Exhibit 10.1

 

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REVOLVING CREDIT AND SECURITY AGREEMENT

 

between

 

UCN, INC.

 

and

 

CAPITALSOURCE FINANCE LLC

 

Dated as of

November 11, 2005

 

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REVOLVING CREDIT AND SECURITY AGREEMENT

 

TABLE OF CONTENTS

 

               Page

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I.    DEFINITIONS    1      1.1   

General Terms

   1 II.    ADVANCES, PAYMENT AND INTEREST    1      2.1   

The Revolving Facility

   1      2.2   

The Loans; Maturity

   2      2.3   

Interest on the Facility

   2      2.4   

Revolving Facility Disbursements; Requirement to Deliver Borrowing Certificate

   3      2.5   

Revolving Facility Collections; Repayment; Borrowing Availability and Lockbox

   3      2.6   

Promise to Pay; Manner of Payment

   4      2.7   

Repayment of Excess Advances

   4      2.8   

Payments by Lender

   5      2.9   

Grant of Security Interest; Collateral

   5      2.10   

Collateral Administration

   6      2.11   

Power of Attorney

   7      2.12   

Evidence of Loans

   7 III.    FEES AND OTHER CHARGES    8      3.1   

Commitment Fee

   8      3.2   

Unused Line Fee

   8      3.3   

Collateral Management Fee

   9      3.4   

Computation of Fees; Lawful Limits

   9      3.5   

Default Rate of Interest

   9      3.6   

Acknowledgement of Joint and Several Liability

   9 IV.    CONDITIONS PRECEDENT    10      4.1   

Conditions to Initial Advance and Closing

   10      4.2   

Conditions to Each Advance

   11 V.    REPRESENTATIONS AND WARRANTIES    12      5.1   

Organization and Authority

   12      5.2   

Loan Documents

   13      5.3   

Subsidiaries, Capitalization and Ownership Interests

   13      5.4   

Properties

   14      5.5   

Other Agreements

   14      5.6   

Litigation

   14      5.7   

Hazardous Materials

   15      5.8   

Potential Tax Liability; Tax Returns; Governmental Reports

   15      5.9   

Financial Statements and Reports

   15      5.10   

Compliance with Law

   15      5.11   

Intellectual Property

   16      5.12   

Licenses and Permits; Labor

   16      5.13   

No Default

   16      5.14   

Disclosure

   16      5.15   

Existing Indebtedness; Investments, Guarantees and Certain Contracts

   16      5.16   

Other Agreements

   17

 

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     5.17   

Insurance

   17      5.18   

Names; Location of Offices, Records and Collateral

   17      5.19   

Non-Subordination

   18      5.20   

Accounts

   18 VI.    AFFIRMATIVE COVENANTS    19      6.1   

Financial Statements, Borrowing Certificate, Financial Reports and Other
Information

   19      6.2   

Payment of Obligations

   20      6.3   

Conduct of Business and Maintenance of Existence and Assets

   21      6.4   

Compliance with Legal and Other Obligations

   21      6.5   

Insurance

   21      6.6   

True Books

   22      6.7   

Inspections; Periodic Audits and Reappraisals

   22      6.8   

Further Assurances; Post Closing

   22      6.9   

Payment of Indebtedness

   22      6.10   

Lien Searches

   22      6.11   

Use of Proceeds

   23      6.12   

Collateral Documents; Security Interest in Collateral

   23      6.13   

Right of First Offer

   23      6.14   

Taxes and Other Charges

   23      6.15   

Payroll Taxes

   24 VII.    NEGATIVE COVENANTS    24      7.1   

Financial Covenants

   24      7.2   

Permitted Indebtedness

   24      7.3   

Permitted Liens

   25      7.4   

Investments; New Facilities or Collateral; Subsidiaries

   26      7.5   

Dividends; Redemptions

   26      7.6   

Transactions with Affiliates

   26      7.7   

Charter Documents; Fiscal Year; Name; Jurisdiction of Organization; Dissolution;
Use of Proceeds

   27      7.8   

Truth of Statements

   27      7.10   

Transfer of Assets

   27 VIII.    EVENTS OF DEFAULT    28 IX.    RIGHTS AND REMEDIES AFTER DEFAULT
   31      9.1   

Rights and Remedies

   31      9.2   

Application of Proceeds

   32      9.3   

Rights of Lender to Appoint Receiver

   32      9.4   

Rights and Remedies not Exclusive

   32 X.    WAIVERS AND JUDICIAL PROCEEDINGS    33      10.1   

Waivers

   33      10.2   

Delay; No Waiver of Defaults

   33      10.3   

Jury Waiver

   33      10.4   

Cooperation in Discovery and Litigation

   34 XI.    EFFECTIVE DATE AND TERMINATION    34      11.1   

Termination and Effective Date Thereof

   34      11.2   

Survival

   35

 

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XII.    MISCELLANEOUS    35      12.1  

Governing Law; Jurisdiction; Service of Process; Venue

   35      12.2  

Successors and Assigns; Participations; New Lenders

   35      12.3  

Application of Payments

   36      12.4  

Indemnity

   36      12.5  

Notice

   37      12.6  

Severability; Captions; Counterparts; Facsimile Signatures

   37      12.7  

Expenses

   37      12.8  

Entire Agreement

   38      12.9  

Lender Approvals

   38      12.10  

Confidentiality and Publicity

   38      12.11  

Release of Lender

   38      12.12  

Agent

   39      12.13  

Agreement Controls

   39      ANNEX I    1      FINANCIAL COVENANTS    1      1)  

Fixed Charge Coverage Ratio (EBITDA/Fixed Charges)

   1      2)  

Cash Velocity

   1      3)  

Minimum Availability

   1      APPENDIX A    1      DEFINITIONS    1

 

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REVOLVING CREDIT AND SECURITY AGREEMENT

 

THIS REVOLVING CREDIT AND SECURITY AGREEMENT (the “Agreement”) dated as of
November 11, 2005 is entered into between UCN, INC., a Delaware corporation (the
“Borrower”), and CAPITALSOURCE FINANCE LLC, a Delaware limited liability company
(the “Lender”). Despite the various references to multiple persons and/or
entities constituting the Borrower or Guarantor (as defined below) in this
Agreement, Borrower and Lender recognize that there will be only one Borrower
and no Guarantor as of the date hereof.

 

WHEREAS, Borrower has requested that Lender make available to Borrower a
revolving credit facility (the “Revolving Facility”) in a maximum principal
amount at any time outstanding of up to Ten Million and No/100ths Dollars
($10,000,000) (the “Facility Cap”), the proceeds of which shall be used by
Borrower as a wholesale reseller of long distance telephone services, to
refinance Borrower’s existing indebtedness incurred in the purchase or
generation of receivables, for the purchase or generation of receivables, for
payments to Lender hereunder, and for any other lawful purpose not prohibited by
this Agreement; and

 

WHEREAS, Lender is willing to make the Revolving Facility available to Borrower
upon the terms and subject to the conditions set forth herein.

 

NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which hereby are
acknowledged, Borrower and Lender hereby agree as follows:

 

I. DEFINITIONS

 

  1.1 General Terms

 

For purposes of this Agreement, in addition to the definitions above and
elsewhere in this Agreement, the terms listed in Appendix A and Annex I hereto
shall have the meanings given such terms in Appendix A and Annex I, which are
incorporated herein and made a part hereof. All capitalized terms used which are
not specifically defined herein shall have meanings provided in Article 9 of the
UCC in effect on the date hereof to the extent the same are used or defined
therein. Unless otherwise specified herein or in Appendix A, Annex I, any
agreement, contract or instrument referred to herein or in Appendix A or Annex I
shall mean such agreement, contract or instrument as modified, amended, restated
or supplemented from time to time. Unless otherwise specified, as used in the
Loan Documents or in any certificate, report, instrument or other document made
or delivered pursuant to any of the Loan Documents, all accounting terms not
defined in Appendix A, Annex I or elsewhere in this Agreement shall have the
meanings given to such terms in and shall be interpreted in accordance with
GAAP. References herein to “Eastern Time” shall mean eastern standard time or
eastern daylight savings time as in effect on any date of determination in the
eastern United States of America.

 

II. ADVANCES, PAYMENT AND INTEREST

 

  2.1 The Revolving Facility

 

(a) Subject to the provisions of this Agreement, Lender shall make Advances to
Borrower under the Revolving Facility from time to time during the Term,
provided that, notwithstanding any other provision of this Agreement, the
aggregate amount of all Advances at any one time outstanding

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under the Revolving Facility shall not exceed the lesser of (a) the Facility
Cap, and (b) the Availability. The Revolving Facility is a revolving credit
facility, which may be drawn, repaid and redrawn, from time to time as permitted
under this Agreement. Any determination as to whether there is Availability for
Advances shall be made by Lender in its sole discretion and is final and binding
upon Borrower. Unless otherwise permitted by Lender, each Advance shall be in an
amount of at least $1,000. Subject to the provisions of this Agreement, Borrower
may request Advances under the Revolving Facility up to and including the value,
in U.S. Dollars, of the sum of (i) eighty percent (80%) of the Borrowing Base
for Eligible Receivables, and (ii) sixty percent (60%) of the Borrowing Base for
Eligible Unbilled Receivables minus, if applicable, amounts adjusted or reserved
pursuant to this Agreement (such calculated amount being referred to herein as
the “Availability”) provided, however, that at no time shall more than
twenty-five percent (25%) of the Availability be comprised of Eligible Unbilled
Receivables. Advances under the Revolving Facility automatically shall be made
for the payment of interest on the Loan and other Obligations on the date when
due to the extent available and as provided for herein.

 

(b) Lender has established the above-referenced advance rate for Availability
and, in its Permitted Discretion, may further adjust the Availability and such
advance rate by applying percentages (known as “dilution factors”) to Eligible
Receivables and Eligible Unbilled Receivables based upon Borrower’s actual
recent collection history in a manner consistent with Lender’s underwriting
practices and procedures, including without limitation Lender’s review and
analysis of, among other things, Borrower’s historical returns, rebates,
discounts, credits and allowances (collectively, the “Dilution Items”). Such
dilution factors and the advance rate for Availability may be adjusted by Lender
throughout the Term as warranted by Lender’s underwriting practices and
procedures in its sole credit judgment. Also, Lender shall have the right to
establish from time to time, in its Permitted Discretion, reserves against the
Borrowing Base, which reserves shall have the effect of reducing the amounts
otherwise eligible to be disbursed to Borrower under the Revolving Facility
pursuant to this Agreement.

 

  2.2 The Loans; Maturity

 

All amounts outstanding under the Loans and other Obligations shall be due and
payable in full in cash, if not earlier in accordance with this Agreement, on
the last day of the Term (such earlier date being the “Revolving Facility
Maturity Date”).

 

  2.3 Interest on the Facility

 

Interest on outstanding Advances under the Facility shall be payable monthly in
arrears on the first day of each calendar month at an annual rate of Prime Rate
plus 2.25%, provided, however, that, notwithstanding any provision of any Loan
Document, for the purpose of calculating interest hereunder, the Prime Rate
shall be not less than 7.00%, in each case calculated on the basis of a 360-day
year and for the actual number of calendar days elapsed in each interest
calculation period. Interest accrued on each Advance under the Facility shall be
due and payable on the first day of each calendar month, in accordance with the
procedures provided for in Section 2.5 and Section 2.6, commencing December 1,
2005, and continuing until the later of the expiration of the Term and the full
performance and irrevocable payment in full in cash of the Obligations and
termination of this Agreement.

 

Notwithstanding anything to the contrary contained in this Agreement, Borrower
acknowledges that Lender has agreed to provide Borrower with the Advances based
upon its expectation that Borrower shall maintain average outstanding Advances
of at least $2,000,000 at all times throughout the Term. In the event that
Borrower fails to maintain average outstanding Advances of at least $2,000,000
during any month, Borrower shall pay Lender, upon demand, an interest
maintenance fee

 

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equal to the difference between that interest payable to Lender under this
Agreement and the interest that would have been payable to Lender under this
Agreement had Borrower maintained average outstanding Advances of at least
$2,000,000 during such month.

 

  2.4 Revolving Facility Disbursements; Requirement to Deliver Borrowing
Certificate

 

So long as no Default or Event of Default shall have occurred and be continuing,
Borrower may give Lender irrevocable written notice requesting an Advance under
the Revolving Facility by delivering to Lender not later than 11:00 a.m.
(Eastern Time) at least two but not more than four Business Days before the
proposed borrowing date of such requested Advance (the “Borrowing Date”), a
completed Borrowing Certificate and relevant supporting documentation
satisfactory to Lender, which shall (i) specify the proposed Borrowing Date of
such Advance which shall be a Business Day, (ii) specify the principal amount of
such requested Advance, (iii) certify the matters contained in Section 4.2, and
(iv) specify the amount of any recoupments of any third party payor being
sought, requested or claimed, or, to Borrower’s knowledge, threatened against
Borrower or Borrower’s Affiliates. Each time a request for an Advance is made,
and, in any event and regardless of whether an Advance is being requested, on
Tuesday of each week during the Term (and more frequently if Lender shall so
request) until the Obligations are indefeasibly paid in cash in full and this
Agreement is terminated, Borrower shall deliver to Lender a Borrowing
Certificate accompanied by a separate detailed aging and categorizing of
Borrower’s accounts receivable and accounts payable and such other supporting
documentation with respect to the figures and information in the Borrowing
Certificate as Lender shall reasonably request from a credit or security
perspective or otherwise. On each Borrowing Date, Borrower irrevocably
authorizes Lender to disburse the proceeds of the requested Advance to the
appropriate Borrower’s account(s) as set forth on Schedule 2.4, in all cases for
credit to the appropriate Borrower (or to such other account as to which the
appropriate Borrower shall instruct Lender) via Federal funds wire transfer no
later than 4:00 p.m. (Eastern Time).

 

  2.5 Revolving Facility Collections; Repayment; Borrowing Availability and
Lockbox

 

Borrower shall maintain one or more lockbox accounts (individually and
collectively, the “Lockbox Account”) with one or more banks mutually acceptable
to Borrower and Lender (each, a “Lockbox Bank”), and shall execute with each
Lockbox Bank one or more agreements acceptable to Lender (individually and
collectively, the “Lockbox Agreement”), and such other agreements related
thereto as Lender may require. Each Borrower shall ensure that all collections
of Borrower’s Accounts and all other cash payments received by any Borrower are
paid and delivered directly from Account Debtors and other Persons into the
appropriate Lockbox Account (except for collections of Borrower’s Accounts in
the CMLite billing system which shall be remitted to Account No. 275-006-278
maintained with Zions First National Bank so long as such account is maintained
by Borrower, Borrower does not include such Accounts in its Borrowing
Certificates, and Lender does not make any Advances based upon such Accounts).
The Lockbox Agreements shall provide that the Lockbox Banks immediately will
transfer all funds paid into the Lockbox Accounts into a depository account or
accounts maintained by Lender or an Affiliate of Lender at such bank as Lender
may communicate to Borrower from time to time (the “Concentration Account”).
Notwithstanding and without limiting any other provision of any Loan Document,
Lender shall apply, on a daily basis, all funds transferred into the
Concentration Account pursuant to the Lockbox Agreement and this Section 2.5 in
such order and manner as determined by Lender. To the extent that any Accounts
are collected by Borrower or any other cash payments received by Borrower are
not sent directly to the appropriate Lockbox Account but are received by
Borrower or any of Borrower’s Affiliates, such collections and proceeds shall be
held in trust for the benefit of Lender and immediately remitted (and in any
event within two (2) Business Days), in the form received, to the

 

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appropriate Lockbox Account for immediate transfer to the Concentration Account.
Borrower acknowledges and agrees that compliance with the terms of this
Section 2.5 is an essential term of this Agreement, and that, in addition to and
notwithstanding any other rights Lender may have hereunder, under any other Loan
Document, under applicable law or at equity, upon each and every failure by
Borrower or any of Borrower’s Affiliates to comply with any such terms Lender
shall be entitled to assess a lockbox non-compliance fee which shall operate to
increase the Applicable Rate by two percent per annum during any period of
non-compliance, whether or not a Default or an Event of Default occurs or is
declared, provided that nothing shall prevent Lender from considering any
failure to comply with the terms of this Section 2.5 to be a Default or an Event
of Default. All funds transferred to the Concentration Account for application
to the Obligations under the Revolving Facility shall be applied to reduce the
Obligations under the Revolving Facility, but, for purposes of calculating
interest hereunder, shall be subject to a two Business Day clearance period. If
as the result of collections of Accounts and/or any other cash payments received
by any Borrower pursuant to this Section 2.5 a credit balance exists with
respect to the Concentration Account, such credit balance shall not accrue
interest in favor of a Borrower, but shall be available to Borrower upon
Borrower’s written request. If applicable, at any time prior to the execution of
all or any of the Lockbox Agreements and operation of all or any of the Lockbox
Accounts and subject to the exception for the Accounts in the CMLite billing
system described in this Section, Borrower and Borrower’s Affiliates shall
direct all collections or proceeds it receives on Accounts or from other
Collateral to the accounts(s) mutually acceptable to Borrower and Lender.

 

  2.6 Promise to Pay; Manner of Payment

 

Borrower absolutely and unconditionally promises to pay principal, interest and
all other amounts payable hereunder, or under any other Loan Document, without
any right of rescission and without any deduction whatsoever, including any
deduction for any setoff, counterclaim or recoupment, and notwithstanding any
damage to, defects in or destruction of the Collateral or any other event,
including obsolescence of any property or improvements. All payments made by
Borrower (other than payments automatically paid through Advances under the
Revolving Facility as provided herein), shall be made only by wire transfer on
the date when due, without offset or counterclaim, in U.S. Dollars, in
immediately available funds to such account as may be indicated in writing by
Lender to Borrower from time to time. Any such payment received after 2:00 p.m.
(Eastern Time) on the date when due shall be deemed received on the following
Business Day. Whenever any payment hereunder shall be stated to be due or shall
become due and payable on a day other than a Business Day, the due date thereof
shall be extended to, and such payment shall be made on, the next succeeding
Business Day, and such extension of time in such case shall be included in the
computation of payment of any interest (at the interest rate then in effect
during such extension) and/or fees, as the case may be.

 

  2.7 Repayment of Excess Advances

 

Any balance of Advances under the Revolving Facility outstanding at any time in
excess of the lesser of the Facility Cap or the Availability shall be
immediately due and payable by Borrower without the necessity of any demand, at
the Payment Office, whether or not a Default or Event of Default has occurred or
is continuing and shall be paid in the manner specified in Section 2.6.

 

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  2.8 Payments by Lender

 

Should any amount required to be paid under any Loan Document be unpaid, such
amount may be paid by Lender, which payment shall be deemed a request for an
Advance under the Revolving Facility as of the date such payment is due, and
Borrower irrevocably authorizes disbursement of any such funds to Lender by way
of direct payment of the relevant amount, interest or Obligations. No payment or
prepayment of any amount by Lender or any other Person shall entitle any Person
to be subrogated to the rights of Lender under any Loan Document unless and
until the Obligations have been fully performed and paid irrevocably in cash and
this Agreement has been terminated. Any sums expended by Lender as a result of
Borrower’s or Guarantor’s failure to pay, perform or comply with any Loan
Document or any of the Obligations may be charged to Borrower’s account as an
Advance under the Revolving Facility and added to the Obligations.

 

  2.9 Grant of Security Interest; Collateral

 

(a) To secure the payment and performance of the Obligations, Borrower hereby
grants to Lender a continuing security interest in and Lien upon, and pledges to
Lender, all of its right, title and interest in and to the following whether now
owned or hereafter acquired and wheresoever located (collectively and each
individually, the “Collateral”), which security interest is intended to be a
first priority security interest:

 

(i) all Accounts and Inventory;

 

(ii) all Cash, Chattel Paper, Commercial Tort Claims, Deposit Accounts
(including, but not limited to, Deposit Account Nos. 275-006-278 and 275-003-010
maintained with Zions First National Bank and Deposit Account No. 100-88503-54
maintained with Wells Fargo Bank, N.A.) Documents, General Intangibles,
Government Contracts, Instruments, Investment Property, Letter of Credit Rights,
Permits, and Supporting Obligations but only to the extent that any of such
property arises from or pertains to the Accounts, Inventory, or Proceeds thereof
or is necessary or useful to collect, complete, dispose of, or enforce any
rights or obligations in connection with such Accounts, Inventory, or the
Proceeds thereof

 

(iii) all electronic and tangible books, records, compact discs, diskettes,
tapes, and other information and documents (collectively “Books and Records”)
but only to the extent that any of such Books and Records evidences, arises
from, or pertains to any of the collateral in items (i) or (ii) above or items
(iv) or (v) below or is necessary or useful to collect, complete, dispose of, or
enforce any rights or obligations in connection with any of the foregoing
collateral as well as all computers, file cabinets and similar office equipment
containing any of the Books and Records;

 

(iv) all accessions, additions, amendments, attachments, modifications,
replacements, and substitutions to any of the foregoing; and

 

(v) all Proceeds (including, but not limited to, insurance proceeds) and
products pertaining to any of the foregoing.

 

Notwithstanding anything to the contrary contained herein, the Collateral shall
not include: (a) any cash that is raised by Debtor from the sale of any stock or
other securities; any Deposit Account containing only such cash and not
constituting one of the Deposit Accounts specifically described in item
(ii) above; any Investment Property that is acquired with such cash as a
temporary investment pending application for working capital or other corporate
purposes; or the Proceeds thereof (except to the extent that any of

 

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the foregoing is used to acquire or generate any Collateral that is not excluded
by this paragraph); or (b) Debtor’s stock or other equity interests in MyACD,
Inc. or Buyers United, Inc. - Virginia.

 

(b) Upon the execution and delivery of this Agreement, and upon the proper
filing of the necessary financing statements, without any further action, Lender
will have a good, valid and perfected first priority Lien and security interest
in the Collateral, subject to no transfer or other restrictions or Liens of any
kind in favor of any other Person except for Permitted Liens. No financing
statement relating to any of the Collateral is on file in any public office
except those (i) on behalf of Lender, (ii) in connection with Permitted Liens;
and (iii) pertaining to existing Indebtedness that is being refinanced with the
initial Advance from the Revolving Facility and will be terminated
contemporaneously with the making of such Advance.

 

  2.10 Collateral Administration

 

(a) All Collateral (except Deposit Accounts) will at all times be kept by
Borrower at the locations set forth on Schedule 5.18B hereto and shall not,
without thirty (30) calendar days prior written notice to Lender, be moved
therefrom, and in any case shall not be moved outside the continental United
States.

 

(b) Borrower shall keep accurate and complete records of its Accounts and all
payments and collections thereon and shall submit such records to Lender on such
periodic bases as Lender may request. In addition, if Accounts of Borrower in an
aggregate face amount in excess of $100,000 become ineligible because they fall
within one of the specified categories of ineligibility set forth in the
definition of Eligible Receivables and Eligible Unbilled Receivables, Borrower
shall notify Lender of such occurrence on the first Business Day following such
occurrence and the Borrowing Base shall thereupon be adjusted to reflect such
occurrence. If requested by Lender, Borrower shall execute and deliver to Lender
formal written assignments of all of its Accounts weekly or daily as Lender may
request, including all Accounts created since the date of the last assignment,
together with copies of claims, invoices and/or other information related
thereto. To the extent that collections from such assigned Accounts exceed the
amount of the Obligations, such excess amount shall not accrue interest in favor
of Borrower, but shall be available to Borrower upon Borrower’s written request.

 

(c) Whether or not an Event of Default has occurred, any of Lender’s officers,
employees, representatives or agents shall have the right, at any time during
normal business hours, in the name of Lender, any designee of Lender or
Borrower, to verify the validity, amount or any other matter relating to any
Accounts of Borrower. Borrower shall cooperate fully with Lender in an effort to
facilitate and promptly conclude such verification process.

 

(d) To expedite collection, Borrower shall endeavor in the first instance to
make collection of its Accounts for Lender. Lender shall have the right at all
times after the occurrence and during the continuance of an Event of Default to
notify Account Debtors owing Accounts to Borrower that their Accounts have been
assigned to Lender and to collect such Accounts directly in its own name and to
charge collection costs and expenses, including reasonable attorney’s fees, to
Borrower.

 

(e) As and when determined by Lender in its sole discretion, Lender will perform
the searches described in clauses (i) and (ii) below against Borrower and
Guarantors (the results of which are to be consistent with Borrower’s
representations and warranties under this Agreement), all at Borrower’s expense:
(i) UCC searches with the Secretary of State of the jurisdiction of organization
of Borrower and Guarantor and the Secretary of State and local filing offices of
each jurisdiction where Borrower and/or Guarantor maintain their respective
executive offices, a place of business or assets; and

 

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(ii) judgment, federal tax lien and corporate and partnership tax lien searches,
in each jurisdiction searched under clause (i) above.

 

(f) Borrower (i) shall provide prompt written notice to the Lockbox Bank to
transfer all items, collections and remittances to the Concentration Account,
(ii) shall direct each Account Debtor to make payments to the appropriate
Lockbox Account, and Borrower hereby authorizes Lender, upon any failure to send
such directions within ten (10) calendar days after the date of this Agreement
(or ten (10) calendar days after the Person becomes an Account Debtor), to send
any and all similar directions to such Account Debtors, and (iii) shall do
anything further that may be lawfully required by Lender to create and perfect
Lender’s lien on any Collateral and effectuate the intentions of the Loan
Documents. At Lender’s request, Borrower shall immediately deliver to Lender all
items for which Lender must receive possession to obtain a perfected security
interest and all notes, certificates, and documents of title, Chattel Paper,
warehouse receipts, Instruments, and any other similar instruments constituting
Collateral.

 

  2.11 Power of Attorney

 

Lender is hereby irrevocably made, constituted and appointed the true and lawful
attorney for Borrower (without requiring Lender to act as such) with full power
of substitution to do the following: (i) endorse the name of any such Person
upon any and all checks, drafts, money orders, and other instruments for the
payment of money that are payable to such Person and constitute collections on
its or their Accounts; (ii) execute in the name of such Person any financing
statements, schedules, assignments, instruments, documents, and statements that
it is or they or are obligated to give Lender under any of the Loan Documents;
and (iii) do such other and further acts and deeds in the name of such Person
that Lender may deem necessary or desirable to enforce any Account or other
Collateral or to perfect Lender’s security interest or lien in any Collateral.
In addition, if any such Person breaches its obligation hereunder to direct
payments of Accounts or the proceeds of any other Collateral to the appropriate
Lockbox Account, Lender, as the irrevocably made, constituted and appointed true
and lawful attorney for such Person pursuant to this paragraph, may, by the
signature or other act of any of Lender’s officers or authorized signatories
(without requiring any of them to do so), direct any federal, state or private
payor or fiscal intermediary to pay proceeds of Accounts or any other Collateral
to the appropriate Lockbox Account.

 

  2.12 Evidence of Loans

 

(a) Lender shall maintain, in accordance with its usual practice, electronic or
written records evidencing the indebtedness and obligations to such Lender
resulting from each Loan made by such Lender from time to time, including
without limitation, the amounts of principal and interest payable and paid to
such Lender from time to time under this Agreement.

 

(b) The entries made in the electronic or written records maintained pursuant to
this Section 2.12 (the “Register”) shall be prima facie evidence of the
existence and amounts of the obligations and indebtedness therein recorded;
provided, however, that the failure of the Lender to maintain such records or
any error therein shall not in any manner affect the obligations of the Borrower
to repay the Loans or Obligations in accordance with their terms.

 

(c) Lender will account to Borrower monthly with a statement of Advances under
the Revolving Facility, and any charges and payments made pursuant to this
Agreement, and in the

 

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absence of manifest error, such accounting rendered by Lender shall be deemed
final, binding and conclusive unless Lender is notified by Borrower in writing
to the contrary within fifteen (15) calendar days of Receipt of each accounting,
which notice shall be deemed an objection only to items specifically objected to
therein.

 

(d) The Borrower agrees that:

 

(i) upon written notice by Lender to the Borrower that a promissory note or
other evidence of indebtedness is requested by Lender to evidence the Loans and
other Obligations owing or payable to, or to be made by, such Lender, the
borrower shall promptly (and in any event within three (3) Business Days of any
such request) execute and deliver to Lender an appropriate promissory note or
notes in form and substance reasonably acceptable to the Lender and Borrower,
payable to the order of Lender or in a principal amount equal to the amount of
the Loans owing or payable to Lender;

 

(ii) all references to Notes in the Loan Documents shall mean Notes, if any, to
the extent issued (and not returned to the Borrower for cancellation) hereunder,
as the same may be amended, modified, divided, supplemented and/or restated from
time to time; and

 

(iii) upon Lender’s written request, and in any event within three (3) Business
Days of any such request, borrower shall execute and deliver to Lender new notes
and/or divide the notes in exchange for then existing notes in such smaller
amounts or denominations as Lender shall specify in its sole and absolute
discretion; provided, that the aggregate principal amount of such new Notes
shall not exceed the aggregate principal amount of the Notes outstanding at the
time such request is made; and provided, further, that such notes that are to be
replaced shall then be deemed no longer outstanding hereunder and replaced by
such new notes and returned to the Borrower within a reasonable period of time
after Lender’s receipt of the replacement notes.

 

III. FEES AND OTHER CHARGES

 

  3.1 Commitment Fee

 

On or before the Closing Date, Borrower shall pay to Lender .5% of the Facility
Cap as a nonrefundable commitment fee.

 

  3.2 Unused Line Fee

 

Borrower shall pay to Lender monthly an unused line fee (the “Unused Line Fee”)
in an amount equal to .042% per month of the difference derived by subtracting
(i) the daily average amount of the balances under the Revolving Facility
outstanding during the preceding month, from (ii) the Facility Cap. The Unused
Line Fee shall be payable monthly in arrears on the first day of each successive
calendar month (starting with the month in which the Closing Date occurs).

 

8

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  3.3 Collateral Management Fee

 

Borrower shall pay Lender as additional interest a monthly collateral management
fee (the “Collateral Management Fee”) equal to .042% per month of the Facility
Cap. The Collateral Management Fee shall be payable monthly in arrears on the
first day of each successive calendar month (starting with the month in which
the Closing Date occurs).

 

  3.4 Computation of Fees; Lawful Limits

 

All fees hereunder shall be computed on the basis of a year of 360 days and for
the actual number of days elapsed in each calculation period, as applicable. In
no contingency or event whatsoever, whether by reason of acceleration or
otherwise, shall the interest and other charges paid or agreed to be paid to
Lender for the use, forbearance or detention of money hereunder exceed the
maximum rate permissible under applicable law which a court of competent
jurisdiction shall, in a final determination, deem applicable hereto. If, due to
any circumstance whatsoever, fulfillment of any provision hereof, at the time
performance of such provision shall be due, shall exceed any such limit, then,
the obligation to be so fulfilled shall be reduced to such lawful limit, and, if
Lender shall have received interest or any other charges of any kind which might
be deemed to be interest under applicable law in excess of the maximum lawful
rate, then such excess shall be applied first to any unpaid fees and charges
hereunder, then to unpaid principal balance owed by Borrower hereunder, and if
the then remaining excess interest is greater than the previously unpaid
principal balance, Lender shall promptly refund such excess amount to Borrower
and the provisions hereof shall be deemed amended to provide for such
permissible rate. The terms and provisions of this Section 3.4 shall control to
the extent any other provision of any Loan Document is inconsistent herewith.

 

  3.5 Default Rate of Interest

 

Upon the occurrence and during the continuation of an Event of Default, the
Applicable Rate of interest in effect at such time with respect to the
Obligations shall be increased by 5.0% per annum (the “Default Rate”).

 

  3.6 Acknowledgement of Joint and Several Liability

 

Borrower acknowledges that it is jointly and severally liable for all of the
Obligations under the Loan Documents. Borrower expressly understands, agrees and
acknowledges that (i) Borrower is an Affiliated entity by common ownership of
each other Borrower, (ii) each Borrower desires to have the availability of one
common credit facility instead of separate credit facilities, (iii) each
Borrower has requested that Lender extend such a common credit facility on the
terms herein provided, (iv) Lender will be lending against, and relying on a
lien upon, all of Borrowers’ assets even though the proceeds of any particular
loan made hereunder may not be advanced directly to a particular Borrower,
(v) Borrower will nonetheless benefit by the making of all such loans by Lender
and the availability of a single credit facility of a size greater than each
could independently warrant, and (vi) all of the representations, warranties,
covenants, obligations, conditions, agreements and other terms contained in the
Loan Documents shall be applicable to and shall be binding upon Borrower.

 

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IV. CONDITIONS PRECEDENT

 

  4.1 Conditions to Initial Advance and Closing

 

The obligations of Lender to consummate the transactions contemplated herein and
to make the initial Advance under the Revolving Facility (the “Initial Advance”)
are subject to the satisfaction, in the sole judgment of Lender, of the
following:

 

(a) (i) Borrower shall have delivered to Lender (A) the Loan Documents to which
it is a party, each duly executed by an authorized officer of Borrower and the
other parties thereto, (B) a Borrowing Certificate for the Initial Advance under
the Revolving Facility executed by an authorized officer of Borrower, and
(ii) each Guarantor shall have delivered to Lender the Loan Documents to which
such Guarantor is a party, each duly executed and delivered by Guarantor or an
authorized officer of such Guarantor, as applicable, and the other parties
thereto;

 

(b) all in form and substance satisfactory to Lender in its sole discretion,
Lender shall have received (i) a report of Uniform Commercial Code financing
statement, tax and judgment lien searches performed with respect to Borrower and
Guarantor in each jurisdiction determined by Lender in its sole discretion, and
such report shall show no Liens on the Collateral (other than Permitted Liens),
(ii) each document (including, without limitation, any Uniform Commercial Code
financing statement) required by any Loan Document or under law or requested by
Lender to be filed, registered or recorded to create in favor of Lender, a
perfected first priority security interest upon the Collateral, and
(iii) evidence of each such filing, registration or recordation and of the
payment by Borrower of any necessary fee, tax or expense relating thereto;

 

(c) Lender shall have received (i) the Charter and Good Standing Documents, all
in form and substance acceptable to Lender, (ii) a certificate of the corporate
secretary or assistant secretary of Borrower and Guarantor dated the Closing
Date, as to the incumbency and signature of the Persons executing the Loan
Documents, in form and substance acceptable to Lender, and (iii) the written
legal opinion of counsel for Borrower and Guarantors, in form and substance
satisfactory to Lender and its counsel;

 

(d) Lender shall have received a certificate of the chief financial officer (or,
in the absence of a chief financial officer, the chief executive officer) of
Borrower and Guarantor, in form and substance satisfactory to Lender (each, a
“Solvency Certificate”), certifying (i) the solvency of such Person after giving
effect to the transactions and the Indebtedness contemplated by the Loan
Documents, and (ii) as to such Person’s financial resources and ability to meet
its obligations and liabilities as they become due, to the effect that as of the
Closing Date and the Borrowing Date for the Initial Advance and after giving
effect to such transactions and Indebtedness: (A) the assets of such Person, at
a Fair Valuation, exceed the total liabilities (including contingent,
subordinated, unmatured and unliquidated liabilities) of such Person, and (B) no
unreasonably small capital base with which to engage in its anticipated business
exists with respect to such Person;

 

(e) Lender shall have completed examinations, the results of which shall be
satisfactory in form and substance to Lender, of the Collateral, the financial
statements and the books, records, business, obligations, financial condition
and operational state of each Borrower and Guarantor, and each such Person shall
have demonstrated to Lender’s satisfaction that (i) its operations comply, in
all respects deemed material by Lender, in its sole judgment, with all
applicable federal, state, foreign and local laws, statutes and regulations,
(ii) its operations are not the subject of any governmental investigation,
evaluation or any remedial action which could result in any expenditure or
liability deemed

 

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material by Lender, in its sole judgment, and (iii) it has no liability (whether
contingent or otherwise) that is deemed material by Lender, in its sole
judgment;

 

(f) Lender shall have received all fees, charges and expenses payable to Lender
on or prior to the Closing Date pursuant to the Loan Documents;

 

(g) all in form and substance satisfactory to Lender in its sole discretion,
Lender shall have received such consents, approvals and agreements from such
third parties as Lender and its counsel shall determine are necessary or
desirable with respect to (i) the Loan Documents and/or the transactions
contemplated thereby, and/or (ii) claims against any Borrower or Guarantor or
the Collateral;

 

(h) Borrower shall be in compliance with Section 6.5, and Lender shall have
received copies of all insurance policies or binders, original certificates of
all insurance policies of Borrower confirming that they are in effect and that
the premiums due and owing with respect thereto have been paid in full and
endorsements of such policies issued by the applicable Insurers and in each case
and naming Lender as additional insured or as loss payee with respect to the
Collateral, as appropriate;

 

(i) all corporate and other proceedings, documents, instruments and other legal
matters in connection with the transactions contemplated by the Loan Documents
(including, but not limited to, those relating to corporate and capital
structures of Borrower) shall be satisfactory to Lender;

 

(j) Lender shall have received, in form and substance satisfactory to Lender,
(i) evidence of the repayment in full and termination of Borrower’s indebtedness
and obligations to Systran Financial Services Corporation and all related
documents, agreements and instruments and of all Liens, security interests and
Uniform Commercial Code financing statements relating thereto, (ii) evidence of
the release and termination of all Liens, security interests and Uniform
Commercial Code financing statements in favor of Qwest Communications, Inc. and
Zions First National Bank; and (iii) release and termination of any and all
Liens, security interest and/or Uniform Commercial Code financing statements in,
on, against or with respect to any of the Collateral (other than Permitted
Liens);

 

(l) The initial Advance shall be at least $2,000,000 and, following such
Advance, Borrower shall be in compliance with the minimum Availability required
pursuant to Annex I hereto.

 

(m) Borrower shall have executed and filed IRS Form 8821 with the appropriate
office of the Internal Revenue Service; and

 

(n) Lender shall have received such other documents, certificates, information
or legal opinions as Lender may reasonably request, all in form and substance
reasonably satisfactory to Lender.

 

  4.2 Conditions to Each Advance

 

The obligations of Lender to make any Advance (including, without limitation,
the Initial Advance) are subject to the satisfaction, in the sole judgment of
Lender, of the following additional conditions precedent:

 

(a) Borrower shall have delivered to Lender a Borrowing Certificate for the
Advance executed by an authorized officer of Borrower, which shall constitute a
representation and

 

11

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warranty by Borrower as of the Borrowing Date of such Advance that the
conditions contained in this Section 4.2 have been satisfied; provided, however,
that any determination as to whether to fund Advances or extensions of credit
shall be made by Lender in its sole discretion;

 

(b) each of the representations and warranties made by Borrower in or pursuant
to this Agreement shall be accurate, before and after giving effect to such
Advance, and no Default or Event of Default shall have occurred or be continuing
or would exist after giving effect to the Advance under the Revolving Facility
on such date;

 

(c) immediately after giving effect to the requested Advance, the aggregate
outstanding principal amount of Advances under the Revolving Facility shall not
exceed either the Availability or the Facility Cap;

 

(d) except as disclosed in the historical financial statements, there shall be
no liabilities or obligations with respect to Borrower of any nature whatsoever
which, either individually or in the aggregate, would reasonably be likely to
have a Material Adverse Effect;

 

(e) Lender shall have received all fees, charges and expenses payable to Lender
on or prior to such date pursuant to the Loan Documents;

 

(f) all in form and substance satisfactory to Lender in its sole discretion,
Lender shall have received such consents, approvals and agreements, including,
without limitation, any applicable Warehouse Waivers and Consents with respect
to any and all leases, warehouses and other locations set forth on Schedule 5.4,
from such third parties as Lender and its counsel shall determine are necessary
or desirable with respect to (i) the Loan Documents and/or the transactions
contemplated thereby, and/or (ii) claims against any Borrower or Guarantor or
the Collateral;

 

(g) Each Advance shall comply with the minimum average outstanding Advances
requirement set forth in this Agreement; and

 

(h) Following each Advance, Borrower must have Availability equal to a minimum
of $1,000,000 until Borrower has achieved a Fixed Charge Coverage Ratio of at
least 1:1 for the immediately preceding 12 months.

 

V. REPRESENTATIONS AND WARRANTIES

 

Borrower, jointly and severally, represents and warrants as of the date hereof,
the Closing Date, and each Borrowing Date as follows:

 

  5.1 Organization and Authority

 

Borrower is a corporation duly organized, validly existing and in good standing
under the laws of its state of formation. Borrower (i) has all requisite
corporate or entity power and authority to own its properties and assets and to
carry on its business as now being conducted and as contemplated in the Loan
Documents, (ii) is duly qualified to do business in every jurisdiction in which
failure so to qualify would reasonably be likely to have a Material Adverse
Effect, and (iii) has all requisite power and authority (A) to execute, deliver
and perform the Loan Documents to which it is a party, (B) to borrow hereunder,
(C) to consummate the transactions contemplated under the Loan Documents, and
(D) to grant the Liens with regard to the Collateral pursuant to the Security
Documents to which it is a party. No

 

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Borrower is an “investment company” registered or required to be registered
under the Investment Company Act of 1940, as amended, or is controlled by such
an “investment company.”

 

  5.2 Loan Documents

 

The execution, delivery and performance by Borrower of the Loan Documents to
which it is a party, and the consummation of the transactions contemplated
thereby, (i) have been duly authorized by all requisite action of each such
Person and have been duly executed and delivered by or on behalf of each such
Person; (ii) do not violate any provisions of (A) applicable law, statute, rule,
regulation, ordinance or tariff, (B) any order of any Governmental Authority
binding on any such Person or any of their respective properties, or (C) the
certificate of incorporation or bylaws (or any other equivalent governing
agreement or document) of any such Person, or any agreement between any such
Person and its respective stockholders, members, partners or equity owners or
among any such stockholders, members, partners or equity owners; (iii) are not
in conflict with, and do not result in a breach or default of or constitute an
event of default, or an event, fact, condition or circumstance which, with
notice or passage of time, or both, would constitute or result in a conflict,
breach, default or event of default under, any indenture, agreement or other
instrument to which any such Person is a party, or by which the properties or
assets of such Person are bound; (iv) except as set forth therein, will not
result in the creation or imposition of any Lien of any nature upon any of the
properties or assets of any such Person, and (v) except as set forth on Schedule
5.2, do not require the consent, approval or authorization of, or filing,
registration or qualification with, any Governmental Authority or any other
Person. When executed and delivered, each of the Loan Documents to which
Borrower is a party will constitute the legal, valid and binding obligation of
Borrower, enforceable against Borrower in accordance with its terms, subject to
the effect of any applicable bankruptcy, moratorium, insolvency, reorganization
or other similar law affecting the enforceability of creditors’ rights generally
and to the effect of general principles of equity which may limit the
availability of equitable remedies (whether in a proceeding at law or in
equity).

 

  5.3 Subsidiaries, Capitalization and Ownership Interests

 

Except as listed on Schedule 5.3, Borrower has no Subsidiaries. In addition,
Borrower represents and warrants to and covenants with Lender that: (a) Buyers
United, Inc. – Virginia does not and shall not possess any liabilities or assets
of any kind; (b) MyACD, Inc. does not and shall not possess any liabilities or
assets of any kind except for software and other Intellectual Property that
MyACD, Inc. licenses solely to Borrower; and (c) Borrower does not and shall not
provide any monies or other things of value to or engage in any business
activities with Buyers United, Inc. – Virginia or MyACD, Inc. except for MyACD,
Inc.’s licenses of certain software and other Intellectual Property to Borrower
and Borrower’s payments of MyACD’s reasonable operations expenses which shall
not exceed $5,000 per year in the aggregate. Schedule 5.3 states the authorized
and issued capitalization of Borrower, the number and class of equity securities
and/or ownership, voting or partnership interests issued and outstanding of
Borrower and the record owners of five percent (5%) or more thereof (including
options, warrants and other rights to acquire any of the foregoing). The
ownership or partnership interests of Borrower that is a limited partnership or
a limited liability company are not certificated, the documents relating to such
interests do not expressly state that the interests are governed by Article 8 of
the Uniform Commercial Code, and the interests are not held in a securities
account. The outstanding equity securities and/or ownership, voting or
partnership interests of Borrower have been duly authorized and validly issued
and are fully paid and nonassessable. Schedule 5.3 also lists the directors,
members, managers and/or partners of Borrower. Except as listed on Schedule 5.3,
Borrower does not own an

 

13

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interest in, participate in or engage in any joint venture, partnership or
similar arrangements with any Person.

 

  5.4 Properties

 

Borrower (i) is the sole owner and has good, valid and marketable title to, or a
valid leasehold interest in, all of its properties and assets, including the
Collateral, whether personal or real, subject to no transfer restrictions or
Liens of any kind except for Permitted Liens, and (ii) is in compliance in all
material respects with the lease for its premises located at 14870 Pony Express
Road, Bluffsdale, Utah 84065 and, to its knowledge, with each other each lease
to which it is a party or otherwise bound. Schedule 5.4 lists all real
properties (and their locations) owned or leased by or to, and all other assets
or property that are leased or licensed by, Borrower and all leases (including
leases of leased real property) covering or with respect to such properties and
assets all warehouses, fulfillment houses or other locations at which any of
Borrower’s Inventory is located. Borrower enjoys peaceful and undisturbed
possession under all such leases and such leases are all the leases necessary
for the operation of such properties and assets, are valid and subsisting and
are in full force and effect.

 

  5.5 Other Agreements

 

Borrower is not (i) a party to any judgment, order or decree or any agreement,
document or instrument, or subject to any restriction, which would affect its
ability to execute and deliver, or perform under, any Loan Document or to pay
the Obligations, (ii) in default in the performance, observance or fulfillment
of any obligation, covenant or condition contained in any agreement, document or
instrument to which it is a party or to which any of its properties or assets
are subject, which default, if not remedied within any applicable grace or cure
period would reasonably be likely to have a Material Adverse Effect, nor is
there any event, fact, condition or circumstance which, with notice or passage
of time or both, would constitute or result in a conflict, breach, default or
event of default under, any of the foregoing which, if not remedied within any
applicable grace or cure period would reasonably be likely to have a Material
Adverse Effect; or (iii) a party or subject to any agreement, document or
instrument with respect to, or obligation to pay any, management or service fee
with respect to, the ownership, operation, leasing or performance of any of its
business or any facility, nor is there any manager with respect to any such
facility.

 

  5.6 Litigation

 

There is no action, suit, proceeding or investigation pending or, to their
knowledge, threatened against Borrower that (i) questions or could prevent the
validity of any of the Loan Documents or the right of Borrower to enter into any
Loan Document or to consummate the transactions contemplated thereby, (ii) would
reasonably be likely to be or have, either individually or in the aggregate, any
Material Adverse Change or Material Adverse Effect, or (iii) would reasonably be
likely to result in any Change of Control or other change in the current
ownership, control or management of Borrower. Borrower is not aware that there
is any basis for the foregoing. Borrower is not a party or subject to any writ,
injunction, judgment or decree of any Governmental Authority or any order of any
Governmental Authority that would have a material and adverse effect upon
Borrower’s business operations or assets. Except as set forth in Schedule 5.6
hereto, there is no action, suit, proceeding or investigation initiated by
Borrower currently pending. Borrower has no existing accrued and/or unpaid
Indebtedness to any Governmental Authority or any other governmental payor that
has not been paid on or prior to its due date.

 

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  5.7 Hazardous Materials

 

Borrower is in compliance in all material respects with all applicable
Environmental Laws. Borrower has not been notified of any action, suit,
proceeding or investigation (i) relating in any way to compliance by or
liability of Borrower under any Environmental Laws, (ii) which otherwise deals
with any Hazardous Substance or any Environmental Law, or (iii) which seeks to
suspend, revoke or terminate any license, permit or approval necessary for the
generation, handling, storage, treatment or disposal of any Hazardous Substance.

 

  5.8 Potential Tax Liability; Tax Returns; Governmental Reports

 

(a) Except as disclosed in Schedule 5.8, Borrower (i) has not received any oral
or written communication from the Internal Revenue Service with respect to any
investigation or assessment relating to the Borrower directly, or relating to
any consolidated tax return which was filed on behalf of Borrower, (ii) is not
aware of any year which remains open pending tax examination or audit by the
IRS, and (iii) is not aware of any information that could give rise to an IRS
tax liability or assessment.

 

(b) Borrower (i) has filed all federal, state, foreign (if applicable) and local
tax returns and other reports which are required by law to be filed by Borrower,
(ii) has paid all taxes, assessments, fees and other governmental charges,
including, without limitation, payroll and other employment related taxes, in
each case that are due and payable, except only for items that Borrower is
currently contesting in good faith with adequate reserves under GAAP, which
contested items are described on Schedule 5.8.

 

  5.9 Financial Statements and Reports

 

All financial statements and financial information relating to Borrower that
have been or may hereafter be delivered to Lender by Borrower are accurate and
complete and all financial statements have been prepared in accordance with GAAP
consistently applied with prior periods. Borrower has no material obligations or
liabilities of any kind not disclosed in such financial information or
statements, and since the date of the most recent financial statements submitted
to Lender, there has not occurred any Material Adverse Change, Material Adverse
Effect to Borrower’s knowledge, any other event or condition that would
reasonably be likely to have a Material Adverse Effect.

 

  5.10 Compliance with Law

 

Borrower (i) is in compliance with all laws, statutes, rules, regulations,
ordinances and tariffs of any Governmental Authority applicable to Borrower
and/or Borrower’s business, assets or operations, including, without limitation,
ERISA, and (ii) is not in violation of any order of any Governmental Authority
or other board or tribunal, except where noncompliance or violation could not
reasonably be expected to have a Material Adverse Effect. There is no event,
fact, condition or circumstance which, with notice or passage of time, or both,
would constitute or result in any noncompliance with, or any violation of, any
of the foregoing, in each case except where noncompliance or violation could not
reasonably be expected to have a Material Adverse Effect. Borrower has not
received any notice that Borrower is not in compliance in any respect with any
of the requirements of any of the foregoing. Borrower has (a) not engaged in any
Prohibited Transactions as defined in Section 406 of ERISA and Section 4975 of
the Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder, (b) not failed to meet any applicable minimum funding
requirements under Section 302 of ERISA in respect of its plans and no funding
requirements have been postponed or delayed, (c) no knowledge of any amounts due
but unpaid to the Pension Benefit Guaranty Corporation,

 

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or of any event or occurrence which would cause the Pension Benefit Guaranty
Corporation to institute proceedings under Title IV of ERISA to terminate any of
the employee benefit plans, (d) no fiduciary responsibility under ERISA for
investments with respect to any plan existing for the benefit of Persons other
than its employees or former employees, or (e) not withdrawn, completely or
partially, from any multi-employer pension plans so as to incur liability under
the MultiEmployer Pension Plan Amendments of 1980. With respect to Borrower,
there exists no event described in Section 4043 of ERISA, excluding
Subsections 4043(b)(2) and 4043(b)(3) thereof, for which the thirty (30) day
notice period contained in 12 C.F.R. § 2615.3 has not been waived.

 

  5.11 Intellectual Property

 

Except as set forth on Schedule 5.11, Borrower does not own, license or utilize,
and is not a party to, any patents, patent applications, trademarks, trademark
applications, service marks, registered copyrights, copyright applications,
copyrights, trade names, trade secrets, software or licenses (collectively, the
“Intellectual Property”).

 

  5.12 Licenses and Permits; Labor

 

Borrower is in compliance with and has all Permits and Intellectual Property
necessary or required by applicable law or Governmental Authority for the
operation of its businesses. All of the foregoing are in full force and effect
and not in known conflict with the rights of others. Borrower is not (i) in
breach of or default under the provisions of any of the foregoing, nor is there
any event, fact, condition or circumstance which, with notice or passage of time
or both, would constitute or result in a conflict, breach, default or event of
default under, any of the foregoing which, if not remedied within any applicable
grace or cure period would reasonably be likely to have a Material Adverse
Effect, (ii) a party to or subject to any agreement, instrument or restriction
that is so unusual or burdensome that it might have a Material Adverse Effect,
and/or (iii) and has not been, involved in any labor dispute, strike, walkout or
union organization which would reasonably be likely to have a Material Adverse
Effect.

 

  5.13 No Default

 

There does not exist any Default or Event of Default or any event, fact,
condition or circumstance which, with the giving of notice or passage of time or
both, would constitute or result in a Default or Event of Default.

 

  5.14 Disclosure

 

No Loan Document nor any other agreement, document, certificate, or statement
furnished to Lender by or on behalf of Borrower in connection with the
transactions contemplated by the Loan Documents, nor any representation or
warranty made by Borrower in any Loan Document, contains any untrue statement of
material fact or omits to state any fact necessary to make the statements
therein not materially misleading. There is no fact known to Borrower which has
not been disclosed to Lender in writing which would reasonably be likely to have
a Material Adverse Effect.

 

  5.15 Existing Indebtedness; Investments, Guarantees and Certain Contracts

 

Except as contemplated by the Loan Documents or as otherwise set forth on
Schedule 5.15A, Borrower (i) has no outstanding Indebtedness, (ii) is not
subject or party to any

 

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mortgage, note, indenture, indemnity or guarantee of, with respect to or
evidencing any Indebtedness of any other Person, or (iii) does not own or hold
any equity or long-term debt investments in, and does not have any outstanding
advances to or any outstanding guarantees for the obligations of, or any
outstanding borrowings from, any Person. Borrower has performed all material
obligations required to be performed by Borrower pursuant to or in connection
with any items listed on Schedule 5.15A and there has occurred no breach,
default or event of default under any document evidencing any such items or any
fact, circumstance, condition or event which, with the giving of notice or
passage of time or both, would constitute or result in a breach, default or
event of default thereunder. Schedule 5.15B sets forth all Indebtedness with a
maturity date during the Term of the Loan, and identifies such maturity date.

 

  5.16 Other Agreements

 

Except as set forth on Schedule 5.16, (i) there are no existing or proposed
agreements, arrangements, understandings or transactions between Borrower and
any of Borrower’s officers, members, managers, directors, stockholders,
partners, other interest holders, employees or Affiliates or any members of
their respective immediate families, and (ii) none of the foregoing Persons are
directly or indirectly, indebted to or have any direct or indirect ownership,
partnership or voting interest in, to Borrower’s knowledge, any Affiliate of
Borrower or any Person that competes with Borrower (except that any such Persons
may own stock in (but not exceeding two (2%) percent of the outstanding capital
stock of) any publicly traded company that may compete with Borrower.

 

  5.17 Insurance

 

Borrower has in full force and effect such insurance policies as are customary
in its industry and as may be required pursuant to Section 6.5 hereof. All such
insurance policies are listed and described on Schedule 5.17.

 

  5.18 Names; Location of Offices, Records and Collateral

 

During the preceding five years, Borrower has not conducted business under or
used any name (whether corporate, partnership or assumed) other than as shown on
Schedule 5.18A. Borrower is the sole owner of all of its names listed on
Schedule 5.18A, and any and all business done and invoices issued in such names
are Borrower’s sales, business and invoices. Each trade name of Borrower
represents a division or trading style of Borrower. Borrower maintains its
places of business and chief executive offices only at the locations set forth
on Schedule 5.18B, and all Accounts of Borrower arise, originate and are
located, and all of the Collateral, including Inventory and all books and
records in connection therewith or in any way relating thereto or evidencing the
Collateral are located and shall only be located, in and at such locations. All
of the Collateral is located only in the continental United States.

 

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  5.19 Non-Subordination

 

The Obligations are not subordinated in any way to any other obligations of
Borrower or to the rights of any other Person.

 

  5.20 Accounts

 

In determining which Accounts are Eligible Receivables, Lender may rely on all
statements and representations made by Borrower with respect to any Account.
Unless otherwise indicated in writing to Lender, (i) each Account of Borrower is
genuine and in all respects what it purports to be and is not evidenced by a
judgment, (ii) each Account of Borrower arises out of a completed, bona fide
sale and delivery of goods or rendering of services by Borrower in the ordinary
course of business and in accordance with the terms and conditions of all
purchase orders, contracts, certifications, participations and other documents
relating thereto or forming a part of the contract between Borrower and the
Account Debtor, (iii) each Account of Borrower is for a liquidated amount
maturing as stated in a claim or invoice covering such sale of goods or
rendering of services, a copy of which has been furnished or is available to
Lender, (iv) each Account of Borrower together with Lender’s security interest
therein, is not and will not be in the future (by voluntary act or omission by
Borrower), subject to any offset, lien, deduction, defense, dispute,
counterclaim or other adverse condition, is absolutely owing to Borrower and is
not contingent in any respect or for any reason (except for usual and customary
discounts that have been disclosed to Lender and excluded from the Borrowing
Certificate, usual and customary offsets, defenses, and disputes that are known
to Borrower and have been disclosed to Lender and excluded from the Borrowing
Certificate, and usual and customary offsets, defenses, and disputes that are
not known to Borrower, have not been disclosed to Lender or excluded from the
Borrowing Certificate, and do not amount to more than $20,000 individually or
$100,000 in the aggregate at any time), (v) to Borrower’s knowledge, there are
no facts, events or occurrences which in any way impair the validity or
enforceability of any Account of Borrower or tend to reduce the amount payable
thereunder from the face amount of the claim or invoice and statements delivered
to Lender with respect thereto, (vi) (A) to Borrower’s knowledge, the Account
Debtor under each Account of Borrower had the capacity to contract at the time
any contract or other document giving rise thereto was executed and (B) to
Borrower’s knowledge, each such Account Debtor is solvent, (vii) to Borrower’s
knowledge, there are no proceedings or actions which are threatened or pending
against any Account Debtor under any Account of Borrower which might result in
any Material Adverse Change in such Account Debtor’s financial condition or the
collectability thereof, (viii) each Account of Borrower has been billed and
forwarded to the Account Debtor for payment in accordance with applicable laws
and is in compliance and conformance with any requisite procedures, requirements
and regulations governing payment by such Account Debtor with respect to such
Account, and, (ix) Borrower has obtained and currently has all Permits necessary
in the generation of each Account of Borrower.

 

  5.21 Survival

 

Borrower makes the representations and warranties contained herein with the
knowledge and intention that Lender is relying and will rely thereon. All such
representations and warranties will survive the execution and delivery of this
Agreement and the making of the Advances under the Revolving Facility.

 

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VI. AFFIRMATIVE COVENANTS

 

Borrower, jointly and severally, covenants and agrees that, until full
performance and satisfaction, and indefeasible payment in full in cash, of all
the Obligations and termination of this Agreement:

 

  6.1 Financial Statements, Borrowing Certificate, Financial Reports and Other
Information

 

(a) Financial Reports. In addition to providing the Borrowing Certificate in
accordance with Section 2.4, Borrower shall furnish to Lender (i) as soon as
available and in any event within ninety (90) calendar days after the end of
each fiscal year of Borrower, audited annual consolidated and consolidating
financial statements of Borrower, including the notes thereto, consisting of a
consolidated and consolidating balance sheet at the end of such completed fiscal
year and the related consolidated and consolidating statements of income,
retained earnings, cash flows and owners’ equity for such completed fiscal year,
which financial statements shall be prepared and certified without qualification
by an independent certified public accounting firm satisfactory to Lender (which
includes Deloitte & Touche LLP) and accompanied by related management letters,
if available, and (ii) as soon as available and in any event within thirty
(30) calendar days after the end of each calendar month, unaudited consolidated
and consolidating financial statements of Borrower consisting of a balance sheet
and statements of income, which shall contain details of retained earnings, cash
flows and owners’ equity as of the end of the immediately preceding calendar
month. All such financial statements shall be prepared in accordance with GAAP
consistently applied with prior periods. With each such financial statement,
Borrower shall also deliver a certificate of its chief financial officer in
substantially the form of Exhibit B hereto (a “Compliance Certificate”) stating
that (A) such person has reviewed the relevant terms of the Loan Documents and
the condition of Borrower, (B) no Default or Event of Default has occurred or is
continuing, or, if any of the foregoing has occurred or is continuing,
specifying the nature and status and period of existence thereof and the steps
taken or proposed to be taken with respect thereto, and (C) Borrower is in
compliance with all financial covenants attached as Annex I hereto. Such
certificate shall be accompanied by the calculations necessary to show
compliance with the financial covenants in a form satisfactory to Lender.

 

(b) Other Materials. Borrower shall furnish to Lender as soon as available, and
in any event within ten (10) calendar days after the preparation or issuance
thereof or at such other time as set forth below: (i) copies of such financial
statements (other than those required to be delivered pursuant to
Section 6.1(a)) prepared by, for or on behalf of Borrower and any other notes,
reports and other materials related thereto, including, without limitation, any
pro forma financial statements, (ii) any reports, returns, information, notices
and other materials that Borrower shall send to its stockholders, members,
partners or other equity owners at any time, (iii) within thirty (30) calendar
days after the end of each calendar month for such month, a sales and collection
report and accounts receivable and accounts payable aging schedule, including a
report of sales, credits issued and collections received, all such reports
showing a reconciliation to the amounts reported in the monthly financial
statements, (v) promptly upon receipt thereof, copies of any reports submitted
to Borrower by its independent accountants in connection with any interim audit
of the books of such Person or any of its Affiliates and copies of each
management control letter provided by such independent accountants, (vi) within
fifteen (15) calendar days after the execution thereof, a copy of any contracts
with the federal government or with a Governmental Authority in the State of New
York, Vermont or Washington, and (vii) such additional information, documents,
statements, reports and other materials as Lender may reasonably request from a
credit or security perspective or otherwise from time to time.

 

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(c) Notices. Borrower shall promptly, and in any event within five (5) calendar
days after Borrower or any authorized officer of Borrower obtains knowledge
thereof, notify Lender in writing of (i) any pending or threatened litigation,
suit, investigation, arbitration, dispute resolution proceeding or
administrative proceeding brought or initiated by Borrower or otherwise
affecting or involving or relating to Borrower or any of its property or assets
to the extent (A) the amount in controversy exceeds $20,000, or (B) to the
extent any of the foregoing seeks injunctive or declarative relief, (ii) any
Default or Event of Default, which notice shall specify the nature and status
thereof, the period of existence thereof and what action is proposed to be taken
with respect thereto, (iii) any other development, event, fact, circumstance or
condition that would reasonably be likely to have a Material Adverse Effect, in
each case describing the nature and status thereof and the action proposed to be
taken with respect thereto, (iv) any notice received by Borrower from any payor
of a claim, a suit or any other action such payor has, claims to have, or has
actually filed against Borrower, (v) any matter(s) affecting the value,
enforceability or collectability of any of the Collateral, including, without
limitation, claims or disputes in the amount of $20,000 or more singly or
$100,000 in the aggregate, in existence at any one time, (vi) any notice given
by Borrower to any other lender of Borrower, which notice to Lender shall be
accompanied by a copy of the applicable notice given to the other Lender,
(vii) receipt of any notice or request from any Governmental Authority or
governmental payor regarding any liability or claim of liability in the amount
of $20,000 or more singly or $100,000 in the aggregate, (viii) receipt of any
notice by Borrower regarding termination of any manager of any facility owned,
operated or leased by Borrower, (ix) any Account becoming evidenced or secured
by an Instrument or Chattel Paper, and/or (x) receipt of any notice from any
Account Debtor under a material contract notifying Borrower of a material breach
under or termination of such contract.

 

(d) Consents. Borrower shall obtain and deliver from time to time all required
consents, approvals and agreements from such third parties as Lender shall
determine are necessary or desirable in its Permitted Discretion, each of which
must be satisfactory to Lender in its sole discretion, with respect to (i) the
Loan Documents and the transactions contemplated thereby, (ii) claims against
Borrower or the Collateral, and/or (iii) any agreements, consents, documents or
instruments to which Borrower is a party or by which any properties or assets of
Borrower or any of the Collateral is or are bound or subject, including, without
limitation, Landlord Waivers and Consents with respect to leases.

 

(e) Operating Budget. Borrower shall furnish to Lender on or prior to the
Closing Date and for each fiscal year of Borrower thereafter not less than
thirty (30) calendar days prior to the commencement of such fiscal year,
consolidated and consolidating month by month projected operating budgets,
annual projections, profit and loss statements, balance sheets and cash flow
reports of and for Borrower for such upcoming fiscal year (including an income
statement for each month and a balance sheet as at the end of the last month in
each fiscal quarter), in each case prepared in accordance with GAAP consistently
applied with prior periods.

 

  6.2 Payment of Obligations

 

Borrower shall make full and timely indefeasible payment in cash of the
principal of and interest on the Loans, Advances and all other Obligations.

 

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  6.3 Conduct of Business and Maintenance of Existence and Assets

 

Borrower shall (i) conduct its business in accordance with good business
practices customary to the industry, (ii) engage principally in the same or
similar lines of business substantially as heretofore conducted, (iii) collect
its Accounts in the ordinary course of business, (iv) maintain all of its
material properties, assets and equipment used or useful in its business in good
repair, working order and condition (normal wear and tear excepted and except as
may be disposed of in the ordinary course of business and in accordance with the
terms of the Loan Documents and otherwise as determined by Borrower using
commercially reasonable business judgment), (v) from time to time to make all
necessary or desirable repairs, renewals and replacements thereof, as determined
by Borrower using commercially reasonable business judgment, (vi) maintain and
keep in full force and effect its existence and all material Permits and
qualifications to do business and good standing in each jurisdiction in which
the ownership or lease of property or the nature of its business makes such
Permits or qualification necessary and in which failure to maintain such Permits
or qualification could reasonably be likely to have a Material Adverse Effect;
and (vii) remain in good standing and maintain operations in all jurisdictions
in which currently located.

 

  6.4 Compliance with Legal and Other Obligations

 

Borrower shall (i) comply with all laws, statutes, rules, regulations,
ordinances and tariffs of all Governmental Authorities applicable to it or its
business, assets or operations; (ii) pay all taxes, assessments, fees,
governmental charges, claims for labor, supplies, rent and all other obligations
or liabilities of any kind, except liabilities being contested in good faith and
against which adequate reserves have been established in accordance with GAAP,
(iii) perform in accordance with its terms each contract, agreement or other
arrangement to which it is a party or by which it or any of the Collateral is
bound, except where the failure to comply, pay or perform could not reasonably
be expected to have a Material Adverse Effect, and (iv) maintain and comply with
all Permits necessary to conduct its business and comply with any new or
additional requirements that may be imposed on it or its business.

 

  6.5 Insurance

 

Borrower shall (i) keep all of its insurable properties and assets including
without limitation Inventory that is in transit (whether by vessel, air or land)
adequately insured in all material respects against losses, damages and hazards
as are customarily insured against by businesses engaging in similar activities
or owning similar assets or properties and at least the minimum amount required
by applicable law (and with respect to Inventory that is in transit, maintain
insurance covering the same for its full replacement cost under all risk marine
insurance policies endorsed to cover all risks required by Lender and with such
amounts of coverage and deductibles as Lender determines, in its Permitted
Discretion, issued by such insurance carriers as are acceptable to Lender),
including, without limitation, professional liability insurance, as applicable;
and maintain general public liability insurance at all times against liability
on account of damage to persons and property having such limits, deductibles,
exclusions and co-insurance and other provisions as are customary for a business
engaged in activities similar to those of Borrower; and (iii) maintain insurance
under all applicable workers’ compensation laws; all of the foregoing insurance
policies to (A) be satisfactory in form and substance to Lender, (B) name Lender
as additional insured or loss payee with respect to the Collateral thereunder,
as applicable, and (C) expressly provide that they cannot be altered, amended,
modified or canceled without thirty (30) Business Days prior written notice to
Lender and that they inure to the benefit of Lender notwithstanding any action
or omission or negligence of or by Borrower or any insured thereunder.

 

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  6.6 True Books

 

Borrower shall (i) keep true, complete and accurate books of record and account
in accordance with commercially reasonable business practices in which true and
correct entries are made of all of its and their dealings and transactions in
all material respects; and (ii) set up and maintain on its books such reserves
as may be required by GAAP with respect to doubtful accounts and all taxes,
assessments, charges, levies and claims and with respect to its business, and
include such reserves in its quarterly as well as year end financial statements.

 

  6.7 Inspections; Periodic Audits and Reappraisals

 

Borrower shall permit the representatives of Lender, at the expense of Borrower,
from time to time during normal business hours upon reasonable notice, to
(i) visit and inspect any of its offices or properties or any other place where
Collateral is located to inspect the Collateral and/or to examine or audit all
of its books of account, records, reports and other papers, including, without
limitation, copies of licenses and permits, required by any applicable federal,
state, foreign or local law, statute, ordinance or regulation or Governmental
Authority for the operation of its business, (ii) make copies and extracts
therefrom, and (iii) discuss its business, operations, prospects, properties,
assets, liabilities, condition and/or Accounts and Inventory with its officers
and independent public accountants (and by this provision such officers and
accountants are authorized to discuss the foregoing). Lender is also authorized,
from time to time to conduct or obtain at the Borrowers’ expense, but not more
frequently than quarterly (except upon or after the occurrence of an Event of
Default), audits of Inventory.

 

  6.8 Further Assurances; Post Closing

 

At Borrower’s cost and expense, Borrower shall (i) take such further actions,
obtain such consents and approvals and duly execute and deliver such further
agreements, assignments, instructions or documents as Lender may request with
respect to the purposes, terms and conditions of the Loan Documents and the
consummation of the transactions contemplated thereby, and (ii) without limiting
and notwithstanding any other provision of any Loan Document, execute and
deliver, or cause to be executed and delivered, such agreements and documents,
and take or cause to be taken such actions, and otherwise perform, observe and
comply with such obligations, as are set forth on Schedule 6.8.

 

  6.9 Payment of Indebtedness

 

Except as otherwise prescribed in the Loan Documents, Borrower shall pay,
discharge or otherwise satisfy at or before maturity (subject to applicable
grace periods and, in the case of trade payables, to ordinary course payment
practices) all of its material obligations and liabilities, except when the
amount or validity thereof is being contested in good faith by appropriate
proceedings and such reserves as Lender may deem proper and necessary in its
sole discretion shall have been made.

 

  6.10 Lien Searches

 

If Liens other than Permitted Liens exist, Borrower immediately shall take,
execute and deliver all actions, documents and instruments necessary to release
and terminate such Liens.

 

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  6.11 Use of Proceeds

 

Borrower shall use the proceeds from the Revolving Facility only for the
purposes set forth in the first “WHEREAS” clause of this Agreement.

 

  6.12 Collateral Documents; Security Interest in Collateral

 

Borrower shall (i) execute, obtain, deliver, file, register and/or record any
and all financing statements, continuation statements, stock powers, instruments
and other documents, or cause the execution, filing, registration, recording or
delivery of any and all of the foregoing, that are necessary or required under
law or otherwise or reasonably requested by Lender to be executed, filed,
registered, obtained, delivered or recorded to create, maintain, perfect,
preserve, validate or otherwise protect the pledge of the Collateral to Lender
and Lender’s perfected first priority Lien on the Collateral (and Borrower
irrevocably grants Lender the right, at Lender’s option, to file any or all of
the foregoing), (ii) immediately upon learning thereof, report to Lender any
reclamation, return or repossession of goods in excess of $20,000 individually
or $100,000 in the aggregate), and (iii) defend the Collateral and Lender’s
perfected first priority Lien thereon against all claims and demands of all
Persons at any time claiming the same or any interest therein adverse to Lender,
and pay all reasonable costs and expenses (including, without limitation,
in-house documentation and diligence fees and legal expenses and reasonable
attorneys’ fees and expenses) in connection with such defense, which may at
Lender’s discretion be added to the Obligations.

 

  6.13 Right of First Offer

 

If at any time Borrower or Guarantor (each, a “Credit Party”) or any of their
respective Affiliates solicits or receives a commitment or similar financing
proposal from any Person which provides for any type of financing to or for a
Credit Party or any of its Affiliates, such Credit Party, on behalf of itself or
such Affiliate, shall immediately notify Lender of the solicitation in writing
and shall give Lender an opportunity to present its written offer of alternative
financing on such terms as the Lender determines within fifteen (15) days
following Lender’s receipt of the notice described in this Section. Thereafter,
Borrower may accept, reject or negotiate the proposal submitted by Lender or
proposals submitted by other Persons, as Borrower determines in its sole
discretion, but shall notify Lender of the proposal (if any) chosen by Borrower
and, if the Person submitting the competing proposal is seeking participants,
request such Person to include Lender among its potential participants.

 

  6.14 Taxes and Other Charges

 

(a) All payments and reimbursements to Lender made under any Loan Document shall
be free and clear of and without deduction for all taxes, levies, imposts,
deductions, assessments, charges or withholdings, and all liabilities with
respect thereto of any nature whatsoever, excluding taxes to the extent imposed
on Lender’s net income. If Borrower shall be required by law to deduct any such
amounts from or in respect of any sum payable under any Loan Document to Lender,
then the sum payable to Lender shall be increased as may be necessary so that,
after making all required deductions, Lender receives an amount equal to the sum
it would have received had no such deductions been made. Notwithstanding any
other provision of any Loan Document, if at any time after the Closing (i) any
change in any existing law, regulation, treaty or directive or in the
interpretation or application thereof, (ii) any new law, regulation, treaty or
directive enacted or any interpretation or application thereof, or
(iii) compliance by Lender with any request or directive (whether or not having
the force of law) from any Governmental Authority: (A) subjects Lender to any
tax, levy, impost, deduction, assessment,

 

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charge or withholding of any kind whatsoever with respect to any Loan Document,
or changes the basis of taxation of payments to Lender of any amount payable
thereunder (except for net income taxes, or franchise taxes imposed in lieu of
net income taxes, imposed generally by federal, state or local taxing
authorities with respect to interest or commitment fees or other fees payable
hereunder or changes in the rate of tax on the overall net income of Lender), or
(B) imposes on Lender any other condition or increased cost in connection with
the transactions contemplated thereby or participations therein; and the result
of any of the foregoing is to increase the cost to Lender of making or
continuing any Loan hereunder or to reduce any amount receivable hereunder,
then, in any such case, Borrower shall promptly pay to Lender any additional
amounts necessary to compensate Lender, on an after-tax basis, for such
additional cost or reduced amount as determined by Lender. If Lender becomes
entitled to claim any additional amounts pursuant to this Section 6.14 it shall
promptly notify Borrower of the event by reason of which Lender has become so
entitled, and each such notice of additional amounts payable pursuant to this
Section 6.14 submitted by Lender to Borrower shall, absent manifest error, be
final, conclusive and binding for all purposes.

 

(b) Borrower shall promptly, and in any event within five (5) Business Days
after Borrower or any authorized officer of Borrower obtains knowledge thereof,
notify Lender in writing of any oral or written communication from the Internal
Revenue Service or otherwise with respect to any (i) tax investigations,
relating to the Borrower directly, or relating to any consolidated tax return
which was filed on behalf of Borrower, (ii) notices of tax assessment or
possible tax assessment, (iii) years that are designated open pending tax
examination or audit, and (iv) information that could give rise to an IRS tax
liability or assessment.

 

  6.15 Payroll Taxes

 

Without limiting or being limited by any other provision of any Loan Document,
Borrower at all times shall retain and use a Person acceptable to Lender (which
includes Lake Payroll) to process, manage and pay its payroll taxes and shall
cause to be delivered to Lender within ten (10) calendar days after the end of
each calendar month a report of its payroll taxes for the immediately preceding
calendar month and evidence of payment thereof.

 

VII. NEGATIVE COVENANTS

 

Each Borrower, jointly and severally, covenants and agrees that, until full
performance and satisfaction, and indefeasible payment in full in cash, of all
of the Obligations and termination of this Agreement:

 

  7.1 Financial Covenants

 

Borrower shall not violate the financial covenants set forth on Annex I to this
Agreement, which is incorporated herein and made a part hereof.

 

  7.2 Permitted Indebtedness

 

Borrower shall not create, incur, assume or suffer to exist any Indebtedness,
except the following (collectively, “Permitted Indebtedness”): (i) Indebtedness
under the Loan Documents, (ii) any Indebtedness set forth on Schedule 7.2,
(iii) Capitalized Lease Obligations incurred after the Closing Date and
Indebtedness incurred pursuant to purchase money Liens permitted by
Section 7.3(v), provided that the aggregate amount of such Capitalized Lease
Obligations and purchase money

 

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indebtedness outstanding at any time shall not exceed $250,000,
(iv) Indebtedness in connection with advances made by a stockholder or other
equity owner in order to cure any default of the financial covenants set forth
on Annex I; provided, however, that such Indebtedness shall be on an unsecured
basis, subordinated in right of repayment and remedies to all of the Obligations
and to all of Lender’s rights pursuant to a subordination agreement in form and
substance satisfactory to Lender; (v) accounts payable to trade creditors and
current operating expenses (other than for borrowed money) which are not aged
more than 120 calendar days from the billing date or more than 30 days from the
due date, in each case incurred in the ordinary course of business and paid
within such time period, unless the same are being contested in good faith and
by appropriate and lawful proceedings and such reserves, if any, with respect
thereto as are required by GAAP and deemed adequate by Borrower’s independent
accountants shall have been reserved; (vi) borrowings incurred in the ordinary
course of business and not exceeding $20,000 individually or $100,000 in the
aggregate outstanding at any one time, provided, however, that such Indebtedness
shall be on an unsecured basis, subordinated in right of repayment and remedies
to all of the Obligations and to all of Lender’s rights pursuant to a
subordination agreement in form and substance satisfactory to Lender; and
(vii) Permitted Subordinated Debt. Borrower shall not make prepayments on any
existing or future Indebtedness to any Person other than to Lender or to the
extent specifically permitted by this Agreement or any subsequent agreement
between Borrower and Lender.

 

  7.3 Permitted Liens

 

Borrower shall not create, incur, assume or suffer to exist any Lien upon, in or
against, or pledge of, any of the Collateral or any of its properties or assets
or any of its shares, securities or other equity or ownership or partnership
interests, whether now owned or hereafter acquired, except the following
(collectively, “Permitted Liens”): (i) Liens under the Loan Documents or
otherwise arising in favor of Lender, (ii) Liens imposed by law for taxes (other
than payroll taxes), assessments or charges of any Governmental Authority for
claims not yet due or which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves or other appropriate
provisions are being maintained by such Person in accordance with GAAP to the
satisfaction of Lender in its sole discretion, (iii) (A) statutory Liens of
landlords (provided that any such landlord has executed a Landlord Waiver and
Consent in form and substance satisfactory to Lender) and of carriers,
warehousemen, mechanics, materialmen, and (B) other Liens imposed by law or that
arise by operation of law in the ordinary course of business from the date of
creation thereof, in each case only for amounts not yet due or which are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves or other appropriate provisions are being maintained by such
Person in accordance with GAAP to the satisfaction of Lender in its sole
discretion, (iv) Liens (A) incurred or deposits made in the ordinary course of
business (including, without limitation, surety bonds and appeal bonds) in
connection with workers’ compensation, unemployment insurance and other types of
social security benefits or to secure the performance of tenders, bids, leases,
contracts (other than for the repayment of Indebtedness), statutory obligations
and other similar obligations, or (B) arising as a result of progress payments
under government contracts, (v) purchase money Liens (A) securing Indebtedness
permitted under Section 7.2(iii), or (B) in connection with the purchase by such
Person of equipment in the normal course of business, provided that such
payables shall not exceed any limits on Indebtedness provided for herein and
shall otherwise be Permitted Indebtedness hereunder, (vi) Liens securing
Permitted Subordinated Debt, provided that such Liens are subordinated to the
Liens in favor of Lender pursuant to a written agreement acceptable to Lender;
and (vii) Liens disclosed on Schedule 7.3.

 

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  7.4 Investments; New Facilities or Collateral; Subsidiaries

 

Borrower, directly or indirectly, shall not (i) purchase, own, hold, invest in
or otherwise acquire obligations or stock or securities of, or any other
interest in, or all or substantially all of the assets of, any Person or any
joint venture, or (ii) make or permit to exist any loans, advances or guarantees
to or for the benefit of any Person or assume, guarantee, endorse, contingently
agree to purchase or otherwise become liable for or upon or incur any obligation
of any Person (other than those created by the Loan Documents and Permitted
Indebtedness and other than (A) trade credit extended in the ordinary course of
business, (B) advances for business travel and similar temporary advances made
in the ordinary course of business to officers, directors and employees, and
(C) the endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business). Borrower, directly or
indirectly, shall not purchase, own, operate, hold, invest in or otherwise
acquire any facility, property or assets or any Collateral that is not located
at the locations set forth on Schedule 5.18B unless Borrower shall provide to
Lender at least thirty (30) Business Days prior written notice. Borrower shall
have no Subsidiaries other than those Subsidiaries, if any, existing at Closing
and set forth in Schedule 5.3.

 

Notwithstanding anything to the contrary contained in this Agreement or the
other Loan Documents, Borrower may acquire all of the stock or assets of another
Person if Borrower obtains Lender’s prior written consent (which may be withheld
by Lender in its sole discretion acting in good faith), no Default or Event of
Default exists immediately prior to or following the acquisition, and Borrower
provides and causes Guarantor, the acquired Person (if applicable), and any
other Person to provide Lender on or before the acquisition date with such
information, materials, and loan documents (in form and substance and from such
Persons) as may be required by Lender in its sole discretion acting in good
faith. The term “good faith” is defined honesty in fact in the conduct or
transaction concerned.

 

  7.5 Dividends; Redemptions

 

Borrower shall not (i) declare, pay or make any dividend or Distribution on any
shares of capital stock or other securities or interests other than dividends or
Distributions payable in its stock, of split-ups or reclassifications of its
stock, (ii) apply any of its funds, property or assets to the acquisition,
redemption or other retirement of any capital stock or other securities or
interests or of any options to purchase or acquire any of the foregoing
(provided, however, that Borrower may redeem its capital stock from terminated
employees pursuant to, but only to the extent required under the terms of the
related employment agreements as long as no Default or Event of Default has
occurred and is continuing or would be cause by or result therefrom), or
(iii) otherwise make any payments or Distributions to any stockholder, member,
partner or other equity owner in such Person’s capacity as such, and provided
further, that Borrower shall not make or suffer to exist any such payment
described in (i) through (iii) above if a Default or Event of Default has
occurred and is continuing or would result therefrom.

 

  7.6 Transactions with Affiliates

 

Borrower shall not enter into or consummate any transaction of any kind with any
of its Affiliates or any Guarantor or any of their respective Affiliates other
than: (i) salary, bonus, employee stock option and other compensation and
employment arrangements with directors or officers in the ordinary course of
business, provided, that no payment of any bonus shall be permitted if a Default
or Event of Default has occurred and remains in effect or would be caused by or
result from such payment, (ii) Distributions and dividends permitted pursuant to
Section 7.5, (iii) transactions with Lender or any Affiliate of Lender,
(iv) payments permitted under and pursuant to written agreements entered into by
and between Borrower and one or more of its Affiliates that both (A) reflect and
constitute transactions on overall terms at least as favorable to Borrower as
would be the case in an arm’s-length transaction between unrelated parties of
equal bargaining power, and (B) are subject to such terms and conditions as

 

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determined by Lender in its sole discretion, and (v) MyACD, Inc.’s licenses of
certain software to Borrower and Borrower’s payments of MyACD’s reasonable
operations expenses which shall not exceed $5,000 per year in the aggregate;
provided, that notwithstanding the foregoing Borrower shall not (Y) enter into
or consummate any transaction or agreement pursuant to which it becomes a party
to any mortgage, note, indenture or guarantee evidencing any Indebtedness of any
of its Affiliates or otherwise to become responsible or liable, as a guarantor,
surety or otherwise, pursuant to agreement for any Indebtedness of any such
Affiliate, or (Z) make any payment to any of its Affiliates in excess of $20,000
without the prior written consent of Lender.

 

  7.7 Charter Documents; Fiscal Year; Name; Jurisdiction of Organization;
Dissolution; Use of Proceeds

 

Borrower shall not (i) amend, modify, restate or change its certificate of
incorporation or formation or bylaws or similar charter documents in a manner
that would be adverse to Lender, (ii) change its fiscal year unless Borrower
demonstrates to Lender’s satisfaction compliance with the covenants contained
herein for both the fiscal year in effect prior to any change and the new fiscal
year period by delivery to Lender of appropriate interim and annual pro forma,
historical and current compliance certificates for such periods and such other
information as Lender may reasonably request, (iii) without at least 20 days
prior written notice to Lender, change its name or change its jurisdiction of
organization; (iv) wind up, liquidate or dissolve (voluntarily or involuntarily)
or commence or suffer any proceedings seeking or that would result in any of the
foregoing, or (v) use any proceeds of any Advance for “purchasing” or “carrying”
“margin stock” as defined in Regulations U, T or X of the Board of Governors of
the Federal Reserve System.

 

  7.8 Truth of Statements

 

Borrower shall not furnish to Lender any certificate or other document that
contains any untrue statement of a material fact or that omits to state a
material fact necessary to make it not misleading in light of the circumstances
under which it was furnished.

 

  7.9 IRS Form 8821

 

Borrower shall not alter, amend, restate, or otherwise modify, or withdraw,
terminate or re-file the IRS Form 8821 required to be filed pursuant to the
Conditions Precedent in Section 4.1 hereof.

 

  7.10 Transfer of Assets

 

Notwithstanding any other provision of this Agreement or any other Loan
Document, Borrower shall not sell, lease, transfer, assign or otherwise dispose
of any interest in any properties or assets (other than obsolete equipment or
excess equipment no longer needed in the conduct of the business in the ordinary
course of business and sales of Inventory in the ordinary course of business),
or agree to do any of the foregoing at any future time, except that:

 

(a) Borrower may lease (as lessee) real or personal property or surrender all or
a portion of a lease of the same, in each case in the ordinary course of
business (so long as such lease does not create or result in and is not
otherwise a Capitalized Lease Obligation prohibited under this Agreement),
provided that a Landlord Waiver and Consent and such other consents as are
required by Lender are signed and delivered to Lender with respect to any lease
of real or other property, as applicable;

 

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(b) Borrower may arrange for warehousing, fulfillment or storage of Inventory at
locations not owned or leased by Borrower in each case in the ordinary course of
business, provided that a Warehouse Waiver and Consent and such other consents
as are required by Lender are signed and delivered to Lender with respect to any
such location;

 

(c) Borrower may license or sublicense Intellectual Property or customer lists
from third parties in the ordinary course of business, provided, that such
licenses or sublicenses shall not interfere with the business or other
operations of Borrower and that Borrower’s rights, title and/or interest in or
to such Intellectual Property and customer lists and interests therein are
pledged to Lender as further security for the Obligations and included as part
of the Collateral; and

 

(d) Borrower may consummate such other sales or dispositions of property or
assets (including any sale or transfer or disposition of all or any part of its
assets and thereupon and within one year thereafter rent or lease the assets so
sold or transferred) only to the extent prior written notice has been given to
Lender and to the extent Lender has given its prior written consent thereto,
subject in each case to such conditions as may be set forth in such consent.

 

  7.11 Payment on Permitted Subordinated Debt

 

Except with cash derived from equity financing and the proceeds thereof which do
not constitute a portion of the Collateral, Borrower shall not (i) make any
prepayment of any part or all of any Permitted Subordinated Debt,
(ii) repurchase, redeem or retire any instrument evidencing any such Permitted
Subordinated Debt prior to maturity, or (iii) enter into any agreement (oral or
written) which could in any way be construed to amend, modify, alter or
terminate any one or more instruments or agreements evidencing or relating to
any Permitted Subordinated Debt in a manner adverse to Lender, as determined by
Lender in its sole discretion.

 

VIII. EVENTS OF DEFAULT

 

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

 

(a) Borrower shall fail to pay any amount on the Obligations or provided for in
any Loan Document when due (whether on any payment date, at maturity, by reason
of acceleration, by notice of intention to prepay, by required prepayment or
otherwise);

 

(b) any representation, statement or warranty made or deemed made by Borrower or
Guarantor in any Loan Document or in any other certificate, document, report or
opinion delivered in conjunction with any Loan Document to which it is a party,
shall not be true and correct in all material respects or shall have been false
or misleading in any material respect on the date when made or deemed to have
been made (except to the extent already qualified by materiality, in which case
it shall be true and correct in all respects and shall not be false or
misleading in any respect);

 

(c) Borrower or Guarantor or other party thereto other than Lender shall be in
violation, breach or default of, or shall fail to perform, observe or comply
with any covenant, obligation or agreement set forth in, any Loan Document and
such violation, breach, default or failure shall not be cured within the
applicable period set forth in the applicable Loan Document; provided that, with
respect to the affirmative covenants set forth in Article VI (other than
Sections 6.1(c), 6.2, 6.3, 6.5, 6.8, 6.9 and

 

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6.11 for which there shall be no cure period), there shall be a fifteen
(15) calendar day cure period commencing from the earlier of (i) Receipt by such
Person of written notice of such breach, default, violation or failure, and
(ii) the time at which such Person or any authorized officer thereof knew or
became aware, or should have known or been aware, of such failure, violation,
breach or default, but no Advances will be made during the cure period;

 

(d) (i) any of the Loan Documents ceases to be in full force and effect, or
(ii) any Lien created thereunder ceases to constitute a valid perfected first
priority Lien on the Collateral in accordance with the terms thereof, or Lender
ceases to have a valid perfected first priority security interest in any of the
Collateral or any securities pledged to Lender pursuant to the Security
Documents;

 

(e) one or more judgments or decrees is rendered against any Borrower or
Guarantor in an amount in excess of $20,000 individually or $100,000 in the
aggregate, which is/are not satisfied, stayed, vacated or discharged of record
within thirty (30) calendar days of being rendered but no Advances will be made
before the judgment or decree is stayed, vacated or discharged;

 

(f) (i) any default occurs, which is not cured or waived, (x) in the payment of
any amount with respect to any Indebtedness (other than the Obligations) of
Borrower or Guarantor in excess of $20,000, (y) in the performance, observance
or fulfillment of any provision contained in any agreement, contract, document
or instrument to which Borrower or Guarantor is a party or to which any of their
properties or assets are subject or bound under or pursuant to which any
Indebtedness was issued, created, assumed, guaranteed or secured and such
default continues for more than any applicable grace period or permits the
holder of any Indebtedness to accelerate the maturity thereof, or (z) in the
performance, observance or fulfillment of any provision contained in any
agreement, contract, document or instrument between Borrower or Guarantor and
Lender or any Affiliate of Lender (other than the Loan Documents), or (ii) any
Indebtedness of Borrower or Guarantor is declared to be due and payable or is
required to be prepaid (other than by a regularly scheduled payment) prior to
the stated maturity thereof, or any obligation of such Person for the payment of
Indebtedness (other than the Obligations) is not paid when due or within any
applicable grace period, or any such obligation becomes or is declared to be due
and payable before the expressed maturity thereof, or there occurs an event
which, with the giving of notice or lapse of time, or both, would cause any such
obligation to become, or allow any such obligation to be declared to be, due and
payable;

 

(g) Borrower or Guarantor shall (i) be unable to pay its debts generally as they
become due, (ii) have total liabilities (including contingent, subordinated,
unmatured and unliquidated liabilities) that exceed its assets, at a Fair
Valuation, (iii) have an unreasonably small capital base with which to engage in
its anticipated business, (iv) file a petition under any insolvency statute,
(v) make a general assignment for the benefit of its creditors, (vi) commence a
proceeding for the appointment of a receiver, trustee, liquidator or conservator
of itself or of the whole or any substantial part of its property, or (vii) file
a petition seeking reorganization or liquidation or similar relief under any
Debtor Relief Law or any other applicable law or statute;

 

(h) a court of competent jurisdiction shall (A) enter an order, judgment or
decree appointing a custodian, receiver, trustee, liquidator or conservator of
Borrower or Guarantor or the whole or any substantial part of any such Person’s
properties, which shall continue unstayed and in effect for a period of thirty
(30) calendar days, (B) shall approve a petition filed against Borrower or
Guarantor seeking reorganization, liquidation or similar relief under the any
Debtor Relief Law or any other applicable law or statute, which is not dismissed
within thirty (30) calendar days or, (C) under the provisions of any Debtor
Relief Law or other applicable law or statute, assume custody or control of any
Borrower or Guarantor or of the whole or any substantial part of any such
Person’s properties, which is

 

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not irrevocably relinquished within thirty (30) calendar days, or (ii) there is
commenced against Borrower or Guarantor any proceeding or petition seeking
reorganization, liquidation or similar relief under any Debtor Relief Law or any
other applicable law or statute and either (A) any such proceeding or petition
is not unconditionally dismissed within thirty (30) calendar days after the date
of commencement, or (B) Borrower or Guarantor takes any action to indicate its
approval of or consent to any such proceeding or petition, but no Advances will
be made before any such order, judgment or decree described above is stayed,
vacated or discharged, any such petition described above is dismissed, or any
such custody or control described above is relinquished;

 

(i) (i) any Change of Control occurs or any agreement or commitment to cause or
that may result in any such Change of Control is entered into, (ii) any Material
Adverse Effect, or Material Adverse Change occurs or is reasonably expected to
occur, or (iii) any Borrower or Guarantor ceases a material portion of its
business operations as currently conducted;

 

(j) Lender receives any indication or evidence that Borrower or Guarantor may
have directly or indirectly been engaged in any type of activity which, in
Lender’s judgment, might result in forfeiture of any property to any
Governmental Authority which shall have continued unremedied for a period of ten
(10) calendar days after written notice from Lender (but no Advances will be
made before any such activity ceases);

 

(k) an Event of Default occurs under any other Loan Document;

 

(l) uninsured damage to, or loss, theft or destruction of, any portion of the
tangible Collateral occurs that exceeds $20,000 in the aggregate;

 

(m) Borrower or Guarantor or any of their respective directors or senior
officers is criminally indicted or convicted under any law that could lead to a
forfeiture of any Collateral;

 

(n) the issuance of any process for levy, attachment or garnishment or execution
upon or prior to any judgment against any Borrower or Guarantor or any of their
property or assets; or

 

(o) Borrower or Guarantor does, or enters into or becomes a party to any
agreement or commitment to do, or cause to be done, any of the things described
in this Article VIII or otherwise prohibited by any Loan Document (subject to
any cure periods set forth therein); then, and in any such event,
notwithstanding any other provision of any Loan Document, Lender may, without
notice or demand, do any of the following: (i) terminate its obligations to make
Advances hereunder, whereupon the same shall immediately terminate and
(ii) elect all or any of the Loans and/or Notes, all interest thereon and all
other Obligations to be due and payable immediately (except in the case of an
Event of Default under Section 8(d), (g), (h) or (i)(iii), in which event all of
the foregoing shall automatically and without further act by Lender be due and
payable, provided that, with respect to non-material breaches or violations that
constitute Events of Default under clause (ii) of Section 8(d), there shall be a
three (3) Business Day cure period (but no Advances will be made during any such
cure period) commencing from the earlier of (A) Receipt by the applicable Person
of written notice of such breach or violation or of any event, fact or
circumstance constituting or resulting in any of the foregoing, and (B) the time
at which such Person or any authorized officer thereof knew or became aware, or
should have known or been aware, of such breach or violation and resulting Event
of Default or of any event, fact or circumstance constituting or resulting in
any of the foregoing), in each case without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by
Borrower.

 

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IX. RIGHTS AND REMEDIES AFTER DEFAULT

 

  9.1 Rights and Remedies

 

(a) In addition to the acceleration provisions set forth in Article VIII above,
upon the occurrence and continuation of an Event of Default, Lender shall have
the right to exercise any and all rights, options and remedies provided for in
the Loan Documents, under the UCC or at law or in equity, including, without
limitation, the right to (i) apply any property of Borrower held by Lender to
reduce the Obligations, (ii) foreclose the Liens created under the Security
Documents, (iii) realize upon, take possession of and/or sell any Collateral or
securities pledged with or without judicial process, (iv) exercise all rights
and powers with respect to the Collateral as any Borrower, as applicable, might
exercise, (v) collect and send notices regarding the Collateral, with or without
judicial process, (vi) by its own means or with judicial assistance, enter any
premises at which Collateral and/or pledged securities are located, or render
any of the foregoing unusable or dispose of the Collateral and/or pledged
securities on such premises without any liability for rent, storage, utilities,
or other sums, and no Borrower shall resist or interfere with such action,
(vii) at Borrower’s expense, require that all or any part of the Collateral be
assembled and made available to Lender at any place designated by Lender,
(viii) reduce or otherwise change the Facility Cap, (ix) assess the
Non-Compliance Fee, and/or (x) relinquish or abandon any Collateral or
securities pledged or any Lien thereon. Notwithstanding any provision of any
Loan Document, Lender, in its sole discretion, shall have the right, at any time
that Borrower fails to do so, and from time to time, without prior notice, to:
(i) obtain insurance covering any of the Collateral to the extent required
hereunder; (ii) pay for the performance of any of Obligations; (iii) discharge
taxes or Liens on any of the Collateral that are in violation of any Loan
document unless Borrower is in good faith with due diligence by appropriate
proceedings contesting those items; and (iv) pay for the maintenance and
preservation of the Collateral. Such expenses and advances shall be added to the
Obligations until reimbursed to Lender and shall be secured by the Collateral,
and such payments by Lender shall not be construed as a waiver by Lender of any
Event of Default or any other rights or remedies of Lender.

 

(b) Borrower agrees that notice received by it at least ten (10) calendar days
before the time of any intended public sale, or the time after which any private
sale or other disposition of Collateral is to be made, shall be deemed to be
reasonable notice of such sale or other disposition. If permitted by applicable
law, any perishable Collateral which threatens to speedily decline in value or
which is sold on a recognized market may be sold immediately by Lender without
prior notice to Borrower. At any sale or disposition of Collateral or securities
pledged, Lender may (to the extent permitted by applicable law) purchase all or
any part thereof free from any right of redemption by Borrower which right is
hereby waived and released. Borrower covenants and agrees not to, and not to
permit or cause any of its Subsidiaries to, interfere with or impose any
obstacle to Lender’s exercise of its rights and remedies with respect to the
Collateral. Lender, in dealing with or disposing of the Collateral or any part
thereof, shall not be required to give priority or preference to any item of
Collateral or otherwise to marshal assets or to take possession or sell any
Collateral with judicial process.

 

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  9.2 Application of Proceeds

 

In addition to any other rights, options and remedies Lender has under the Loan
Documents, the UCC, at law or in equity, all dividends, interest, rents, issues,
profits, fees, revenues, income and other proceeds collected or received from
collecting, holding, managing, renting, selling, or otherwise disposing of all
or any part of the Collateral or any proceeds thereof upon exercise of its
remedies hereunder shall be applied in the following order of priority:
(i) first, to the payment of all costs and expenses of such collection, storage,
lease, holding, operation, management, sale, disposition or delivery and of
conducting Borrower’s business and of maintenance, repairs, replacements,
alterations, additions and improvements of or to the Collateral, and to the
payment of all sums which Lender may be required or may elect to pay, if any,
for taxes, assessments, insurance and other charges upon the Collateral or any
part thereof, and all other payments that Lender may be required or authorized
to make under any provision of this Agreement (including, without limitation, in
each such case, in-house documentation and diligence fees and legal expenses,
search, audit, recording, professional and filing fees and expenses and
reasonable attorneys’ fees and all expenses, liabilities and advances made or
incurred in connection therewith); (ii) second, to the payment of all
Obligations as provided herein; (iii) third, to the satisfaction of Indebtedness
secured by any subordinate security interest of record in the Collateral if
written notification of demand therefore is received before distribution of the
proceeds is completed, provided, that, if requested by Lender, the holder of a
subordinate security interest shall furnish reasonable proof of its interest,
and unless it does so, Lender need not address its claims; and (iv) fourth, to
the payment of any surplus then remaining to Borrower, unless otherwise provided
by law or directed by a court of competent jurisdiction, provided that Borrower
shall be liable for any deficiency if such proceeds are insufficient to satisfy
the Obligations or any of the other items referred to in this section.

 

  9.3 Rights of Lender to Appoint Receiver

 

Without limiting and in addition to any other rights, options and remedies
Lender has under the Loan Documents, the UCC, at law or in equity, upon the
occurrence and continuation of an Event of Default, Lender shall have the right
to apply for and have a receiver appointed by a court of competent jurisdiction
in any action taken by Lender to enforce its rights and remedies in order to
manage, protect, preserve, sell or dispose the Collateral and continue the
operation of the business of Borrower and to collect all revenues and profits
thereof and apply the same to the payment of all expenses and other charges of
such receivership including the compensation of the receiver and to the payments
as aforesaid until a sale or other disposition of such Collateral shall be
finally made and consummated.

 

  9.4 Rights and Remedies not Exclusive

 

Lender shall have the right in its sole discretion to determine which rights,
Liens and/or remedies Lender may at any time pursue, relinquish, subordinate or
modify, and such determination will not in any way modify or affect any of
Lender’s rights, Liens or remedies under any Loan Document, applicable law or
equity. The enumeration of any rights and remedies in any Loan Document is not
intended to be exhaustive, and all rights and remedies of Lender described in
any Loan Document are cumulative and are not alternative to or exclusive of any
other rights or remedies which Lender otherwise may have. The partial or
complete exercise of any right or remedy shall not preclude any other further
exercise of such or any other right or remedy.

 

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X. WAIVERS AND JUDICIAL PROCEEDINGS

 

  10.1 Waivers

 

Except as expressly provided for herein, Borrower hereby waives setoff,
counterclaim, demand, presentment, protest, all defenses with respect to any and
all instruments and all notices and demands of any description, and the pleading
of any statute of limitations as a defense to any demand under any Loan
Document. Borrower hereby waives any and all defenses and counterclaims it may
have or could interpose in any action or procedure brought by Lender to obtain
an order of court recognizing the assignment of, or Lien of Lender in and to,
any Collateral. With respect to any action hereunder, Lender conclusively may
rely upon, and shall incur no liability to Borrower in acting upon, any request
or other communication that Lender reasonably believes to have been given or
made by a person authorized on Borrower’s behalf, whether or not such person is
listed on the incumbency certificate delivered pursuant to Section 4.1
hereof. In each such case, Borrower hereby waives the right to dispute Lender’s
action based upon such request or other communication, absent manifest error.

 

  10.2 Delay; No Waiver of Defaults

 

No course of action or dealing, renewal, release or extension of any provision
of any Loan Document, or single or partial exercise of any such provision, or
delay, failure or omission on Lender’s part in enforcing any such provision
shall affect the liability of Borrower or Guarantor or operate as a waiver of
such provision or affect the liability of any Borrower or Guarantor or preclude
any other or further exercise of such provision. No waiver by any party to any
Loan Document of any one or more defaults by any other party in the performance
of any of the provisions of any Loan Document shall operate or be construed as a
waiver of any future default, whether of a like or different nature, and each
such waiver shall be limited solely to the express terms and provisions of such
waiver. Notwithstanding any other provision of any Loan Document, by completing
the Closing under this Agreement and/or by making Advances, Lender does not
waive any breach of any representation or warranty under any Loan Document, and
all of Lender’s claims and rights resulting from any such breach or
misrepresentation are specifically reserved.

 

  10.3 Jury Waiver

 

EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY
OF ANY CLAIM OR CAUSE OF ACTION ARISING UNDER THE LOAN DOCUMENTS OR IN ANY WAY
CONNECTED WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT TO THE
LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY, WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. EACH
PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENTS OF THE PARTIES TO THE WAIVER OF THEIR RESPECTIVE RIGHTS
TO TRIAL BY JURY.

 

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  10.4 Cooperation in Discovery and Litigation

 

In any litigation, arbitration or other dispute resolution proceeding relating
to any Loan Document, Borrower waives any and all defenses, objections and
counterclaims it may have or could interpose with respect to (i) any of its
directors, officers, employees or agents being deemed to be employees or
managing agents of Borrower for purposes of all applicable law or court rules
regarding the production of witnesses by notice for testimony (whether in a
deposition, at trial or otherwise), (ii) Lender’s counsel examining any such
individuals as if under cross-examination and using any discovery deposition of
any of them as if it were an evidence deposition, and/or (iii) using all
commercially reasonable efforts to produce in any such dispute resolution
proceeding, at the time and in the manner requested by Lender, all Persons,
documents (whether in tangible, electronic or other form) and/or other things
under its control and relating to the dispute.

 

XI. EFFECTIVE DATE AND TERMINATION

 

  11.1 Termination and Effective Date Thereof

 

(a) Subject to Lender’s right to terminate and cease making Advances upon or
after any Event of Default, this Agreement shall continue in full force and
effect until the full performance and indefeasible payment in cash of all
Obligations, unless terminated sooner as provided in this Section 11.1. Borrower
may terminate this Agreement at any time upon not less than thirty calendar
days’ prior written notice to Lender and upon full performance and indefeasible
payment in full in cash of all Obligations on or prior to such thirtieth
calendar day after Receipt by Lender of such written notice. All of the
Obligations shall be immediately due and payable upon any such termination on
the termination date stated in any notice of termination (the “Termination
Date”); provided that, notwithstanding any other provision of any Loan Document,
the Termination Date shall be effective no earlier than the first Business Day
of the month following the expiration of the thirty calendar days’ prior written
notice period. Notwithstanding any other provision of any Loan Document, no
termination of this Agreement shall affect Lender’s rights or any of the
Obligations existing as of the effective date of such termination, and the
provisions of the Loan Documents shall continue to be fully operative until the
Obligations have been fully performed and indefeasibly paid in cash in full. The
Liens granted to Lender under the Security Documents and the financing
statements filed pursuant thereto and the rights and powers of Lender shall
continue in full force and effect notwithstanding the fact that Borrower’s
borrowings hereunder may from time to time be in a zero or credit position until
all of the Obligations have been fully performed and indefeasibly paid in full
in cash.

 

(b) If (i) Borrower terminates the Revolving Facility under this Section 11.1,
(ii) Borrower voluntarily or involuntarily repays the Obligations (other than
reductions to zero of the outstanding balance of the Revolving Facility
resulting from the ordinary course operation of the provisions of Section 2.5),
whether by virtue of Lender’s exercising its right of set off or otherwise;
(iii) the Obligations are accelerated by Lender (each of the events described in
(i), (ii) and (iii) above being hereinafter referred to as, a “Revolver
Termination”), then at the effective date of any such Revolver Termination,
Borrower shall pay Lender (in addition to the then outstanding principal,
accrued interest and other Obligations relating to the Revolving Facility
pursuant to the terms of this Agreement and any other Loan Document), to
compensate Lender for the loss of bargain and not as a penalty, an amount equal
to the applicable Minimum Termination Fee.

 

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  11.2 Survival

 

All obligations, covenants, agreements, representations, warranties, waivers and
indemnities made by Borrower in any Loan Document shall survive the execution
and delivery of the Loan Documents, the Closing, the making of the Advances and
any termination of this Agreement until all Obligations are fully performed and
indefeasibly paid in full in cash. The obligations and provisions of Sections
3.4, 3.5, 6.13, 10.1, 10.3, 11.1, 11.2, 12.4, 12.7 and 12.10 shall survive
termination of the Loan Documents and any payment, in full or in part, of the
Obligations.

 

XII. MISCELLANEOUS

 

  12.1 Governing Law; Jurisdiction; Service of Process; Venue

 

The Loan Documents shall be governed by and construed in accordance with the
internal laws of the State of Maryland without giving effect to its choice of
law provisions. Any judicial proceeding against Borrower with respect to the
Obligations, any Loan Document or any related agreement may be brought in any
federal or state court of competent jurisdiction located in the State of
Maryland. By execution and delivery of each Loan Document to which it is a
party, Borrower (i) accepts the non-exclusive jurisdiction of the aforesaid
courts and irrevocably agrees to be bound by any judgment rendered thereby,
(ii) waives personal service of process, (iii) agrees that service of process
upon it may be made by certified or registered mail, return receipt requested,
pursuant to Section 12.5 hereof, (iv) waives any objection to jurisdiction and
venue of any action instituted hereunder and agrees not to assert any defense
based on lack of jurisdiction, venue or convenience, and (v) agrees that this
loan was made in Maryland, that Lender has accepted in Maryland Loan Documents
executed by Borrower and has disbursed Advances under the Loan Documents in
Maryland. Nothing shall affect the right of Lender to serve process in any
manner permitted by law or shall limit the right of Lender to bring proceedings
against Borrower in the courts of any other jurisdiction having jurisdiction.
Any judicial proceedings against Lender involving, directly or indirectly, the
Obligations, any Loan Document or any related agreement shall be brought only in
a federal or state court located in the State of Maryland. All parties
acknowledge that they participated in the negotiation and drafting of this
Agreement and that, accordingly, no party shall move or petition a court
construing this Agreement to construe it more stringently against one party than
against any other.

 

  12.2 Successors and Assigns; Participations; New Lenders

 

The Loan Documents shall inure to the benefit of Lender, Transferees and all
future holders of the Loan, any Note, the Obligations and/or any of the
Collateral, and each of their respective successors and assigns. Each Loan
Document shall be binding upon the Persons’ other than Lender that are parties
thereto and their respective successors and assigns, and no such Person may
assign, delegate or transfer any Loan Document or any of its rights or
obligations thereunder without the prior written consent of Lender. No rights
are intended to be created under any Loan Document for the benefit of any third
party done, creditor or incidental beneficiary of Borrower or Guarantor. Nothing
contained in any Loan Document shall be construed as a delegation to Lender of
any other Person’s duty of performance. BORROWER ACKNOWLEDGES AND AGREES THAT
LENDER AT ANY TIME AND FROM TIME TO TIME MAY (I) DIVIDE AND RESTATE ANY NOTE,
AND/OR (II) SELL, ASSIGN OR GRANT PARTICIPATING INTERESTS IN OR TRANSFER ALL OR
ANY PART OF ITS RIGHTS OR OBLIGATIONS UNDER ANY LOAN DOCUMENT, LOANS, ANY NOTE,
THE OBLIGATIONS AND/OR THE COLLATERAL TO OTHER PERSONS (EACH SUCH TRANSFEREE,
ASSIGNEE OR PURCHASER, A “TRANSFEREE”). Each Transferee shall have all of the
rights and benefits with respect to the Loans, Obligations, any Notes,
Collateral and/or Loan Documents held by it as fully as if the original holder
thereof, and either Lender or any Transferee may be designated as the sole agent
to

 

35

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manage the transactions and obligations contemplated therein; provided that,
notwithstanding anything to the contrary in any Loan Document, Borrower shall
not be obligated to pay under this Agreement to any Transferee any sum in excess
of the sum which Borrower would have been obligated to pay to Lender had such
participation not been effected. Notwithstanding any other provision of any Loan
Document, Lender may disclose to any Transferee all information, reports,
financial statements, certificates and documents obtained under any provision of
any Loan Document.

 

  12.3 Application of Payments

 

To the extent that any payment made or received with respect to the Obligations
is subsequently invalidated, determined to be fraudulent or preferential, set
aside or required to be repaid to a trustee, debtor in possession, receiver,
custodian or any other Person under any Debtor Relief Law, common law or
equitable cause or any other law, then the Obligations intended to be satisfied
by such payment shall be revived and shall continue as if such payment had not
been received by Lender. Any payments with respect to the Obligations received
shall be credited and applied in such manner and order as Lender shall decide in
its sole discretion.

 

  12.4 Indemnity

 

Borrower jointly and severally shall indemnify Lender, its Affiliates and its
and their respective managers, members, officers, employees, Affiliates, agents,
representatives, successors, assigns, accountants and attorneys (collectively,
the “Indemnified Persons”) from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses and disbursements of any kind or nature whatsoever (including, without
limitation, reasonable fees and disbursements of counsel and in-house
documentation and diligence fees and legal expenses) which may be imposed on,
incurred by or asserted against any Indemnified Person with respect to or
arising out of, or in any litigation, proceeding or investigation instituted or
conducted by any Person with respect to any aspect of, or any transaction
contemplated by or referred to in, or any matter related to, any Loan Document
or any agreement, document or transaction contemplated thereby, whether or not
such Indemnified Person is a party thereto, except to the extent that any of the
foregoing arises out of the gross negligence or willful misconduct of such
Indemnified Person. If any Indemnified Person uses in-house counsel for any
purpose for which Borrower is responsible to pay or indemnify, each Borrower
expressly agrees that its indemnification obligations include reasonable charges
for such work commensurate with the fees that would otherwise be charged by
outside legal counsel selected by such Indemnified Person in its sole discretion
for the work performed. Lender agrees to give Borrower reasonable notice of any
event of which Lender becomes aware for which indemnification may be required
under this Section 12.4, and Lender may elect (but is not obligated) to direct
the defense thereof, provided that the selection of counsel shall be subject to
Borrower’s consent, which consent shall not be unreasonably withheld or delayed.
Any Indemnified Person may, in its reasonable discretion, take such actions as
it deems necessary and appropriate to investigate, defend or settle any event or
take other remedial or corrective actions with respect thereto as may be
necessary for the protection of such Indemnified Person or the Collateral.
Notwithstanding the foregoing, if any Insurer agrees to undertake the defense of
an event (an “Insured Event”), Lender agrees not to exercise its right to select
counsel to defend the event if that would cause Borrower’s Insurer to deny
coverage; provided, however, that Lender reserves the right to retain counsel to
represent any Indemnified Person with respect to an Insured Event at its sole
cost and expense. To the extent that Lender obtains recovery from a third party
other than an Indemnified Person of any of the amounts that any Borrower has
paid to Lender pursuant to the indemnity set forth in this Section 12.4, then
Lender shall promptly pay to Borrower the amount of such recovery.

 

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  12.5 Notice

 

Any notice or request under any Loan Document shall be given to any party to
this Agreement at such party’s address set forth beneath its signature on the
signature page to this Agreement, or at such other address as such party may
hereafter specify in a notice given in the manner required under this
Section 12.5. Any notice or request hereunder shall be given only by, and shall
be deemed to have been received upon (each, a “Receipt”): (i) registered or
certified mail, return receipt requested, on the date on which received as
indicated in such return receipt, (ii) delivery by a nationally recognized
overnight courier, one (1) Business Day after deposit with such courier, or
(iii) facsimile transmission, in each case upon telephone or further electronic
communication from the recipient acknowledging receipt (whether automatic or
manual from recipient), as applicable.

 

  12.6 Severability; Captions; Counterparts; Facsimile Signatures

 

If any provision of any Loan Document is adjudicated to be invalid under
applicable laws or regulations, such provision shall be inapplicable to the
extent of such invalidity without affecting the validity or enforceability of
the remainder of the Loan Documents which shall be given effect so far as
possible. The captions in the Loan Documents are intended for convenience and
reference only and shall not affect the meaning or interpretation of the Loan
Documents. The Loan Documents may be executed in one or more counterparts (which
taken together, as applicable, shall constitute one and the same instrument) and
by facsimile transmission, which facsimile signatures shall be considered
original executed counterparts. Each party to this Agreement agrees that it will
be bound by its own facsimile signature and that it accepts the facsimile
signature of each other party.

 

  12.7 Expenses

 

Borrower shall pay, whether or not the Closing occurs, all costs and expenses
incurred by Lender and/or its Affiliates, including, without limitation,
documentation and diligence fees and expenses, all search, audit, appraisal,
recording, professional and filing fees and expenses and all other out-of-pocket
charges and expenses (including, without limitation, UCC and judgment and tax
lien searches and UCC filings and fees for post-Closing UCC and judgment and tax
lien searches and wire transfer fees and audit expenses), and reasonable
attorneys’ fees and expenses, (i) in any effort to enforce, protect or collect
payment of any Obligation or to enforce any Loan Document or any related
agreement, document or instrument, (ii) in connection with entering into,
negotiating, preparing, reviewing and executing the Loan Documents and/or any
related agreements, documents or instruments, (iii) arising in any way out of
administration of the Obligations, (iv) in connection with instituting,
maintaining, preserving, enforcing and/or foreclosing on Lender’s Liens in any
of the Collateral or securities pledged under the Loan Documents, whether
through judicial proceedings or otherwise, (v) in defending or prosecuting any
actions, claims or proceedings arising out of or relating to Lender’s
transactions with Borrower, (vi) in seeking, obtaining or receiving any advice
with respect to its rights and obligations under any Loan Document and any
related agreement, document or instrument, and/or (vii) in connection with any
modification, restatement, supplement, amendment, waiver or extension of any
Loan Document and/or any related agreement, document or instrument. All of the
foregoing shall be charged to Borrower’s account and shall be part of the
Obligations. If Lender or any of its Affiliates uses in-house counsel for any
purpose under any Loan Document for which Borrower is responsible to pay or
indemnify, Borrower expressly agrees that its Obligations include reasonable
charges for such work commensurate with the fees that would otherwise be charged
by outside legal counsel selected by Lender or such Affiliate in its sole
discretion for the work performed. Without limiting the foregoing, Borrower
shall pay all taxes (other than taxes based upon or measured by Lender’s income
or revenues or any

 

37

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personal property tax), if any, in connection with the issuance of any Note and
the filing and/or recording of any documents and/or financing statements.

 

  12.8 Entire Agreement

 

This Agreement and the other Loan Documents to which Borrower is a party
constitute the entire agreement between Borrower and Lender with respect to the
subject matter hereof and thereof, and supersede all prior agreements and
understandings, if any, relating to the subject matter hereof or thereof. Any
promises, representations, warranties or guarantees not herein contained and
hereinafter made shall have no force and effect unless in writing signed by
Borrower and Lender. No provision of this Agreement may be changed, modified,
amended, restated, waived, supplemented, discharged, canceled or terminated
orally or by any course of dealing or in any other manner other than by an
agreement in writing signed by Lender and Borrower. Each party hereto
acknowledges that it has been advised by counsel in connection with the
negotiation and execution of this Agreement and is not relying upon oral
representations or statements inconsistent with the terms and provisions hereof.

 

  12.9 Lender Approvals

 

Unless expressly provided herein to the contrary, any approval, consent, waiver
or satisfaction of Lender with respect to any matter that is subject of any Loan
Document may be granted or withheld by Lender in its sole and absolute
discretion.

 

  12.10 Confidentiality and Publicity

 

(a) Borrower agrees, and agrees to cause each of its Affiliates, (i) not to
transmit or disclose provisions of any Loan Document to any Person (other than
to Borrower’s advisors and officers on a need-to-know basis or as otherwise may
be required by law) without Lender’s prior written consent, (ii) to inform all
Persons of the confidential nature of the Loan Documents and to direct them not
to disclose the same to any other Person and to require each of them to be bound
by these provisions. Borrower agrees to submit to Lender and Lender reserves the
right to review and approve all materials that Borrower or any of its Affiliates
prepares that contain Lender’s name or describe or refer to any Loan Document,
any of the terms thereof or any of the transactions contemplated thereby.
Borrower shall not, and shall not permit any of its Affiliates to, use Lender’s
name (or the name of any of Lender’s Affiliates) in connection with any of its
business operations, including without limitation, advertising, marketing or
press releases or such other similar purposes, without Lender’s prior written
consent. Nothing contained in any Loan Document is intended to permit or
authorize Borrower or any of its Affiliates to contract on behalf of Lender.

 

(b) Borrower hereby agrees that Lender or any Affiliate of Lender may
(i) disclose a general description of transactions arising under the Loan
Documents for advertising, marketing or other similar purposes and (ii) use
Borrower’s or Guarantor’s name, logo or other indicia germane to such party in
connection with such advertising, marketing or other similar purposes.

 

  12.11 Release of Lender

 

Notwithstanding any other provision of any Loan Document, Borrower voluntarily,
knowingly, unconditionally and irrevocably, with specific and express intent,
for and on behalf of itself, its managers, members, directors, officers,
employees, stockholders, Affiliates, agents, representatives, accountants,
attorneys, successors and assigns and their respective Affiliates (collectively,
the

 

38

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“Releasing Parties”), hereby fully and completely releases and forever
discharges the Indemnified Parties and any other Person or Insurer which may be
responsible or liable for the acts or omissions of any of the Indemnified
Parties, or who may be liable for the injury or damage resulting therefrom
(collectively, with the Indemnified Parties, the “Released Parties”), of and
from any and all actions, causes of action, damages, claims, obligations,
liabilities, costs, expenses and demands of any kind whatsoever, at law or in
equity, matured or unmatured, vested or contingent, that any of the Releasing
Parties has against any of the Released Parties as of the date of the Closing.
Borrower acknowledges that the foregoing release is a material inducement to
Lender’s decision to extend to Borrower the financial accommodations hereunder
and has been relied upon by Lender in agreeing to make the Advances.

 

  12.12 Agent

 

Lender and its successors and assigns hereby (i) designate and appoint
CapitalSource Finance LLC, a Delaware limited liability company, and its
successors and assigns (“CapitalSource”), to act as agent for Lender and its
successors and assigns under this Agreement and all other Loan Documents,
(ii) irrevocably authorize CapitalSource to take all actions on its behalf under
the provision of this Loan Agreement and all other Loan Documents, and (iii) to
exercise all such powers and rights, and to perform all such duties and
obligations hereunder and thereunder. CapitalSource, on behalf of Lender, shall
hold all Collateral, payments of principal and interest, fees, charges and
collections received pursuant to this Agreement and all other Loan
Documents. Borrower acknowledges that Lender and its successors and assigns
transfer and assign to CapitalSource the right to act as Lender’s agent to
enforce all rights and perform all obligations of Lender contained herein and in
all of the other Loan Documents. Borrower shall within ten (10) Business Days
after Lender’s reasonable request, take such further actions, obtain such
consents and approvals and duly execute and deliver such further agreements,
amendments, assignments, instructions or documents as Lender may request to
evidence the appointment and designation of CapitalSource as agent for Lender
and other financial institutions from time to time party hereto and to the other
Loan Documents.

 

  12.13 Agreement Controls

 

In the event of any inconsistency between this Agreement and any other Loan
Documents, the terms of this Agreement shall control.

 

39

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IN WITNESS WHEREOF, each of the parties has duly executed this Revolving Credit
and Security Agreement as of the date first written above.

 

UCN, INC.

By:

 

/s/

Name:

 

Paul Jarman

Its:

 

Chief Executive Officer

Address for Notices:

UCN, Inc.

14870 Pony Express Road

Bluffdale, Utah 84065

Attention: Paul Jarman

Telephone: (801) 715-5020

FAX: (801) 715-5022

CAPITALSOURCE FINANCE LLC By:  

/s/

Name:

   

Its:

   

Address for Notices:

CapitalSource Finance LLC

4445 Willard Avenue, 12th Floor

Chevy Chase, MD 20815

Attention: Business Credit Services/HFG, Portfolio Manager

Telephone: (301) 841-2700

FAX: (301) 841-2340

 

40

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SCHEDULES

 

Schedule 2.4

  —      Borrower’s Account(s)

Schedule 5.2

  —      Required Consents

Schedule 5.3

  —      Capitalization, Organization Chart (including all subsidiaries,
authorized/issued capitalization, owners, directors, officers and managers) and
Joint Ventures

Schedule 5.4

  —      Liens; Real and Personal Property Owned or Leased; Leases

Schedule 5.5

  —      Defaults; Service Fees; Managers

Schedule 5.6

  —      Pending Litigation, Proceedings and Investigations

Schedule 5.8

  —      Taxes

Schedule 5.11

  —      Intellectual Property

Schedule 5.15A

  —      Existing Indebtedness

Schedule 5.15B

  —      Indebtedness Maturing During Term

Schedule 5.16

  —      Other Agreements

Schedule 5.17

  —      Insurance

Schedule 5.18A

  —      Corporate Names

Schedule 5.18B

  —      Places of Business

Schedule 5.20

  —      Inventory Disclosures

Schedule 6.8

  —      Further Assurances/Post Closing

Schedule 7.2

  —      Permitted Indebtedness

Schedule 7.3

  —      Permitted Liens

 

I

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ANNEX I

 

FINANCIAL COVENANTS

 

  1) Fixed Charge Coverage Ratio (EBITDA/Fixed Charges)

 

The Fixed Charge Coverage Ratio shall not be less than 1:1, tested monthly.

 

  2) Cash Velocity

 

Collections of Borrower’s Accounts for each 90-day period shall not be less than
90% of the collections of Borrower’s Accounts for the previous 90-day period as
measured at of the end of each calendar month during the Term; provided, that
upon any violation of or failure to comply with this covenant Lender shall have
the right, in its sole discretion, to consider for all purposes under the
Agreement as though Borrower actually collected Accounts equal to such minimum
required amount.

 

  3) Minimum Availability

 

Following each Advance, Borrower shall have Availability equal to a minimum of
$1,000,000 until Borrower has achieved a Fixed Charge Coverage Ratio of at least
1:1 for the immediately preceding 12 months on a cumulative basis, commencing
with the closing date, after which this minimum Availability covenant shall not
apply to subsequent Advances.

 

For purposes of the covenants set forth in this Annex I, the terms listed below
shall have the following meanings:

 

“EBITDA” shall mean, for the relevant period, the following for Borrower on a
consolidated basis: Net Income, plus, (a) Interest Expense, (b) taxes on income,
whether paid, payable or accrued, (c) depreciation expense, (d) amortization
expense, (e) all other non-cash, non-recurring charges and expenses, excluding
accruals for cash expenses made in the ordinary course of business, and (f) loss
from any sale of assets, other than sales in the ordinary course of business,
all of the foregoing determined in accordance with GAAP, minus (a) gains from
any sale of assets, other than sales in the ordinary course of business and
(b) other extraordinary or non-recurring gains.

 

“Fixed Charge Coverage Ratio” shall mean, for Borrower collectively on a
consolidated basis during the relevant period, the ratio of (a) EBITDA less
taxes paid in cash or accrued and non-financed Capital Expenditures, to
(b) Fixed Charges. The Fixed Charge Coverage Ratio shall be measured on a
cumulative basis for the initial 12 months of the Term and for the immediately
preceding 12 months during the remainder of the Term.

 

“Fixed Charges” shall mean, for the relevant period, the sum of the following:
(a) Total Debt Service, and (b) dividends paid or accrued or declared.

 

“Interest Expense” shall mean, for the relevant period, total interest expense
(including attributable to Capital Leases in accordance with GAAP) fees with
respect to all outstanding Indebtedness including capitalized interest but
excluding commissions, discounts and other fees owed

 

Annex I-1

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with respect to letters of credit and bankers’ acceptance financing and net
costs under Interest Rate Agreements.

 

“Net Income” shall mean, the net income (or loss) determined in conformity with
GAAP, provided that there shall be excluded (i) the income (or loss) of any
Person in which any other Person (other than Borrower) has a joint interest,
except to the extent of the amount of dividends or other distributions actually
paid to a Borrower by such Person, (ii) the income (or loss) of any Person
accrued prior to the date it becomes a Borrower or is merged into or
consolidated with a Borrower or that Person’s assets are acquired by a Borrower,
(iii) the income of any Subsidiary of Borrower to the extent that the
declaration or payment of dividends or similar distributions of that income by
that Subsidiary is not at the time permitted by operation of the terms of the
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary, (iv) compensation expense
resulting from the issuance of capital stock, stock options or stock
appreciation rights issued to former or current employees, including officers,
of a Borrower, or the exercise of such options or rights, in each case to the
extent the obligation (if any) associated therewith is not expected to be
settled by the payment of cash by a Borrower or any affiliate thereof, and
(v) compensation expense resulting from the repurchase of capital stock, options
and rights described in clause (iv) of this definition of Net Income.

 

“Total Debt Service” shall mean the sum of (i) all payments of principal on
Indebtedness, and (ii) Interest Expense, for the relevant period.

 

Annex I-2

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APPENDIX A

 

DEFINITIONS

 

“Accounts” shall mean all “accounts” as defined in the UCC of Borrower (or, if
referring to another Person, of such other Person).

 

“Account Debtor” shall mean any Person who is obligated under an Account.

 

“Advance” shall mean a borrowing under the Revolving Facility. Any amounts paid
by Lender on behalf of Borrower or Guarantor under any Loan Document shall be an
Advance for purposes of the Agreement.

 

“Affiliate” shall mean, as to any Person, any other Person (a) that, directly or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such Person, (b) who is a director or officer (i) of
such Person, (ii) of any Subsidiary of such Person, or (iii) of any Person
described in clause (a) above with respect to such Person, or (c) which,
directly or indirectly through one or more intermediaries, is the beneficial or
record owner (as defined in Rule 13d-3 of the Securities Exchange Act of 1934,
as amended, as the same is in effect on the date hereof) of five percent (5%) or
more of any class of the outstanding voting stock, securities or other equity or
ownership interests of such Person. For purposes of this definition, the term
“control” (and the correlative terms, “controlled by” and “under common control
with”) shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies, whether through ownership
of securities or other interests, by contract or otherwise. “Affiliate” shall
include any Subsidiary.

 

“Applicable Rate” shall mean the interest rates applicable from time to time to
Advances under the Agreement.

 

“Availability” shall have the meaning given such term in Section 2.1(a).

 

“Borrowing Base for Eligible Receivables” shall mean, as of any date of
determination the net collectible U.S. Dollar value of Eligible Receivables, as
determined with reference to the most recent Borrowing Certificate and otherwise
in accordance with this Agreement; provided, however, that if as of such date
the most recent Borrowing Certificate is of a date more than four Business Days
before or after such date, the Borrowing Base shall be determined by Lender in
its sole discretion.

 

“Borrowing Base for Unbilled Eligible Receivables” shall mean, as of any date of
determination the net collectible U.S. Dollar value of Unbilled Eligible
Receivables, as determined with reference to the most recent Borrowing
Certificate and otherwise in accordance with this Agreement; provided, however,
that if as of such date the most recent Borrowing Certificate is of a date more
than four Business Days before or after such date, the Borrowing Base shall be
determined by Lender in its sole discretion.

 

“Borrowing Certificate” shall mean a Borrowing Certificate substantially in the
form of Exhibit A.

 

Annex I-1

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“Borrowing Date” shall have the meaning given such term in Section 2.4.

 

“Business Day” shall mean any day other than a Saturday, Sunday or other day on
which the Federal Reserve or Lender is closed.

 

“Capital Expenditures” shall mean, for the applicable period, the sum (without
duplication) of all expenditures (whether paid in cash or accrued as
liabilities) during the period that are or should be treated as capital
expenditures under GAAP.

 

“Capital Lease” shall mean, as to any Person, a lease of any interest in any
kind of property or asset by that Person as lessee that is, should be or should
have been recorded as a “capital lease” in accordance with GAAP.

 

“Capitalized Lease Obligations” shall mean all obligations of any Person under
Capital Leases, in each case, taken at the amount thereof accounted for as a
liability in accordance with GAAP.

 

“Change of Control” shall mean, with respect to Borrower or Guarantor, the
occurrence of any of the following: (i) a merger, consolidation, reorganization,
recapitalization or share or interest exchange, sale or transfer or any other
transaction or series of transactions in which its stockholders, managers,
partners or interest holders immediately prior to such transaction or series of
transactions receive, in exchange for the stock or interests owned by them,
cash, property or securities of the resulting or surviving entity or any
Affiliate thereof, and, as a result thereof, Persons who, individually or in the
aggregate, were holders of 50% or more of its voting stock, securities or
equity, partnership or ownership interests immediately prior to such transaction
or series of transactions hold less than 50% of the voting stock, securities or
other equity, partnership or ownership interests of the resulting or surviving
entity or such Affiliate thereof, calculated on a fully diluted basis, (ii) a
direct or indirect sale, transfer or other conveyance or disposition, in any
single transaction or series of transactions, of all or substantially all of its
assets, (iii) the initial public offering of its securities, or (iv) any “change
in/of control” or “sale” or “disposition” or similar event as defined in any
document governing indebtedness of such Person which gives the holder of such
indebtedness the right to accelerate or otherwise require payment of such
indebtedness prior to the maturity date thereof. Notwithstanding anything to the
contrary contained herein, if the Borrower or Guarantor is a publicly-held
company, a “Change of Control” shall not occur if 50% or more of the voting
stock, securities, or other equity, partnership or ownership interests of
Borrower or Guarantor are sold in the public markets to a wide variety of
shareholders or other equity holders in the ordinary course of business over an
extended period of time.

 

“Charter and Good Standing Documents” shall mean, for Borrower and Guarantor
(i) a copy of the certificate of incorporation or formation (or other charter
document) certified as of a date satisfactory to Lender before the Closing Date
by the applicable Governmental Authority of the jurisdiction of incorporation or
organization of Borrower and Guarantor, (ii) a copy of the bylaws or similar
organizational documents certified as of a date satisfactory to Lender before
the Closing Date by the corporate secretary or assistant secretary of Borrower
and Guarantor, (iii) an original certificate of good standing as of a date
acceptable to Lender issued by the applicable Governmental Authority of the
jurisdiction of incorporation or organization of such Borrower and Guarantor and
the State of Utah, and (iv) copies of the resolutions of the Board of Directors
or managers (or other applicable governing body) and, if required, stockholders,
members or other equity owners authorizing the execution, delivery and
performance of the Loan Documents to which Borrower and Guarantor is a party,
certified by an authorized officer of such Person as of the Closing Date.

 

Annex I-2

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“Closing” shall mean the satisfaction, or written waiver by Lender, of all of
the conditions precedent set forth in the Agreement required to be satisfied
prior to the consummation of the transactions contemplated hereby.

 

“Closing Date” shall mean the date of this Agreement.

 

“Collateral” shall have the meaning given such term in Section 2.9.

 

“Collateral Management Fee” shall have the meaning given such term in
Section 3.3.

 

“Concentration Account” shall have the meaning given such term in Section 2.5.

 

“Credit Party” shall have the meaning given such term in Section 6.13.

 

“Debtor Relief Law” shall mean, collectively, the Bankruptcy Code of the United
States of America and all other applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization
or similar debtor relief laws from time to time in effect affecting the rights
of creditors generally, as amended from time to time.

 

“Default” shall mean any event, fact, circumstance or condition that, with the
giving of applicable notice or passage of time or both, would constitute or be
or result in an Event of Default.

 

“Dilution Items” shall have the meaning given such term in Section 2.1(b).

 

“Distribution” shall mean any fee, payment, bonus or other remuneration of any
kind, and any repayment of or debt service on loans or other indebtedness.

 

“Eligible Receivables” shall mean each Account arising in the ordinary course of
Borrower’s business from the sale of goods or rendering of services which
Lender, in its sole discretion, deems an Eligible Receivable unless:

 

(a) it is not subject to a valid perfected first priority security interest in
favor of Lender, subject to no other Lien;

 

(b) it is not evidenced by an invoice, statement or other documentary evidence
satisfactory to Lender; provided, that Lender in its sole discretion may from
time to time include as Accounts that are not evidenced by an invoice, statement
or other documentary evidence satisfactory to Lender as Eligible Receivables and
determine the advance rate, dilution factors and reserves applicable to Advances
made on any such Accounts;

 

(c) it or any portion thereof (in which case only such portion shall not be an
Eligible Receivable) is payable by a beneficiary, recipient or subscriber
individually and not directly by an Account Debtor;

 

(d) it arises out of services rendered or a sale made to, or out of any other
transaction between Borrower or any of its Subsidiaries and, one or more
Affiliates of Borrower or any of its Subsidiaries;

 

(e) it was not billed within 40 calendar days after the applicable services were
rendered or remains unpaid for longer than the 90 calendar days after the first
to occur of the claim date or invoice date;

 

Annex I-3

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(f) with respect to all Accounts owed by any particular Account Debtor and/or
its Affiliates, 50% or more of all such Accounts are not deemed Eligible
Receivables for any reason hereunder (which percentage may, in Lender’s sole
discretion, be increased or decreased);

 

(g) with respect to all Accounts owed by any particular Account Debtor and/or
its Affiliates, if such Accounts exceed 20% of the net collectible dollar value
of all Eligible Receivables at any one time (which percentage may, in Lender’s
sole discretion, be increased or decreased);

 

(h) any covenant, agreement, representation or warranty contained in any Loan
Document with respect to such Account has been breached and remains uncured;

 

(i) the Account Debtor for such Account has commenced a voluntary case under any
Debtor Relief Law or has made an assignment for the benefit of creditors, or a
decree or order for relief has been entered by a court having jurisdiction in
respect of such Account Debtor in an involuntary case under any Debtor Relief
Law, or any other petition or application for relief under any Debtor Relief Law
has been filed against such Account Debtor, or such Account Debtor has failed,
suspended business, ceased to be solvent, called a meeting of its creditors, or
has consented to or suffered a receiver, trustee, liquidator or custodian to be
appointed for it or for all or a significant portion of its assets or affairs,
or Borrower, in the ordinary course of business, should have known of any of the
foregoing;

 

(j) it arises from the sale of property or services rendered to one or more
Account Debtors outside the continental United States or that have their
principal place of business or chief executive offices outside the continental
United States;

 

(k) it represents the sale of goods or rendering of services to an Account
Debtor on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval,
consignment or any other repurchase or return basis or is evidenced by Chattel
Paper or an Instrument of any kind or has been reduced to judgment;

 

(l) the applicable Account Debtor for such Account is any Governmental
Authority, unless rights to payment of such Account have been assigned to Lender
pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C.
Section 3727, et seq. and 41 U.S.C. Section 15, et seq.), or otherwise only if
all applicable statutes or regulations respecting the assignment of Government
Accounts have been complied with;

 

(m) the portion of the Account that is subject to any offset, credit (including
any resource or other income credit or offset) deduction, defense, discount,
chargeback, freight claim, allowance, adjustment, dispute or counterclaim, or is
contingent in any respect or for any reason;

 

(n) there is any agreement with an Account Debtor for any deduction from such
Account, except for discounts or allowances made in the ordinary course of
business for prompt payment or purchases of multiple products or services, all
of which discounts or allowances are reflected in the calculation of the face
value of each invoice related thereto, such that only the discounted amount of
such Account after giving effect to such discounts and allowances shall be
considered an Eligible Receivable;

 

(o) any return, rejection or repossession of goods or services related to it has
occurred;

 

(p) it is not payable to Borrower;

 

Annex I-4

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(q) Borrower has agreed to accept or has accepted any non-cash payment for such
Account;

 

(r) with respect to any Account arising from the sale of goods, the goods have
not been shipped to the Account Debtor or its designee;

 

(s) with respect to any Account arising from the performance of services, the
services have not been actually performed or the services were undertaken in
violation of any law; or

 

(t) such Account fails to meet such other specifications and requirements which
may from time to time be established by Lender or is not otherwise satisfactory
to Lender, as determined in Lender’s sole discretion.

 

“Eligible Unbilled Receivables” shall mean each unbilled Account arising in the
ordinary course of Borrower’s business from the sale of goods or rendering of
services within the immediately preceding 40 days which Lender, in its sole
discretion, deems an Eligible Unbilled Receivable unless:

 

(a) it is not subject to a valid perfected first priority security interest in
favor of Lender, subject to no other Lien;

 

(b) it or any portion thereof (in which case only such portion shall not be an
Eligible Receivable) is payable by a beneficiary, recipient or subscriber
individually and not directly by an Account Debtor;

 

(c) it arises out of services rendered or a sale made to, or out of any other
transaction between Borrower or any of its Subsidiaries and, one or more
Affiliates of Borrower or any of its Subsidiaries;

 

(d) with respect to all unbilled Accounts owed by any particular Account Debtor
and/or its Affiliates, 50% or more of all such unbilled Accounts are not deemed
Eligible Unbilled Receivables for any reason hereunder (which percentage may, in
Lender’s sole discretion, be increased or decreased);

 

(e) with respect to all unbilled Accounts owed by any particular Account Debtor
and/or its Affiliates, if such unbilled Accounts exceed 20% of the net
collectible dollar value of all Eligible Unbilled Receivables at any one time
(which percentage may, in Lender’s sole discretion, be increased or decreased);

 

(f) any covenant, agreement, representation or warranty contained in any Loan
Document with respect to such Account has been breached and remains uncured;

 

(g) the Account Debtor for such Account has commenced a voluntary case under any
Debtor Relief Law or has made an assignment for the benefit of creditors, or a
decree or order for relief has been entered by a court having jurisdiction in
respect of such Account Debtor in an involuntary case under any Debtor Relief
Law, or any other petition or application for relief under any Debtor Relief Law
has been filed against such Account Debtor, or such Account Debtor has failed,
suspended business, ceased to be solvent, called a meeting of its creditors, or
has consented to or suffered a receiver, trustee, liquidator or custodian to be
appointed for it or for all or a significant portion of its assets or affairs,
or Borrower, in the ordinary course of business, should have known of any of the
foregoing;

 

Annex I-5

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(h) it arises from the sale of property or services rendered to one or more
Account Debtors outside the continental United States or that have their
principal place of business or chief executive offices outside the continental
United States;

 

(i) it represents the sale of goods or rendering of services to an Account
Debtor on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval,
consignment or any other repurchase or return basis or is evidenced by an
invoice, Chattel Paper or an Instrument of any kind or has been reduced to
judgment;

 

(j) the applicable Account Debtor for such Account is any Governmental
Authority, unless rights to payment of such Account have been assigned to Lender
pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C.
Section 3727, et seq. and 41 U.S.C. Section 15, et seq.), or otherwise only if
all applicable statutes or regulations respecting the assignment of Government
Accounts have been complied with;

 

(k) the portion of the Account that is subject to any offset, credit (including
any resource or other income credit or offset) deduction, defense, discount,
chargeback, freight claim, allowance, adjustment, dispute or counterclaim, or is
contingent in any respect or for any reason;

 

(l) there is any agreement with an Account Debtor for any deduction from such
Account, except for discounts or allowances made in the ordinary course of
business for prompt payment, all of which discounts or allowances are reflected
in the calculation of the face value of each invoice related thereto, such that
only the discounted amount of such Account after giving effect to such discounts
and allowances shall be considered an Eligible Unbilled Receivable;

 

(m) any return, rejection or repossession of goods or services related to it has
occurred;

 

(n) it is not payable to Borrower;

 

(o) Borrower has agreed to accept or has accepted any non-cash payment for such
Account;

 

(p) with respect to any Account arising from the sale of goods, the goods have
not been shipped to the Account Debtor or its designee;

 

(q) with respect to any Account arising from the performance of services, the
services have not been actually performed or the services were undertaken in
violation of any law; or

 

(r) such Account fails to meet such other specifications and requirements which
may from time to time be established by Lender or is not otherwise satisfactory
to Lender, as determined in Lender’s sole discretion.

 

“Environmental Laws” shall mean, collectively and each individually, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Superfund Amendment and Reauthorization Act of 1986, the Resource
Conservation and Recovery Act, the Toxic Substances Control Act, the Clean Air
Act, the Clean Water Act, any other “Superfund” or “Superlien” law and all other
federal, state and local and foreign environmental, land use, zoning, health,
chemical use, safety and sanitation laws, statutes, ordinances and codes
relating to the protection of the environment and/or governing the use, storage,
treatment, generation, transportation, processing, handling, production or
disposal of Hazardous Substances, in each case, as amended, and the rules,

 

Annex I-6

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regulations, policies, guidelines, interpretations, decisions, orders and
directives of Governmental Authorities with respect thereto.

 

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

 

“Event of Default” shall mean the occurrence of any event set forth in
Article VIII.

 

“Facility Cap” shall have the meaning given the term in the Recitals of this
Agreement.

 

“Fair Valuation” shall mean the determination of the value of the consolidated
assets of a Person on the basis of the amount which may be realized by a willing
seller within a reasonable time through collection or sale of such assets at
market value on a going concern basis to an interested buyer who is willing to
purchase under ordinary selling conditions in an arm’s length transaction.

 

“GAAP” shall mean generally accepted accounting principles in the United States
of America in effect from time to time as applied by nationally recognized
accounting firms.

 

“Government Account” shall be defined to mean all Accounts arising out of or
with respect to any Government Contract.

 

“Government Contract” shall be defined to mean all contracts with the United
States Government or with any agency thereof, and all amendments thereto.

 

“Governmental Authority” shall mean any federal, state, municipal, national,
local or other governmental department, court, commission, board, bureau, agency
or instrumentality or political subdivision thereof, or any entity or officer
exercising executive, legislative or judicial, regulatory or administrative
functions of or pertaining to any government or any court, in each case, whether
of the United States or a state, territory or possession thereof, a foreign
sovereign entity or country or jurisdiction or the District of Columbia.

 

“Guarantor” shall mean, collectively and each individually, all guarantors of
the Obligations or any part thereof.

 

“Guaranty” shall mean, collectively and each individually, all guarantees
executed by Guarantor.

 

“Hazardous Substances” shall mean, without limitation, any flammable explosives,
radon, radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous
materials, hazardous wastes, hazardous or toxic substances or related materials
as defined in or subject to any applicable Environmental Law.

 

“Indebtedness” of any Person shall mean, without duplication, (a) all items
which, in accordance with GAAP, would be included in determining total
liabilities as shown on the liability side of the balance sheet of such Person
as of the date as of which Indebtedness is to be determined, including any lease
which, in accordance with GAAP would constitute Indebtedness, (b) all
indebtedness secured by any mortgage, pledge, security, Lien or conditional sale
or other title retention agreement to which any property or asset owned or held
by such Person is subject, whether or not the indebtedness secured thereby shall
have been assumed, (c) all indebtedness of others which such Person has directly
or indirectly guaranteed, endorsed (otherwise than for collection or deposit in
the ordinary course of business), discounted or sold with recourse or agreed
(contingently or otherwise) to purchase or

 

Annex I-7

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repurchase or otherwise acquire, or in respect of which such Person has agreed
to supply or advance funds (whether by way of loan, stock, equity or other
ownership interest purchase, capital contribution or otherwise) or otherwise to
become directly or indirectly liable.

 

“Indemnified Person” shall have the meaning given such term in Section 12.4.

 

“Initial Advance” shall have the meaning given such term in Section 4.1.

 

“Insured Event” shall have the meaning given such term in Section 12.4.

 

“Insurer” shall mean a Person that insures another Person against any costs
incurred in the receipt by such other Person of Services, or that has an
agreement with Borrower to compensate it for providing services to such Person.

 

“Inventory” shall mean all “inventory” (as defined in the UCC) of Borrower (or,
if referring to another Person, of such other Person).

 

“Landlord Waiver and Consent” shall mean a waiver/consent in form and substance
satisfactory to Lender from the owner/lessor of any premises not owned by
Borrower at which any of the Collateral is now or hereafter located for the
purpose of providing Lender access to such Collateral, in each case as such may
be modified, amended or supplemented from time to time.

 

“Lien” shall mean any mortgage, pledge, security interest, encumbrance,
restriction, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement or any
lease in the nature thereof), or any other arrangement pursuant to which title
to the property is retained by or vested in some other Person for security
purposes.

 

“Loan” or “Loans” shall mean, individually and collectively, all Advances under
the Revolving Facility.

 

“Loan Documents” shall mean, collectively and each individually, the Agreement,
the Notes, the Security Documents, the Lockbox Agreements, the Uniform
Commercial Code Financing Statements, the Subordination Agreements, the Landlord
Waiver and Consents, the Borrowing Certificates, and all other agreements,
documents, instruments and certificates heretofore or hereafter executed or
delivered to Lender in connection with any of the foregoing or the Loans, as the
same may be amended, modified or supplemented from time to time.

 

“Lockbox Accounts” shall have the meaning given such term in Section 2.5.

 

“Lockbox Agreement” shall have the meaning given such term in Section 2.5.

 

“Lockbox Bank” shall have the meaning given such term in Section 2.5.

 

“Master Subordination Agreements” shall mean those certain agreements entered
into between Borrower, Lender as Senior Lender and Edward D. Bagley, Bomoseen
Associates, LP, Telephone Electronics Corporation, Transtel Communications,
Inc., Tel-America of Salt Lake City, Inc., Extelcom, Inc., Communication
Recovery Services, Inc. and National Network Corporation as Subordinated
Lenders, dated as of the Closing Date, as such may be modified, amended or
supplemented from time to time.

 

Annex I-8

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“Material Adverse Effect” or “Material Adverse Change” shall mean any event,
condition or circumstance or set of events, conditions or circumstances or any
change(s) which (i) has, had or would reasonably be likely to have any material
adverse effect upon or change in the validity or enforceability of any Loan
Document, (ii) has been or would reasonably be likely to be material and adverse
to the value of any of the Collateral, to the priority of the Lender’s security
interest in the Collateral, or to the business, operations, prospects,
properties, assets, liabilities or condition of Borrower and/or Guarantors,
either individually or taken as a whole, or (iii) has materially impaired or
would reasonably be likely to materially impair the ability of any Borrower or
Guarantor to pay any portion of the Obligations or to otherwise perform the
Obligations or to consummate the transactions under the Loan Documents executed
by such Person.

 

“Minimum Termination Fee” shall mean (for the time period indicated) the amount
equal to (i) 3%) of the Facility Cap, if the date of notice of such termination
by Borrower is after the Closing Date but before the first anniversary of the
Closing Date; (ii) 2% of the Facility Cap, if the date of notice of such
termination by Borrower is on or after the first anniversary of the Closing Date
but before the second anniversary of the Closing Date; and (iii) 1% of the
Facility Cap, if the date of notice of such termination by Borrower is on or
after the second anniversary of the Closing Date but before the third
anniversary of the Closing Date.

 

“Non-Compliance Fee” shall mean a daily fee payable by Borrower equal to the
greater of (i) $500, or (ii) five one-hundredths of one percent (0.05%) of the
outstanding principal balance of the Obligations as of any date of
determination.

 

“Note” or “Notes” shall mean Notes issued pursuant to Section 2.12.

 

“Obligations” shall mean all present and future obligations, Indebtedness and
liabilities of Borrower and/or Guarantors to Lender at any time and from time to
time of every kind, nature and description, direct or indirect, secured or
unsecured, joint and several, absolute or contingent, due or to become due,
matured or unmatured, now existing or hereafter arising, contractual or
tortious, liquidated or unliquidated, under any of the Loan Documents or
otherwise relating to the Notes and/or Loans, including, without limitation, all
applicable fees, charges and expenses and/or all amounts paid or advanced by
Lender on behalf of or for the benefit of any Borrower and/or Guarantor for any
reason at any time, including in each case obligations of performance as well as
obligations of payment and interest that accrue after the commencement of any
proceeding under any Debtor Relief Law by or against any such Person.

 

“Payment Office” shall mean initially the address set forth beneath Lender’s
name on the signature page of the Agreement, and thereafter, such other office
of Lender, if any, which it may designate by notice to Borrower to be the
Payment Office.

 

“Permit” shall mean collectively all licenses, leases, powers, permits,
franchises, certificates, authorizations, approvals, certificates of need,
provider numbers and other rights.

 

“Permitted Discretion” shall mean a determination or judgment made by Lender in
good faith in the exercise of reasonable (from the perspective of a secured
lender) business judgment.

 

“Permitted Indebtedness” shall have the meaning given such term in Section 7.2.

 

“Permitted Liens” shall have the meaning given such term in Section 7.3.

 

Annex I-9

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“Permitted Subordinated Debt” shall mean indebtedness incurred by Borrower which
is subordinated to Borrower’s indebtedness owed to Lender pursuant to a written
agreement approved by Lender in writing.

 

“Person” shall mean an individual, a partnership, a corporation, a limited
liability company, a business trust, a joint stock company, a trust, an
unincorporated association, a joint venture, a Governmental Authority or any
other entity of whatever nature.

 

“Prime Rate” shall mean a fluctuating interest rate per annum equal at all times
to the rate of interest announced publicly from time to time by Citibank, N.A.
as its base rate; provided, that such rate is not necessarily the best rate
offered to its customers, and, should Lender be unable to determine such rate,
such other indication of the prevailing prime rate of interest as may reasonably
be chosen by Lender; provided, that each change in the fluctuating interest rate
shall take effect simultaneously with the corresponding change in the Prime
Rate.

 

“Receipt” shall have the meaning given such term in Section 12.5.

 

“Released Parties” shall have the meaning given such term in Section 12.11.

 

“Releasing Parties” shall have the meaning given such term in Section 12.11.

 

“Revolver Termination” shall have the meaning given such term in
Section 11.1(b).

 

“Revolving Facility Maturity Date” shall mean November 11, 2008.

 

“Security Documents” shall mean the Notes, this Agreement, Lockbox Agreements,
Uniform Commercial Code Financing Statements and all other documents or
instruments necessary to create or perfect the Liens in the Collateral, as such
may be modified, amended or supplemented from time to time.

 

“Solvency Certificate” shall have the meaning given such term in Section 4.1(d).

 

“Subordination Agreement” shall mean, collectively and each individually, the
Master Subordination Agreements, and any other subordination agreements to which
Lender and other service providers or creditors of any Borrower are a party.

 

“Subsidiary” shall mean, (i) as to Borrower, any Person in which more than 50%
of all equity, membership, partnership or other ownership interests is owned
directly or indirectly by Borrower or one or more of its Subsidiaries, and
(ii) as to any other Person, any Person in which more than 50% of all equity,
membership, partnership or other ownership interests is owned directly or
indirectly by such Person or by one or more of such Person’s Subsidiaries.

 

“Term” shall mean the period commencing on the date set forth on the first page
hereof and ending on the date that is three (3) years after the Closing Date.

 

“Termination Date” shall have the meaning given such term in Section 11.1.

 

“Transferee” shall have the meaning given such term in Section 12.2.

 

“UCC” shall mean the Uniform Commercial Code as in effect in the State of
Maryland from time to time.

 

Annex I-10

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“Unused Line Fee” shall have the meaning given such term in Section 3.2.

 

“Warehouse Waiver and Consent” shall mean a waiver/consent in form and substance
satisfactory to Lender from any warehouseman, fulfillment house or other person
owning a facility not owned by Borrower at which any Inventory is now or
hereafter located for the purpose of providing Lender access to such Inventory,
in each case as may be modified, amended or supplemented from time to time.

 

Annex I-11