EXHIBIT 10.49

LOAN AND SECURITY AGREEMENT

Between

MARTEK BIOSCIENCES CORPORATION,
A Delaware Corporation,
and
MARTEK BIOSCIENCES BOULDER CORPORATION,
a Delaware Corporation,

Borrower,

and

ALLFIRST BANK,

Lender,

$10,000,000.00 Revolving Line Of Credit

Dated: February 25, 2003

 

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TABLE OF CONTENTS

                      Page        

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ARTICLE 1 - DEFINITIONS AND RULES OF CONSTRUCTION
         
Section 1.1      Definitions
    1    
Section 1.2      Accounting Terms; Rules of Construction
    11  
ARTICLE 2 - THE LOAN; LETTERS OF CREDIT; HEDGES
         
Section 2.1.     Credit Line
    12      
  2.1.1      Loans
    12      
  2.1.2      Use of Proceeds of Loans
    12      
  2.1.3      Repayment of Principal of Loans
    12      
  2.1.4      Letters of Credit
    12      
  2.1.5      Hedges
    15    
Section  2.2     Interest on the Loans
    16    
Section  2.3     Note
    16    
Section  2.4     Prepayment
    16    
Section  2.5     Commitment Fee
    16    
Section  2.6     Reinstatement of Avoided Payments
    16    
Section  2.7     Obligations Of Borrower Unconditional
    17    
Section  2.8.    Capital Adequacy
    17    
Section  2.9.    Advancements
    17    
Section 2.10    Conditions Precedent to each Loan or Letter of Credit
    17  
ARTICLE 3 - SECURITY FOR THE OBLIGATIONS
         
Section 3.1.     Grant Of Security Interest
    18    
Section 3.2      Proceeds And Products
    18    
Section 3.3.     Priority Of Security Interests
    18    
Section 3.4.     Future Advances
    18    
Section 3.5.     Receivable Collections
    19    
Section 3.6.     Collection Of Receivables By Lender
    19    
Section 3.7.     Maintenance Of Principal Accounts
    20    
Section 3.8.     Guaranty Agreements
    20    
Section 3.9.     [Intentionally omitted.]
    20    
Section 3.10.   Further Assurances
    20  
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES
         
Section 4.1.     Accuracy Of Information
    20    
Section 4.2.     No Litigation
    21    
Section 4.3.     No Liability Or Adverse Change
    21    
Section 4.4.     Title To Collateral
    21    
Section 4.5.     Authority; Approvals And Consents
    21      
Section 4.5.1.     Authority
    21      
Section 4.5.2.     Approvals
    21      
Section 4.5.3.     Consents
    21    
Section 4.6.     Binding Effect Of Documents, Etc
    21    
Section 4.7.     Other Names
    22    
Section 4.8.     No Events Of Default
    22  

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Section 4.9.     Guaranty Agreements
    22    
Section 4.10.   Taxes
    22    
Section 4.11.   Compliance With Laws
    22    
Section 4.12.   Chief Place Of Business
    22    
Section 4.13.   Location Of Inventory
    22    
Section 4.14.   No Subsidiaries
    23    
Section 4.15.   No Labor Agreements
    23    
Section 4.16.   Eligible Accounts
    23    
Section 4.17.   Eligible Inventory
    23    
Section 4.18.   Approvals
    23    
Section 4.19.   Financial Statements
    23    
Section 4.20.   Solvency
    24    
Section 4.21.   Fair Labor Standards Act
    24    
Section 4.22.   Employee Benefit Plans
    24      
Section 4.22.1.     Compliance
    24      
Section 4.22.2.     Absence Of Termination Event
    24      
Section 4.22.3.     Actuarial Value
    24      
Section 4.22.4.     [Intentionally Omitted.]
    24    
Section 4.23.   Environmental Conditions
    24      
Section 4.23.1.     Existence Of Permits
    24      
Section 4.23.2.     Compliance With Permits
    24      
Section 4.23.3.     No Litigation
    24      
Section 4.23.4.     No Releases
    25      
Section 4.23.5.     Transportation
    25      
Section 4.23.6.     No Violation Notices
    25      
Section 4.23.7.     No Notice Of Violations
    25  
ARTICLE 5 - AFFIRMATIVE COVENANTS
         
Section 5.1.     Payment
    25    
Section 5.2.     Insurance
    25    
Section 5.3.     Books And Records
    25    
Section 5.4.     Collection Of Accounts; Sale Of Inventory
    26    
Section 5.5.     Notice Of Litigation And Proceedings
    26    
Section 5.6.     Payment Of Liabilities To Third Persons
    26    
Section 5.7.     Notice Of Change Of Business Location
    26    
Section 5.8.     Payment Of Taxes
    26    
Section 5.9.     Inspections Of Records
    26    
Section 5.10.   Notice Of Events Affecting Collateral; Compromise Of
Receivables;
         
Returned Or Repossessed Goods
    27    
Section 5.11.   Documentation Of Collateral
    27    
Section 5.12.   Reporting Requirements
    27      
Section 5.12.1.     Inventory Reports
    27      
Section 5.12.2.     Receivables And Accounts Payable Reports
    28      
Section 5.12.3.     Borrowing Base Report
    28      
Section 5.12.4.     Quarterly Financial Statements
    28      
Section 5.12.5.     Annual Financial Statements
    28      
Section 5.12.6.     SEC And Other Filings
    28      
Section 5.12.7.     Management Letters
    28  

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Section 5.12.8.     Certificates Of No Default
    28      
Section 5.12.9.     Reports To Other Creditors
    29      
Section 5.12.10.   Management Changes
    29      
Section 5.12.11.   General Information
    29    
Section 5.13.   Employee Benefit Plans And Guaranteed Pension Plans
    29    
Section 5.14.   Maintenance Of Fixed Assets
    30    
Section 5.15.   Consignments
    30    
Section 5.16.   Federal Assignment Of Claims Act
    30    
Section 5.17.   Compliance With Laws
    30    
Section 5.18.   Fair Labor Standards Act
    31    
Section 5.19    Subsidiary Guaranties and Security Agreements
    31  
ARTICLE 6 - NEGATIVE COVENANTS
         
Section 6.1.     No Change Of Name, Merger, Etc
    31    
Section 6.2.     No Sale Or Transfer Of Collateral; Restriction Against Transfer
of Other Assets
    31    
Section 6.3.     No Encumbrance Of Collateral
    32    
Section 6.4.     No Indebtedness
    32    
Section 6.5.     Restricted Payments
    32    
Section 6.6.     Transactions With Affiliates
    32    
Section 6.7.     Sale-Leasebacks
    32    
Section 6.8.     No Acquisition Of Equity In Or Assets Of Third Persons
    32    
Section 6.9.     No Assignment
    32    
Section 6.10.   No Alteration Of Business
    32    
Section 6.11.   Unpermitted Uses Of Loan Proceeds
    33    
Section 6.12.   [Intentionally Omitted.]
    33    
Section 6.13.   Changes In Fiscal Year
    33    
Section 6.14.   Limitation On Issuance Of Equity Interests
    33    
Section 6.15    Required EBITDA
    33    
Section 6.16    Minimum Required Adjusted Quick Ratio
    33  
ARTICLE 7 - EVENTS OF DEFAULT
         
Section 7.1      Events of Default
    33    
Section 7.2.     Certain Default Remedies
    35    
Section 7.3.     Automatic Acceleration
    35    
Section 7.4.     Sale Of Collateral
    35    
Section 7.5      Confession of Judgment
    36    
Section 7.6      Remedies Cumulative
    36  
ARTICLE 8 - GENERAL CONDITIONS AND TERMS
         
Section 8.1.     Obligations Are Unconditional
    36    
Section 8.2.     Indemnity
    37    
Section 8.3.     Lender Expenses
    37    
Section 8.4.     Authorization To Obtain Financial Information
    37    
Section 8.5.     Incorporation
    37    
Section 8.6.     Waivers
    37    
Section 8.7.     Continuing Obligation Of Borrower
    37    
Section 8.8.     Choice Of Law
    37    
Section 8.9.     Submission To Jurisdiction; Venue; Actions Against Lender
    38  

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Section 8.9.1.     Jurisdiction
    38      
Section 8.9.2.     Venue
    38      
Section 8.9.3.     Waiver Of Objections To Venue
    38    
Section 8.10.   Notices
    38    
Section 8.11.   Participations
    39    
Section 8.12.   Miscellaneous Provisions
    39    
Section 8.13.   Waiver Of Trial By Jury
    40    
Section 8.14.   Confidentiality
    40  

      Schedules    

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    Schedule 1.1(a)   Permitted Liens Schedule 4.2   Litigation Schedule 4.7  
Other Names Schedule 4.12   Chief Place Of Business Schedule 4.13   Location Of
Inventory Schedule 4.14   Subsidiaries Schedule 4.15   Labor Agreements
Schedule 4.19   Liabilities And Obligations Not Disclosed In Financial
Statements Schedule 4.23   Environmental Compliance

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LOAN AND SECURITY AGREEMENT

     THIS LOAN AND SECURITY AGREEMENT is dated as of February 25, 2003, by and
between MARTEK BIOSCIENCES CORPORATION, a Delaware corporation, and MARTEK
BIOSCIENCES BOULDER CORPORATION, a Delaware corporation (collectively, the
“Borrower”; provided, that where the context so requires, the term “Borrower”
shall mean either of such persons) and ALLFIRST BANK (“Lender”).

RECITALS

     The Borrower has requested that the Lender provide various credit
accommodations to the Borrower. The Lender is willing to provide the requested
credit accommodations upon the terms and conditions set forth in this Loan And
Security Agreement, including the condition that the Borrower grant to the
Lender the security interests, liens, and other assurances of payment provided
for in this Loan And Security Agreement.

     NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

ARTICLE 1 - DEFINITIONS AND RULES OF CONSTRUCTION

     Section 1.1 Definitions. As used in this Loan And Security Agreement, the
terms set forth in this Article 1 have the meanings set forth below, except
where the context clearly requires a different meaning. Terms defined in this
Section or elsewhere in this Loan And Security Agreement shall be capitalized
throughout this Loan And Security Agreement.

     “Account Debtor” means each person: (a) to or for whom any Borrower has
provided or has agreed to provide any goods or services; or (b) which owes any
Borrower any sum of money as a result of goods sold or services provided by any
Borrower; or (c) which is the maker or endorser on any Instrument payable to any
Borrower or otherwise owes any Borrower any sum of money on account of any loan
or other payment obligation. With respect to each Receivable which is payable by
any governmental authority, “Account Debtor” includes, without limitation, the
agency, instrumentality or official which has the duty of remitting or causing
the remittance of the amounts owing on such Account or other Receivable.

     “Accounts,” “Chattel Paper,” “Documents,” “Equipment,” “General
Intangibles,” “Goods,” “Instruments,” and “Investment Property” shall have the
same respective meanings as are given to those terms in the Uniform Commercial
Code-Secured Transactions, Title 9, Commercial Law Article, Annotated Code of
Maryland, as amended. The term “Fixtures” shall have the meaning provided by the
common law of the state in which the fixtures are located.

     “Adjusted Quick Ratio” means, as of any applicable determination date, the
quotient obtained by dividing (a) the amount of the cash and cash equivalents of
the Borrower and its Subsidiaries as of such date, determined on a consolidated
basis in accordance with GAAP, plus the amount of the Borrower’s and its
Subsidiaries’ net Accounts, by (b) the current liabilities of the Borrower and
its Subsidiaries as of such date, determined on a consolidated basis in
accordance with GAAP, plus the LC Obligations (without duplication of any
Reimbursement Obligations constituting current liabilities), plus the Hedge
Exposure Amount then in effect.

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     “Affiliate” means collectively any person: (a) that directly or indirectly,
through one or more intermediaries, controls or is controlled by, or is under
common control with the Borrower, including, without limitation, the officers,
managers and directors of the Borrower; (b) that directly or beneficially owns
or holds ten percent (10%) or more of any equity interests in the Borrower; or
(c) ten percent (10%) or more of whose equity interests are owned directly or
controlled by the Borrower. As used herein, the term “control” (including, with
correlative meanings, the terms “controlled by” and “under common control with”)
shall mean possession, directly or indirectly, of the power to direct the
management or policies of a person, whether through ownership of equity
interests, by contract or otherwise.

     “Agreement” means this Loan And Security Agreement, as amended, extended,
or modified from time to time by the parties hereto, as well as all schedules,
exhibits and attachments hereto.

     “Applicable Margin” means for any day, (a) if the Borrower shall have
submitted all financial statements and other reports then required to have been
submitted by the Borrower pursuant to this Agreement and either (i) the EBITDA
of the Borrower for any fiscal quarter during the term of the Credit Facility
for which the Borrower shall have submitted financial statements as required
hereby is not less than $3,000,000, or (ii) the sum of the amount of the cash
and cash equivalents of the Borrower and its Subsidiaries as of the last day of
the then most recent fiscal quarter for which the Borrower shall have submitted
financial statements as required hereby (or as of the last day of any calendar
month for which the Borrower shall have provided substantially similar
statements) plus the market value of the other marketable investment securities
of the Borrower and its Subsidiaries as of the same day is greater than
$40,000,000, 0.00%, and (b) otherwise, twenty-five one-hundredths of one
percentage point (0.25%).

     “Borrowing Base” means an amount equal to: (a) eighty percent (80%) of the
face amount (less maximum discounts, credits and allowances which may be taken
by or are granted to Account Debtors in connection therewith) of billed Eligible
Accounts; plus (b) the least of (i) $2,000,000, (ii) 25% of the Lender’s
valuation of the Eligible Inventory and (iii) one-third of the amount described
in item (a) above (such that no more than 25% of the Borrowing Base may be
comprised of the Eligible Inventory); minus (c) such reserves as the Lender, in
its reasonable discretion, deems appropriate from time to time with respect to
obligations of the Borrower.

     “Business Day” means any day other than a Saturday, Sunday, or other day on
which commercial banking institutions in the State of Maryland are required to
be closed.

     “Capital Adequacy Requirement” means any law imposing any capital adequacy
requirement or any other similar requirement (including but not limited to the
capital adequacy regulations contained in Parts 3, 208 and 225 of Title 12 of
the Code of Federal Regulations, as amended), any change in such laws or in the
interpretation or application thereof, and any request or directive regarding
capital adequacy (whether or not having the force of law) from any central bank
or government authority having jurisdiction over the Lender.

     “Capital Lease” means a lease with respect to which the lessee’s
obligations thereunder should, in accordance with GAAP, be capitalized and
reflected as a liability on the balance sheet of the lessee.

     “Capital Lease Obligations” means any indebtedness incurred as a lessee
pursuant to a Capital Lease.

     “Cash Collateral Balance” has the meaning given in Subsection 2.1.6 hereof.

     “Cash Collateral Requirement” has the meaning given in Subsection 2.1.6
hereof.

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     “Closing” means the execution and delivery of this Agreement, the Note, and
various other Loan Documents. The date of Closing is the date written above as
the date of this Agreement.

     “Code” means the Internal Revenue Code of 1986, as amended, and all
Treasury regulations, revenue rulings, revenue procedures or announcements
issued thereunder.

     “Collateral” means all of the tangible and intangible assets of the
Borrower, wherever located, whether now owned or hereafter acquired by the
Borrower, together with all substitutions therefor, and all replacements and
renewals thereof, and all accessions, additions, replacement parts, manuals,
warranties and packaging relating thereto, including but not limited to the
following tangible and intangible assets and property rights of the Borrower:
(a) Accounts; (b) Chattel Paper; (c) Documents; (d) Equipment; (e) Fixtures;
(f) General Intangibles; (g) Goods; (h) Instruments; (i) Inventory, including
returned, rejected, or repossessed Inventory and rights of reclamation and
stoppage in transit with respect to Inventory; (j) Investment Property; (k)
Receivables; (l) deposit accounts; (m) letter of credit rights; (n) all Records
relating to or pertaining to any of the above listed Collateral; provided,
however, there shall be excluded from the Collateral: (i) all Intellectual
Property, (ii) all real property, fixtures and equipment comprising the
Borrower’s facility located in Winchester, Kentucky, and (iii) the rights of the
Borrower under any contract, lease, permit, license, franchise or other
agreement which prohibits the grant of a security interest therein, but only to
the extent that (x) such prohibition is not ineffective under Section 9-406 or
9-408, as applicable, of the Maryland Uniform Commercial Code and (y) any
required consents to the grant of such security interest have not been obtained.

     “Collection Account” means a bank account designated by the Lender from
which the Lender alone has power of access and withdrawal.

     “Commercial Account” means the commercial checking account to be
established and maintained by the Borrower with the Lender and which may be
utilized as the means of disbursing the proceeds of the Loans.

     “Credit Line” means the line of credit established by the Lender in favor
of the borrower under this Agreement.

     “Default” means any event, occurrence or omission which, with the giving of
notice, the passage of time, or both, would constitute an Event of Default.

     “Default Rate” means the floating and fluctuating rate obtained by adding
two percentage points (2.00%) to the rate at which interest would accrue on the
unpaid principal balance of the Loans absent the existence of any Event of
Default.

     “EBITDA” means, with respect to the Borrower, for any applicable period,
the net income of the Borrower and its Subsidiaries for such period (before
deducting the provision for taxes), plus the interest expense, depreciation and
amortization of the Borrower and its Subsidiaries for such period, determined on
a consolidated basis in accordance with GAAP.

     “Eligible Accounts” means those Accounts which are acceptable to the
Lender, in its discretion exercised in a manner consistent with its usual
practices. The criteria for eligibility may be fixed and revised from time to
time by the Lender in its discretion in a manner consistent with its usual
practices. An account in no event shall be deemed eligible unless: (a) the
Account arises from goods sold or leased or from services

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performed in the ordinary course of business of the Borrower; (b) the delivery
of the goods or the performance of the services has been completed; (c) no
return, rejection, or repossession has occurred; (d) the goods delivered or the
services performed have been finally and unconditionally accepted by the Account
Debtor without dispute, objection, complaint, offset, defense, counterclaim,
adjustment or allowance; (e) the Account Debtor’s obligation to pay the Account
is not subject to any repurchase obligation or return right, as with sales made
on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval (except
with respect to Accounts in connection with which Account Debtors are entitled
to return Inventory solely on the basis of the quality of such Inventory) or
consignment basis; (f) no more than ninety (90) days have elapsed from the
billing or invoice date and no more than sixty (60) days have elapsed from the
due date; (g) no prior, contemporaneous, or subsequent assignment, claim, lien,
or security interest, other than that of the Lender, applies to the Account;
(h) no bankruptcy or insolvency proceedings or payment moratoriums of any kind
apply to the Account; (i) the Account Debtor is not, in the Lender’s sole but
reasonable opinion, unlikely to pay because of death, incompetency,
disappearance, potential bankruptcy, insolvency, damage to or disposition of the
goods, default, or any other reason whatsoever; (j) the Lender has not, by
notice to the Borrower, in the Lender’s sole discretion, deemed the Account
unsatisfactory for any reason; (k) no bonding company or surety asserts or has
the ability to assert any claim based upon the legal doctrine of equitable
subrogation, or under any other right to claim a lien into or right to payment
of the Account; (l) the Account does not arise from or pertain to any
transaction with any Affiliate; (m) excluding those Accounts for which Mead
Johnson B.V. is the Account Debtor, the Account is not payable from any Account
Debtor located outside of the geographic boundaries of the United States of
America (unless such Account is fully secured by a letter of credit or credit
insurance acceptable to the Lender); (n) the Borrower is legally empowered to
collect the Account against the Account Debtor in the jurisdiction in which the
Account Debtor is located; (o) the Account is not payable by an Account Debtor
with respect to which more than 50% of the dollar amount of that Account
Debtor’s Receivables to the Borrower are more than ninety (90) days due from the
date of invoice or more than sixty (60) days due from the due date; (p) the
Account does not arise from any contract or agreement with any federal, state,
local or foreign government unless such governmental authority is the United
States of America or an agency or representative thereof and the Lender has
obtained full compliance to its complete satisfaction with all provisions
necessary to protect the Lender’s interests under The Assignment of Claims Act
of 1940, as amended, and all regulations promulgated thereunder, and all other
applicable federal procurement laws and regulations; and (q) the Lender has a
perfected first priority security interest therein. An Account which otherwise
satisfies the Lender’s criteria for eligibility shall also be subject to the
following eligibility limitations: (i) if the Account is payable by an Account
Debtor to whom the Borrower owes money, only the portion of the Account in
excess of the amount owed by the Borrower to the Account Debtor may be eligible;
(ii) if the Account is due from an Account Debtor whose Accounts in the
aggregate constitute in excess of 50% of all of the Accounts of the Borrower,
only the portion of the aggregate amount of the Accounts from that Account
Debtor which does not exceed 50% of all of the Accounts of the Borrower may be
eligible (and for purposes of this item (ii), Mead Johnson B.V. and Mead Johnson
Nutritionals shall be considered separate Account Debtors, notwithstanding any
affiliation); and (iii) to the extent the Account contains finance charges,
delivery charges or sales taxes, such finance charges, delivery charges or sales
taxes shall not be eligible.

     “Eligible Inventory” means all Inventory owned by the Borrower which is
acceptable to the Lender, in its discretion exercised in a manner consistent
with its usual practices, to be included in the calculation of the Borrowing
Base. The criteria for eligibility may be fixed and revised by the Lender from
time to time in its discretion in a manner consistent with its usual practices.
Inventory in no event shall be deemed to be eligible unless: (a) the Lender has
a first priority perfected security interest in its Inventory; (b) it is
normally and currently saleable in the ordinary course of business of the
Borrower; (c) it constitutes finished goods (including Dutch State Mines (DSM)
purchased oil), not raw materials or work in process; (d) it is located on

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the premises owned or leased by the Borrower (including space rented by the
Borrower in a warehouse) and, if leased, subject to item (j) below; (e) it does
not consist of obsolete, returned or repossessed items of Inventory or used
goods or goods taken in trade; (f) it does not consist of slow moving items or
items determined by the Lender in its sole discretion to be stale or dated
merchandise; (g) it does not consist of packing materials, catalogs, promotion
materials, items used as demonstrators, prototypes, or salesman’s samples; (h)
it does not consist of an item consigned to the Borrower or with respect to
which any person claims a lien; (i) it has not been consigned by the Borrower to
a consignee; (j) it is not held by any person (other than the Borrower) or
located upon any premises not owned in fee simple by the Borrower unless such
person or the owner of such premises has executed a lien waiver agreement in
form and substance satisfactory to the Lender; and (k) it has not been deemed
unsatisfactory by the Lender for any reason, in the Lender’s sole but reasonable
discretion, by written notice to the Borrower. The value of any Inventory deemed
to meet the criteria for Eligible Inventory shall be determined at the least of:
(i) the Borrower’s net purchase or manufacturing cost; (ii) the lowest
then-existing market price; (iii) the Borrower’s lowest selling price, less
estimated expenses for packing, selling and delivery; or (iv) any price ceiling
which may be established by governmental order, regulation, or restriction. The
Lender shall be the discretionary judge of the value of any Inventory, based
upon such information as it deems, in its discretion, to be relevant or
applicable in making that determination.

     “Employee Benefit Plan” means an “employee benefit plan” as defined in
Section 3(3) of ERISA.

     “Environmental laws” means individually or collectively any applicable
local, state or federal law, statute, rule, regulation, order, ordinance, common
law, permit or license term or condition, or state superlien or environmental
clean-up or environmental disclosure statutes pertaining to the environment or
to environmental contamination, regulation, management, control, treatment,
storage, disposal, containment, removal, clean-up, reporting, or disclosure,
including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (including, but not limited
to, the Superfund Amendments and Reauthorization Act); the Resource Conservation
and Recovery Act, as amended (including, but not limited to, the Hazardous and
Solid Waste Amendments of 1984); the Toxic Substances Control Act, as amended;
the Clean Water Act, as now or hereafter amended; the Safe Drinking Water Act,
as amended; or the Clean Air Act, as amended.

     “EPA Permit” has the meaning given that term in Section 4.23 of this
Agreement.

     “ERISA” means the Employee Retirement Income Security Act of 1974 and
regulations issued thereunder, as amended from time to time and any successor
statute.

     “ERISA Affiliate” means, in relation to any person, any trade or business
(whether or not incorporated) which is a member of a group of which that person
is a member and which is under common control within the meaning of the
regulations promulgated under Section 414 of the Code.

     “ERISA Liabilities” means the aggregate of all unfunded vested benefits
under any employee pension benefit plan, within the meaning of Section 3(2) of
ERISA, of the Borrower or any ERISA Affiliate of the Borrower under any plan
covered by ERISA that is not a Multiemployer Plan and all potential withdrawal
liabilities of the Borrower or any ERISA Affiliate under all Multiemployer
Plans.

     “Event of Default” means any of the events set forth in Section 7.1 of this
Agreement, provided that any requirement for the giving of notice, the lapse of
time, or both, or any other expressly stated condition, has been satisfied.

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     “Facilities” means all real property and the improvements thereon used or
occupied or leased by the Borrower or otherwise used at any time by the Borrower
in the operation of its business or for the manufacture, storage, or location of
any of the Collateral.

     “Fiscal Year” means the fiscal year of the Borrower which is the twelve
(12) month accounting period commencing November 1 of each calendar year and
ending the following October 31, subject to change by the Borrower in accordance
with the provisions hereof.

     “GAAP” means generally accepted accounting principles as used by the
Financial Accounting Standards Board and/or the American Institute of Certified
Public Accountants, as in effect from time to time, consistently applied and
maintained throughout the periods indicated.

     “Guaranteed Pension Plan” means any pension plan maintained by the Borrower
or an ERISA Affiliate of the Borrower, or to which the Borrower or an ERISA
Affiliate contributes, some or all of the benefits under which are guaranteed by
the United States Pension Benefit Guaranty Corporation.

     “Guarantors” means collectively all persons which shall have executed and
delivered a guaranty agreement as required by Section 5.19 hereof.

     “Guaranty Agreements” means collectively the Guaranty Agreements executed
from time to time by the Guarantors for the benefit of the Lender.

     “Guaranty Indebtedness” means any obligation, contingent or otherwise, of
any referenced person directly or indirectly guaranteeing any debt or obligation
of any other person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such person: (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
debt or obligation (whether arising by virtue of partnership arrangements, by
agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise, other
than agreements to purchase goods at an arm’s length price in the ordinary
course of business); or (b) entered into for the purpose of assuring in any
other manner the holder of such debt or obligation of the payment thereof or to
protect such holder against loss in respect thereof (in whole or in part) The
term Guaranty Indebtedness shall not include endorsements for collection or
deposit in the ordinary course of business.

     “Hedge” means (a) any and all rate swap transactions, basis swaps, credit
derivative transactions, forward rate transactions, commodity swaps, commodity
options, forward commodity contracts, equity or equity index swaps or options,
bond or bond price or bond index swaps or options or forward bond or forward
bond price or forward bond index transactions, interest rate options, forward
foreign exchange transactions, cap transactions, floor transactions, collar
transactions, currency swap transactions, cross-currency rate swap transactions,
currency options, spot contracts, or any other similar transactions or any
combination of any of the foregoing (including any options to enter into any of
the foregoing) between the Lender or any of its affiliates and the Borrower or
any of its Affiliates, whether or not any such transaction is governed by or
subject to any master agreement, and (b) any and all transactions of any kind
between the Lender and any of its affiliates and the Borrower any of its
Affiliates, and the related confirmations, which are subject to the terms and
conditions of, or governed by, any form of master agreement published by the
International Swaps and Derivatives Association, Inc., any International Foreign
Exchange Master Agreement, or any other master agreement (any such master
agreement, together with any related schedules,

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a “Master Agreement”), including any such obligations or liabilities of the
Borrower under any such Master Agreement.

     “Hedge Exposure Amount” means, as of any day, the amount determined by the
Lender, in accordance with its usual policies, to be the credit exposure
allocated to all Hedges then in effect; provided, that in no event will the
Hedge Exposure Amount be less than $0.00.

     “Indebtedness” means, as to any referenced person (determined without
duplication): (a) indebtedness of such person for borrowed money (whether by
loan or the issuance and sale of debt securities), or for the deferred purchase
or acquisition price of property or services (other than accounts payable
incurred in the ordinary course of business); (b) obligations of such person in
respect of letters of credit or similar instruments issued or accepted by
financial institutions for the account of such person (whether or not such
obligations are contingent); (c) Capital Lease Obligations of such person; (d)
obligations of such person to redeem or otherwise retire equity interests in
such person; (e) as to any contract of a type described in the definition of
“Hedge”, regardless of whether such contract is made with the Lender, after
taking into account the effect of any legally enforceable netting agreement
relating to such contract, (i) for any date on or after the date such contract
has been closed out and termination value determined in accordance therewith,
such termination value, and (ii) for any date prior to the date referenced in
clause (i), the amount determined as the mark-to-market value for such contract,
as determined based upon one or more mid-market or other readily available
quotations provided by any recognized dealer in such contract (which may include
the Lender or any affiliate of the Lender); (f) indebtedness of others of the
type described in clause (a), (b), (c), (d) or (e) above secured by a lien on
any of the property of such person, whether or not the respective obligation so
secured has been assumed by such person; and (g) Guaranty Indebtedness.

     “Intellectual Property” means all of the Borrower’s right, title and
interest, whether now owned or existing or hereafter acquired or arising, in all
of the following property: (a) all domestic and foreign copyrights, copyright
registrations and copyright applications, whether or not registered or filed
with any governmental authority, (b) all domestic and foreign trademarks,
trademark registrations, trademark applications, trade names, service marks,
certification marks, logos and other source business identifiers, whether or not
registered or filed with any governmental authority, and (c) all United States
and foreign patents, and pending and abandoned United States and foreign patent
applications, including, without limitation, the inventions and improvements
described or claimed therein, together with (i) all renewals, reissues,
divisions, continuations, certificates of reexamination, extensions and
continuations-in-part of all of the foregoing, (ii) all present and future
rights of the Borrower under all present and future license agreements relating
to all of the foregoing, whether the Borrower is licensee or licensor
thereunder, (iii) all income, royalties, damages and payments now or hereafter
due and/or payable to the Borrower under all of the foregoing or with respect
thereto, including, without limitation, damages and payments for past, present
or future infringements thereof, (iv) all of the Borrower’s present and future
claims, causes of action and rights to sue for past, present or future
infringements of all of the foregoing, (e) all rights corresponding thereto
throughout the world, (f) all goodwill of the Borrower in connection with the
use of, and symbolized by, any of the foregoing, and (g) all proceeds of all of
the foregoing.

     “Insolvency Proceedings” means, with respect to any referenced person, any
case or proceeding commenced by or against such person, under any provision of
the United States Bankruptcy Code, as amended, or under any other federal or
state bankruptcy or insolvency law, or any assignments for the benefit of
creditors, formal or informal moratoriums, receiverships, compositions or
extensions with some or all creditors with respect to any indebtedness of such
person.

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     “Inventory” shall have the same meaning as provided to such term in the
Uniform Commercial Code - Secured Transactions, Title 9, Commercial Law Article,
Annotated Code of Maryland, as amended, together with all of the Borrower’s
goods, merchandise, materials, raw materials, goods in process, finished goods,
work in progress, bindings or component materials, packaging and shipping
materials and other tangible or intangible personal property, now owned or
hereafter acquired and held for sale or lease or furnished or to be furnished
under contracts of service or which contribute to the finished products or the
sale, promotion, storage and shipment thereof, whether located at facilities
owned or leased by the Borrower, in the course of transport to or from Account
Debtors, used for demonstration, placed on consignment, or held at storage
locations.

     “LC Application” has the meaning given in Subsection 2.1.4(c) hereof.

     “LC Obligations” means, as of any time of determination, the sum of (a) the
aggregate of the Stated Amounts of all Letters of Credit, plus (b) the amount,
if any, of all amounts drawn under the Letters of Credit and not fully
reimbursed to the Lender (either by the making of a Loan for such purpose or
otherwise).

     “Lender Expenses” means the out-of-pocket expenses or costs incurred by the
Lender arising out of, pertaining to, or in any way connected with this
Agreement, any of the other Loan Documents or the Obligations, or any documents
executed in connection herewith or transactions hereunder. The term “Lender
Expenses” shall include, without limitation: (a) the reasonable costs or
expenses required to be paid by the Borrower pursuant to this Agreement or any
of the Loan Document; (b) taxes and insurance premiums advanced or otherwise
paid by the Lender in connection with the Collateral or on behalf of the
Borrower; (c) filing, recording, title insurance, environmental and consulting
fees, audit fees, search fees and other expenses paid or incurred by the Lender
in connection with the Lender’s transactions with the Borrower and incurred
pursuant to the Loan Documents; (d) reasonable costs and expenses incurred by
the Lender in the collection of the Accounts (with or without the institution of
legal action), or to enforce any provision of this Agreement, or in gaining
possession of, maintaining, handling, evaluating, preserving, storing, shipping,
selling, preparing for sale and/or advertising to sell the Collateral or any
other property of the Borrower whether or not a sale is consummated; (e)
reasonable costs and expenses of litigation incurred by the Lender, or any
participant of the Lender in any of the Obligations, in enforcing or defending
this Agreement or any portion hereof or in collecting any of the Obligations;
(f) reasonable attorneys’ fees and expenses incurred by the Lender in obtaining
advice or the services of its attorneys with respect to the structuring,
drafting, negotiating, reviewing, amending, terminating, enforcing or defending
of this Agreement, or any portion hereof or any agreement or matter related
hereto, whether or not litigation is instituted; and (g) reasonable and itemized
travel expenses related to any of the foregoing.

     “Letters of Credit” means collectively letters of credit issued from time
to time by the Lender for the account or benefit of the Borrower.

     “Letter of Credit Sublimit” means $1,500,000.

     “Loan” has the meaning given in Subsection 2.1.1 hereof.

     “Loan Documents” means all agreements, instruments and documents, including
without limitation each document listed as a “Loan Document” on a Closing Index
of even date herewith, together with all other loan agreements (including
without limitation this Agreement), notes (including without limitation the
Note), guarantees, subordination agreements, intercreditor agreements, pledges,
affidavits, powers of attorney, consents, assignments, landlord and mortgage
waivers, collateral assignments, reimbursement agreements,

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contracts, notices, leases, financing statements, mortgages, deeds of trusts,
assignments of rents or contract proceeds, intellectual property security
agreements, pledges, LC Applications, Interest Rate Hedge, and all other written
matter, whether heretofore, now or hereafter executed by or on behalf of the
Borrower or any of the Guarantors in connection with any of the Obligations.

     “Lock Box” has the meaning given that term in Section 3.5 of this
Agreement.

     “Material Adverse Event” means the occurrence of any event, condition, or
omission which could reasonably be expected to have a material adverse effect
upon: (a) the financial condition, results of operations, properties, assets,
liabilities (including, without limitation, tax liabilities, liabilities under
Environmental laws, and ERISA Liabilities), businesses, operations, licenses or
franchises of the Borrower (taken as a whole); (b) the ability of the Borrower
to perform any of the Obligations when and as required by the terms of the Loan
Documents; (c) the rights and remedies of the Lender as provided by the Loan
Documents; or (d) the value, condition, use, or availability of any of the
Collateral or upon any material portion of the Lender’s liens and security
interests securing the Obligations.

     “Maximum Credit Amount” means as of any day (a) $10,000,000 minus (b) the
Hedge Exposure Amount in effect for such day.

     “Multiemployer Plan” means a “multiemployer plan” as defined in Section
4001(a)(3) of ERISA which is maintained for employees of the Borrower, or any
ERISA Affiliate of the Borrower.

     “Note” has the meaning given in Section 2.3 hereof.

     “Obligations” means collectively all of the obligations of the Borrower to
pay to the Lender: (a) sums due to the Lender arising out of or in connection
with the Credit Line or otherwise pursuant to the terms of the Loan Documents;
(b) indemnification obligations owed by the Borrower to the Lender in accordance
with the terms of the Loan Documents; (c) Lender Expenses; (d) overdrafts of the
Borrower upon any accounts with the Lender; (e) payments, duties or obligations
owed to the Lender arising from or with respect to any Hedge; (f) any sums owed
to the Lender arising out of or relating to any Letters of Credit including,
without limitation, all Reimbursement Obligations, and obligations to pay Letter
of Credit fees; (g) all duties of payment and performance owed to the Lender in
connection with any guaranties; (h) all other indebtedness or liability of the
Borrower to the Lender, whether direct or indirect, joint or several, absolute
or contingent, contemplated or not presently contemplated, now existing or
hereafter arising; and (i) any indebtedness or liability which may exist or
arise as a result of any payment made by or for the benefit of the Borrower
being avoided or set aside for any reason including, without limitation, any
payment being avoided as a preference under Sections 547 and 550 of the United
States Bankruptcy Code, as amended, or under any state law governing insolvency
or creditors’ rights.

     “Outstanding Credit Amount” means as of any time of determination, the sum
of (a) the aggregate principal amount of the Loans then outstanding, plus (b)
the amount of the LC Obligations then outstanding.

     “Permitted Liens” means: (a) liens for taxes, assessments, or similar
charges incurred in the ordinary course of business that are not yet due and
payable or which are being contested in compliance with the provisions of
Section 5.8 hereof; (b) liens in favor of the Lender; (c) any existing liens
specifically described on Schedule 1.1(a) hereof; (d) any lien on specifically
allocated money or securities to secure payments under workmen’s compensation,
unemployment insurance, social security and other similar laws, or to secure the
performance of bids, tenders or contracts (other than for the repayment of
borrowed money) or to secure

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statutory obligations or appeal bonds, or to secure indemnity, performance or
other similar bonds in the ordinary course of business; (e) purchase money
security interests in Equipment (and security interests in Equipment securing
the refinancing of Indebtedness previously secured by a purchase money security
interest therein) not to exceed in aggregate amount outstanding at any one time
the sum of One Million Dollars ($1,000,000), provided that such purchase money
security interests do not attach to any to any assets other than the specific
item(s) of Equipment acquired with the proceeds of the loan secured by such
purchase money security interests and the proceeds thereof; (f) interests of
lessors under Capital Leases, (g) liens on and security interests in property
which is not part of the Collateral; (h) liens of carriers, warehousemen,
mechanics, materialmen and landlords arising in the ordinary course of business
for sums not overdue or sums being diligently contested in good faith by
appropriate procedures and for which adequate reserves have been set aside; and
(i) subsequently arising liens which are expressly approved in advance of the
creation of any such liens by the Lender in writing.

     “Prime Rate” means a fluctuating annual rate of interest equal to the
greater of: (i) that rate announced from time to time by the Lender as its
“prime rate;” or (ii) the rate obtained by adding one percent (1%) to the
average rate, rounded to the nearest one-tenth of one percent, for three month
maturity dealer placed commercial paper for the week most recently reported in
the Federal Reserve Statistical Release No. H.15(519) entitled “Selected
Interest Rates” or any succeeding publication.

     “Receivables” means all of the Accounts, Instruments, Documents, General
Intangibles, Chattel Paper, notes, notes receivable, drafts, acceptances, and
choses in action, of the Borrower, now existing or hereafter created or
acquired, and all proceeds and products thereof, and all rights thereto, arising
from the sale or lease of or the providing of Inventory, Goods, or services by
the Borrower to Account Debtors, as well as all other rights, contingent or
non-contingent, of any kind of the Borrower to receive payment, benefit, or
credit from any person.

     “Records” means correspondence, memoranda, tapes, discs, papers, books and
other documents, or transcribed information of any type, whether expressed in
ordinary, computer or machine language.

     “Regulated Substance” means any substance which, pursuant to any
Environmental law, is identified as a hazardous substance (or other term having
similar import) or is otherwise subject to special requirements in connection
with the use, storage, transportation, disposition or other handling thereof.

     “Reimbursement Obligation” means the Borrower’s obligation to reimburse the
Lender for each amount paid by the Lender pursuant to any drawing under any
Letter of Credit.

     “Release” means a “release” as defined in Section 101(22) of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
now or hereafter amended.

     “Required EBITDA means, with respect to the Borrower, for each period
indicated below, the corresponding amount specified below as the Required
EBITDA:

          Period   Required EBITDA
Quarter ending April 30, 2003
  $ 1,000,000  
Quarter ending July 31, 2003
  $ 2,000,000  
Quarter ending October 31, 2003
  $ 3,000,000  
Quarter ending January 31, 2004
  $ 5,000,000  

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     “Restricted Payment” means collectively: (a) any redemption, purchase or
other acquisition for value, direct or indirect, by the Borrower of any equity
interest in the Borrower now or hereafter outstanding (other than repurchases of
shares held by employees or directors pursuant to the terms of any restricted
share plan); or (b) any payment made by the Borrower to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
equity interests in the Borrower now or hereafter outstanding.

     “Solvent” means, as to any referenced person, that as of the date of
determination both: (a) (i) the then fair saleable value of the property of such
person is greater than the total amount of liabilities (including contingent
liabilities) of such person and is not less than the amount that will be
required to pay the probable liabilities on such person’s then existing debts as
they become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to such person; (ii) such person’s
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (iii) such person does not intend to
incur, or believe (nor should it reasonably believe) that it will incur, debts
beyond its ability to pay such debts as they become due; and (b) such person is
“solvent” within the meaning given that term and similar terms under applicable
laws relating to fraudulent transfers and conveyances. For purposes of this
definition, the amount of any contingent liability at any time shall be computed
as the amount that, in light of all the facts and circumstances existing at such
time, represents the amount that can reasonably be expected to become an actual
or matured liability

     “Stated Amount” means, with respect to any Letter of Credit, the maximum
amount available to be drawn thereunder, without regard to whether any of the
conditions required for the making of a drawing thereunder are satisfied.

     “Subsidiary” means, with respect to any person, any other person of which
securities or other ownership interests representing an aggregate of fifty
percent (50%) of more of the equity or the ordinary voting power are, at the
time as of which any determination is being made, owned or controlled directly,
or indirectly through one or more intermediaries, by such person.

     “Termination Date” means February 28, 2004.

     “Termination Event” means: (a) a “Reportable Event” described in Section
4043 of ERISA and the regulations issued thereunder, but not including any such
event for which the 30-day notice requirement has been waived by applicable
regulation; (b) the withdrawal of the Borrower or an ERISA Affiliate of the
Borrower from a Guaranteed Pension Plan during a plan year in which it was a
“substantial employer” as defined in Section 4001(a)(2) of ERISA; (c) the filing
of a notice of intent to terminate a Guaranteed Pension Plan or the treatment of
a Guaranteed Pension Plan amendment as a termination under Section 4041 of
ERISA; (d) the institution of proceedings to terminate a Guaranteed Pension Plan
by the Pension Benefit Guaranty Corporation; (e) the withdrawal or partial
withdrawal of the Borrower or an ERISA Affiliate of the Borrower from a
Multiemployer Plan; or (f) any other event or condition which might reasonably
be expected to constitute grounds under ERISA for the termination of, or the
appointment of a trustee to administer, any Guaranteed Pension Plan.

     Section 1.2 Accounting Terms; Rules of Construction. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and compliance with the
financial covenants set forth herein shall be determined, in accordance with
GAAP. The singular shall include the plural and the plural may refer to only the
singular; the use of any gender shall be applicable to all genders; the
headings, captions and any table of contents or index contained herein are for

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the purpose of convenience only and are not a part of this Agreement. Except
where the context clearly requires otherwise, when used in this Agreement, the
words “herein,” “hereof” and “hereunder” and words of similar import shall refer
to this Agreement as a whole and not only to any particular provision of this
Agreement; and the words “section,” “subsection,” “attachment,” “schedule” and
“exhibit” shall refer to sections and subsections of, and attachments, schedules
and exhibits to, this Agreement; the words “include,” “included,” “including,”
“includes” and words of similar import shall be deemed to be followed by the
words “without limitation;” the word “law” means and includes any ordinance,
statute, rule, regulation, order, injunction, writ or decree of any government
or political subdivision or agency or instrumentality thereof, or any court or
similar entity established by any thereof; the word “person” shall include any
natural person, corporation, partnership, limited liability company, trust,
unincorporated association, governmental authority, or other entity of any kind;
and in each instance in which a provision of this Agreement refers to an
“agreement” of a person, such reference shall mean any applicable covenant,
promise, representation, warranty or other undertaking.

ARTICLE 2 - THE CREDIT LINE; LETTERS OF CREDIT; HEDGES

     Section 2.1. Credit Line.

          2.1.1 Loans. Upon request of the Borrower from time to time during the
period from and including the Closing Date until the Termination Date or any
earlier date on which the Credit Line shall be terminated in accordance with
this Agreement, subject to the terms and conditions set forth herein (including
the conditions precedent set forth in Section 2.10), the Lender shall make loans
or advances to the Borrower from time to time (each such loan or advance is
referred to herein as a “Loan”) in an aggregate principal amount of up to
$10,000,000 outstanding at any one time; provided, however that in no event
shall the Lender have any obligation to make any Loan if, after giving effect
thereto, the Outstanding Credit Amount shall exceed the lesser of (i) the
Borrowing Base then in effect and (ii) the Maximum Credit Amount. Without
limiting any other provision of this Agreement, the Lender is hereby irrevocably
and unconditionally authorized, upon any drawing under any Letter of Credit not
otherwise immediately reimbursed by the Borrower, to make a Loan to the Borrower
in the amount of such drawing and apply the proceeds of such Loan directly to
the Reimbursement Obligation owing in respect of such drawing; in the event that
the conditions for the making of a Loan hereunder are not then satisfied, the
Lender shall nonetheless have the right, but not the obligation, to make any
such Loan for such purpose.

          2.1.2 Use of Proceeds of Loans. The Borrower shall use the proceeds of
the Loans solely for the Borrower’s general corporate purposes.

          2.1.3 Repayment of Principal of Loans; Mandatory Prepayment . All
amounts outstanding under the Loans, including the principal thereof, all
accrued unpaid interest thereon and any and all applicable fees, charges and
other amounts owing by the Borrower under this Agreement, shall be absolutely
due and payable on the Termination Date or any earlier date on which the Credit
Line is terminated in accordance with this Agreement. In addition, on any date
on which the Outstanding Credit Amount exceeds the lesser of (i) the Maximum
Credit Amount and (ii) the Borrowing Base then in effect, the Borrower shall
make a mandatory prepayment of Loans in a principal amount equal to such excess.

          2.1.4 Letters of Credit. From time to time until the Termination Date,
the Borrower may request, and the Lender, upon any such request but subject to
the terms and conditions set forth herein, shall provide, standby or commercial
Letters of Credit for the account of the Borrower in amounts up to the limits

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set forth in this part and otherwise in accordance with the terms and conditions
set forth in this part and subject to the further conditions precedent set forth
in Section 2.10 hereof:

               (a) Limitation on Amount of Letters of Credit. Each Letter of
Credit shall be issued in the amount specified by the Borrower in the LC
Application (defined below) therefor submitted by the Borrower; provided, that
(i) no Letter of Credit shall be issued in an amount which would cause the
aggregate amount of the LC Obligations to exceed the Letter of Credit Sublimit,
and (ii) no Letter of Credit shall be issued in an amount which would cause the
Outstanding Credit Amount, after giving effect to the requested Letter of
Credit, to exceed the Maximum Credit Amount.

               (b) Term. Unless otherwise specifically and in writing agreed by
the Lender, no Letter of Credit shall have a term in excess of 12 months, and no
Letter of Credit shall be renewed or extended unless the conditions precedent to
issuance of Letters of Credit are satisfied with respect to such Letter of
Credit, as renewed.

               (c) LC Application. Without limiting any other conditions to the
Lender’s agreement to issue any Letter of Credit hereunder, the Lender shall
have no obligation to issue any Letter of Credit except upon the delivery by the
Borrower of an Application for Letter of Credit with respect thereto in form and
substance satisfactory to the Lender, with all applicable information completed
in accordance with terms approved by the Lender, executed by the Borrower (each
such Application for Letter of Credit is referred to herein as an “LC
Application”; “LC Application” shall include each Application for Letter of
Credit made with respect to those Letters of Credit issued before the execution
and delivery of this Agreement). Each Letter of Credit issued shall be in a form
satisfactory to the Lender and the terms and conditions thereof shall be as
indicated in the applicable LC Application and any other documentation executed
by the Borrower and delivered to and approved by the Lender in connection with
the issuance of such Letter of Credit. Without limiting any obligations of the
Borrower set forth in any LC Application, the Borrower hereby promises to pay to
the Lender, upon demand, the full amount of all Reimbursement Obligations not
otherwise paid with the proceeds of a Loan made pursuant to subsection 2.1.1
hereof, together with interest thereon until paid in full at the floating annual
rate equal to the Default Rate obtained from time to time, unless a different
rate is specified in the applicable LC Application. The Borrower hereby waives
presentment, notice of dishonor and protest with respect to each amount which
becomes owing by the Borrower to the Lender in connection with any Letter of
Credit.

               (d) Letter of Credit Fees. Upon the issuance (and each renewal or
extension, as applicable) of each Letter of Credit, the Lender shall have earned
a non-refundable Letter of Credit fee, calculated on an annual basis (using a
360-day year applied to the actual number of calendar days to elapse in the
applicable period) for the period beginning on and including the date of
issuance thereof (and each date of extension, as applicable) and ending on and
including the expiration date thereof, in an amount obtained by applying the
Letter of Credit Fee Rate to the Stated Amount of the Letter of Credit as of
such date of issuance (or renewal or extension, as the case may be). The “Letter
of Credit Fee Rate” is (i) 1.25% per annum, except as may otherwise be agreed in
writing by the lender and the Borrower with respect to any Letter of Credit. The
Letter of Credit fees shall be payable by the Borrower, with respect to each
Letter of Credit, in advance on each issuance, renewal or extension date.

               (e) Payment Obligations Unconditional. The payment obligations of
the Borrower under this subsection 2.1.4 shall be unconditional and irrevocable
and shall be paid strictly in accordance with this Agreement and the applicable
LC Applications regardless of the circumstances. Without limiting the

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foregoing, none of the following circumstances shall reduce, discharge, stay,
defer or impair in any other manner the payment obligations of the Borrowers
under this part:

                           (i) any lack of validity or enforceability of any
Letter of Credit, any LC Application, this Agreement or any related document;

                           (ii) any amendment, waiver, release or termination of
or any consent to departure from the terms of any Letter of Credit, any LC
Application, this Agreement or any related document;

                           (iii) any extension of time or other modification or
the terms and conditions governing the making and honoring of any drawing, or
any extension of time or other modification of the terms and conditions for any
other act to be performed under the terms of any Letter of Credit;

                           (iv) the existence of any claim, set-off, defense or
other right which any Borrower may have at any time against any beneficiary
under, or any transferee of, any Letter of Credit (or any person for whom any
such beneficiary or transferee may hold a Letter of Credit or any interest
therein), or the Lender or any other person, regardless of whether such claim,
set-off, defense or other right is held or asserted in connection with this
Agreement or any unrelated transaction;

                           (v) the surrender or impairment of any security for
the Obligations;

                           (vi) any demand, draft, certification, statement or
any other document presented under any Letter of Credit being forged or
otherwise fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect;

                           (vii) payment by the Lender under any Letter of
Credit against presentation of a draft, certificate or other documentation which
does not comply with the terms of such Letter of Credit, except to the extent
that such payment constitutes gross negligence or willful misconduct of the
Lender; or

                           (viii) any other circumstance or occurrence
whatsoever, whether or not similar to any of the foregoing, except to the extent
resulting principally from the gross negligence or willful misconduct of the
Lender.

               (f) Subrogation to and Assignment of Beneficiary’s Rights. In
each instance in which the Lender honors any drawing under any Letter of Credit,
the Lender shall be subrogated to all of the rights of the beneficiary and all
of the rights of any other person having any beneficial interest in the amounts
drawn under such Letter of Credit (whether held against the Borrower or any
other person or against any monies or property) and, immediately upon payment to
such person of amounts drawn under such Letter of Credit, the Lender shall be
entitled to an assignment of such rights, in form and substance satisfactory to
the Lender. Such rights of subrogation shall be in addition to all other rights
of the Lender under this Agreement, the related loan documents and applicable
law. The Borrower shall have the obligation to do all things and take all such
action, at the Borrower’s sole expense, as may be required from time to time to
confirm or establish the Lender’s right of subrogation, as aforesaid.

               (g) Issuance of Letters of Credit Subject to Applicable Law. The
Lender shall have no obligation to issue any Letter of Credit if, in the
Lender’s good faith determination, such issuance (i) would violate any
applicable law or any other guideline or directive (whether or not having the
force of law)

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issued by any governmental authority having supervisory or other regulatory
authority over the Lender, if it is the Lender’s usual practice to comply with
guidelines or directives issued by such governmental authority, or (ii) would
subject the Lender to any cost or to any reduction in the amounts or rate of
return to be received by the Lender with respect to the Credit Line (other than
costs or reductions which would be applicable under the laws, guidelines and
directives applicable to the Lender or Letters of Credit issued hereunder and in
effect on the Effective Date) unless the Lender shall have received from the
Borrower an amount deemed by the Lender to be sufficient to fully compensate the
Lender for any such cost or reduction in amounts or rate of return to be
received by the Lender.

          2.1.5 Hedges . From time to time, the Borrower may request, and the
Lender, upon any such request but subject to the terms and conditions set forth
herein, and also in the Lender’s sole and absolute discretion, may enter into
any Hedge with the Borrower upon terms and conditions mutually satisfactory to
the Lender and the Borrower. Without limiting the Lender’s discretion in any
such matter, the parties anticipate that no Hedge will be made which shall cause
the Hedge Exposure Amount to exceed $1,000,000.

          2.1.6 Deposit of Cash Collateral For LC Obligations and Hedge Exposure
Amount Upon Termination of Credit Line. If, on or after the Termination Date or
on any other date on which the Credit Line is otherwise terminated in accordance
with this Agreement, any Letter of Credit remains outstanding or any Hedge
remains in effect, the Borrower shall, without demand or the taking of any other
action by the Lender, deposit with the Lender, in Dollars and in immediately
available funds, the amount which is equal to the sum of (i) 101% of the
aggregate of the Stated Amounts of such Letters of Credit, plus (ii) the Hedge
Exposure Amount (the sum of (i) and (ii) as of any applicable determination date
on or after the termination of the Credit Line shall be referred to as the “Cash
Collateral Requirement”), which funds shall be held by the Lender in a
restricted collateral account maintained by the Lender in its own name, for the
purpose of providing the Lender security for and a source for reimbursement for
drawings and acceptances paid under such Letters of Credit and security for the
payment to the Lender of amounts payable by the Borrower to the Lender under
such Hedges (the amount on deposit in the aforesaid restricted collateral
account from time to time shall be referred to herein as the “Cash Collateral
Balance”). From time to time, upon the expiration or surrender of any such
outstanding Letter of Credit or the termination of such Hedge(s), after
receiving payment of the Reimbursement Obligations in respect of such Letters of
Credit and, if any, the accrued unpaid interest thereon, and, as applicable,
amounts payable to the Lender in connection with the termination of such
Hedge(s), the Lender shall promptly remit to the Borrower, from the remaining
balance of such collateral account, the amount equal to the excess of the Cash
Collateral Balance over the Cash Collateral Requirement, provided that no Event
of Default shall have occurred and be continuing. The aforesaid collateral
account shall be an interest bearing account of a type then generally offered by
the Lender in the ordinary course of its business as a depository institution
and shall be mutually satisfactory to the Lender and the Borrower, provided that
if such account is a time deposit account, the term or terms for which the rate
or rates applicable to such account is fixed shall end on or before the
expiration date(s) of the Letter(s) of Credit in respect of which such account
is established. Upon any drawing on any of such Letters of Credit or upon any
amount becoming due and payable to the Lender under any Hedge, the Lender shall
be, and hereby irrevocably is, authorized to apply the amounts in such
collateral account against the obligation becoming due in connection with such
drawing or such Hedge, as the case may be; provided, however, that prior to such
application, the amounts contained in the applicable collateral account shall be
applied to pay any applicable early withdrawal fees, breakage costs or similar
charges incurred upon the liquidation of such collateral account. The amount of
any deposit required pursuant to this Section shall be considered to constitute
a principal obligation then due and payable for purposes of determining the
amount owing by Borrower

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hereunder, including any such determination made in connection with an action
brought to enforce the payment of the Obligations.

     Section 2.2 Interest on the Loans. Interest on the Loans shall accrue on
the outstanding principal balance of each Loan at a floating and fluctuating per
annum rate which for each day shall be equal to the rate obtained by adding the
Applicable Margin then in effect to the Prime Rate then in effect; provided,
that for each day on which any Event of Default has occurred and is continuing,
the applicable interest rate shall be the Default Rate in effect for such day.
All computations of interest payable under this Agreement and the Note shall be
made on the basis of a three hundred sixty (360) day year, for actual days
elapsed. Interest shall continue to accrue on each Loan as provided herein until
full payment thereof. Interest on each outstanding Loan shall be due and payable
on each of the following dates: (i) on the first day of each calendar month
until the earlier of the Termination Date or the full repayment of such Loan,
(ii) on the Termination Date and on any other date on which the principal of
such Loan becomes due and payable (whether by acceleration or otherwise), and
(iii) after the Termination Date or any other date on which the principal of
such Loan becomes due and payable, upon demand until all Obligations are paid in
full. Interest accrued upon the Loans and the Reimbursement Obligations shall be
computed on outstanding balances as reflected on the Lender’s books and records.

     Section 2.3 Note. The Borrower shall execute and deliver to the Lender the
Borrower’s Revolving Credit Note made to the order of the Lender in the stated
principal amount of $10,000,000.00, in substantially the form of Exhibit A
attached hereto (as the same may be extended, renewed, or otherwise modified or
replaced from time to time, the “Note”), which instrument shall evidence the
Borrower’s obligation to pay to the Lender all amounts outstanding from time to
time under the Loans, including principal, interest, charges and fees. The date
and amounts of each Loan made by the Lender and each payment made by the
Borrower shall be recorded by the Lender on the books and records of the Lender,
but any failure to record such dates or amounts shall not relieve the Borrower
of its duties and obligations under the Loan Documents.

     Section 2.4 Optional Prepayment. The Borrower may make optional prepayments
of the Loans from time to time, without penalty or premium. Amounts prepaid may
be readvanced subject to the terms and conditions of this Agreement.

     Section 2.5 Commitment Fee. On the Closing Date, the Borrower shall have
paid to the Lender the full amount of the commitment fee described in the
commitment letter dated January 23, 2003 issued by the Lender to the Borrower,
in the amount of $20,000, which shall be non-refundable. Such commitment fee has
been fully earned by the Lender.

     Section 2.6 Reinstatement of Avoided Payments. If any amount received by
the Lender on account of the Obligations is required to be returned or paid to
any Borrower or any other person pursuant to any insolvency or bankruptcy law or
for any other reason (each such amount, together with any interest required to
be paid by the Lender thereon, is referred to as an “Avoided Payment”), then as
of the date the Lender makes such return or other payment, (i) the Borrower’s
agreements and obligations under the Loan Documents shall be reinstated,
(ii) the amount of the Avoided Payment shall be reinstated as principal bearing
interest at the Default Rate, and all such amounts shall be immediately due and
payable (without presentment, demand, notice of default or protest, all of which
are hereby waived by the Borrower). The provisions of this Section shall survive
the termination of this Agreement.

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     Section 2.7 Obligations Of Borrower Unconditional. The payment of the
Obligations and the performance under all of the Borrower’s agreements under the
Loan Documents shall be the absolute and unconditional joint and several duty
and obligation of the Borrower, and shall be independent of any defense or any
rights of set-off, recoupment or counterclaim which any Borrower might otherwise
have against the Lender, and the Borrower shall pay absolutely all payments of
principal, interest, fees and other amounts to be paid on account of the
Obligations, free of any deduction and without abatement, diminution or set-off.

     Section 2.8. Capital Adequacy. If the Lender determines at any time that
the adoption or implementation of any Capital Adequacy Requirement, or the
compliance therewith by the Lender or any corporation or other person
controlling the Lender, affects the amount of capital to be maintained by the
Lender or any person controlling the Lender as a result of its obligations
hereunder, or reduces the effective rate of return on the Lender’s or such
controlling person’s capital to a level below that which the Lender or such
controlling person would have achieved but for such Capital Adequacy Requirement
as a consequence of its obligations hereunder (taking into consideration the
Lender’s or such controlling person’s policies with respect to capital
adequacy), then after submission by the Lender to the Borrower of a written
request therefor and a statement of the basis for such determination, the
Borrower shall pay to the Lender such additional amounts as will compensate the
Lender or the controlling person for the cost of maintaining the increased
capital or for the reduction in the rate of return on capital, together with
interest thereon at the highest rate of interest then in effect under the Note
from the date the Lender requests such additional amounts until those amounts
are paid in full.

     Section 2.9. Advancements. If the Borrower fails to perform any of its
agreements or covenants contained in this Agreement or if the Borrower fails to
protect or preserve the Collateral or the status and priority of the security
interest of the Lender in the Collateral, the Lender may make advances to
perform the same on behalf of the Borrower to protect or preserve the Collateral
or the status and priority of the security interest of the Lender in the
Collateral, and all sums so advanced shall immediately upon advance become
secured by the security interests granted in this Agreement, and shall become
part of the principal amount owed to the Lender with interest to be assessed at
the applicable rate thereon and subject to the terms and provisions of this
Agreement and all of the Loan Documents. The Borrower shall repay on demand all
sums so advanced on the Borrower’s behalf, plus all expenses or costs incurred
by the Lender, including reasonable legal fees, with interest thereon at the
highest rate authorized in the Note. The provisions of this Section shall not be
construed to prevent the institution of the rights and remedies of the Lender
upon the occurrence of an Event of Default. The authorization contained in this
Section is not intended to impose any duty or obligation on the Lender to
perform any action or make any advancement on behalf of the Borrower and is
intended to be for the sole benefit and protection of the Lender.

     Section 2.10 Conditions Precedent to Each Loan or Letter of Credit. Each
Loan (including any Loan to be made on the Closing date) and each Letter of
Credit (including any renewal or extension of any Letter of Credit) shall be
subject to the satisfaction of all of the following conditions precedent:

          (a) The Lender shall have received a request for such Loan or Letter
of Credit containing such information as the Lender may require and the Borrower
shall have executed and delivered the Note, the LC Application or other
applicable instrument which shall evidence the Borrower’s obligations with
respect to such Loan or Letter of Credit;

          (b) After giving effect to such Loan or Letter of Credit, the limits
set forth in Section 2.1 as to the maximum amounts of Loans or Letters of Credit
hereunder shall not have been breached;

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          (c) The Borrower shall have submitted to the Lender all Borrowing Base
Certificates, financial statements and other reports or information then
required to have been submitted by the Borrower under this Agreement;

          (d) Each matter represented or warranted by the Borrower under
Article 4 of this Agreement shall be as so represented or warranted, in all
material respects;

          (e) It shall not be unlawful for the Lender to provide the requested
extension of credit or otherwise to perform the agreements of the Lender
hereunder; and it shall not be unlawful for the Borrower or any Guarantor to
perform the agreements of the Borrower or such Guarantor under the Loan
Documents;

          (f) No Material Adverse Event shall have occurred and be continuing;
and

          (g) No Event of Default or Default shall have occurred and be
continuing.

ARTICLE 3 - SECURITY FOR THE OBLIGATIONS

     The payment, performance and satisfaction of the Obligations shall be
secured by the following assurances of payment and security.

     Section 3.1. Grant Of Security Interest. In order to secure the repayment
and performance of all Obligations, both currently existing and arising in the
future, the Borrower grants to the Lender an immediate and continuing security
interest in and to the Collateral. The Borrower further pledges, hypothecates
and grants to the Lender a continuing security interest in and to, all amounts
that may be owing at any time and from time to time by the Lender to the
Borrower in any capacity, including but not limited to any balance or share
belonging to the Borrower of any deposit or other account with the Lender, which
security interest shall be independent of and in addition to any right of
set-off to which the Lender may be entitled. The Lender shall have the right to
require the Borrower to pledge and grant a security interest to the Lender in
such additional security as the Lender may request from time to time in the
event that the Lender deems itself to be insecure.

     Section 3.2 Proceeds And Products. The Lender’s security interests provided
for herein shall apply to the proceeds, including but not limited to insurance
proceeds, and the products of the Collateral.

     Section 3.3. Priority Of Security Interests. Each of the security
interests, pledges, and liens granted by the Borrower to the Lender pursuant to
any of the Loan Documents shall be perfected first priority security interests,
pledges, and liens, except for Permitted Liens which by operation of law or the
written consent of the Lender constitute prior encumbrances.

     Section 3.4. Future Advances. The security interests, liens, and pledges
granted by the Borrower to the Lender pursuant to the Loan Documents shall
secure all current and all future advances made by the Lender to the Borrower,
or for the account or benefit of the Borrower, and the Lender may advance or
readvance upon repayment by the Borrower all or any portion of the sums loaned
to the Borrower and any such advance or readvance shall be fully secured by the
security interests, liens, and pledges created by the Loan Documents.

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     Section 3.5. Receivable Collections. The Borrower shall deposit into the
Commercial Account, immediately upon receipt thereof, all cash, checks, drafts,
and other instruments for the payment of money, properly endorsed, which have
been received by the Borrower in full or partial payment of any Receivable;
provided, the Borrower shall, if requested in writing by the Lender at any time
following the occurrence of an Event of Default and while the same shall be
continuing, deposit or cause to be deposited into the Collection Account all of
such items of payment immediately upon receipt thereof. Prior to any such
deposit by the Borrower into either the Commercial Account or the Collection
Account, as the case may be, the Borrower will not commingle such items of
payment with any of its other funds or property but will hold them separate and
apart. Upon the written request of the Lender the Borrower shall instruct all of
its Account Debtors to make all payments on the Borrower’s Receivables to a post
office box in which the Lender alone shall have sole access (“Lock Box”). If
payment of the Borrower’s Receivables is paid into the Lock Box the Lender
shall, on each Business Day, withdraw the items of payment from the Lock Box and
deposit them into the Commercial Account; provided, that if an Event of Default
shall have occurred and be continuing, the Lender shall have the right to cause
items or payment received in the Lock Box to be deposited into the Collection
Account, and the Lender, from time to time, shall apply all of the collected
funds held in the Collection Account toward payment of all or any part of the
Obligations, whether or not then due, in such order of application as the Lender
may determine. The Lender shall have no obligation to provide any provisional or
other credit for any deposited funds which are not collected funds free of any
rights of return.

     Section 3.6. Collection Of Receivables By Lender. The Lender shall have the
right during any continuing Event of Default to send notices of assignment or
notices of the Lender’s security interest to any and all Account Debtors or any
third party holding or otherwise concerned with any of the Collateral, and
thereafter the Lender shall have the sole right to collect the Receivables and
to take possession of the Collateral and Records relating thereto. All of the
Lender’s collection expenses shall be charged to the Borrower’s accounts and
added to the Obligations. During any continuing Event of Default the Lender
shall have the right to receive, indorse, assign and deliver in the Lender’s
name or the Borrower’s name any and all checks, drafts and other instruments for
the payment of money relating to the Receivables, and the Borrower hereby waives
notice of presentment, protest and non-payment of any instrument so endorsed. If
the Lender is collecting the Receivables, the Borrower hereby constitutes the
Lender or the Lender’s designee as its attorney-in-fact with power with respect
to the Receivables: (a) to indorse its name upon all notes, acceptances, checks,
drafts, money orders or other evidences of payment of Collateral that may come
into the Lender’s possession; (b) to sign its name on any invoices relating to
any of the Receivables, drafts against Account Debtors, assignments and
verifications of Receivables and notices to Account Debtors; (c) to send
verifications of Receivables to any Account Debtor; (d) to notify the Post
Office to change the address for delivery of mail addressed to it to such
address as the Lender may designate; (e) to receive and open all mail addressed
to it and to remove therefrom all cash, checks, drafts and other payments of
money; and (f) to do all other acts and things necessary, proper, or convenient
to carry out the terms and conditions and purposes and intent of this Agreement.
All acts of such attorney or designee are hereby ratified and approved, and such
attorney or designee shall not be liable for any acts of omission or commission,
nor for any error of judgment or mistake of fact or law in accordance with this
Agreement, with the exception of acts arising from willful misconduct of the
Lender or gross negligence of the Lender. The power of attorney hereby granted,
being coupled with an interest, is irrevocable while any of the Obligations
remain unpaid. The Lender, without notice to or consent from the Borrower, may
sue upon or otherwise collect, extend the time of payment of or compromise or
settle for cash, credit or otherwise upon any terms, any of the Receivables or
any securities, instruments or insurances applicable thereto or release the
obligor thereon. The Lender is authorized and empowered to accept the return of
the goods represented by any of the Receivables, without notice to or consent by
the Borrower, all without discharging or in any way affecting the liability of
the Borrower under the Loan Documents. The Lender does not, by anything herein
or in any assignment or

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otherwise, assume any of the obligations of the Borrower under any contract or
agreement assigned to the Lender, and the Lender shall not be responsible in any
way for the performance by the Borrower of any of the terms and conditions
thereof.

     Section 3.7. Maintenance Of Principal Accounts. As further security for the
Obligations, the Borrower shall maintain its principal operating accounts with
the Lender.

     Section 3.8. Guaranty Agreements; Security Agreements. Each of the
Guarantors shall execute and deliver a Guaranty Agreement which shall guarantee,
among other things, the absolute full payment and performance by the Borrower of
the Obligations, and each Guarantor shall grant to the Lender a security
interest in such Guarantor’s assets pursuant to a security agreement meeting the
requirements of Section 5.19 hereof.

     Section 3.9. [Intentionally omitted.]

     Section 3.10. Further Assurances. The Borrower will, at its expense,
promptly execute and deliver all further instruments and documents and take all
further action that may be necessary or desirable or that the Lender may request
from time to time in order: (a) to perfect and protect the security interests to
be created hereby; (b) to enable the Lender to exercise and enforce its rights
and remedies hereunder in respect of the Collateral; or (c) otherwise to effect
the purposes of this Agreement, including, without limitation: (i) upon the
Borrower’s acquisition thereof, delivering to the Lender each item of Chattel
Paper of the Borrower, (ii) if any Receivables are evidenced by an Instrument
delivering and pledging to the Lender such Instrument duly endorsed and
accompanied by executed instruments of transfer or assignment, all in form and
substance satisfactory to the Lender, (iii) executing and filing such financing
statements or amendments thereto as may be necessary or desirable or that the
Lender may request in order to perfect and preserve the security interests
purported to be created hereby, (iv) upon the acquisition after the date hereof
by the Borrower of any Equipment covered by a certificate of title or ownership,
cause the Lender to be listed as the lienholder on such certificate of title and
within sixty (60) days of the acquisition thereof deliver evidence of the same
to the Lender, and (v) upon the acquisition after the date hereof of any asset
for which an assignment, pledge, mortgage, or other document is required to be
filed in order to grant or perfect a lien therein for the benefit of the Lender,
execute and deliver to the Lender such assignment, pledge, mortgage, or other
Instrument within thirty (30) days of the acquisition thereof. If the Borrower
fails to execute any instrument or document described above within five
(5) Business Days of being requested to do so by the Lender, the Borrower hereby
appoints the Lender or any officer of the Lender as the Borrower’s attorney in
fact for purposes of executing such instruments or documents in the Borrower’s
name, place and stead, which power of attorney shall be considered as coupled
with an interest and irrevocable.

ARTICLE 4 - REPRESENTATIONS AND WARRANTIES

     To induce the Lender to establish the Credit Line and to enter into this
Agreement, the Borrower represents and warrants to the Lender the matters set
forth in this Article 4, as of the date of Closing and as of each date on which
any extension of credit is provided under the Credit Line. The Borrower
acknowledges the Lender’s justifiable right to rely upon these representations
and warranties.

     Section 4.1. Accuracy Of Information. All information submitted by or on
behalf of the Borrower or any of the Guarantors in connection with any of the
Obligations is true, accurate and complete in

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all material respects as of the date made and contains no knowingly false,
incomplete or misleading statements.

     Section 4.2. No Litigation. Except as specifically disclosed on Schedule
4.2 hereof, there are no actions, suits, investigations, or proceedings pending
or, to the knowledge of the Borrower, threatened against the Borrower or the
assets of the Borrower which could reasonably be expected to represent or result
in a Material and Adverse Event.

     Section 4.3. No Liability Or Adverse Change. The Borrower has no direct or
contingent material liability known to the Borrower and not previously disclosed
to the Lender, nor does the Borrower know of or have any reason to expect the
occurrence of any Material Adverse Event.

     Section 4.4. Title To Collateral. The Borrower has good and marketable
title to the Collateral, subject to Permitted Liens. The liens granted by the
Borrower to the Lender in the Collateral will have the priority required by the
Loan Documents.

     Section 4.5. Authority; Approvals And Consents.

          Section 4.5.1. Authority. The Borrower has the legal authority to
enter into each of the Loan Documents and to perform, observe and comply with
all of the Borrower’s agreements and obligations thereunder, including, without
limitation the borrowings contemplated hereby.

          Section 4.5.2. Approvals. The execution and delivery by the Borrower
of each of the Loan Documents, the performance by the Borrower of all of its
agreements and obligations under the Loan Documents, and the borrowings
contemplated by this Agreement, have been duly authorized by all necessary
action on the part of the Borrower and do not and will not (i) contravene any
provision of the organizational documents of the Borrower; (ii) conflict with,
or result in a breach of the terms, conditions or provisions of, or constitute a
default under, or result in the creation of any lien upon any of the property of
the Borrower under any agreement, trust deed, indenture, mortgage or other
instrument to which the Borrower is a party or by which the Borrower or any
property of the Borrower is bound or affected (except for liens created for the
benefit of the Lender); (iii) violate or contravene any provision of any law,
rule or regulation (including, without limitation, Regulations U of the Board of
Governors of the Federal Reserve System) or any order, ruling or interpretation
thereunder or any decree, order of judgment of any court or governmental or
regulatory authority, bureau, agency or official (all as from time to time in
effect and applicable to the Borrower); or (iv) require any waivers, consents or
approvals by any of the creditors of the Borrower which have not been obtained.

          Section 4.5.3. Consents. Other than filings and recordings required to
perfect the security interests and liens granted hereunder, no approval,
consent, order, authorization or license by, or giving notice to, or taking any
other action with respect to, any governmental or regulatory authority or agency
is required for the execution and delivery by the Borrower of the Loan Documents
or for the performance by the Borrower of any of the agreements and obligations
thereunder.

     Section 4.6. Binding Effect Of Documents, Etc. Each of the Loan Documents
which the Borrower has executed and delivered as contemplated and required to be
executed and delivered as of the date of Closing by this Agreement, has been
duly executed and delivered by the Borrower and is the legal, valid and binding
obligation of the Borrower and is enforceable against the Borrower in accordance
with all stated terms, subject in each case to the effect of any applicable
bankruptcy, insolvency, reorganization,

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moratorium or similar law affect creditors’ rights generally and subject to the
effect of general principles of equity (regardless of whether considered in a
proceeding in equity or at law).

     Section 4.7. Other Names. The Borrower has not changed its name, been the
surviving entity in a merger, or changed the location of its chief executive
office within the last twelve (12) years, except as is disclosed on Schedule 4.7
attached hereto. The Borrower does not trade under any trade or fictitious names
except as set forth on Schedule 4.7.

     Section 4.8. No Events Of Default. There is not currently existing any
action, event, or condition which presently constitutes a Default or an Event of
Default

     Section 4.9. Guaranty Agreements. If any Guaranty Agreement is required to
be in effect pursuant to Section 5.19 hereof, such Guaranty Agreements are the
valid and binding obligation of the Guarantors and are fully enforceable against
the Guarantors in accordance with all stated terms, subject in each case to the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium or
similar law affect creditors’ rights generally and subject to the effect of
general principles of equity (regardless of whether considered in a proceeding
in equity or at law).

     Section 4.10. Taxes. The Borrower: (a) has filed all federal, state and
local tax returns and other reports which the Borrower is required by law to
file prior to the date hereof and which are material to the conduct of the
business of the Borrower; (b) has paid or caused to be paid all taxes,
assessments and other governmental charges that are due and payable prior to the
date hereof unless being contested in compliance with the provisions of
Section 5.8 hereof; and (c) has made adequate provision for the payment of such
taxes, assessments or other charges accruing but not yet payable. The Borrower
has no knowledge of any deficiency or additional assessment in connection with
any taxes, assessments or charges not provided for on the Borrower’s books of
account or reflected in the Borrower’s financial statements.

     Section 4.11. Compliance With Laws. The Borrower has complied in all
material respects with all applicable laws, including, but not limited to, all
laws with respect to: (a) all restrictions, specifications, or other
requirements pertaining to products that it sells or to the services it
performs; (b) the conduct of its business; and (c) the use, maintenance, and
operation of the real and personal properties owned or leased by it in the
conduct of its business, except where noncompliance could not reasonably be
expected to be or result in a Material and Adverse Effect.

     Section 4.12. Chief Place Of Business. The chief executive office, chief
place of business, and the place where the Borrower keeps its Records concerning
the Collateral are set forth on Schedule 4.12 attached hereto, including any
supplements or amendments to such schedule which shall have become effective.
Any supplement to any such schedule shall become effective to modify such
schedule on the 30th day after the Lender has received such schedule, except in
any instance in which the Lender consents in writing to an earlier effective
date.

     Section 4.13. Location Of Inventory. The Inventory is and shall be kept
solely at the Borrower’s locations set forth on Schedule 4.13 attached hereto,
and shall not be moved, sold or otherwise disposed of without prior notification
to the Lender, except for sales of Inventory to Account Debtors in the ordinary
course of the Borrower’s business. None of the Inventory is stored with or in
the possession of any bailee, warehouseman, or other similar person, except as
specifically disclosed on Schedule 4.13 attached hereto, including any
supplements or amendments to such schedule which shall have become effective.
Any supplement to any such schedule shall become effective to modify such
schedule on the 30th day after the

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Lender has received such schedule, except in any instance in which the Lender
consents in writing to an earlier effective date.

     Section 4.14. No Subsidiaries. The Borrower has no Subsidiaries, except as
disclosed on Schedule 4.14 attached hereto, including any supplements or
amendments to such schedule which shall have become effective. Any supplement to
any such schedule shall become effective to modify such schedule on the 30th day
after the Lender has received such schedule, except in any instance in which the
Lender consents in writing to an earlier effective date.

     Section 4.15. No Labor Agreements. The Borrower is not subject to any
collective bargaining agreement or any agreement, contract, decree or order
requiring it to recognize, deal with or employ any persons organized as a
collective bargaining unit or other form of organized labor, except as disclosed
on Schedule 4.15 attached hereto, including any supplements or amendments to
such schedule which shall have become effective. Any supplement to any such
schedule shall become effective to modify such schedule on the 30th day after
the Lender has received such schedule, except in any instance in which the
Lender consents in writing to an earlier effective date.

     Section 4.16. Eligible Accounts. Each Account which the Borrower contends
should be included in the calculation of the Borrowing Base from time to time
will be an Eligible Account. At the time each Eligible Account is listed on or
included in (whether singularly or in the aggregate with other Eligible
Accounts) a schedule or report delivered to the Lender to be included in the
calculation of the Borrowing Base, all of such Eligible Accounts will have been
generated in compliance with the Borrower’s normal credit policies as
historically in effect (or as modified from time to time on prior written notice
of the Lender), or on such other reasonable terms disclosed in writing to the
Lender in advance of the creation of such Accounts, and such terms shall be
expressly set forth on the face of all invoices.

     Section 4.17. Eligible Inventory. Each item of Inventory which the Borrower
from time to time contends should be included in the calculation of the
Borrowing Base shall be Eligible Inventory.

     Section 4.18. Approvals. The Borrower possesses all franchises, approvals,
licenses, contracts, merchandising agreements, merchandising contracts and
governmental approvals, registrations and exemptions necessary for it lawfully
to conduct its business and operation as presently conducted and as anticipated
to be conducted after Closing, except where any such failure could not
reasonably be expected to be or result in a Material Adverse Event.

     Section 4.19. Financial Statements. The financial statements of the
Borrower which have been delivered to the Lender prior to the date of this
Agreement, fairly present the financial condition of the Borrower as of the
respective dates thereof and the results and operations of the Borrower for the
fiscal periods ended on such respective dates, all in accordance with GAAP. The
Borrower has no direct or contingent liability or obligation known to the
Borrower and not disclosed on the financial statements delivered to the Lender
prior to the date hereof or pursuant to Section 5.12 hereof or disclosed on
Schedule 4.19 hereto, including any supplements or amendments to such schedule
which shall have become effective. Any supplement to any such schedule shall
become effective to modify such schedule on the 30th day after the Lender has
received such schedule, except in any instance in which the Lender consents in
writing to an earlier effective date. There has been no material adverse change
in the financial condition of the Borrower since the financial statements of the
Borrower dated October 31, 2002, and the Borrower does not know of or have any
reason to expect any material adverse change in the assets, liabilities,
properties, business, or condition, financial or otherwise, of the Borrower.

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     Section 4.20. Solvency. The Borrower (taken as a whole) will be Solvent
both before and after Closing, after giving full effect to the Obligations and
all of the Borrower’s liabilities.

     Section 4.21. Fair Labor Standards Act. The Borrower has complied in all
material respects with the Fair Labor Standards Act of 1938, as amended, except
to the extent any noncompliance would not represent a Material Adverse Event.

     Section 4.22. Employee Benefit Plans.

          Section 4.22.1. Compliance. The Borrower and its ERISA Affiliates are
in compliance in all material respects with all applicable provisions of ERISA
and the regulations thereunder and of the Code with respect to all Employee
Benefit Plans, except to the extent any noncompliance would not represent a
Material Adverse Event.

          Section 4.22.2. Absence Of Termination Event. No Termination Event has
occurred or is reasonably expected to occur with respect to any Guaranteed
Pension Plan.

          Section 4.22.3. Actuarial Value. The actuarial present value (as
defined in Section 4001 of ERISA) of all benefit commitments (as defined in
Section 4001 of ERISA) under each Guaranteed Pension Plan does not exceed the
assets of that plan.

          Section 4.22.4. [Intentionally Omitted.]

     Section 4.23. Environmental Conditions. Except as disclosed in Schedule
4.23 attached hereto, and except to the extent the inaccuracy of any of the
following statements (which, to the best of the Borrower’s knowledge are
accurate in all material respects) could not reasonably be expected to be or
result in any Material Adverse Event:

          Section 4.23.1. Existence Of Permits. The Borrower has obtained all
legally required governmental permits, licenses, variances, clearances and all
other necessary approvals required under the Environmental laws for the
operation and conduct of its business as currently conducted (including, but not
limited to, any handling, transporting, treating, storage, disposal, discharge,
or Release of Regulated Substances, if any, into, on or from the environment
(including, but not limited to, any air, water, or soil) from all applicable
federal, state, and local governmental authorities including, but not limited
to, any and all appropriate Federal or State environmental protection agencies
and other county or city departments (collectively, the “EPA Permits”).

          Section 4.23.2. Compliance With Permits. Each issued EPA Permit is in
full force and effect, has not expired or been suspended, denied or revoked, and
is not under challenge by any person. The Borrower is in compliance in all
material aspects with each issued EPA Permit.

          Section 4.23.3. No Litigation. Neither the Borrower nor any of the
Facilities owned or leased by the Borrower (the “Borrower Facilities”) is the
subject of any private or governmental litigation, or to the knowledge of the
Borrower, threatened litigation, lien or judicial or administrative notice,
order or action under Environmental laws relating to Regulated Substances or
liabilities under Environmental laws.

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          Section 4.23.4. No Releases. To the knowledge of the Borrower, there
has been no Release into, on or from any of the Borrower Facilities and no
Regulated Substances are located on or have been treated, stored, processed,
disposed of, handled or transported to or from, any of the Borrower Facilities
in violation of any Environmental laws. To the knowledge of the Borrower, no
Regulated Substances have been treated, stored, disposed, Released, located,
discharged, possessed, managed, processed, or otherwise handled in the operation
or conduct of the Borrower’s business in violation of any Environmental laws.
The Borrower has complied in all material respects with all Environmental laws
affecting the Borrower Facilities and the Borrower’s businesses.

          Section 4.23.5. Transportation. The Borrower does not transport, in
any manner, any Regulated Substances except in the ordinary course of the
Borrower’s business in material compliance with all Environmental laws.

          Section 4.23.6. No Violation Notices. The Borrower has not received
any notices that any Regulated Substances transported from any Borrower Facility
have been disposed of in violation of any Environmental laws.

          Section 4.23.7. No Notice Of Violations. The Borrower has not received
written notice of any circumstances which would be likely to result in any
obligation of the Borrower under any Environmental law to investigate or
remediate any Regulated Substances in, on or under any of the Borrower
Facilities.

ARTICLE 5 - AFFIRMATIVE COVENANTS

     The Borrower agrees during the term of this Agreement and while any
Obligations are outstanding and unpaid to do and perform each of the acts and
promises set forth in this Article 6:

     Section 5.1. Payment. All Obligations shall be paid in full when and as
due.

     Section 5.2. Insurance. The Borrower shall obtain and maintain such
insurance coverages as are reasonable, customary and prudent for businesses
engaged in activities similar to the business activities of the Borrower.
Without limitation to the foregoing, the Borrower shall maintain for all of its
assets and properties, whether real, personal, or mixed and including but not
limited to the Collateral, fire and extended coverage casualty insurance in
amounts satisfactory to the Lender and sufficient to prevent any co-insurance
liability (which amount shall be the full insurable value of the assets and
properties insured unless the Lender in writing agrees to a lesser amount),
naming the Lender as sole loss payee with respect to the Collateral, with
insurance companies and upon policy forms containing standard mortgagee clauses
which are acceptable to and approved by the Lender. The Borrower shall submit to
the Lender the originals of the casualty insurance policies and paid receipts
evidencing payment of the premiums due on the same. The casualty insurance
policies shall be endorsed so as to make them noncancellable unless thirty
(30) days prior notice of cancellation is provided to the Lender. The proceeds
of any insured loss shall be applied by the Lender to the Obligations, in such
order of application as determined by the Lender, unless the Lender in its sole
discretion permits the use thereof to repair or replace damaged or destroyed
Collateral.

     Section 5.3. Books And Records. The Borrower shall notify the Lender in
writing if the Borrower modifies or changes its method of accounting in any
material respect or enters into, modifies, or terminates any agreement presently
existing, or at any time hereafter entered into with any third party accounting
firm for the preparation and/or storage of the Borrower’s accounting records.

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     Section 5.4. Collection Of Accounts; Sale Of Inventory. The Borrower shall
only collect its Receivables and sell its Inventory in the ordinary course of
the Borrower’s business.

     Section 5.5. Notice Of Litigation And Proceedings. The Borrower shall give
prompt notice to the Lender of any action, suit, citation, violation, direction,
notice or proceeding before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, affecting the
Borrower, or the assets or properties thereof, which, if determined adversely to
the Borrower: (a) could require the Borrower to pay over more than One Million
Dollars ($1,000,000) or deliver assets the value of which exceeds that sum
(except to the extent covered by insurance); or (b) could reasonably be expected
to be a Material Adverse Event.

     Section 5.6. Payment Of Liabilities To Third Persons. The Borrower shall
pay when and as due, or within applicable grace periods, all liabilities due to
third persons, except when the amount thereof is being contested in good faith
by appropriate proceedings and with adequate reserves therefor being set aside
by the Borrower.

     Section 5.7. Notice Of Change Of Business Location. The Borrower shall
notify the Lender thirty (30) days in advance of: (a) any change in the location
of its existing offices or place of business; (b) the establishment of any new,
or the discontinuation of any existing, place of business; and (c) any change in
or addition to the locations at which the Collateral is kept. Prior to moving
any Collateral to any location not owned by the Borrower (other than deliveries
to Account Debtors of sold or leased items), the Borrower shall obtain and
deliver to the Lender an agreement, in form and substance acceptable to the
Lender, pursuant to which the owner of such location shall: (a) subordinate any
rights which it may have, or thereafter may obtain, in any of the Collateral to
the rights and security interests of the Lender in the Collateral; and (b) allow
the Lender access to the Collateral in order to remove the Collateral from such
location. In the event any Collateral is stored with a warehousemen or other
bailee, and the Collateral is evidenced by a negotiable document of title, the
Borrower shall immediately deliver the document of title to the Lender.

     Section 5.8. Payment Of Taxes. The Borrower shall pay or cause to be paid
when and as due all taxes, assessments and charges or levies imposed upon it or
on any of its property or which it is required to withhold and pay over to the
taxing authority or which it must pay on its income, except where contested in
good faith, by appropriate proceedings and at its own cost and expense;
provided, however, that the Borrower shall not be deemed to be contesting in
good faith by appropriate proceedings unless: (a) such proceedings operate to
prevent the taxing authority from attempting to collect the taxes, assessments
or charges; (b) the Collateral is not subject to sale, forfeiture or loss during
such proceedings; (c)the Borrower’s contest does not subject the Lender to any
claim by the taxing authority or any other person; (d) the Borrower establishes
appropriate reserves, satisfactory to the Lender in its sole discretion, for the
payment of all taxes, assessments, charges, levies, legal fees, court costs and
other expenses for which the Borrower would be liable if unsuccessful in the
contest; (e) the Borrower prosecutes the contest continuously to its final
conclusion; and (f) at the conclusion of the proceedings (including all
appeals), the Borrower promptly pays all amounts determined to be payable,
including but not limited to all taxes, assessments, charges, levies, legal fees
and court costs.

     Section 5.9. Inspections Of Records. The Borrower shall permit
representatives of the Lender access to the Borrower’s places of business, at
intervals and at such times as determined by the Lender, to inspect the
Collateral and to review and make extracts from or photocopies of the books and
records of the Borrower. Unless the Lender in good faith deems that there is an
imminent and material threat to the

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Collateral or that it is otherwise appropriate to conduct such inspection or
review without prior notice, the Lender will provide the Borrower with at least
three days’ telephonic notice of such inspection or review and will conduct the
inspection or review during normal business hours or at such other time as may
be mutually agreeable to the Borrower and the Lender. The Borrower agrees to pay
to the Lender the reasonable audit fees and other expenses incurred by the
Lender in connection with such inspections; provided, however, that unless an
Event of Default shall have occurred and be continuing, the Borrower shall have
no obligation to pay for more than one audit or inspection in any single twelve
month period.

     Section 5.10. Notice Of Events Affecting Collateral; Compromise Of
Receivables; Returned Or Repossessed Goods. The Borrower shall promptly report
to the Lender: (a) any reclamation, return or repossession of goods constituting
Collateral; (b) all claims or disputes asserted by any Account Debtor or other
obligor involving in excess of Two Hundred Fifty Thousand Dollars ($250,000);
and (c) all matters materially affecting the value, enforceability or
collectibility of any of the Collateral. Without the Lender’s consent, the
Borrower shall not compromise or adjust any of the Receivables which have been
included by the Borrower in the determination of the Borrowing Base, extend the
time for payment thereof, or grant any additional discounts, allowances or
credits thereon; provided, however, that (x) if no Event of Default shall have
occurred and be continuing, the Borrower may, with respect to any Receivable,
take any of the actions described in the foregoing provisions of this sentence
if the exclusion of such Receivable from the Borrowing Base would not cause the
Outstanding Credit Amount to exceed the limits set forth in this Agreement, and
(y) the Borrower may grant, in the ordinary course of business, to any party
obligated on any of the Receivables, any rebate, refund, or adjustment to which
such party may be lawfully entitled, and may accept, in connection therewith,
the return of goods, sale, or lease of which shall have given rise to such
Receivables. If any goods, the sale of which has resulted in Receivables
included in determining the Borrowing Base, are returned by the Account Debtor
for credit or repossessed by the Borrower, the Borrower shall receive and hold
such goods as trustee for the Lender and as additional security for the payment
of the Obligations, and make disposition thereof as required by the Lender.

     Section 5.11. Documentation Of Collateral. The Borrower agrees that upon
the request of the Lender, the Borrower will provide the Lender with: (a)
written statements or schedules identifying and describing the Collateral, and
all additions, substitutions, and replacements thereof, in such detail as the
Lender may reasonably require; (b) copies of Account Debtors’ invoices or
billing statements; (c) evidence of shipment or delivery of goods or merchandise
to or performance of services for Account Debtors; and (d) such other schedules
and information as the Lender reasonably may require. The items to be provided
under this Section shall be in form satisfactory to the Lender in its reasonable
discretion and are to be executed and delivered to the Lender from time to time
solely for the Lender’s convenience in maintaining Records of the Collateral.
The failure of the Borrower to give any of such items to the Lender shall not
affect, terminate, modify or otherwise limit the Lender’s security interests in
the Collateral. The Lender shall have the right, at any time and from time to
time, to verify the eligibility of the Borrower’s Receivables, including, after
the occurrence and during the continuance of an Event of Default, obtaining
verification of the Receivables directly from Account Debtors.

     Section 5.12. Reporting Requirements. The Borrower shall submit the
following items to the Lender:

          Section 5.12.1. Inventory Reports. On or before the 21st day of each
calendar month, reports of Inventory on such reporting forms as are required by
the Lender from time to time, certified to be accurate and correct by the chief
financial officer of the Borrower, which reports shall be compiled in a manner
acceptable to the Lender.

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          Section 5.12.2. Receivables And Accounts Payable Reports. On or before
the 21st day of each calendar month: (i) a Receivables report and aging; and
(ii) an accounts payable report and aging, both in form reasonably acceptable to
the Lender and containing such information as the Lender may specify from time
to time. Such reports shall be accompanied by such reports, copies of sales
journals, remittance reports, and other documentation as the Lender may
reasonably request from time to time.

          Section 5.12.3. Borrowing Base Report. Once each calendar month, or
more frequently if requested by the Lender, a collateral and loan report in such
form and context as may be specified by the Lender from time to time.

          Section 5.12.4. Quarterly Financial Statements. As soon as available
and in any event within forty-five (45) calendar days after the end of each of
the first three quarters of each Fiscal Year, the Borrower shall submit to the
Lender a consolidated balance sheet of the Borrower and its Subsidiaries as of
the end of such quarter, a consolidated statement of income and retained
earnings of the Borrower and its Subsidiaries for the period commencing at the
end of the previous Fiscal Year and ending with the end of such quarter, and a
consolidated statement of cash flow of the Borrower and its Subsidiaries for the
portion of the Fiscal Year ended with the last day of such quarter, all in
reasonable detail and stating in comparative form the respective consolidated
figures for the corresponding date and period in the previous Fiscal Year and
all prepared in accordance with GAAP. and certified by the chief financial
officer of the Borrower (subject to year-end adjustments). If the Lender so
requires, the Borrower shall provide the Lender with consolidating schedules
with respect to the financial statements described in this subsection.

          Section 5.12.5. Annual Financial Statements. As soon as available and
in any event within ninety (90) calendar days after the end of each Fiscal Year
of the Borrower, the Borrower shall submit to the Lender a consolidated balance
sheet of the Borrower and its Subsidiaries as of the end of such Fiscal Year and
a consolidated statement of income and retained earnings of the Borrower and its
Subsidiaries for such Fiscal Year, and a consolidated statement of cash flow of
the Borrower and its Subsidiaries for such Fiscal Year, all in reasonable detail
and stating in comparative form the respective consolidated and consolidating
figures for the corresponding date and period in the prior Fiscal Year and all
prepared in accordance with GAAP and accompanied by an audit opinion by
independent accountants selected by the Borrower and reasonably acceptable to
the Lender. If the Lender so requires, the Borrower shall provide the Lender
with consolidating schedules with respect to the financial statements described
in this subsection.

          Section 5.12.6. SEC And Other Filings. Within five (5) days after the
sending, filing, or receipt thereof, copies of: (a) all financial statements,
reports, notices and proxy statements that the Borrower sends to its
shareholders; and (b) all regular, periodic and special reports, registration
statements and prospectuses that the Borrower renders to or files with the
Securities And Exchange Commission or any national securities exchange,
including without limitation each of the Forms 10-K and 10-Q filed by the
Borrower with the Securities and Exchange Commission.

          Section 5.12.7. Management Letters. Promptly upon receipt thereof, the
Borrower shall submit to the Lender copies of any management letter or similar
report submitted to the Borrower or any Subsidiary by independent certified
public accountants in connection with the examination of the financial
statements of the Borrower or any Subsidiary made by such accountants.

          Section 5.12.8. Certificates Of No Default. Within thirty
(30) calendar days after the end of each of the quarters of each Fiscal Year of
the Borrower, the Borrower shall submit to the Lender certificates

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of the chief financial officers of the Borrower certifying that: (i) there
exists no Default or Event of Default, or if a Default or an Event of Default
exists, specifying the nature thereof, the period of existence thereof and what
action the Borrower proposes to take with respect thereto; (ii) no Material
Adverse Event has occurred since the previous certificate was sent to the Lender
by the Borrower or, if any such change has occurred, specifying the nature
thereof and what action the Borrower has taken or proposes to take with respect
thereto; (iii) all insurance premiums then due have been paid; (iv) all taxes
then due have been paid or, for those taxes which have not been paid, a
statement of the taxes not paid and a description of the Borrower’s rationale
therefor; (v) no material litigation, investigation or proceedings, or
injunction, writ or restraining order is pending or threatened or, if any such
litigation, investigation, proceeding, injunction, writ or order not previously
disclosed to the Lender in writing is pending, describing the nature thereof;
and (vi) stating whether or not the Guarantors and the Borrower are in
compliance with the covenants in this Agreement, including a calculation of the
financial covenants in the schedule attached to such officers’ certificates in
form satisfactory to the Lender.

          Section 5.12.9. Reports To Other Creditors. Promptly after the
furnishing thereof, the Borrower shall submit to the Lender copies of any
statement or report furnished to any other person pursuant to the terms of any
indenture, loan, or credit or similar agreement and not otherwise required to be
furnished to the Lender pursuant to any other provisions of this Agreement.

          Section 5.12.10. Management Changes. The Borrower shall notify the
Lender promptly of any changes in the personnel holding the positions of either
Chief Executive Officer or Chief Financial Officer of the Borrower.

          Section 5.12.11. General Information. In addition to the items set
forth in subparagraphs 5.12.1 through 5.12.10 above, the Borrower agrees to
submit to the Lender such other information respecting the condition or
operations, financial or otherwise, of the Borrower as the Lender may reasonably
request from time to time.

     Section 5.13. Employee Benefit Plans And Guaranteed Pension Plans. The
Borrower will, and will cause each of its ERISA Affiliates to: (a) comply with
all requirements imposed by ERISA and the Code, applicable from time to time to
any of its Guaranteed Pension Plans or Employee Benefit Plans; (b) make full
payment when due of all amounts which, under the provisions of Employee Benefit
Plans or under applicable law, are required to be paid as contributions thereto;
(c) not permit to exist any material accumulated funding deficiency, whether or
not waived; (d) file on a timely basis all reports, notices and other filings
required by any governmental agency with respect to any of its Employee Benefits
Plans; (e) make any payments to Multiemployer Plans required to be made under
any agreement relating to such Multiemployer Plans, or under any law pertaining
thereto; (f) not amend or otherwise alter any Guaranteed Pension Plan if the
effect would be to cause the actuarial present value of all benefit commitments
under any Guaranteed Pension Plan to be less than the current value of the
assets of such Guaranteed Pension Plan allocable to such benefit commitments;
(g) furnish to all participants, beneficiaries and employees under any of the
Employee Benefit Plans, within the periods prescribed by law, all reports,
notices and other information to which they are entitled under applicable law;
and (h) take no action which would cause any of the Employee Benefit Plans to
fail to meet any qualification requirement imposed by the Code except to the
extent any such failure to so act or comply would not be a Material Adverse
Event. As used in this Section, the term “accumulated funding deficiency” has
the meaning specified in Section 302 of ERISA and Section 412 of the Code, and
the terms “actuarial present value”, “benefit commitments” and “current value”
have the meaning specified in Section 4001 of ERISA.

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     Section 5.14. Maintenance Of Fixed Assets. The Borrower shall maintain and
preserve all of its fixed assets useful and necessary to the operation of its
business, taken as a whole, in a state of good and efficient working order
subject to ordinary wear and tear.

     Section 5.15. Consignments. The Borrower shall advise the Lender of all
persons o whom it has consigned or assigned Inventory for sale or distribution,
and the location of the Inventory subject to any such consignment or assignment
arrangement. The Borrower shall: (a) duly and properly file financing statements
in all applicable places of public record with respect to each of such
consignments or assignments, which filings shall comply with Section 9-114 of
the 1972 version of the Uniform Commercial Code and with all other requirements
necessary for the Borrower to protect its interests therein under applicable
laws; (b) supply the Lender with prior evidence of such filing and with a
financing statement, judgment and tax lien search in the name of the consignee
or assignee in all applicable places of public record; and (c) provide written
notification to any holder of any security interests in the inventory of the
consignee or assignee who has filed a financing statement before the Borrower
files its financing statement, which notice shall state that the Borrower
expects to deliver goods on consignment, shall describe the goods by item or
type and which notification shall be received by any such holder within five
(5) years before the consignee receives possession of the goods and at five
(5) year intervals thereafter.

     Section 5.16. Federal Assignment Of Claims Act. The Borrower shall notify
the Lender if any Receivable in excess of $250,000 arises out of a contract with
the United States of America, or any department, agency or instrumentality
thereof, and upon the Lender’s request, shall execute all documents or
instruments and shall take all steps or actions required by the Lender so that
all monies due or to become due under such contract are assigned to the Lender
and notice given thereof to the United States in accordance with the
requirements of the Federal Assignment of Claims Act, as amended.

     Section 5.17. Compliance With Laws. Except to the extent described in
Schedule 4.23 attached hereto, the Borrower shall comply in all material
respects with all applicable laws, including, but not limited to, all laws with
respect to: (a) all restrictions, specifications, or other requirements
pertaining to products that it sells or to the services it performs; (b) the
conduct of its business; (c) the use, maintenance, and operation of the real and
personal properties owned or leased by it in the conduct of its business; and
(d) the obtaining and maintenance of all necessary licenses, franchises, permits
and governmental approvals, registrations and exemptions necessary to engage in
its business. Without limiting the generality of the preceding provisions of
this Section, except to the extent described in Schedule 4.23 attached hereto,
the Borrower shall: (i) comply in all material respects with, and ensure such
compliance by all tenants and subtenants, if any, with, all applicable
Environmental laws and obtain and comply in all material respects with and
maintain, and ensure that all tenants and subtenants obtain and comply with and
maintain, any and all licenses, approvals, notifications, registrations or
permits required by applicable Environmental laws; (ii) conduct and complete all
investigations, studies, sampling and testing, and all remedial, removal and
other actions required under Environmental laws, and promptly comply with all
lawful orders and directives of any governmental authority regarding
Environmental laws; and (iii) defend, indemnify and hold harmless the Lender,
and its employees, agents, officers and directors, from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, costs and expenses
of whatever kind or nature known or unknown, contingent or otherwise, arising
out of, or in any way relating to the violation of, noncompliance with or
liability under any Environmental laws applicable to the operations of the
Borrower, or any orders, requirements or demands of governmental authorities
related thereto, including, without limitation, reasonable attorney’s and
consultant’s fees, investigation and laboratory fees, response costs, court
costs and litigation expenses, except to the extent that any of the foregoing
directly result from the gross negligence or willful misconduct of the Lender or
its employees, agents, officers or directors. The Borrower agrees to

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promptly notify the Lender of any Release of a Regulated Substance on, to or
from any Borrower Facility in violation of any Environmental laws or of any
notice received by the Borrower that the Borrower or any Borrower Facility is
not in compliance with any Environmental laws. Notwithstanding the foregoing,
non-compliance by the Borrower with any applicable law shall not constitute a
breach of this Section constituting an Event of Default unless such
non-compliance could reasonably be expected to be or result in a Material
adverse Event; provided, however, that the Borrower shall provide
indemnification in accordance with this Section and Section 8.2 hereof with
respect to any non-compliance by the Borrower with applicable law, regardless of
whether such non-compliance constitutes an Event of Default.

     Section 5.18. Fair Labor Standards Act. The Borrower shall comply in all
material respects with the Fair Labor Standards Act of 1938, as amended, unless
such failure could not reasonably be expected to be or result in a Material
Adverse Event.

     Section 5.19 Subsidiary Guaranties and Security Agreements. The Borrower
shall cause each of its Subsidiaries to guarantee the payment of the Obligations
and the performance of the Borrower’s agreements hereunder in accordance with a
guaranty agreement in the form and substance satisfactory to the Lender in its
reasonable discretion, and to grant to the Lender a security interest in the
assets of such Subsidiary in accordance with a security agreement in form and
substance satisfactory to the Lender in its reasonable discretion (the scope of
the security interest shall be substantially similar to that granted hereunder).

ARTICLE 6 - NEGATIVE COVENANTS

     The Borrower covenants while any Obligations are outstanding and unpaid not
to do or to permit to be done or to occur any of the acts or occurrences set
forth in this Article 6 without the prior written authorization of the Lender.

     Section 6.1. No Change Of Name, Merger, Etc. The Borrower shall not change
its name unless it shall have given the Lender not less than thirty (30) days
prior written notice thereof and shall have executed, delivered and, where
applicable caused to be filed for recording such documents as the Lender may
reasonably require to preserve the perfection and priority of the Lender’s
security interest in the Collateral. The Borrower shall not enter into any
merger or consolidation provided that (a) Martek Biosciences Corporation may
merge or consolidate with Martek Biosciences Boulder Corporation, (b) a
Subsidiary may merge into or consolidate with the Borrower if the Borrower is
the surviving entity, and (c) the Borrower may merge into or consolidate with
another person if the Borrower is the surviving entity and, as of the time of
such merger (immediately before giving effect thereto), an acquisition by the
Borrower of substantially all of the assets or stock of such person could have
been made in compliance with the provisions of Section 6.8(b) hereof, and no
Default or Event of Default shall have occurred and be continuing at the time of
thereof after giving effect thereto.

     Section 6.2. No Sale Or Transfer Of Collateral; Restriction Against
Transfer of Other Assets. The Borrower shall not sell, transfer, lease or
otherwise dispose of all or any part of the Collateral, except that (a)
Inventory may be sold to Account Debtors and worn out or obsolete Equipment may
be disposed of in the ordinary course of the Borrower’s business, and (b) the
Borrower may sublease space and share Equipment with tenants provided that the
annual rent for any such arrangement shall not exceed $2,000,000 and shall be at
market rates. The Borrower shall not transfer or dispose of any of its other
assets constituting any material license, permit or other property the transfer
or disposition of which would impair, in any material respect, the

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marketability of any material portion of the Collateral or otherwise impair, in
any material respect, the Borrower’s ability to conduct its business
substantially as the same shall be conducted immediately before giving effect to
such transfer or disposition.

     Section 6.3. No Encumbrance Of Collateral. The Borrower shall not mortgage,
pledge, grant or permit to exist a security interest in or lien upon any of the
Collateral, now owned or hereafter acquired, except for Permitted Liens.

     Section 6.4. No Indebtedness. The Borrower shall not incur, create, assume,
or permit to exist any Indebtedness except: (a) the Obligations; (b)
Indebtedness secured by Permitted Liens (including refinancings thereof); (c)
Indebtedness owed to Subsidiaries; and (d) additional Indebtedness in an amount
not to exceed One Million Dollars ($1,000,000.00) outstanding at any one time.

     Section 6.5. Restricted Payments. The Borrower shall not make any
Restricted Payments in any Fiscal Year in excess of One Million Dollars
($1,000,000.00) in any Fiscal Year.

     Section 6.6. Transactions With Affiliates. The Borrower shall not make any
contract for the purchase of any items from any Affiliate or the performance of
any services (including employment services) by any Affiliate, unless such
contract is on terms which fairly represent generally available terms to be
obtained in transactions of a similar nature with independent third persons.

     Section 6.7. Sale-Leasebacks. The Borrower shall not enter into any
sale-leaseback transactions.

     Section 6.8. No Acquisition Of Equity In Or Assets Of Third Persons. (a)
The Borrower shall not make any investment in any person, except (i) the
Borrower may invest in cash, government and marketable investment securities,
and other cash equivalents, (ii) the Borrower may acquire and own investments
(including debt obligations) received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in the
ordinary course of business, (iii) the Borrower may make loans and advances to
employees provided that the total amount of such loans at any time outstanding
shall not exceed $100,000.00, (iv) the Borrower may make any acquisition
permitted under Section 6.8(b) below, (v) Martek Biosciences Corporation may
invest in Martek Biosciences Boulder Corporation (and vice versa), (vi) the
Borrower may make capital contributions and loans to Subsidiaries, and (vii) the
Borrower may hold other investments not set forth in clauses (i) through
(vi) above in an aggregate amount not to exceed One Million Dollars
($1,000,000.00) in any Fiscal Year.

          (b) The Borrower will not make any acquisition of all or substantially
all of the stock or assets of any person unless (i) the aggregate cash
consideration paid or to be paid by the Borrower in connection with all
acquisitions in any Fiscal Year shall not exceed Two Million Dollars
($2,000,000.00) in any Fiscal Year, and (ii) no Default or Event of Default
shall have occurred and be continuing or exist immediately following such
acquisition.

     Section 6.9. No Assignment. The Borrower shall not assign or attempt to
assign its rights under this Agreement.

     Section 6.10. No Alteration Of Business. The Borrower shall not amend or
change materially its line of business.

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     Section 6.11. Unpermitted Uses Of Loan Proceeds. The Borrower shall not use
any part of the proceeds of any extension of credit hereunder for any purpose
which constitutes a violation of, or is inconsistent with, regulations of the
Board of Governors of the Federal Reserve System, including without limitation,
the purchase or carrying of (or refinancing of indebtedness originally incurred
to purchase or carry) margin securities.

     Section 6.12. [Intentionally Omitted.] .

     Section 6.13. Changes In Fiscal Year. The Borrower shall not change its
Fiscal Year unless it shall have given the Lender not less than 30 days prior
written notice of such change.

     Section 6.14. Limitation On Issuance Of Equity Interests. The Borrower
shall not issue or sell any equity interest in the Borrower that, by its terms
or by the terms of any security into which it is convertible or exchangeable,
is, or upon the happening of an event or passage of time would be: (a)
convertible or exchangeable into Indebtedness of the Borrower; or (b) required
to be redeemed or repurchased, including at the option of the holder, in whole
or in part, or has, or upon the happening of an event or passage of time would
have, a redemption or similar payment due.

     Section 6.15 Required EBITDA. As of the last day of each quarter of each
Fiscal Year, the Borrower shall not permit the EBITDA of the Borrower for such
quarter to be less than Required EBITDA for such period.

     Section 6.16 Minimum Required Adjusted Quick Ratio. As of the last day of
each quarter of each Fiscal Year, the Borrower shall not permit the Adjusted
Quick Ratio of the Borrower to be less than 1.50.

ARTICLE 7 – EVENTS OF DEFAULT; REMEDIES

     Section 7.1 Events of Default. The occurrence of any of the following
events shall constitute an event of default (each an “Event of Default”).

          (a) Any failure by the Borrower to pay any amount of principal of the
Loans when the same becomes due; or any failure by the Borrower to pay any other
amount constituting Obligations with three Business Days after the same shall
have become due;

          (b) Any violation by the Borrower of any of the covenants or
agreements contained in Article 6 hereof;

          (c) Any failure of any representation or warranty made by the Borrower
or by the Guarantors to be true in any material respect, as of the date made;

          (d) Any breach of or default by the Borrower or any Guarantor under
the terms, covenants, and conditions set forth in any other Loan Document, which
remains uncured following the expiration of any applicable cure period;

          (e) Any breach of or default under the terms, covenants, or conditions
of any agreement, loan, guaranty, or other transaction of the Borrower or any of
the Guarantors with the Lender, which remains uncured or unwaived following the
expiration of any applicable cure period;

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          (f) The Borrower shall suffer one or more final judgments for the
payment of money in an aggregate amount in excess of One Million Dollars
($1,000,000.00) (other than amounts covered by insurance) and shall not
discharge the same within a period of thirty (30) days unless, pending further
proceedings, execution has not been commenced or if commenced has been
effectively stayed;

          (g) A judgment creditor of the Borrower shall obtain possession of any
material portion of the Collateral by any means, including but not limited to
levy, distraint, replevin or self-help, and the Borrower shall not remedy same
within thirty (30) days thereof; or a writ of garnishment is served on the
Lender relating to any of the accounts of the Borrower maintained by the Lender;

          (h) The Borrower shall fail to pay any of its debts, in an amount
which, in the aggregate, exceeds One Million Dollars ($1,000,000.00), and such
failure shall continue beyond any applicable grace period, unless the applicable
Borrower holds a good faith defense to payment and has set aside reasonable
reserves for the payment thereof;

          (i) Any Borrower or Guarantor shall (i) apply for or consent to the
appointment of a receiver, trustee, liquidator or custodian or the like of such
Borrower or Guarantor of property of such Borrower or Guarantor, or (ii) admit
in writing the inability of such Borrower to pay its debts generally as they
become due, or (iii) make a general assignment for the benefit of creditors, or
(iv) be adjudicated a bankrupt or insolvent, or (v) commence a voluntary case
under the United States Bankruptcy Code or file a voluntary petition or answer
seeking reorganization, an arrangement with creditors or an order for relief or
seeking to take advantage of any insolvency law or file an answer admitting the
material allegations of a petition filed against such Borrower or Guarantor in
any bankruptcy, reorganization or insolvency proceeding, or take corporate
action for the purpose of effecting any of the foregoing;

          (j) Any Borrower or Guarantor shall (i) have instituted against it a
proceeding in any court of competent jurisdiction, under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking in respect
of such Borrower or Guarantor an order for relief or an adjudication in
bankruptcy, reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, a readjustment of debts, the
appointment of a trustee, receiver, liquidator or custodian or the like of such
Borrower or Guarantor or of all or any substantial part of the assets of such
Borrower or Guarantor or other like relief in respect thereof under any
bankruptcy or insolvency law, and the same shall (A) result in the entry of an
order for relief or any such adjudication or appointment or (B) remain
undismissed and undischarged for a period of 60 days;

          (k) [Intentionally omitted.]

          (l) The failure by any of the Guarantors to satisfy any obligation
imposed upon the Guarantors in the Guaranty Agreements, which remains uncured or
unwaived following the expiration of any applicable cure period;

          (m) The receipt by the Lender of notice from any Guarantor that the
Guarantor is attempting to terminate or limit any portion of its obligations
under a Guaranty Agreement;

          (n) If any Termination Event shall occur and as of the date thereof or
any subsequent date, the sum of the various liabilities of the Borrower and its
ERISA Affiliates (such liabilities to include, without limitation, any liability
to the Pension Benefit Guaranty Corporation (or any successor thereto) or to

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any other party under Sections 4062, 4063, or 4064 of ERISA or any other
provision of law and to be calculated after giving effect to the tax
consequences thereof) resulting from or otherwise associated with such event
exceeds One Million Dollars ($1,000,000.00); or the Borrower or any of its ERISA
Affiliates as an employer under any Multiemployer Plan shall have made a
complete or partial withdrawal from such Multiemployer Plans and the plan
sponsors of such Multiemployer Plans shall have notified such withdrawing
employer that such employer has incurred a withdrawal liability requiring a
payment in an amount exceeding One Million Dollars ($1,000,000.00);

          (o) The indictment of any Borrower or Guarantor for a felony under any
federal, state or other law;

          (p) The issuance of any injunction against the Borrower which enjoins
or restrains the Borrower from continuing to conduct any material part of the
Borrower’s business affairs; or

          (q) any breach or violation by the Borrower of any covenant or other
agreement of the Borrower under this Agreement other than those addressed by the
preceding paragraphs of this Section 7.1, and the failure of the Borrower to
cure such breach or violation within 30 days after written notice thereof to the
Borrower.

     Section 7.2. Certain Default Remedies. In addition to all other rights and
remedies provided by law and the Loan Documents, upon the occurrence of any
Event of Default, the Lender may: (a) terminate the Credit Line; (b) accelerate
and call immediately due and payable all or any part of the Obligations;
(c) seek specific performance or injunctive relief to enforce performance of the
undertakings, duties, and agreements provided in the Loan Documents, whether or
not a remedy at law exists or is adequate; and (d) exercise any rights of a
secured creditor under the Uniform Commercial Code, as adopted and amended in
Maryland, including the right to take possession of the Collateral without the
use of judicial process or hearing of any kind and the right to require the
Borrower to assemble the Collateral at such place as the Lender may specify.

     Section 7.3. Automatic Acceleration. Upon the occurrence of an Event of
Default as described in Sections 7.1(i) or 7.1(j) of this Agreement, the
Obligations shall be automatically accelerated and due and payable without any
notice, demand or action of any type on the part of the Lender.

     Section 7.4. Sale Of Collateral. In addition to any other remedy provided
herein, upon the occurrence of an Event of Default, the Lender, in a
commercially reasonable fashion, may sell at public or private sale or otherwise
realize upon, in Baltimore, Maryland, or elsewhere, the whole or, from time to
time, any part of all Collateral which is personal property, or any interest
which the Borrower may have therein. Pending any such action, the Lender may
collect and liquidate the Collateral. After deducting from the proceeds of sale
or other disposition of such Collateral all expenses, including all expenses for
legal services, the Lender shall apply such proceeds toward the satisfaction of
the Obligations. Any remainder of the proceeds after satisfaction in full of the
Obligations shall be distributed as required by applicable law. Notice of any
sale or other disposition (other than sales or other dispositions of Collateral
which is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market) shall be given to the Borrower not less
than ten (10) calendar days before the time of any intended public sale or of
the time after which any intended private sale or other disposition of the
Collateral is to be made, which the Borrower hereby agrees shall be commercially
reasonable notice of such sale or other disposition. The Borrower shall
assemble, or shall cause to be assembled, at the Borrower’s own expense, the
Collateral at such place or places as the Lender shall designate. At any such
sale or other disposition, the Lender may, to the extent

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permissible under applicable law, purchase the whole or any part of the
Collateral, free from any right of redemption on the part of the Borrower, which
right is hereby waived and released to the extent lawfully permitted. Without
limiting the generality of any of the rights and remedies conferred upon the
Lender under this Section, the Lender may, to the full extent permitted by
applicable law: (a) enter upon the premises of the Borrower, exclude therefrom
the Borrower or any person connected therewith, and take immediate possession of
the Collateral, either personally or by means of a receiver appointed by a court
of competent jurisdiction, using all necessary force to do so; (b) at the
Lender’s option, use, operate, manage, and control the Collateral in any lawful
manner; (c) collect and receive all income, revenue, earnings, issues, and
profits therefrom; and (d) maintain, alter or remove the Collateral as the
Lender may determine in the Lender’s discretion.

     Section 7.5 Confession of Judgment. Upon the occurrence of an Event of
Default, the Borrower authorizes any attorney admitted to practice before any
court of record in the United States to appear on behalf of the Borrower in any
court in one or more proceedings, or before any clerk thereof or prothonotary or
other court official, and to confess judgment against the Borrower without prior
notice or opportunity of the Borrower for prior hearing, in favor of the Lender
in an amount equal to the sum of the full amount of the Obligations then
outstanding (including the principal of and interest on the Loans and the
Reimbursement Obligations and all fees, costs, charges and other amounts owing
under the Loan Documents), plus attorneys’ fees equal to the amount equal to 15%
of the sum of the amounts described in clauses (a) and (b) of this sentence,
plus court costs. The Borrower consents to the jurisdiction of the Circuit Court
for Baltimore City, Maryland or any County in the State of Maryland, as selected
by the Lender, or of the United States District Court for the District of
Maryland in the event there is a basis for federal subject matter jurisdiction,
and consents that venue and jurisdiction shall be proper in any of the aforesaid
Circuit Courts selected by the Lender or in the United States District Court for
the District of Maryland. The Borrower waives the benefit of any and every
statute, ordinance, or rule of court which may be lawfully waived conferring
upon the Borrower any right or privilege of exemption, homestead rights, stay of
execution, or supplementary proceedings, or other relief from the enforcement or
immediate enforcement of a judgment or related proceedings on a judgment. The
authority and power to appear for and enter judgment against the Borrower shall
not be exhausted by one or more exercises thereof, or by any imperfect exercise
thereof, and shall not be extinguished by any judgment entered pursuant thereto;
such authority and power may be exercised on one or more occasions from time to
time, in the same or different jurisdictions, as often as the Lender shall deem
necessary or advisable.

     In the event that the Lender receives, as a result of execution on a
judgment confessed hereunder, amounts in respect of attorneys’ fees which exceed
the actual attorneys’ fees incurred by the Lender in connection with the
Obligations and the Loan Documents, then, upon full and final payment of all of
the other obligations of the Borrower to the Lender, the Lender shall remit such
excess to the Borrower.

     Section 7.6. Remedies Cumulative. The rights and remedies provided in this
Agreement and in the other Loan Documents or otherwise under applicable laws
shall be cumulative and the exercise of any particular right or remedy shall not
preclude the exercise of any other rights or remedies in addition to, or as an
alternative of, such right or remedy.

ARTICLE 8 - GENERAL CONDITIONS AND TERMS

     Section 8.1. Obligations Are Unconditional. The payment and performance of
the Obligations shall be the absolute and unconditional duty and obligation of
the Borrower, and shall be independent of any defense or any rights of set-off,
recoupment or counterclaim which the Borrower might otherwise have

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against the Lender. The Borrower shall pay the payments of the principal and
interest to be made upon the Obligations, free of any deductions and without
abatement, diminution or set-off other than those herein expressly provided.
Until such time as the Obligations have been fully paid and performed, the
Borrower shall not: (a) suspend or discontinue any payments required by the Loan
Documents; and (b) fail to perform and observe all of the Borrower’s covenants
and agreements set forth in the Loan Documents.

     Section 8.2. Indemnity. The Borrower agrees to defend, indemnify and hold
harmless the Lender and the entities affiliated with the Lender and all of the
Lender’s and its affiliated entities’ employees, agents, officers and directors,
from and against any losses, penalties, fines, liabilities, settlements,
damages, costs and expenses, suffered in connection with any claim,
investigation, litigation or other proceeding (whether or not the Lender or an
affiliated entity is a party thereto) and the prosecution and defense thereof,
arising out of or in any way connected with any Loan Document, including without
limitation reasonable attorneys’ and consultant’s fees, except to the extent
that any of the foregoing directly result from the gross negligence or willful
misconduct of the Lender, an entity affiliated with the Lender, or any of their
respective employees, agents, officers or directors. Notwithstanding any
termination of this Agreement or payment and performance of the Obligations, the
indemnities provided for herein shall continue in full force and effect and
shall protect all of the above-described persons against events arising after
such termination, payment or performance as well as before.

     Section 8.3. Lender Expenses. All Lender Expenses shall be paid by the
Borrower, whether incurred prior to or after Closing, such that the subject
transactions shall at all times be cost free to the Lender.

     Section 8.4. Authorization To Obtain Financial Information. The Borrower
hereby irrevocably authorizes its accounting firm to provide the Lender from
time to time with such information as may be reasonably requested by the Lender,
and hereby authorizes the Lender to contact directly such accounting firm in
order to obtain such information.

     Section 8.5. Incorporation The terms and conditions of the Loan Documents
are incorporated by reference and made a part hereof, as if fully set forth
herein.

     Section 8.6. Waivers. The Lender at any time or from time to time may waive
all or any rights under this Agreement or any other Loan Document, but any
waiver or indulgence by the Lender at any time or from time to time shall not
constitute a future waiver of performance or exact performance by the Borrower.

     Section 8.7. Continuing Obligation Of Borrower. The terms, conditions, and
covenants set forth herein and in the Loan Documents shall survive Closing and
shall constitute a continuing obligation of the Borrower during the course of
the transactions contemplated herein. The security interests, liens and other
security provided by this Agreement shall remain in effect so long as any
Obligation, whether direct or contingent, is outstanding, unpaid or unsatisfied.
At any time that the Obligations have been paid in full and no Hedge or Letter
of Credit remains in effect, the Borrower may terminate this Agreement and the
Lender shall provide, at the Borrower’s expense, documentation sufficient to
release all liens and security interests of the Lender in the Collateral;
provided, that the foregoing provisions of this Section shall be subject to
Section 2.6 hereof.

     Section 8.8. Choice Of Law. The laws of the State of Maryland (excluding,
however, conflict of law principles) shall govern and be applied to determine
all issues relating to this Agreement and the rights

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and obligations of the parties hereto, including the validity, construction,
interpretation, and enforceability of this Agreement and its various provisions
and the consequences and legal effect of all transactions and events which
resulted in the execution of this Agreement or which occurred or were to occur
as a direct or indirect result of this Agreement having been executed.

     Section 8.9. Submission To Jurisdiction; Venue; Actions Against Lender. For
purposes of any action, in law or in equity, which is based directly or
indirectly on this Agreement, any other Loan Document or any matter related to
this Agreement or any other Loan Document, including any action for recognition
or enforcement of any of the Lender’s rights under the Loan Documents or any
judgment obtained by the Lender in respect thereof, the Borrower hereby:

          Section 8.9.1. Jurisdiction. Irrevocably submits to the non-exclusive
general jurisdiction of the courts of the State of Maryland and, if a basis for
federal jurisdiction exists at any time, the courts of the United States of
America for the District of Maryland.

          Section 8.9.2. Venue. Agrees that venue shall be proper in the Circuit
Court for Baltimore City, Maryland, the Circuit Court for any county in the
state of Maryland, as selected by the Lender, and, if a basis for federal
jurisdiction exists, the courts of the United States of America for the District
of Maryland.

          Section 8.9.3. Waiver Of Objections To Venue. Waives any right to
object to the maintenance of any suit in any of the courts specified in
Section 8.9.2 above on the basis of improper venue or convenience of forum. The
Borrower further agrees that it shall not institute any suit or other action
against the Lender, in law or in equity, which is based directly or indirectly
on this Agreement, any other Loan Document or any matter related to this
Agreement or any other Loan Document, in any court other than a court specified
in Section 9.9.2 above; provided, that in any instance in which there is then
pending a suit instituted by the Lender against the Borrower in a court other
than a court specified in Section 8.9.2 above, the Borrower may file in such
suit any counterclaim which it has against the Lender but only if such
counterclaim is a compulsory counterclaim and would be barred if not filed as a
counterclaim in such suit. The Borrower agrees that any suit brought by it
against the Lender not in accordance with this paragraph should be forthwith
dismissed or transferred to a court specified in Section 8.9.2 above.

     Section 8.10. Notices. Any notice required or permitted by or in connection
with this Agreement shall be in writing and shall be made by facsimile
(confirmed on the date the facsimile is sent by one of the other methods of
giving notice provided for in this Section) or by hand delivery, by Federal
Express, or other similar overnight delivery service, or by certified mail,
unrestricted delivery, return receipt requested, postage prepaid, addressed to
the Lender or the Borrower at the appropriate address set forth below or to such
other address as may be hereafter specified by written notice by the Lender or
the Borrower. Notice shall be considered given as of the date of the facsimile
or the hand delivery, one (1) calendar day after delivery to Federal Express or
similar overnight delivery service, or three (3) calendar days after the date of
mailing, independent of the date of actual delivery or whether delivery is ever
in fact made, as the case may be, provided the giver of notice can establish the
fact that notice was given as provided herein. If notice is tendered pursuant to
the provisions of this Section and is refused by the intended recipient thereof,
the notice, nevertheless, shall be considered to have been given and shall be
effective as of the date herein provided.

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     If to the Lender:

    ALLFIRST BANK
6395 Dobbin Road, Suite 106
Columbia, Maryland 21045
Attn.: Robert F. Topper, Vice President
Fax No.: (410) 964-6819

     If to the Borrower:

    MARTEK BIOSCIENCES CORPORATION
6480 Dobbin Road
Columbia, Maryland 21045
Attn.: George P. Barker, Esquire
Fax No.: (410) 740-2985

     With A Courtesy Copy To:

    Hogan & Hartson, L.L.P.
111 S. Calvert Street, Suite 1600
Baltimore, Maryland 21202
Attn.: Kevin G. Gralley, Esquire
Fax No.: (410) 539-6981

The failure of the Lender to send the above courtesy copy shall not impair the
effectiveness of notice given to the Borrower in the manner provided herein.

     Section 8.11. Participations. The Lender reserves the right to assign all
or any portion of its interests in any of the Obligations or the Loan Documents
or to participate with other lending institutions any of the Obligations and the
Loan Documents on such terms and at such times as the Lender may determine from
time to time, all without any consent thereto or notice thereof to the Borrower;
provided, however, that unless an Event of Default shall have occurred and be
continuing, the Lender may not assign its obligation to make Loans and issue
Letters of Credit hereunder without the prior written consent of the Borrower
(which shall not be unreasonably withheld or delayed). The Borrower hereby
grants to each participating lending institution, to the full extent of the
Obligations, the right to set off deposit accounts maintained by the Borrower
with such institution, and the Borrower agrees to pay the Lender Expenses of any
such participating lending institution which arise or are incurred as a result
of the occurrence of an Event of Default.

     Section 8.12. Miscellaneous Provisions. The parties agree that: (a) this
Agreement shall be effective as of the date first above written, independent of
the date of execution or delivery hereof; (b) this Agreement shall be binding
upon the parties and their successors and assigns, contains the final and entire
agreement and understanding of the parties, and may neither be amended or
altered except by a writing signed by the parties; (c) time is strictly of the
essence of this Agreement; (d) as used herein, the singular includes the plural
and the plural includes the singular, the use of any gender applies to all
genders; (e) the captions contained herein are for purposes of convenience only
and are not a part of this Agreement; (f) a carbon, photographic, photocopy or
other reproduction of a security agreement or financing statement shall be
sufficient as a financing statement; (g) this Agreement may be delivered by
facsimile, and a facsimile of any party’s signature to this Agreement shall be
deemed an original signature for all purposes; and (h) this

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Agreement may be executed in several counterparts, each of which shall be an
original, but all of which, when taken together, shall constitute one and the
same document.

     Section 8.13. Waiver Of Trial By Jury. Each party to this Agreement agrees
that any suit, action, or proceeding, whether claim or counterclaim, brought or
instituted by either party hereto or any successor or assign of any party on or
with respect to this Agreement or any other Loan Document or which in any way
relates, directly or indirectly, to the Obligations or any event, transaction,
or occurrence arising out of or in any way connected with any of the
Obligations, or the dealings of the parties with respect thereto, shall be tried
only by a court and not by a jury. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING.

     Section 8.14. Confidentiality. The Lender shall hold all non-public
information obtained pursuant to this Agreement in accordance with its customary
procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices.

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     IN WITNESS WHEREOF, the Lender and the Borrower have duly executed this
Agreement under seal as of the date first above written.

              WITNESS/ATTEST:   ALLFIRST BANK                    /s/ Kevin M.
Connelly   By:       /s/ Robert Topper

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        Name:        Robert Topper          

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        Title:        Vice President          

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                  MARTEK BIOSCIENCES CORPORATION,     A Delaware Corporation    
               /s/ Thomas V. Feeley   By:       /s/ Peter L. Buzy

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        Name:        Peter L. Buzy          

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        Title:        Chief Financial Officer          

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                  MARTEK BIOSCIENCES BOULDER     CORPORATION              
     /s/ Thomas V. Feeley   By:       /s/ Peter L. Buzy

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        Name:        Peter L. Buzy          

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        Title:        Chief Financial Officer          

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REVOLVING CREDIT NOTE

Dated February 25, 2003

From

MARTEK BIOSCIENCES CORPORATION and
MARTEK BIOSCIENCES BOULDER CORPORATION,

Borrowers,

To The Order Of

ALLFIRST BANK,

Lender

$10,000,000 Revolving Credit Facility

 

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          Baltimore, Maryland     $10,000,000.00   February      , 2003        

REVOLVING CREDIT NOTE

     THIS REVOLVING CREDIT NOTE (this “Note”) is made this      day of February,
2003, by MARTEK BIOSCIENCES CORPORATION and MARTEK BIOSCIENCES BOULDER
CORPORATION (collectively, the “Borrower”; provided, that where the context so
requires, the term “Borrower” shall mean either of such persons) to and for the
benefit of ALLFIRST BANK (the “Lender”), and the Lender’s successors and assigns
(including each subsequent holder of this Note). This Note is the “Note” under
the Loan and Security Agreement of even date herewith by and between the
Borrower and the Lender (as amended, supplemented, replaced or otherwise
modified from time to time, collectively, the “Loan Agreement”) and evidences
the Loans made from time to time pursuant to such Loan Agreement. Capitalized
terms used herein but not otherwise defined herein shall have the respective
meanings given in the Loan Agreement, except in any instance in which the
context clearly requires otherwise. The rules of construction set forth in
Section 1.2 of the Loan Agreement shall be applicable to this Note, as if set
forth in full herein.

     FOR VALUE RECEIVED, the undersigned Borrower hereby promises (jointly and
severally as to each Borrower) to pay to the order of the Lender, and the
Lender’s successors and assigns (including each subsequent holder of this Note),
at the office of the Lender at 25 South Charles Street, Baltimore, Maryland
21201 (or at such other address as the holder of this Note may specify from time
to time by written notice to the Borrower), on the Termination Date specified in
the Loan Agreement (including any extension thereof), the principal sum of TEN
MILLION DOLLARS ($10,000,000.00) or so much thereof as shall be outstanding on
account of the principal of the Loans, together with interest on the unpaid
principal balance hereof outstanding from time to time at the rate or rates
hereafter specified until paid in full, and all other sums owing by the Borrower
to the holder under this Note and under the other Loan Documents.

     1.     Interest Rate; Calculation of Interest; Payment of Interest.
Interest on the unpaid principal balance hereof shall be due and payable and
calculated in accordance with the provisions of Section 2.2 of the Loan
Agreement [captioned “Interest on the Loans”]. Interest shall accrue at the
annual interest rate or rates specified in Section 2.2 of the Loan Agreement
until this Note is fully paid, notwithstanding entry of judgment on this Note.
Without limiting the provisions of Section 2 below, interest payments shall be
made at the times and in the amounts provided in subsection 2.2 of the Loan
Agreement, at the place for payment provided above in this Note.

     2.     Full Payment on Termination Date; Revolving Credit. All amounts
outstanding on this Note, including all unpaid principal, accrued unpaid
interest, charges and fees, are due and payable in full on the Termination Date
specified in the Loan Agreement. Principal amounts hereunder may be paid or
prepaid without penalty or premium and, until the Termination Date and to the
extent provided in the Loan Agreement, readvanced from time to time.

     3.     Late Payment Charge. If any monthly interest payment hereunder is
not received by the holder within 15 days after its due date, the Borrower shall
pay to the holder hereof a late payment charge in an amount equal to 5% of the
amount then due and payable. The late payment charge shall be due whether or not
the holder exercises any right of the holder to accelerate the maturity hereof
or any other default remedy. The existence of the right by the holder to receive
a late payment charge shall not constitute a grace period or provide any right
in the Borrower to make any payment other than on its due date.

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     4.     Application of Payments. All payments made hereunder shall be
applied first to late payment charges and reimbursement for collection expenses,
if any, which are then due, next to accrued unpaid interest, and then to
principal, or in such other order or proportion as the holder, in the holder’s
sole discretion, may elect from time to time.

     5.     Default; Acceleration; Confession of Judgment. Upon any failure by
the Borrower to pay any amount evidenced by this Note when and as the same
becomes due, which is not cured within any grace or cure period made applicable
pursuant to the Loan Agreement, or upon the occurrence of any other Event of
Default under the Loan Agreement or any of the other Loan Documents, the entire
unpaid principal balance of this Note, together with all accrued unpaid interest
hereunder and all other amounts due hereunder, shall, at the option of the
holder, become due and payable in full; and, in addition to all other rights or
remedies available to the holder under the Loan Documents or under applicable
law, the Borrower authorizes any attorney admitted to practice before any court
of record in the United States to appear on behalf of the Borrower in any court
in one or more proceedings, or before any clerk thereof or prothonotary or other
court official, and to confess judgment against the Borrower, without prior
notice or opportunity of the Borrower for prior hearing, in favor of the holder
of this Promissory Note in the full amount outstanding under this Note
(including principal, accrued interest and any and all penalties, fees and
costs) plus attorneys’ fees equal to fifteen percent (15%) of the amount
outstanding hereunder plus court costs. The Borrower agrees and consents that
venue and jurisdiction shall be proper in the Circuit Court of any County of the
State of Maryland or of Baltimore City, Maryland, or in the United States
District Court for the District of Maryland. The Borrower waives the benefit of
any and every statute, ordinance, or rule of court which may be lawfully waived
conferring upon any Borrower any right or privilege of exemption, homestead
rights, stay of execution, or supplementary proceedings, or other relief from
the enforcement or immediate enforcement of a judgment or related proceedings on
a judgment. The authority and power to appear for and enter judgment against the
Borrower shall not be exhausted by one or more exercises thereof, or by any
imperfect exercise thereof, and shall not be extinguished by any judgment
entered pursuant thereto; such authority and power may be exercised on one or
more occasions from time to time, in the same or different jurisdictions, as
often as the holder shall deem necessary or advisable.

     In the event that the Lender receives, as a result of execution on a
judgment confessed hereunder, amounts in respect of attorneys’ fees which exceed
the actual attorneys’ fees incurred by the Lender in connection with the
Obligations and the Loan Documents, then, upon full and final payment of all of
the other obligations of the Borrower to the Lender, the Lender shall remit such
excess to the Borrower.

     6.     Costs of Enforcement. The Borrower shall pay all of the holder’s
reasonable costs, fees (including, without limitation, reasonable attorneys’
fees) and expenses incurred in connection with the holder’s enforcement or
collection of this Note.

     7.     Negotiable Instrument. The Borrower agrees that each holder of this
Note shall have, with respect to this Note, all rights of a holder of a
negotiable instrument, even if, absent this paragraph, this Note would not be
considered a negotiable instrument under applicable law. If the holder hereof
would qualify as a holder in due course with respect to this Note, assuming that
this Note is a negotiable instrument, then the holder shall have all rights of a
holder in due course with respect to this Note.

     8.     Notices. Any notice or demand required or permitted by or in
connection with this Note shall be given in the manner specified in the Loan
Agreement for the giving of notices under the Loan Agreement; provided, that
each notice or demand actually received in writing by the Borrower shall be
effective even if the manner of delivery is other than as provided in the Loan
Agreement.

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     9.     Joint and Several Liability. All liabilities under this Note shall
be joint and several with respect to each person executing this Note as Borrower
and each other person executing this Note or otherwise assuming liability for
the payment hereof, whether as maker, co-maker, endorser or guarantor.

     10.     Manner and Method of Payment. All payments called for in this
Promissory Note shall be made in lawful money of the United States of America.
If any payment is made by check, draft, or other payment instrument, such check,
draft, or other payment instrument shall represent immediately available funds.
In the holder’s sole discretion, any payment made by a check, draft, or other
payment instrument shall not be considered to have been made until such time as
the funds represented thereby have been collected by the holder. If the due date
of any payment falls on a day which is not a Business Day, the Borrower shall
make such payment on the immediately succeeding Business Day.

     11.     Unconditional Obligation. The payment of this Note shall be the
absolute and unconditional obligation of the Borrower, and shall be independent
of any defense or any rights of set-off, recoupment or counterclaim which the
Borrower might otherwise have against the holder, and the Borrower shall pay
absolutely, when and as due, all amounts which from time to time are outstanding
hereunder, free of any deductions and without abatement, diminution or set-off.

     12.     Waivers; Consent to Extension. Each Person executing this Note as
Borrower and each other Person which becomes a maker, co-maker, endorser,
guarantor or other co-obligor on this Note hereby (a) waive demand,
presentation, protest, notice of default; and (b) agree that the maturity of
this Note, or any payment due hereunder, may be extended at any time or from
time to time by the holder of this Note without releasing, discharging, or
otherwise affecting the liability of such party.

     13.     Assignable by Lender. This Note may be assigned by the Lender (or
any other holder hereof), in whole or in part, at any time and from time to
time.

     14.     Successors and Assigns. This Note shall be binding upon the
successors and assigns of the Borrower and shall inure to the benefit of the
successors and assigns of the Lender (including each subsequent holder hereof).

     15.     Applicable Law. This Note and the other Loan Documents shall be
governed by and construed in accordance with the laws of the State of Maryland,
without regard to the conflicts of law principles.

     16.     Severability. If any provision or part of any provision of this
Note shall for any reason be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions of this Note and this Note shall be construed as if such
invalid, illegal or unenforceable provision or part thereof had never been
contained herein, but only to the extent of its invalidity, illegality, or
unenforceability.

     17.     Venue; Jurisdiction. The provisions of Section 8.9 of the Loan
Agreement (captioned “Submission To Jurisdiction; Venue; Actions Against
Lender”) are hereby incorporated into this Note by reference and made a part
hereof as if set forth in full herein.

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     18.     Waiver of Right to Jury Trial. Each party hereto agrees that any
suit, action, or proceeding, whether claim or counterclaim, brought or
instituted by either party hereto or any successor or assign of any party on or
with respect to this Note or any other Loan Document or which in any way
relates, directly or indirectly, to the Loan or any event, transaction, or
occurrence arising out of or in any way connected with the Loan, or the dealings
of the parties with respect thereto, shall be tried only by a court and not by a
jury. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
SUCH SUIT, ACTION, OR PROCEEDING. This Section is a specific and material aspect
of the agreement among the parties.

[Signature page follows.]

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     IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed
as of the date first above written, with specific intention that this Note shall
constitute an instrument under seal.

        WITNESS/ATTEST:   MARTEK BIOSCIENCES CORPORATION                        
/s/ Thomas V. Feeley

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  By:
/s/ Peter L. Buzy

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      Name: Peter L. Buzy       Title: Chief Financial Officer           MARTEK
BIOSCIENCES BOULDER CORPORATION                       /s/ Thomas V. Feeley

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  By:
/s/ Peter L. Buzy

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      Name: Peter L. Buzy       Title: Chief Financial Officer