Exhibit 10.3

 

REVOLVING CREDIT, TERM LOAN

 

AND

 

SECURITY AGREEMENT

 

PNC BANK, NATIONAL ASSOCIATION

(AS LENDER AND AS AGENT)

 

WITH

 

WM COFFMAN LLC

(BORROWER)

 

JUNE 8, 2009

 

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TABLE OF CONTENT

 

ARTICLE I DEFINITIONS

1

1.1.

Accounting Terms

1

1.2.

General Terms

1

1.3.

Uniform Commercial Code Terms

26

1.4.

Certain Matters of Construction

27

 

 

ARTICLE II ADVANCES, PAYMENTS

28

2.1.

Revolving Advances

28

2.2.

Procedure for Revolving Advances Borrowing

29

2.3.

Disbursement of Advance Proceeds

31

2.4.

Term Loan

31

2.5.

Repayment of Advances

32

2.6.

Repayment of Excess Advances

32

2.7.

Statement of Account

33

2.8.

Letters of Credit

33

2.9.

Issuance of Letters of Credit

33

2.10.

Requirements For Issuance of Letters of Credit

34

2.11.

Disbursements, Reimbursement

34

2.12.

Repayment of Participation Advances

36

2.13.

Documentation

36

2.14.

Determination to Honor Drawing Request

36

2.15.

Nature of Participation and Reimbursement Obligations

36

2.16.

Indemnity

38

2.17.

Liability for Acts and Omissions

38

2.18.

Additional Payments

40

2.19.

Manner of Borrowing and Payment

40

2.20.

Mandatory Prepayments

42

2.21.

Use of Proceeds

42

2.22.

Defaulting Lender

42

 

 

ARTICLE III INTEREST AND FEES

43

3.1.

Interest

43

3.2.

Letter of Credit Fees

44

3.3.

Closing Fee and Facility Fee

45

3.4.

Collateral Fees

45

3.5.

Computation of Interest and Fees

45

3.6.

Maximum Charges

46

3.7.

Increased Costs

46

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

3.12.

Treatment of Certain Refunds

49

 

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ARTICLE IV COLLATERAL: GENERAL TERMS

50

4.1.

Security Interest in the Collateral

50

4.2.

Perfection of Security Interest

50

4.3.

Disposition of Collateral

51

4.4.

Preservation of Collateral

51

4.5.

Ownership of Collateral

52

4.6.

Defense of Agent’s and Lenders’ Interests

52

4.7.

Books and Records

53

4.8.

Financial Disclosure

53

4.9.

Compliance with Laws

53

4.10.

Inspection of Premises; Appraisals

54

4.11.

Insurance

54

4.12.

Failure to Pay Insurance

55

4.13.

Payment of Taxes

55

4.14.

Payment of Leasehold Obligations

55

4.15.

Receivables

56

4.16.

Inventory

58

4.17.

Maintenance of Equipment

58

4.18.

Exculpation of Liability

59

4.19.

Environmental Matters

59

4.20.

Financing Statements

61

 

 

 

ARTICLE V REPRESENTATIONS AND WARRANTIES

61

5.1.

Authority

61

5.2.

Formation and Qualification

62

5.3.

Survival of Representations and Warranties

62

5.4.

Tax Returns

63

5.5.

Financial Statements

63

5.6.

Entity Name and Locations

64

5.7.

O.S.H.A. and Environmental Compliance

64

5.8.

Solvency; No Litigation, Violation, Indebtedness or Default

65

5.9.

Patents, Trademarks, Copyrights and Licenses

66

5.10.

Licenses and Permits

66

5.11.

Default of Indebtedness

67

5.12.

No Default

67

5.13.

No Burdensome Restrictions

67

5.14.

No Labor Disputes

67

5.15.

Margin Regulations

67

5.16.

Investment Company Act

67

5.17.

Disclosure

68

5.18.

Delivery of Acquisition Agreement and Subordinated Loan Documentation

68

5.19.

Swaps

68

5.20.

Conflicting Agreements

68

5.21.

Application of Certain Laws and Regulations

68

5.22.

Business and Property of Borrower

69

5.24.

Anti-Terrorism Laws

69

5.25.

Trading with the Enemy

70

 

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5.26.

Federal Securities Laws

70

5.27.

Commercial Tort Claims

70

5.28.

Partnership and Limited Liability Company Interests

70

5.29.

Material Contracts

70

 

 

 

ARTICLE VI AFFIRMATIVE COVENANTS

70

6.1.

Payment of Fees

70

6.2.

Conduct of Business and Maintenance of Existence and Assets

71

6.3.

Violations

71

6.4.

Government Receivables

71

6.5.

Financial Covenants

71

6.6.

Execution of Supplemental Instruments

72

6.7.

Payment of Indebtedness

72

6.8.

Standards of Financial Statements

72

6.9.

Federal Securities Laws

72

6.10.

Exercise of Rights

72

6.11.

Real Property

73

6.12.

Opening Balance Sheet

73

 

 

 

ARTICLE VII NEGATIVE COVENANTS

73

7.1

Merger, Consolidation, Acquisition and Sale of Assets

73

7.2.

Creation of Liens

73

7.3.

Guarantees

74

7.4

Investments

74

7.5.

Loans

74

7.6.

Capital Expenditures

74

7.8.

Indebtedness

75

7.10.

Transactions with Affiliates

76

7.11.

Leases

77

7.12.

Subsidiaries

77

7.13.

Fiscal Year and Accounting Changes

77

7.14.

Pledge of Credit

77

7.15.

Amendment of Organizational Documents

77

7.16.

Compliance with ERISA

77

7.17.

Prepayment of Indebtedness

78

7.18.

Anti-Terrorism Laws

78

7.19.

Trading with the Enemy Act

79

7.20.

Subordinated Notes

79

7.21.

Other Agreements

79

7.22

Additional Negative Pledges

79

7.23.

Additional Bank Accounts

79

7.24.

Remuneration

79

 

 

 

ARTICLE VIII CONDITIONS PRECEDENT

80

8.1.

Conditions to Initial Advances

80

8.2.

Conditions to Each Advance

85

 

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ARTICLE IX INFORMATION AS TO BORROWER

86

9.1.

Disclosure of Material Matters

86

9.2

Schedules

86

9.3.

Environmental Reports

87

9.4.

Litigation

87

9.5.

Material Occurrences

87

9.6.

Government Receivables

87

9.7.

Annual Financial Statements

88

9.8

Quarterly Financial Statements

88

9.9.

Monthly Financial Statements

88

9.10.

Other Reports

88

9.11.

Additional Information

89

9.12.

Projected Operating Budget

89

9.13.

Variances From Operating Budget

89

9.14.

Notice of Suits, Adverse Events

89

9.15.

ERISA Notices and Requests

89

9.16.

Additional Documents

90

 

 

ARTICLE X EVENTS OF DEFAULT

90

10.1.

Nonpayment

90

10.2.

Breach of Representation

91

10.3.

Financial Information

91

10.4.

Judicial Actions

91

10.5.

Noncompliance

91

10.6.

Judgments

91

10.7.

Bankruptcy

92

10.8.

Inability to Pay

92

10.9.

Affiliate Bankruptcy

92

10.10.

Material Adverse Effect

92

10.11.

Lien Priority

92

10.12.

Subordinated Loan Default

92

10.13.

Cross Default

93

10.14.

Change of Ownership

93

10.15.

Invalidity

93

10.16.

Licenses

93

10.17.

Seizures

93

10.18.

Operations

94

10.19.

Pension Plans

94

 

 

ARTICLE XI LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT

94

11.1.

Rights and Remedies

94

11.2.

Agent’s Discretion

96

11.3.

Setoff

96

11.4.

Rights and Remedies not Exclusive

96

11.5.

Allocation of Payments After Event of Default

96

 

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ARTICLE XII WAIVERS AND JUDICIAL PROCEEDINGS

97

12.1.

Waiver of Notice

97

12.2.

Delay

98

12.3.

Jury Waiver

98

 

 

 

ARTICLE XIII EFFECTIVE DATE AND TERMINATION

98

13.1.

Term

98

13.2.

Termination

99

 

 

 

ARTICLE XIV REGARDING AGENT

99

14.1.

Appointment

99

14.2.

Nature of Duties

100

14.3.

Lack of Reliance on Agent and Resignation

100

14.4.

Certain Rights of Agent

101

14.5.

Reliance

101

14.6.

Notice of Default

101

14.7.

Indemnification

102

14.8.

Agent in its Individual Capacity

102

14.9.

Delivery of Documents

102

14.10.

Borrower’s Undertaking to Agent

102

14.11.

No Reliance on Agent’s Customer Identification Program

103

14.12.

Other Agreements

103

 

 

 

ARTICLE XV MISCELLANEOUS

103

15.1.

Governing Law

103

15.2.

Entire Understanding

104

15.3.

Successors and Assigns; Participations; New Lenders

106

15.4.

Application of Payments

108

15.5.

Indemnity

109

15.6

Notice

109

15.7.

Survival

111

15.8.

Severability

111

15.9.

Expenses

111

15.10.

Injunctive Relief

112

15.11.

Damages

112

15.12.

Captions

112

15.13.

Counterparts; Facsimile Signatures

112

15.14.

Construction

112

15.15.

Confidentiality; Sharing Information

113

15.16.

Publicity

113

15.17.

Certifications From Banks and Participants; USA PATRIOT Act

113

15.18.

Draws Under the NY Commercial Bank Letters of Credit

114

 

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List of Exhibits and Schedules

 

Exhibits

 

 

 

 

 

Exhibit 1.2

 

Borrowing Base Certificate

Exhibit 1.2(a)

 

Compliance Certificate

Exhibit 2.1(a)

 

Revolving Credit Note

Exhibit 2.4

 

Term Note

Exhibit 5.5(b)

 

Financial Projections

Exhibit 7.8(h)(i)

 

Form of Third Party Subordinated Note

Exhibit 7.8(h)(ii)

 

Form of Third Party Subordination Agreement

Exhibit 8.1(i)

 

Financial Condition Certificate

Exhibit 15.3

 

Commitment Transfer Supplement

 

 

 

Schedules

 

 

 

 

 

Schedule 1.2(a)

 

Original Owners

Schedule 1.2 (b)

 

Permitted Encumbrances

Schedule 1.2(c)

 

Accounts Payable Payments

Schedule 4.5

 

Equipment and Inventory Locations; Place of Business; Chief Executive Office;
Locations of Real Property

Schedule 4.15(h)

 

Deposit and Investment Accounts

Schedule 5.1

 

Consents

Schedule 5.2(a)

 

States of Formation, Qualification and Good Standing

Schedule 5.2(b)

 

Subsidiaries; Ownership

Schedule 5.4

 

Federal Tax Identification Number

Schedule 5.6

 

Other Names; Mergers, Acquisitions, Etc.

Schedule 5.7

 

Environmental

Schedule 5.8(b)

 

Litigation

Schedule 5.8(d)

 

Plans

Schedule 5.9

 

Intellectual Property; Source Code Escrow Agreements; Challenges to Use

Schedule 5.10

 

Failure to Comply with Laws or Obtain Licenses and Permits

Schedule 5.14

 

Labor Disputes

Schedule 5.29

 

Material Contracts

Schedule 7.4

 

Investments

Schedule 7.8

 

Indebtedness

 

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REVOLVING CREDIT, TERM LOAN

AND

SECURITY AGREEMENT

 

Revolving Credit, the Term Loan and Security Agreement dated as of June 8, 2009
among WM COFFMAN LLC, a limited liability company formed under the laws of the
State of Delaware (“Borrower”), 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 Lenders (PNC, in such capacity, the “Agent”).

 

IN CONSIDERATION of the mutual covenants and undertakings herein contained,
Borrower, Lenders and Agent hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

1.1.         ACCOUNTING TERMS.

 

All accounting terms not specifically or completely defined herein shall be
construed in conformity with, and all financial data (including financial ratios
and other financial calculations) required to be submitted pursuant to this
Agreement shall be prepared in conformity with GAAP, applied on a consistent
basis, as in effect from time to time, except as otherwise specifically
prescribed herein.  If at any time any change in GAAP would affect the
computation of any financial ratio or requirement set forth in this Agreement or
any Other Document, and Borrower or the Required Lenders shall so request,
Agent, Lenders and Borrower shall negotiate in good faith to amend such ratio or
requirement to preserve the original intent thereof in light of such change in
GAAP (subject to the approval of the Required Lenders); provided that, until so
amended, (i) such ratio or requirement shall continue to be computed in
accordance with GAAP prior to such change therein and (ii) Borrower shall
provide to Agent and the Lenders financial statements and other documents
required under this Agreement or any Other Document or as reasonably requested
hereunder setting forth a reconciliation between calculations of such ratio or
requirement made before and after giving effect to such change in GAAP.

 

1.2.         GENERAL TERMS.

 

For purposes of this Agreement the following terms shall have the following
meanings:

 

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

 

“Acquisition Agreement” shall mean the Asset Purchase Agreement including all
exhibits and schedules thereto dated as of June 8, 2009 between Seller and
Borrower as buyer.

 

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“Advance Rates” shall mean, collectively, the Receivables Advance Rate and the
Inventory Advance Rate.

 

“Advances” shall mean and include the Revolving Advances, Letters of Credit, as
well as the Term Loans.

 

“Affiliate” of any Person shall mean (a) any other 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 5% 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.  Seller and its Affiliates shall not be deemed Affiliates
hereunder.

 

“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, the Term Loan and Security
Agreement, as the same may be amended, restated, supplemented or otherwise
modified from time to time.

 

“Alternate Base Rate” shall mean, for any day, a rate per annum equal to the
highest 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%, (iii) the Daily LIBOR plus 1%, and
(iv) three hundred fifty basis points (3.50%).

 

“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).

 

“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 and orders of any Governmental Body, and all orders, judgments and
decrees of all courts and arbitrators.

 

“Applicable Margin” shall mean for (i) Revolving Advances that are Eurodollar
Rate Loans, 3.50%, (ii) Revolving Advances that are Domestic Rate Loans, 2.50%,
(iii) Term Loans that are Eurodollar Rate Loans, 4.50%, and (iv) Term Loans that
are Domestic Rate Loans, 3.50%.

 

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“Appraisal” shall mean an appraisal performed by an appraiser selected by or
acceptable to Agent, in form and substance reasonably satisfactory to Agent.

 

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

 

“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.

 

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

 

“Borrower’s Account” shall have the meaning set forth in Section 2.7.

 

“Borrowing Base Certificate” shall mean a certificate in substantially the form
of Exhibit 1.2 duly executed by the President, Chief Executive Officer, Chief
Financial Officer or Controller of the Borrower and delivered to Agent,
appropriately completed, by which such officer shall certify to Agent the
Formula Amount and calculation thereof as of the date of such certificate.

 

“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.

 

“Capital Stock” shall mean (i) in the case of a corporation, capital stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
capital stock, (iii) in the case of a partnership, partnership interests
(whether general or limited), (iv) in the case of a limited liability company,
membership interests and (v) any other equity interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.

 

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

 

“Carousel Guaranty” shall mean the Carousel Guaranty dated as of the Closing
Date in the maximum amount of $250,000.

 

“Cash Management Products” shall mean any one or more of the following types of
services or facilities extended to Borrower by Agent, any Lender or any
Affiliate of Agent or a Lender in reliance on Agent’s or such Lender’s agreement
to indemnify such Affiliate:  (i) Automated Clearing House (ACH) transactions
and other similar money transfer services; (ii) cash management, including
controlled disbursement and lockbox services; (iii) establishing and maintaining
deposit accounts; and (iv) credit cards or stored value cards.

 

“Cash Taxes” shall mean, for any period, the federal, state and local taxes of a
Person based on income and business activity payable in actual cash during such
period.

 

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

 

“Change of Control” shall mean (a) the occurrence of any event (whether in one
or more transactions) which results in a transfer of control of Borrower to a
Person who is not an Original Owner or (b) any merger or consolidation of or
with Borrower or sale of all or substantially all of the property or assets of
Borrower.  For purposes of this definition, “control of Borrower” shall mean the
power, direct or indirect (x) to vote 50% or more of the Equity Interests having
ordinary voting power for the election of directors (or the individuals
performing similar functions) of Borrower or (y) to direct or cause the
direction of the management and policies of Borrower by contract or otherwise.

 

“Change of Ownership” shall mean (a) 50% or more of the Equity Interests of
Borrower  is no longer owned or controlled by (including for the purposes of the
calculation of percentage ownership, any Equity Interests into which any Equity
Interests of Borrower held by any of the Original Owners are convertible or for
which any such Equity Interests of Borrower or of any other Person may be
exchanged and any Equity Interests issuable to such Original Owners upon
exercise of any warrants, options or similar rights which may at the time of
calculation be held by such Original Owners) a Person who is an Original Owner
or (b) any merger, consolidation or sale of substantially all of the property or
assets of Borrower.

 

“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

 

4

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authority, domestic or foreign (including the Pension Benefit Guaranty
Corporation or any environmental agency or superfund), upon the Collateral,
Borrower or any of its Affiliates.

 

“Closing Date” shall mean June 8, 2009 or such other date as may be agreed to by
the parties hereto.

 

“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:

 

(a)           all Receivables;

 

(b)           all Equipment;

 

(c)           all General Intangibles;

 

(d)           all Inventory;

 

(e)           all Investment Property;

 

(f)            all of 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 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
Borrower from any Customer relating to the Receivables; (iv) other property,
including warranty claims, relating to any goods securing the Obligations;
(v) all of 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) each commercial tort claim in
existence as of the date hereof and in which a security interest is hereafter
granted to Agent by Borrower pursuant to the provision of Section 4.1 or
otherwise; (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 other goods, personal property or real property now owned or
hereafter acquired in which Borrower has expressly granted a security interest
or may in the future grant a security interest to Agent hereunder, or in any
amendment or supplement hereto or thereto, or under any other agreement between
Agent and Borrower;

 

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

 

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(h)           all of Borrower’s cash and cash equivalents; and

 

(i)            all proceeds and p*roducts 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.

 

Any security interest granted in the Collateral and the Term “Collateral” shall
not include any rights under any leases, contract or agreement (including,
without limitation, any license in intellectual property) to the extent that the
granting of a security interest therein is specifically prohibited in writing or
would constitute an event of default or could grant a party a termination right
under any agreement governing such right unless such prohibition is not
enforceable or is otherwise illegal; provided, however, Agent shall be provided
copies of any such leases, contracts or agreements.

 

“Commitment Percentage” shall mean for any Lender party to this Agreement on the
Closing Date, the percentage set forth below such Lender’s name on the signature
page hereof as same may be adjusted upon any assignment by a Lender pursuant to
Section 15.3 (c) or (d) hereof, and for any Lender that becomes a party to this
Agreement pursuant to a Commitment Transfer Supplement or Modified Commitment
Transfer Supplement, the percentage set forth on Schedule 1 to such Commitment
Transfer Supplement or Modified Commitment Transfer Supplement, as applicable.

 

“Commitment Transfer Supplement” shall mean a document in the form of
Exhibit 15.3 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.

 

“Compliance Certificate” shall mean a compliance certificate substantially in
the form attached hereto as Exhibit 1.2 (a) to be signed by the President, Chief
Executive Officer, Chief Financial Officer or Controller of Borrower, which
shall state that, based on an examination sufficient to permit such officer to
make an informed statement, (i) 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 Borrower
with respect to such default and, such certificate shall have appended thereto
calculations which set forth Borrower’s compliance with the requirements or
restrictions imposed by Sections 6.5, 7.4, 7.5, 7.6, 7.7, 7.8 and 7.11; and
(ii) that to the best of such officer’s knowledge, Borrower is in compliance in
all material respects with all federal, state and local Environmental Laws, or
if such is not the case, specifying all areas of non-compliance and the proposed
action Borrower will implement in order to achieve full compliance.

 

“Consents” shall mean all filings and all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental Bodies and
other third parties,

 

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domestic or foreign, necessary to carry on 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 Subordinated Loan
Documentation, or the Acquisition Agreement, including any Consents required
under all applicable federal, state or other Applicable Law.

 

“Consigned Inventory” shall mean Inventory of 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.

 

“Consulting Agreements” shall mean the Consulting Agreements dated as of the
Closing Date between (i) Borrower and Visador Holding Corporation and
(ii) Borrower and Nationwide Industries, Inc.

 

“Contract Rate” has the meaning set forth in Section 3.1.

 

“Controlled Group” shall mean, at any time, the 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
Borrower, are treated as a single employer under Section 414 of the Code.

 

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

 

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

 

“Daily LIBOR” 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
percentage prescribed by the Federal Reserve for determining the maximum reserve
requirements with respect to any Eurocurrency funding by banks on such day.

 

“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 2.22(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 15.2(b) hereof.

 

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

 

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

 

“Domestic Subsidiaries” shall mean, with respect to any Person, any Subsidiary
of such Person which is incorporated or organized under the laws of any state of
the United States or the District of Columbia.

 

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

 

“Early Termination Date” shall have the meaning set forth in Section 13.1
hereof.

 

“EBITDA” shall mean for any period, for Borrower, the sum of (i) Net Income for
such period, plus (ii) all Interest Expense for such period, plus (iii) all
charges against income of Borrower for such period for federal, state, local and
foreign taxes (and any franchise, single business or unitary taxes imposed in
lieu of income taxes) expensed, plus (iv) depreciation expenses for such period,
plus (v) amortization expenses for such period, plus (vi) any extraordinary,
unusual or non-recurring non-cash expenses, losses or charges (including
non-cash losses on sales of assets outside of the Ordinary Course of Business)
during such period, plus (vii) accrued but unpaid Management Fees during the
applicable period, minus (viii) any extraordinary, unusual or non-recurring
non-cash income, gains or charges (including gains on the sale of assets outside
of the Ordinary Course of Business) during such period, in each case, only to
the extent included in the statement of net income for such period.

 

“Eligible Inventory” shall mean and include Inventory excluding work in process
valued at the lower of cost or market value, determined on a first-in-first-out
basis, which is not, in Agent’s opinion, obsolete, slow moving or unmerchantable
and which Agent, in its sole 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).  In addition, 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 located outside the continental United States or at a location
that is not otherwise in compliance with this Agreement; (iv) constitutes
Consigned Inventory; (v) is the subject of an Intellectual Property Claim;
(vi) 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 (vii) 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, in any case above, Agent may deem
such Inventory as Eligible Inventory.

 

“Eligible Receivables” shall mean and include with respect to Borrower, each
Receivable of Borrower arising in the Ordinary Course of Business and which
Agent, in its sole credit judgment, 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

 

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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;

 

(b)           it is due or unpaid more than sixty (60) days after the original
due date not to exceed one hundred twenty (120) days after the original invoice
date;

 

(c)           fifty percent (50%) or more of the Receivables from such Customer
are not deemed Eligible Receivables hereunder;

 

(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) 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, 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 is to a Customer outside the continental United States
of America or Canada, unless the sale is on letter of credit, guaranty,
acceptance terms or covered by credit insurance, in each case acceptable to
Agent in its sole credit judgment exercised in good faith;

 

(g)           the sale to the Customer is on a bill-and-hold, guaranteed sale,
sale-and-return, sale on approval, consignment or any other repurchase or return
basis or is evidenced by chattel paper (excluding the Stock Building Supply
accounts receivable except as noted in (k) below);

 

(h)           Agent believes, in 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 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;

 

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(j)            the goods giving rise to such Receivable have not been invoiced
in the Ordinary Course of Business and title to the goods has not passed to the
Customer;

 

(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 (for purposes hereof, Stock Building Supply accounts receivable
cannot exceed 20% of all Eligible Receivables (excluding the stock ETA accounts
receivable) and BMC West Corporation accounts receivable cannot exceed 20% of
all Eligible Receivables);

 

(l)            the Receivable is subject to any offset, deduction, defense,
dispute, or counterclaim (but only as to that portion of the Receivable subject
to such offset, deduction, defense, dispute or counterclaim), the Customer is
also a creditor or supplier of Borrower (but only as to that portion of the
Receivable that does not exceed the amount owed by Borrower to such creditor or
supplier) or the Receivable is contingent in any respect or for any reason;

 

(m)          Borrower has made any agreement with any Customer for any deduction
therefrom, except for discounts or allowances made in the Ordinary Course of
Business for prompt payment, all of which discounts or allowances are reflected
in the calculation of the face value of each respective invoice related thereto;

 

(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 Borrower;

 

(p)           such Receivable is not payable in Dollars; or

 

(q)           such Receivable is not otherwise satisfactory to Agent as
determined by Agent in its Permitted Discretion.

 

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

 

“Environmental Laws” shall mean all federal, state and local 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 all of Borrower’s goods (other than
Inventory) whether now owned or hereafter acquired and wherever located
including all equipment, machinery, apparatus, fittings, furniture, furnishings,
fixtures, parts, accessories and all replacements and substitutions therefor or
accessions thereto.

 

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“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).

 

“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 greater of (A) 250 basis points (2.50%) or
(B) 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 Alternate 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
Borrower 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 mean the Securities Exchange Act of 1934, as amended.

 

“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.

 

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“Extended Terms Agreement Advance Rate” shall mean up to 50%, subject to the
provisions of Section 2.1(b) hereof, of Receivables generated from a Stock
Building Supply Agreement or “ETA” that would be deemed Eligible Receivables
except for their payment terms.

 

“ETA” shall mean the Stock Building Extended Terms Agreement.

 

“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, 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.

 

“Federal Fund 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 the Agent (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 Agent 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 Borrower, effective on the date of any such change.

 

“Fixed Charge Coverage Ratio” shall mean and include, with respect to the
applicable fiscal period, the ratio of (a) EBITDA minus Capital Expenditures of
Borrower made during such fiscal period which are not funded by borrowed money
or equity investments for such Capital Expenditures (other than proceeds of
Revolving Advances) minus Cash Taxes paid by Borrower during such fiscal period
minus any cash dividends or distributions made by Borrower during such fiscal
period to (b) the sum of all Funded Debt Payments made 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).

 

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“Funded Debt Payments” shall mean and include for any period all cash actually
expended by Borrower to make (a) interest payments on any Advances hereunder,
plus (b) scheduled principal payments on the Term Loans, plus, (c) to the extent
added back in the calculation of EBITDA, payments for all fees, commissions and
charges set forth herein and with respect to any Advances, plus (d) payments on
Capitalized Lease Obligations, plus (e) payments with respect to the
Subordinated Loans and any other Indebtedness for borrowed money.

 

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

 

“General Intangibles” shall mean and include all of 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, 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 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 2.16.

 

“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.

 

“Guarantor” shall mean any 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 of Borrower executed by a
Guarantor in favor of Agent for its benefit and for the ratable benefit of
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

 

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Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), RCRA 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”.

 

“Increased Tax Burden” shall mean the additional federal, state or local taxes
assumed to be payable by a member of Borrower as a result of Borrower’s status
as a limited liability company as evidenced and substantiated by the tax returns
filed by Borrower as a limited liability company, if so required, with such
taxes being calculated for all members at the highest marginal rate applicable
to any member.

 

“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
except for trade accounts payable in the Ordinary Course of Business which are
not more than sixty (60) days past the due date) and in any event, without
limitation by reason of enumeration, shall include all indebtedness, debt and
other similar monetary obligations of such 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.

 

“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
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.

 

“Interest Expense” shall mean for any period interest expense, net of cash
interest income, of Borrower for such period, as determined in accordance with
GAAP.

 

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

 

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“Interest Rate” shall mean an interest rate per annum equal to (a) the sum of
the Alternate Base Rate plus the Applicable Margin with respect to Domestic Rate
Loans and (b) the sum of the Eurodollar Rate plus the Applicable Margin with
respect to Eurodollar Rate Loans.

 

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

 

“Inventory” shall mean and include all of 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, cut stock, work in process, finished goods and
materials and supplies of any kind, nature or description which are or might be
used or consumed in 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.

 

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

 

“Issuer” shall mean PNC in its capacity as issuer of Letters of Credit
hereunder, or any successor issuer of Letters of Credit hereunder.

 

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.

 

“Lender-Provided Interest Rate Hedge” shall mean an Interest Rate Hedge which is
provided by any Person (or affiliate of such Person) that was a  Lender at the
time it entered into such Interest Rate Hedge, whether or not such Person has
ceased to be a Lender under this Agreement and with respect to which Agent
confirms meets the following requirements: such Interest Rate Hedge (i) is
documented in a standard International Swap Dealer Association Agreement,
(ii) provides for the method of calculating the reimbursable amount of the
provider’s credit exposure in a reasonable and customary manner, and (iii) is
entered into for hedging (rather than speculative) purposes.  The liabilities of
Borrower to the provider of any Lender-Provided Interest Rate Hedge (the “Hedge
Liabilities”) shall be “Obligations” hereunder 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 Borrowing” shall have the meaning set forth in
Section 2.11(d).

 

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“Letter of Credit Documents” shall mean, with respect to any Letter of Credit,
such Letter of Credit, any amendments thereto, any documents delivered in
connection therewith, any application therefor, and any agreements, instruments,
guarantees or other documents (whether general in application or applicable only
to such Letter of Credit) governing or providing for (i) the rights and
obligations of the parties concerned or at risk or (ii) any collateral security
for such obligations.

 

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

 

“Letter of Credit Sublimit” shall mean $200,000.

 

“Letters of Credit” shall mean any letter of credit used hereunder.  A Letter of
Credit may be a standby and/or a trade letter of credit.

 

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

 

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

 

“Licensor/Agent Agreement” shall mean an agreement between Agent and a Licensor,
in form and content reasonably satisfactory to Agent, by which Agent is given
the unqualified right, vis-à-vis such Licensor, to enforce Agent’s Liens with
respect to and to dispose of Borrower’s Inventory with the benefit of any
Intellectual Property applicable thereto, irrespective of 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 reasonably satisfactory
to Agent and 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 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 to inspect or remove the Collateral from such premises or to use
such premises to store or dispose of such Collateral.

 

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“Management Fees” shall mean all fees (including agency fees), charges and other
amounts (including, without limitation, salaries, bonuses, pensions and profit
sharing) due or to become due to Countrywide Hardware, Inc. and Visador Holding
Corporation, but excluding for all purposes amounts paid under the Consulting
Agreements.

 

“Material Adverse Effect” shall mean a material adverse effect on (a) the
condition (financial or otherwise), results of operations, assets, business or
properties of Borrower, (b) Borrower’s 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 contract, agreement, permit or license,
written or oral, of a Borrower the failure to comply with which could reasonably
be expected to have a Material Adverse Effect.

 

“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 Loan Amount” shall mean $12,000,000 less repayments of the Term Loan.

 

“Maximum Revolving Advance Amount” shall mean $10,866,000.

 

“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.

 

“Modified Commitment Transfer Supplement” shall have the meaning set forth in
Section 15.3(d).

 

“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 the 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.

 

“NY Commercial Bank A Letter of Credit” shall mean the letter of credit issued
by New York Commercial Bank or another bank issuer of a substitute letter of
credit reasonably satisfactory to Agent and its counsel for the benefit of Agent
in the amount of $145,000 with an expiry date of June 30, 2010 and otherwise
acceptable to Agent.

 

“NY Commercial Bank B Letter of Credit” shall mean the letter of credit issued
by New York Commercial Bank or another bank issuer of a substitute letter of
credit reasonably

 

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satisfactory to Agent and its counsel for the benefit of Agent in the amount of
$145,000 with an expiry date of September 30, 2010 and otherwise acceptable to
Agent.

 

“NY Commercial Bank Letters of Credit” shall mean the New York Commercial Bank A
Letter of Credit and the New York Commercial Bank B Letter of Credit.

 

“Net Income” shall mean for any period, the net income (or loss) of Borrower,
determined in accordance with GAAP; provided, that there shall be excluded
(a) the income (or deficit) of any Person accrued prior to the date it becomes a
Subsidiary of Borrower or is merged into or consolidated with the Borrower,
(b) the net income (or deficit) of any Person (other than a Subsidiary of
Borrower) in which the Borrower has an ownership interest, except to the extent
that any such income is actually received by Borrower in the form of dividends
or similar distributions and (c) the undistributed earnings of Subsidiary to the
extent that the declaration or payment of dividends or similar distributions by
such Subsidiary is at the time prohibited by the terms of any agreement to which
such Person is a party or by which it or any of its property is bound, any of
such Person’s organizational documents or other final determination of legal
proceedings binding upon such Person or any of its property or to which such
Person or any of its property is subject.

 

“Net Worth” shall mean, at a particular date, (a) the aggregate amount of all
assets of Borrower as may be properly classified as such in accordance with GAAP
consistently applied, less (b) the aggregate amount of all liabilities of
Borrower as may be properly classified as such in accordance with GAAP
consistently applied.

 

“Note” shall mean the Term Note and the Revolving Credit Note.

 

“Obligations” shall mean and include the Advances, any other loans and advances
or extensions of credit made or to be made by any Lender to Borrower, or to
others for Borrower’s account, in each case pursuant to the terms and provisions
of this Agreement, together with interest thereon (including interest which
accrues after the commencement of any bankruptcy or similar case, whether or not
such post-petition interest is allowed in such case) and, including, without
limitation, any reimbursement obligation or indemnity of Borrower on account of
Letters of Credit and all other obligations in respect of Letters of Credit and
all indebtedness, fees, liabilities and obligations that may at any time be
owing by Borrower to any Lender (or an Affiliate of a Lender) or Agent, in each
case pursuant to this Agreement or any Other Document, whether now in existence
or incurred by Borrower from time to time hereafter, whether unsecured or
secured by pledge of, Lien upon or security interest in any of Borrower’s assets
or property or the assets or property of any other Person, whether arising out
of overdrafts or deposit or other accounts or electronic funds transfers
(whether through automated clearing houses or otherwise) or out of Agent or any
Lender’s 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 such indebtedness is absolute or contingent, joint or
several, matured or unmatured, direct or indirect and whether Borrower is liable
to such Lender (or an Affiliate of a Lender) for such indebtedness as principal,
surety, endorser, guarantor or otherwise.  Obligations shall also include any
other indebtedness owing to any Lender (or an Affiliate of a Lender) by Borrower
under this Agreement and the Other Documents, all liabilities and obligations
arising

 

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under Lender-Provided Interest Rate Hedges owing from Borrower to any Lender, or
any Affiliate of a Lender (or any Person that was a Lender or an affiliate of a
Lender at the time such Lender-Provided Interest Rate Hedge was entered into),
permitted hereunder, and all liabilities and obligations now or hereafter
arising from or in connection with any Cash Management Products.

 

“Ordinary Course of Business” shall mean the ordinary course of Borrower’s
business as such segments of same were previously conducted by former owners of
same.

 

“Original Owners” shall mean owners on the Closing Date of Equity Interests in
Borrower as set forth on Schedule 1.2(a).

 

“Other Documents” shall mean the Note, any Guaranty, any Guarantor Security
Agreement, any Lender-Provided Interest Rate Hedge, any Letter of Credit
Document 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 Borrower or any Guarantor and/or delivered to Agent or any
Lender in respect of the transactions contemplated by this Agreement.

 

“Out-of-Formula Loans” shall have the meaning set forth in Section 15.2(b).

 

“P&F” shall mean P&F Industries, Inc., a Delaware corporation.

 

“Parent” of any Person shall mean a corporation or other entity owning, directly
or indirectly at least 50% of the shares of stock or other ownership interests
having ordinary voting power to elect a majority of the directors of the Person,
or other Persons performing similar functions for any such Person.

 

“Participant” shall mean each Person who 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 2.11(d).

 

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

 

“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 Borrower 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

 

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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 Discretion” shall mean a determination made in good faith and in the
exercise of reasonable (from the perspective of a secured asset based lender)
business judgment.

 

“Permitted Encumbrances” shall mean:

 

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

 

(b)           Liens for Charges not delinquent or being Properly Contested, but
only if the Lien shall have no effect on the priority of the Liens in favor of
Agent or the value of the assets in which Agent has such a Lien and a stay of
enforcement of any such Lien shall be in effect;

 

(c)           Liens disclosed in the financial statements referred to in
Section 5.5;

 

(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 Borrower, or any property of Borrower, of any judgment, writ, order, or
decree for so long as each such Lien (i) is in existence for less than twenty
(20) consecutive days after it first arises or is being Properly Contested and
(ii) is at all times junior in priority to any Liens in favor of Agent;

 

(g)           mechanics’, workers’, materialmen’s, carriers’, repairmen’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 securing Permitted Purchase Money Indebtedness, provided
that (i) such Liens shall be created substantially simultaneously with the
acquisition of the asset acquired with such Indebtedness, (ii) such Liens do not
at any time encumber any property other than the property financed by such
Indebtedness, (iii) the amount of Indebtedness secured thereby is not increased
and (iv) the principal amount of Indebtedness secured by any such Lien shall at
no time exceed 100% of the original purchase price of such property;

 

(i)            easements, rights-of-way, restrictions and other similar
encumbrances or Liens incurred in the Ordinary Course of Business which, in the
aggregate, are not substantial in amount and which do not in any case materially
detract from the value of the property subject

 

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thereto or materially interfere with the ordinary conduct of the business on the
property subject to such encumbrances; and

 

(j)            Liens disclosed on Schedule 1.2(b); and

 

(k)           Liens securing permitted Capitalized Lease Obligations provided
that (i) such Liens shall be created substantially simultaneously with the
acquisition of the asset acquired with such Indebtedness, (ii) such Liens do not
at any time encumber any property other than the property financed by such
Indebtedness, (iii) the amount of Indebtedness secured thereby is not increased
and (iv) the principal amount of Indebtedness secured by any such Lien shall at
no time exceed 100% of the original purchase price of such property.

 

“Permitted Purchase Money Indebtedness” shall mean Purchase Money Indebtedness
of Borrower which is incurred after the date of this Agreement and which is
secured by no Lien or only by a Purchase Money Lien; provided that (a) the
aggregate principal amount of such Purchase Money Indebtedness outstanding at
any time shall not exceed $750,000 (including any such Indebtedness on
Schedule 7.8), (b) such Indebtedness when incurred shall not exceed the purchase
price of the asset(s) financed, and (c) no such Indebtedness shall be refinanced
for a principal amount in excess of the principal balance outstanding thereon at
the time of such refinancing.

 

“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).

 

“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 Borrower or any member of the Controlled Group or any such Plan to
which Borrower or any member of the Controlled Group is required to contribute
on behalf of any of its employees.

 

“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.

 

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

 

“Properly Contested” shall mean, in the case of any Indebtedness, Lien or
Charge, as applicable, of any Person (including any charges) 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, (i) such
Indebtedness, Lien or Charge, as applicable, is being properly contested

 

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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, Lien or
Charge, 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.

 

“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 (which may include
electronic methods of “publication”) in another publication or source determined
by Agent.

 

“Purchase Money Indebtedness” shall mean and include (i) Indebtedness (other
than the Obligations) of Borrower for the payment of all or any part of the
purchase price of any Equipment, (ii) any Indebtedness (other than the
Obligations) of Borrower incurred at the time of or within thirty (30) days
prior to or one hundred twenty (120) days after the acquisition of any Equipment
for the purpose of financing all or any part of the purchase price thereof
(whether by means of a loan agreement, capitalized lease or otherwise), and
(iii) any renewals, extensions or refinancings (but not any increases in the
principal amounts) thereof outstanding at the time.

 

“Purchase Money Lien” shall mean a Lien upon Equipment which secures Purchase
Money Indebtedness, but only if such Lien shall at all times be confined solely
to the fixed assets acquired through the incurrence of the Purchase Money
Indebtedness secured by such Lien and shall not encumber any other property of
Borrower, and such Lien constitutes a purchase money security interest under the
Uniform Commercial Code.

 

“Purchasing CLO” shall have the meaning set forth in Section 15.3(d) hereof.

 

“Purchasing Lender” shall have the meaning set forth in Section 15.3(c) hereof.

 

“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 all real property owned and leased by Borrower and
identified on Schedule 4.55 hereto.

 

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“Receivables” shall mean and include, as to Borrower, all of Borrower’s
accounts, contract rights, instruments (including those evidencing indebtedness
owed to 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
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.

 

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

 

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

 

“Register” shall have the meaning set forth in Section 15.3(e).

 

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

 

“Required Lenders” shall mean Lenders holding more than fifty percent (50%) of
the Advances and if no Advances are outstanding shall mean Lenders holding more
than fifty percent (50%) of the Commitment Percentage.

 

“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 and
the Term Loans.

 

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

 

“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.

 

“Seller” shall mean Coffman Stairs, LLC, a Delaware limited liability company.

 

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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.

 

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

 

“Subordinated Lenders” shall mean P&F Industries, Inc., a Delaware corporation,
and Seller.

 

“Subordinated Loans” shall mean the loan evidenced by the Subordinated Notes.

 

“Subordinated Loan Documentation” shall mean the Subordinated Notes and any
other documents between Borrower and each Subordinated Lender.

 

“Subordinated Notes” shall mean (i) the subordinated promissory notes issued by
Borrower in favor of Pacific Stair Products, Inc. dated as of the Closing Date
in the aggregate principal sum of $733,964.88, (ii) the subordinated promissory
notes issued by Borrower in favor of Woodmark International, L.P. dated as of
the Closing Date in the aggregate principal sum of $6,605,683.90 and (iii) the
subordinated promissory note issued by Borrower in favor of Seller dated as of
the Closing Date in the principal sum of $3,971,901.64.

 

“Subordination Agreements” shall mean the Subordination Agreements dated June 8,
2009 among Agent, Borrower and each of the Subordinated Lenders.

 

“Subsidiary” of any Person shall mean a corporation or other entity of whose
Equity Interests 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 directors of such corporation, or other Persons performing
similar functions for such entity, are owned, directly or indirectly, by such
Person.

 

“Subsidiary Stock” shall mean:

 

(a)           one hundred percent 100% of the issued and outstanding Equity
Interests of any Domestic Subsidiary of Borrower and 65% of each class of the
issued and outstanding Equity Interests entitled to vote (within the meaning of
Treas. Reg. Section 1.956-2(c)(2)) (“Voting Equity”) and 100% of each class of
the issued and outstanding Equity Interests not entitled to vote (within the
meaning of Treas. Reg. Section 1.956-2(c)(2)) (“Non-Voting Equity”) of each
Foreign Subsidiary (but only to the extent that the pledge of such Non-Voting
Equity would not cause the Obligations to be treated as “United States property”
of such Foreign Subsidiary within the meaning of Treas. Reg. Section 1.956-2),
in each case together with the certificates (or other agreements or
instruments), if any, representing such Equity Interests, and all options and
other rights, contractual or otherwise, with respect thereto (collectively, the
“Pledged Capital Stock”), including, but not limited to, the following:

 

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(y)           subject to the percentage restrictions described above, all
shares, securities, membership interests or other equity interests representing
a dividend on any of the Pledged Capital Stock, or representing a distribution
or return of capital upon or in respect of the Pledged Capital Stock, or
resulting from a stock split, revision, reclassification or other exchange
therefor, and any subscriptions, warrants, rights or options issued to the
holder of, or otherwise in respect of, the Pledged Capital Stock; and

 

(z)            without affecting the obligations of Borrower under any provision
prohibiting such action hereunder, in the event of any consolidation or merger
involving the issuer of any Pledged Capital Stock and in which such issuer is
not the surviving entity, all shares of each class of the Equity Interests of
the successor entity formed by or resulting from such consolidation or merger;

 

(b)           Subject to the percentage restrictions described above, any and
all other Capital Stock owned by Borrower in any Domestic Subsidiary or any
Foreign Subsidiary; and

 

(c)           All proceeds and products of the foregoing, however and whenever
acquired and in whatever form.

 

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

 

“Term Loan” shall mean the Advances made pursuant to Section 2.4 hereof.

 

“Term Note” shall mean the promissory note described in Section 2.4 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 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

 

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enacted relating to toxic substances.  “Toxic Substance” includes but is not
limited to asbestos, polychlorinated biphenyls (PCBs) and lead-based paints.

 

“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 hereof.

 

“Transferee” shall have the meaning set forth in Section 15.3(d) hereof.

 

“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 (b) the sum of (i) the outstanding amount of Advances (other than
the Term Loans) plus (ii) all amounts due and owing to Borrower’s trade
creditors which are outstanding more than sixty (60) days after their due date,
except those set forth on Schedule 1.2(c), plus (iii) fees and expenses for
which Borrower is liable but which have not been paid or charged to Borrower’s
Account.

 

“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.

 

“Voting Stock” shall mean, with respect to any Person, Capital Stock issued by
such Person the holders of which are ordinarily, in the absence of
contingencies, entitled to vote for the election of directors (or persons
performing similar functions) of such Person, even though the right so to vote
has been suspended by the happening of such a contingency.

 

“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.

 

1.3.         UNIFORM COMMERCIAL CODE TERMS.

 

All terms used herein and defined in the Uniform Commercial Code as adopted in
the State of North Carolina 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”, “instruments”,
“general intangibles”, “payment intangibles”, “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.

 

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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 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 Borrower’s knowledge” or words of similar import relating to the
knowledge or the awareness of Borrower are used in this Agreement or Other
Documents, such phrase shall mean and refer to (i) the actual knowledge of a
senior officer of Borrower or (ii) the knowledge that a senior officer would
have obtained if he had engaged in good faith and diligent performance of
his/her duties, including the making of such reasonably specific inquiries as
may be necessary of the employees or agents of 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 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.

 

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ARTICLE 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 Borrower in aggregate amounts such that such Lender’s Commitment
Percentage of all outstanding Revolving Advances plus such Lender’s Commitment
Percentage of all outstanding Letters of Credit shall not exceed its 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 (A) 85%, subject to the provisions of
Section 2.1(b) hereof, of Eligible Receivables, plus (B) up to the lesser of
(i) the Extended Terms Agreement Advance Rate or (ii) $250,000 (collectively,
the “Receivables Advance Rate”), plus

 

(ii)           up to the lesser of (A) 65%, subject to the provisions of
Section 2.1(b) hereof, of the value of the Eligible Inventory, (B) 85% 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) $7,000,000 in the aggregate at any one time (“Inventory
Advance Rate”), minus

 

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

 

(iv)          a reserve of $500,000 established the day following the Closing
Date to be released no earlier than fifteen (15) months from the Closing Date
upon such time as Borrower requests that the reserve be released and Agent
consents to such releases, minus

 

(v)           such reserves as Agent may reasonably deem proper and necessary in
its Permitted Discretion from time to time.

 

The amount derived from the sum of (w) Sections 2.1(a)(y)(i) and (ii) minus
(z) Sections 2.1 (a)(y)(iii), (iv) and (v) at any time and from time to time
shall be referred to as the “Formula Amount”.  The Revolving Advances shall be
evidenced by one or more secured promissory notes (collectively, the “Revolving
Credit Note”) substantially in the form attached hereto as Exhibit 2.1(a).

 

(b)           Discretionary Rights.

 

The Advance Rates may be increased or decreased by Agent at any time and from
time to time in its Permitted Discretion.  Borrower consents to any such
increases or decreases and

 

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acknowledges that decreasing the Advance Rates or increasing or imposing
reserves may limit or restrict Advances requested by Borrower.  In the absence
of a Default or an Event of Default, Agent shall give Borrower five (5) days
prior written notice of its intention to decrease the Advance Rates.  The rights
of Agent under this subsection are subject to the provisions of Section 15.2(b).

 

2.2.         PROCEDURE FOR REVOLVING ADVANCES BORROWING.

 

(a)           Borrower may notify Agent prior to 11:00 a.m. (New York time) on a
Business Day of 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 Documents 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 Borrower desires to obtain a Eurodollar Rate Loan, Borrower shall give
Agent written notice by no later than 11:00 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 $500,000 and in integral multiples of $250,000, in excess thereof, and
(iii) the duration of the first Interest Period therefor.  Interest Periods for
Eurodollar Rate Loans shall be for one, two, three or six 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 five (5) 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
Borrower 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.

 

Borrower 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.  Borrower shall elect the duration of each succeeding Interest Period by
giving irrevocable written notice to Agent of such duration not later than
11:00 a.m. (New York time) 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 Borrower, Borrower shall be

 

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deemed to have elected to convert to a Domestic Rate Loan subject to
Section 2.2(d) herein below.

 

(d)           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 and any
conversion to a Eurodollar Rate Loan may be done if no Event of Default has
occurred and is continuing.  If Borrower desires to convert a loan, Borrower
shall give Agent written notice by no later than 11:00 a.m. (New York time)
(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 any other type of loan, the duration of the first
Interest Period therefor.

 

(e)           At its option and upon written notice given prior to 11:00 a.m.
(New York time) at least three (3) Business Days’ prior to the date of such
prepayment, 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.  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, Borrower shall indemnify Agent and
Lenders therefor in accordance with Section 2.2(f) hereof.

 

(f)            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 Borrower in the payment of the principal of or interest on any
Eurodollar Rate Loan or failure by 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
Borrower shall be conclusive absent manifest error.

 

(g)           Notwithstanding any other provision hereof, if any Applicable Law,
treaty, regulation or directive, 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 Borrower shall, if any affected Eurodollar Rate
Loans are then outstanding, promptly upon 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

 

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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,
Borrower 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 Borrower shall be
conclusive absent manifest error.

 

(h)           If any Lender requests compensation under Section 2.2(g) hereof,
then such Lender shall use reasonable efforts to designate a different lending
office for funding or booking its Advances hereunder or to assign its rights and
obligations hereunder to another of its offices, branches or affiliates, if, in
the judgment of such Lender, such designation or assignment (i) would eliminate
or reduce amounts payable pursuant to Section 2.2(g) in the future and
(ii) would not subject such Lender to any unreimbursed cost or expense and would
not otherwise be disadvantageous to such Lender.  Borrower hereby agrees to pay
all reasonable costs and expenses incurred by any Lender in connection with such
designation or assignment.

 

(i)            The Borrower’s obligations and indemnifications under this
Section 2.2 shall survive the termination of this Agreement.

 

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
Borrower to Agent or Lenders, shall be charged to Borrower’s Account on Agent’s
books.  During the term, Borrower 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 Borrower or deemed
to have been requested by 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 Borrower on the day so requested by way
of credit to Borrower’s operating account at PNC, or such other bank as Borrower
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 Borrower, be disbursed to Agent to be
applied to the outstanding Obligations giving rise to such deemed request in
accordance with  Section 2.2(a).

 

2.4.         TERM LOAN.

 

Subject to the terms and conditions of this Agreement, each Lender, severally
and not jointly, will make the Term Loan to Borrower in the sum equal to such
Lender’s Commitment Percentage of $1,134,000.  The Term Loan shall be advanced
on the Closing Date and shall be, with respect to principal, payable as follows,
subject to acceleration upon the occurrence of an Event of Default under this
Agreement or termination of this Agreement: principal shall be repaid in equal
monthly installments of $47,250 commencing on July 1, 2009 with the outstanding
principal balance due in full on July 1, 2011.  The Term Loan shall be evidenced
by

 

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one or more secured promissory notes (collectively, the “Term Note”) in
substantially the form attached hereto as Exhibit 2.4.  The Term Loan may
consist of Domestic Rate Loans or Eurodollar Rate Loans, or a combination
thereof, as Borrower may request.  In the event that Borrower desires to obtain
or extend a Eurodollar Rate Loan or to convert a Domestic Rate Loan to a
Eurodollar Rate Loan, Borrower shall comply with the notification requirements
set forth in Sections 2.2(b) and (d) and the provisions of
Sections 2.2(b) through (h) shall apply, mutatis mutandis.

 

2.5.         REPAYMENT OF ADVANCES.

 

(a)           The Revolving Advances shall be due and payable in full on the
last day of the Term subject to earlier prepayment as herein provided.  The Term
Loan shall be due and payable as provided in Section 2.4 hereof and in the Term
Note, subject to mandatory prepayments as herein provided.

 

(b)           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 Borrower’s Account as of the next
Business Day following the Agent’s receipt of those items of payment, 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 Agent receives 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 good funds in Agent’s
account.  Agent is not, however, required to credit Borrower’s Account for the
amount of any item of payment which is unsatisfactory to Agent and Agent may
charge Borrower’s 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. (New York time) 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
Borrower’s Account or by making Advances as provided in Section 2.2 hereof.

 

(d)           Borrower 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.

 

2.6.         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.

 

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2.7.         STATEMENT OF ACCOUNT.

 

Agent shall maintain, in accordance with its customary procedures, a loan
account (“Borrower’s Account”) in the name of Borrower 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 (or at any time upon the request of Borrower at
Borrower’s expense), Agent shall send to Borrower a statement showing the
accounting for the Advances made, payments made or credited in respect thereof,
and other transactions between Agent and Borrower, during such month.  The
monthly statements shall be deemed correct and binding upon Borrower in the
absence of manifest error and shall constitute an account stated between Lenders
and Borrower unless Agent receives a written statement of Borrower’s specific
exceptions thereto within thirty (30) days after such statement is received by
Borrower.  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.

 

2.8.         LETTERS OF CREDIT.

 

Subject to the terms and conditions hereof, Agent shall issue or cause the
issuance of Letters of Credit for the account of 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 Interest Rate for Domestic
Rate Loans.  Letters of Credit that have not been drawn upon shall not bear
interest.

 

2.9.         ISSUANCE OF LETTERS OF CREDIT.

 

(a)           Borrower may request Agent to issue or cause the issuance of a
Letter of Credit by delivering to Agent, at the Payment Office, prior to
11:00 a.m. (New York time), 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.  Borrower 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
or drafts when presented for

 

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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 (“UCP”) or the International Standby Practices
(ISP98-International Chamber of Commerce Publication Number 600) (“ISP98
Rules”), as determined by Agent, and each trade Letter of Credit shall be
subject to UCP.

 

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

 

2.10.       REQUIREMENTS FOR ISSUANCE OF LETTERS OF CREDIT.

 

(a)           Borrower shall authorize and direct any Issuer to name Borrower as
the “Applicant” or “Account Party” of each Letter of Credit.  If Agent is not
the Issuer of any Letter of Credit, Borrower 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 or the application therefor.

 

(b)           In connection with all Letters of Credit issued or caused to be
issued by Agent under this Agreement, 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 Borrower’s name upon any
warehouse or other receipts, letter of credit applications and acceptance,
(ii) to sign Borrower’s name on bills of lading; (iii) to clear Inventory
through the United States of America Customs Department (“Customs”) in the name
of Borrower or Agent or Agent’s designee, and to sign and deliver to Customs
officials powers of attorney in the name of Borrower for such purpose; and
(iv) to complete in 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, gross negligence or bad faith.  This power, being coupled with an
interest, is irrevocable as long as any Letters of Credit remain outstanding.

 

2.11.       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 Borrower. 
Provided that it shall have received such notice, Borrower shall reimburse (such
obligation to reimburse Agent shall

 

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sometimes be referred to as a “Reimbursement Obligation”) Agent prior to 12:00
Noon, New York time 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 Borrower fails to reimburse Agent for the
full amount of any drawing under any Letter of Credit by 12:00 Noon, New York
time, on the Drawing Date, Agent will promptly notify each Lender thereof, and
Borrower 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 Section 8.2 hereof.  Any notice
given by Agent pursuant to this Section 2.11(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 2.11(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 2.11(d)) each be deemed to have made a
Revolving Advance maintained as a Domestic Rate Loan to Borrower 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., New York time 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 2.11(c), provided that such Lender shall not be obligated to pay
interest as provided in Section 2.11(c)(i) and (ii) until and commencing from
the date of receipt of notice from Agent of a drawing.

 

(d)           With respect to any unreimbursed drawing that is not converted
into a Revolving Advances maintained as a Domestic Rate Loan to Borrower in
whole or in part as contemplated by Section 2.11(b), because of Borrower’s
failure to satisfy the conditions set forth in Section 8.2 (other than any
notice requirements) or for any other reason, Borrower 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 2.11(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 2.11.

 

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 Borrower) have been fully reimbursed for all payments made under or
relating to Letters of Credit.

 

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2.12.       REPAYMENT OF PARTICIPATION ADVANCES.

 

(a)           Upon (and only upon) receipt by Agent for its account of
immediately available funds from Borrower (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 Borrower, or to a
trustee, receiver, liquidator, custodian, or any official in any insolvency
proceeding, any portion of the payments made by Borrower to Agent pursuant to
Section 2.12(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.

 

2.13.       DOCUMENTATION.

 

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 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 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, willful misconduct or bad faith (as
determined by a court of competent jurisdiction in a final non-appealable
judgment), Agent shall not be liable for any error, negligence and/or mistakes,
whether of omission or commission, in following Borrower’s instructions or those
contained in the Letters of Credit or any modifications, amendments or
supplements thereto.

 

2.14.       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.

 

2.15.       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 Borrower to reimburse Agent upon a draw under a
Letter of Credit, shall be

 

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absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Section 2.15 under all circumstances,
including the following circumstances:

 

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

 

(ii)           the failure of 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 2.11;

 

(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, crossclaim, defense or other right
which 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 Borrower or any Subsidiaries of 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;

 

(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;

 

(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 Borrower, unless the Agent has
received written notice from Borrower of such failure within three (3) Business
Days after the Agent shall have

 

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furnished Borrower 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 Borrower or any Guarantor;

 

(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.

 

2.16.       INDEMNITY.

 

In addition to amounts payable as provided in Section 15.5, the 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, willful misconduct or bad faith 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,
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”).  The foregoing
obligations and the indemnifications hereunder shall survive the termination of
this Agreement.

 

2.17.       LIABILITY FOR ACTS AND OMISSIONS.

 

As between Borrower and Agent and Lenders, 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.  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

 

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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 Borrower against any
beneficiary of such Letter of Credit, or any such transferee, or any dispute
between or among 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
(viii) any consequences arising from causes beyond the control of 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, willful misconduct or bad faith (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 the
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

 

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issued by it or any documents and certificates delivered thereunder, if taken or
omitted in good faith and without gross negligence (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.

 

2.18.       ADDITIONAL PAYMENTS.

 

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

 

2.19.       MANNER OF BORROWING AND PAYMENT.

 

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

 

(b)           Each payment (including each prepayment) by 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.  Each payment (including each prepayment) by Borrower on account of
the principal of and interest on the Term Note, shall be made from or to, or
applied to that portion of the Term Loan evidenced by the Term Note pro rata
according to the Commitment Percentages of Lenders.  Except as expressly
provided herein, all payments (including prepayments) to be made by 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., New York time, in Dollars and in
immediately available funds.

 

(c)           (i)            Notwithstanding anything to the contrary contained
in Sections 2.19(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., New York time, 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.

 

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(ii)           Each Lender shall be entitled to earn interest at the applicable
Contract 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
rescinded, and the purchase price and benefits returned, to the 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 Borrower a corresponding amount.  Agent
will promptly notify Borrower 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 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 Borrower; provided, however,
that Agent’s right to such recovery shall not prejudice or otherwise adversely
affect Borrower’s rights (if any) against such Lender.

 

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2.20.       MANDATORY PREPAYMENTS.

 

Subject to Section 4.3 hereof, when Borrower sells or otherwise disposes of any
Collateral other than Inventory in the Ordinary Course of Business, Borrower
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 (x) first, to the
outstanding principal installments of the Term Loan in the inverse order of the
maturities thereof and (y) second, to the remaining Advances in such order as
Agent may determine, subject to Borrower’s ability to reborrow Revolving
Advances in accordance with the terms hereof.

 

2.21.       USE OF PROCEEDS.

 

(a)           Borrower shall apply the proceeds of Advances to (i) purchase the
assets of Seller pursuant to the terms of the Acquisition Agreement,
(ii) purchase the assets of Woodmark International, L.P. (including its Stair
House operations) and Pacific Stair Products, Inc., (iii) repay existing
indebtedness of P&F secured by assets being contributed by P&F to Borrower,
(iv) pay fees and expenses relating to this transaction, (v) provide for its
working capital needs, capital expenditure needs and reimburse drawings under
Letters of Credit, and (vi) for other general corporate purposes of Borrower.

 

(b)           Without limiting the generality of Section 2.21(a) above, neither
the Borrower nor any other Person which may in the future become party to this
Agreement or the Other Documents as Borrower, 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.

 

2.22.       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 Borrower 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 2.22 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

 

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the outstanding Advances of that type of all Lenders at the time of such
application; provided, 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 2.22, 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 2.22 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 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.

 

ARTICLE 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 or, for Eurodollar Rate Loans with an
Interest Period in excess of three months, at the earlier of (a) each three
months from the commencement of such Eurodollar Rate Loan or (b) the end of the
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
(i) with respect to Revolving Advances, and the Term Loans, the applicable
Interest Rate (as applicable, the “Contract Rate”).  Whenever, subsequent to the
date of this Agreement, the Alternate Base Rate is increased or decreased, the
applicable Contract 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

 

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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 shall bear interest at the
applicable Contract Rate plus two (2%) percent per annum (the “Default Rate”). 
Agent will promptly provide notice to Borrower if the Default Rate is
instituted.

 

3.2.         LETTER OF CREDIT FEES.

 

(a)           Borrower 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 three and one-half of one percent (3.50%) 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 fiscal
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 the Borrower 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
Fees 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.  Any Letters of Credit which the Agent
agrees to allow to remain outstanding after the termination of this Agreement
will be cash collateralized in an amount equal to one hundred and five percent
(105%) of the amount thereof in the manner described above.

 

Upon the occurrence and continuance of an Event of Default, on demand, Borrower
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, and Borrower hereby
irrevocably authorizes Agent, in its discretion, on Borrower’s behalf and in
Borrower’s name, to open such an account and to make and maintain deposits
therein, or in an account opened by Borrower, in the amounts required to be made
by Borrower, out of the proceeds of Receivables or other Collateral or out of
any other funds of 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 Borrower mutually agree and
the net return on such investments shall be credited to such account and
constitute additional cash collateral.  Borrower may not withdraw amounts
credited

 

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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.         CLOSING FEE AND FACILITY FEE.

 

(a)           Closing Fee.

 

Upon the execution of this Agreement, Borrower shall pay to Agent for the
ratable benefit of Lenders a closing fee of $90,000 less that portion of the
deposit fee of $80,000 heretofore paid by Borrower to Agent after application of
such fee to out of pocket expenses.

 

(b)           Facility Fee.

 

Borrower shall pay to Agent a fee for the ratable benefit of Lenders in an
amount equal to one-half of one percent (0.50%) per annum multiplied by the
amount by which the Maximum Revolving Advance Amount exceeds the average daily
unpaid balance of the Revolving Advances plus the aggregate amount of any
outstanding Letters of Credit that are available to be drawn during each
calendar quarter.  Such fee shall be payable to Agent in arrears on the first
day of each calendar quarter with respect to the previous calendar quarter.

 

3.4.         COLLATERAL FEES.

 

(a)           Collateral Management Fee.

 

Borrower shall pay Agent a collateral management fee equal to $1,250 per month
commencing on the first day of the month following the Closing Date and on the
first day of each month thereafter during the term.  The collateral management
fee shall be deemed earned in full on the date when same is due and payable
hereunder and shall not be subject to rebate or proration upon termination of
this Agreement for any reason.

 

(b)           Collateral Monitoring Fee.

 

Borrower shall pay to Agent on the first day of each month following any month
in which Agent performs any collateral monitoring - namely any field
examination, collateral analysis or other business analysis, the need for which
is to be reasonably determined by Agent and which monitoring is undertaken by
Agent or for Agent’s benefit - a collateral monitoring fee in an amount equal to
$850 per day for each person employed to perform such monitoring plus all costs
and disbursements incurred by Agent in the performance of such examination or
analysis (absent an Event of Default, Borrower shall not be required to pay
Agent for more than four (4) such collateral monitoring fees per calendar year).

 

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

 

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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 applicable Contract Rate 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 Borrower, and if the then remaining excess amount is greater than the
previously unpaid principal balance, Lenders shall promptly refund such excess
amount to Borrower and the provisions hereof shall be deemed amended to provide
for such permissible rate.

 

3.7.         INCREASED COSTS.

 

(a)           In the event that any introduction of or change in Applicable Law
or in the interpretation or application thereof, 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:

 

(i)            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);

 

(ii)           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

 

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

 

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 Borrower shall promptly pay Agent or such Lender, upon its demand, such
additional amount as will compensate Agent or such Lender for such additional

 

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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 Borrower, and such certification shall be conclusive
absent manifest error.

 

(b)           A certificate of a Lender setting forth the amount or amounts
necessary to compensate such Lender and delivered to the Borrower shall be
conclusive absent manifest error.

 

(c)           Failure or delay on the part of any Lender to demand compensation
pursuant to the foregoing provisions of this Section 3.7 shall not constitute a
waiver of such Lender’s right to demand such compensation.

 

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 Borrower 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 Borrower shall notify Agent
no later than 11:00 a.m. (New York City time) 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 Borrower shall notify Agent, no later than
11:00 a.m. (New York City time) 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 Borrower shall notify Agent, no later than
11:00 a.m. (New York City time) two (2) Business Days 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 Borrower shall not 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.

 

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3.9.         CAPITAL ADEQUACY.

 

(a)           In the event that Agent or any Lender shall have determined that
any Applicable Law, rule, regulation 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, Borrower 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, regulation 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 Borrower shall be conclusive absent
manifest error.

 

(c)           Failure or delay on the part of any Lender to demand compensation
pursuant to the foregoing provisions of this Section 3.9 shall not constitute a
waiver of such Lender’s right to demand such compensation.

 

3.10.       GROSS UP FOR TAXES.

 

If 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) Borrower shall make such withholding or deductions, and (c) 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, Borrower shall not 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 Borrower 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 Borrower 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 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
Borrower 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 Borrower 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.

 

3.12.       TREATMENT OF CERTAIN REFUNDS.

 

If Agent, any Lender or the Issuer receives a refund of any taxes as to which it
has been indemnified by Borrower or with respect to which Borrower has paid
additional amounts pursuant to this Agreement, it shall pay to Borrower an
amount equal to such refund (but only to the extent of indemnity payments made
or additional amounts paid, by Borrower under this Agreement with respect to the
taxes giving rise to such refund), net of all out-of-pocket expenses

 

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of Agent, such Lender or the Issuer, as the case may be, and without interest
(other than any interest paid by the relevant Governmental Body with respect to
such refund), provided that Borrower, upon the request of Agent, such Lender or
the Issuer, agrees to repay the amount paid over to Borrower (plus any
penalties, interest or other charges imposed by the relevant Governmental Body)
to Agent, such Lender or the Issuer in the event Agent, such Lender or the 
Issuer is required to repay such refund to such Governmental Body.  This
subsection shall not be construed to require the Agent, any Lender or the Issuer
to make available its tax returns (or any other information relating to its
taxes that it deems confidential) to Borrower or any other Person.

 

3.13.        Survival of Obligations.

 

The Borrower’s obligations and the indemnifications under this Article III shall
survive the termination of this Agreement.

 

ARTICLE 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, Borrower hereby assigns, pledges and/or grants, as applicable, 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.  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.  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, 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.

 

Borrower shall take all action that may be reasonably 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 reasonably satisfactory to Agent, and (v) executing and delivering
financing statements, control agreements, instruments of pledge, mortgages,

 

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notices and assignments, in each case in form and substance reasonably
satisfactory to Agent, relating to the creation, validity, perfection,
maintenance or continuation of Agent’s security interest and Lien under the
Uniform Commercial Code or other Applicable Law.  Agent is hereby authorized to
file financing statements in accordance with the Uniform Commercial Code as
adopted in the State of North Carolina from time to time.  By its signature
hereto, Borrower hereby authorizes Agent to file against Borrower, one or more
financing continuation or amendment statements pursuant to the Uniform
Commercial Code in form and substance reasonably satisfactory to Agent (which
statements may have a description of collateral which is broader than that set
forth herein and which may describe the Collateral as “all assets” or “all
personal property”).  All charges, expenses and fees Agent may incur in doing
any of the foregoing, and any local taxes relating thereto, shall be charged to
Borrower’s 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 COLLATERAL.

 

Borrower will utilize all commercially reasonable means in the Ordinary Course
of Business to 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 or lease of Inventory in the Ordinary Course of Business, and
(b) the disposition or transfer of obsolete and worn-out Equipment in the
Ordinary Course of Business during any fiscal year having an aggregate fair
market value of not more than $250,000 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 2.20 and (c) the
disposition or transfer of obsolete and worn-out personal property no longer
necessary to the efficient conduct of business; and (d) the sale or discount of
Receivables in the Ordinary Course of Business absent a Default or an Event of
Default.

 

4.4.         PRESERVATION OF COLLATERAL.

 

Following the occurrence of an Event of Default, 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) may employ
and maintain at any of Borrower’s premises a custodian who shall have full
authority to do all acts necessary to protect Agent’s interests in the
Collateral; (c) may lease warehouse facilities to which Agent may move all or
part of the Collateral; (d) may use 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.  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 Borrower’s Account as a Revolving Advance
maintained as a

 

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Domestic Rate Loan and added to the Obligations.  Agent shall provide notice to
Borrower of any amounts charged to Borrower’s Account.

 

4.5.         OWNERSHIP OF COLLATERAL.

 

(a)           With respect to the Collateral, at the time the Collateral becomes
subject to Agent’s security interest:  (i) Borrower shall be 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 the 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 Borrower or delivered to Agent or any Lender in
connection with this Agreement shall be true and correct in all material
respects; (iii) all signatures and endorsements of Borrower that appear on such
documents and agreements shall be genuine and Borrower shall have full capacity
to execute same; and (iv) 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 Borrower has any
Inventory (except for Inventory in transit) or other Collateral 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 Borrower is stored and each warehouseman,
bailee or other third party in possession of any of Borrower’s Inventory or
Equipment; (iii) Schedule 4.5 hereto sets forth a correct and complete list as
of the Closing Date of (A) each place of business of Borrower and (B) the chief
executive office of 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 Borrower, identifying which
properties are owned and which are leased, 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, Agent’s interests in the Collateral shall
continue in full force and effect.  During such period Borrower shall not,
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.  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, after the occurrence of an Event of
Default and provided Agent elects to exercise its remedies hereunder, 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, Borrower 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

 

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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. 
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
Borrower’s possession, they, and each of them, shall be held by Borrower in
trust as Agent’s trustee, and Borrower will immediately deliver them to Agent in
their original form together with any necessary endorsement.

 

4.7.         BOOKS AND RECORDS.

 

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 which books and records shall be kept at
Borrower’s principal place of business; (b) set up on its books accruals with
respect to all taxes, assessments, charges, levies and claims; and (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.  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 Borrower.

 

4.8.         FINANCIAL DISCLOSURE.

 

Borrower hereby irrevocably authorizes and directs all accountants and auditors
employed by Borrower at any time during the Term to Exhibit and deliver to Agent
and each Lender copies of any of 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 Borrower’s financial status and business
operations.  Borrower hereby authorizes all Governmental Bodies to furnish to
Agent and each Lender copies of reports or examinations relating to Borrower,
whether made by Borrower or otherwise; however, Agent and each Lender will
attempt to obtain such information or materials directly from Borrower prior to
obtaining such information or materials from such accountants or Governmental
Bodies.

 

4.9.         COMPLIANCE WITH LAWS.

 

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 Borrower’s
business the non-compliance with which could reasonably be expected to have a
Material Adverse Effect.  The Collateral assets of Borrower at all times shall
be maintained in accordance with the requirements of all insurance carriers
which provide insurance with respect to the Collateral assets of Borrower so
that such insurance shall remain in full force and effect.

 

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4.10.       INSPECTION OF PREMISES; APPRAISALS.

 

At all reasonable times and upon reasonable notice to Borrower in the absence of
an 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 Borrower’s
books, records, audits, correspondence and all other papers relating to the
Collateral and the operation of Borrower’s business.  Agent, any Lender and
their agents may enter upon any of Borrower’s premises at any time during
business hours and at any other reasonable time and upon reasonable notice to
Borrower in the absence of an Event of Default, 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 and discussing the affairs, finances
and business of Borrower with any officers and directors of Borrower or with the
Accountants.  At the sole cost of Borrower, Agent will conduct no more than four
field examinations per year in the absence of a Default and no more than one
Appraisal of Inventory and one Appraisal of Machinery and Equipment but reserves
the right, in its Permitted Discretion, to conduct additional Appraisals at
Borrower’s expense upon reasonable notice to Borrower.

 

4.11.       INSURANCE.

 

The assets and properties of 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 Borrower so that such
insurance shall remain in full force and effect.  Borrower shall bear the full
risk of any loss of any nature whatsoever with respect to the Collateral.  At
Borrower’s own cost and expense in amounts and with carriers acceptable to
Agent, Borrower shall (a) keep all its insurable properties and properties in
which 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 Borrower’s including business interruption
insurance; (b) if required by Agent and only if customary for companies engaged
in businesses similar to Borrower, maintain a bond in such amounts as is
customary in the case of companies engaged in businesses similar to 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 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 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 loss payable
endorsements in form and substance satisfactory to Agent, naming Agent as a 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

 

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named therein hereby are directed by Agent and Borrower to make payment for such
loss to Agent and not to Borrower and Agent jointly.  If any insurance losses
are paid by check, draft or other instrument payable to Borrower and Agent
jointly, Agent may endorse Borrower’s name thereon and do such other things as
Agent may deem advisable to reduce the same to cash.  If any payment for such
loss is made to Borrower and not Agent, Borrower shall turn over such payment to
Agent.  Agent is hereby authorized to adjust and compromise claims under
insurance coverage referred to in clauses (a) 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 Borrower or applied as may be otherwise
required by law.  Any deficiency thereon shall be paid by Borrower to Agent, on
demand.

 

4.12.       FAILURE TO PAY INSURANCE.

 

If 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 Borrower, and charge Borrower’s 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.

 

Subject to those Charges Properly Contested, Borrower will pay, when due, all
taxes, assessments and other Charges lawfully levied or assessed upon 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.  If any tax by any Governmental Body is or may be
imposed on or as a result of any transaction between 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 Borrower pay the taxes, assessments or other Charges and Borrower
hereby indemnifies and holds Agent and each Lender harmless in respect thereof. 
Agent will endeavor to give Borrower prompt notice of the payment of such
items.  The amount of any payment by Agent under this Section 4.13 shall be
charged to Borrower’s Account as a Revolving Advance maintained as a Domestic
Rate Loan and added to the Obligations and, until Borrower 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 or same is being
Properly Contested), Agent may hold without interest any balance standing to
Borrower’s 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.

 

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 unless the failure to comply would not

 

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be expected to have a Material Adverse 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 immaterial or
unintentional invoice errors and other imperfection 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 Borrower, or work, labor or services theretofore rendered
by Borrower as of the date each Receivable is created.  Same shall be due and
owing in accordance with Borrower’s standard terms of sale without dispute,
setoff or counterclaim except as may be stated on the accounts receivable
schedules delivered by Borrower to Agent.

 

(b)           Solvency of Customers.

 

Each Customer, to the best of Borrower’s actual knowledge, with respect to the
P&F contributed assets and based solely on the representations of Seller
contained in the Acquisition Agreement with respect to Seller assets, 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 Borrower who are not solvent Borrower has set up on its
books and in its financial records bad debt reserves adequate to cover such
Receivables.

 

(c)           Location of Borrower.

 

Borrower’s chief executive office is located at the address set forth on
Schedule 4.5.  Until written notice is given to Agent by Borrower of any other
office at which 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), Borrower
will, at 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 Borrower’s funds
or use the same except to pay Obligations.  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 and provided Agent
elects to exercise its remedies hereunder, Agent shall have the right to send
notice of the assignment of,

 

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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 Borrower’s
Account and added to the Obligations.

 

(f)            Power of Agent to Act on Borrower’s Behalf.

 

Upon the occurrence of an Event of Default and provided Agent elects to exercise
its remedies hereunder, Agent shall have the right to receive, endorse, assign
and/or deliver in the name of Agent or Borrower any and all checks, drafts and
other instruments for the payment of money relating to the Receivables, and
Borrower hereby waives notice of presentment, protest and non-payment of any
instrument so endorsed.  Upon the occurrence of an Event of Default and provided
Agent elects to exercise its remedies hereunder, Borrower hereby constitutes
Agent or Agent’s designee as Borrower’s attorney with power (i) to endorse
Borrower’s name upon any notes, acceptances, checks, drafts, money orders or
other evidences of payment or Collateral; (ii) to sign Borrower’s name on any
invoice or bill of lading relating to any of the Receivables, drafts against
Customers, assignments and verifications of Receivables; (iii) to send
verifications of Receivables to any Customer; (iv) to sign Borrower’s name on
all 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 Receivables; (vi) to enforce payment of the
Receivables by legal proceedings or otherwise; (vii) to exercise all of
Borrower’s rights and remedies with respect to the collection of the Receivables
and any other Collateral; (viii) to settle, adjust, compromise, extend or renew
the Receivables; (ix) to settle, adjust or compromise any legal proceedings
brought to collect Receivables; (x) to prepare, file and sign Borrower’s name on
a proof of claim in bankruptcy or similar document against any Customer; (xi) to
prepare, file and sign Borrower’s name on any notice of Lien, assignment or
satisfaction of Lien or similar document in connection with the Receivables; 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, 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 Borrower to such address as Agent may designate and to receive,
open and dispose of all mail addressed to 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
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 except those specified in Section 4.15(f) hereof.  Following the
occurrence of an Event of Default Agent may, without notice or consent from

 

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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 the return of the goods
represented by any of the Receivables, without notice to or consent by Borrower,
all without discharging or in any way affecting Borrower’s liability hereunder.

 

(h)           Establishment of a Cash Management System.

 

All proceeds of Collateral shall be deposited by Borrower 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 Borrower and be reasonably acceptable to Agent or (ii) depository
accounts (“Depository Accounts”) established at the Agent for the deposit of
such proceeds.  Borrower, Agent and each Blocked Account Bank shall enter into a
deposit account control agreement in form and substance reasonably satisfactory
to Agent directing such Blocked Account 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.  All funds deposited in
such Blocked Accounts shall immediately become the property of Agent and
Borrower shall obtain the agreement by such Blocked Account Bank to waive any
offset rights against the funds so deposited.  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.  All deposit accounts and investment
accounts of Borrower and its Subsidiaries are set forth on Schedule 4.15(h).

 

(i)            Adjustments.

 

Borrower will not, without Agent’s consent, compromise or adjust any material
amount of the Receivables (or extend the time for payment thereof) or accept any
material returns of merchandise or grant any additional discounts, allowances or
credits thereon except for those compromises, adjustments, returns, discounts,
credits and allowances in the Ordinary Course of Business.

 

4.16.       INVENTORY.

 

To the extent Inventory held for sale or lease has been produced by Borrower, it
has been and will be produced by 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.  Borrower shall not use or operate
the Equipment in violation of any law, statute, ordinance, code,

 

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rule or regulation.  Borrower shall have the right to sell Equipment to the
extent set forth in Section 4.3 hereof.

 

4.18.       EXCULPATION OF LIABILITY.

 

Nothing herein contained shall be construed to constitute Agent or any Lender as
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.  Neither Agent nor any Lender, whether by anything herein or
in any assignment or otherwise, assume any of 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 Borrower of
any of the terms and conditions thereof.

 

4.19.       ENVIRONMENTAL MATTERS.

 

(a)           Borrower shall ensure that the Real Property owned or leased by
Borrower remains in compliance in all material respects with all Environmental
Laws and they shall not place or permit to be placed any Hazardous Substances on
any Real Property except as permitted by Applicable Law or appropriate
governmental authorities or except where such non-compliance would not result in
a Material Adverse Effect.

 

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

 

(c)           Borrower shall (i) employ in connection with the use of the Real
Property appropriate technology necessary to maintain compliance in all material
respects with any applicable Environmental Laws and (ii) dispose of any and all
Hazardous Waste generated at the Real Property in accordance with Environmental
Laws in all material respects.  Borrower shall use its reasonable efforts to
obtain certificates of disposal, such as hazardous waste manifest receipts, from
all treatment, transport, storage or disposal facilities or operators employed
by Borrower in connection with the transport or disposal of any Hazardous Waste
generated at the Real Property.

 

(d)           In the event Borrower obtains, gives or receives 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 any notice of violation, request for
information or notification that it is potentially responsible for investigation
or cleanup of environmental conditions at the Real Property, demand letter or
complaint, order or citation with regard to any Hazardous Discharge or violation
of Environmental Laws affecting the Real Property or 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 Borrower shall promptly give written notice
of same to Agent detailing facts

 

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and circumstances of which 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.

 

(e)           Borrower 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 Borrower to
dispose of Hazardous Substances and shall continue to forward copies of
correspondence between Borrower and the Authority regarding such claims to Agent
until the claim is settled.  Borrower shall promptly forward to Agent copies of
all documents and reports concerning a Hazardous Discharge at the Real Property
that 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)            Subject to those which are diligently contested in good faith,
Borrower shall diligently take all action necessary to comply with Environmental
Laws with regard to any Hazardous Discharge or Environmental Complaint.  If
Borrower shall fail to comply with any Environmental Laws, Agent, after notice
from Agent and a reasonable opportunity to cure, 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 Borrower, 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 Borrower.

 

(g)           Upon the occurrence and continuance of an Event of Default,
promptly upon the written request of Agent from time to time, Borrower shall
provide Agent, at Borrower’s 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 Borrower
to post a bond, letter of credit or other security reasonably satisfactory to
Agent to secure payment of these costs and expenses.

 

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(h)           Borrower 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, damage and expense, claims,
costs, fines and penalties, including reasonable 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 Hazardous Substances affecting the Real Property,
whether or not the same originates or emerges from the Real Property or any
contiguous real estate, realized as a result of the foregoing 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.  Borrower’s
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.  Borrower’s
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 Borrower’s right, title and interest
in and to its owned and leased premises.

 

4.20.       FINANCING STATEMENTS.

 

Except as respects 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 except for
financing statements related to Permitted Encumbrances.

 

ARTICLE V

 

REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1.         AUTHORITY.

 

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 Subordination Agreements and the Other
Documents have been duly executed and delivered by Borrower, and this Agreement,
the Subordination Agreements and the Other Documents constitute the legal, valid
and binding obligation of 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
and general principles of equity.  The execution, delivery and performance of
this Agreement and of the Other Documents (a) are within Borrower’s limited
liability company powers, have been duly authorized by all necessary company
action, are not in contravention of law or the terms of Borrower’s operating
agreement, certificate of formation or other applicable documents relating

 

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to Borrower’s formation or to the conduct of Borrower’s business or of any
material agreement or undertaking to which Borrower is a party or by which
Borrower is bound, including the Acquisition Agreement or the Subordinated Loan
Documentation, (b) to the best of Borrower’s knowledge after due diligence, 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) to the
best of Borrower’s knowledge after due diligence, 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 Borrower under (i) the provisions of any charter document, operating
agreement to which 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 Subordinated
Loan Documentation or the Acquisition Agreement or (ii) the provisions of any
agreement, instrument or other instruments to which Borrower is a party or by
which it or its property is a party or by which it may be bound provided such
conflict or breach would have a Material Adverse Effect.

 

5.2.         FORMATION AND QUALIFICATION.

 

(a)           Borrower is duly formed and in good standing under the laws of the
state indicated on Schedule 5.2(a) and is qualified to do business and is in
good standing in the states indicated on Schedule 5.2(a) which constitute all
states in which qualification and good standing are necessary for 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.  Borrower has
delivered to Agent true and complete copies of its certificate of formation and
operating agreement and will promptly notify Agent of any amendment or changes
thereto.

 

(b)           As of the Closing Date, the only Subsidiaries of Borrower are
listed on Schedule 5.2(b).  As of the Closing Date, the Persons identified on
Schedule 5.2(b) are the record and beneficial owners of all of the shares of
Capital Stock of each of the Persons listed on Schedule 5.2(b) as being owned by
thereby, there are no proxies, irrevocable or otherwise, with respect to such
shares, and no equity securities of any of such Persons are or may become
required to be issued by reason of any options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of any Capital
Stock of any such Person (except as set forth under the Subordinated Loan
Documentation), and there are no contracts, commitments, understandings or
arrangements by which any such Person is or may become bound to issue additional
shares of its Capital Stock or securities convertible into or exchangeable for
such shares.  All of the shares owned by Borrower are owned free and clear of
any Liens other than Permitted Encumbrances.

 

5.3.         SURVIVAL OF REPRESENTATIONS AND WARRANTIES.

 

All representations and warranties of Borrower contained in this Agreement and
the Other Documents shall be true at the time of Borrower’s execution of this
Agreement and the Other Documents, and shall survive in all material respects
the execution, delivery and

 

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acceptance thereof by the parties thereto and the closing of the transactions
described therein or related thereto (except to the extent such representations
and warranties relate to an earlier date).

 

5.4.         TAX RETURNS.

 

Borrower’s federal tax identification number is set forth on Schedule 5.4. 
Borrower has filed all federal, state and local tax returns and other material
reports it is required by law to file and has paid all taxes, fees and other
governmental charges that are due and payable.  The provision for taxes on the
books of Borrower is reasonably adequate for all years not closed by applicable
statutes, and for its current fiscal year, and Borrower has no knowledge of any
material deficiency or additional material assessment in connection therewith
not provided for on its books.

 

5.5.         FINANCIAL STATEMENTS.

 

(a)           The pro forma balance sheet of Borrower (the “Pro Forma Balance
Sheet”) furnished to Agent on the Closing Date reflects the consummation of the
transactions contemplated by the Acquisition Agreement, the Subordinated Loan
Documentation and under this Agreement (collectively, the “Transactions”) and is
accurate, complete and correct and fairly reflects, in all material respects,
the financial condition of Borrower 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 as accurate, complete
and correct in all material respects by the President, Chief Financial Officer
or Chief Executive Officer of Borrower.  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 four quarters cash flow projections of Borrower and its
projected balance sheets as of the Closing Date (and income statements), and the
twelve month cash flow projections of Borrower and its projected balance sheet
after the Closing Date and delivered after the Closing Date (and income
statements), copies of the four quarter cash flow projections are annexed hereto
as Exhibit 5.5(b) (the “Projections”) were prepared by the President, Chief
Financial Officer or Chief Executive Officer of Borrower, are based on
underlying assumptions which provide a reasonable basis for the projections
contained therein and reflect Borrower’s 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 combined and consolidating balance sheets of Borrower and such
other Persons prepared by Price Waterhouse Coopers in the Quality of Earnings
Report dated December 31, 2008, 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 Borrower at
such date and the results of their operations for such period. 

 

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Since December 31, 2008 there has been no material change in the condition,
financial or otherwise, of Borrower as shown on the consolidated balance sheet
as of such date and no material change in the aggregate value of machinery,
equipment and Real Property owned by Borrower, except changes in the Ordinary
Course of Business

 

5.6.         ENTITY NAME AND LOCATIONS.

 

Borrower has not been known by any other corporate name in the past five years
and does not sell Inventory under any other name except as set forth on
Schedule 5.6, nor has Borrower been the surviving company of a merger or
consolidation or acquired all or substantially all of the assets of any Person
during the preceding five (5) years.

 

5.7.         O.S.H.A. AND ENVIRONMENTAL COMPLIANCE.

 

(a)           Except as set forth on Schedule 5.7, (i) Borrower has duly
complied within all material respects, 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, RCRA and all other Environmental Laws; and (ii) there have been no
outstanding citations, notices or orders of non-compliance issued to Borrower or
relating to its business, assets, property, leaseholds or Equipment under any
such laws, rules or regulations, except where such non-compliance is not
reasonably likely to have a Material Adverse Effect.

 

(b)           Borrower has been issued all required federal, state and local
licenses, certificates or permits relating to all applicable Environmental Laws,
except where such failure to issue would not have a Material Adverse Effect.

 

(c)           Except as set forth on Schedule 5.7 and except for matters not
reasonably expected to have a Material Adverse Effect, (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 Borrower; (ii) there are no underground
storage tanks or polychlorinated biphenyls on the Real Property or any premises
leased by Borrower; (iii) neither the Real Property nor any premises leased by
Borrower has  ever been used as a treatment, storage or disposal facility of
Hazardous Waste; and (iv) no Hazardous Substances are present on the Real
Property or any premises leased by Borrower, excepting such quantities as are
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 Borrower or of its tenants.

 

Sections 4.19 and 5.7 contain the sole representations or warranties of Borrower
pertaining to Hazardous Substances, Hazardous Discharges, Hazardous Wastes,
Releases, Environmental Laws, Environmental Complaints, Toxic Substances, or any
other environmental, health, or safety matter associated with Borrower.

 

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5.8.         SOLVENCY; NO LITIGATION, VIOLATION, INDEBTEDNESS OR DEFAULT.

 

(a)           After giving effect to the Transactions, Borrower will be solvent,
able to pay its debts as they mature, 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), Borrower has no
(i) pending or, to the best of its knowledge, threatened litigation,
arbitration, actions or proceedings which involve the possibility of having a
Material Adverse Effect, and (ii) liabilities or indebtedness for borrowed money
other than the Obligations (or as otherwise permitted under this Agreement).

 

(c)           Borrower is not 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 Borrower in violation of any order of any
court, Governmental Body or arbitration board or tribunal.

 

(d)           Neither Borrower nor any member of the Controlled Group maintains
or contributes to any Plan other than those listed on Schedule 5.8(d) hereto. 
(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 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 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
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 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 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 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) 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

 

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ERISA, for which the thirty (30) day notice period has not been waived; (xi)
neither 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 Borrower and any member
of the Controlled Group; (xii) neither 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 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, registered trademarks, trademark applications,
registered service marks, service mark applications, registered copyrights,
registered copyright applications, design patents and applications thereto,
tradenames and assumed names, filed with any Governmental Body and licenses
owned or utilized by Borrower and reasonably necessary for the operation of
Borrower are set forth on Schedule 5.9, to the knowledge of Borrower, after due
inquiry, 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; there is no known objection to
or pending challenge to the validity of any such patent, registered trademark,
registered copyright, design rights, registered tradename or license and
Borrower is not aware of any grounds for any challenge, except as set forth in
Schedule 5.9 hereto.  Each patent, patent application, patent license,
trademark, trademark application, trademark license, service mark, service mark
application, service mark license, design rights, copyright, copyright
application and copyright license owned or held by Borrower and all trade
secrets used by Borrower consist of original material or property developed by
Borrower or was lawfully acquired by 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.  Other than software
that is commercially available and not customized for Borrower, Borrower is
either in possession of all source and object codes related to each piece of
software or is the beneficiary of a source code escrow agreement, with respect
to all software used by Borrower that is material in the operation of its
business.  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, 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 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 the non-compliance or failure to
procure such licenses or permits could have a Material Adverse Effect.

 

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5.11.       DEFAULT OF INDEBTEDNESS.

 

Borrower is not in default in the payment of the principal of or interest on any
material Indebtedness or under any instrument or agreement under or subject to
which any material 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 that could, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Borrower.

 

5.12.       NO DEFAULT.

 

Borrower is not in default in the payment or performance of any of its material
contractual obligations and no Default has occurred that could, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
Borrower.

 

5.13.       NO BURDENSOME RESTRICTIONS.

 

Borrower is not party to any contract or agreement the performance of which
could have a Material Adverse Effect on Borrower (other than Material
Contracts).  Borrower has heretofore delivered to Agent true and complete copies
of all Material Contracts.  Borrower has not 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.

 

Borrower is not involved in any labor dispute; there are no strikes or walkouts
or union organization of Borrower’s employees, to the best of Borrower’s
knowledge after due diligence, 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.

 

5.15.       MARGIN REGULATIONS.

 

Borrower is not 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.

 

Borrower is not 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.

 

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5.17.       DISCLOSURE.

 

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

 

5.18.       DELIVERY OF ACQUISITION AGREEMENT AND SUBORDINATED LOAN
DOCUMENTATION.

 

Agent has received complete copies of the Acquisition Agreement and the
Subordinated Loan 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.

 

Borrower is not a party to, nor will it be a party to, any swap agreement
whereby 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 material mortgage, indenture, contract, agreement, judgment,
decree or order binding on 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, except to the extent such failure would not
result in a Material Adverse Effect.

 

5.21.       APPLICATION OF CERTAIN LAWS AND REGULATIONS.

 

Neither Borrower nor any of its Subsidiaries is a “holding company” or a
“subsidiary company” of a “holding company” or an “affiliate” of a “holding
company” or of a “subsidiary company” of a “holding company” within the meaning
of the Public Utility Holding Company Act of 1935, as amended.

 

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5.22.       BUSINESS AND PROPERTY OF BORROWER.

 

Borrower did not engage in any business prior to the Closing Date, except
organizational matters in connection with the Acquisition Agreement.

 

5.23.       [Reserved.]

 

5.24.       ANTI-TERRORISM LAWS.

 

(a)           General.  Neither Borrower nor any Affiliate of 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.  Neither Borrower nor any Affiliate of
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.

 

Neither Borrower or to the knowledge of 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.

 

Borrower has not engaged, nor does it intend to engage, in any business or
activity prohibited by the Trading with the Enemy Act.

 

5.26.       FEDERAL SECURITIES LAWS.

 

Neither Borrower nor any of its Subsidiaries (i) is required to file periodic
reports under the Exchange Act, (ii) has any securities registered under the
Exchange Act or (iii) has filed a registration statement that has not yet become
effective under the Securities Act.

 

5.27.       COMMERCIAL TORT CLAIMS.

 

Borrower does not have any known material commercial tort claims as of the
Closing Date.

 

5.28.       PARTNERSHIP AND LIMITED LIABILITY COMPANY INTERESTS.

 

Except as previously disclosed in writing to Agent, none of the Subsidiary Stock
consisting of partnership or limited liability company interests (i) is dealt in
or traded on a securities exchange or in a securities market, (ii) by its terms
expressly provides that it is a security governed by Article 8 of the Uniform
Commercial Code, (iii) is an investment company security, (iv) is held in a
securities account or (v) constitutes a “security” or a “financial asset” as
such terms are defined in Article 8 of the Uniform Commercial Code.

 

5.29.       MATERIAL CONTRACTS.

 

Set forth on Schedule 5.29, as updated from time to time, is a complete and
accurate list of all Material Contracts of Borrower and its Subsidiaries.  All
of the Material Contracts are in full force and effect, and no material defaults
currently exist thereunder.

 

ARTICLE VI

 

AFFIRMATIVE COVENANTS

 

Borrower shall, until payment in full of the Obligations and termination of this
Agreement:

 

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
Borrower’s Account for all such fees and expenses.

 

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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,
tradenames, trade secrets and trademarks and necessary for the operation of
Borrower and take all actions reasonably 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 Borrower which could reasonably be expected to have a Material
Adverse Effect.

 

6.4.         GOVERNMENT RECEIVABLES.

 

Take all steps necessary to protect Agent’s interest in the Collateral to the
extent included in any Borrowing Base Certificate 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 Borrower and the United States, any state or any department,
agency or instrumentality of any of them.

 

6.5.         FINANCIAL COVENANTS.

 

(a)           Fixed Charge Coverage Ratio.

 

Cause to be maintained a Fixed Charge Coverage Ratio of not less than 1.15 to
1.0 for (i) the one quarter period ending as of September 30, 2009; (ii) the two
quarter period ending as of December 31, 2009; (iii) the three quarter period
ending as of March 31, 2010; and (iv) the four quarter period ending as of
June 30, 2010 and for each fiscal quarter thereafter.

 

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(b)           Minimum EBITDA.

 

Cause to be maintained an EBITDA of at least (i) $50,000 as of July 31, 2009;
(ii) $92,000 as of August 31, 2009; (iii) $175,000 as of September 30, 2009;
(iv) $237,000 as of October 31, 2009; and (v) $171,000 as of November 30, 2009.

 

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 Agent’s Lien on the Collateral, and such other instruments as
Agent may reasonably 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 Properly Contested.

 

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 be complete and correct
in all material respects (subject, in the case of interim financial statements,
to normal year-end audit adjustments) and to be 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.         FEDERAL SECURITIES LAWS.

 

Promptly notify Agent in writing if Borrower or any of its Subsidiaries (i) is
required to file periodic reports under the Exchange Act, (ii) registers any
securities under the Exchange Act or (iii) files a registration statement under
the Securities Act.

 

6.10.       EXERCISE OF RIGHTS.

 

Enforce all of its rights under the Acquisition Agreement and the
Indemnification Agreement executed in connection therewith 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.

 

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6.11.       REAL PROPERTY.

 

If Borrower shall acquire at any time or times hereafter any fee simple interest
in real property with a value in excess of $250,000, then within ninety (90)
days of the acquisition thereof Borrower shall execute and deliver to Agent, as
additional security and Collateral for the Obligations, deeds of trust, security
deeds, mortgages or other collateral assignments reasonably satisfactory in form
and substance to Agent and its counsel (herein collectively referred to as “New
Mortgages”) covering such real property.  The New Mortgages shall be duly
recorded (at Borrower’s expense) in each office where such recording is required
to constitute a valid lien on the real property covered thereby.  In respect of
any New Mortgage, Borrower shall deliver to Agent, at Borrower’s expense,
mortgagee title insurance policies issued by a title insurance company
reasonably satisfactory to Agent, which policies shall be in form and substance
reasonably satisfactory to Agent and shall insure a valid lien in favor of Agent
on the property covered thereby, subject only to Permitted Encumbrances and
those other exceptions reasonably acceptable to Agent and its counsel.  Borrower
shall also deliver to Agent such other usual and customary documents, including,
without limitation, ALTA surveys of the real property described in the New
Mortgages, as Agent and its counsel may reasonably request relating to the real
property subject to the New Mortgages.

 

6.12.       Opening Balance Sheet.

 

Within ninety (90) days of the Closing Date Borrower shall deliver to Agent an
opening balance sheet for Borrower from J.H. Cohn LLP.

 

ARTICLE VII

 

NEGATIVE COVENANTS

 

Borrower shall not, until satisfaction in full of the Obligations and
termination of this Agreement:

 

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.

 

(b)           Sell, lease, transfer or otherwise dispose of any of its
properties or assets, except (i) dispositions of Inventory, Equipment and/or
other assets to the extent expressly permitted by Section 4.3 and (ii) 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.

 

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7.3.         GUARANTEES.

 

Become liable upon the obligations or liabilities of any Person by assumption,
endorsement or guaranty thereof or otherwise (other than to Lenders) except
(a) guarantees made in the Ordinary Course of Business up to an aggregate amount
of $100,000, and (b) the endorsement of checks in the Ordinary Course of
Business.

 

7.4          INVESTMENTS.

 

Purchase or acquire obligations or Equity Interests of, or any other interest
in, any Person, or make other investments 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 one hundred eighty (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 one hundred eighty (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, (e) investments in respect of Interest Rate Hedges, (f) extensions of
trade credit in the Ordinary Course of Business, (g) loan and advances to
officers, directors and employees made in compliance with Section 7.5,
(h) investments existing on the Closing Date and set forth on Schedule 7.4;
(i) investments in the form of promissory notes in connection with sales
permitted under Section 7.1; and (j) investments in connection with the
bankruptcy or reorganization of settlement of delinquent accounts and disputes
with customers and suppliers.

 

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 and (b) loans to its employees and officers not to exceed the
aggregate amount of $250,000 at any time outstanding.

 

7.6.         CAPITAL EXPENDITURES.

 

Contract for, purchase or make any expenditure or commitments for Capital
Expenditures in any fiscal year in an aggregate amount in excess of $400,000,
excluding Capital Expenditures financed by equity investments in Borrower.

 

7.7.         Distributions.

 

(i) Pay or make any distribution on any membership interests of Borrower other
than the purchase of capital stock or options from present or former employees,
officers, directors or consultants of any Borrower or their respective estates,
spouses or family members upon the

 

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death, disability or termination of employment of such employee, officer,
director or consultant (provided that no such purchase shall be made after the
occurrence and during the continuation of an Event of Default and the amount of
such purchase shall not exceed $250,000 in the aggregate) or (ii) apply any of
its funds, property or assets to the purchase, redemption or other retirement of
any membership interests, or of any options to purchase or acquire any such
membership interests of Borrower (other than the purchase of capital stock or
options from present or former employees, officers, directors or consultants of
Borrower or their respective estates, spouses or family members upon the death,
disability or termination of employment of such employee, officer, director or
consultant (provided that no such purchase shall be make after the occurrence
and during the continuation of an Event of Default and the aggregate amount of
such purchase shall not exceed $250,000 in the aggregate)) except that so long
as (a) a notice of termination with regard to this Agreement shall not be
outstanding, and (b) no Event of Default or Default shall have occurred, and
(c) the purpose for such purchase, redemption or distribution shall be as set
forth in writing to Agent at least ten (10) Business Days prior to such
purchase, redemption or distribution and such purchase, redemption or
distribution shall in fact be used for such purpose.  Borrower shall be
permitted to make distributions to its members in an aggregate amount equal to
the Increased Tax Burden of its members.  Payments to members shall be made so
as to be available when the tax is due, including in respect of estimated tax
payments.  In the event (x) the actual distribution to members made pursuant to
this Section 7.7 exceeds the actual income tax liability of any member due to
Borrower’s status as a limited liability company, or (y) if Borrower was a
subchapter C corporation, Borrower would be entitled to a refund of income taxes
previously paid as a result of a tax loss during a year in which Borrower is a
limited liability company, then the members shall repay Borrower the amount of
such excess or refund, as the case may be, no later than the date the annual tax
return must be filed by Borrower (without giving effect to any filing
extensions).  In the event such amounts are not repaid in a timely manner by any
member, then such Borrower shall not pay or make any distribution with respect
to, or purchase, redeem or retire, any membership interest of Borrower held or
controlled by, directly or indirectly, such member until such payment has been
made.

 

7.8.         INDEBTEDNESS.

 

Create, incur, assume or suffer to exist any Indebtedness (exclusive of trade
debt) except in respect of:

 

(a)           Indebtedness to Lenders under this Agreement and the Other
Documents;

 

(b)           Indebtedness incurred for Capital Expenditures permitted under
Section 7.6 hereof;

 

(c)           Permitted Purchase Money Indebtedness;

 

(d)           Indebtedness due under the Subordinated Loan Documentation and
Indebtedness assumed or incurred under or pursuant to the Acquisition Agreement
and any refinancings of such Indebtedness, provided that in connection with such
refinancing:  (i) the aggregate principal amount of such Indebtedness is not
increased, (ii) the scheduled maturity date of such

 

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Indebtedness is not shortened, (iii) the covenants or defaults are not
materially more restrictive or more onerous than analogous provisions in the
Subordinated Loan Documentation as in effect on the date hereof, and (iv) an
intercreditor agreement in form and substance reasonably satisfactory to Agent
and the Required Lenders shall have been executed and delivered to Agent prior
to the consummation of such refinancing (it being agreed that an intercreditor
agreement containing terms substantially similar to the terms set forth in the
Subordination Agreements will be satisfactory);

 

(e)           Indebtedness described on Schedule 7.8 and any refinancings of
such Indebtedness, provided that the aggregate principal amount of such
Indebtedness is not increased, the scheduled maturity dates of such Indebtedness
are not shortened and such refinancing is on terms and conditions no more
restrictive than the terms and conditions of the Indebtedness being refinanced;

 

(f)            Indebtedness under any Interest Rate Hedge;

 

(g)           Indebtedness unsecured in an amount not to exceed $200,000 in the
aggregate;

 

(h)           Indebtedness under promissory notes issued by Borrower to
(i) Richard Horowitz in the amount of any draw under the NY Commercial Bank A
Letter of Credit or the NY Commercial Bank B Letter of Credit or (ii) Carousel
Capital Partners II, L.P. in the amount of any Shortfall Payment required by the
Carousel Guaranty; provided, however, that any such promissory note (A) must be
in the form attached hereto as Exhibit 7.8(h)(i) and be fully subordinate to the
Obligations pursuant to a subordination agreement in the form attached hereto as
Exhibit 7.8(h)(ii), (B) may provide for quarterly payments of interest provided
no Default or Event of Default then exists at a rate not to exceed six and
one-half of one percent (6.50%) per annum and (C) may provide for principal
payments after repayment in full of the Term Note provided no Default or Event
of Default then exists and provided that after making any such principal payment
Undrawn Availability is at least $400,000 for the day such payment is made and
for the next four Business Days; and

 

(i)            Indebtedness consisting of taxes either not yet due or being
property contested pursuant to the Agreement.

 

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.

 

7.10.       TRANSACTIONS WITH AFFILIATES.

 

Except for transactions under the Subordinated Loan Documentation, the
Section 7.8(h) notes, products purchased from Borrower or its Affiliates listed
on the schedule provided to Agent and the Transition Services Agreements and
Supply Agreements furnished to Agent,

 

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directly or indirectly, purchase, acquire or lease any property from, or sell,
transfer or lease any property to, make any payment to, or enter into any
transaction or arrangement with, or otherwise 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.       LEASES.

 

Enter as lessee into any lease arrangement for real or personal property (unless
capitalized and permitted under Section 7.6 hereof) if after giving effect
thereto, aggregate annual rental payments for all leased real and personal
property would exceed $2,000,000 in any one fiscal year in the aggregate for
Borrower.

 

7.12.       SUBSIDIARIES.

 

(a)           Form any Subsidiary.

 

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

 

7.13.       FISCAL YEAR AND ACCOUNTING CHANGES.

 

Change its fiscal year from its current practices in accordance with its
financial statements or make any material 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 Borrower’s business as conducted on the date of this Agreement.

 

7.15.       AMENDMENT OF ORGANIZATIONAL DOCUMENTS.

 

Amend, modify or waive any material term or material provision of its
Certificate of Formation or Operating Agreement or other organizational
documents or adopt any resolution which would have the effect of diminishing the
rights of Agent or the Lenders under this Agreement or any Other Documents.

 

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), (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

 

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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 Borrower or any member of the Controlled Group or the imposition of
a lien on the property of 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.

 

At any time, prepay, repurchase, redeem, retire or otherwise acquire, or make
any payment on account of any principal of, interest on or premium payable in
connection with the prepayment or redemption of any Indebtedness for borrowed
money (other than Indebtedness owed to the Lender under this Agreement or the
Other Documents), except (i) any such prepayment, repurchase, redemption,
retirement or acquisition expressly permitted in the Subordination Agreements,
(ii) in connection with any refinancing of Indebtedness in compliance with
Section 7.8(d) or Section 7.8(e) or (iii) in accordance with Indebtedness
permitted under Section 7.8(b), (c), (e), (f), (g), (h), (i) and (j).

 

7.18.       ANTI-TERRORISM LAWS.

 

Borrower shall not, until satisfaction in full of the Obligations and
termination of this Agreement, nor shall it permit any Affiliate or agent acting
or benefitting in any capacity in connection with the Advances or other
transactions hereunder:

 

(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.

 

(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.  Borrower shall deliver to Lenders any
certification or other evidence requested from time to time by any Lender in its
sole discretion, confirming Borrower’s compliance with this Section.

 

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7.19.       TRADING WITH THE ENEMY ACT.

 

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

 

7.20.       SUBORDINATED 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, interest
on or premium payable in connection with the repayment or redemption of the
Subordinated Notes or the Section 7.8(h) notes, except as expressly permitted in
the Subordination Agreements or the Section 7.8(h) notes.

 

7.21.       OTHER AGREEMENTS.

 

Enter into any material amendment, waiver or modification of (a) the Acquisition
Agreement, (b) the Subordinated Loan Documentation, other than as permitted by
the Subordination Agreements, or (c) any Material Contract that is materially
adverse to Agent and Lender.

 

7.22        ADDITIONAL NEGATIVE PLEDGES.

 

Create or otherwise cause or suffer to exist or become effective, directly or
indirectly, (i) any prohibition or restriction (including any agreement to
provide equal and ratable security to any other Person in the event a Lien is
granted to or for the benefit of the Agent and the Lenders) on the creation or
existence of any Lien upon the assets of Borrower, other than in the
documentation evidencing Permitted Encumbrances or (ii) any contractual
obligation which may restrict or inhibit the Agent’s rights or ability to sell
or otherwise dispose of the Collateral or any part thereof after the occurrence
of an Event of Default.

 

7.23.       ADDITIONAL BANK ACCOUNTS.

 

Open, maintain or otherwise have any checking, savings or other accounts at any
bank or other financial institution, or any other account where money is or may
be deposited or maintained with any Person, other than (a) the accounts set
forth on Schedule 4.15(h), each of which shall be subject to a blocked account
arrangement with the depository institution, except to the extent otherwise
determined by Agent (b) deposit accounts established after the Closing Date that
are subject to a blocked account arrangement with the depository institution in
form and substance satisfactory to Agent, (c) other deposit accounts established
after the Closing Date solely as payroll and other zero balance accounts and
(d) other deposit accounts established after the Closing Date, so long as at any
time the balance in any such account does not exceed $10,000 and the aggregate
balance in all such accounts does not exceed $100,000.

 

7.24.      REMUNERATION.

 

Other than amounts paid under the Consulting Agreements, Borrower will not
permit the aggregate amount of salary and other direct and indirect remuneration
(including, but not limited

 

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to, employee benefits and professional, consulting and management fees and
expenses and bonuses) paid or accrued by Borrower during any fiscal year to or
for the benefit of (a) Countrywide Hardware, Inc. and Visador Holding
Corporation for Management Fees to exceed $250,000 each in any fiscal year with
respect to Countrywide Hardware, Inc. and $200,000 in fiscal year 2009 and
$300,000 in fiscal year 2010 with respect to Visador Holding Corporation
(beginning with the 2009 fiscal year; provided, however, any accrued and unpaid
Management Fees from any prior year where such Management Fee was not paid may
be paid at any time) or (b) any other officer, director or member of management
of any Borrower to exceed amounts which are reasonable and customary for
employees with similar responsibility and experience of other companies in the
same industry as the Borrower; provided, however, that nothing in this
Section 7.26 shall prohibit Borrower from (A) paying P&F Industries’
out-of-pocket expenses, fees and closing costs on the Closing Date in connection
with the transactions contemplated hereby and (B) paying indemnification claims
made by an officer or director or shareholder of Borrower to the extent of any
contractual obligation to do so currently in effect; provided, however, Borrower
agrees to promptly notify Agent of the payment of any such indemnification
claims.  Notwithstanding the foregoing, no Management Fees shall be paid by
Borrower for a period of twelve (12) months following the Closing Date and in no
event shall be paid if after making any such payment (i) Undrawn Availability is
less than $500,000 if the reserve set forth in Section 2.1(a)(iv) is not in
effect or $350,000 if the reserve is in effect on the day such payment is made
and for the next ten (10) Business Days or (ii) any of the other financial
covenants set forth herein would be violated.

 

ARTICLE VIII

 

CONDITIONS PRECEDENT

 

8.1.         CONDITIONS TO INITIAL ADVANCES.

 

The agreement of Lenders to make the initial Advances requested to be made on
the Closing Date is subject to the satisfaction, or waiver by Agent, immediately
prior to or concurrently with the making of such Advances, of the following
conditions precedent:

 

(a)           Loan Documents.

 

Agent shall have received the Agreement, the Notes and each Other Documents duly
executed and delivered by an authorized officer of Borrower;

 

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(b)           Filings, Registrations and Recordings.

 

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, if required, 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;

 

(c)           Company Proceedings of Borrower.

 

Agent shall have received a copy of the resolutions in form and substance
reasonably satisfactory to Agent, of the Board of Directors, Board of Managers
or other similar managing body of Borrower authorizing (i) the execution,
delivery and performance of this Agreement and each of the Other Documents and
(ii) the granting by Borrower of the security interests in and liens upon the
Collateral in each case certified by the Secretary or an Assistant Secretary of
Borrower 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;

 

(d)           Incumbency Certificates of Borrower.

 

Agent shall have received a certificate of the Secretary or an Assistant
Secretary of Borrower, dated the Closing Date, as to the incumbency and
signature of the officers of Borrower executing this Agreement, the Other
Documents, any certificate or other documents to be delivered by it pursuant
hereto, together with evidence of the incumbency of such Secretary or Assistant
Secretary;

 

(e)           Certificates.

 

Agent shall have received a copy of the Articles or Certificate of Formation of
Borrower, and all amendments thereto, certified by the Secretary of State or
other appropriate official of its jurisdiction of Formation together with copies
of the Operating Agreement of Borrower and all agreements of Borrower’s members
certified as accurate and complete by the Secretary of Borrower;

 

(f)            Good Standing Certificates.

 

Agent shall have received good standing certificates for Borrower dated not more
than thirty (30) days prior to the Closing Date, issued by the Secretary of
State or other appropriate official of Borrower’s jurisdiction of organization
and each jurisdiction where the conduct of Borrower’s business activities or the
ownership of its properties necessitates qualification;

 

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(g)           Legal Opinion.

 

Agent shall have received the executed legal opinion of counsel to Borrower in
form and substance reasonably satisfactory to Agent which shall cover such
matters incident to the transactions contemplated by this Agreement, the Note,
the Other Documents, the Subordination Agreements and related agreements as
Agent may reasonably require and Borrower hereby authorizes and directs such
counsel to deliver such opinions to Agent and Lenders;

 

(h)           No Litigation.

 

(i) No litigation, investigation or proceeding before or by any arbitrator or
Governmental Body shall be continuing or threatened against Borrower or against
the officers or directors of Borrower (A) in connection with this Agreement, the
Other Documents, the Subordinated Loan Documents 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 Borrower or the conduct of its business or
inconsistent with the due consummation of the Transactions shall have been
issued by any Governmental Body;

 

(i)            Financial Condition Certificates.

 

Agent shall have received an executed Financial Condition Certificate in the
form of Exhibit 8.1(i);

 

(j)            Collateral Examination.

 

Agent shall have completed Collateral examinations and received appraisals, the
results of which shall be reasonably 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, including, without
limitation, satisfactory review of the detail supporting the non-recurring
adjustments for reasonableness;

 

(k)           Fee.

 

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;

 

(l)            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;

 

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(m)          Acquisition and Subordinated Loan Documents.

 

Agent shall have received final executed copies of the Acquisition Agreement and
the Subordinated Loan Documentation, and all related agreements, documents and
instruments, together with all exhibits, schedules and amendments thereto, as in
effect on the Closing Date;

 

(n)           Subordination Agreements.

 

Agent shall have entered into a Subordination Agreement with Borrower and each
Subordinated Lender which shall set forth the basis upon which the “Subordinated
Noteholder” may receive, and Borrower may make, payments under the applicable
Subordinated Note, which basis shall be reasonably satisfactory in form and
reasonably satisfactory in substance to Agent;

 

(o)           Insurance.

 

Agent shall have received in form and substance reasonably satisfactory to
Agent, certificates of insurance of Borrower’s casualty insurance policies,
together with loss payable endorsements on Agent’s standard form of lender loss
payee endorsement naming Agent as loss payee, and certificates of insurance of
Borrower’s liability insurance policies, together with endorsements naming Agent
as a co-insured;

 

(p)           Disbursement Agreement; Payment Instructions.

 

Agent shall have received written instructions from Borrower directing the
application of proceeds of the initial Advances made pursuant to this Agreement;

 

(q)           Blocked Accounts.

 

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

 

(r)           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 reasonably necessary;

 

(s)           No Adverse Material Change.

 

(i) since December 31, 2009 (the date of the Quality of Earnings Report prepared
by Price Waterhouse Coopers on Borrower’s behalf) 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;

 

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(t)            Leasehold Agreements.

 

Agent shall have received landlord, mortgagee or warehouseman, agreements
reasonably satisfactory to Agent with respect to all premises leased by Borrower
at which Inventory and books and records are located;

 

(u)           Contract Review.

 

Agent shall have reviewed copies of all Material Contracts of Borrower requested
by Agent including leases, union contracts, labor contracts, vendor supply
contracts, license agreements, purchase and sale agreements and distributorship
agreements and such contracts and agreements shall be reasonably satisfactory in
all respects to Agent;

 

(v)            Closing Certificate.

 

Agent shall have received a closing certificate signed by the President, Chief
Financial Officer or Chief Executive Officer of Borrower dated as of the date
hereof, stating, among other matters, 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) Borrower is on such date in compliance with
all the terms and provisions set forth in this Agreement and the Other Documents
and (iii) on such date no Default or Event of Default has occurred or is
continuing;

 

(w)           Borrowing Base.

 

Agent shall have received evidence from Borrower 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;

 

(x)           Undrawn Availability.

 

After giving effect to the initial Advances hereunder, Borrower shall have
Undrawn Availability of at least $1,200,000;

 

(y)           Compliance with Laws.

 

Agent shall be reasonably satisfied that Borrower 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;

 

(z)           Stock Building Agreement.

 

Agent shall have received and approved the form Stock Building Supply “Extended
Terms Agreement” and the associated accounts receivable;

 

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(aa)         Quality of Earnings Report.

 

Agent shall have received a Quality of Earning report satisfactory to Agent
prepared by a firm acceptable to Agent;

 

(bb)         Financial Statements.

 

Agent shall have received year-to-date financial statements for Seller and
Woodmark International, L.P. (without inclusion of the kitchen and bath
business) satisfactory to Agent;

 

(cc)         Management Meeting.

 

Agent shall have met with the management team of Borrower and certain officers
of P&F;

 

(dd)         NY Commercial Bank Letters of Credit and Carousel Guaranty.

 

The NY Commercial Bank Letters of Credit and the Carousel Guaranty; and

 

(ee)         Other.

 

All corporate and other proceedings, and all documents, instruments and other
legal matters in connection with the Transactions shall be reasonably
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 Borrower 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 (except to the extent the same relate to
an earlier date);

 

(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 and, in the case of the initial Advance, after giving effect to the
consummation of the transactions

 

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contemplated by the Acquisition Agreement; 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 Borrower hereunder shall constitute a
representation and warranty by Borrower as of the date of such Advance that the
conditions contained in this subsection shall have been satisfied.

 

ARTICLE IX

 

INFORMATION AS TO BORROWER

 

Borrower shall, until satisfaction in full of the Obligations and the
termination of this Agreement:

 

9.1.         DISCLOSURE OF MATERIAL MATTERS.

 

Promptly upon learning thereof, report to Agent all matters materially affecting
the value, enforceability or collectability of any portion of the Collateral,
including Borrower’s reclamation or repossession of, or the return to Borrower
of, a material amount of goods or claims or disputes asserted by any Customer or
other obligor.

 

9.2          SCHEDULES.

 

Deliver to Agent on or before the fifteenth (15th) day of each month as and for
the prior month (a) accounts receivable ageings inclusive of reconciliations to
the general ledger, (b) accounts payable schedules inclusive of reconciliations
to the general ledger, (c) Inventory reports and (d) a Borrowing Base
Certificate in form and substance reasonably 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).  In
addition, Borrower will deliver to Agent (i) a weekly Borrowing Base Certificate
in form and substance satisfactory to Agent and (ii) at such intervals as Agent
may require:  (a) confirmatory assignment schedules, (b) copies of Customer’s
invoices, (c) evidence of shipment or delivery, and (d) such further schedules,
documents and/or information regarding the Collateral as Agent may reasonably
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 and do whatever it may deem reasonably necessary to
protect its interests hereunder.  The items to be provided under this
Section are to be in form reasonably satisfactory to Agent

 

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and executed by Borrower and delivered to Agent from time to time solely for
Agent’s convenience in maintaining records of the Collateral, and 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.

 

9.3.         ENVIRONMENTAL REPORTS.

 

Furnish Agent, concurrently with the delivery of the financial statements
referred to in Sections 9.7 and 9.8, a Compliance Certificate signed by the
President, Chief Financial Officer, Chief Executive Officer or Controller of
Borrower stating, to the best of his knowledge, that Borrower is in compliance
in all material respects with all federal, state and local Environmental Laws. 
To the extent Borrower is not in compliance with the foregoing laws, the
Compliance Certificate shall set forth with specificity all areas of
non-compliance and the proposed action Borrower 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 Borrower, whether or not the claim is
covered by insurance, and of any litigations, suit or administrative proceeding,
which in any such case affects a material portion of 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 Subordinated Loan Documentation;
(c) any event which with the giving of notice or lapse of time, or both, would
constitute an event of default under the Subordinated Loan Documentation;
(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 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 Borrower to a tax imposed by Section 4971 of the
Code; (f) each and every default by Borrower which results in the acceleration
of the maturity of any material 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 Borrower which could reasonably be expected to have a
Material Adverse Effect; in each case describing the nature thereof and the
action Borrower 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.

 

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9.7.         ANNUAL FINANCIAL STATEMENTS.

 

Furnish Agent within ninety (90) days after the end of each fiscal year of
Borrower, financial statements of Borrower including, but not limited to,
statements of income and stockholders’ equity and cash flow from the beginning
of the current fiscal year to the end of such fiscal year and the balance sheet
as at the end of such fiscal year, all prepared in accordance with GAAP applied
on a basis consistent with prior practices, and in reasonable detail and
accompanied by a report and opinion (which report and opinion shall be prepared
in accordance with generally accepted auditing standards and shall not be
subject to any “going concern” or like assumption, qualification or exception as
to scope of the audit) of J.H. Cohn LLP or another an independent certified
public accounting firm selected by Borrower and reasonably satisfactory to Agent
(the “Accountants”).  Beginning with fiscal year 2009 and each fiscal year
thereafter, the report of the Accountants shall be accompanied by a statement of
the Accountants certifying that no information came to their attention which to
their knowledge constituted an Event of Default or a Default under this
Agreement.  In addition, the reports shall be accompanied by a Compliance
Certificate.

 

9.8          QUARTERLY FINANCIAL STATEMENTS.

 

Furnish Agent within forty-five (45) days after the end of each fiscal quarter,
an unaudited balance sheet of Borrower and unaudited statements of income and
stockholders’ equity and cash flow of Borrower 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 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
Borrower’s business.  The reports shall be accompanied by a Compliance
Certificate.

 

9.9.         MONTHLY FINANCIAL STATEMENTS.

 

Furnish Agent within thirty (30) days after the end of each month, an unaudited
balance sheet of Borrower and unaudited statements of income and stockholders’
equity and cash flow of Borrower reflecting results of operations from the
beginning of the fiscal year to the end of such 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 in
accordance with GAAP, and accompanied by management and analysis discussion. 
The reports for the last month of each quarter shall be accompanied by a
Compliance Certificate regarding the quarter then ended.

 

9.10.       OTHER REPORTS.

 

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 Borrower shall send to its members and (ii) copies of all notices,
reports, financial statements and other materials sent pursuant to the
Subordinated Loan Documentation.

 

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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 Note have been complied with by
Borrower 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 Borrower’s opening of any new office or place of business or
Borrower’s closing of any existing office or place of business, and (c) promptly
upon Borrower’s learning thereof, notice of any labor dispute to which Borrower
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 Borrower is
a party or by which Borrower is bound.

 

9.12.       PROJECTED OPERATING BUDGET.

 

Furnish Agent, no later the first day of Borrower’s fiscal years commencing with
fiscal year 2010, a month by month projected operating budget and cash flow of
Borrower 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 include a summary of the assumptions upon which such projections are
based.

 

9.13.       VARIANCES FROM OPERATING BUDGET.

 

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 Borrower 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 Borrower by any Governmental Body or any other Person
that is material to the operation of Borrower’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 Borrower with any
Governmental Body or Person, if such reports indicate any material change in the
business, operations, affairs or condition of Borrower, 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
Borrower.

 

9.15.       ERISA NOTICES AND REQUESTS.

 

Furnish Agent with immediate written notice in the event that (i) 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 Borrower 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) Borrower or any

 

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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 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
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 Borrower
or any member of the Controlled Group was not previously contributing shall
occur, (v) 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) 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) 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) 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; (ix) 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.

 

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.

 

ARTICLE 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 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 when due any other liabilities or make any other payment, fee or
charge provided for herein when due or in any Other Document;

 

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10.2.       BREACH OF REPRESENTATION.

 

Any representation or warranty made or deemed made by Borrower or any Guarantor
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 Borrower to (i) furnish financial information when due or when
requested, or (ii) permit the inspection of its books or records;

 

10.4.       JUDICIAL ACTIONS.

 

Issuance of a notice of Lien, levy, assessment, injunction or attachment against
any material portion of Borrower’s Inventory or Receivables or against a
material portion of Borrower’s other property which is not stayed or lifted or
bonded within forty-five (45) days;

 

10.5.       NONCOMPLIANCE.

 

Except as otherwise provided for in Section 10.1 or Section 10.3:

 

(a)           failure or neglect of Borrower to perform, keep or observe any
term, provision, condition, or covenant, contained in Sections 4.10, 6.2(b) or
6.5 or in Article 7 or 9 (other than Section 9.15 which is subject to the terms
of (b) below) hereof, or

 

(b)           failure or neglect of Borrower to perform, keep or observe any
term, provision, condition or covenant contained herein or any Other Document
that, if such term, provision, condition or covenant is capable of cure, is not
cured within thirty (30) days from the earlier to occur of (A) receipt by
Borrower of written notice thereof from Agent or any Lender and (B) the date
upon which Borrower obtains knowledge thereof, or within such reasonably longer
period as may be required to cure same (so long as cure is commenced within the
thirty-day period and thereafter is prosecuted to completion with reasonable
diligence);

 

10.6.       JUDGMENTS.

 

Any judgment or judgments are rendered against Borrower or any Guarantor for an
aggregate amount in excess of $250,000 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 or a Lien which is bonded);

 

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10.7.       BANKRUPTCY.

 

Borrower 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 sixty (60) 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.

 

Borrower or any Subsidiary of Borrower 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.       AFFILIATE BANKRUPTCY.

 

Any Subsidiary of Borrower, 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 Borrower’s results of operations or condition (financial or
otherwise) which in Agent’s opinion has a Material Adverse Effect;

 

10.11.     LIEN PRIORITY.

 

Any Lien created hereunder or under any Other Document or provided for hereby
including, without limitation, the Permitted Encumbrances, or thereby or under
any related agreement for any reason ceases to be or is not a valid and
perfected Lien having a first priority interest or Borrower or any other Person
acting on its behalf shall so claim except as the result of Agent’s or any
Lender’s gross negligence;

 

10.12.     SUBORDINATED LOAN DEFAULT.

 

An event of default has occurred under the Subordinated Loan Documentation or
either of the Subordination Agreements, which default shall not have been cured
or waived within any

 

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applicable grace period and for which the applicable Subordinated Lender is
permitted to take action under the applicable Subordination Agreement;

 

10.13.     CROSS DEFAULT.

 

A default of the obligations of Borrower under any other material agreement
evidencing Indebtedness in excess of $250,000 to which it is a party shall occur
which adversely affects its condition or affairs (financial or otherwise) which
default is not cured within any applicable grace period;

 

10.14.     CHANGE OF OWNERSHIP.

 

Any Change of Ownership or Change of Control shall occur;

 

10.15.     INVALIDITY.

 

Any material provision of this Agreement or any Other Document shall, for any
reason, cease to be valid and binding on Borrower, or Borrower or any Person
acting on their behalf shall so claim;

 

10.16.     LICENSES.

 

(i) Any Governmental Body shall (A) revoke, terminate, suspend or adversely
modify any license, permit, patent trademark or tradename of Borrower, the
continuation of which is material to the continuation of Borrower’s  business,
or (B) commence proceedings to suspend, revoke, terminate or adversely modify
any such license, permit, trademark, tradename 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 license, permit, trademark, tradename or
patent necessary for the continuation of Borrower’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,
tradename or patent; (ii) any agreement which is necessary or material to the
operation of Borrower’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;

 

10.17.     SEIZURES.

 

Any portion of the Collateral shall be seized or taken by a Governmental Body,
or Borrower material or the title and rights of Borrower, or any Original Owner
which is the owner of any material portion of the Collateral 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 impairment or loss
of the security provided by this Agreement or the Other Documents;

 

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10.18.     OPERATIONS.

 

The operations of any of Borrower’s manufacturing facility are interrupted at
any time for more than ten (10) consecutive days, unless Borrower 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 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 Borrower shall be receiving the proceeds of business
interruption insurance for a period of ninety (90) consecutive days; or

 

10.19.     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, 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.

 

ARTICLE 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 and (iii) a filing of a petition against
Borrower in any involuntary case under any state or federal bankruptcy laws,
which remains undismissed for a period of sixty (60) days all Obligations shall
be immediately due and payable and the obligation of Lenders to make Advances
hereunder shall be terminated other than as may be required by an appropriate
order of the bankruptcy court having jurisdiction over Borrower.  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 Borrower’s premises or other premises without legal process and
without incurring liability to Borrower therefor, and Agent may thereupon, or at
any time thereafter, in its discretion without notice or demand, take

 

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the Collateral and remove the same to such place as Agent may deem advisable and
Agent may require Borrower 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 Borrower reasonable notification of such
sale or sales, it being agreed that in all events written notice mailed to
Borrower 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
Borrower.  In connection with the exercise of the foregoing remedies, including
the sale of Inventory, Agent is granted a perpetual nonrevocable, royalty free,
nonexclusive license and Agent is granted permission to use all of Borrower’s
(a) trademarks, trade styles, trade names, patents, patent applications,
copyrights, service marks, licenses, franchises and other proprietary rights
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, Borrower 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, 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 the 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

 

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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.  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 Section 11.1(b) shall be construed to grant
any rights to 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.

 

Subject to the rights of the Lenders under this Agreement and the Other
Documents, 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.

 

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 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 the 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;

 

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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 in connection with
enforcing its rights under this Agreement and the Other Documents or otherwise
with respect to the Obligations owing to such Lender;

 

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), to breakage, termination or other payments, and any interest accrued
thereon, due under any Lender-Provided Interest Rate Hedge, to the extent such
Lender-Provided Interest Rate Hedge is permitted by Section 7.8, and to amounts
due under any Cash Management Products;

 

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 Borrower.

 

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 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.

 

ARTICLE XII

 

WAIVERS AND JUDICIAL PROCEEDINGS

 

12.1.       WAIVER OF NOTICE.

 

Borrower hereby waives notice of non-payment of any of the Receivables, demand,
presentment, 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

 

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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.  No Out-of-Formula Loan or
protective advance made during the existence of a Default or an Event of Default
shall operate as a waiver of any such 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.

 

ARTICLE 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 Borrower, Agent and each
Lender, shall become effective on the date hereof and shall continue in full
force and effect until June 8, 2012 (the “Term”) unless sooner terminated as
herein provided.  Borrower may terminate this Agreement at any time upon fifteen
(15) days’ prior written notice upon payment in full of the Obligations.  In the
event the Obligations are prepaid in full prior to the last day of the Term (the
date of such prepayment hereinafter referred to as the “Early Termination
Date”), Borrowers shall pay to Agent for the benefit of Lenders an early
termination fee in an amount equal to (x) two percent (2.0%) of the Maximum Loan
Amount if the Early Termination Date occurs on or after the Closing Date to and
including the date immediately preceding the first anniversary of the Closing

 

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Date, (y) one percent (1.0%) of the Maximum Loan Amount if the Early Termination
Date occurs on or after the first anniversary of the Closing Date to and
including the date immediately preceding the second anniversary of the Closing
Date, and (z) one-half of one percent (0.50%) of the Maximum Loan Amount if the
Early Termination Date occurs on or after the second anniversary of the Closing
Date to and including the date immediately preceding the third anniversary of
the Closing Date.

 

13.2.       TERMINATION.

 

The termination of the Agreement shall not affect 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 (other than contingent indemnity claims not yet asserted
or threatened) 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 Borrower’s Account may from time to time be temporarily in a zero or
credit position, until all of the Obligations (other than contingent indemnity
claims not yet asserted or threatened) have been indefeasibly paid and performed
in full after the termination of this Agreement or 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 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 (other than contingent indemnity claims not yet
asserted or threatened) 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 (other than contingent indemnity claims not yet asserted or
threatened) are indefeasibly paid and performed in full.

 

ARTICLE 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 Sections 3.3(a) and 3.4),
charges and collections (without giving effect to any collection days) received
pursuant to this Agreement, for the ratable

 

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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 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.  In furtherance and not in limitation of the foregoing, each of
the Lenders hereby acknowledges that it has received and reviewed copies of the
Subordination Agreements and hereby authorizes Agent to enter into the
Subordination Agreements on its behalf.

 

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 Borrower or any officer thereof contained in this Agreement,
or in any of the Other Documents or in any certificate, report, statement or
other 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 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 Borrower.  The duties of Agent as respects the Advances to Borrower
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 Borrower 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 Borrower.  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 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

 

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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 Borrower 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 Note, the Other Documents or the
financial condition of Borrower, 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
Borrower and upon such resignation, the Required Lenders will promptly designate
a successor Agent reasonably satisfactory to Borrower.

 

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.

 

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 Borrower 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

 

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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 Borrower, 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; 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 Borrower as if it were not performing the
duties specified herein, and may accept fees and other consideration from
Borrower for services in connection with this Agreement or otherwise without
having to account for the same to Lenders.

 

14.9.       DELIVERY OF DOCUMENTS.

 

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

 

14.10.     BORROWER’S UNDERTAKING TO AGENT.

 

Without prejudice to its obligations to Lenders under the other provisions of
this Agreement, 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.

 

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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 Borrower, its Affiliates or
its agent, acting or benefitting in any capacity in connection with Advances of
other transactions hereunder, 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 Borrower or any deposit accounts of 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.

 

ARTICLE XV

 

MISCELLANEOUS

 

15.1.       GOVERNING LAW.

 

This Agreement shall be governed by and construed in accordance with the laws of
the State of North Carolina applied to contracts to be performed wholly within
the State of North Carolina.  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 the State of North Carolina, United States of America, and, by
execution and delivery of this Agreement, 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.  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 Borrower at its address set forth in Section 15.6 and
service so made shall

 

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be deemed completed five (5) days after the same shall have been so deposited in
the mails of the United States of America.  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 Borrower in the courts of
any other jurisdiction.  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.  Borrower
waives the right to remove any judicial proceeding brought against Borrower in
any state court to any federal court.  Any judicial proceeding by 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 County of Mecklenburg, State of North Carolina.

 

15.2.       ENTIRE UNDERSTANDING.

 

(a)           This Agreement and the documents executed concurrently herewith
contain the entire understanding between 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 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.  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.

 

(b)           The Required Lenders, Agent and Borrower may, subject to the
provisions of this Section 15.2 (b), from time to time enter into written
supplemental agreements to this Agreement or the Other Documents executed by
Borrower, for the purpose of adding or deleting any provisions or otherwise
changing, varying or waiving in any manner the rights of Lenders, Agent or
Borrower thereunder or the conditions, provisions or terms thereof of 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:

 

(i)            increase the Commitment Percentage or the maximum dollar
commitment of any Lender.

 

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

 

(iii)          alter the definition of the Term Required Lenders or alter, amend
or modify this Section 15.2(b).

 

(iv)          release any Collateral during any calendar year (other than in
accordance with the provisions of this Agreement.

 

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(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 five percent (105%) 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 Borrower, Lenders and Agent and all future holders of the
Obligations.  In the case of any waiver, Borrower, 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.

 

In the event that Agent requests the consent of a Lender pursuant to this
Section 15.2 and such Lender shall not respond or reply to Agent in writing
within five (5) days of delivery of such request, such Lender shall be deemed to
have consented to the matter that was the subject of the request.  In the event
that Agent requests the consent of a Lender pursuant to this Section 15.2 and
such consent is denied, then PNC may, at its option, require such 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
the then outstanding principal amount thereof plus accrued and unpaid interest
and fees due such Lender, which interest and fees shall be paid when collected
from Borrower.  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 Lender’s denial, and such
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.

 

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
at its discretion and without the consent of the Required Lenders, voluntarily
permit the outstanding Revolving Advances at any time to exceed  the Formula
Amount by up to ten percent (10%) of the Formula Amount for up to thirty (30)
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,

 

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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 Borrower 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 15.2, the Agent is hereby authorized by Borrower
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
Borrower 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 Borrower 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.

 

15.3.       SUCCESSORS AND ASSIGNS; PARTICIPATIONS; NEW LENDERS.

 

(a)           This Agreement shall be binding upon and inure to the benefit of
Borrower, Agent, each Lender, all future holders of the Obligations and their
respective successors and assigns, except that Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of Agent and each Lender.

 

(b)           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 (without the consent of Agent, Borrower
or any other Lender) to other financial institutions (each such transferee or
purchaser of a participating interest, a “Participant”; provided, that any such
sale of participating interests must be for a constant and non-varying interest
in all Advances.  Each Participant may exercise all rights of payment (including
rights of set-off) with respect to the portion of such Advances held by it or
other Obligations payable hereunder as fully as if such Participant were the
direct holder thereof provided that Borrower 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
Borrower be required to pay any

 

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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.  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.  No Lenders shall transfer, grant, assign or sell any participation
under which the participant shall have rights to approve any amendment or waiver
of this Agreement except to the extent such amendment or waiver would (A) extend
the final maturity date or the date for the payments of any installment of fees
or principal or interest of any Advances or Letter of Credit reimbursement
obligations in which such participant is participating, (B) reduce the amount of
any installment of principal of the Advances or Letter of Credit reimbursement
obligations in which such participant is participating, (C) except as otherwise
expressly provided in this Agreement, reduce the interest rate applicable to the
Advances or Letter of Credit reimbursement obligations in which such participant
is participating, or (D) except as otherwise expressly provided in this
Agreement, reduce any fees payable hereunder.

 

(c)           Any Lender with the consent of Agent (and, so long as no Event of
Default has occurred and is continuing, the Borrower, such consent not to be
unreasonably withheld) which shall not be unreasonably withheld or delayed must
sell, assign or transfer all or any part of its rights and obligations under or
relating to Revolving Advances and/or Term Loans 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 $5,000,000 for Revolving Advances and $500,000 for a Term Loan, pursuant to
a Commitment Transfer Supplement, executed by a Purchasing Lender, the
transferor Lender, and Agent and delivered to Agent for recording; provided,
that any such assignment of a portion must be for a constant and non-varying
portion of such Lender’s rights under this Agreement, the Other Documents, the
Advances and Commitment Percentage.  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.  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.  Borrower 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

 

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obligations under or relating to Revolving Advances, and/or Term Loans 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 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.  Borrower hereby consents to the addition of such Purchasing
CLO.  Borrower 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 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 Borrower 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 immediate purchaser) to such Purchasing Lender and/or Purchasing CLO.

 

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

 

15.4.       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 Borrower makes a payment or Agent or any
Lender receives any payment or proceeds of the Collateral for 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,

 

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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.

 

15.5.       INDEMNITY.

 

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 reasonable fees and 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 reasonable fees and disbursements of
counsel) asserted against or incurred by any of the indemnitees described above
in this Section 15.5 by any Person under any Environmental Laws or similar laws
by reason of 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 Borrower 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, Borrower 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 15.5 harmless
from and against all liability in connection therewith.

 

15.6        NOTICE.

 

Any notice or request hereunder may be given to 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 15.6 only, a “Notice”) to be given
to or made upon any party hereto under any provision of this Loan 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 in accordance
with this Section 15.6.  Any such Notice must be delivered to the applicable
parties hereto at the addresses and numbers set forth under their respective
names on Section 15.6 hereof or in accordance with any subsequent unrevoked

 

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Notice from any such party that is given in accordance with this Section 15.6. 
Any Notice shall be effective:

 

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

 

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

 

Any Lender giving a Notice to 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 Bank, National Association

 

PNC at:

One Piedmont Town Center

 

4720 Piedmont Row Drive

 

Suite 300

 

Charlotte, North Carolina 28210

 

Attention:

Bryan Shia

 

Telephone:

(704) 551-8512

 

Facsimile:

(704 693-7918

 

with a copy to:

PNC Bank, National Association

 

PNC Agency Services

 

PNC Firstside Center

 

500 First Avenue, 4th Floor

 

Pittsburgh, Pennsylvania 15219

 

Attention:

Lisa Pierce

 

Telephone:

(412) 762-6442

 

Facsimile:

(412) 762-8672

 

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with an additional

copy to:

Moore & Van Allen

 

100 N. Tryon Street, Floor 47

 

Charlotte, North Carolina 28202-4003

 

Attention:

Lea Stromire Johnson

 

Telephone:

(704) 331-1068

 

Facsimile:

(704) 378-2068

 

 

 

(B)

If to a Lender other than Agent, as specified on the signature pages hereof

 

(C)

If to Borrower:

WM Coffman LLC

 

c/o P&F Industries, Inc.

 

445 Broadhollow Road, Suite 100

 

Melville, New York 11747

 

Attention:

Joseph A. Molino, Jr.

 

 

Vice President and CFO

 

Telephone:

(631) 773-4210

 

Telecopier:

(631) 773-4230

 

with a copy to:

Certilman Balin Adler & Hyman LLP

 

90 Merrick Avenue

 

East Meadow, New York 11554

 

Attention:

Steven J. Kuperschmid, Esq.

 

Telephone:

(516) 296-7000

 

Telecopier:

(516) 296-7111

 

15.7.       SURVIVAL.

 

The obligations of Borrower under Sections 2.2(f), 3.7, 3.8, 3.9, 4.19(h), and
15.5 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.

 

15.8.       SEVERABILITY.

 

If any part of this Agreement is contrary to, prohibited by, or deemed invalid
under Applicable Laws or regulations, 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.

 

15.9.       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 Subordination Agreements, the Other Documents or any

 

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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 Subordination Agreements, the Other
Documents and under all related agreements, 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
Borrower, or any Subordinated Lenders or (e) in connection with any advice given
to Agent with respect to its rights and obligations under this Agreement, the
Subordination Agreements, the Other Documents and all related agreements, may be
charged to Borrower’s Account and shall be part of the Obligations.

 

15.10.     INJUNCTIVE RELIEF.

 

Borrower recognizes that, in the event 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.

 

15.11.     DAMAGES.

 

Neither Agent nor any Lender, nor any agent or attorney for any of them, shall
be liable to Borrower (or any Affiliate of any such Person) for 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.

 

15.12.     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.

 

15.13.     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 transmission shall
be deemed to be an original signature hereto.

 

15.14.     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.

 

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15.15.     Confidentiality; Sharing Information.

 

(a)           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 accordance with Agent’s, such 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 (such prospective Transferees to execute a
similar confidentiality agreement), 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 or
court order, Agent, each Lender and each Transferee shall use its reasonable
best efforts prior to disclosure thereof, to notify 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 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.

 

(b)           Borrower acknowledges that from time to time financial advisory,
investment banking and other services may be offered or provided to 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
Borrower hereby authorizes each Lender to share any information delivered to
such Lender by 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 15.15 as if it were a Lender hereunder.  Such
authorization shall survive the repayment of the other Obligations and the
termination of this Agreement.

 

15.16.     PUBLICITY.

 

Borrower and each Lender hereby authorizes Agent to make appropriate
announcements of the financial arrangement entered into among Borrower, Agent
and Lenders, including announcements which are commonly known as tombstones, in
such publications and to such selected parties as Agent provided Agent shall
obtain Borrower’s consent for announcements inconsistent with the prior approval
of Borrower.

 

15.17.     CERTIFICATIONS FROM BANKS AND PARTICIPANTS; USA 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

 

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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
10 days after the Closing Date, and (2) as such other times as are required
under the USA PATRIOT Act.

 

15.18.     DRAWS UNDER THE NY COMMERCIAL BANK LETTERS OF CREDIT.

 

Agent shall be permitted to draw in full on first the NY Commercial Bank A
Letter of Credit and next the NY Commercial Bank B Letter of Credit upon Agent’s
demand pursuant to the terms of the applicable NY Commercial Bank Letter of
Credit following a Triggering Event (as defined below), provided Agent may only
draw on one NY Commercial Bank Letter of Credit with respect to any single
Triggering Event, which draw shall be the only amount payable under the NY
Commercial Bank Letters of Credit in respect of such Triggering Event.  A
“Triggering Event” shall occur at such time as Excess Availability for Borrower
is less than $150,000 for two (2) consecutive Business Days or more than five
(5) Business Days in total with no more than two Triggering Events occurring
prior to September 30, 2010.  For the four quarter period ending as of June 30,
2010, if the Fixed Charge Coverage Ratio of Borrower is greater than or equal to
1.25 to 1.0 and there has been no Triggering Event, both the NY Commercial Bank
Letters of Credit shall be cancelled, terminated or permitted to expire without
renewal, as applicable, on June 30, 2010 and Agent shall promptly deliver the
original NY Commercial Bank Letters of Credit to Borrower.  If there has been a
Triggering Event during the four quarter period ending as of June 30, 2010 and
the Fixed Charge Coverage Ratio of Borrower is less than 1.25 to 1.0, the
outstanding NY Commercial Bank B Letter of Credit shall not be terminated until
September 30, 2010.  As used herein, “Excess 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 (B) the outstanding amount of
Advances.  Agent acknowledges that simultaneously with making a draw under a NY
Commercial Bank Letter of Credit that Agent will demand payment of a Shortfall
Payment under the Carousel Guaranty.  Notwithstanding the foregoing, Agent
agrees that prior to a draw under either NY Commercial Bank Letter of Credit
Agent will notify P&F that Agent intends to make a draw and if Agent receives a
wire from P&F no later than one (1) Business Day following Agent’s notification
in the amount of the proposed draw Agent will not make a draw under the
applicable NY Commercial Bank Letter of Credit.

 

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Each of the parties has signed this Agreement as of the day and year first above
written.

 

 

 

WM COFFMAN LLC

 

 

 

 

 

 

 

By:

/s/ Joseph A. Molino, Jr.

 

Name:

Joseph A. Molino, Jr.

 

Title:

Vice President

 

 

 

 

 

 

 

PNC BANK, NATIONAL ASSOCIATION,

 

as Lender and as Agent

 

 

 

 

 

 

 

By:

/s/ Bryan Shia

 

Name:

Bryan Shia

 

Title:

Vice President

 

 

Credit Agreement

 

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STATE OF New York

)

 

) ss.

COUNTY OF Suffolk

)

 

On this 5th day of June, 2009, before me personally came Joseph A. Molino, Jr.,
to me known, who, being by me duly sworn, did depose and say that s/he is the
Vice President of WM COFFMAN LLC, the limited liability company described in and
which executed the foregoing instrument; and that s/he signed her/his name
thereto by order of the management committee of said limited liability company.

 

 

 

/s/ Robert C. Weiden

 

Notary Public

 

 

STATE OF North Carolina

)

 

) ss.

COUNTY OF Mecklenburg

)

 

 

On this 12th day of June, 2009, before me personally came Bryan Shia, to me
known, who, being by me duly sworn, did depose and say that s/he is the Vice
President of PNC BANK, NATIONAL ASSOCIATION, and that s/he was authorized to
sign her/his name thereto.

 

 

 

/s/ Stephanie O’ Madigan

 

Notary Public

 

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