaction in full of the Obligations and the termination of this Agreement:

9.1 Disclosure of Material Matters. Immediately upon learning thereof, report to
Agent all matters materially affecting the value, enforceability or
collectability of any portion of the Collateral, including any Borrower’s
reclamation or repossession of, or the return to any Borrower of, a material
amount of goods or claims or disputes asserted by any Customer or other obligor
or any Lien, other than any Permitted Encumbrance, placed upon or asserted
against any Borrower or any Collateral.

9.2 Schedules. Deliver to Agent on or before the twenty-fifth (25th) day of each
month as and for the prior month (i) accounts receivable agings inclusive of
reconciliations to the general ledger, (ii) accounts payable schedules inclusive
of reconciliations to the general ledger, (iii) Inventory reports, (iv) a
Borrowing Base Certificate, in form and substance satisfactory to Agent (which
shall be calculated as of the last day of the prior month and which shall not be
binding upon Agent or restrictive of Agent’s rights under this Agreement);
provided however, during any Trigger Period, Borrowing Agent shall deliver to
Agent a Borrowing Base Certificate, in form and substance satisfactory to Agent,
on or before each Wednesday of each week as and for the previous week, or at
such other intervals as Agent may require in its sole discretion. In addition,
Borrowing Agent will deliver to Agent upon the written request of Agent:
(i) confirmatory assignment schedules, (ii) copies of Customer’s invoices,
(iii) evidence of shipment or delivery, and (iv) such further schedules,
documents and/or information regarding the Collateral as Agent may require
including trial balances and test verifications. Agent shall have the right to
confirm and verify all Receivables by any manner and through any medium it
considers advisable as it may deem reasonably necessary to protect its interests
hereunder. The items to be provided under this Section are to be in form
satisfactory to Agent and executed by each Borrower and delivered to Agent from
time to time solely for Agent’s convenience in maintaining records of the
Collateral, and any Borrower’s failure to deliver any of such items to Agent
shall not affect, terminate, modify or otherwise limit Agent’s Lien with respect
to the Collateral.

 

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9.3 Environmental Reports. Furnish Agent, concurrently with the delivery of the
financial statements referred to in Sections 9.7 and 9.8, with a Compliance
Certificate signed by an Authorized Officer of Borrowing Agent stating, to the
best of his knowledge, that the Credit Parties are in compliance in all material
respects with all federal, state and local Environmental Laws. To the extent any
Credit Party is not in compliance with the foregoing laws, the certificate shall
set forth with specificity all areas of non-compliance and the proposed action
Borrowers’ will implement in order to achieve full compliance.

9.4 Litigation. Promptly notify Agent in writing of any claim, litigation, suit
or administrative proceeding affecting any Credit Party, whether or not the
claim is covered by insurance, and of any litigation, suit or administrative
proceeding, which in any such case affects the Collateral or which could
reasonably be expected to have a Material Adverse Effect.

9.5 Material Occurrences. Promptly notify Agent in writing upon the occurrence
of (a) any Event of Default or Default; (b) any event of default under the
Convertible Senior Notes Documentation, including, without limitation, the
Convertible Senior Notes; (c) any event which with the giving of notice or lapse
of time, or both, would constitute an event of default under the Convertible
Senior Notes Documentation, including, without limitation, the Convertible
Senior Notes; (d) any event, development or circumstance whereby any financial
statements or other reports furnished to Agent fail in any material respect to
present fairly, in accordance with GAAP consistently applied, the financial
condition or operating results of any Borrower as of the date of such
statements; (e) any accumulated retirement plan funding deficiency which, if
such deficiency continued for two plan years and was not corrected as provided
in Section 4971 of the Code, could subject any Borrower to a tax imposed by
Section 4971 of the Code; (f) each and every default by any Borrower which might
result in the acceleration of the maturity of any Indebtedness, including the
names and addresses of the holders of such Indebtedness with respect to which
there is a default existing or with respect to which the maturity has been or
could be accelerated, and the amount of such Indebtedness; and (g) any other
development in the business or affairs of any Credit Party which could
reasonably be expected to have a Material Adverse Effect; in each case
describing the nature thereof and the action Borrowers’ proposes to take with
respect thereto.

9.6 Government Receivables. Notify Agent promptly if any of its Receivables
arise out of contracts between Borrower and the United States, any state, or any
department, agency or instrumentality of any of them.

9.7 Annual Financial Statements. Furnish Agent, as soon as available and in any
event no later than the earlier of (i) the date Holdings is required to file its
Form 10-K with the SEC for any fiscal year and (ii) 120 days after the end of
Holdings fiscal year, financial statements of Holdings and its Subsidiaries on a
consolidated basis in each case, including, but not limited to, statements of
income and stockholders’ equity and cash flow from the immediately prior fiscal
year to the end of such prior fiscal year and the balance sheet as at the end of
such prior fiscal year, all prepared in accordance with GAAP applied on a basis
consistent with prior practices, and in reasonable detail and reported upon
without qualification by an independent certified public accounting firm
selected by Holdings and satisfactory to Agent (the “Accountants”). The
financial statements required to be delivered above shall be accompanied by a
Compliance Certificate.

 

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9.8 Quarterly Financial Statements. Furnish Agent, as soon as available and in
any event no later than the date Holdings is required to file its Form 10-Q with
the SEC for any fiscal quarter (other than the fiscal quarter ending
December 31), an unaudited balance sheet of Holdings and its Subsidiaries on a
consolidated basis and unaudited (or, in the case of the fourth fiscal quarter,
audited) statements of income and stockholders’ equity and cash flow of Holdings
and its Subsidiaries on a consolidated basis, in each case reflecting results of
operations from the beginning of the fiscal year to the end of such quarter and
for such quarter, prepared on a basis consistent with prior practices and in
accordance with GAAP, subject to normal and recurring year end adjustments that
individually and in the aggregate are not material to the business of Holdings
or its Subsidiaries. The reports shall be accompanied by a Compliance
Certificate.

9.9 Monthly Financial Statements. At Agent’s request and if available, furnish
Agent an unaudited balance sheet of Holdings and its Subsidiaries on a
consolidated basis and unaudited statements of income and stockholders’ equity
and cash flow of Holdings and its Subsidiaries on a consolidated basis
reflecting results of operations from the beginning of the fiscal year to the
end of such calendar month and for such month, prepared on a basis consistent
with prior practices and complete and correct in all material respects, subject
to normal and recurring year end adjustments that individually and in the
aggregate are not material to the business of Holdings or its Subsidiaries. The
reports shall be accompanied by a Compliance Certificate.

9.10 Other Reports. At Agent’s request, furnish Agent as soon as available, but
in any event within ten (10) days after the issuance thereof, (i) with copies of
such financial statements, reports and returns as each Borrower shall send to
its stockholders or members, as applicable, and (ii) copies of all notices,
reports, financial statements and other materials sent pursuant to the
Convertible Senior Notes Documentation.

9.11 Additional Information. Furnish Agent with such additional information as
Agent shall reasonably request in order to enable Agent to determine whether the
terms, covenants, provisions and conditions of this Agreement and the Other
Documents have been complied with by the applicable Credit Party including,
without the necessity of any request by Agent, (a) copies of all environmental
audits and reviews, (b) at least thirty (30) days prior thereto, notice of any
Credit Party’s opening of any new office or place of business or any Credit
Party’s closing of any existing office or place of business, and (c) promptly
upon any Credit Party’s learning thereof, notice of any labor dispute to which
such Credit Party may become a party, any strikes or walkouts relating to any of
its plants or other facilities, and the expiration of any labor contract to
which any Credit Party is a party or by which any Credit Party is bound.

9.12 Projected Operating Budget. Furnish Agent, no later the last day of
February of each of Holding’s fiscal years commencing with fiscal year 2012, a
month by month projected operating budget and cash flow of Holdings and its
Subsidiaries on a consolidated basis for such fiscal year (including an income
statement for each month and a balance sheet as at the end of the last month in
each fiscal quarter), such projections to be accompanied by a certificate signed
by an Authorized Officer of Holdings to the effect that such projections have
been prepared on the basis of sound financial planning practice consistent with
past budgets and financial statements and that such officer has no reason to
question the reasonableness of any material assumptions on which such
projections were prepared.

 

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9.13 Variances From Operating Budget. At Agent’s request, furnish Agent,
concurrently with the delivery of the financial statements referred to in
Section 9.7 and each quarterly report, a written report summarizing all material
variances from budgets submitted by Holdings pursuant to Section 9.12 and a
discussion and analysis by management with respect to such variances.

9.14 Notice of Suits, Adverse Events. Furnish Agent with prompt written notice
of (i) any lapse or other termination of any Consent issued to any Credit Party
by any Governmental Body or any other Person that is material to the operation
of such Credit Party’s business, (ii) any refusal by any Governmental Body or
any other Person to renew or extend any such Consent; and (iii) copies of any
periodic or special reports filed by any Credit Party with any Governmental Body
or Person, if such reports indicate any material change in the business,
operations, affairs or condition of any Credit Party, or if copies thereof are
requested by Lender, and (iv) copies of any material notices and other
communications from any Governmental Body or Person which specifically relate to
any Credit Party.

9.15 ERISA Notices and Requests. Furnish Agent with immediate written notice in
the event that (i) any Borrower or any member of the Controlled Group knows or
has reason to know that a Termination Event has occurred, together with a
written statement describing such Termination Event and the action, if any,
which Borrowers or any member of the Controlled Group has taken, is taking, or
proposes to take with respect thereto and, when known, any action taken or
threatened by the Internal Revenue Service, Department of Labor or PBGC with
respect thereto, (ii) any Borrower or any member of the Controlled Group knows
or has reason to know that a prohibited transaction (as defined in Sections 406
of ERISA and 4975 of the Code) has occurred together with a written statement
describing such transaction and the action which such Borrower or any member of
the Controlled Group has taken, is taking or proposes to take with respect
thereto, (iii) a funding waiver request has been filed with respect to any Plan
together with all communications received by any Borrower or any member of the
Controlled Group with respect to such request, (iv) any increase in the benefits
of any existing Plan or the establishment of any new Plan or the commencement of
contributions to any Plan to which Borrowers or any member of the Controlled
Group was not previously contributing shall occur, (v) any Borrower or any
member of the Controlled Group shall receive from the PBGC a notice of intention
to terminate a Plan or to have a trustee appointed to administer a Plan,
together with copies of each such notice, (vi) any Borrower or any member of the
Controlled Group shall receive any favorable or unfavorable determination letter
from the Internal Revenue Service regarding the qualification of a Plan under
Section 401(a) of the Code, together with copies of each such letter; (vii) any
Borrower or any member of the Controlled Group shall receive a notice regarding
the imposition of withdrawal liability, together with copies of each such
notice; (viii) any Borrower or any member of the Controlled Group shall fail to
make a required installment or any other required payment under Section 412 of
the Code on or before the due date for such installment or payment; or (ix) any
Borrower or any member of the Controlled Group knows that (a) a Multiemployer
Plan has been terminated, (b) the administrator or plan sponsor of a
Multiemployer Plan intends to terminate a Multiemployer Plan, or (c) the PBGC
has instituted or will institute proceedings under Section 4042 of ERISA to
terminate a Multiemployer Plan.

 

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9.16 Additional Documents. Execute and deliver to Agent, upon request, such
documents and agreements as Agent may, from time to time, reasonably request to
carry out the purposes, terms or conditions of this Agreement.

9.17 Appraisals and Field Examinations. Permit Agent or Agent’s representatives
to (a) perform full Collateral appraisals in form and substance satisfactory to
Agent at Borrower’s cost and expense as Agent deems appropriate in Agent’s sole
discretion, and in no event more frequently than annually prior to the
occurrence of an Event of Default, and during the existence of an Event of
Default, on an unlimited basis, and, to determine, among other things, the net
orderly liquidation value of the Collateral (each appraisal contemplated in this
Section 9.17 or performed by Agent prior to the Closing Date shall each be an
“NOLV Appraisal”), (b) after the occurrence of an Event of Default, at Agent’s
option, obtain Real Property appraisals at Borrowers’ cost and expense and
(c) conduct field examinations at Credit Parties’ cost and expense as Agent
deems appropriate in Agent’s sole discretion.

 

X EVENTS OF DEFAULT.

The occurrence of any one or more of the following events shall constitute an
“Event of Default”:

10.1 Nonpayment. Failure by any Borrower to pay any principal or interest on the
Obligations when due, whether at maturity or by reason of acceleration pursuant
to the terms of this Agreement or by notice of intention to prepay, or by
required prepayment or failure to pay any other liabilities or make any other
payment, fee or charge provided for herein when due or in any Other Document;

10.2 Breach of Representation. Any representation or warranty made or deemed
made by any Credit Party in this Agreement, any Other Document or any related
agreement or in any certificate, document or financial or other statement
furnished at any time in connection herewith or therewith shall prove to have
been misleading in any material respect on the date when made or deemed to have
been made;

10.3 Financial Information. Failure by any Borrower to (i)(x) furnish financial
information when due, or (y) when requested or (ii) permit the inspection of its
books or records in accordance with this Agreement;

10.4 Judicial Actions. Issuance of a notice of Lien, levy, assessment,
injunction or attachment against any Borrower’s Inventory or Receivables or
against a material portion of any Borrower’s other property which is not stayed
or lifted within thirty (30) days;

10.5 Noncompliance. Except as otherwise provided for in Sections 10.1, 10.3 and
10.5(ii), (i) failure or neglect of any Credit Party to perform, keep or observe
any term, provision, condition, covenant herein contained, or contained in any
Other Document or any other agreement or arrangement, now or hereafter entered
into any Credit Party and Agent or any Lender, or (ii) failure or neglect of any
Credit Party to perform, keep or observe any term, provision, condition or
covenant, contained in Sections 4.5(b), 4.6, 4.7, 4.14, 4.9, 4.13, 4.17, 6.1,
6.2, 6.3, 6.4, 6.6, 6.10, 6.12, 7.2 (for purposes of the cure period
contemplated by this clause (ii) only, with respect to Liens incurred without
any Borrowers’ consent so long as such Liens do not exceed $5,000 in the
aggregate and are being Properly Contested), 9.4 or 9.6 hereof which is not
cured within ten (10) days from the occurrence of such failure or neglect;

 

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10.6 Judgments. Any judgment or judgments are rendered against any Credit Party
for an aggregate amount in excess of $500,000 and (i) enforcement proceedings
shall have been commenced by a creditor upon such judgment, (ii) there shall be
any period of thirty (30) consecutive days during which a stay of enforcement of
such judgment, by reason of a pending appeal or otherwise, shall not be in
effect, or (iii) any such judgment results in the creation of a Lien upon any of
the Collateral (other than a Permitted Encumbrance);

10.7 Bankruptcy. Any Credit Party shall (i) apply for, consent to or suffer the
appointment of, or the taking of possession by, a receiver, custodian, trustee,
liquidator or similar fiduciary of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of creditors,
(iii) commence a voluntary case under any state or federal bankruptcy laws (as
now or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent,
(v) file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vi) acquiesce to, or fail to have dismissed, within thirty
(30) days, any petition filed against it in any involuntary case under such
bankruptcy laws, or (vii) take any action for the purpose of effecting any of
the foregoing;

10.8 Inability to Pay. Any Credit Party shall admit in writing its inability, or
be generally unable, to pay its debts as they become due or cease operations of
its present business;

10.9 Subsidiary Bankruptcy. Any Subsidiary of any Credit Party shall (i) apply
for, consent to or suffer the appointment of, or the taking of possession by, a
receiver, custodian, trustee, liquidator or similar fiduciary of itself or of
all or a substantial part of its property, (ii) admit in writing its inability,
or be generally unable, to pay its debts as they become due or cease operations
of its present business, (iii) make a general assignment for the benefit of
creditors, (iv) commence a voluntary case under any state or federal bankruptcy
laws (as now or hereafter in effect), (v) be adjudicated a bankrupt or
insolvent, (vi) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vii) acquiesce to, or fail to have
dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (viii) take any action for the
purpose of effecting any of the foregoing;

10.10 Material Adverse Effect. Any change in any Credit Party’s results of
operations or financial condition which Agent has determined in the exercise of
its Permitted Discretion has a Material Adverse Effect;

10.11 Lien Priority. Any Lien created hereunder or provided for hereby or under
any related agreement for any reason ceases to be or is not a valid and
perfected Lien having a first priority interest;

10.12 Convertible Senior Loan Default. An event of default has occurred under
the Convertible Senior Notes Documentation or the Intercreditor Agreement, which
default shall not have been cured or waived within any applicable grace period;

 

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10.13 Enforceability of Intercreditor Agreement. Convertible Senior Agents or
any Convertible Senior Lender denies or contests the validity or enforceability
of the Intercreditor Agreement; or

10.14 Cross Default. A default of the obligations of any Credit Party under any
other agreement to which it is a party shall occur which adversely affects its
condition, affairs or prospects (financial or otherwise) which default is not
cured within any applicable grace period;

10.15 Breach of Guaranty. Termination or breach of any Guaranty or Guaranty
Security Agreement or similar agreement executed and delivered to Agent in
connection with the Obligations of Borrower, or if any Guarantor attempts to
terminate, challenges the validity of, or its liability under, any such Guaranty
or Guaranty Security Agreement or similar agreement;

10.16 Change of Control. Any Change of Control shall occur;

10.17 Invalidity. Any material provision of this Agreement or any Other Document
shall, for any reason, cease to be valid and binding on any Credit Party or any
Credit Party shall so claim in writing to Agent or any Lender;

10.18 Licenses. (i) Any Governmental Body shall (A) revoke, terminate, suspend
or adversely modify any material license, permit, patent trademark or trade name
of any Credit Party, or (B) commence proceedings to suspend, revoke, terminate
or adversely modify any such material license, permit, trademark, trade name or
patent and such proceedings shall not be dismissed or discharged within sixty
(60) days, or (c) schedule or conduct a hearing on the renewal of any material
license, permit, trademark, trade name or patent necessary for the continuation
of any Credit Party’s business and the staff of such Governmental Body issues a
report recommending the termination, revocation, suspension or material, adverse
modification of such license, permit, trademark, trade name or patent; (ii) any
agreement which is necessary or material to the operation of any Credit Party’s
business shall be revoked or terminated and not replaced by a substitute
acceptable to Agent within thirty (30) days after the date of such revocation or
termination, and such revocation or termination and non-replacement would
reasonably be expected to have a Material Adverse Effect;

10.19 Seizures. Any portion of the Collateral shall be seized or taken by a
Governmental Body, or any Credit Party or the title and rights of any Credit
Party shall have become the subject matter of claim, litigation, suit or other
proceeding which might, in the opinion of Agent, upon final determination,
result in a material impairment or loss of the security provided by this
Agreement or the Other Documents;

10.20 Operations. The operations of the Credit Party’s business or facilities
(as a whole) are interrupted at any time for more than a period of ten
(10) consecutive days, unless such Credit Party shall (i) be entitled to receive
for such period of interruption, proceeds of business interruption insurance
sufficient to assure that its per diem cash needs during such period is at least
equal to its average per diem cash needs for the consecutive three (3) month
period immediately preceding the initial date of interruption and (ii) receive
such proceeds in the amount described in clause (i) preceding not later than
thirty (30) days following the initial date of any such interruption; provided,
however, that notwithstanding the provisions of clauses (i) and (ii) of this
section, an Event of Default shall be deemed to have occurred if any Credit
Party shall not remit such insurance proceeds to Agent pursuant to Section 4.11
hereof within ten (10) days following such Credit Party’s receipt thereof; or

 

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10.21 Pension Plans. An event or condition specified in Sections 7.16 or 9.15
hereof shall occur or exist with respect to any Plan and, as a result of such
event or condition, together with all other such events or conditions, any
Borrower or any member of the Controlled Group shall incur, or in the opinion of
Agent be reasonably likely to incur, a liability to a Plan or the PBGC (or both)
which, in the reasonable judgment of Agent, would have a Material Adverse
Effect.

 

XI LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT.

11.1 Rights and Remedies.

(a) Upon the occurrence of (i) an Event of Default pursuant to Section 10.7 all
Obligations shall be immediately due and payable and this Agreement and the
obligation of Lenders to make Advances shall be deemed terminated; and, (ii) any
of the other Events of Default and at any time thereafter (such default not
having previously been cured), at the option of Required Lenders all Obligations
shall be immediately due and payable and Lenders shall have the right to
terminate this Agreement and to terminate the obligation of Lenders to make
Advances. Upon the occurrence of any Event of Default, Agent shall have the
right to exercise any and all rights and remedies provided for herein, under the
Other Documents, under the Uniform Commercial Code and at law or equity
generally, including the right to foreclose the security interests granted
herein and to realize upon any Collateral by any available judicial procedure
and/or to take possession of and sell any or all of the Collateral with or
without judicial process. Agent may enter any of any Borrower’s premises or
other premises without legal process and without incurring liability to any
Borrower therefor, and Agent may thereupon, or at any time thereafter, in its
discretion without notice or demand, take the Collateral and remove the same to
such place as Agent may deem advisable and Agent may require Borrowers to make
the Collateral available to Agent at a convenient place. With or without having
the Collateral at the time or place of sale, Agent may sell the Collateral, or
any part thereof, at public or private sale, at any time or place, in one or
more sales, at such price or prices, and upon such terms, either for cash,
credit or future delivery, as Agent may elect. Except as to that part of the
Collateral which is perishable or threatens to decline speedily in value or is
of a type customarily sold on a recognized market, Agent shall give Borrowers
reasonable notification of such sale or sales, it being agreed that in all
events written notice mailed to Borrowing Agent at least ten (10) days prior to
such sale or sales is reasonable notification. At any public sale Agent or any
Lender may bid for and become the purchaser, and Agent, any Lender or any other
purchaser at any such sale thereafter shall hold the Collateral sold absolutely
free from any claim or right of whatsoever kind, including any equity of
redemption and all such claims, rights and equities are hereby expressly waived
and released by each Borrower. For the purposes of enabling Agent to exercise
the rights and remedies hereunder and under each of the Other Documents,
including the sale of Inventory, Agent is granted a perpetual nonrevocable,
royalty free, nonexclusive license and Agent is granted permission to use all of
each Borrower’s (a) trademarks, trade styles, trade names, trade name
applications, domain names, domain name applications, patents, patent
applications, copyrights, service marks, licenses, franchises and other
proprietary rights

 

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which are used or useful in connection with Inventory for the purpose of
marketing, advertising for sale and selling or otherwise disposing of such
Inventory and (b) Equipment for the purpose of completing the manufacture of
unfinished goods. The cash proceeds realized from the sale of any Collateral
shall be applied to the Obligations in the order set forth in Section 11.5
hereof. Noncash proceeds will only be applied to the Obligations as they are
converted into cash. If any deficiency shall arise, Borrowers shall remain
liable to Agent and Lenders therefor.

(b) To the extent that Applicable Law imposes duties on the Agent to exercise
remedies in a commercially reasonable manner, each Borrower acknowledges and
agrees that it is not commercially unreasonable for the Agent (i) to fail to
incur expenses reasonably deemed significant by the Agent to prepare Collateral
for disposition or otherwise to complete raw material or work in process into
finished goods or other finished products for disposition, (ii) to fail to
obtain third party consents for access to Collateral to be disposed of, or to
obtain or, if not required by other law, to fail to obtain governmental or third
party consents for the collection or disposition of Collateral to be collected
or disposed of, (iii) to fail to exercise collection remedies against Customers
or other Persons obligated on Collateral or to remove Liens on or any adverse
claims against Collateral, (iv) to exercise collection remedies against
Customers and other Persons obligated on Collateral directly or through the use
of collection agencies and other collection specialists, (v) to advertise
dispositions of Collateral through publications or media of general circulation,
whether or not the Collateral is of a specialized nature, (vi) to contact other
Persons, whether or not in the same business as any Borrower, for expressions of
interest in acquiring all or any portion of such Collateral, (vii) to hire one
or more professional auctioneers to assist in the disposition of Collateral,
whether or not the Collateral is of a specialized nature, (viii) to dispose of
Collateral by utilizing internet sites that provide for the auction of assets of
the types included in the Collateral or that have the reasonable capacity of
doing so, or that match buyers and sellers of assets, (ix) to dispose of assets
in wholesale rather than retail markets, (x) to disclaim disposition warranties,
such as title, possession or quiet enjoyment, (xi) to purchase insurance or
credit enhancements to insure the Agent against risks of loss, collection or
disposition of Collateral or to provide to the Agent a guaranteed return from
the collection or disposition of Collateral, or (xii) to the extent deemed
appropriate by the Agent, to obtain the services of other brokers, investment
bankers, consultants and other professionals to assist the Agent in the
collection or disposition of any of the Collateral. Each Borrower acknowledges
that the purpose of this Section 11.1(b) is to provide non-exhaustive
indications of what actions or omissions by the Agent would not be commercially
unreasonable in the Agent’s exercise of remedies against the Collateral and that
other actions or omissions by the Agent shall not be deemed commercially
unreasonable solely on account of not being indicated in this Section 11.1(b).
Without limitation upon the foregoing, nothing contained in this Section11.1(b)
shall be construed to grant any rights to any Borrower or to impose any duties
on Agent that would not have been granted or imposed by this Agreement or by
Applicable Law in the absence of this Section 11.1(b).

11.2 Agent’s Discretion. Agent shall have the right in its sole discretion to
determine which rights, Liens, security interests or remedies Agent may at any
time pursue, relinquish, subordinate, or modify or to take any other action with
respect thereto and such determination will not in any way modify or affect any
of Agent’s or Lenders’ rights hereunder.

 

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11.3 Setoff. Subject to Section 14.12, in addition to any other rights which
Agent or any Lender may have under Applicable Law, upon the occurrence of an
Event of Default hereunder, Agent and such Lender shall have a right,
immediately and without notice of any kind, to apply any Borrower’s property
held by Agent and such Lender to reduce the Obligations.

11.4 Rights and Remedies not Exclusive. The enumeration of the foregoing rights
and remedies is not intended to be exhaustive and the exercise of any rights or
remedy shall not preclude the exercise of any other right or remedies provided
for herein or otherwise provided by law, all of which shall be cumulative and
not alternative.

11.5 Allocation of Payments After Event of Default. Notwithstanding any other
provisions of this Agreement to the contrary, after the occurrence and during
the continuance of an Event of Default, all amounts collected or received by
Agent on account of the Obligations or any other amounts outstanding under any
of the Other Documents or in respect of the Collateral may, at Agent’s
discretion, be paid over or delivered as follows:

FIRST, to the payment of all reasonable out-of-pocket costs and expenses
(including reasonable attorneys’ fees) of the Agent in connection with enforcing
its rights and the rights of the Lenders under this Agreement and the Other
Documents and any protective advances made by the Agent with respect to the
Collateral under or pursuant to the terms of this Agreement;

SECOND, to payment of any fees owed to the Agent;

THIRD, to the payment of all reasonable out-of-pocket costs and expenses
(including reasonable attorneys’ fees) of each of the Lenders to the extent
owing to such Lender pursuant to the terms of this Agreement;

FOURTH, to the payment of all of the Obligations consisting of accrued fees and
interest;

FIFTH, to the payment of the outstanding principal amount of the Obligations
(including the payment or cash collateralization of any outstanding Letters of
Credit);

SIXTH, to all other Obligations and other obligations which shall have become
due and payable under the Other Documents or otherwise and not repaid pursuant
to clauses “FIRST” through “FIFTH” above; and

SEVENTH, to the payment of the surplus, if any, to whoever may be lawfully
entitled to receive such surplus.

In carrying out the foregoing, (i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; (ii) each of the Lenders shall receive (so long as it is
not a Defaulting Lender) an amount equal to its pro rata share (based on the
proportion that the then outstanding Advances held by such Lender bears to the
aggregate then outstanding Advances) of amounts available to be applied pursuant
to clauses “FOURTH”, “FIFTH” and “SIXTH” above; and (iii) to the extent that any
amounts available for distribution pursuant to clause “FIFTH” above are
attributable to the issued but undrawn amount

 

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of outstanding Letters of Credit, such amounts shall be held by the Agent in a
cash collateral account and applied (A) first, to reimburse the Issuer from time
to time for any drawings under such Letters of Credit and (B) then, following
the expiration of all Letters of Credit, to all other obligations of the types
described in clauses “FIFTH” and “SIXTH” above in the manner provided in this
Section 11.5.

 

XII WAIVERS AND JUDICIAL PROCEEDINGS.

12.1 Waiver of Notice. Each Borrower hereby waives notice of non-payment of any
of the Receivables, demand, presentment, notice of intent to accelerate and
notice of acceleration, protest and notice thereof with respect to any and all
instruments, notice of acceptance hereof, notice of loans or advances made,
credit extended, Collateral received or delivered, or any other action taken in
reliance hereon, and all other demands and notices of any description, except
such as are expressly provided for herein.

12.2 Delay. No delay or omission on Agent’s or any Lender’s part in exercising
any right, remedy or option shall operate as a waiver of such or any other
right, remedy or option or of any Default or Event of Default.

12.3 Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT
TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING
UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO
IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR
A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

XIII EFFECTIVE DATE AND TERMINATION.

13.1 Term. This Agreement, which shall inure to the benefit of and shall be
binding upon the respective successors and permitted assigns of each Borrower,
Agent and each Lender, shall become effective on the date hereof and shall
continue in full force and effect until December 15, 2012; provided that, in the
event that the Senior Convertible Notes are refinanced and/or restructured on
terms and conditions satisfactory to Agent in its sole discretion, this
Agreement shall continue in full force and effect until September 22, 2014 (the
“Term”), unless sooner terminated as herein provided.

 

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13.2 Termination. The termination of the Agreement shall not affect any
Borrower’s, Agent’s or any Lender’s rights, or any of the Obligations having
their inception prior to the effective date of such termination, and the
provisions hereof shall continue to be fully operative until all transactions
entered into, rights or interests created or Obligations have been fully and
indefeasibly paid, disposed of, concluded or liquidated. The security interests,
Liens and rights granted to Agent and Lenders hereunder and the financing
statements filed hereunder shall continue in full force and effect,
notwithstanding the termination of this Agreement or the fact that Borrowers’
Account may from time to time be temporarily in a zero or credit position, until
all of the Obligations of each Borrower have been indefeasibly paid and
performed in full after the termination of this Agreement or each Borrower has
furnished Agent and Lenders with an indemnification satisfactory to Agent and
Lenders with respect thereto. Accordingly, Borrower waives any rights which it
may have under the Uniform Commercial Code to demand the filing of termination
statements with respect to the Collateral, and Agent shall not be required to
send such termination statements to each Borrower, or to file them with any
filing office, unless and until this Agreement shall have been terminated in
accordance with its terms and all Obligations have been indefeasibly paid in
full in immediately available funds. All representations, warranties, covenants,
waivers and agreements contained herein shall survive termination hereof until
all Obligations are indefeasibly paid and performed in full.

 

XIV REGARDING AGENT.

14.1 Appointment. Each Lender hereby designates PNC to act as Agent for such
Lender under this Agreement and the Other Documents. Each Lender hereby
irrevocably authorizes Agent to take such action on its behalf under the
provisions of this Agreement and the Other Documents and to exercise such powers
and to perform such duties hereunder and thereunder as are specifically
delegated to or required of Agent by the terms hereof and thereof and such other
powers as are reasonably incidental thereto and Agent shall hold all Collateral,
payments of principal and interest, fees (except the fees set forth in
Section 3.4), charges and collections (without giving effect to any collection
days) received pursuant to this Agreement, for the ratable benefit of Lenders.
Agent may perform any of its duties hereunder by or through its agents or
employees. As to any matters not expressly provided for by this Agreement
(including collection of the Revolving Credit Note) Agent shall not be required
to exercise any discretion or take any action, but shall be required to act or
to refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding; provided, however, that Agent shall not be
required to take any action which exposes Agent to liability or which is
contrary to this Agreement or the Other Documents or Applicable Law unless Agent
is furnished with an indemnification reasonably satisfactory to Agent with
respect thereto.

14.2 Nature of Duties. Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement and the Other Documents. Neither
Agent nor any of its officers, directors, employees or agents shall be
(i) liable for any action taken or omitted by them as such hereunder or in
connection herewith, unless caused by their gross (not mere) negligence or
willful misconduct (as determined by a court of competent jurisdiction in a
final non-appealable judgment), or (ii) responsible in any manner for any
recitals, statements, representations or warranties made by any Borrower or any
officer thereof contained in this Agreement, or in any of the Other Documents or
in any certificate, report, statement or other

 

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document referred to or provided for in, or received by Agent under or in
connection with, this Agreement or any of the Other Documents or for the value,
validity, effectiveness, genuineness, due execution, enforceability or
sufficiency of this Agreement, or any of the Other Documents or for any failure
of any Borrower to perform its obligations hereunder. Agent shall not be under
any obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any of the Other Documents, or to inspect the properties, books or
records of any Borrower. The duties of Agent as respects the Advances to
Borrowers shall be mechanical and administrative in nature; Agent shall not have
by reason of this Agreement a fiduciary relationship in respect of any Lender;
and nothing in this Agreement, expressed or implied, is intended to or shall be
so construed as to impose upon Agent any obligations in respect of this
Agreement except as expressly set forth herein.

14.3 Lack of Reliance on Agent and Resignation. Independently and without
reliance upon Agent or any other Lender, each Lender has made and shall continue
to make (i) its own independent investigation of the financial condition and
affairs of each Credit Party in connection with the making and the continuance
of the Advances hereunder and the taking or not taking of any action in
connection herewith, and (ii) its own appraisal of the creditworthiness of each
Credit Party. Agent shall have no duty or responsibility, either initially or on
a continuing basis, to provide any Lender with any credit or other information
with respect thereto, whether coming into its possession before making of the
Advances or at any time or times thereafter except as shall be provided by any
Borrower pursuant to the terms hereof. Agent shall not be responsible to any
Lender for any recitals, statements, information, representations or warranties
herein or in any agreement, document, certificate or a statement delivered in
connection with or for the execution, effectiveness, genuineness, validity,
enforceability, collectability or sufficiency of this Agreement or any Other
Document, or of the financial condition of any Credit Party, or be required to
make any inquiry concerning either the performance or observance of any of the
terms, provisions or conditions of this Agreement, the Revolving Credit Note,
the Other Documents or the financial condition of any Credit Party, or the
existence of any Event of Default or any Default.

Agent may resign on sixty (60) days’ written notice to each of Lenders and
Borrowing Agent and upon such resignation, the Required Lenders will promptly
designate a successor Agent reasonably satisfactory to Borrowers.

Any such successor Agent shall succeed to the rights, powers and duties of
Agent, and the term “Agent” shall mean such successor agent effective upon its
appointment, and the former Agent’s rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent. After any Agent’s resignation as Agent, the provisions of this Article
XIV shall inure to its benefit as to any actions taken or omitted to be taken by
it while it was Agent under this Agreement.

14.4 Certain Rights of Agent. If Agent shall request instructions from Lenders
with respect to any act or action (including failure to act) in connection with
this Agreement or any Other Document, Agent shall be entitled to refrain from
such act or taking such action unless and until Agent shall have received
instructions from the Required Lenders; and Agent shall not incur liability to
any Person by reason of so refraining. Without limiting the foregoing, Lenders
shall not have any right of action whatsoever against Agent as a result of its
acting or refraining from acting hereunder in accordance with the instructions
of the Required Lenders.

 

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14.5 Reliance. Agent shall be entitled to rely, and shall be fully protected in
relying, upon any note, writing, resolution, notice, statement, certificate,
telex, teletype or telecopier message, cablegram, order or other document or
telephone message believed by it to be genuine and correct and to have been
signed, sent or made by the proper person or entity, and, with respect to all
legal matters pertaining to this Agreement and the Other Documents and its
duties hereunder, upon advice of counsel selected by it. Agent may employ agents
and attorneys-in-fact and shall not be liable for the default or misconduct of
any such agents or attorneys-in-fact selected by Agent with reasonable care.

14.6 Notice of Default. Agent shall not be deemed to have knowledge or notice of
the occurrence of any Default or Event of Default hereunder or under the Other
Documents, unless Agent has received notice from a Lender or Borrowing Agent
referring to this Agreement or the Other Documents, describing such Default or
Event of Default and stating that such notice is a “notice of default”. In the
event that Agent receives such a notice, Agent shall give notice thereof to
Lenders. Agent shall take such action with respect to such Default or Event of
Default as shall be reasonably directed by the Required Lenders; provided, that,
unless and until Agent shall have received such directions, Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of Lenders.

14.7 Indemnification. To the extent Agent is not reimbursed and indemnified by
Borrowers, each Lender will reimburse and indemnify Agent in proportion to its
respective portion of the Advances (or, if no Advances are outstanding,
according to its Commitment Percentage), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against Agent in performing its duties
hereunder, or in any way relating to or arising out of this Agreement or any
Other Document (INCLUDING WITHOUT LIMITATION, WITH RESPECT TO ANY OTHERWISE
INDEMNIFIED MATTER ARISING FROM AGENTS NEGLIGENCE OR STRICT LIABILITY); provided
that, Lenders shall not be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from Agent’s gross (not mere) negligence or
willful misconduct (as determined by a court of competent jurisdiction in a
final non-appealable judgment).

14.8 Agent in its Individual Capacity. With respect to the obligation of Agent
to lend under this Agreement, the Advances made by it shall have the same rights
and powers hereunder as any other Lender and as if it were not performing the
duties as Agent specified herein; and the term “Lender” or any similar term
shall, unless the context clearly otherwise indicates, include Agent in its
individual capacity as a Lender. Agent may engage in business with any Borrower
as if it were not performing the duties specified herein, and may accept fees
and other consideration from any Borrower for services in connection with this
Agreement or otherwise without having to account for the same to Lenders.

 

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14.9 Delivery of Documents. To the extent Agent receives financial statements
required under Sections 9.7, 9.8, 9.9, 9.12 and 9.13 or Borrowing Base
Certificates from any Borrower pursuant to the terms of this Agreement which any
Borrower is not obligated to deliver to each Lender, Agent will promptly furnish
such documents and information to Lenders.

14.10 Borrowers’ Undertaking to Agent. Without prejudice to their respective
obligations to Lenders under the other provisions of this Agreement, each
Borrower hereby undertakes with Agent to pay to Agent from time to time on
demand all amounts from time to time due and payable by it for the account of
Agent or Lenders or any of them pursuant to this Agreement to the extent not
already paid. Any payment made pursuant to any such demand shall pro tanto
satisfy the relevant Borrower’s obligations to make payments for the account of
Lenders or the relevant one or more of them pursuant to this Agreement.

14.11 No Reliance on Agent’s Customer Identification Program. Each Lender
acknowledges and agrees that neither such Lender, nor any of its Affiliates,
participants or assignees, may rely on the Agent to carry out such Lender’s,
Affiliate’s, participant’s or assignee’s customer identification program, or
other obligations required or imposed under or pursuant to the USA PATRIOT Act
or the regulations thereunder, including the regulations contained in 31 CFR
103.121 (as hereafter amended or replaced, the “CIP Regulations”), or any other
Anti-Terrorism Law, including any programs involving any of the following items
relating to or in connection with any Borrower, its Affiliates or its agents,
this Agreement, the Other Documents or the transactions hereunder or
contemplated hereby: (1) any identity verification procedures, (2) any
record-keeping, (3) comparisons with government lists, (4) customer notices or
(5) other procedures required under the CIP Regulations or such other laws.

14.12 Other Agreements. Each of the Lenders agrees that it shall not, without
the express consent of Agent, and that it shall, to the extent it is lawfully
entitled to do so, upon the request of Agent, set off against the Obligations,
any amounts owing by such Lender to any Borrower or any deposit accounts of any
Borrower now or hereafter maintained with such Lender. Anything in this
Agreement to the contrary notwithstanding, each of the Lenders further agrees
that it shall not, unless specifically requested to do so by Agent, take any
action to protect or enforce its rights arising out of this Agreement or the
Other Documents, it being the intent of Lenders that any such action to protect
or enforce rights under this Agreement and the Other Documents shall be taken in
concert and at the direction or with the consent of Agent or Required Lenders.

 

XV BORROWING AGENCY PROVISION AND COMMON ENTERPRISE.

15.1 Borrowing Agency Provisions.

(a) Each Borrower hereby irrevocably designates Borrowing Agent to be its
attorney and agent and in such capacity to borrow, sign and endorse notes, and
execute and deliver all instruments, documents, writings and further assurances
now or hereafter required hereunder, on behalf of such Borrower or Borrowers,
and hereby authorizes Agent to pay over or credit all loan proceeds hereunder in
accordance with the request of Borrowing Agent.

 

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(b) The handling of this credit facility as a co-borrowing facility with a
borrowing agent in the manner set forth in this Agreement is solely as an
accommodation to Borrowers and at their request. Neither Agent nor any Lender
shall incur liability to Borrowers as a result thereof. TO INDUCE AGENT AND
LENDERS TO DO SO AND IN CONSIDERATION THEREOF, EACH BORROWER HEREBY INDEMNIFIES
AGENT AND EACH LENDER AND HOLDS AGENT AND EACH LENDER HARMLESS FROM AND AGAINST
ANY AND ALL LIABILITIES (INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO ANY ACT
OR INACTION ARISING FROM AGENT’S NEGLIGENCE OR STRICT LIABILITY), EXPENSES,
LOSSES, DAMAGES AND CLAIMS OF DAMAGE OR INJURY ASSERTED AGAINST AGENT OR ANY
LENDER BY ANY PERSON ARISING FROM OR INCURRED BY REASON OF THE HANDLING OF THE
FINANCING ARRANGEMENTS OF BORROWERS AS PROVIDED HEREIN, RELIANCE BY AGENT OR ANY
LENDER ON ANY REQUEST OR INSTRUCTION FROM BORROWING AGENT OR ANY OTHER ACTION
TAKEN BY AGENT OR ANY LENDER WITH RESPECT TO THIS SECTION 15.1 EXCEPT DUE TO
WILLFUL MISCONDUCT OR GROSS (NOT MERE) NEGLIGENCE BY THE INDEMNIFIED PARTY (AS
DETERMINED BY A COURT OF COMPETENT JURISDICTION IN A FINAL AND NON-APPEALABLE
JUDGMENT).

(c) All Obligations shall be joint and several, and each Borrower shall make
payment upon the maturity of the Obligations by acceleration or otherwise, and
such obligation and liability on the part of each Borrower shall in no way be
affected by any extensions, renewals and forbearance granted to Agent or any
Lender to any Borrower, failure of Agent or any Lender to give any Borrower
notice of borrowing or any other notice, any failure of Agent or any Lender to
pursue or preserve its rights against any Borrower, the release by Agent or any
Lender of any Collateral now or thereafter acquired from any Borrower, and such
agreement by each Borrower to pay upon any notice issued pursuant thereto is
unconditional and unaffected by prior recourse by Agent or any Lender to the
other Borrowers or any Collateral for such Borrower’s Obligations or the lack
thereof. Each Borrower waives all suretyship defenses.

15.2 Waiver of Subrogation. EACH BORROWER EXPRESSLY WAIVES ANY AND ALL RIGHTS OF
SUBROGATION, REIMBURSEMENT, INDEMNITY, EXONERATION, CONTRIBUTION OF ANY OTHER
CLAIM WHICH SUCH BORROWER MAY NOW OR HEREAFTER HAVE AGAINST THE OTHER BORROWERS
OR OTHER PERSON DIRECTLY OR CONTINGENTLY LIABLE FOR THE OBLIGATIONS HEREUNDER,
OR AGAINST OR WITH RESPECT TO THE OTHER BORROWERS’ PROPERTY (INCLUDING, WITHOUT
LIMITATION, ANY PROPERTY WHICH IS COLLATERAL FOR THE OBLIGATIONS), ARISING FROM
THE EXISTENCE OR PERFORMANCE OF THIS AGREEMENT, UNTIL TERMINATION OF THIS
AGREEMENT AND REPAYMENT IN FULL OF THE OBLIGATIONS.

15.3 Common Enterprise. The successful operation and condition of each of
Borrowers is dependent on the continued successful performance of the functions
of the group of Borrowers as a whole and the successful operation of each
Borrower is dependent on the successful performance and operation of each other
Borrower. Each of Borrowers expects to derive benefit (and its board of
directors or other governing body has determined that it may

 

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reasonably be expected to derive benefit), directly and indirectly, from
successful operations of Holdings and each of the other Borrowers. Each Borrower
expects to derive benefit (and the boards of directors or other governing body
of each such Borrower have determined that it may reasonably be expected to
derive benefit), directly and indirectly, from the credit extended by Lenders to
Borrowers hereunder, both in their separate capacities and as members of the
group of companies. Each Borrower has determined that execution, delivery, and
performance of this Agreement and any Other Documents to be executed by such
Borrower is within its corporate purpose, will be of direct and indirect benefit
to such Borrower, and is in its best interest.

 

XVI MISCELLANEOUS.

16.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas applied to contracts to be
performed wholly within the State of Texas. Any judicial proceeding brought by
or against Borrower with respect to any of the Obligations, this Agreement, the
Other Documents or any related agreement may be brought in any court of
competent jurisdiction in Dallas County, Texas, United States of America, and,
by execution and delivery of this Agreement, each Borrower accepts for itself
and in connection with its properties, generally and unconditionally, the
non-exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement. Each
Borrower hereby waives personal service of any and all process upon it and
consents that all such service of process may be made by registered mail (return
receipt requested) directed to Borrowing Agent at its address set forth in
Section 16.6 and service so made shall be deemed completed five (5) days after
the same shall have been so deposited in the mails of the United States of
America, or at Agent’s option, by service upon Borrowing Agent, which each
Borrower irrevocably appoints as such Borrower’s Agent for the purpose of
accepting service within the State of Texas. Nothing herein shall affect the
right to serve process in any manner permitted by law or shall limit the right
of Agent or any Lender to bring proceedings against any Borrower in the courts
of any other jurisdiction. Each Borrower waives any objection to jurisdiction
and venue of any action instituted hereunder and shall not assert any defense
based on lack of jurisdiction or venue or based upon forum non conveniens. Each
Borrower waives the right to remove any judicial proceeding brought against
Borrower in any state court to any federal court. Any judicial proceeding by any
Borrower against Agent or any Lender involving, directly or indirectly, any
matter or claim in any way arising out of, related to or connected with this
Agreement or any related agreement, shall be brought only in a federal or state
court located in the City of Dallas, State of Texas.

16.2 Entire Understanding.

(a) This Agreement and the documents executed concurrently herewith contain the
entire understanding between each Borrower, Agent and each Lender and supersedes
all prior agreements and understandings, if any, relating to the subject matter
hereof. Any promises, representations, warranties or guarantees not herein
contained and hereinafter made shall have no force and effect unless in writing,
signed by each Borrower’s, Agent’s and each Lender’s respective officers.
Neither this Agreement nor any portion or provisions hereof may be changed,
modified, amended, waived, supplemented, discharged, cancelled or terminated
orally or by any course of dealing, or in any manner other than by an agreement
in writing, signed by the party to be charged. Each Borrower acknowledges that
it has been advised by counsel in connection with the execution of this
Agreement and Other Documents and is not relying upon oral representations or
statements inconsistent with the terms and provisions of this Agreement.

 

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(b) The Required Lenders, Agent with the consent in writing of the Required
Lenders, and Borrowers may, subject to the provisions of this Section 16.2 (b),
from time to time enter into written supplemental agreements to this Agreement
or the Other Documents executed by Borrowers, for the purpose of adding or
deleting any provisions or otherwise changing, varying or waiving in any manner
the rights of Lenders, Agent or Borrowers thereunder or the conditions,
provisions or terms thereof or waiving any Event of Default thereunder, but only
to the extent specified in such written agreements; provided, however, that no
such supplemental agreement shall, without the consent of all Lenders affected
thereby:

(i) increase the Commitment Percentage, the maximum dollar commitment of any
Lender or the Maximum Revolving Advance Amount.

(ii) extend the maturity of any note or the due date for any amount payable
hereunder, or decrease the rate of interest or reduce any fee payable by
Borrowers to Lenders pursuant to this Agreement.

(iii) alter the definition of the term Required Lenders or alter, amend or
modify this Section 16.2(b).

(iv) release any Collateral during any calendar year (other than in accordance
with the provisions of this Agreement) having an aggregate value in excess of
$1,000,000.

(v) change the rights and duties of Agent.

(vi) permit any Revolving Advance to be made if after giving effect thereto the
total of Revolving Advances outstanding hereunder would exceed the Formula
Amount for more than thirty (30) consecutive Business Days or exceed one hundred
and ten percent (110%) of the Formula Amount.

(vii) increase the Advance Rates above the Advance Rates in effect on the
Closing Date.

(viii) release any Guarantor.

Any such supplemental agreement shall apply equally to each Lender and shall be
binding upon Borrowers Lenders and Agent and all future holders of the
Obligations. In the case of any waiver, Borrowers, Agent and Lenders shall be
restored to their former positions and rights, and any Event of Default waived
shall be deemed to be cured and not continuing, but no waiver of a specific
Event of Default shall extend to any subsequent Event of Default (whether or not
the subsequent Event of Default is the same as the Event of Default which was
waived), or impair any right consequent thereon.

 

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(c)In the event that Agent requests the consent of a Lender pursuant to this
Section 16.2 and such consent is denied (each, a “Non-Consenting Lender”), then
PNC may, at its option, require such Non-Consenting Lender to assign its
interest in the Advances to PNC or to another Lender or to any other Person
designated by the Agent (the “Designated Lender”), for a price equal to (i) the
then outstanding principal amount thereof plus (ii) accrued and unpaid interest
and fees due such Lender, which interest and fees shall be paid when collected
from Borrowers. In the event PNC elects to require any Lender to assign its
interest to PNC or to the Designated Lender, PNC will so notify such Lender in
writing within forty five (45) days following such Non-Consenting Lender’s
denial, and such Non-Consenting Lender will assign its interest to PNC or the
Designated Lender no later than five (5) days following receipt of such notice
pursuant to a Commitment Transfer Supplement executed by such Lender, PNC or the
Designated Lender, as appropriate, and Agent. Additionally, in the event any
Lender (other than PNC) (i) requests compensation under Sections 3.7 or 3.9, or
requires the Borrowers to pay any additional amount due to any Lender’s status
pursuant to Section 3.11 to any Lender or any Governmental Body for the account
of any Lender, (iii) is a Defaulting Lender or (iv) is a Non-Consenting Lender
referred to in this Section 16.2(c), then in any such event Borrowers may, at
their sole expense, upon notice to such Lender and Agent, require such Lender to
assign and delegate, without recourse (in accordance with and subject to the
restrictions contained in, and consents required by, this Section 16.3), all of
its interests, rights and obligations under this Agreement and the Other
Documents to an assignee acceptable to Agent in its sole discretion that shall
assume such obligations (which assignee may be another Lender, if a Lender
accepts such assignment), provided that:

(i) Borrowers shall have paid to Agent the assignment fee specified in
Section 16.3(e) hereof;

(ii) such Lender shall have received payment of an amount equal to the
outstanding principal of its outstanding Advances, accrued interest thereon,
accrued fees and all other amounts payable to it hereunder and under the other
Loan Documents (including any amounts under Section 2.17) from the assignee (to
the extent of such outstanding principal and accrued interest and fees) or
Borrowers (in the case of all other amounts);

(iii) in the case of any such assignment resulting from a claim for compensation
under Sections 3.7 or 3.9, such assignment will result in a reduction in such
compensation or payments thereafter; and

(iv) such assignment does not conflict with Applicable Law.

A Lender shall not be required to make any such assignment or delegation if,
prior thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling Borrowers to require such assignment and delegation
cease to apply.

Notwithstanding (a) the existence of a Default or an Event of Default, (b) that
any of the other applicable conditions precedent set forth in Section 8.2 hereof
have not been satisfied or (c) any other provision of this Agreement, Agent may
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Required Lenders, voluntarily permit the sum of the outstanding Revolving
Advances and the Maximum Undrawn Amount at any time to exceed the Formula Amount
by up to ten percent (10%) of the Formula Amount for up to sixty
(60) consecutive Business Days (the “Out-of-Formula Loans”); provided, that,
such outstanding Advances do not exceed the Maximum Revolving Advance Amount. If
Agent is willing in its sole and absolute discretion to make such Out-of-Formula
Loans, such Out-of-Formula Loans shall be payable on demand and shall bear
interest at the Default Rate for Revolving Advances consisting of Domestic Rate
Loans; provided that, if Lenders do make Out-of-Formula Loans, neither Agent nor
Lenders shall be deemed thereby to have changed the limits of Section 2.1(a).
For purposes of this paragraph, the discretion granted to Agent hereunder shall
not preclude involuntary overadvances that may result from time to time due to
the fact that the Formula Amount was unintentionally exceeded for any reason,
including, but not limited to, Collateral previously deemed to be either
“Eligible Receivables” or “Eligible Inventory”, as applicable, becomes
ineligible, collections of Receivables applied to reduce outstanding Revolving
Advances are thereafter returned for insufficient funds or overadvances are made
to protect or preserve the Collateral. In the event Agent involuntarily permits
the outstanding Revolving Advances to exceed the Formula Amount by more than ten
percent (10%), Agent shall use its efforts to have Borrowers decrease such
excess in as expeditious a manner as is practicable under the circumstances and
not inconsistent with the reason for such excess. Revolving Advances made after
Agent has determined the existence of involuntary overadvances shall be deemed
to be involuntary overadvances and shall be decreased in accordance with the
preceding sentence.

In addition to (and not in substitution of) the discretionary Revolving Advances
permitted above in this Section 16.2, the Agent is hereby authorized by
Borrowers and the Lenders, from time to time in the Agent’s sole discretion,
(A) after the occurrence and during the continuation of a Default or an Event of
Default, or (B) at any time that any of the other applicable conditions
precedent set forth in Section 8.2 hereof have not been satisfied, to make
Revolving Advances to Borrowers on behalf of the Lenders which the Agent, in its
reasonable business judgment, deems necessary or desirable (a) to preserve or
protect the Collateral, or any portion thereof, (b) to enhance the likelihood
of, or maximize the amount of, repayment of the Advances and other Obligations,
or (c) to pay any other amount chargeable to Borrowers pursuant to the terms of
this Agreement; provided, that, at any time after giving effect to any such
Revolving Advances the outstanding Revolving Advances do not exceed one hundred
and ten percent (110%) of the Formula Amount.

16.3 Successors and Assigns; Participations; New Lenders.

(a) This Agreement shall be binding upon and inure to the benefit of Borrowers,
Agent, each Lender, all future holders of the Obligations and their respective
successors and permitted assigns, except that no Borrower may assign or transfer
any of its rights or obligations under this Agreement without the prior written
consent of Agent and each Lender.

(b) Each Borrower acknowledges that in the regular course of commercial banking
business one or more Lenders may at any time and from time to time sell
participating interests in the Advances to other financial institutions (each
such transferee or purchaser of a participating interest, a “Participant”). Each
Participant may exercise all rights of payment (including rights of set-off)
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Obligations payable hereunder as fully as if such Participant were the direct
holder thereof provided that Borrowers shall not be required to pay to any
Participant more than the amount which it would have been required to pay to
Lender which granted an interest in its Advances or other Obligations payable
hereunder to such Participant had such Lender retained such interest in the
Advances hereunder or other Obligations payable hereunder and in no event shall
Borrowers be required to pay any such amount arising from the same circumstances
and with respect to the same Advances or other Obligations payable hereunder to
both such Lender and such Participant. Each Borrower hereby grants to any
Participant a continuing security interest in any deposits, moneys or other
property actually or constructively held by such Participant as security for the
Participant’s interest in the Advances.

(c) Any Lender, with the consent of Agent which shall not be unreasonably
withheld or delayed, may sell, assign or transfer all or any part of its rights
and obligations under or relating to Revolving Advances under this Agreement and
the Other Documents to one or more additional banks or financial institutions
and one or more additional banks or financial institutions may commit to make
Advances hereunder (each a “Purchasing Lender”) in minimum amounts of not less
than $1,000,000, pursuant to a Commitment Transfer Supplement, executed by a
Purchasing Lender, the transferor Lender, and Agent and delivered to Agent for
recording. Upon such execution, delivery, acceptance and recording, from and
after the transfer effective date determined pursuant to such Commitment
Transfer Supplement, (i) Purchasing Lender thereunder shall be a party hereto
and, to the extent provided in such Commitment Transfer Supplement, have the
rights and obligations of a Lender thereunder with a Commitment Percentage as
set forth therein, and (ii) the transferor Lender thereunder shall, to the
extent provided in such Commitment Transfer Supplement, be released from its
obligations under this Agreement, the Commitment Transfer Supplement creating a
novation for that purpose. Such Commitment Transfer Supplement shall be deemed
to amend this Agreement to the extent, and only to the extent, necessary to
reflect the addition of such Purchasing Lender and the resulting adjustment of
the Commitment Percentages arising from the purchase by such Purchasing Lender
of all or a portion of the rights and obligations of such transferor Lender
under this Agreement and the Other Documents. Each Borrower hereby consents to
the addition of such Purchasing Lender and the resulting adjustment of the
Commitment Percentages arising from the purchase by such Purchasing Lender of
all or a portion of the rights and obligations of such transferor Lender under
this Agreement and the Other Documents. Borrowers shall execute and deliver such
further documents and do such further acts and things in order to effectuate the
foregoing.

(d) Any Lender, with the consent of Agent which shall not be unreasonably
withheld or delayed, may directly or indirectly sell, assign or transfer all or
any portion of its rights and obligations under or relating to Revolving
Advances under this Agreement and the Other Documents to an entity, whether a
corporation, partnership, trust, limited liability company or other entity that
(i) is engaged in making, purchasing, holding or otherwise investing in bank
loans and similar extensions of credit in the ordinary course of its business
and (ii) is administered, serviced or managed by the assigning Lender or an
Affiliate of such Lender (a “Purchasing CLO” and together with each Participant
and Purchasing Lender, each a “Transferee” and collectively the “Transferees”),
pursuant to a Commitment Transfer Supplement modified as appropriate to reflect
the interest being assigned (“Modified Commitment Transfer Supplement”),
executed by any intermediate purchaser, the Purchasing

 

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CLO, the transferor Lender, and Agent as appropriate and delivered to Agent for
recording. Upon such execution and delivery, from and after the transfer
effective date determined pursuant to such Modified Commitment Transfer
Supplement, (i) Purchasing CLO thereunder shall be a party hereto and, to the
extent provided in such Modified Commitment Transfer Supplement, have the rights
and obligations of a Lender thereunder and (ii) the transferor Lender thereunder
shall, to the extent provided in such Modified Commitment Transfer Supplement,
be released from its obligations under this Agreement, the Modified Commitment
Transfer Supplement creating a novation for that purpose. Such Modified
Commitment Transfer Supplement shall be deemed to amend this Agreement to the
extent, and only to the extent, necessary to reflect the addition of such
Purchasing CLO. Each Borrower hereby consents to the addition of such Purchasing
CLO. Borrowers shall execute and deliver such further documents and do such
further acts and things in order to effectuate the foregoing.

(e) Agent shall maintain at its address a copy of each Commitment Transfer
Supplement and Modified Commitment Transfer Supplement delivered to it and a
register (the “Register”) for the recordation of the names and addresses of each
Lender and the outstanding principal, accrued and unpaid interest and other fees
due hereunder. The entries in the Register shall be conclusive, in the absence
of manifest error, and each Borrower, Agent and Lenders may treat each Person
whose name is recorded in the Register as the owner of the Advance recorded
therein for the purposes of this Agreement. The Register shall be available for
inspection by Borrowing Agent or any Lender at any reasonable time and from time
to time upon reasonable prior notice. Agent shall receive a fee in the amount of
$3,500 payable by the applicable Purchasing Lender and/or Purchasing CLO upon
the effective date of each transfer or assignment (other than to an intermediate
purchaser) to such Purchasing Lender and/or Purchasing CLO.

(f) Each Borrower authorizes each Lender to disclose to any Transferee and any
prospective Transferee any and all financial information in such Lender’s
possession concerning such Borrower which has been delivered to such Lender by
or on behalf of such Borrower pursuant to this Agreement or in connection with
such Lender’s credit evaluation of such Borrower.

16.4 Application of Payments. Agent shall have the continuing and exclusive
right to apply or reverse and re-apply any payment and any and all proceeds of
Collateral to any portion of the Obligations. To the extent that any Borrower
makes a payment or Agent or any Lender receives any payment or proceeds of the
Collateral for any Borrower’s benefit, which are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver, custodian or any other party under
any bankruptcy law, common law or equitable cause, then, to such extent, the
Obligations or part thereof intended to be satisfied shall be revived and
continue as if such payment or proceeds had not been received by Agent or such
Lender.

16.5 Indemnity. EACH BORROWER SHALL INDEMNIFY AGENT, EACH LENDER AND EACH OF
THEIR RESPECTIVE OFFICERS, DIRECTORS, AFFILIATES, ATTORNEYS, EMPLOYEES AND
AGENTS FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY
KIND OR NATURE WHATSOEVER (INCLUDING FEES AND

 

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DISBURSEMENTS OF COUNSEL) WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED
AGAINST AGENT OR ANY LENDER IN ANY CLAIM, LITIGATION, PROCEEDING OR
INVESTIGATION INSTITUTED OR CONDUCTED BY ANY GOVERNMENTAL BODY OR
INSTRUMENTALITY OR ANY OTHER PERSON WITH RESPECT TO ANY ASPECT OF, OR ANY
TRANSACTION CONTEMPLATED BY, OR REFERRED TO IN, OR ANY MATTER RELATED TO, THIS
AGREEMENT OR THE OTHER DOCUMENTS, WHETHER OR NOT AGENT OR ANY LENDER IS A PARTY
THERETO, EXCEPT TO THE EXTENT THAT ANY OF THE FOREGOING ARISES OUT OF THE GROSS
NEGLIGENCE, BAD FAITH OR WILLFUL MISCONDUCT OF THE PARTY BEING INDEMNIFIED (AS
DETERMINED BY A COURT OF COMPETENT JURISDICTION IN A FINAL AND NON-APPEALABLE
JUDGMENT). WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THIS INDEMNITY
SHALL EXTEND TO ANY LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND OR
NATURE WHATSOEVER (INCLUDING FEES AND DISBURSEMENTS OF COUNSEL) ASSERTED AGAINST
OR INCURRED BY ANY OF THE INDEMNITEES DESCRIBED ABOVE IN THIS SECTION 16.5 BY
ANY PERSON UNDER ANY ENVIRONMENTAL LAWS OR SIMILAR LAWS BY REASON OF ANY
BORROWER’S OR ANY OTHER PERSON’S FAILURE TO COMPLY WITH LAWS APPLICABLE TO SOLID
OR HAZARDOUS WASTE MATERIALS, INCLUDING HAZARDOUS SUBSTANCES AND HAZARDOUS
WASTE, OR OTHER TOXIC SUBSTANCES. Additionally, if any taxes (excluding taxes
imposed upon or measured solely by the net income of Agent and Lenders, but
including any intangibles taxes, stamp tax, recording tax or franchise tax)
shall be payable by Agent, Lenders or Borrowers on account of the execution or
delivery of this Agreement, or the execution, delivery, issuance or recording of
any of the Other Documents, or the creation or repayment of any of the
Obligations hereunder, by reason of any Applicable Law now or hereafter in
effect, Borrowers will pay (or will promptly reimburse Agent and Lenders for
payment of) all such taxes, including interest and penalties thereon, and will
indemnify and hold the indemnitees described above in this Section 16.5 harmless
from and against all liability in connection therewith.

16.6 Notice. Any notice or request hereunder may be given to Borrowing Agent or
any Borrower or to Agent or any Lender at their respective addresses set forth
below or at such other address as may hereafter be specified in a notice
designated as a notice of change of address under this Section. Any notice,
request, demand, direction or other communication (for purposes of this
Section 16.6 only, a “Notice”) to be given to or made upon any party hereto
under any provision of this Agreement shall be given or made by telephone or in
writing (which includes by means of electronic transmission (i.e., “e-mail”) or
facsimile transmission or by setting forth such Notice on a site on the World
Wide Web (a “Website Posting”) if Notice of such Website Posting (including the
information necessary to access such site) has previously been delivered to the
applicable parties hereto by another means set forth in this Section 16.6) in
accordance with this Section 16.6. Any such Notice must be delivered to the
applicable parties hereto at the addresses and numbers set forth under their
respective names on Section 16.6 hereof or in accordance with any subsequent
unrevoked Notice from any such party that is given in accordance with this
Section 16.6. Any Notice shall be effective:

(a) In the case of hand-delivery, when delivered;

 

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(b) If given by mail, four days after such Notice is deposited with the United
States Postal Service, with first-class postage prepaid, return receipt
requested;

(c) In the case of a telephonic Notice, when a party is contacted by telephone,
if delivery of such telephonic Notice is confirmed no later than the next
Business Day by hand delivery, a facsimile or electronic transmission, a Website
Posting or an overnight courier delivery of a confirmatory Notice (received at
or before noon on such next Business Day);

(d) In the case of a facsimile transmission, when sent to the applicable party’s
facsimile machine’s telephone number, if the party sending such Notice receives
confirmation of the delivery thereof from its own facsimile machine;

(e) In the case of electronic transmission, when actually received;

(f) In the case of a Website Posting, upon delivery of a Notice of such posting
(including the information necessary to access such site) by another means set
forth in this Section 16.6; and

(g) If given by any other means (including by overnight courier), when actually
received.

Any Lender giving a Notice to Borrowing Agent or any Borrower shall concurrently
send a copy thereof to the Agent, and the Agent shall promptly notify the other
Lenders of its receipt of such Notice.

 

(A) If to Agent or

PNC at:

      PNC Bank, National Association    Two Tower Center Boulevard    East
Brunswick, New Jersey 08816    Attention: Josephine Griffin    Telephone:
732-220-4388    Facsimile: 732-220-4548    Email: josephine.griffin@pnc.com   
with a copy to:    PNC Bank, National Association    2100 Ross Avenue, Suite
1850    Dallas, Texas 75201    Attention: Anita Inkollu    Telephone:
214-871-1256    Facsimile: 214-871-2015    Email: anita.inkollu@pnc.com

 

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   with an additional copy to:    Patton Boggs LLP    2000 McKinney Avenue,
Suite 1700    Dallas, Texas 75201    Attention: Anthony Herrera, Esq.   
Telephone: 214-758-1500    Facsimile: 214-758-1550    Email:
aherrera@pattonboggs.com

(B) If to a Lender other than Agent, as specified on the signature pages hereof.

  

(C) If to Borrowing Agent or any Borrower:

   Flotek Industries, Inc.    2930 W. Sam Houston Parkway North, Suite 300   
Houston, Texas 77043    Attention: Jesse (Jempy) Neyman    Telephone:
713-849-9911    Facsimile: 713-896-4511    Email: jneyman@flotekind.com    with
a copy to:    Doherty & Doherty LLP    1717 St. James Place, Suite 520   
Houston, TX 77056    Attention: Casey W. Doherty, Esq.    Telephone:
713-572-1165    Facsimile: 713-572-1001    Email: casey@doherty-law.com

16.7 Survival . The obligations of Borrowers under Sections 2.2(f), 3.7, 3.8,
3.9, 4.19(h), and 16.5 and the obligations of Lenders under Section 14.7, shall
survive termination of this Agreement and the Other Documents and payment in
full of the Obligations.

16.8 Severability. If any part of this Agreement is contrary to, prohibited by,
or deemed invalid under Applicable Laws, such provision shall be inapplicable
and deemed omitted to the extent so contrary, prohibited or invalid, but the
remainder hereof shall not be invalidated thereby and shall be given effect so
far as possible.

 

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16.9 Expenses. All costs and expenses including reasonable attorneys’ fees
(including the allocated costs of in house counsel) and disbursements incurred
by Agent on its behalf or on behalf of Lenders (a) in all efforts made to
enforce payment of any Obligation or effect collection of any Collateral, or
(b) in connection with the entering into, modification, amendment,
administration and enforcement of this Agreement, the Intercreditor Agreement or
any consents or waivers hereunder or thereunder and all related agreements,
documents and instruments, or (c) in instituting, maintaining, preserving,
enforcing and foreclosing on Agent’s security interest in or Lien on any of the
Collateral, or maintaining, preserving or enforcing any of Agent’s or any
Lender’s rights hereunder, under the Intercreditor Agreement and under all
related agreements, documents and instruments, whether through judicial
proceedings or otherwise, or (d) in defending or prosecuting any actions or
proceedings arising out of or relating to Agent’s or any Lender’s transactions
with any Borrower, Convertible Senior Agents or any Convertible Senior Lender or
(e) in connection with any advice given to Agent or any Lender with respect to
its rights and obligations under this Agreement, the Intercreditor Agreement and
all related agreements, documents and instruments, may be charged to Borrowers’
Account and shall be part of the Obligations.

16.10 Injunctive Relief. Each Borrower recognizes that, in the event any
Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, or threatens to fail to perform, observe or
discharge such obligations or liabilities, any remedy at law may prove to be
inadequate relief to Lenders; therefore, Agent, if Agent so requests, shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving that actual damages are not an adequate remedy.

16.11 Consequential Damages. Neither Agent nor any Lender, nor any agent or
attorney for any of them, shall be liable to any Credit Party (or any Affiliate
of any such Person) for indirect, punitive, exemplary or consequential damages
arising from any breach of contract, tort or other wrong relating to the
establishment, administration or collection of the Obligations or as a result of
any transaction contemplated under this Agreement or any Other Document.

16.12 Captions. The captions at various places in this Agreement are intended
for convenience only and do not constitute and shall not be interpreted as part
of this Agreement.

16.13 Counterparts; Facsimile Signatures. This Agreement may be executed in any
number of and by different parties hereto on separate counterparts, all of
which, when so executed, shall be deemed an original, but all such counterparts
shall constitute one and the same agreement. Any signature delivered by a party
by facsimile or other form of electronic transmission shall be deemed to be an
original signature hereto.

16.14 Construction. The parties acknowledge that each party and its counsel have
reviewed this Agreement and that the normal rule of construction to the effect
that any ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement or any amendments, schedules or
exhibits thereto.

16.15 Confidentiality; Sharing Information. Agent, each Lender and each
Transferee shall hold all non-public information obtained by Agent, such Lender
or such Transferee pursuant to the requirements of this Agreement in confidence
and accordance with Agent’s, such

 

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Lender’s and such Transferee’s customary procedures for handling confidential
information of this nature; provided, however, Agent, each Lender and each
Transferee may disclose such confidential information (a) to its examiners,
Affiliates, outside auditors, counsel and other professional advisors, (b) to
Agent, any Lender or to any prospective Transferees, and (c) as required or
requested by any Governmental Body or representative thereof or pursuant to
legal process; provided, further that (i) unless specifically prohibited by
Applicable Law, Agent, each Lender and each Transferee shall use its reasonable
best efforts prior to disclosure thereof, to notify the applicable Borrower of
the applicable request for disclosure of such non-public information (A) by a
Governmental Body or representative thereof (other than any such request in
connection with an examination of the financial condition of a Lender or a
Transferee by such Governmental Body) or (B) pursuant to legal process and
(ii) in no event shall Agent, any Lender or any Transferee be obligated to
return any materials furnished by any Borrower other than those documents and
instruments in possession of Agent or any Lender in order to perfect its Lien on
the Collateral once the Obligations have been paid in full and this Agreement
has been terminated. Each Borrower acknowledges that from time to time financial
advisory, investment banking and other services may be offered or provided to
such Borrower or one or more of its Affiliates (in connection with this
Agreement or otherwise) by any Lender or by one or more Subsidiaries or
Affiliates of such Lender and each Borrower hereby authorizes each Lender to
share any information delivered to such Lender by such Borrower and its
Subsidiaries pursuant to this Agreement, or in connection with the decision of
such Lender to enter into this Agreement, to any such Subsidiary or Affiliate of
such Lender, it being understood that any such Subsidiary or Affiliate of any
Lender receiving such information shall be bound by the provisions of this
Section 16.15 as if it were a Lender hereunder. Such authorization shall survive
the repayment of the other Obligations and the termination of this Agreement.

16.16 Publicity. Each Borrower and each Lender hereby authorizes Agent to make
appropriate announcements of the financial arrangement entered into among
Borrowers, Agent and Lenders, including announcements which are commonly known
as tombstones, in such publications and to such selected parties as Agent shall
in its sole and absolute discretion deem appropriate.

16.17 Certifications From Banks and Participants; US PATRIOT Act. Each Lender or
assignee or participant of a Lender that is not incorporated under the Laws of
the United States of America or a state thereof (and is not excepted from the
certification requirement contained in Section 313 of the USA PATRIOT Act and
the applicable regulations because it is both (i) an affiliate of a depository
institution or foreign bank that maintains a physical presence in the United
States or foreign country, and (ii) subject to supervision by a banking
authority regulating such affiliated depository institution or foreign bank)
shall deliver to the Agent the certification, or, if applicable,
recertification, certifying that such Lender is not a “shell” and certifying to
other matters as required by Section 313 of the USA PATRIOT Act and the
applicable regulations: (1) within ten (10) days after the Closing Date, and
(2) as such other times as are required under the USA PATRIOT Act.

16.18 No Advisory or Fiduciary Relationship. In connection with all aspects of
each transaction contemplated hereby (including in connection with any
amendment, waiver or other modification hereof or of any Other Document), each
Borrower acknowledges and agrees that: (a)(i) the arranging and other services
regarding this Agreement provided by Agent are arm’s-

 

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length commercial transactions between Borrowers, on the one hand, and Agent on
the other hand, (ii) each Borrower has consulted its own legal, accounting,
regulatory and tax advisors to the extent it has deemed appropriate, and
(iii) each Borrower is capable of evaluating, and understands and accepts, the
terms, risks and conditions of the transactions contemplated hereby and by the
Other Documents; (b)(i) each of Agent and Lenders is and has been acting solely
as a principal and, except as expressly agreed in writing by the relevant
parties, has not been, is not, and will not be acting as an advisor, agent or
fiduciary for any Credit Party, or any other Person and (ii) none of Agent or
any Lender has any obligation to any Credit Party, or any of their respective
Affiliates with respect to the transactions contemplated hereby except those
obligations expressly set forth herein and in the Other Documents; and (c) Agent
and Lenders may be engaged in a broad range of transactions that involve
interests that differ from those of any Credit Party, and their respective
Affiliates, and neither Agent nor any Lender has any obligation to disclose any
of such interests to any Credit Party, or any of their respective Affiliates. To
the fullest extent permitted by law, each Borrower hereby waives and releases
any claims that it may have against each of Agent and Lenders with respect to
any breach or alleged breach of agency or fiduciary duty in connection with any
aspect of any transaction contemplated hereby.

16.19 Non-Applicability of Chapter 346. Borrowers, Agent and the Lenders hereby
agree that, except for the opt-out provisions of Section 346.004 thereof, the
provisions of Chapter 346 of the Texas Finance Code, as amended from time to
time (regulating certain revolving credit loans and revolving tri-party
accounts) shall not apply to this Agreement or any of the Other Documents, and
the extensions of credit made hereunder are not for personal, family or
household use.

16.20 BORROWERS’ WAIVER OF RIGHTS UNDER TEXAS DECEPTIVE TRADE PRACTICES ACT.
EACH BORROWER HEREBY WAIVES ANY RIGHTS UNDER THE DECEPTIVE TRADE
PRACTICES-CONSUMER PROTECTION ACT, SECTION § 17.41 ET SEQ. TEXAS BUSINESS &
COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER
CONSULTATION WITH AN ATTORNEY OF THE OBLIGORS’ OWN SELECTION, EACH OBLIGOR
VOLUNTARILY CONSENTS TO THIS WAIVER. EACH BORROWER EXPRESSLY WARRANTS AND
REPRESENTS THAT EACH PERSON (A) IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING
POSITION RELATIVE TO LENDER, AND (B) HAS BEEN REPRESENTED BY LEGAL COUNSEL IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

[Signature Pages Follow.]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first written above.

 

BORROWERS: FLOTEK INDUSTRIES, INC., a Delaware corporation By:   /s/    Jesse E.
Neyman Name:   Jesse E. Neyman Title:   EVP, Finance CESI CHEMICAL, INC., an
Oklahoma corporation By:   /s/    Jesse E. Neyman Name:   Jesse E. Neyman Title:
  CFO CESI MANUFACTURING, LLC, an Oklahoma limited liability company By:  
/s/    Jesse E. Neyman Name:   Jesse E. Neyman Title:   CFO

MATERIAL TRANSLOGISTICS, INC.,

a Texas corporation

By:   /a/    Jesse E. Neyman Name:   Jesse E. Neyman Title:   CFO

SOONER ENERGY SERVICES, LLC,

an Oklahoma limited liability company

By:   /s/    Jesse E. Neyman Name:   Jesse E. Neyman Title:   CFO

[SIGNATURE PAGE TO REVOLVING CREDIT AND SECURITY AGREEMENT]

 

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TELEDRIFT COMPANY, a Delaware corporation By:   /s/    Jesse E. Neyman Name:  
Jesse E. Neyman Title:   CFO TURBECO, INC., a Texas corporation By:  
/s/    Jesse E. Neyman Name:   Jesse E. Neyman Title:   CFO USA PETROVALVE,
INC., a Texas corporation By:   /s/    Jesse E. Neyman Name:   Jesse E. Neyman
Title:   CFO

[SIGNATURE PAGE TO REVOLVING CREDIT AND SECURITY AGREEMENT]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first written above.

 

PNC BANK, NATIONAL ASSOCIATION, as Lender and as Agent By:   /s/    Anita
Inkollu Name:   Anita Inkollu Title:   Vice President

[SIGNATURE PAGE TO REVOLVING CREDIT AND SECURITY AGREEMENT]

 

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Schedule 1.1

Lenders’ Commitments

 

Lender

   Percentage  

PNC Bank, National Association

     100 % 

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Schedule 6.13

Post-Closing Obligations

(1) No later than two (2) Business Days after the Closing Date, Borrowers shall
deliver to Automotive Resources International (“ARI”), in form and substance
satisfactory to Agent: (i) all fully-executed, notarized powers of attorney
authorizing ARI to obtain on behalf of Agent a first priority perfected and
recorded Lien on titled property; (ii) an original title properly endorsed to
such Borrower; (iii) such other instruments, documentation or information
requested by ARI and necessary to obtain on behalf of Agent a first priority
perfected and recorded Lien on titled property pursuant to applicable state law.

(2) No later than five (5) days after the Closing Date, Agent shall have
received the original common stock certificate no. 1 representing 100 shares in
Flotek International, Inc. and the stock power relating to the 7,450 Class A
voting shares of Petrovalve International, Inc.

(3) No later than thirty (30) days after the Closing Date, Agent shall have
received evidence in form and substance satisfactory to Agent that Flotek
Ecuador Management, LLC, a Texas limited liability company, Flotek Ecuador
Investments, LLC, a Texas limited liability company, and FlotekChemical Ecuador
CIA, LTDA have been dissolved.

(4) Not withstanding item (1) above, no later than thirty (30) days after the
Closing Date, Agent shall have received the certificates of title for the
following vehicles.

 

VIN #

   Year    Make    Model    State

3FRNF65S15V202297

   2005    FORD    F650    OK

S44136W

   2005    HOMEMADE    TRAILER    WY

4Y4GF2827XC000175

   1999    OTM    TRAILER    TX

(5) No later than thirty (30) days after the Closing Date, Borrowers shall have
delivered to Agent evidence that the below listed financing statements have been
terminated by the filing of an authorized and valid UCC-3 financing statement.

 

Debtor

  

File No.

  

Date

  

Jurisdiction

  

Lienholder

CESI Chemical, Inc.

   2008003748739    04/02/08    OK    Whitebox Advisors LLC

CESI Chemical, Inc.

   2006014534732    12/07/06    OK    Toyota Motor Credit Corporation

CESI Chemical, Inc.

   2007005625330    05/11/07    OK    Toyota Motor Credit Corporation

CESI Chemical, Inc.

   2007006871334    06/08/07    OK    Toyota Motor Credit Corporation

CESI Chemical, Inc.

   2009000247933    01/08/09    OK    Toyota Motor Credit Corporation

CESI Chemical, Inc.

   20100813020818420    08/13/10    OK    Toyota Motor Credit Corporation

CESI Manufacturing, LLC

   2008003749033    04/02/08    OK    Whitebox Advisors LLC

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Flotek Ecuador Investments, LLC

   10-0009063807    03/31/10    TX    Whitebox Advisors LLC

Flotek Ecuador Management, LLC

   10-0009064676    03/31/10    TX    Whitebox Advisors LLC

Flotek Paymaster Inc.

   08-0011234736    04/1/08    TX    Whitebox Advisors LLC

Material Translogistics, Inc.

   08-0011234847    04/1/08    TX    Whitebox Advisors LLC

Padko International Incorporated

   2008003748840    04/2/08    OK    Whitebox Advisors LLC

Sooner Energy Services, LLC

   2008003748941    04/2/08    OK    Whitebox Advisors LLC

Turbeco, Inc.

   08-0011235080    04/1/08    TX    Whitebox Advisors LLC

Turbeco, Inc.

   08-0035713996    11/03/08    TX    Toyota Motor Credit Corporation

USA Petrovalve, Inc.

   08-0011234958    04/1/08    TX    Whitebox Advisors LLC

(6) No later than thirty (30) days after the Closing Date, Borrowers shall have
delivered an original release of mortgage for each mortgage Borrowers have
executed for the benefit Whitebox Advisors LLC, executed in recordable form by
Whitebox Advisors LLC, as mortgagee, evidencing the release of its Lien and
security interest in such mortgage.

(7) No later than sixty (60) days after the Closing Date, Borrowers shall have
delivered or caused to be delivered to Agent each original title evidencing a
first priority perfected and recorded Lien on each piece of titled property
pursuant to applicable state law.