CREDIT AND SECURITY AGREEMENT
 
BY AND BETWEEN
 
uBID.COM HOLDINGS, INC.
 
AND
 
UBID, INC.
 
AND
 
WELLS FARGO BANK, NATIONAL ASSOCIATION
 
Acting through its WELLS FARGO BUSINESS CREDIT operating division
 
May 9, 2006
  

 
 
 

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TABLE OF CONTENTS
 

ARTICLE I DEFINITIONS
4
Section 1.1
Definitions
4
Section 1.2
Other Definitional Terms; Rules of Interpretation
13
     
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY
13
   
Section 2.1
Revolving Advances
13
Section 2.2
Procedures for Requesting Advances
13
Section 2.3
LIBOR Advances
14
Section 2.4
Letters of Credit
15
Section 2.5
Special Account
16
Section 2.6
Interest; Minimum Interest Charge; Default Interest Rate; Application of
Payments; Participations; Usury
16
Section 2.7
Fees
18
Section 2.8
Time for Interest Payments; Payment on Non-Business Days; Computation of
Interest and Fees
20
Section 2.9
Collateral Account; Sweep of Funds
20
Section 2.10
Voluntary Prepayment; Termination of the Credit Facility by the Borrower
21
Section 2.11
Mandatory Prepayment
21
Section 2.12
Revolving Advances to Pay Obligations
21
Section 2.13
Use of Proceeds
22
Section 2.14
Liability Records
22
     
ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF
22
   
Section 3.1
Grant of Security Interest
22
Section 3.2
Notification of Account Debtors and Other Obligors
23
Section 3.3
Assignment of Insurance
23
Section 3.4
Occupancy
24
Section 3.5
License
24
Section 3.6
Financing Statement
24
Section 3.7
Setoff
25
Section 3.8
Collateral
25
     
ARTICLE IV CONDITIONS OF LENDING
25
   
Section 4.1
Conditions Precedent to the Initial Advances and Letter of Credit
25
Section 4.2
Conditions Precedent to All Advances and Letters of Credit
28

 
 
 
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ARTICLE V REPRESENTATIONS AND WARRANTIES
28
   
Section 5.1
Existence and Power; Name; Chief Executive Office; Inventory and Equipment
Locations; Federal Employer Identification Number and Organizational
Identification Number
28
Section 5.2
Capitalization
28
Section 5.3
Authorization of Borrowing; No Conflict as to Law or Agreements
28
Section 5.4
Legal Agreements
29
Section 5.5
Subsidiaries
29
Section 5.6
Financial Condition; No Adverse Change
29
Section 5.7
Litigation
29
Section 5.8
Regulation U
29
Section 5.9
Taxes
29
Section 5.10
Titles and Liens
30
Section 5.11
Intellectual Property Rights
30
Section 5.12
Plans
31
Section 5.13
Default
31
Section 5.14
Environmental Matters
31
Section 5.15
Submissions to Lender
32
Section 5.16
Financing Statements
32
Section 5.17
Rights to Payment
32
Section 5.18
Financial Solvency
33
     
ARTICLE VI COVENANTS
33
   
Section 6.1
Reporting Requirements
33
Section 6.2
Financial Covenants
36
Section 6.3
Permitted Liens; Financing Statements
37
Section 6.4
Indebtedness
37
Section 6.5
Guaranties
38
Section 6.6
Investments and Subsidiaries
38
Section 6.7
Dividends and Distributions
38
Section 6.8
Salaries
38
Section 6.9
Key Person Life Insurance
38
Section 6.10
Books and Records; Collateral Examination; Inspection and Appraisals
39
Section 6.11
Account Verification
39
Section 6.12
Compliance with Laws
39
Section 6.13
Payment of Taxes and Other Claims
49
Section 6.14
Maintenance of Properties
40
Section 6.15
Insurance
40
Section 6.16
Preservation of Existence
41
Section 6.17
Delivery of Instruments, etc.
41
Section 6.18
Sale or Transfer of Assets; Suspension of Business Operations
41
Section 6.19
Consolidation and Merger; Asset Acquisitions
41
Section 6.20
Sale and Leaseback
41
Section 6.21
Restrictions on Nature of Business
41

 
 
 
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Section 6.22
Accounting
42
Section 6.23
Discounts, etc.
42
Section 6.24
Plans
42
Section 6.25
Place of Business; Name
42
Section 6.26
Constituent Documents; S Corporation Status
42
Section 6.27
Performance by the Lender
42
     
ARTICLE VII EVENTS OF DEFAULT, RIGHTS AND REMEDIES
43
   
Section 7.1
Events of Default
43
Section 7.2
Rights and Remedies
45
Section 7.3
Certain Notices
46
     
ARTICLE VIII MISCELLANEOUS
46
   
Section 8.1
No Waiver; Cumulative Remedies; Compliance with Laws
46
Section 8.2
Amendments, Etc.
46
Section 8.3
Notices; Communication of Confidential Information; Requests for Accounting
46
Section 8.4
Further Documents
47
Section 8.5
Costs and Expenses
47
Section 8.6
Indemnity
47
Section 8.7
Participants
48
Section 8.8
Execution in Counterparts; Telefacsimile Execution
48
Section 8.9
Retention of Borrower’s Records
48
Section 8.10
Binding Effect; Assignment; Complete Agreement; Sharing Information
49
Section 8.11
Severability of Provisions
49
Section 8.12
Headings
49
Section 8.13
Governing Law; Jurisdiction, Venue; Waiver of Jury Trial
49
Section 8.14
Servicing of Credit Facility
49

 
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CREDIT AND SECURITY AGREEMENT
 
Dated as of May 9, 2006
 
uBID.COM HOLDINGS, INC., a Delaware corporation (“uBid.Com”), and UBID, INC., a
Delaware corporation (“uBid”), each Borrower are hereafter, unless referenced
individually, collectively referred to as the (“Borrower”) and WELLS FARGO BANK,
NATIONAL ASSOCIATION (“Lender”) through its WELLS FARGO BUSINESS CREDIT
operating division, hereby agree as follows:
 
ARTICLE I
 
DEFINITIONS
 
Section 1.1 Definitions. Except as otherwise expressly provided in this
Agreement, the following terms shall have the meanings given them in this
Section:
 
“Accounts” shall have the meaning given it under the UCC.
 
“Accounts Advance Rate” means up to eighty-five percent (85%), or such lesser
rate as the Lender in its sole discretion may deem appropriate from time to
time.
 
“Advance” means a Revolving Advance .
 
“Affiliate” or “Affiliates” means any Person controlled by, controlling or under
common control with the Borrower, including any Subsidiary of the Borrower. For
purposes of this definition, “control,” when used with respect to any specified
Person, means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise.
 
“Agreement” means this Credit and Security Agreement.
 
“Availability” means the amount, if any, by which the Borrowing Base exceeds the
sum of (i) the outstanding principal balance of the Revolving Note, (ii) any
reserves, and (iii) the L/C Amount.
 
“Book Net Worth” means the aggregate of the common and preferred shareholders’
equity in the Borrower, determined in accordance with GAAP.
 
“Borrowing Base” means at any time the lesser of:
 
(a) The Maximum Line Amount; or
 
(b) Subject to change from time to time in the Lender’s sole discretion, the sum
of:
 
(i) The lesser of (A) the product of the Accounts Advance Rate times Eligible
Accounts or (B) $25,000,000.00, plus
 
 
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(ii) The lesser of (A) the product of the Inventory Advance Rate times Eligible
Inventory; or (B) 85% of the Net Orderly Liquidation Value of Eligible
Inventory; or (C) $20,000,000.00, less  
 
(iii) The Borrowing Base Reserve, less 
 
(iv) Obligations that the Borrower owes to the Lender that have not yet been
advanced on the Revolving Note, and the dollar amount that the Lender in its
discretion believes is a reasonable determination of the Borrower’s credit
exposure with respect to Wells Fargo Affiliate Obligations and obligations owed
to Wells Fargo Merchant Services, LLC.  
 
“Borrowing Base Reserve” means, as of any date of determination, such amounts
(expressed as either a specified amount or as a percentage of a specified
category or item) as the Lender may from time to time establish and adjust in
reducing Availability (a) to reflect events, conditions, contingencies or risks
which, as determined by the Lender, do or may affect (i) the Collateral or its
value, (ii) the assets, business or prospects of the Borrower, or (iii) the
security interests and other rights of the Lender in the Collateral (including
the enforceability, perfection and priority thereof), or (b) to reflect the
Lender’s judgment that any collateral report or financial information furnished
by or on behalf of the Borrower to the Lender is or may have been incomplete,
inaccurate or misleading in any material respect, or (c) in respect of any state
of facts that the Lender determines constitutes a Default or an Event of
Default. 
 
"Business Day" means a day on which the Federal Reserve Bank of New York is open
for business and, if such day relates to a LIBOR Advance, a day on which
dealings are carried on in the London interbank eurodollar market.

“Capital Expenditures” means for a period, any expenditure of money during such
period for the lease, purchase or other acquisition of any capital asset, or for
the lease of any other asset whether payable currently or in the future.
 
“Change of Control” means the occurrence of any of the following events:
 
During any consecutive two-year period, individuals who at the beginning of such
period constituted the board of Directors of the Borrower (together with any new
Directors whose election to such board of Directors, or whose nomination for
election by the Owners of the Borrower, was approved by a vote of two thirds of
the Directors then still in office who were either Directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the board of
Directors of the Borrower then in office.
 
“Collateral” means all of the Borrower’s Accounts, chattel paper and electronic
chattel paper, deposit accounts, documents, Equipment, General Intangibles,
goods, instruments, Inventory, Investment Property, letter-of-credit rights,
letters of credit, all sums on deposit in any Collateral Account, and any items
in any Lockbox; together with (i) all substitutions and replacements for and
products of any of the foregoing; (ii) in the case of all goods, all accessions;
(iii) all accessories, attachments, parts, equipment and repairs now or
hereafter attached or affixed to or used in connection with any goods; (iv) all
warehouse receipts, bills of lading and other documents of title now or
hereafter covering such goods; (v) all collateral subject to the Lien of any
Security Document; (vi) any money, or other assets of the Borrower that now or
hereafter come into the possession, custody, or control of the Lender; (vii) all
sums on deposit in the Special Account; (viii) proceeds of any and all of the
foregoing; (ix) books and records of the Borrower, including all mail or
electronic mail addressed to the Borrower; and (x) all of the foregoing, whether
now owned or existing or hereafter acquired or arising or in which the Borrower
now has or hereafter acquires any rights.
 
 
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“Collateral Account” means the “Collection Account” as defined in the Collection
Account Agreement.
 
“Collection Account Agreement” means the Collection Account Agreement by and
between the Borrower and the Lender, dated the same date as this Agreement.
 
“Commercial Letter of Credit Agreement” means an agreement governing the
issuance of documentary letters of credit by the Lender, entered into between
the Borrower as applicant and the Lender as issuer.
 
“Commitment” means the Lender’s commitment to make Advances to, and to issue
Letters of Credit for the account of, the Borrower.
 
“Constituent Documents” means with respect to any Person, as applicable, such
Person’s certificate of incorporation, articles of incorporation, by-laws,
certificate of formation, articles of organization, limited liability company
agreement, management agreement, operating agreement, shareholder agreement,
partnership agreement or similar document or agreement governing such Person’s
existence, organization or management or concerning disposition of ownership
interests of such Person or voting rights among such Person’s owners.
 
“Copyright Security Agreement” means each and every Copyright Security Agreement
now or hereafter executed by the Borrower in favor of the Lender.
 
“Credit Facility” means the credit facility under which Revolving Advances and
Letters of Credit may be made available to the Borrower by the Lender under
Article II.
 
“Cut-off Time” means 11:00 a.m. Milwaukee, Wisconsin time.

“Debt” means of a Person as of a given date, all items of indebtedness or
liability which in accordance with GAAP would be included in determining total
liabilities as shown on the liabilities side of a balance sheet for such Person
and shall also include the aggregate payments required to be made by such Person
at any time under any lease that is considered a capitalized lease under GAAP.
 
“Default” means an event that, with giving of notice or passage of time or both,
would constitute an Event of Default.
 
“Default Period” means any period of time beginning on the day a Default or
Event of Default occurs and ending on the date identified by the Lender in
writing as the date that such Default or Event of Default has been cured or
waived.
 
 
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“Default Rate” means an annual interest rate in effect during a Default Period
or following the Termination Date, which interest rate shall be equal to three
percent (3%) over the applicable Floating Rate or the LIBOR Advance Rate, as the
case may be, as such rate may change from time to time.

“Deposit Account Control Agreement” means the Deposit Account Control Agreement
of even date herewith, executed by the Borrower in the Lender’s favor.

“Director” means a director if the Borrower is a corporation, a governor or
manager if the Borrower is a limited liability company, or a general partner if
the Borrower is a partnership.
 
 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time.
 
“ERISA Affiliate” means any trade or business (whether or not incorporated) that
is a member of a group which includes the Borrower and which is treated as a
single employer under Section 414 of the IRC.
 
“Earnings Before Taxes” means pretax earnings from operations, excluding
extraordinary gains, but including extraordinary losses, excluding any
adjustments related to FASB 123R.
 
“Eligible Accounts” means all unpaid Accounts of the Borrower arising from the
sale or lease of goods or the performance of services, net of any credits, but
excluding any such Accounts having any of the following characteristics:
 
(i) That portion of Accounts unpaid 90 days or more after the invoice date or,
if the Lender in its discretion has determined that a particular dated Account
may be eligible, that portion of such Account which is unpaid more than 60 days
past the stated due date or more than 90 days past the invoice date;
 
(ii) That portion of Accounts related to goods or services with respect to which
the Borrower has received notice of a claim or dispute, which are subject to a
claim of offset or a contra account, or which reflect a reasonable reserve for
warranty claims or returns;
 
(iii) That portion of Accounts not yet earned by the final delivery of goods or
rendition of services, as applicable, by the Borrower to the customer, including
progress billings, and that portion of Accounts for which an invoice has not
been sent to the applicable account debtor;
 
(iv) Accounts constituting (i) proceeds of copyrightable material unless such
copyrightable material shall have been registered with the United States
Copyright Office, or (ii) proceeds of patentable inventions unless such
patentable inventions have been registered with the United States Patent and
Trademark Office;
 
(v) Accounts owed by any unit of government, whether foreign or domestic
(provided, however, that there shall be included in Eligible Accounts that
portion of Accounts owed by such units of government for which the Borrower has
provided evidence satisfactory to the Lender that (A) the Lender has a first
priority perfected security interest and (B) such Accounts may be enforced by
the Lender directly against such unit of government under all applicable laws);
 
 
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(vi) Accounts denominated in any currency other than United States dollars;
 
(vii) Accounts owed by an account debtor located outside the United States which
are not (A) backed by a bank letter of credit naming the Lender as beneficiary
or assigned to the Lender, in the Lender’s possession or control, and with
respect to which a control agreement concerning the letter-of-credit rights is
in effect, and acceptable to the Lender in all respects, in its sole discretion,
or (B) covered by a foreign receivables insurance policy acceptable to the
Lender in its sole discretion;
 
(viii) Accounts owed by an account debtor that is insolvent, the subject of
bankruptcy proceedings or has gone out of business;
 
(ix) Accounts owed by an Owner, Subsidiary, Affiliate, Officer or employee of
the Borrower;
 
(x) Accounts not subject to a duly perfected security interest in the Lender’s
favor or which are subject to any Lien in favor of any Person other than the
Lender;
 
(xi) That portion of Accounts that has been restructured, extended, amended or
modified;
 
(xii) That portion of Accounts that constitutes advertising, finance charges,
service charges or sales or excise taxes;
 
(xiii) Accounts owed by an account debtor, regardless of whether otherwise
eligible, to the extent that the aggregate balance of such Accounts exceeds 15%
of the aggregate amount of all Eligible Accounts; 
 
(xiv) Accounts owed by an account debtor, regardless of whether otherwise
eligible, if 25% or more of the total amount of Accounts due from such debtor is
ineligible under clauses (i), (ii), or (x) above; and
 
(xv) Accounts, or portions thereof, otherwise deemed ineligible by the Lender in
its sole discretion. 

“Eligible Inventory” means all Inventory of the Borrower, valued at the lower of
cost or market in accordance with GAAP; but excluding any Inventory having any
of the following characteristics:
 
(i) Inventory that is: in-transit; located at any warehouse, job site or other
premises not approved by the Lender in writing; not subject to a duly perfected
first priority security interest in the Lender’s favor; subject to any lien or
encumbrance that is subordinate to the Lender’s first priority security
interest; covered by any negotiable or non-negotiable warehouse receipt, bill of
lading or other document of title; on consignment from any Person; on
consignment to any Person or subject to any bailment unless such consignee or
bailee has executed an agreement with the Lender; provided; however, that
Inventory that is in-transit and is supported by documentation acceptable to
Lender in its sole discretion may be deemed by Lender to be Eligible Inventory;
provided, further, however, that Inventory which is supported by documentation
acceptable to Lender in its sole discretion and that is (i) in-transit from an
offshore supplier limited to $5,000,000.00 (ii) considered to be re-work
Inventory not stored at Borrower’s premises or (iii) in-transit or located at a
domestic supplier where said Inventory is paid for via a wire transfer initiated
through Lender and that said Inventory is received by Borrower at Borrower’s
Naperville facility within seven (7) days from the ealier of payment or transfer
of title may be deemed by Lender in its sole discretion to be Eligible
Inventory;
 
 
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(ii) Supplies, packaging, maintenance parts or sample Inventory, or customer
supplied parts or Inventory;
 
(iii) Work-in-process Inventory;
 
(iv) Inventory that is damaged, defective, obsolete, slow moving or not
currently saleable in the normal course of the Borrower’s operations, or the
amount of such Inventory that has been reduced by shrinkage;
 
(v) Inventory that the Borrower has returned, has attempted to return, is in the
process of returning or intends to return to the vendor thereof;
 
(vi) Inventory that is perishable or live;
 
(vii) Inventory manufactured by the Borrower pursuant to a license unless the
applicable licensor has agreed in writing to permit the Lender to exercise its
rights and remedies against such Inventory;
 
(viii) Inventory that is subject to a Lien in favor of any Person other than the
Lender;
 
(ix) Inventory stored at locations holding less than 5% of the aggregate value
of Borrower’s Inventory;
 
(x) Inventory not located at Borrower’s premises in Chicago, Illinois except as
provided in (i) above; and
 
(xi) Inventory otherwise deemed ineligible by the Lender in its sole
discretion. 
 
“Environmental Law” means any federal, state, local or other governmental
statute, regulation, law or ordinance dealing with the protection of human
health and the environment.
 
“Equipment” shall have the meaning given it under the UCC.
 
“Event of Default” is defined in Section 7.1.
 
 
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“Financial Covenants” means the covenants set forth in Section 6.2.
 
“Floating Rate” means an annual interest rate equal to the Prime Rate, which
interest rate shall change when and as the Prime Rate changes.
 
“Floating Rate Advance” means an Advance bearing interest at the Floating Rate.
 
“Funding Date” is defined in Section 2.1.
 
“GAAP” means generally accepted accounting principles, applied on a basis
consistent with the accounting practices applied in the financial statements
described in Section 5.6.
 
“General Intangibles” shall have the meaning given it under the UCC.
 
“Guarantor(s)” means any Person now or in the future guaranteeing the
Obligations.
 
“Guaranty” means each unconditional continuing guaranty or unconditional
continuing guaranty by corporation executed by a Guarantor in favor of the
Lender (collectively, the “Guaranties”)
 
“Hazardous Substances” means pollutants, contaminants, hazardous substances,
hazardous wastes, petroleum and fractions thereof, and all other chemicals,
wastes, substances and materials listed in, regulated by or identified in any
Environmental Law.
 
“Indemnified Liabilities” is defined in Section 8.6
 
“Indemnitees” is defined in Section 8.6.
 
“IRC” means the Internal Revenue Code of 1986, as amended from time to time.
 
“Infringement” or “Infringing” when used with respect to Intellectual Property
Rights means any infringement or other violation of Intellectual Property
Rights.
 
 “Intellectual Property Rights” means all actual or prospective rights arising
in connection with any intellectual property or other proprietary rights,
including all rights arising in connection with copyrights, patents, service
marks, trade dress, trade secrets, trademarks, trade names or mask works.
 
“Interest Payment Date” is defined in Section 2.8(a).

"Interest Period" means the period that commences on (and includes) the Business
Day on which either a LIBOR Advance is made or continued pursuant to Sections
2.2(a) or 2.3(b), or on which a Floating Rate Advance is converted to a LIBOR
Advance pursuant to Section 2.3(a), and ending on (but excluding) the Business
Day numerically corresponding to such date that is thirty, sixty or ninety days
thereafter as designated by the Borrower, during which period the outstanding
principal balance of the LIBOR Advance shall bear interest at the LIBOR Advance
Rate; provided, however, that:
 
 
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(a) No Interest Period may be selected for an Advance for a principal amount
less than One Million Dollars ($1,000,000.00) for the initial Advance and Five
Hundred Thousand Dollars ($500,000.00) for each Advance thereafter, and no more
than four (4) different Interest Periods may be outstanding at any one time; 
 
(b) If an Interest Period would otherwise end on a day which is not a Business
Day, then the Interest Period shall end on the next Business Day thereafter,
unless that Business Day is the first Business Day of a month, in which case the
Interest Period shall end on the last Business Day of the preceding month);
 
(c) No Interest Period applicable to a Revolving Advance may end later than the
Maturity Date; and
 
(d) In no event shall the Borrower select Interest Periods with respect to
Advances which, in the aggregate, would require payment of a contracted funds
breakage fee under Section 2.7(g) in order to make required principal payments. 
 
“Inventory” shall have the meaning given it under the UCC.
 
“Inventory Advance Rate” means up to sixty-five percent (65%), or such lesser
rate as the Lender in its sole discretion may deem appropriate from time to
time.
 
“Investment Property” shall have the meaning given it under the UCC.
 
“L/C Amount” means the sum of (i) the aggregate amount available for drawing
under any issued and outstanding Letters of Credit and (ii) the unpaid amount of
the Obligation of Reimbursement.
 
“L/C Application” means an application for the issuance of documentary letters
of credit pursuant to the terms of a Commercial Letter of Credit Agreement, in
form acceptable to the Lender.
 
“Letter of Credit” is defined in Section 2.4(a).

"LIBOR" means the rate per annum (rounded upward, if necessary, to the nearest
whole 1/8 of 1%) determined pursuant to the following formula:

LIBOR =
Base LIBOR
   
100% - LIBOR Reserve Percentage
 

(i) "Base LIBOR" means the rate per annum for United States dollar deposits
quoted by the Lender as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by the Lender for the purpose of
calculating effective rates of interest for loans making reference thereto, on
the first day of a Interest Period for delivery of funds on said date for a
period of time approximately equal to the number of days in such Interest Period
and in an amount approximately equal to the principal amount to which such
Interest Period applies. The Borrower understands and agrees that the Lender may
base its quotation of the Inter-Bank Market Offered Rate upon such offers or
other market indicators of the Inter-Bank Market as the Lender in its discretion
deems appropriate including the rate offered for U.S. dollar deposits on the
London Inter-Bank Market.
 
 
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(ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
"Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve
Board, as amended), adjusted by the Lender for expected changes in such reserve
percentage during the applicable Interest Period.

“LIBOR Advance” means an Advance bearing interest at the LIBOR Advance Rate.
 
“LIBOR Advance Rate” means an annual interest rate equal to the sum of LIBOR
plus two and one half percent (2.50%).
 
“Licensed Intellectual Property” is defined in Section 5.11(c).
 
“Lien” means any security interest, mortgage, deed of trust, pledge, lien,
charge, encumbrance, title retention agreement or analogous instrument or
device, including the interest of each lessor under any capitalized lease and
the interest of any bondsman under any payment or performance bond, in, of or on
any assets or properties of a Person, whether now owned or subsequently acquired
and whether arising by agreement or operation of law.
 
“Loan Documents” means this Agreement, the Revolving Note, any L/C Applications
and the Security Documents, together with every other agreement, note, document,
contract or instrument to which the Borrower now or in the future may be a party
and which is required by the Lender.
 
“Loan Year” is defined in Section 2.6(b).
 
“Material Adverse Effect” means any of the following:
 
(i) A material adverse effect on the business, operations, results of
operations, prospects, assets, liabilities or financial condition of the
Borrower;
 
(ii) A material adverse effect on the ability of the Borrower to perform its
obligations under the Loan Documents;
 
(iii) A material adverse effect on the ability of the Lender to enforce the
Obligations or to realize the intended benefits of the Security Documents,
including a material adverse effect on the validity or enforceability of any
Loan Document or of any rights against any Guarantor, or on the status,
existence, perfection, priority (subject to Permitted Liens) or enforceability
of any Lien securing payment or performance of the Obligations; or
 
(iv) Any claim against the Borrower or threat of litigation which if determined
adversely to the Borrower would cause the Borrower to be liable to pay an amount
exceeding $100,000.00 or would result in the occurrence of an event described in
clauses (i), (ii) and (iii) above.
 
 
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“Maturity Date” means April 28, 2009.
 
“Maximum Line Amount” means $25,000,000.00.
 
“Minimum Interest Charge” is defined in Section 2.6(b).
 
“Multiemployer Plan” means a multiemployer plan (as defined in Section
4001(a)(3) of ERISA) to which the Borrower or any ERISA Affiliate contributes or
is obligated to contribute.
 
“Net Cash Proceeds” means in connection with any asset sale, the cash proceeds
(including any cash payments received by way of deferred payment whether
pursuant to a note, installment receivable or otherwise, but only as and when
actually received) from such asset sale, net of (i) attorneys’ fees,
accountants’ fees, investment banking fees, brokerage commissions and amounts
required to be applied to the repayment of any portion of the Debt secured by a
Lien not prohibited hereunder on the asset which is the subject of such sale,
and (ii) taxes paid or reasonably estimated to be payable as a result of such
asset sale.
 
“Net Earnings” means, excluding any adjustments related to FASB 123R, the excess
of:
 
(a) All revenues and income derived from operations in the ordinary course of
business (excluding extraordinary gains and gains and profits upon the
disposition of investments and fixed assets)

Over:

(b) All expenses and other proper charges against income (including all
applicable taxes, but excluding extraordinary losses and losses upon the
disposition of investments and fixed assets), all as determined in accordance
with GAAP.

“Net Income” means fiscal year-to-date after-tax net income from continuing
operations, including extraordinary losses but excluding extraordinary gains,
all as determined in accordance with GAAP, excluding any adjustments related to
FASB 123R. 

“Net Loss” means fiscal year-to-date after-tax net loss from continuing
operations as determined in accordance with GAAP, excluding any adjustments
related to FASB 123R.  

“Net Orderly Liquidation Value” means a professional opinion of the estimated
most probable Net Cash Proceeds which could typically be realized at a properly
advertised and professionally managed liquidation sale, conducted under orderly
sale conditions for an extended period of time (usually six to nine months),
under the economic trends existing at the time of the appraisal.
 
“Obligation of Reimbursement” means the obligation of the Borrower to reimburse
the Lender pursuant to the terms of the Commercial Letter of Credit Agreement
and any applicable L/C Application.
 
 
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“Obligations” means the Revolving Note, the Obligation of Reimbursement and each
and every other debt, liability and obligation of every type and description
which the Borrower may now or at any time hereafter owe to the Lender, whether
such debt, liability or obligation now exists or is hereafter created or
incurred, whether it arises in a transaction involving the Lender alone or in a
transaction involving other creditors of the Borrower, and whether it is direct
or indirect, due or to become due, absolute or contingent, primary or secondary,
liquidated or unliquidated, or sole, joint, several or joint and several, and
including all indebtedness of the Borrower arising under any Loan Document or
guaranty between the Borrower and the Lender, whether now in effect or
subsequently entered into, and all Wells Fargo Affiliate Obligations and
indebtedness owed by the Borrower to Wells Fargo Merchant Services, L.L.C.

“Officer” means with respect to the Borrower, an officer if the Borrower is a
corporation, a manager if the Borrower is a limited liability company, or a
partner if the Borrower is a partnership.
 
“OFAC” is defined in Section 6.12(c).
 
"Overadvance" means the amount, if any, by which the outstanding principal
balance of the Revolving Note, plus the L/C Amount, is in excess of the
then-existing Borrowing Base.

“Owned Intellectual Property” is defined in Section 5.11(a).
 
“Owner” means with respect to the Borrower, each Person having legal or
beneficial title to an ownership interest in the Borrower or a right to acquire
such an interest.
 
“Patent and Trademark Security Agreement” means each and every Patent and
Trademark Security Agreement now or hereafter executed by the Borrower in favor
of the Lender.
 
“Pension Plan” means a pension plan (as defined in Section 3(2) of ERISA)
maintained for employees of the Borrower or any ERISA Affiliate and covered by
Title IV of ERISA.
 
“Permitted Lien” and “Permitted Liens” are defined in Section 6.3(a) .
 
“Person” means any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
 
“Plan” means an employee benefit plan (as defined in Section 3(3) of ERISA)
maintained for employees of the Borrower or any ERISA Affiliate.
 
“Premises” means all locations where the Borrower conducts its business or has
any rights of possession, including the locations legally described in Exhibit C
attached hereto.
 
“Prime Rate” means at any time the rate of interest most recently announced by
the Lender at its principal office as its Prime Rate, with the understanding
that the Prime Rate is one of the Lender’s base rates, and serves as the basis
upon which effective rates of interest are calculated for those loans making
reference thereto, and is evidenced by the recording thereof in such internal
publication or publications as the Lender may designate. Each change in the rate
of interest shall become effective on the date each Prime Rate change is
announced by the Lender. 
 
 
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“Reportable Event” means a reportable event (as defined in Section 4043 of
ERISA), other than an event for which the 30-day notice requirement under ERISA
has been waived in regulations issued by the Pension Benefit Guaranty
Corporation.
 
“Revolving Advance” is defined in Section 2.1.
 
“Revolving Note” means the Borrower’s revolving promissory note, payable to the
order of the Lender in substantially the form of Exhibit A hereto, as same may
be renewed and amended from time to time, and all replacements thereto.
 
“Security Documents” means this Agreement, the Collection Account Agreement, the
Deposit Account Control Agreement, the Patent and Trademark Security Agreement,
and the Copyright Security Agreement, and any other document delivered to the
Lender from time to time to secure the Obligations.
 
“Security Interest” is defined in Section 3.1.
 
“Special Account” means a specified cash collateral account maintained with
Lender or another financial institution acceptable to the Lender in connection
with Letters of Credit, as contemplated by Section 2.5.
 
“Subsidiary” means any Person of which more than 50% of the outstanding
ownership interests having general voting power under ordinary circumstances to
elect a majority of the board of directors or the equivalent of such Person,
regardless of whether or not at the time ownership interests of any other class
or classes shall have or might have voting power by reason of the happening of
any contingency, is at the time directly or indirectly owned by the Borrower, by
the Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
 
“Termination Date” means the earliest of (i) the Maturity Date, (ii) the date
the Borrower terminates the Credit Facility, or (iii) the date the Lender
demands payment of the Obligations, following an Event of Default, pursuant to
Section 7.2.
 
“Trademark Security Agreement” means each and every Trademark Security Agreement
now or hereafter executed by the Borrower in favor of the Lender dated the same
date as this Agreement.
 
“UCC” means the Uniform Commercial Code in effect in the state designated in
this Agreement as the state whose laws shall govern this Agreement, or in any
other state whose laws are held to govern this Agreement or any portion of this
Agreement.
 
“Unused Amount” is defined in Section 2.7(b). 

“Wells Fargo Affiliate Obligations” means all obligations, liabilities,
contingent reimbursement obligations, fees, and expenses owing by the Borrower
or its Subsidiaries to any Person that is owned in material part by the Lender,
and that relates to any service or facility extended to the Borrower or its
Subsidiaries, including: (a) credit cards, (b) credit card processing services,
(c) debit cards, and (d) purchase cards, as well as any other services or
facilities from time to time specified by the Lender, whether direct or
indirect, absolute or contingent, due or to become due, and whether existing now
or in the future. 
 
 
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Section 1.2 Other Definitional Terms; Rules of Interpretation. The words
“hereof”, “herein” and “hereunder” and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. All accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with GAAP. All terms defined in
the UCC and not otherwise defined herein have the meanings assigned to them in
the UCC. References to Articles, Sections, subsections, Exhibits, Schedules and
the like, are to Articles, Sections and subsections of, or Exhibits or Schedules
attached to, this Agreement unless otherwise expressly provided. The words
“include”, “includes” and “including” shall be deemed to be followed by the
phrase “without limitation”. Unless the context in which used herein otherwise
clearly requires, “or” has the inclusive meaning represented by the phrase
“and/or”. Defined terms include in the singular number the plural and in the
plural number the singular. Reference to any agreement (including the Loan
Documents), document or instrument means such agreement, document or instrument
as amended or modified and in effect from time to time in accordance with the
terms thereof (and, if applicable, in accordance with the terms hereof and the
other Loan Documents), except where otherwise explicitly provided, and reference
to any promissory note includes any promissory note which is an extension or
renewal thereof or a substitute or replacement therefor. Reference to any law,
rule, regulation, order, decree, requirement, policy, guideline, directive or
interpretation means as amended, modified, codified, replaced or reenacted, in
whole or in part, and in effect on the determination date, including rules and
regulations promulgated thereunder.
 
ARTICLE II
 
AMOUNT AND TERMS OF THE CREDIT FACILITY
 
Section 2.1 Revolving Advances. The Lender agrees, subject to the terms and
conditions of this Agreement, to make advances (“Revolving Advances”) to the
Borrower from time to time from the date that all of the conditions set forth in
4.1 are satisfied (the “Funding Date”) to and until (but not including) the
Termination Date in an amount not in excess of the Maximum Line Amount. The
Lender shall have no obligation to make a Revolving Advance to the extent that
the amount of the requested Revolving Advance exceeds Availability. The
Borrower’s obligation to pay the Revolving Advances shall be evidenced by the
Revolving Note and shall be secured by the Collateral. Within the limits set
forth in this Section 2.1, the Borrower may borrow, prepay pursuant to Section
2.10, and reborrow. 
 
Section 2.2 Procedures for Requesting Advances. The Borrower shall comply with
the following procedures in requesting Revolving Advances:
 
(a) Type of Advances. Each Advance shall be funded as either a Floating Rate
Advance or a LIBOR Advance, as the Borrower shall specify in a request delivered
to the Lender conforming to the requirements of Section 2.2(b); Floating Rate
Advances and LIBOR Advances may be outstanding at the same time. Each request
for a LIBOR Advance shall be in multiples of $500,000, with a minimum initial
request of at least $1,000,000. LIBOR Advances shall not be available during
Default Periods.
 
 
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(b) Time for Requests. The Borrower shall request each Floating Rate Advance not
later than the cut-off time on the Business Day on which the Floating Rate
Advance is to be made, and each LIBOR Advance not later than the Cut-off Time on
the Business Day that is three (3) days preceding the Business Day on which the
LIBOR Advance is to be made. Each request that conforms to the terms of this
Agreement shall be effective upon receipt by the Lender, shall be in writing or
by telephone or telecopy transmission, and shall be confirmed in writing by the
Borrower if so requested by the Lender, by (i) an Officer of the Borrower; or
(ii) a Person designated as the Borrower’s agent by an Officer of the Borrower
in a writing delivered to the Lender; or (iii) a Person whom the Lender
reasonably believes to be an Officer of the Borrower or such a designated agent,
which confirmation shall specify whether the Advance shall be a Floating Rate
Advance or a LIBOR Advance and, with respect to any LIBOR Advance, shall specify
the principal amount of the LIBOR Advance and the Interest Period applicable
thereto. The Borrower shall repay all Advances even if the Lender does not
receive such confirmation and even if the Person requesting an Advance was not
in fact authorized to do so. Any request for an Advance, whether written or
telephonic, shall be deemed to be a representation by the Borrower that the
conditions set forth in Section 4.2 have been satisfied as of the time of the
request.
 
(c) Disbursement. Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall disburse the proceeds of the requested Advance by
crediting the same to the Borrower’s demand deposit account maintained with the
Lender unless the Lender and the Borrower shall agree in writing to another
manner of disbursement.
 
Section 2.3 LIBOR Advances.
 
(a) Converting Floating Rate Advances to LIBOR Advances; Procedures. So long as
no Default Period is in effect, the Borrower may convert all or any part of the
principal amount of any outstanding Floating Rate Advance into a LIBOR Advance
by requesting that the Lender convert same no later than the Cut-off Time on the
Business Day that is three (3) days preceding the Business Day on which the
Borrower wishes the conversion to become effective. Each request that conforms
to the terms of this Agreement shall be effective upon receipt by the Lender and
shall be confirmed in writing by the Borrower if the Lender so requests by any
Officer or designated agent identified in Section 2.2(b) or Person reasonably
believed by the Lender to be such an Officer or designated agent, which request
shall specify the Business Day on which the conversion is to occur, the total
amount of the Floating Rate Advance to be converted, and the applicable Interest
Period. Each such conversion shall occur on a Business Day, and the aggregate
amount of Floating Rate Advances converted to LIBOR Advances shall be in
multiples of $500,000, with a minimum conversion amount of at least $1,000,000.
 
(b) Procedures at End of an Interest Period. Unless the Borrower requests a new
LIBOR Advance in accordance with the procedures set forth below, or prepays the
principal of an outstanding LIBOR Advance at the expiration of an Interest
Period, the Lender shall automatically and without request of the Borrower
convert each LIBOR Advance to a Floating Rate Advance on the last day of the
relevant Interest Period. So long as no Default exists, the Borrower may cause
all or any part of any maturing LIBOR Advance to be renewed as a new LIBOR
Advance by requesting that the Lender continue the maturing Advance as a LIBOR
Advance no later than the Cut-off Time on the Business Day that is three (3)
days preceding the Business Day constituting the first day of the new Interest
Period. Each such request shall be confirmed in writing by the Borrower upon the
Lender’s request by any Officer or designated agent identified in Section
2.2(b), which confirmation shall be effective upon receipt by the Lender, and
which shall specify the amount of the expiring LIBOR Advance to be continued and
the applicable Interest Period. Each new Interest Period shall begin on a
Business Day and the amount of each LIBOR Advance shall be in multiples of
$500,000, with a minimum initial Advance of at least $1,000,000.
 
 
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(c) Setting and Notice of Rates. The Lender shall, with respect to any request
for a LIBOR Advance under Section 2.2 or a conversion or renewal of a LIBOR
Advance under this Section 2.3, provide the Borrower with a LIBOR quote for each
Interest Period identified by the Borrower on the Business Day on which the
request was made, if the request is received by the Lender prior to the Cut-off
Time, or for requests received by the Lender after the Cut-off Time, on the next
Business Day or on the Business Day on which the Borrower has requested that the
LIBOR Advance be made effective. If the Borrower does not immediately accept a
LIBOR quote, the quoted rate shall expire and any subsequent request from
Borrower for a LIBOR quote shall be subject to redetermination by the Lender of
the applicable LIBOR for the LIBOR Advance.
 
(d) Taxes and Regulatory Costs. The Borrower shall pay the Lender with respect
to any Advance, upon demand and in addition to any other amounts due or to
become due hereunder, any and all (i) withholdings, interest equalization taxes,
stamp taxes or other taxes (except income and franchise taxes) imposed upon
banks generally by any domestic or foreign governmental authority and related in
any manner to LIBOR, and (ii) future, supplemental, emergency or other changes
in the LIBOR Reserve Percentage, assessment rates imposed by the Federal Deposit
Insurance Corporation, or similar requirements or costs imposed upon banks
generally by any domestic or foreign governmental authority or resulting from
compliance by the Lender with any request or directive (whether or not having
the force of law) upon banks generally from any central bank or other
governmental authority and related in any manner to LIBOR to the extent they are
not included in the calculation of LIBOR. In determining which of the foregoing
are attributable to any LIBOR option available to the Borrower hereunder, any
reasonable allocation made by the Lender among its operations shall be
conclusive and binding upon the Borrower. 

Section 2.4 Letters of Credit.
 
(a) The Lender agrees, subject to the terms and conditions of this Agreement, to
issue, at any time after the Funding Date and prior to the Termination Date, one
or more irrevocable standby or documentary letters of credit (each, a “Letter of
Credit”) for the Borrower’s account. The Lender will not issue any Letter of
Credit if the face amount of the Letter of Credit to be issued would exceed the
lesser of:
 
(i) $7,000,000.00 less the L/C Amount, or
 
 
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(ii) Availability.
 
Each Letter of Credit, if any, shall be issued pursuant to a separate L/C
Application made by the Borrower to the Lender, which must be completed in a
manner satisfactory to the Lender. The terms and conditions set forth in each
such L/C Application shall supplement the terms and conditions of the Commercial
Letter of Credit Agreement.
 
(b) No Letter of Credit shall be issued with an expiry date later than one (1)
year from the date of issuance or the Maturity Date in effect as of the date of
issuance, whichever is earlier.
 
(c) Any request for issuance of a Letter of Credit shall be deemed to be a
representation by the Borrower that the conditions set forth in Section 4.2 have
been satisfied as of the date of the request.
 
(d) If a draft is submitted under a Letter of Credit when the Borrower is
unable, because a Default Period exists or for any other reason, to obtain a
Revolving Advance to pay the Obligation of Reimbursement, the Borrower shall pay
to the Lender on demand and in immediately available funds, the amount of the
Obligation of Reimbursement together with interest, accrued from the date of the
draft until payment in full at the Default Rate. Notwithstanding the Borrower’s
inability to obtain a Revolving Advance for any reason, the Lender is
irrevocably authorized, in its sole discretion, to make a Revolving Advance in
an amount sufficient to discharge the Obligation of Reimbursement and all
accrued but unpaid interest thereon.
 
Section 2.5 Special Account. If the Credit Facility is terminated for any reason
while any Letter of Credit is outstanding, the Borrower shall thereupon pay the
Lender in immediately available funds for deposit in the Special Account an
amount equal to the L/C Amount plus any anticipated fees and costs. If the
Borrower fails to promptly make any such payment in the amount required
hereunder, then the Lender may make a Revolving Advance against the Credit
Facility in an amount sufficient to fulfill this obligation and deposit the
proceeds to the Special Account. The Special Account shall be an interest
bearing account either maintained with the Lender or with a financial
institution acceptable to the Lender. Any interest earned on amounts deposited
in the Special Account shall be credited to the Special Account. The Lender may
apply amounts on deposit in the Special Account at any time or from time to time
to the Obligations in the Lender’s sole discretion. The Borrower may not
withdraw any amounts on deposit in the Special Account as long as the Lender
maintains a security interest therein. The Lender agrees to transfer any balance
in the Special Account to the Borrower when the Lender is required to release
its security interest in the Special Account under applicable law.
 
Section 2.6 Interest; Minimum Interest Charge; Default Interest Rate;
Application of Payments; Participations; Usury.
 
(a) Interest. Except as provided in Section 2.3, Section 2.6(c) and Section
2.6(f), the principal amount of each Advance shall bear interest as a Floating
Rate Advance.
 
(b) Minimum Interest Charge. Notwithstanding any other terms of this Agreement
to the contrary, the Borrower shall pay to the Lender annually in arrears
interest of not less than $120,000.00 per Loan Year (the “Minimum Interest
Charge”) during the term of this Agreement, and the Borrower shall pay any
deficiency between the Minimum Interest Charge and the amount of interest
otherwise calculated under Section 2.6(a) following each anniversary of the
Funding Date and on the Termination Date. When calculating this deficiency, the
Default Rate, if applicable, shall be disregarded, and any interest that accrues
on a payment following its receipt on those days specified in Section 2.6(d)
shall be excluded in determining the total amount of interest otherwise
calculated under Section 2.6(a). As used in this subsection (c), “Loan Year”
means each one-year period ending on an anniversary of the Funding Date. 
 
 
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(c) Default Interest Rate. At any time during any Default Period or following
the Termination Date, in the Lender’s sole discretion and without waiving any of
its other rights or remedies, the principal of the Revolving Note shall bear
interest at the Default Rate or such lesser rate as the Lender may determine,
effective as of the first day of the month in which any Default Period begins
through the last day of such Default Period, or any shorter time period that the
Lender may determine. The decision of the Lender to impose a rate that is less
than the Default Rate or to not impose the Default Rate for the entire duration
of the Default Period shall be made by the Lender in its sole discretion and
shall not be a waiver of any of its other rights and remedies, including its
right to retroactively impose the full Default Rate for the entirety of any such
Default Period or following the Termination Date. 

(d) Application of Payments. Payments shall be applied to the Obligations on the
Business Day of receipt by the Lender in the Lender’s general account, but the
amount of principal paid shall continue to accrue interest at the interest rate
applicable under the terms of this Agreement from the calendar day the Lender
receives the payment, and continuing through the end of the first Business Day
following receipt of the payment.

(e) Participations. If any Person shall acquire a participation in the Advances
or the Obligation of Reimbursement, the Borrower shall be obligated to the
Lender to pay the full amount of all interest calculated under this Section 2.6,
along with all other fees, charges and other amounts due under this Agreement,
regardless if such Person elects to accept interest with respect to its
participation at a lower rate than that calculated under this Section 2.6, or
otherwise elects to accept less than its prorata share of such fees, charges and
other amounts due under this Agreement.
 
(f) Usury. In any event no rate change shall be put into effect which would
result in a rate greater than the highest rate permitted by law. Notwithstanding
anything to the contrary contained in any Loan Document, all agreements which
either now are or which shall become agreements between the Borrower and the
Lender are hereby limited so that in no contingency or event whatsoever shall
the total liability for payments in the nature of interest, additional interest
and other charges exceed the applicable limits imposed by any applicable usury
laws. If any payments in the nature of interest, additional interest and other
charges made under any Loan Document are held to be in excess of the limits
imposed by any applicable usury laws, it is agreed that any such amount held to
be in excess shall be considered payment of principal hereunder, and the
indebtedness evidenced hereby shall be reduced by such amount so that the total
liability for payments in the nature of interest, additional interest and other
charges shall not exceed the applicable limits imposed by any applicable usury
laws, in compliance with the desires of the Borrower and the Lender. This
provision shall never be superseded or waived and shall control every other
provision of the Loan Documents and all agreements between the Borrower and the
Lender, or their successors and assigns. 
 
 
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Section 2.7  Fees.
 
(a) Origination Fee. The Borrower shall pay the Lender a fully earned and
non-refundable origination fee of $100,000.00, due and payable upon the
execution of this Agreement.
 
(b) Unused Line Fee. For the purposes of this Section 2.7(b), “Unused Amount”
means the Maximum Line Amount reduced by outstanding Revolving Advances and the
L/C Amount. The Borrower agrees to pay to the Lender quarterly an unused line
fee at the rate of one-fifth of one percent (0.20%) per annum on the average
daily Unused Amount from the date of this Agreement to and including the
Termination Date, due and payable quarterly on the first day of the month
immediately following the end of the respective quarter and on the Termination
Date. 

(c) Collateral Exam Fees. The Borrower shall pay the Lender fees in connection
with any collateral exams, audits or inspections conducted by or on behalf of
the Lender of any Collateral or the Borrower’s operations or business at the
rates established from time to time by the Lender as its collateral exam fees
(which fees are currently $950.00 per day per collateral examiner), together
with all actual out-of-pocket costs and expenses incurred in conducting any such
collateral examination or inspection; provided, however, that during Default
Periods, the Borrower shall reimburse the Lender for such fees, costs and
expenses as the Lender deems necessary.
 
(d) Letter of Credit Fees. The Borrower shall pay to the Lender a fee with
respect to each Letter of Credit that has been issued, if any, which fee shall
be calculated on a per diem basis at an annual rate equal to one and one half
percent (1.50%) of the aggregate amount that may then be drawn under the Letter
of Credit, assuming compliance with all conditions for drawing (the “Aggregate
Face Amount”), from and including the date of issuance of the Letter of Credit
until the date that the Letter of Credit terminates or is returned to the
Lender, which fee shall be due and payable monthly in arrears on the first day
of each month and on the date that the Letter of Credit terminates or is
returned to the Lender; provided, however, effective as of the first day of the
month in which any Default Period begins through the last day of such Default
Period, or any shorter time period that the Lender may determine, in the
Lender’s sole discretion and without waiving any of its other rights and
remedies, such fee shall increase to four and one half percent (4.50%) of the
Aggregate Face Amount. The foregoing fee shall be in addition to any and all
other fees, commissions and charges imposed by Lender with respect to or in
connection with such Letter of Credit.
 
(e)  Letter of Credit Administrative Fees. The Borrower shall pay all
administrative fees charged by Lender in connection with the honoring of drafts
under any Letter of Credit, amendments thereto, transfers thereof and all other
activity with respect to the Letters of Credit at the then - current rates
published by Lender for such services rendered on behalf of customers of Lender
generally. 
 
 
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(f) Termination Fees. If (i) the Lender terminates the Credit Facility during a
Default Period, or if (ii) the Borrower terminates the Credit Facility on a date
prior to the Maturity Date, then the Borrower shall pay the Lender as liquidated
damages and not as a penalty a termination fee in an amount equal to a
percentage of the Maximum Line Amount calculated as follows: (A) two percent
(2.0%) if the termination occurs on or before the first anniversary of the
Funding Date; (B) one and one half percent (1.50%) if the termination occurs
after the first anniversary of the Funding Date, but on or before the second
anniversary of the Funding Date; and (C) one half of one percent (0.50%) if the
termination occurs after the second anniversary of the Funding Date.
 
(g) Contracted Funds Breakage Fees. The Borrower may prepay the principal amount
of the Revolving Note at any time, whether voluntarily or by acceleration,
provided, however, that if the principal amount of any Revolving Note LIBOR
Advance is prepaid, the Borrower shall pay to the Lender immediately upon demand
a contracted funds breakage fee equal to the sum of the discounted monthly
differences for each month from the month of prepayment through the month in
which such Interest Period matures, calculated as follows for each such month:
 

(i)
Determine the amount of interest which would have accrued each month on the
amount prepaid at the interest rate applicable to such amount had it remained
outstanding until the last day of the applicable Interest Period.

(ii)
Subtract from the amount determined in (i) above the amount of interest which
would have accrued for the same month on the amount prepaid for the remaining
term of such Interest Period at LIBOR in effect on the date of prepayment for
new loans made for such term in a principal amount equal to the amount prepaid.

(iii)
If the result obtained in (ii) for any month is greater than zero, discount that
difference by LIBOR used in (ii) above.

The Borrower acknowledges that a prepayment of the Revolving Note may result in
the Lender incurring additional costs, expenses or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses or liabilities.
The Borrower therefore agrees to pay the above-described contracted funds
breakage fee and agrees that this fee represents a reasonable estimate of the
contracted funds breakage costs, and any expenses or liabilities of the Lender.
 
(h) Overadvance Fees. The Borrower shall pay an Overadvance fee in the amount of
$1,000.00 for each day or portion thereof during which an Overadvance exists,
regardless of how the Overadvance arises or whether or not the Overadvance has
been agreed to in advance by the Lender; provided, further, however, that from
the date on which any Default or Event of Default occurs or exists at any time,
the Borrower shall pay an Overadvance fee in the amount of $2,000.00 for each
day or portion thereof during which an Overadvance exists, regardless of how the
Overadvance arises or whether or not the Overadvance has been agreed to in
advance by the Lender. The acceptance of payment of an Overadvance fee by the
Lender shall not be deemed to constitute either consent to the Overadvance or a
waiver of the resulting Event of Default, unless the Lender specifically
consents to the Overadvance in writing and waives the Event of Default on
whatever conditions the Lender deems appropriate.
 
 
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(i) Processing Fees. Accounts receivable agings and Inventory reports shall be
submitted electronically by Borrower to Lender via Collateral Services, Inc. A
set-up fee of $750.00, in addition to a monthly processing fee of less than $100
per month, shall be charged by Lender to Borrower.

(j) Other Fees and Charges. The Lender may from time to time impose additional
fees and charges as consideration for Advances made in excess of Availability or
for other events that constitute an Event of Default or a Default hereunder,
including fees and charges for the administration of Collateral by the Lender,
and fees and charges for the late delivery of reports, which may be assessed in
the Lender’s sole discretion on either an hourly, periodic, or flat fee basis,
and in lieu of or in addition to imposing interest at the Default Rate.
  
Section 2.8 Time for Interest Payments; Payment on Non-Business Days;
Computation of Interest and Fees.
 
(a) Time For Interest Payments. Accrued and unpaid interest accruing on Floating
Rate Advances shall be due and payable on the first day of each month and on the
Termination Date (each an "Interest Payment Date"), or if any such day is not a
Business Day, on the next succeeding Business Day. Interest will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the date of advance to the Interest Payment Date. If an Interest
Payment Date is not a Business Day, payment shall be made on the next succeeding
Business Day. Interest accruing on each LIBOR Advance shall be due and payable
on the last day of the applicable Interest Period; provided, however, for
Interest Periods that are longer than one month, interest shall nevertheless be
due and payable monthly on the last day of each month, and on the last day of
the Interest Period.

(b) Payment on Non-Business Days. Whenever any payment to be made hereunder
shall be stated to be due on a day which is not a Business Day, such payment may
be made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of interest on the Advances or the fees
hereunder, as the case may be.
 
(c) Computation of Interest and Fees. Interest accruing on the outstanding
principal balance of the Advances and fees hereunder outstanding from time to
time shall be computed on the basis of actual number of days elapsed in a year
of 360 days.
 
Section 2.9 Collateral Account; Sweep of Funds.
 
(a) Collateral Account.
 
(i) The Borrower shall wire transfer payments on Accounts it receives and shall
deposit such payments into the Collateral Account. The Borrower shall also
deposit all other cash proceeds of Collateral regardless of source or nature
directly into the Collateral Account. Until so deposited, the Borrower shall
hold all such payments and cash proceeds in trust for and as the property of the
Lender and shall not commingle such property with any of its other funds or
property. All deposits in the Collateral Account shall constitute proceeds of
Collateral and shall not constitute payment of the Obligations.
 
 
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(ii) All items deposited in the Collateral Account shall be subject to final
payment. If any such item is returned uncollected, the Borrower will immediately
pay the Lender, or, for items deposited in the Collateral Account, the bank
maintaining such account, the amount of that item, or such bank at its
discretion may charge any uncollected item to the Borrower’s commercial account
or other account. The Borrower shall be liable as an endorser on all items
deposited in the Collateral Account, whether or not in fact endorsed by the
Borrower.
 
(b) Sweep of Funds. The Lender shall from time to time, in accordance with the
Collection Account Agreement, cause funds in the Collateral Account to be
transferred to the Lender’s general account for payment of the Obligations.
Amounts deposited in the Collateral Account shall not be subject to withdrawal
by the Borrower, except after payment in full and discharge of all Obligations.
 
Section 2.10 Voluntary Prepayment; Termination of the Credit Facility by the
Borrower. Except as otherwise provided herein, the Borrower may prepay the
Advances in whole at any time or from time to time in part. The Borrower may
terminate the Credit Facility at any time if it (i) gives the Lender at least 90
days advance written notice prior to the proposed Termination Date, and
(ii) pays the Lender applicable termination and contracted funds breakage fees
in accordance with Section 2.7(f) and Section 2.7(g). If the Borrower terminates
the Credit Facility, all Obligations shall be immediately due and payable, and
if the Borrower gives the Lender less than the required 90 days advance written
notice, then the interest rate applicable to borrowings evidenced by Revolving
Note shall be the Default Rate for the period of time commencing 90 days prior
to the proposed Termination Date through the date that the Lender actually
receives such written notice. If the Borrower does not wish the Lender to
consider renewal of the Credit Facility on the next Maturity Date, then the
Borrower shall give the Lender at least 90 days written notice prior to the
Maturity Date that it will not be requesting renewal. If the Borrower fails to
give the Lender such timely notice, then the interest rate applicable to
borrowings evidenced by the Revolving Note shall be the Default Rate for the
period of time commencing 90 days prior to the Maturity Date through the date
that the Lender actually receives such written notice. 
 
Section 2.11 Mandatory Prepayment. Without notice or demand, if the sum of the
outstanding principal balance of the Revolving Advances plus the L/C Amount
shall at any time exceed the Borrowing Base, the Borrower shall (i) first,
immediately prepay the Revolving Advances to the extent necessary to eliminate
such excess; and (ii) if prepayment in full of the Revolving Advances is
insufficient to eliminate such excess, pay to the Lender in immediately
available funds for deposit in the Special Account an amount equal to the
remaining excess. Any payment received by the Lender hereunder or under Section
2.10 may be applied to the Obligations, in such order and in such amounts as the
Lender in its sole discretion may determine from time to time.
 
Section 2.12 Revolving Advances to Pay Obligations. Notwithstanding the terms of
Section 2.1, the Lender may, in its discretion at any time or from time to time,
without the Borrower’s request and even if the conditions set forth in Section
4.2 would not be satisfied, make a Revolving Advance in an amount equal to the
portion of the Obligations from time to time due and payable, and may deliver
the proceeds of any such Revolving Advance to any affiliate of the Lender in
satisfaction of any Wells Fargo Affiliate Obligations and may deliver the
proceeds of any such Revolving Advance to Wells Fargo Merchant Services, L.L.C.
in satisfaction of any unpaid obligations due to that entity.
 
 
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Section 2.13 Use of Proceeds. The Borrower shall use the proceeds of Advances
and each Letter of Credit for ordinary working capital purposes.
 
Section 2.14  Liability Records. The Lender may maintain from time to time, at
its discretion, records as to the Obligations. All entries made on any such
record shall be presumed correct until the Borrower establishes the contrary.
Upon the Lender’s demand, the Borrower will admit and certify in writing the
exact principal balance of the Obligations that the Borrower then asserts to be
outstanding. Any billing statement or accounting rendered by the Lender shall be
conclusive and fully binding on the Borrower unless the Borrower gives the
Lender specific written notice of exception within 60 days after receipt.
 
Section 2.15 Lender’s Election. Each Borrower hereby acknowledges and agrees
that such Borrower is jointly and severally liable for, and hereby absolutely
and unconditionally obligated to the Lender for the full and prompt payment of
all Obligations owed or hereafter owed to the Lender by each Borrower.
Notwithstanding any provision contained herein to the contrary, uBid.com’s
liability to Lender shall be limited to the amount which could be claimed by the
Lender from uBid.com under this section without rendering such claim voidable or
avoidable under Section 548 of the Bankruptcy Code or under any applicable state
Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar
statute or common law after taking into account, among other things, its right
of contribution and indemnification from other parties.
 
This section is intended only to define the relative rights of uBid.com and UBid
and nothing set forth in this section is intended to nor shall impair the
Obligations of the Borrower, jointly and severally, to pay any amounts as and
when the same shall become due and payable in accordance with the terms of this
Credit Agreement including without limitation any provision herein. Nothing
contained herein shall limit the liability of any Borrower to pay Advances,
Obligations and reimbursement to Lender of letters of credit or any other
instrument, interest, fees, expenses and all other amounts with respect thereto
for which such Borrower shall be liable.
 
This section shall only be in effect in the event the Lender, in its sole
discretion, declares this section to be effective.
 
ARTICLE III
 
SECURITY INTEREST; OCCUPANCY; SETOFF
 
Section 3.1 Grant of Security Interest. The Borrower hereby pledges, assigns and
grants to the Lender, for the benefit of itself and as agent for Wells Fargo
Merchant Services, LLC and for the benefit of itself and as agent for any
affiliate of the Lender that may provide credit or services to the Borrower that
constitute Wells Fargo Affiliate Obligations, a lien and security interest
(collectively referred to as the “Security Interest”) in the Collateral, as
security for the payment and performance of the Obligations. Upon request by the
Lender, the Borrower will grant the Lender, for the benefit of itself and as
agent for Wells Fargo Merchant Services, LLC and for the benefit of itself and
as agent for any affiliate of the Lender that may provide credit or services to
the Borrower that constitute Wells Fargo Affiliate Obligations, a security
interest in all commercial tort claims that the Borrower may have against any
Person. 
 
 
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Section 3.2 Notification of Account Debtors and Other Obligors. The Lender may
at any time (as long as a Default Period then exists) notify any account debtor
or other Person obligated to pay the amount due that such right to payment has
been assigned or transferred to the Lender for security and shall be paid
directly to the Lender. The Borrower will join in giving such notice if the
Lender so requests. At any time after the Borrower or the Lender gives such
notice to an account debtor or other obligor, the Lender may, but need not, in
the Lender’s name or in the Borrower’s name, demand, sue for, collect or receive
any money or property at any time payable or receivable on account of, or
securing, any such right to payment, or grant any extension to, make any
compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligations (including collateral obligations) of any such account
debtor or other obligor. The Lender may, in the Lender’s name or in the
Borrower’s name, as the Borrower’s agent and attorney-in-fact, notify the United
States Postal Service to change the address for delivery of the Borrower’s mail
to any address designated by the Lender, otherwise intercept the Borrower’s
mail, and receive, open and dispose of the Borrower’s mail, applying all
Collateral as permitted under this Agreement and holding all other mail for the
Borrower’s account or forwarding such mail to the Borrower’s last known address.
 
Section 3.3 Assignment of Insurance. As additional security for the payment and
performance of the Obligations, the Borrower hereby assigns to the Lender any
and all monies (including proceeds of insurance and refunds of unearned
premiums) due or to become due under, and all other rights of the Borrower with
respect to, any and all policies of insurance now or at any time hereafter
covering the Collateral or any evidence thereof or any business records or
valuable papers pertaining thereto, and the Borrower hereby directs the issuer
of any such policy to pay all such monies directly to the Lender. At any time,
whether or not a Default Period then exists, the Lender may (but need not), in
the Lender’s name or in the Borrower’s name, execute and deliver proof of claim,
receive all such monies, endorse checks and other instruments representing
payment of such monies, and adjust, litigate, compromise or release any claim
against the issuer of any such policy. Any monies received as payment for any
loss under any insurance policy mentioned above (other than liability insurance
policies) or as payment of any award or compensation for condemnation or taking
by eminent domain, shall be paid over to the Lender to be applied, at the option
of the Lender, either to the prepayment of the Obligations or shall be disbursed
to the Borrower under staged payment terms reasonably satisfactory to the Lender
for application to the cost of repairs, replacements, or restorations. Any such
repairs, replacements, or restorations shall be effected with reasonable
promptness and shall be of a value at least equal to the value of the items or
property destroyed prior to such damage or destruction.
 
 
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Section 3.4 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the right to take
exclusive possession of the Premises at any time during a Default Period without
notice or consent.
 
(b) The Lender may use the Premises only to hold, process, manufacture, sell,
use, store, liquidate, realize upon or otherwise dispose of goods that are
Collateral and for other purposes that the Lender may in good faith deem to be
related or incidental purposes.
 
(c) The Lender’s right to hold the Premises shall cease and terminate upon the
earlier of (i) payment in full and discharge of all Obligations and termination
of the Credit Facility, and (ii) final sale or disposition of all goods
constituting Collateral and delivery of all such goods to purchasers.
 
(d) The Lender shall not be obligated to pay or account for any rent or other
compensation for the possession, occupancy or use of any of the Premises;
provided, however, that if the Lender does pay or account for any rent or other
compensation for the possession, occupancy or use of any of the Premises, the
Borrower shall reimburse the Lender promptly for the full amount thereof. In
addition, the Borrower will pay, or reimburse the Lender for, all taxes, fees,
duties, imposts, charges and expenses at any time incurred by or imposed upon
the Lender by reason of the execution, delivery, existence, recordation,
performance or enforcement of this Agreement or the provisions of this Section
3.4.
 
Section 3.5 License. Without limiting the generality of any other Security
Document, the Borrower hereby grants to the Lender a non-exclusive, worldwide
and royalty-free license to use or otherwise exploit all Intellectual Property
Rights of the Borrower for the purpose of: (a) completing the manufacture of any
in-process materials during any Default Period so that such materials become
saleable Inventory, all in accordance with the same quality standards previously
adopted by the Borrower for its own manufacturing and subject to the Borrower’s
reasonable exercise of quality control; and (b) selling, leasing or otherwise
disposing of any or all Collateral during any Default Period.
 
Section 3.6 Financing Statement. The Borrower authorizes the Lender to file from
time to time, such financing statements against collateral described as “all
personal property” or “all assets” or describing specific items of collateral
including commercial tort claims as the Lender deems necessary or useful to
perfect the Security Interest. All financing statements filed before the date
hereof to perfect the Security Interest were authorized by the Borrower and are
hereby re-authorized. A carbon, photographic or other reproduction of this
Agreement or of any financing statements signed by the Borrower is sufficient as
a financing statement and may be filed as a financing statement in any state to
perfect the security interests granted hereby. For this purpose, the Borrower
represents and warrants that the following information is true and correct:
 
 
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Name and address of Debtor:

 
uBid.com Holdings, Inc.
8550 West Bryn Mawr Avenue, Suite 200
Chicago, Illinois 60631
Federal Employer Identification No. 522372260
Organizational Identification No. DE 4057093
 
UBid, Inc.
8550 West Bryn Mawr Avenue, Suite 200
Chicago, Illinois 60631
Federal Employer Identification No. 412084832
Organizational Identification No. DE 3633799
 
Name and address of Secured Party:
 
Wells Fargo Business Credit, Inc.
100 East Wisconsin Avenue, Suite 1400
Milwaukee, Wisconsin 53202

Section 3.7 Setoff. The Lender may at any time or from time to time, at its sole
discretion and without demand and without notice to anyone, setoff any liability
owed to the Borrower by the Lender, whether or not due, against any Obligation,
whether or not due. In addition, each other Person holding a participating
interest in any Obligations shall have the right to appropriate or setoff any
deposit or other liability then owed by such Person to the Borrower, whether or
not due, and apply the same to the payment of said participating interest, as
fully as if such Person had lent directly to the Borrower the amount of such
participating interest.
 
Section 3.8 Collateral. This Agreement does not contemplate a sale of accounts,
contract rights or chattel paper, and, as provided by law, the Borrower is
entitled to any surplus and shall remain liable for any deficiency. The Lender’s
duty of care with respect to Collateral in its possession (as imposed by law)
shall be deemed fulfilled if it exercises reasonable care in physically keeping
such Collateral, or in the case of Collateral in the custody or possession of a
bailee or other third Person, exercises reasonable care in the selection of the
bailee or other third Person, and the Lender need not otherwise preserve,
protect, insure or care for any Collateral. The Lender shall not be obligated to
preserve any rights the Borrower may have against prior parties, to realize on
the Collateral at all or in any particular manner or order or to apply any cash
proceeds of the Collateral in any particular order of application. The Lender
has no obligation to clean-up or otherwise prepare the Collateral for sale. The
Borrower waives any right it may have to require the Lender to pursue any third
Person for any of the Obligations.
 
ARTICLE IV

 
CONDITIONS OF LENDING
 
Section 4.1 Conditions Precedent to the Initial Advances and Letter of Credit.
The Lender’s obligation to make the initial Advances or to cause any Letters of
Credit to be issued shall be subject to the condition precedent that the Lender
shall have received all of the following, each properly executed by the
appropriate party and in form and substance satisfactory to the Lender:
 
(a) This Agreement.
 
 
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(b) The Revolving Note.
 
(c) A Commercial Letter of Credit Agreement and L/C Application for each Letter
of Credit that the Borrower wishes to have issued thereunder.
 
(d) A true and correct copy of any and all leases pursuant to which the Borrower
is leasing the Premises where Inventory is located, together with a landlord’s
disclaimer and consent with respect to each such lease.
 
(e) A true and correct copy of any and all mortgages pursuant to which the
Borrower has mortgaged the Premises, together with a mortgagee’s disclaimer and
consent with respect to each such mortgage.
 
(f) A true and correct copy of any and all agreements pursuant to which the
Borrower’s property is in the possession of any Person other than the Borrower,
together with, in the case of any goods held by such Person for resale, (i) a
consignee’s acknowledgment and waiver of Liens, (ii) UCC financing statements
sufficient to protect the Borrower’s and the Lender’s interests in such goods,
and (iii) UCC searches showing that no other secured party has filed a financing
statement against such Person and covering property similar to the Borrower’s
other than the Borrower, or if there exists any such secured party, evidence
that each such secured party has received notice from the Borrower and the
Lender sufficient to protect the Borrower’s and the Lender’s interests in the
Borrower’s goods from any claim by such secured party.
 
(g) An acknowledgment and waiver of Liens from each warehouse in which the
Borrower is storing Inventory.
 
(h) A true and correct copy of any and all agreements pursuant to which the
Borrower’s property is in the possession of any Person other than the Borrower,
together with, (i) an acknowledgment and waiver of Liens from each subcontractor
who has possession of the Borrower’s goods from time to time, (ii) UCC financing
statements sufficient to protect the Borrower’s and the Lender’s interests in
such goods, and (iii) UCC searches showing that no other secured party has filed
a financing statement covering such Person’s property other than the Borrower,
or if there exists any such secured party, evidence that each such secured party
has received notice from the Borrower and the Lender sufficient to protect the
Borrower’s and the Lender’s interests in the Borrower’s goods from any claim by
such secured party.
 
(i) The Collection Account Agreement. 
 
(j) Control agreements with each bank at which the Borrower maintains deposit
accounts.
 
(k) [Intentionally Omitted]
 
(l) [Intentionally Omitted]
 
(m) Current searches of appropriate filing offices showing that (i) no Liens
have been filed and remain in effect against the Borrower except Permitted Liens
or Liens held by Persons who have agreed in writing that upon receipt of
proceeds of the initial Advances, they will satisfy, release or terminate such
Liens in a manner satisfactory to the Lender, and (ii) the Lender has duly filed
all financing statements necessary to perfect the Security Interest, to the
extent the Security Interest is capable of being perfected by filing.
 
 
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(n) A certificate of the Borrower’s Secretary or Assistant Secretary certifying
that attached to such certificate are (i) the resolutions of the Borrower’s
Directors and, if required, Owners, authorizing the execution, delivery and
performance of the Loan Documents, (ii) true, correct and complete copies of the
Borrower’s Constituent Documents, and (iii) examples of the signatures of the
Borrower’s Officers or agents authorized to execute and deliver the Loan
Documents and other instruments, agreements and certificates, including Advance
requests, on the Borrower’s behalf.
 
(o) A current certificate issued by the Delaware Department of State, certifying
that the Borrower is in compliance with all applicable organizational
requirements of the State of Delaware.
 
(p) Evidence that the Borrower is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary.
 
(q) A certificate of an Officer of the Borrower confirming, in his official
capacity, the representations and warranties set forth in Article V.
 
(r) Certificates of the insurance required hereunder, with all hazard insurance
containing a lender’s loss payable endorsement in the Lender’s favor and with
all liability insurance naming the Lender as an additional insured.
 
(s) Payment of the fees and commissions due under Section 2.7 through the date
of the initial Advance or Letter of Credit and expenses incurred by the Lender
through such date and required to be paid by the Borrower under Section 8.5,
including all legal expenses incurred through the date of this Agreement.
 
(t)  Evidence that after making the initial Revolving Advance, satisfying all
obligations owed to the Borrower’s prior lender, satisfying all trade payables
older than 60 days from invoice date, book overdrafts and closing costs,
Availability shall be not less than $2,000,000.00. 
 
(u) A Customer Identification Information form and such other forms and
verification as the Lender may need to comply with the U.S.A. Patriot Act.

(v) Such other documents as the Lender in its sole discretion may require.
 
 
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Section 4.2 Conditions Precedent to All Advances and Letters of Credit. The
Lender’s obligation to make each Advance or to cause the issuance of a Letter of
Credit shall be subject to the further conditions precedent that:
 
(a) the representations and warranties contained in Article V are correct on and
as of the date of such Advance or issuance of a Letter of Credit as though made
on and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date; and
 
(b) no event has occurred and is continuing, or would result from such Advance
or issuance of a Letter of Credit which constitutes a Default or an Event of
Default.
 
ARTICLE V

 
REPRESENTATIONS AND WARRANTIES
 
The Borrower represents and warrants to the Lender as follows:
 
Section 5.1 Existence and Power; Name; Chief Executive Office; Inventory and
Equipment Locations; Federal Employer Identification Number and Organizational
Identification Number. The Borrower is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Delaware and is
duly licensed or qualified to transact business in all jurisdictions where the
character of the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification necessary. The Borrower
has all requisite power and authority to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under, the Loan Documents. During its existence, the Borrower has done business
solely under the names set forth in Schedule 5.1. The Borrower’s chief executive
office and principal place of business is located at the address set forth in
Schedule 5.1, and all of the Borrower’s records relating to its business or the
Collateral are kept at that location. All Inventory and Equipment is located at
that location or at one of the other locations listed in Schedule 5.1. The
Borrower’s federal employer identification number and organization
identification number are correctly set forth in Section 3.6.
 
Section 5.2 Capitalization. Schedule 5.2 constitutes a correct and complete list
of all ownership interests of the Borrower and rights to acquire ownership
interests including the record holder, number of interests and percentage
interests on a fully diluted basis, and an organizational chart showing the
ownership structure of all Subsidiaries of the Borrower.
 
Section 5.3 Authorization of Borrowing; No Conflict as to Law or Agreements. The
execution, delivery and performance by the Borrower of the Loan Documents and
the borrowings from time to time hereunder have been duly authorized by all
necessary corporate action and do not and will not (i) require any consent or
approval of the Borrower’s Owners; (ii) require any authorization, consent or
approval by, or registration, declaration or filing with, or notice to, any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or any third party, except such authorization, consent,
approval, registration, declaration, filing or notice as has been obtained,
accomplished or given prior to the date hereof; (iii) violate any provision of
any law, rule or regulation (including Regulation X of the Board of Governors of
the Federal Reserve System) or of any order, writ, injunction or decree
presently in effect having applicability to the Borrower or of the Borrower’s
Constituent Documents; (iv) result in a breach of or constitute a default under
any indenture or loan or credit agreement or any other material agreement, lease
or instrument to which the Borrower is a party or by which it or its properties
may be bound or affected; or (v) result in, or require, the creation or
imposition of any Lien (other than the Security Interest) upon or with respect
to any of the properties now owned or hereafter acquired by the Borrower.
 
 
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Section 5.4 Legal Agreements. This Agreement constitutes and, upon due execution
by the Borrower, the other Loan Documents will constitute the legal, valid and
binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms.
 
Section 5.5 Subsidiaries. Except as set forth in Schedule 5.5 hereto, the
Borrower has no Subsidiaries.
 
Section 5.6 Financial Condition; No Adverse Change. The Borrower has furnished
to the Lender its audited consolidated and consolidating financial statements
for its fiscal year ended December 31, 2005 and internally prepared financial
statements for the fiscal-year-to-date period ended January 31, 2006, and those
statements fairly present the Borrower’s financial condition on the dates
thereof and the results of its operations and cash flows for the periods then
ended and were prepared in accordance with GAAP. Since the date of the most
recent financial statements, there has been no change in the Borrower’s
business, properties or condition (financial or otherwise) which has had a
Material Adverse Effect.
 
Section 5.7 Litigation. There are no actions, suits or proceedings pending or,
to the Borrower’s knowledge, threatened against or affecting the Borrower or any
of its Affiliates or the properties of the Borrower or any of its Affiliates
before any court or governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, which, if determined adversely to the
Borrower or any of its Affiliates, would result in a final judgment or judgments
against the Borrower or any of its Affiliates in an amount in excess of
$50,000.00, apart from those matters specifically listed in Schedule 5.7. 
 
Section 5.8 Regulation U. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Advance will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
 
Section 5.9 Taxes. The Borrower and its Affiliates have paid or caused to be
paid to the proper authorities when due all federal, state and local taxes
required to be withheld by each of them. The Borrower and its Affiliates have
filed all federal, state and local tax returns which to the knowledge of the
Officers of the Borrower or any Affiliate, as the case may be, are required to
be filed, and the Borrower and its Affiliates have paid or caused to be paid to
the respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due.
 
 
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Section 5.10 Titles and Liens. The Borrower has good and absolute title to all
Collateral free and clear of all Liens other than Permitted Liens. No financing
statement naming the Borrower as debtor is on file in any office except to
perfect only Permitted Liens.
 
Section 5.11 Intellectual Property Rights.
 
(a) Owned Intellectual Property. Schedule 5.11 is a complete list of all
patents, applications for patents, trademarks, applications to register
trademarks, service marks, applications to register service marks, mask works,
trade dress and copyrights for which the Borrower is the owner of record (the
“Owned Intellectual Property”). Except as disclosed on Schedule 5.11, (i) the
Borrower owns the Owned Intellectual Property free and clear of all restrictions
(including covenants not to sue a third party), court orders, injunctions,
decrees, writs or Liens, whether by written agreement or otherwise, (ii) no
Person other than the Borrower owns or has been granted any right in the Owned
Intellectual Property, (iii) all Owned Intellectual Property is valid,
subsisting and enforceable and (iv) the Borrower has taken all commercially
reasonable action necessary to maintain and protect the Owned Intellectual
Property.
 
(b) Agreements with Employees and Contractors. The Borrower has entered into a
legally enforceable agreement with each of its employees and subcontractors
obligating each such Person to assign to the Borrower, without any additional
compensation, any Intellectual Property Rights created, discovered or invented
by such Person in the course of such Person’s employment or engagement with the
Borrower (except to the extent prohibited by law), and further requiring such
Person to cooperate with the Borrower, without any additional compensation, in
connection with securing and enforcing any Intellectual Property Rights therein;
provided, however, that the foregoing shall not apply with respect to employees
and subcontractors whose job descriptions are of the type such that no such
assignments are reasonably foreseeable.
 
(c) Intellectual Property Rights Licensed from Others. Schedule 5.11 is a
complete list of all agreements under which the Borrower has licensed
Intellectual Property Rights from another Person (“Licensed Intellectual
Property”) other than readily available, non-negotiated licenses of computer
software and other intellectual property used solely for performing accounting,
word processing and similar administrative tasks (“Off-the-shelf Software”) and
a summary of any ongoing payments the Borrower is obligated to make with respect
thereto. Except as disclosed on Schedule 5.11 and in written agreements, copies
of which have been given to the Lender, the Borrower’s licenses to use the
Licensed Intellectual Property are free and clear of all restrictions, Liens,
court orders, injunctions, decrees, or writs, whether by written agreement or
otherwise. Except as disclosed on Schedule 5.11, the Borrower is not obligated
or under any liability whatsoever to make any payments of a material nature by
way of royalties, fees or otherwise to any owner of, licensor of, or other
claimant to, any Intellectual Property Rights.
 
(d) Other Intellectual Property Needed for Business. Except for Off-the-shelf
Software and as disclosed on Schedule 5.11, the Owned Intellectual Property and
the Licensed Intellectual Property constitute all Intellectual Property Rights
used or necessary to conduct the Borrower’s business as it is presently
conducted or as the Borrower reasonably foresees conducting it.
 
 
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(e) Infringement. Except as disclosed on Schedule 5.11, the Borrower has no
knowledge of, and has not received any written claim or notice alleging, any
Infringement of another Person’s Intellectual Property Rights (including any
written claim that the Borrower must license or refrain from using the
Intellectual Property Rights of any third party) nor, to the Borrower’s
knowledge, is there any threatened claim or any reasonable basis for any such
claim.
 
Section 5.12 Plans. Except as disclosed to the Lender in writing prior to the
date hereof, neither the Borrower nor any ERISA Affiliate (i) maintains or has
maintained any Pension Plan, (ii) contributes or has contributed to any
Multiemployer Plan or (iii) provides or has provided post-retirement medical or
insurance benefits with respect to employees or former employees (other than
benefits required under Section 601 of ERISA, Section 4980B of the IRC or
applicable state law). Neither the Borrower nor any ERISA Affiliate has received
any notice or has any knowledge to the effect that it is not in full compliance
with any of the requirements of ERISA, the IRC or applicable state law with
respect to any Plan. No Reportable Event exists in connection with any Pension
Plan. Each Plan which is intended to qualify under the IRC is so qualified, and
no fact or circumstance exists which may have an adverse effect on the Plan’s
tax-qualified status. Neither the Borrower nor any ERISA Affiliate has (i) any
accumulated funding deficiency (as defined in Section 302 of ERISA and Section
412 of the IRC) under any Plan, whether or not waived, (ii) any liability under
Section 4201 or 4243 of ERISA for any withdrawal, partial withdrawal,
reorganization or other event under any Multiemployer Plan or (iii) any
liability or knowledge of any facts or circumstances which could result in any
liability to the Pension Benefit Guaranty Corporation, the Internal Revenue
Service, the Department of Labor or any participant in connection with any Plan
(other than routine claims for benefits under the Plan).
 
Section 5.13 Default. The Borrower is in compliance with all provisions of all
agreements, instruments, decrees and orders to which it is a party or by which
it or its property is bound or affected, the breach or default of which could
have a Material Adverse Effect.
 
Section 5.14 Environmental Matters. To Borrower’s knowledge as to the
subsections herein:
 
(a) Except as disclosed on Schedule 5.14, there are not present in, on or under
the Premises any Hazardous Substances in such form or quantity as to create any
material liability or obligation for either the Borrower or the Lender under the
common law of any jurisdiction or under any Environmental Law, and no Hazardous
Substances have ever been stored, buried, spilled, leaked, discharged, emitted
or released in, on or under the Premises in such a way as to create any such
material liability. 

(b) Except as disclosed on Schedule 5.14, the Borrower has not disposed of
Hazardous Substances in such a manner as to create any material liability under
any Environmental Law.
 
 
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(c) Except as disclosed on Schedule 5.14, there have not existed in the past,
nor are there any threatened or impending requests, claims, notices,
investigations, demands, administrative proceedings, hearings or litigation
relating in any way to the Premises or the Borrower, alleging material liability
under, violation of, or noncompliance with any Environmental Law or any license,
permit or other authorization issued pursuant thereto.
 
(d) Except as disclosed on Schedule 5.14, the Borrower’s businesses are and have
in the past always been conducted in accordance with all Environmental Laws and
all licenses, permits and other authorizations required pursuant to any
Environmental Law and necessary for the lawful and efficient operation of such
businesses are in the Borrower’s possession and are in full force and effect,
nor has the Borrower been denied insurance on grounds related to potential
environmental liability. No permit required under any Environmental Law is
scheduled to expire within 12 months and there is no threat that any such permit
will be withdrawn, terminated, limited or materially changed.
 
(e) Except as disclosed on Schedule 5.14, the Premises are not and never have
been listed on the National Priorities List, the Comprehensive Environmental
Response, Compensation and Liability Information System or any similar federal,
state or local list, schedule, log, inventory or database.
 
(f) The Borrower has delivered to the Lender all environmental assessments,
audits, reports, permits, licenses and other documents which are in the
Borrower’s possession and control describing or relating in any way to the
Premises or the Borrower’s businesses.
 
Section 5.15 Submissions to Lender. All financial and other information provided
to the Lender by or on behalf of the Borrower in connection with the Borrower’s
request for the credit facilities contemplated hereby (i) is true and correct in
all material respects, (ii) does not omit any material fact necessary to make
such information not misleading and, (iii) as to projections, valuations or
proforma financial statements, presents a good faith opinion as to such
projections, valuations and proforma condition and results.
 
Section 5.16 Financing Statements. The Borrower has authorized the filing of
financing statements sufficient when filed to perfect the Security Interest and
the other security interests created by the Security Documents. When such
financing statements are filed in the offices noted therein, the Lender will
have a valid and perfected security interest in all Collateral which is capable
of being perfected by filing financing statements. None of the Collateral is or
will become a fixture on real estate, unless a sufficient fixture filing is in
effect with respect thereto. 
 
Section 5.17 Rights to Payment. Each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral is (or, in the case of all future Collateral, will be when arising or
issued) the valid, genuine and legally enforceable obligation, subject to no
defense, setoff or counterclaim, of the account debtor or other obligor named
therein or in the Borrower’s records pertaining thereto as being obligated to
pay such obligation.
 
 
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Section 5.18 Financial Solvency. Both before and after giving effect to the
refinancing and all of the transactions contemplated in the Loan Documents, none
of the Borrower or its Affiliates:
 
(a) Was or will be insolvent, as that term is used and defined in Section
101(32) of the United States Bankruptcy Code and Section 2 of the Uniform
Fraudulent Transfer Act;
 
(b) Has unreasonably small capital or is engaged or about to engage in a
business or a transaction for which any remaining assets of the Borrower or such
Affiliate are unreasonably small;
 
(c) By executing, delivering or performing its obligations under the Loan
Documents or other documents to which it is a party or by taking any action with
respect thereto, intends to, nor believes that it will, incur debts beyond its
ability to pay them as they mature;
 
(d) By executing, delivering or performing its obligations under the Loan
Documents or other documents to which it is a party or by taking any action with
respect thereto, intends to hinder, delay or defraud either its present or
future creditors; and
 
(e) At this time contemplates filing a petition in bankruptcy or for an
arrangement or reorganization or similar proceeding under any law of any
jurisdiction, nor, to the best knowledge of the Borrower, is the subject of any
actual, pending or threatened bankruptcy, insolvency or similar proceedings
under any law of any jurisdiction.
 
ARTICLE VI

 
COVENANTS
 
So long as the Obligations shall remain unpaid, or the Credit Facility shall
remain outstanding, the Borrower will comply with the following requirements,
unless the Lender shall otherwise consent in writing:
 
Section 6.1 Reporting Requirements. The Borrower will deliver, or cause to be
delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
 
(a) Annual Financial Statements. As soon as available, and in any event within
90 days after the end of each fiscal year of the Borrower, the Borrower’s
audited financial statements on a consolidated and consolidating basis with the
unqualified opinion of independent certified public accountants selected by the
Borrower and acceptable to the Lender, which annual financial statements shall
include the Borrower’s balance sheet as at the end of such fiscal year and the
related statements of the Borrower’s income, retained earnings and cash flows
for the fiscal year then ended, prepared, if the Lender so requests, on a
consolidating and consolidated basis to include any Affiliates, all in
reasonable detail and prepared in accordance with GAAP, together with (i) copies
of all management letters prepared by such accountants; (ii) an acknowledgment
as part of the audited financial statements and/or documents filed with the
Securities and Exchange Commission (“SEC”) signed by such accountants stating
whether any Default or Event of Default then exists (and, if any Default or
Event of Default then exists, a description of such Default or Event of
Default); and (iii) a certificate of the Borrower’s chief financial officer
stating that such financial statements have been prepared in accordance with
GAAP, fairly represent the Borrower’s financial position and the results of its
operations, and whether or not such Officer has knowledge of the occurrence of
any Default or Event of Default and, if so, stating in reasonable detail the
facts with respect thereto.
 
 
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(b) Monthly Financial Statements. As soon as available and in any event within
20 days after the end of each month, the internally prepared unaudited/internal
balance sheet and statements of income and retained earnings of the Borrower as
at the end of and for such month and for the year to date period then ended,
prepared, if the Lender so requests, on a consolidating and consolidated basis
to include any Affiliates, in reasonable detail and stating in comparative form
the figures for the corresponding date and periods in the previous year, all
prepared in accordance with GAAP, subject to year-end audit adjustments and
which fairly represent the Borrower’s financial position and the results of its
operations; and accompanied by a certificate of the Borrower’s chief financial
officer, substantially in the form of Exhibit B hereto stating (i) that such
financial statements have been prepared in accordance with GAAP, subject to
year-end audit adjustments, and fairly represent the Borrower’s financial
position and the results of its operations, (ii) whether or not such Officer has
knowledge of the occurrence of any Default or Event of Default not theretofore
reported and remedied and, if so, stating in reasonable detail the facts with
respect thereto, and (iii) all relevant facts in reasonable detail to evidence,
and the computations as to, whether or not the Borrower is in compliance with
the Financial Covenants.
 
(c) Collateral Reports. Within 15 days after the end of each month or more
frequently if the Lender so requires, the Borrower’s accounts receivable and its
accounts payable, a detailed inventory report, an inventory certification
report, and a calculation of the Borrower’s Accounts, Eligible Accounts,
Inventory and Eligible Inventory as at the end of such month or shorter time
period (the “Collateral Reports”). Borrower agrees to submit the Collateral
Reports to Lender via Collateral Services, Inc. (“CSI”) and further agrees to
pay Lender as specified in Section 2.7(i) herein.  
 
(d) Projections. As soon as available, and in any event within 30 days prior to
the beginning of each fiscal year, the Borrower will deliver to the Lender the
Borrower’s projected balance sheets, income statements, statements of cash flow
and projected Availability for each month of the succeeding fiscal year, each in
reasonable detail. Such items will be certified by the Officer who is the
Borrower’s chief financial officer as being the most accurate projections
available and identical to the projections used by the Borrower for internal
planning purposes and be delivered with a statement of underlying assumptions
and such supporting schedules and information as the Lender may in its
discretion require.
 
(e) Supplemental Reports. Weekly, or more frequently if the Lender so requires,
the Borrower’s “daily collateral reports”, receivables schedules, collection
reports, copies of invoices to account debtors, signed and dated shipment
documents and delivery receipts for goods sold to said account debtors, as
requested by Lender in its sole discretion. 

(f) Litigation. Immediately after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or regulatory
agency affecting the Borrower (i) of the type described in Section 5.14(c) or
(ii) which seek a monetary recovery against the Borrower in excess of $50,000.
 
 
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(g) Defaults. When any Officer of the Borrower becomes aware of the probable
occurrence of any Default or Event of Default, and no later than 3 days after
such Officer becomes aware of such Default or Event of Default, notice of such
occurrence, together with a detailed statement by a responsible Officer of the
Borrower of the steps being taken by the Borrower to cure the effect thereof.
 
(h) Plans. As soon as possible, and in any event within 30 days after the
Borrower knows or has reason to know that any Reportable Event with respect to
any Pension Plan has occurred, a statement signed by the Officer who is the
Borrower’s chief financial officer setting forth details as to such Reportable
Event and the action which the Borrower proposes to take with respect thereto,
together with a copy of the notice of such Reportable Event to the Pension
Benefit Guaranty Corporation. As soon as possible, and in any event within
10 days after the Borrower fails to make any quarterly contribution required
with respect to any Pension Plan under Section 412(m) of the IRC, the Borrower
will deliver to the Lender a statement signed by the Officer who is the
Borrower’s chief financial officer setting forth details as to such failure and
the action which the Borrower proposes to take with respect thereto, together
with a copy of any notice of such failure required to be provided to the Pension
Benefit Guaranty Corporation. As soon as possible, and in any event within ten
days after the Borrower knows or has reason to know that it has or is reasonably
expected to have any liability under Sections 4201 or 4243 of ERISA for any
withdrawal, partial withdrawal, reorganization or other event under any
Multiemployer Plan, the Borrower will deliver to the Lender a statement of the
Borrower’s chief financial officer setting forth details as to such liability
and the action which the Borrower proposes to take with respect thereto.
 
(i) Disputes. Promptly upon knowledge thereof, notice of (i) any disputes or
claims by the Borrower’s customers exceeding $100,000 in the aggregate at any
one time during any fiscal year; (ii) credit memos; and (iii) any goods returned
to or recovered by the Borrower.
 
(j) Officers and Directors. Promptly upon knowledge thereof, notice of any
change in the persons constituting the Borrower’s Officers and Directors.
 
(k) Collateral. Promptly upon knowledge thereof, notice of any material loss of
or material damage to any Collateral or of any substantial adverse change in any
Collateral or the prospect of payment thereof.
 
(l) Commercial Tort Claims. Promptly upon knowledge thereof, notice of any
commercial tort claims it may bring against any Person, including the name and
address of each defendant, a summary of the facts, an estimate of the Borrower’s
damages, copies of any complaint or demand letter submitted by the Borrower, and
such other information as the Lender may request.
 
 
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(m) Intellectual Property.
 
(i) 30 days prior written notice of Borrower’s intent to acquire material
Intellectual Property Rights; except for transfers permitted under Section 6.18,
the Borrower will give the Lender 30 days prior written notice of its intent to
dispose of material Intellectual Property Rights and upon request shall provide
the Lender with copies of all proposed documents and agreements concerning such
rights.
 
(ii) Promptly upon knowledge thereof, notice of (A) any Infringement of its
Intellectual Property Rights by others, (B) claims that the Borrower is
Infringing another Person’s Intellectual Property Rights and (C) any threatened
cancellation, termination or material limitation of its Intellectual Property
Rights.
 
(iii) Promptly upon receipt, copies of all registrations and filings with
respect to its Intellectual Property Rights.
 
(n) Reports to Owners. Promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have sent to
its Owners.
 
(o) SEC Filings. Promptly after the sending or filing thereof, copies of all
regular and periodic reports which the Borrower shall file with the Securities
and Exchange Commission or any national securities exchange.
 
(p) Tax Returns of Borrower. As soon as possible, and in any event no later than
five days after they are due to be filed, copies of the state and federal income
tax returns and all schedules thereto of the Borrower.

(q) Tax Returns and Personal Financial Statements of Owners. [Intentionally
deleted]

(r) Violations of Law. Promptly upon knowledge thereof, notice of the Borrower’s
violation of any law, rule or regulation, the non-compliance with which could
have a Material Adverse Effect on the Borrower.
 
(s)  Other Reports. From time to time, with reasonable promptness, any and all
receivables schedules, inventory reports, collection reports, deposit records,
equipment schedules, copies of invoices to account debtors, shipment documents
and delivery receipts for goods sole, and such other material, reports, records
or information as the Lender may request. 
 
Section 6.2 Financial Covenants.
 
(a) Net Earnings. While any part of the Obligations remains unpaid, the Borrower
will not be required to demonstrate a required amount of Net Earnings if and
only if Borrower’s average monthly excess Availability on the Revolving Facility
is not less than Three Million Five Hundred Thousand Dollars ($3,500,000.00)
(the “Minimum Excess Availability”); provided, however, that in the event that
Borrower does not meet the Minimum Excess Availability while any part of the
Obligations remains unpaid, then the Borrower shall, unless waived in writing by
the Lender, demonstrate Net Earnings, as measured on a quarterly basis and
calculated based upon Borrower’s trailing twelve (12) month, of: (i) not more
than a negative Three Million Dollars (<$3,000,000.00>) during the fiscal year
ending December 31, 2006; (ii) not more than a negative Two Million Dollars
(<$2,000,000.00>) during the fiscal year ending December 31, 2007; and (iii) not
more than a negative One Million Dollars (<$1,000,000.00>) during the fiscal
year ending December 31, 2008.
 
 
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(b) Capital Expenditures. The Borrower will not to subject to a Capital
Expenditures limit so long as Borrower’s average monthly excess Availability on
the Revolving Facility is not less than Three Million Five Hundred Thousand
Dollars ($3,500,000.00) (the “Minimum Excess Availability”); provided, however,
that in the event that Borrower does not meet the Minimum Excess Availability at
any time during this Agreement, then the Borrower agrees that it will not incur
or contract to incur Capital Expenditures of more than $1,700,000.00 in the
aggregate for the fiscal year ending December 31, 2006; provided, further,
however, that in the event that Borrower does not meet the Minimum Excess
Availability at any time during this Agreement, then the Borrower agrees that it
will not incur or contract to incur Capital Expenditures of more than
$1,200,000.00 in the aggregate for the fiscal year ending December 31, 2007 and
for each fiscal year end thereafter.
 
Section 6.3 Permitted Liens; Financing Statements.
 
(a) The Borrower will not create, incur or suffer to exist any Lien upon or of
any of its assets, now owned or hereafter acquired, to secure any indebtedness;
excluding, however, from the operation of the foregoing, the following (each a
“Permitted Lien”; collectively, “Permitted Liens”):
 
(i) In the case of any of the Borrower’s property which is not Collateral,
covenants, restrictions, rights, easements and minor irregularities in title
which do not materially interfere with the Borrower’s business or operations as
presently conducted;
 
(ii) Liens in existence on the date hereof and listed in Schedule 6.3 hereto,
securing indebtedness for borrowed money permitted under Section 6.4; and
 
(iii) The Security Interest and Liens created by the Security Documents.
 
(b) The Borrower will not amend any financing statements in favor of the Lender
except as permitted by law. Any authorization by the Lender to any Person to
amend financing statements in favor of the Lender shall be in writing.
 
Section 6.4 Indebtedness. The Borrower will not incur, create, assume or permit
to exist any indebtedness or liability on account of deposits or advances or any
indebtedness for borrowed money or letters of credit issued on the Borrower’s
behalf, or any other indebtedness or liability evidenced by notes, bonds,
debentures or similar obligations, except:
 
(a) Indebtedness arising hereunder;
 
(b) Indebtedness of the Borrower in existence on the date hereof and listed in
Schedule 6.4 hereto; and
 
 
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(c) Indebtedness relating to Permitted Liens.
 
Section 6.5 Guaranties. The Borrower will not assume, guarantee, endorse or
otherwise become directly or contingently liable in connection with any
obligations of any other Person, except:
 
(a) The endorsement of negotiable instruments by the Borrower for deposit or
collection or similar transactions in the ordinary course of business; and
 
(b) Guaranties, endorsements and other direct or contingent liabilities in
connection with the obligations of other Persons, in existence on the date
hereof and listed in Schedule 6.4 hereto.
 
Section 6.6 Investments and Subsidiaries. The Borrower will not make or permit
to exist any loans or advances to, or make any investment or acquire any
interest whatsoever in, any other Person or Affiliate, including any partnership
or joint venture, nor purchase or hold beneficially any stock or other
securities or evidence of indebtedness of any other Person or Affiliate, except:
 
(a) Investments in direct obligations of the United States of America or any
agency or instrumentality thereof whose obligations constitute full faith and
credit obligations of the United States of America having a maturity of one year
or less, commercial paper issued by U.S. corporations rated “A-1” or “A-2” by
Standard & Poor’s Ratings Services or “P-1” or “P-2” by Moody’s Investors
Service or certificates of deposit or bankers’ acceptances having a maturity of
one year or less issued by members of the Federal Reserve System having deposits
in excess of $100,000,000 (which certificates of deposit or bankers’ acceptances
are fully insured by the Federal Deposit Insurance Corporation);
 
(b) Travel advances or loans to the Borrower’s Officers and employees not
exceeding at any one time an aggregate of $10,000.00;
 
(c) Prepaid rent not exceeding one month or security deposits; and
 
(d) Current investments in the Subsidiaries in existence on the date hereof and
listed in Schedule 5.5 hereto.
 
Section 6.7 Dividends and Distributions. The Borrower will not declare or pay
any dividends (other than dividends payable solely in stock of the Borrower) on
any class of its stock, or make any payment on account of the purchase,
redemption or other retirement of any shares of such stock, or other securities
or evidence of its indebtedness or make any distribution in respect thereof,
either directly or indirectly.
 
Section 6.8 Salaries. The Borrower will not pay excessive or unreasonable
salaries, bonuses, commissions, consultant fees or other compensation.
 
Section 6.9 Intentionally Deleted.
 
 
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Section 6.10 Books and Records; Collateral Examination, Inspection and
Appraisals. 
 
(a) The Borrower will keep accurate books of record and account for itself
pertaining to the Collateral and pertaining to the Borrower’s business and
financial condition and such other matters as the Lender may from time to time
request in which true and complete entries will be made in accordance with GAAP
and, upon the Lender’s request, will permit any officer, employee, attorney,
accountant or other agent of the Lender to audit, review, make extracts from or
copy any and all company and financial books and records of the Borrower at all
times during ordinary business hours, to send and discuss with account debtors
and other obligors requests for verification of amounts owed to the Borrower,
and to discuss the Borrower’s affairs with any of its Directors, Officers,
employees or agents.
 
(b) The Borrower hereby irrevocably authorizes all accountants and third parties
to disclose and deliver to the Lender or its designated agent, at the Borrower’s
expense, all financial information, books and records, work papers, management
reports and other information in their possession regarding the Borrower.
 
(c) The Borrower will permit the Lender or its employees, accountants, attorneys
or agents, to examine and inspect any Collateral or any other property of the
Borrower at any time during ordinary business hours.
 
(d) The Lender may also, in the event of an Event of Default by Borrower, obtain
at the Borrower’s expense an appraisal of Inventory and Equipment by an
appraiser acceptable to the Lender in its sole discretion.
 
Section 6.11 Account Verification.
 
(a) The Lender or its agent may at any time and from time to time send or
require the Borrower to send requests for verification of accounts or notices of
assignment to account debtors and other obligors. The Lender or its agent may
also at any time and from time to time telephone account debtors and other
obligors to verify accounts.
 
(b) The Borrower shall pay when due unless being contested in good faith each
account payable due to a Person holding a Permitted Lien (as a result of such
payable) on any Collateral. 

Section 6.12 Compliance with Laws.
 
(a) The Borrower shall (i) comply with the requirements of applicable laws and
regulations, the non-compliance with which would materially and adversely affect
its business or its financial condition and (ii) use and keep the Collateral,
and require that others use and keep the Collateral, only for lawful purposes,
without violation of any federal, state or local law, statute or ordinance.
 
(b) Without limiting the foregoing undertakings, the Borrower specifically
agrees that it will comply with all applicable Environmental Laws and obtain and
comply with all permits, licenses and similar approvals required by any
Environmental Laws, and will not generate, use, transport, treat, store or
dispose of any Hazardous Substances in such a manner as to create any material
liability or obligation under the common law of any jurisdiction or any
Environmental Law.
 
 
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(c) The Borrower shall (i) ensure that no Owner shall be listed on the Specially
Designated Nationals and Blocked Person List or other similar lists maintained
by the Office of Foreign Assets Control ("OFAC"), the Department of the Treasury
or included in any Executive Orders, (ii) not use or permit the use of the
proceeds of the Credit Facility or any other financial accommodation from the
Lender to violate any of the foreign asset control regulations of OFAC or other
applicable law, (iii) comply with all applicable Bank Secrecy Act laws and
regulations, as amended from time to time, and (iv) otherwise comply with the
USA Patriot Act as required by federal law and the Lender's policies and
practices.
 
Section 6.13 Payment of Taxes and Other Claims. The Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits, upon any properties belonging
to it (including the Collateral) or upon or against the creation, perfection or
continuance of the Security Interest, prior to the date on which penalties
attach thereto, (b) all federal, state and local taxes required to be withheld
by it, and (c) all lawful claims for labor, materials and supplies which, if
unpaid, might by law become a Lien upon any properties of the Borrower;
provided, that the Borrower shall not be required to pay any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which proper reserves
have been made.
 
Section 6.14 Maintenance of Properties.
 
(a) The Borrower will keep and maintain the Collateral and all of its other
properties necessary or useful in its business in good condition, repair and
working order (normal wear and tear excepted) and will from time to time replace
or repair any worn, defective or broken parts; provided, however, that nothing
in this covenant shall prevent the Borrower from discontinuing the operation and
maintenance of any of its properties if such discontinuance is, in the
Borrower’s judgment, desirable in the conduct of the Borrower’s business and not
disadvantageous in any material respect to the Lender. The Borrower will take
all commercially reasonable steps necessary to protect and maintain its
Intellectual Property Rights.
 
(b) The Borrower will defend the Collateral against all Liens, claims or demands
of all Persons (other than the Lender) claiming the Collateral or any interest
therein. The Borrower will keep all Collateral free and clear of all Liens
except Permitted Liens. The Borrower will take all commercially reasonable steps
necessary to prosecute any Person Infringing its Intellectual Property Rights
and to defend itself against any Person accusing it of Infringing any Person’s
Intellectual Property Rights.
 
Section 6.15 Insurance. The Borrower will obtain and at all times maintain
insurance with insurers acceptable to the Lender, in such amounts, on such terms
(including any deductibles) and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
maintain business interruption insurance including coverage for force majeure
and keep all tangible Collateral insured against risks of fire (including
so-called extended coverage), theft, collision (for Collateral consisting of
motor vehicles) and such other risks and in such amounts as the Lender may
reasonably request, with any loss payable to the Lender to the extent of its
interest, and all policies of such insurance shall contain a lender’s loss
payable endorsement for the Lender’s benefit. All policies of liability
insurance required hereunder shall name the Lender as an additional insured.
 
 
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Section 6.16 Preservation of Existence. The Borrower will preserve and maintain
its existence and all of its rights, privileges and franchises necessary or
desirable in the normal conduct of its business and shall conduct its business
in an orderly, efficient and regular manner.
 
Section 6.17 Delivery of Instruments, etc. Upon request by the Lender, the
Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel paper constituting Collateral, duly endorsed or assigned
by the Borrower.
 
Section 6.18 Sale or Transfer of Assets; Suspension of Business Operations. The
Borrower will not sell, lease, assign, transfer or otherwise dispose of (i) the
stock of any Subsidiary, (ii) all or a substantial part of its assets, or
(iii) any Collateral or any interest therein (whether in one transaction or in a
series of transactions) to any other Person other than the sale of Inventory in
the ordinary course of business and will not liquidate, dissolve or suspend
business operations. The Borrower will not transfer any part of its ownership
interest in any Intellectual Property Rights and will not permit any agreement
under which it has licensed Licensed Intellectual Property to lapse, except that
the Borrower may transfer such rights or permit such agreements to lapse if it
shall have reasonably determined that the applicable Intellectual Property
Rights are no longer useful in its business. If the Borrower transfers any
Intellectual Property Rights for value, the Borrower will pay over the proceeds
to the Lender for application to the Obligations. The Borrower will not license
any other Person to use any of the Borrower’s Intellectual Property Rights,
except that the Borrower may grant licenses in the ordinary course of its
business in connection with sales of Inventory or provision of services to its
customers.
 
Section 6.19 Consolidation and Merger; Asset Acquisitions. The Borrower will not
consolidate with or merge into any Person, or permit any other Person to merge
into it, or acquire (in a transaction analogous in purpose or effect to a
consolidation or merger) all or substantially all the assets of any other Person
without the written consent of the Lender, which consent shall not be
unreasonably withheld.
 
Section 6.20 Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
 
 
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Section 6.21 Restrictions on Nature of Business. The Borrower will not engage in
any line of business materially different from that presently engaged in by the
Borrower and will not purchase, lease or otherwise acquire assets not related to
its business.
 
Section 6.22 Accounting. The Borrower will not adopt any material change in
accounting principles other than as required by GAAP. The Borrower will not
adopt, permit or consent to any change in its fiscal year.
 
Section 6.23 Discounts, etc. After notice from the Lender, the Borrower will not
grant any discount, credit or allowance to any customer of the Borrower or
accept any return of goods sold. The Borrower will not at any time modify,
amend, subordinate, cancel or terminate the obligation of any account debtor or
other obligor of the Borrower.
 
Section 6.24 Plans. Unless disclosed to the Lender pursuant to Section 5.12,
neither the Borrower nor any ERISA Affiliate will (i) adopt, create, assume or
become a party to any Pension Plan, (ii) incur any obligation to contribute to
any Multiemployer Plan, (iii) incur any obligation to provide post-retirement
medical or insurance benefits with respect to employees or former employees
(other than benefits required by law) or (iv) amend any Plan in a manner that
would materially increase its funding obligations.
 
Section 6.25 Place of Business; Name. The Borrower will not transfer its chief
executive office or principal place of business, or move, relocate, close or
sell any business location except as disclosed on Schedule 5.1. The Borrower
will not permit any tangible Collateral or any records pertaining to the
Collateral to be located in any state or area in which, in the event of such
location, a financing statement covering such Collateral would be required to
be, but has not in fact been, filed in order to perfect the Security Interest.
The Borrower will not change its name or jurisdiction of organization.
 
Section 6.26 Constituent Documents; S Corporation Status. The Borrower will not
amend its Constituent Documents. The Borrower will not become an S Corporation.
 
Section 6.27 Performance by the Lender. If the Borrower at any time fails to
perform or observe any of the foregoing covenants contained in this Article VI
or elsewhere herein, and if such failure shall continue for a period of ten
calendar days after the Lender gives the Borrower written notice thereof (or in
the case of the agreements contained in Section 6.13 and Section 6.15,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the Borrower (or, at the Lender’s option, in
the Lender’s name) and may, but need not, take any and all other actions which
the Lender may reasonably deem necessary to cure or correct such failure
(including the payment of taxes, the satisfaction of Liens, the performance of
obligations owed to account debtors or other obligors, the procurement and
maintenance of insurance, the execution of assignments, security agreements and
financing statements, and the endorsement of instruments); and the Borrower
shall thereupon pay to the Lender on demand the amount of all monies expended
and all costs and expenses (including reasonable attorneys’ fees and legal
expenses) incurred by the Lender in connection with or as a result of the
performance or observance of such agreements or the taking of such action by the
Lender, together with interest thereon from the date expended or incurred at the
Default Rate. To facilitate the Lender’s performance or observance of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the Lender’s delegate, acting alone, as the Borrower’s attorney in fact
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of the Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower hereunder.
 
 
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ARTICLE VII

 
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
 
Section 7.1 Events of Default. “Event of Default”, wherever used herein, means
any one of the following events:
 
(a) Default in the payment of any Obligations when they become due and payable;
 
(b) Default in the performance, or breach, of any covenant or agreement of the
Borrower contained in this Agreement;
 
(c) An Overadvance arises as the result of any reduction in the Borrowing Base,
or arises in any manner on terms not otherwise approved of in advance by the
Lender in writing; 
 
(d) A Change of Control shall occur;
 
(e) Any Financial Covenant shall become inapplicable due to the lapse of time
and the failure to amend any such covenant to cover future periods;
 
(f) The Borrower or any Guarantor shall be or become insolvent, or admit in
writing its or his inability to pay its or his debts as they mature, or make an
assignment for the benefit of creditors; or the Borrower or any Guarantor shall
apply for or consent to the appointment of any receiver, trustee, or similar
officer for it or him or for all or any substantial part of its or his property;
or such receiver, trustee or similar officer shall be appointed without the
application or consent of the Borrower or such Guarantor, as the case may be; or
the Borrower or any Guarantor shall institute (by petition, application, answer,
consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation or similar proceeding relating to
it or him under the laws of any jurisdiction; or any such proceeding shall be
instituted (by petition, application or otherwise) against the Borrower or any
such Guarantor; or any judgment, writ, warrant of attachment or execution or
similar process shall be issued or levied against a substantial part of the
property of the Borrower or any Guarantor;
 
(g) A petition shall be filed by or against the Borrower or any Guarantor under
the United States Bankruptcy Code or the laws of any other jurisdiction naming
the Borrower or such Guarantor as debtor and such petition is not dismissed
within 60 days of the filing of such petition, provided, further, however, that
an Order relating to financing acceptable to Lender in its sole discretion is
entered by a court of competent jurisdiction;
 
 
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(h) Any representation or warranty made by the Borrower in this Agreement, by
any Guarantor in any Guaranty delivered to the Lender, or by the Borrower (or
any of its Officers) or any Guarantor in any agreement, certificate, instrument
or financial statement or other statement contemplated by or made or delivered
pursuant to or in connection with this Agreement or any such Guaranty shall
prove to have been incorrect in any material respect when deemed to be
effective;
 
(i) The rendering against the Borrower of an arbitration award, final judgment,
decree or order for the payment of money in excess of $100,000 and the
continuance of such arbitration award, judgment, decree or order unsatisfied and
in effect for any period of 30 consecutive days without a stay of execution;
 
(j) A default under any bond, debenture, note or other evidence of material
indebtedness of the Borrower owed to any Person other than the Lender, or under
any indenture or other instrument under which any such evidence of indebtedness
has been issued or by which it is governed, or under any material lease or other
contract, and the expiration of the applicable period of grace, if any,
specified in such evidence of indebtedness, indenture, other instrument, lease
or contract;
 
(k) Any Reportable Event, which the Lender determines in good faith might
constitute grounds for the termination of any Pension Plan or for the
appointment by the appropriate United States District Court of a trustee to
administer any Pension Plan, shall have occurred and be continuing 30 days after
written notice to such effect shall have been given to the Borrower by the
Lender; or a trustee shall have been appointed by an appropriate United States
District Court to administer any Pension Plan; or the Pension Benefit Guaranty
Corporation shall have instituted proceedings to terminate any Pension Plan or
to appoint a trustee to administer any Pension Plan; or the Borrower or any
ERISA Affiliate shall have filed for a distress termination of any Pension Plan
under Title IV of ERISA; or the Borrower or any ERISA Affiliate shall have
failed to make any quarterly contribution required with respect to any Pension
Plan under Section 412(m) of the IRC, which the Lender determines in good faith
may by itself, or in combination with any such failures that the Lender may
determine are likely to occur in the future, result in the imposition of a Lien
on the Borrower’s assets in favor of the Pension Plan; or any withdrawal,
partial withdrawal, reorganization or other event occurs with respect to a
Multiemployer Plan which results or could reasonably be expected to result in a
material liability of the Borrower to the Multiemployer Plan under Title IV of
ERISA;
 
(l) An event of default shall occur under any Security Document;
 
(m) The Borrower shall liquidate, dissolve, terminate or suspend its business
operations or otherwise fail to operate its business in the ordinary course,
merge with another Person unless the Borrower is the surviving entity; or sell
or attempt to sell all or substantially all of its assets, without the Lender’s
prior written consent;
 
(n) Default in the payment of any amount owed by the Borrower to the Lender
other than any indebtedness arising hereunder;
 
 
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(p) Any event or circumstance with respect to the Borrower shall occur such that
the Lender shall believe in good faith that the prospect of payment of all or
any part of the Obligations or the performance by the Borrower under the Loan
Documents is impaired or any material adverse change in the business or
financial condition of the Borrower shall occur;
 
(q) Any breach, default or event of default by or attributable to any Affiliate
under any agreement between such Affiliate and the Lender shall occur; or
 
(r) The indictment of any Director, Officer, Guarantor, or any Owner of the
Borrower for a felony offence under state or federal law.
 
Section 7.2 Rights and Remedies. During any Default Period, the Lender may
exercise any or all of the following rights and remedies:
 
(a) The Lender may, by notice to the Borrower, declare the Commitment to be
terminated, whereupon the same shall forthwith terminate;
 
(b) The Lender may, by notice to the Borrower, declare the Obligations to be
forthwith due and payable, whereupon all Obligations shall become and be
forthwith due and payable, without presentment, notice of dishonor, protest or
further notice of any kind, all of which the Borrower hereby expressly waives;
 
(c) The Lender may, without notice to the Borrower and without further action,
apply any and all money owing by the Lender to the Borrower to the payment of
the Obligations;
 
(d) The Lender may exercise and enforce any and all rights and remedies
available upon default to a secured party under the UCC, including the right to
take possession of Collateral, or any evidence thereof, proceeding without
judicial process or by judicial process (without a prior hearing or notice
thereof, which the Borrower hereby expressly waives) and the right to sell,
lease or otherwise dispose of any or all of the Collateral (with or without
giving any warranties as to the Collateral, title to the Collateral or similar
warranties), and, in connection therewith, the Borrower will on demand assemble
the Collateral and make it available to the Lender at a place to be designated
by the Lender which is reasonably convenient to both parties;
 
(e) The Lender may make demand upon the Borrower and, forthwith upon such
demand, the Borrower will pay to the Lender in immediately available funds for
deposit in the Special Account pursuant to Section 2.5 an amount equal to the
aggregate maximum amount available to be drawn under all Letters of Credit then
outstanding, assuming compliance with all conditions for drawing thereunder;
 
(f) The Lender may exercise and enforce its rights and remedies under the Loan
Documents;
 
(g) The Lender may without regard to any waste, adequacy of the security or
solvency of the Borrower, apply for the appointment of a receiver of the
Collateral, to which appointment the Borrower hereby consents, whether or not
foreclosure proceedings have been commenced under the Security Documents and
whether or not a foreclosure sale has occurred; and
 
 
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(h) The Lender may exercise any other rights and remedies available to it by law
or agreement.
 
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 7.1(f) or (g), the Obligations shall be immediately due and
payable automatically without presentment, demand, protest or notice of any
kind. If the Lender sells any of the Collateral on credit, the Obligations will
be reduced only to the extent of payments actually received. If the purchaser
fails to pay for the Collateral, the Lender may resell the Collateral and shall
apply any proceeds actually received to the Obligations.
 
Section 7.3 Certain Notices. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 8.3) at least ten calendar days before
the date of intended disposition or other action.
 
ARTICLE VIII

 
MISCELLANEOUS
 
Section 8.1 No Waiver; Cumulative Remedies; Compliance with Laws. No failure or
delay by the Lender in exercising any right, power or remedy under the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy under the
Loan Documents. The remedies provided in the Loan Documents are cumulative and
not exclusive of any remedies provided by law. The Lender may comply with any
applicable state or federal law requirements in connection with a disposition of
the Collateral and such compliance will not be considered adversely to affect
the commercial reasonableness of any sale of the Collateral.
 
Section 8.2 Amendments, Etc. No amendment, modification, termination or waiver
of any provision of any Loan Document or consent to any departure by the
Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
 
Section 8.3 Notices; Communication of Confidential Information; Requests for
Accounting. Except as otherwise expressly provided herein, all notices,
requests, demands and other communications provided for under the Loan Documents
shall be in writing and shall be (a) personally delivered, (b) sent by first
class United States mail, (c) sent by overnight courier of national reputation,
(d) transmitted by telecopy, or (e) sent as electronic mail, in each case
delivered or sent to the party to whom notice is being given to the business
address, telecopier number, or e mail address set forth below next to its
signature or, as to each party, at such other business address, telecopier
number, or e mail address as it may hereafter designate in writing to the other
party pursuant to the terms of this Section. All such notices, requests, demands
and other communications shall be deemed to be an authenticated record
communicated or given on (a) the date received if personally delivered, (b) when
deposited in the mail if delivered by mail, (c) the date delivered to the
courier if delivered by overnight courier, or (d) the date of transmission if
sent by telecopy or by e mail, except that notices or requests delivered to the
Lender pursuant to any of the provisions of Article II shall not be effective
until received by the Lender. All notices, financial information, or other
business records sent by either party to this Agreement may be transmitted,
sent, or otherwise communicated via such medium as the sending party may deem
appropriate and commercially reasonable; provided, however, that the risk that
the confidentiality or privacy of such notices, financial information, or other
business records sent by either party may be compromised shall be borne
exclusively by the Borrower. All requests for an accounting under Section 9-210
of the UCC (i) shall be made in a writing signed by a Person authorized under
Section 2.2(b), (ii) shall be personally delivered, sent by registered or
certified mail, return receipt requested, or by overnight courier of national
reputation, (iii) shall be deemed to be sent when received by the Lender and
(iv) shall otherwise comply with the requirements of Section 9-210. The Borrower
requests that the Lender respond to all such requests which on their face appear
to come from an authorized individual and releases the Lender from any liability
for so responding. The Borrower shall pay the Lender the maximum amount allowed
by law for responding to such requests. 
 
 
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Section 8.4 Further Documents. The Borrower will from time to time execute,
deliver, endorse and authorize the filing of any and all instruments, documents,
conveyances, assignments, security agreements, financing statements, control
agreements and other agreements and writings that the Lender may reasonably
request in order to secure, protect, perfect or enforce the Security Interest or
the Lender’s rights under the Loan Documents (but any failure to request or
assure that the Borrower executes, delivers, endorses or authorizes the filing
of any such item shall not affect or impair the validity, sufficiency or
enforceability of the Loan Documents and the Security Interest, regardless of
whether any such item was or was not executed, delivered or endorsed in a
similar context or on a prior occasion).
 
Section 8.5 Costs and Expenses. The Borrower shall pay on demand all costs and
expenses, including reasonable attorneys’ fees, incurred by the Lender in
connection with the Obligations, this Agreement, the Loan Documents, any Letter
of Credit and any other document or agreement related hereto or thereto, and the
transactions contemplated hereby, including all such costs, expenses and fees
incurred in connection with the negotiation, preparation, execution, amendment,
administration, performance, collection and enforcement of the Obligations and
all such documents and agreements and the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interest.
 
Section 8.6 Indemnity. In addition to the payment of expenses pursuant to
Section 8.5, the Borrower shall indemnify, defend and hold harmless the Lender,
and any of its participants, parent corporations, subsidiary corporations,
affiliated corporations, successor corporations, and all present and future
officers, directors, employees, attorneys and agents of the foregoing (the
“Indemnitees”) from and against any of the following (collectively, “Indemnified
Liabilities”):
 
(i) Any and all transfer taxes, documentary taxes, assessments or charges made
by any governmental authority by reason of the execution and delivery of the
Loan Documents or the making of the Advances;
 
 
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(ii) Any claims, loss or damage to which any Indemnitee may be subjected if any
representation or warranty contained in Section 5.14 proves to be incorrect in
any respect or as a result of any violation of the covenant contained in Section
6.12(b) ; and
 
(iii) Any and all other liabilities, losses, damages, penalties, judgments,
suits, claims, costs and expenses of any kind or nature whatsoever (including
the reasonable fees and disbursements of counsel) in connection with the
foregoing and any other investigative, administrative or judicial proceedings,
whether or not such Indemnitee shall be designated a party thereto, which may be
imposed on, incurred by or asserted against any such Indemnitee, in any manner
related to or arising out of or in connection with the making of the Advances
and the Loan Documents or the use or intended use of the proceeds of the
Advances.
 
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee’s request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower’s sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower’s obligation
under this Section 8.6 shall survive the termination of this Agreement and the
discharge of the Borrower’s other obligations hereunder. Notwithstanding any of
the foregoing, Borrower shall not have any obligation for Indemnified
Liabilities arising from the gross negligence or willful misconduct of any
Indemnitees determined by a final order of a court of competent jurisdiction.
 
Section 8.7 Participants. The Lender and its participants, if any, are not
partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the Lender’s participants, successors or assigns.
 
Section 8.8 Execution in Counterparts; Telefacsimile Execution. This Agreement
and other Loan Documents may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
 
Section 8.9 Retention of Borrower’s Records. The Lender shall have no obligation
to maintain any electronic records or any documents, schedules, invoices,
agings, or other papers delivered to the Lender by the Borrower or in connection
with the Loan Documents for more than 30 days after receipt by the Lender. If
there is a special need to retain specific records, the Borrower must inform the
Lender of its need to retain those records with particularity, which must be
delivered in accordance with the notice provisions of Section 8.3 within 30 days
of the Lender taking control of same.
 
 
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Section 8.10 Binding Effect; Assignment; Complete Agreement; Sharing
Information. The Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender’s prior written consent.
To the extent permitted by law, the Borrower waives and will not assert against
any assignee any claims, defenses or set-offs which the Borrower could assert
against the Lender. This Agreement shall also bind all Persons who become a
party to this Agreement as a borrower. This Agreement, together with the Loan
Documents, comprises the complete and integrated agreement of the parties on the
subject matter hereof and supersedes all prior agreements, written or oral, on
the subject matter hereof. To the extent that any provision of this Agreement
contradicts other provisions of the Loan Documents, this Agreement shall
control. Without limiting the Lender’s right to share information regarding the
Borrower and its Affiliates with the Lender’s participants, accountants, lawyers
and other advisors, the Lender and Wells Fargo Bank may share with each other
any and all information they may have in their possession regarding the Borrower
and its Affiliates, and the Borrower waives any right of confidentiality it may
have with respect to such sharing of information.
 
Section 8.11 Severability of Provisions. Any provision of this Agreement which
is prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.
 
Section 8.12 Headings. Article, Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
 
Section 8.13 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial. The Loan
Documents shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Wisconsin. The parties hereto
hereby (i) consent to the personal jurisdiction of the state and federal courts
located in the State of Wisconsin in connection with any controversy related to
this Agreement; (ii) waive any argument that venue in any such forum is not
convenient; (iii) agree that any litigation initiated by the Lender or the
Borrower in connection with this Agreement or the other Loan Documents may be
venued in either the state or federal courts located in the County of Milwaukee,
Wisconsin; and (iv) agree that a final judgment in any such suit, action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. 
 
Section 8.14  Intentionally Deleted.
 
 
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THE BORROWER AND THE LENDER WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION AT
LAW OR IN EQUITY OR IN ANY OTHER PROCEEDING BASED ON OR PERTAINING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT. Borrower’s Initials /s/  MAM  ; Lender’s
Initials /s/ MLD  ;

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

 
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first
above written.
 
uBid.com Holdings, Inc.
8550 West Bryn Mawr Avenue, Suite 200
Chicago, Illinois 60631
Telecopier: 773-272-4028
Attention: M. Martinez
e-mail: mikem@ubid.com
uBID.COM HOLDINGS, INC.
 
By: /s/ Miguel A. Martinez, Jr.
 
Miguel Martinez, Jr.
Its Vice President Finance
   
UBid, Inc.
8550 West Bryn Mawr Avenue, Suite 200
Chicago, Illinois 60631
Telecopier: 773-272-0428
Attention: M. Martinez
e-mail: mikem@ubid.com
UBID, INC.

By: /s/ Miguel A. Martinez, Jr.

Miguel Martinez, Jr.
Its Vice President Finance
   
Wells Fargo Bank, National Association,
acting through its Wells Fargo Business Credit
operating division
100 East Wisconsin Avenue, Suite 1400
Milwaukee, Wisconsin 53202
Telecopier:
Attention: Melissa Dreifuerst
e-mail: Melissa.Dreifuerst@wellsfargo.com
WELLS FARGO BANK, NATIONAL ASSOCIATION,
acting through its Wells Fargo Business Credit
operating division
 
By: /s/ Melissa L. Dreifuerst
 
Melissa Dreifuerst
Its Vice President

 
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REVOLVING NOTE
 
$25,000,000.00
May 9, 2006

 
For value received, the undersigned, uBID.COM HOLDINGS, INC., a Delaware
corporation (“uBid.Com) and UBID, INC., a Delaware corporation (“UBid”), each a
Borrower are hereinafter collectively referred to as (the “Borrower”), jointly
and severally hereby promises to pay on the Termination Date under the Credit
Agreement (defined below), to the order of WELLS FARGO BANK, NATIONAL
ASSOCIATION (the “Lender”), acting through its Wells Fargo Business Credit
operating division, at its office in Milwaukee, Wisconsin, or at any other place
designated at any time by the holder hereof, in lawful money of the United
States of America and in immediately available funds, the principal sum of
Twenty-Five Million Dollars ($25,000,000.00) or the aggregate unpaid principal
amount of all Revolving Advances made by the Lender to the Borrower under the
Credit Agreement (defined below) together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the Credit
and Security Agreement dated the same date as this Note (the “Credit Agreement”)
by and between the Lender and the Borrower. The principal hereof and interest
accruing thereon shall be due and payable as provided in the Credit Agreement.
This Note may be prepaid only in accordance with the Credit Agreement.
 
This Note is issued pursuant, and is subject, to the Credit Agreement, which
provides, among other things, for acceleration hereof. This Note is the
Revolving Note referred to in the Credit Agreement. This Note is secured, among
other things, pursuant to the Credit Agreement and the Security Documents as
therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments
or agreements.
 
The Borrower shall pay all costs of collection, including reasonable attorneys’
fees and legal expenses if this Note is not paid when due, whether or not legal
proceedings are commenced.
 
Presentment or other demand for payment, notice of dishonor and protest are
expressly waived.
 
 
UBID.COM HOLDINGS, INC.

By: /s/ Robert H. Tomlinson, Jr.
Name: Robert H. Tomlinson, Jr.
Its: President and Chief Executive Officer

UBID, INC.

By: /s/ Timothy E. Takesue
Name: Timothy E. Takesue
Its: Executive Vice President -- Merchandise

 
 
 

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