EXHIBIT 10.20
LOAN AGREEMENT
Among
GE CAPITAL PUBLIC FINANCE, INC.,
as Lender,
and
WASHINGTON ECONOMIC DEVELOPMENT FINANCE AUTHORITY,
as Issuer,
and
ABSORPTION CORP.,
as Borrower
Dated as of September 1, 2006
 
This instrument constitutes a security agreement
under the Washington Uniform Commercial Code.
 

 

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LOAN AGREEMENT

              Lender:        GE Capital Public Finance, Inc.     Suite 470    
8400 Normandale Lake Boulevard     Minneapolis, MN 55437 Telephone:      
(800) 346-3164 Telecopier:       (952) 897-5601
 
            Issuer:        Washington Economic Development Finance Authority    
1000 Second Avenue     Suite 2700     Seattle, WA 98104 Telephone:      
(206) 587-5634 Telecopier:       (206) 389-3819
 
            Borrower:   Absorption Corp.
 
          6960 Salashan Parkway
 
          Ferndale, WA 98248 Telephone:       (360) 734-7415 Telecopier:      
(360) 671-8991

     THIS LOAN AGREEMENT dated as of September 1, 2006 (this “Agreement”) among
GE Capital Public Finance, Inc., a Delaware corporation, as lender (with its
successors and assigns, “Lender”), Washington Economic Development Finance
Authority, a public body corporate and politic with perpetual corporate
succession, constituting an instrumentality of the State of Washington (the
“State”), as issuer (“Issuer”), and Absorption Corp., a Nevada corporation, as
borrower (“Borrower”).
     WHEREAS, Issuer is authorized and empowered under the laws of the State,
including Chapter 43.163 Revised Code of Washington (“RCW”) (the “Act”), to
issue nonrecourse revenue bonds in the name of Issuer and to loan the proceeds
of such bonds to eligible borrowers to finance “project costs” for “economic
development activities” (as such terms are defined in RCW 43.163.010); and
     WHEREAS, in relation thereto, Issuer is authorized to enter into “financing
documents” (as defined in RCW 43.163.010(9)) necessary or convenient for
purposes of financing project costs; and
     WHEREAS, in accordance with the Act, Issuer proposes to issue the Bond (as
hereinafter defined), which shall be purchased by Lender and the proceeds of
which will be loaned to Borrower and used by Borrower to finance all or a
portion of the acquisition and installation of the Equipment (as hereinafter
defined) by Borrower pursuant to this Agreement; and
     WHEREAS, Borrower proposes to borrow the proceeds of the Bond upon the
terms and conditions set forth herein to finance the acquisition and
installation of the Equipment; and
     WHEREAS, Borrower shall make Loan Payments (as hereinafter defined)
directly to Lender as assignee of Issuer and holder of the Bond pursuant to the
terms of this Agreement; and
     WHEREAS, this Agreement and the Bond shall not be deemed to constitute a
debt or liability or moral obligation of Issuer or the State or any political
subdivision thereof, or a pledge of the faith and credit or taxing power of
Issuer or the State or any political subdivision thereof, but shall be a special
obligation payable solely from the Loan Payments payable hereunder by Borrower
to Lender as assignee of Issuer and holder of the Bond;
     NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and in consideration of the premises contained in this
Agreement, Lender, Issuer and Borrower agree as follows:

 

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ARTICLE I
DEFINITIONS AND EXHIBITS
     Section 1.01. Definitions. The following terms used herein will have the
meanings indicated below unless the context clearly requires otherwise:
     “Acquisition Costs” means the contract price paid or to be paid to the
Vendors or reimbursed to Borrower for any portion of the Equipment upon
Borrower’s acceptance thereof, including administrative, engineering, legal,
financial and other costs incurred by Lender, Issuer, Borrower, Escrow Agent and
Vendors in connection with the acquisition, installation and financing by Lender
of such Equipment, which Acquisition Costs are set forth in Exhibit A hereto.
          “Act” means Chapter 43.163 Revised Code of Washington, as amended from
time to time.
     “Agreement” means this Agreement, including all exhibits hereto, as any of
the same may be supplemented or amended from time to time in accordance with the
terms hereof.
          “Assignment” means the Assignment of even date herewith among Issuer,
Lender and Borrower.
     “Bond” means Issuer’s $1,600,000 Economic Development Revenue Bond,
Series 2006I (Absorption Corp. Project), in the form attached hereto as
Exhibit E.
     “Borrower” means Absorption Corp., a Nevada corporation.
     “Business Day” means a day other than a Saturday or Sunday on which banks
are generally open for business in New York, New York.
     “Certificate Regarding Use of Proceeds” means the Certificate Regarding Use
of Proceeds dated the date of issuance of the Bond and executed by Borrower.
     “Code” means the Internal Revenue Code of 1986, as amended, and United
States Treasury regulations promulgated thereunder.
     “Default” means an event that, with giving of notice or passage of time or
both, would constitute an Event of Default as provided in Article XI hereof.
     “Determination of Taxability” means any determination, decision or decree
by the Commissioner of Internal Revenue, or any District Director of Internal
Revenue or any court of competent jurisdiction, or an opinion obtained by Lender
of counsel qualified in such matters, that an Event of Taxability shall have
occurred. A Determination of Taxability also shall be deemed to have occurred on
the first to occur of the following:
(a) the date when Borrower files any statement, supplemental statement, or other
tax schedule, return or document, which discloses that an Event of Taxability
shall have occurred; or
(b) the effective date of any federal legislation enacted after the date of this
Agreement or promulgation of any income tax regulation or ruling by the Internal
Revenue Service that causes an Event of Taxability after the date of this
Agreement; or
(c) if upon sale, lease or other deliberate action taken with respect to the
Equipment within the meaning of Treas. Reg. § 1.141-2(d), the failure to receive
an unqualified opinion of bond counsel to the effect that such deliberate action
will not cause interest payable by Borrower hereunder to become includable in
the gross income of the recipient.
     “Environmental Laws” has the meaning ascribed thereto in paragraph (h) of
Article V hereof.

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     “Equipment” means the equipment, goods and other personal property financed
or refinanced with the proceeds of the Bond and the Loan and the property
identified in Exhibit A hereto to be used in connection with Borrower’s
operations (including, to the extent permitted pursuant to the Code without
jeopardizing the tax-exempt status of the Interest, certain items originally
financed through internal advances of Borrower in anticipation of obtaining
permanent financing through Issuer).
     “Escrow Agent” means Marshall & Ilsley Trust Company N.A., as escrow agent
under the Escrow Agreement, and its successors and assigns permitted under the
Escrow Agreement.
     “Escrow Agreement” means the Escrow Agreement dated as of September 1, 2006
among Lender, Issuer, Borrower and Escrow Agent.
     “Escrow Fund” means the fund established and held by Escrow Agent pursuant
to the Escrow Agreement.
     “Event of Taxability” means if as the result of any act, failure to act or
use of the proceeds of the Loan, a change in use of the Equipment or any
misrepresentation or inaccuracy in any of the representations, warranties or
covenants contained in this Agreement, in the No-Arbitrage Certificate by Issuer
or in the Certificate Regarding Use of Proceeds by Borrower or the enactment of
any federal legislation after the date of this Agreement or the promulgation of
any income tax regulation or ruling by the Internal Revenue Service after the
date of this Agreement, the Interest is or becomes includable in Lender’s gross
income.
          “GE Capital Entity” means GE Capital Public Finance, Inc., General
Electric Capital Corporation or any of its or their affiliates.
     “Gross-Up Rate” means, with respect to any Interest payment (including
payments made prior to the Event of Taxability), the rate necessary to calculate
a total payment in an amount sufficient such that the sum of the Interest
payment plus an additional payment would, after being reduced by the federal tax
(including interest and penalties) actually payable thereon, equal the amount of
the Interest payment.
     “Guarantor” means International Absorbents Inc., a company duly organized
and validly existing under the laws of the Province of British Columbia, Canada.
     “Guaranty Agreement” means the Corporate Guaranty and Negative Pledge
Agreement dated as of September 1, 2006 executed by Guarantor in favor of
Lender.
          “Indemnification and Compensation Agreement” means the Indemnification
and Compensation Agreement dated as of June 29, 2006 between Issuer and
Borrower.
     “Interest” means the portion of any payment from Issuer to Lender
designated as and comprising interest as shown in Exhibit A hereto.
     “Issuer” means the Washington Economic Development Finance Authority,
acting as issuer under this Agreement.
     “Lender” means (i) GE Capital Public Finance, Inc., acting as lender under
this Agreement, (ii) any surviving, resulting or transferee corporation of GE
Capital Public Finance, Inc. and (iii) except where the context requires
otherwise, any assignee(s) of Lender.
     “Loan” means the loan from Issuer to Borrower pursuant to this Agreement.
     “Loan Payments” means the loan payments payable by Borrower pursuant to the
provisions of this Agreement and the Bond as specifically set forth in Exhibit A
hereto. As provided in Article II hereof, Loan Payments shall be payable by
Borrower directly to Lender, as assignee of Issuer and holder of the Bond, in
the amounts and at the times as set forth in Exhibit A hereto.

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     “Loan Proceeds” means the total amount of money to be paid pursuant to
Section 2.02 hereof by Lender to Borrower or Vendor(s) on behalf of Issuer or,
upon agreement among Lender, Issuer and Borrower, to be paid to Escrow Agent for
deposit and application in accordance with the Escrow Agreement.
     “No-Arbitrage Certificate” means the No-Arbitrage Certificate dated the
date of issuance of the Bond executed by Issuer, together with the exhibits and
attachments thereto.
     “Prepayment Amount” means the amount which Borrower may or must from time
to time pay or cause to be paid to Lender as assignee of Issuer and holder of
the Bond in order to prepay the Loan and the Bond, as provided in Section 2.07
hereof, such amounts being set forth in Exhibit A hereto, together with accrued
interest and all other amounts due hereunder.
     “Principal” means the portion of any Loan Payment designated as principal
in Exhibit A hereto.
     “Purchase Agreements” means Borrower’s purchase agreements with Vendors of
the Equipment.
          “Reserved Rights” means (i) all reasonable fees and expenses of Issuer
incurred in connection with this Agreement, the Indemnification and Compensation
Agreement, the Bond, the Escrow Agreement or the No-Arbitrage Certificate,
including, without limitation, any and all fees and expenses incurred in
connection with the authorization, issuance, sale and delivery of the Bond and
the administration of the Bond; (ii) the right of Issuer to be held harmless in
general from any liabilities arising from the Escrow Agreement, installation and
operation of the Equipment (including environmental hazards); (iii) Issuer’s
reliance on any statements made by other parties to the transaction; (iv) any
legal and investigatory expenses incurred in connection with the foregoing;
(v) any costs and expenses of Issuer incurred as a result of an Event of Default
involving a party other than Issuer; (vi) rights of Issuer under the
Indemnification and Compensation Agreement; and (vii) rights of Issuer to
receive notices under Section 12.03 hereof.
     “State” means the State of Washington.
“Terrorism Laws” means Executive Order 13224 issued by the President of the
United States of America, the Terrorism Sanctions Regulations (Title 31 Part 595
of the U.S. Code of Federal Regulations), the Terrorism List Governments
Sanctions Regulations (Title 31 Part 596 of the U.S. Code of Federal
Regulations) and the Foreign Terrorist Organizations Sanctions Regulations
(Title 31 Part 597 of the U.S. Code of Federal Regulations), and all other
present and future federal, state and local laws, ordinances, regulations,
policies and any other requirements of any governmental authority (including,
without limitation, the United States Department of the Treasury Office of
Foreign Assets Control) addressing, relating to, or attempting to eliminate,
terrorist acts and acts of war, each as hereafter supplemented, amended or
modified from time to time, and the present and future rules, regulations and
guidance documents promulgated under any of the foregoing, or under similar
laws, ordinances, regulations, policies or requirements of other states or
localities.
     “UCC” means the Uniform Commercial Code as adopted and in effect in the
State.
     “Vendor” means the manufacturer or vendor of an item of Equipment, as well
as the agents or dealers of the manufacturer, from whom Borrower has purchased
or is purchasing items of Equipment.
     Section 1.02. Exhibits. The following exhibits are attached hereto and made
a part hereof:
     Exhibit A: Schedule of Equipment and Loan Payments describing the Equipment
and setting forth the Loan Payments and Prepayment Amounts. Issuer hereby
authorizes Lender to insert in Exhibit A the serial or other identifying numbers
relating to the Equipment when available.
          Exhibit B-1: Form of opinion of counsel to Borrower.
          Exhibit B-2: Form of opinion of counsel to Guarantor.
     Exhibit C: Form of opinion of counsel to Issuer.

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     Exhibit D: Form of opinion of bond counsel.
     Exhibit E: Form of Bond.
     Exhibit F: Form of Certificate of Chief Financial Officer.
     Section 1.03. Rules of Construction. (a) The singular form of any word used
herein, including the terms defined in Section 1.01 hereof, shall include the
plural, and vice versa. The use herein of a word of any gender shall include
correlative words of all genders.
     (b) Unless otherwise specified, references to Articles, Sections and other
subdivisions of this Agreement are to the designated Articles, Sections and
other subdivision of this Agreement as originally executed. The words “hereof,”
“herein,” “hereunder” and words of similar import refer to this Agreement as a
whole.
     (c) The headings or titles of the several articles and sections shall be
solely for convenience of reference and shall not affect the meaning,
construction or effect of the provisions hereof.
ARTICLE II
FINANCING OF EQUIPMENT AND TERMS OF LOAN
     Section 2.01. Acquisition of Equipment. Borrower either has ordered or
shall order the Equipment pursuant to one or more Purchase Agreements from one
or more Vendors. Borrower shall remain liable to the Vendor or Vendors in
respect of its duties and obligations in accordance with each Purchase Agreement
and shall bear the risk of loss with respect to any loss or claim relating to
any item of Equipment covered by any Purchase Agreement, and neither Lender nor
Issuer shall assume any such liability or risk of loss.
     Section 2.02. Loan. Lender hereby agrees, subject to the terms and
conditions of this Agreement, to purchase the Bond in the amount of
$1,600,000.00; Issuer hereby agrees, subject to the terms and conditions of this
Agreement, to issue the Bond and to lend the proceeds thereof to Borrower; and
Borrower hereby agrees to borrow such proceeds from Issuer. Upon fulfillment of
the conditions set forth in Article III hereof, Lender shall disburse the Loan
Proceeds on behalf of Issuer to Borrower as a reimbursement of Acquisition Costs
or directly to Vendor(s) or, upon agreement among Lender, Issuer and Borrower,
deposit the Loan Proceeds in the Escrow Fund to be held, invested and disbursed
as provided in the Escrow Agreement. If Borrower directs Lender to disburse the
Loan Proceeds directly to Borrower or Vendor(s), such direction by Borrower
shall be deemed a representation and warranty by Borrower that the Equipment has
been delivered to, tested and inspected by, and accepted by Borrower and is
functionally complete and operationally independent. Issuer’s obligation to make
payments on the Bond, and Borrower’s obligation to repay the Loan, shall
commence, and interest shall begin to accrue, on the date that Loan Proceeds are
disbursed to Borrower on behalf of Issuer or deposited in the Escrow Fund.
     Section 2.03. Interest. The principal amount of the Bond and the Loan
hereunder outstanding from time to time shall bear interest (computed on the
basis of actual days elapsed in a 360-day year) at the rate of five and seventy
hundredths percent (5.70%). Interest accruing on the principal balance of the
Bond and the Loan outstanding from time to time shall be payable as provided in
Exhibit A and in the Bond and upon earlier demand in accordance with the terms
hereof or prepayment in accordance with the terms of the Bond and Section 2.07
hereof. Upon the occurrence of a Determination of Taxability, Borrower shall,
with respect to future interest payments, begin making Loan Payments calculated
at the Gross-Up Rate. In addition, Borrower shall make immediately upon demand
of Lender a payment to Lender sufficient to supplement prior Loan Payments to
the Gross-Up Rate.
     Section 2.04. Payments. Issuer shall pay the principal of, premium, if any
in accordance with Section 2.07 hereof, and interest on the Bond, but only out
of the amounts paid by Borrower pursuant to this Agreement. Borrower shall pay
to Lender, as assignee of Issuer, Loan Payments, in the amounts and on the dates
set forth in Exhibit A hereto. Additionally, Borrower shall pay to Lender, as
assignee of Issuer and holder of the Bond, an amount equal to the product of
(i) 18% per annum and (ii) the delinquent amount of any Loan Payment not paid
when due. As security for its obligation to pay the principal of, premium, if
any in accordance with Section 2.07 hereof, and interest on the Bond, and
pursuant to the Assignment, Issuer has assigned to Lender all of Issuer’s right

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to receive Loan Payments from Borrower hereunder, all of Issuer’s rights
hereunder (except the Issuer’s Reserved Rights) and all of Issuer’s right, title
and interest in and to the Equipment, and Issuer irrevocably constitutes and
appoints Lender and any present or future officer or agent of Lender as its
lawful attorney, with full power of substitution and resubstitution, and in the
name of Issuer or otherwise, to collect the Loan Payments and any other payments
due hereunder and under the Bond and to sue in any court for such Loan Payments
or other payments, to exercise all rights hereunder with respect to the
Equipment, and to withdraw or settle any claims, suits or proceedings pertaining
to or arising out of this Agreement upon any terms. Such Loan Payments and other
payments shall be made by Borrower directly to Lender, as Issuer’s assignee and
holder of the Bond, and shall be credited against Issuer’s payment obligations
hereunder and under the Bond. No provision, covenant or agreement contained in
this Agreement or any obligation imposed on Issuer herein or under the Bond, or
the breach thereof, shall constitute or give rise to or impose upon Issuer a
pecuniary liability, a charge upon its general credit or taxing powers or a
pledge of its general revenues. In making the agreements, provisions and
covenants set forth in this Agreement, Issuer has not obligated itself except
with respect to the Equipment and the application of the Loan Payments to be
paid by Borrower hereunder. All amounts required to be paid by Borrower
hereunder shall be paid in lawful money of the United States of America in
immediately available funds. No recourse shall be had by Lender or Borrower for
any claim based on this Agreement, the Bond or the No-Arbitrage Certificate
against any director, officer, employee or agent of Issuer alleging personal
liability on the part of such person, unless such claim is based on the willful
dishonesty of or intentional violation of law by such person.
     Section 2.05 Payment on Non-Business Days. Whenever any payment to be made
hereunder or under the Bond shall be stated to be due on a day which is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
interest or the fees hereunder, as the case may be.
     Section 2.06. Loan Payments To Be Unconditional. The obligations of
Borrower to make the Loan Payments required under this Article II and to make
other payments hereunder and to perform and observe the covenants and agreements
contained herein shall be absolute and unconditional in all events, without
abatement, diminution, deduction, setoff or defense for any reason, including
(without limitation) any failure of the Equipment to be delivered or installed,
any defects, malfunctions, breakdowns or infirmities in the Equipment or any
accident, condemnation, destruction or unforeseen circumstances. Notwithstanding
any dispute between Borrower and any of Issuer, Lender, any Vendor or any other
person, Borrower shall make all Loan Payments when due and shall not withhold
any Loan Payments pending final resolution of such dispute, nor shall Borrower
assert any right of set-off or counterclaim against its obligation to make such
payments required under this Agreement.
     Section 2.07. Prepayments. (a) Borrower may, in its discretion, prepay the
Loan and the Bond in whole at any time after the third anniversary of the date
hereof by paying the applicable Prepayment Amount.
     (b) Borrower shall prepay the Loan and the Bond in whole or in part at any
time pursuant to Article IX hereof by paying the applicable Prepayment Amount.
     (c) Borrower shall prepay the Loan and the Bond in full immediately upon
demand of Lender after the occurrence of an Event of Default by paying the
applicable Prepayment Amount. A portion of such prepayment may be made with
funds remaining in the Escrow Fund pursuant to the Escrow Agreement.
     (d) Borrower shall prepay the Loan and the Bond in full immediately upon
demand of Lender after the occurrence of a Determination of Taxability by paying
the applicable Prepayment Amount plus an amount necessary to supplement the
prior Loan Payments to the Gross-Up Rate.
     (e) The amounts due hereunder shall be repaid, and the amounts due under
the Bond shall be paid, in part with funds remaining in the Escrow Fund upon
termination of the Escrow Agreement as provided in Section 2.03 of the Escrow
Agreement and, if less than 80% of the amount deposited in the Escrow Fund has
been disbursed pursuant to the Escrow Agreement, together with a prepayment
premium calculated at the percentage used to determine the Prepayment Amount at
the date of such prepayment.
     Upon any prepayment in part of the Loan, the prepayment shall be applied to
the Loan Payments and any other amounts due hereunder as determined by Lender.

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     Section 2.08. Description of the Bond. The Bond shall be issued as a single
bond in registered form. The Bond shall mature, and principal of, premium (if
any) and interest on the Bond shall be payable as set forth in the Bond and
Exhibit A hereto. The Bond and all obligations of Issuer under or with respect
to the Bond and this Agreement are limited obligations of Issuer payable solely
out of the Loan Payments and other security specifically pledged thereto. No
recourse shall be had against any other properties, funds or assets of Issuer
for the payment of any amounts owing with respect to the Bond or this Agreement.
The Bond, this Agreement and the obligations of Issuer under or with respect
thereto do not constitute or create a charge against Issuer or create an
indebtedness of Issuer within the meaning of any constitutional or statutory
debt limitation. Holders of the Bond shall have no right to compel the payment
of any amounts owing under or with respect to the Bond or this Agreement out of
any funds or other assets of Issuer or the State. Issuer’s agents, including the
person(s) executing this Agreement or the Bond, shall not be subject to any
personal liability for any reason relating to the issuance of the Bond or the
performance of any obligations under or with respect to this Agreement.
     IN ACCORDANCE WITH RCW 43.163.140(1), THE BOND SHALL NOT BE DEEMED TO
CONSTITUTE A DEBT, LIABILITY OR GENERAL OBLIGATION OF THE ISSUER, THE STATE OF
WASHINGTON OR ANY POLITICAL SUBDIVISION THEREOF, OR A PLEDGE OF THE FAITH AND
CREDIT OF THE ISSUER, THE STATE OF WASHINGTON OR ANY SUCH POLITICAL SUBDIVISION,
BUT IS A SPECIAL OBLIGATION PAYABLE SOLELY FROM THE REVENUES AND PROCEEDS
PROVIDED THEREFOR. NEITHER THE ISSUER, THE STATE OF WASHINGTON OR ANY POLITICAL
SUBDIVISION THEREOF SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF, INTEREST OR
PREMIUM, IF ANY, ON THE BOND, AND NEITHER THE FAITH AND CREDIT NOR ANY TAXING
POWER OF THE STATE OF WASHINGTON OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED
TO THE PAYMENT OF THE PRINCIPAL OF, THE INTEREST OR PREMIUM, IF ANY, ON THE
BOND. THE ISSUER HAS NO TAXING AUTHORITY.
ARTICLE III
CONDITIONS PRECEDENT
     Lender’s agreement to purchase the Bond and to disburse the Loan Proceeds
shall be subject to the condition precedent that Lender shall have received all
of the following, each in form and substance satisfactory to Lender:
     (a) This Agreement, properly executed on behalf of Issuer and Borrower, and
each of the Exhibits hereto properly completed.
     (b) The Bond, properly executed on behalf of Issuer.
     (c) The Assignment, properly executed on behalf of Issuer and Borrower.
     (d) The No-Arbitrage Certificate and the Certificate Regarding Use of
Proceeds, properly executed on behalf of Issuer and Borrower, respectively.
     (e) The Escrow Agreement, properly executed on behalf of Issuer, Borrower
and Escrow Agent.
     (f) The Guaranty Agreement, properly executed on behalf of Guarantor.
     (g) A certificate of the Secretary or an Assistant Secretary of Borrower,
certifying as to (i) the resolutions of the board of directors and, if required,
the shareholders of Borrower, authorizing the execution, delivery and
performance of this Agreement, the Assignment, the Escrow Agreement and the
Certificate Regarding Use of Proceeds and any related documents, (ii) the bylaws
of Borrower, and (iii) the signatures of the officers or agents of Borrower
authorized to execute and deliver this Agreement, the Assignment, the Escrow
Agreement and the Certificate Regarding Use of Proceeds and other instruments,
agreements and certificates on behalf of Borrower.
     (h) Currently certified copies of the Articles of Incorporation of
Borrower.

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     (i) A Certificate of Good Standing issued as to Borrower by the Secretary
of the State of the state of Borrower’s incorporation not more than 10 days
prior to the date hereof.
     (j) Certificate of qualification to do business in the State issued as to
Borrower not more than 10 days prior to the date of the funding of the loan.
     (k) A certificate of the Secretary or an Assistant Secretary of Guarantor,
certifying as to (i) the resolutions of the board of directors and, if required,
the shareholders of Guarantor, authorizing the execution, delivery and
performance of the Guaranty Agreement and any related documents, (ii) the bylaws
of Guarantor, and (iii) the signatures of the officers or agents of Guarantor
authorized to execute and deliver the Guaranty Agreement and other instruments,
agreements and certificates on behalf of Guarantor.
     (l) Currently certified copies of the Articles of Incorporation of
Guarantor.
     (m) A Certificate of Good Standing issued as to Guarantor by the Registrar
of Companies of the Province of British Columbia, Canada not more than 10 days
prior to the date hereof.
     (n) Certificates of the insurance required hereunder, containing a lender’s
loss payable clause or endorsement in favor of Lender.
     (o) A completed and executed IRS Form 8038 or evidence of filing thereof
with the Secretary of Treasury.
     (p) A resolution or evidence of other official action taken by or on behalf
of Issuer to authorize the transactions contemplated hereby.
     (q) Evidence that the issuance of the Bond for the purpose of financing the
Equipment has been approved by the “applicable elected representative” of Issuer
after a public hearing held upon reasonable notice.
     (r) A true and correct copy of any and all leases pursuant to which
Borrower is leasing the property where the Equipment will be located, together
with a landlord’s disclaimer and consent with respect to each such lease.
     (s) As applicable, a true and correct copy of any and all mortgages, deeds
of trust or similar agreements (whether or not Borrower is a party to any such
agreement) relating to the property where the Equipment will be located,
together with a mortgagee’s waiver with respect to each such mortgage, deed of
trust or similar agreement.
     (t) As applicable, financing statements authorized by Borrower, as debtor,
and naming Lender, as secured party, and/or the original certificate of title or
manufacturer’s certificate of origin and title application if any of the
Equipment is subject to certificate of title laws.
     (u) Financing statements authorized by Issuer, as debtor, and naming
Lender, as secured party.
     (v) Current searches of appropriate filing offices showing that (i) no
state or federal tax liens have been filed and remain in effect against
Borrower, (ii) no financing statements have been filed and remain in effect
against Borrower relating to the Equipment except those financing statements
filed by Lender, (iii) Lender has duly filed all financing statements necessary
to perfect the security interest created pursuant to this Agreement and
(iv) Lender has duly filed all financing statements necessary to perfect the
transfer of Issuer’s interest in this Agreement and the Loan Payments.
     (w) An opinion of counsel to Borrower, addressed to Lender and Issuer, in
the form attached hereto as Exhibit B-1.
     (x) An opinion of counsel to Guarantor, addressed to Lender and Issuer, in
the form attached hereto as Exhibit B-2.

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     (y) An opinion of counsel to Issuer, addressed to Lender and Borrower, in
the form attached hereto as Exhibit C.
     (z) An opinion of bond counsel, addressed to Lender and Issuer, in the form
attached hereto as Exhibit D.
     (aa) Payment of Lender’s fees, commissions and expenses required by
Section 12.01 hereof.
     (bb) Payment of Issuer’s fees, commissions and expenses incurred in
connection with this Agreement, the Indemnification and Compensation Agreement
and the transactions contemplated hereby and thereby.
     (cc) Any other documents or items required by Lender.
     Lender’s agreement to purchase the Bond, to disburse the Loan Proceeds and
to consider approval of any disbursement from the Escrow Fund shall be subject
to the further conditions precedent that on the date thereof:
     (dd) Lender shall have received each of the items required for a
disbursement pursuant to the Escrow Agreement;
     (ee) Lender shall have received in form and substance satisfactory to
Lender Vendor invoice(s) and/or bill(s) of sale relating to the Equipment and,
if such invoices have been paid by Issuer or Borrower, evidence of payment
thereof and, if applicable, evidence of official intent to reimburse such
payment as required by the Code;
     (ff) the representations and warranties contained in Articles IV and V
hereof are correct on and as of the date of such disbursement as though made on
and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date; and
     (gg) no event has occurred and is continuing, or would result from the Bond
or the Loan which constitutes a Default, an Event of Default or an Event of
Taxability.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF ISSUER
     Issuer represents, warrants and covenants for the benefit of Lender and
Borrower, as follows:
     (a) Issuer is a public body corporate and politic, with perpetual corporate
succession, constituting an instrumentality of the State.
     (b) Issuer will exercise its best efforts to preserve and keep in full
force and effect its existence as a public body corporate and politic.
     (c) Issuer is authorized under the Constitution and laws of the State to
issue the Bond and to enter into this Agreement, the Assignment, the Escrow
Agreement, the No-Arbitrage Certificate and the transactions contemplated hereby
and to perform all of its obligations hereunder.
     (d) Issuer has duly authorized the issuance of the Bond and the execution
and delivery of this Agreement, the Assignment, the Escrow Agreement and the
No-Arbitrage Certificate under the terms and provisions of the resolution of its
governing body or by other appropriate official approval, and further
represents, covenants and warrants that all requirements have been met and
procedures have occurred in order to ensure the enforceability of the Bond, this
Agreement, the Assignment, the Escrow Agreement and the No-Arbitrage Certificate
against Issuer, and Issuer has complied with such public bidding requirements as
may be applicable to the Bond, this Agreement, the Assignment, the Escrow
Agreement and the Equipment. Issuer has taken all necessary action and has
complied with all provisions of the Act, including but not limited to the making
of the findings required by the Act, required to make the Bond, this Agreement,
the

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Assignment, the Escrow Agreement and the No-Arbitrage Certificate the valid and
binding obligation of Issuer.
     (e) The officer of Issuer executing the Bond, this Agreement, the
Assignment, the Escrow Agreement, the No-Arbitrage Certificate and any related
documents has been duly authorized to issue the Bond and to execute and deliver
this Agreement, the Assignment, the Escrow Agreement and the No-Arbitrage
Certificate and such related documents under the terms and provisions of a
resolution of Issuer’s governing body, or by other appropriate official action.
     (f) The Bond, this Agreement, the Assignment, the Escrow Agreement and the
No-Arbitrage Certificate are legal, valid and binding obligations of Issuer,
enforceable in accordance with their respective terms, except to the extent
limited by bankruptcy, reorganization or other laws of general application
relating to or affecting the enforcement of creditors’ rights.
     (g) Pursuant to the Assignment, Issuer has assigned to Lender all of
Issuer’s rights in the Equipment and this Agreement (except Issuer’s Reserved
Rights) including the assignment of all rights in the security interest granted
to Issuer by Borrower.
     (h) Issuer will not pledge, mortgage or assign this Agreement or its duties
and obligations hereunder to any person, firm or corporation, except as provided
under the terms hereof and under the terms of the Assignment.
     (i) None of the issuance of the Bond or the execution and delivery of this
Agreement, the Assignment, the Escrow Agreement or the No-Arbitrage Certificate,
the consummation of the transactions contemplated hereby or thereby or the
fulfillment of or compliance with the terms and conditions of the Bond, this
Agreement, the Assignment, the Escrow Agreement or the No-Arbitrage Certificate
violates any law, rule, regulation or order, conflicts with or results in a
breach of any of the terms, conditions or provisions of any restriction or any
agreement or instrument to which Issuer is now a party or by which it is bound
or constitutes a default under any of the foregoing or results in the creation
or imposition of any prohibited lien, charge or encumbrance of any nature
whatsoever upon any of the property or assets of Issuer under the terms of any
instrument or agreement.
     (j) There is no action, suit, proceeding, claim, inquiry or investigation,
at law or in equity, before or by any court, regulatory agency, public board or
body pending or, to the best of Issuer’s knowledge, threatened against or
affecting Issuer, challenging Issuer’s authority to issue the Bond or to enter
into this Agreement, the Assignment, the Escrow Agreement or the No-Arbitrage
Certificate or any other action wherein an unfavorable ruling or finding would
adversely affect the enforceability of the Bond, this Agreement, the Assignment,
the Escrow Agreement or the No-Arbitrage Certificate or any other transaction of
Issuer which is similar hereto, or the exclusion of the Interest from gross
income for federal tax purposes under the Code, or would materially and
adversely affect any of the transactions contemplated by this Agreement.
     (k) Issuer will submit or cause to be submitted to the Secretary of the
Treasury an IRS Form 8038 (or other information reporting statement) with
respect to the Bond at the time and in the form required by the Code.
     (l) The issuance of the Bond for the purpose of financing the Equipment has
been approved by the “applicable elected representative” (as defined in Section
147(f) of the Code) of Issuer after a public hearing held upon reasonable
notice.
     (m) Issuer will comply fully at all times with the No-Arbitrage
Certificate, and Issuer will not take any action, or omit to take any action,
which, if taken or omitted, respectively, would violate the No-Arbitrage
Certificate.
     (n) Issuer will take no action that would cause the Interest to become
includable in gross income for federal income tax purposes under the Code
(including, without limitation, intentional acts under Treas.

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Reg. § 1.148-2(c) or consenting to a deliberate action within the meaning of
Treas. Reg. § 1.141-2(d)), and Issuer will take and will cause its officers,
employees and agents to take all affirmative actions legally within its power
necessary to ensure that the Interest does not become includable in gross income
of the recipient for federal income tax purposes under the Code (including,
without limitation, the calculation and payment of any rebate required to
preserve such exclusion).
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER
     Borrower represents, warrants and covenants for the benefit of Lender and
Issuer, as follows:
     (a) Borrower is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada, has power to enter into this
Agreement and by proper corporate action has duly authorized the execution and
delivery of this Agreement, the Assignment, the Escrow Agreement, the
Indemnification and Compensation Agreement and the Certificate Regarding Use of
Proceeds. Borrower is in good standing and is duly licensed or qualified to
transact business in the State and in all jurisdictions where the character of
the property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary. Borrower’s exact legal name is
as set forth on the execution page hereof.
     (b) Borrower has been fully authorized to execute and deliver this
Agreement, the Assignment, the Escrow Agreement, the Indemnification and
Compensation Agreement and the Certificate Regarding Use of Proceeds under the
terms and provisions of the resolution of its board of directors, or by other
appropriate official approval, and further represents, covenants and warrants
that all requirements have been met, and procedures have occurred in order to
ensure the enforceability of this Agreement, the Assignment, the Escrow
Agreement, the Indemnification and Compensation Agreement and the Certificate
Regarding Use of Proceeds and this Agreement, the Assignment, the Escrow
Agreement, the Indemnification and Compensation Agreement and the Certificate
Regarding Use of Proceeds have been duly authorized, executed and delivered.
     (c) The officer of Borrower executing this Agreement, the Assignment, the
Escrow Agreement, the Indemnification and Compensation Agreement and the
Certificate Regarding Use of Proceeds and any related documents has been duly
authorized to execute and deliver this Agreement, the Assignment, the Escrow
Agreement, the Indemnification and Compensation Agreement and the Certificate
Regarding Use of Proceeds and such related documents under the terms and
provisions of a resolution of Borrower’s board of directors.
     (d) This Agreement, the Assignment, the Escrow Agreement, the
Indemnification and Compensation Agreement and the Certificate Regarding Use of
Proceeds constitute valid and legally binding obligations of Borrower,
enforceable against Borrower in accordance with their respective terms, except
to the extent limited by bankruptcy, reorganization or other laws of general
application relating to or affecting the enforcement of creditors’ rights.
     (e) The execution and delivery of this Agreement, the Assignment, the
Escrow Agreement, the Indemnification and Compensation Agreement and the
Certificate Regarding Use of Proceeds, the consummation of the transactions
contemplated hereby and the fulfillment of the terms and conditions hereof do
not and will not violate any law, rule, regulation or order, conflict with or
result in a breach of any of the terms or conditions of the articles of
incorporation or bylaws of Borrower or of any corporate restriction or of any
agreement or instrument to which Borrower is now a party and do not and will not
constitute a default under any of the foregoing or result in the creation or
imposition of any liens, charges or encumbrances of any nature upon any of the
property or assets of Borrower contrary to the terms of any instrument or
agreement.

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     (f) The authorization, execution, delivery and performance of this
Agreement by Borrower do not require submission to, approval of, or other action
by any governmental authority or agency, which action with respect to this
Agreement has not been taken and which is final and nonappealable.
     (g) There is no action, suit, proceeding, claim, inquiry or investigation,
at law or in equity, before or by any court, regulatory agency, public board or
body pending or, to the best of Borrower’s knowledge, threatened against or
affecting Borrower, challenging Borrower’s authority to enter into this
Agreement, the Assignment, the Escrow Agreement, the Indemnification and
Compensation Agreement or the Certificate Regarding Use of Proceeds or any other
action wherein an unfavorable ruling or finding would adversely affect the
enforceability of this Agreement, the Assignment, the Escrow Agreement, the
Indemnification and Compensation Agreement or the Certificate Regarding Use of
Proceeds or any other transaction of Borrower which is similar hereto, or the
exclusion of the Interest from gross income for federal tax purposes under the
Code, or would materially and adversely affect the financial condition, business
or properties of Borrower.
     (h) The property at which the Equipment is located is properly zoned for
its current and anticipated use, and the use of the Equipment will not violate
any applicable zoning, land use, environmental or similar law or restriction.
Borrower has all licenses and permits to use the Equipment. Borrower has
obtained all permits, licenses and other authorizations which are required under
federal, state and local laws relating to emissions, discharges, releases of
pollutants, contaminants, hazardous or toxic materials, or wastes into ambient
air, surface water, ground water or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic
materials or wastes (“Environmental Laws”) at Borrower’s facilities or in
connection with the operation of its facilities. Except as previously disclosed
to Lender in writing, Borrower and all activities of Borrower at its facilities
comply with all Environmental Laws and with all terms and conditions of any
required permits, licenses and authorizations applicable to Borrower with
respect thereto. Except as previously disclosed to Lender in writing, Borrower
is also in compliance with all limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
Environmental Laws or contained in any plan, order, decree, judgment or notice
of which Borrower is aware. Except as previously disclosed to Lender in writing,
Borrower is not aware of, nor has Borrower received notice of, any events,
conditions, circumstances, activities, practices, incidents, actions or plans
which may interfere with or prevent continued compliance with, or which may give
rise to any liability under, any Environmental Laws.
     (i) The Equipment is of the type authorized and permitted to be financed
with the proceeds of the Bond pursuant to the Act.
     (j) Borrower owns or will own the Equipment and intends to operate the
Equipment, or cause the Equipment to be operated, as an “economic development
activity,” within the meaning of the Act, until the date on which all of the
Loan Payments have been fully paid or the applicable Prepayment Amount has been
fully paid.
     (k) Borrower will not take any action that would cause the Interest to
become includable in gross income of the recipient for federal income tax
purposes under the Code (including, without limitation, intentional acts under
Treas. Reg. § 1.148-2(c) or deliberate action within the meaning of Treas. Reg.
§ 1.141-2(d)), and Borrower will take and will cause its officers, employees and
agents to take all affirmative actions legally within its power necessary to
ensure that the Interest does not become includable in gross income of the
recipient for federal income tax purposes under the Code (including, without
limitation, the calculation and payment of any rebate required to preserve such
exclusion) and covenants and warrants in particular as follows:
(i) Substantially all of the proceeds of the Bond will be used for the
acquisition, construction, reconstruction or improvement of property of a
character subject to the allowance for depreciation and for the payment of the
costs of issuance of the Bond; no more than two percent of the proceeds of the
Bond shall be used to pay the costs of issuance of the Bond;

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and no portion of the Bond proceeds shall be used for any other purpose except
as otherwise permitted hereby. (ii) The Equipment will be located in
unincorporated Whatcom County, Washington. Borrower will be the only principal
user of the Equipment within the meaning of Section 144(a) of the Code, unless
Borrower provides the Issuer with a written opinion of nationally recognized
bond counsel satisfactory to the Issuer and the Lender to the effect that the
addition of more principal users (together with the Borrower, the “Users”) will
not cause the interest on the Bond to be included in gross income for purposed
of federal income tax. (iii) Other than as disclosed in the Certificate
Regarding Use of Proceeds executed by Borrower, there is not outstanding on the
date of issuance of the Bond any obligations of any state or territory or
possession of the United States, or any political subdivision of the foregoing
or the District of Columbia constituting “exempt small issues” within the
meaning of the Code, the proceeds of which have been or are to be used primarily
with respect to facilities located in unincorporated Whatcom County, Washington,
or in any contiguous political jurisdiction with respect to any contiguous or
integrated facilities, and which are to be used principally by Borrower or any
other “substantial user” within the meaning of Section 147(a) of the Code
including any person “related to” any “substantial user” within the meaning of
Section 147(a) of the Code. (iv) Neither Borrower nor any other “substantial
user” (as defined in the Code), whether jointly or severally, nor any “related
person” (as defined in the Code) has taken any action or permitted any action to
be taken, nor will they take any action or permit any action to be taken, which
would result in the occurrence of a Determination of Taxability. (v) None of the
proceeds of the Bond will be used to provide any airplane, skybox or other
private luxury box, any facility primarily used for gambling, any store the
principal business of which is sale of alcoholic beverages for consumption off
premises, any private or commercial golf course, country club, massage parlor,
tennis club, health club facility (including any handball or racquetball court),
skating facility, hot tub facility, suntan facility or racetrack, or any
facility the primary purpose of which is one of the following: retail food and
beverage services, automobile sales or service or the provision of recreation or
entertainment; none of the proceeds of the Bond will be used with respect to an
enclosed shopping mall, or a strip of offices, stores, or warehouses using
substantial common facilities. (vi) None of the proceeds of the Bond will be
used to acquire agricultural land; less than 25% of the proceeds of the Bond
will be used to acquire other land or any interest therein; and none of the
proceeds of the Bond will be used for the acquisition of property unless the
first use of such property was pursuant to such acquisition. (vii) The payment
of principal of or interest on the Bond will not be guaranteed (in whole or
part) by the United States (or any agency or instrumentality thereof) and no
portion of the proceeds of the sale of the Bond loaned to Borrower pursuant to
this Agreement will be used in such a manner to cause the Bond to be considered
to be federally guaranteed within the meaning of Section 149(b) of the Code.
(viii) The average maturity of the Bond does not exceed 120% of the average
reasonably expected economic life of the Equipment. (ix) As of the date of
issuance of the Bond, the aggregate authorized amount of bonds described in
Section 144(a)(10)(B)(ii) of the Code which can be allocated to any “test period
beneficiary” of the Equipment as such term is defined in Section 144(a)(10)(D)
of the Code (including, but not limited to, the Borrower) did not exceed
$40,000,000.
     (l) Borrower has heretofore furnished to Lender the audited financial
statement of Borrower and/or Guarantor for its fiscal year ended January 31,
2006, January 31, 2005, January 31, 2004 and January 31, 2003 and the unaudited
financial statement of Borrower and/or Guarantor for the months ended April 30,
2006 and April 30, 2005, and those statements fairly present the financial
condition of Borrower and/or Guarantor on the dates thereof and the results of
its operations and cash flows for the periods then ended and were prepared in
accordance with generally accepted accounting principles. Since the date of the
most recent financial statements, there has been no material adverse change in
the business, properties or condition (financial or otherwise) of Borrower or
Guarantor.

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     (m) Borrower has paid or caused to be paid to the proper authorities when
due all federal, state and local taxes required to be withheld by it. Borrower
has filed all federal, state and local tax returns which are required to be
filed, and Borrower has paid or caused to be paid to the respective taxing
authorities all taxes as shown on said returns or on any assessment received by
it to the extent such taxes have become due.
     (n) Borrower has or will have good and absolute title to all Equipment and
all proceeds thereof, free and clear of all mortgages, security interests, liens
and encumbrances except for the security interest created pursuant to this
Agreement.
     (o) Borrower has authorized Lender to file financing statements, and such
financing statements when filed will be sufficient to perfect the security
interest created pursuant to this Agreement. When such financing statements are
filed in the offices noted therein, Lender, as assignee of Issuer and holder of
the Bond, will have a valid and perfected security interest in the Equipment,
subject to no other security interest, assignment, lien or encumbrance. None of
the Equipment is or will become a fixture on real estate. None of the Equipment
constitutes a replacement of, substitution for or accessory to any property of
Borrower subject to a lien of any kind. Borrower owns the real property where
the Equipment will be located subject to no liens or encumbrances of any kind,
except for the mortgage lien in favor of Lender, its successors and assigns.
     (p) Borrower will aid and assist Issuer in connection with preparing and
submitting to the Secretary of the Treasury an IRS Form 8038 (or other
applicable information reporting statement) at the time and in the form required
by the Code.
     (q) Borrower will comply fully at all times with the Certificate Regarding
Use of Proceeds, and Borrower will not take any action, or omit to take any
action, which, if taken or omitted, respectively, would violate the Certificate
Regarding Use of Proceeds.
     (r) Expenses for work done by officers or employees of Borrower in
connection with the Equipment will be included as an Acquisition Cost, if at
all, only to the extent (i) such persons were specifically employed for such
particular purpose, (ii) the expenses do not exceed the actual cost thereof and
(iii) such expenses are treated or capable of being treated (whether or not so
treated) on the books of Borrower as a capital expenditure in conformity with
generally accepted accounting principles applied on a consistent basis.
     (s) Any costs incurred with respect to that part of the Equipment paid from
the Loan Proceeds shall be treated or capable of being treated on the books of
Borrower as capital expenditures in conformity with generally accepted
accounting principles applied on a consistent basis.
     (t) No part of the Loan Proceeds will be used to finance inventory or
rolling stock or will be used for working capital or to finance any other cost
not constituting an Acquisition Cost.
     (u) No person other than Borrower is in occupancy or possession of any
portion of the real property where the Equipment is located.
     (v) The Equipment is property of the character subject to the allowance for
depreciation under Section 167 of the Code.
     (w) Neither Borrower nor any individual or entity owing directly or
indirectly any interest in Borrower, is an individual or entity whose property
or interests are subject to being “blocked” under any of the Terrorism Laws or
is otherwise in violation of any of the Terrorism Laws.

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ARTICLE VI
TITLE TO EQUIPMENT; SECURITY INTEREST
     Section 6.01. Title to Equipment. Legal title to the Equipment and any and
all repairs, replacements, substitutions and modifications to such Equipment
shall be in Borrower. Borrower will at all times protect and defend, at its own
cost and expense, its title from and against all claims, liens and legal
processes of creditors of Borrower, and keep all Equipment free and clear of all
such claims, liens and processes.
     Section 6.02. Security Interest in Equipment. This Agreement is intended to
constitute a security agreement within the meaning of the UCC. As security for
(a) Borrower’s payment to Lender, as assignee of Issuer, of Loan Payments and
all other amounts payable to Lender hereunder, (b) Borrower’s obligations and
liabilities under that certain Tax-Exempt Loan Agreement dated as of March 1,
2003 among Lender, Borrower and Issuer, and (c) any and all other obligations
and liabilities of any kind of Borrower to Lender or any GE Capital Entity
(whether direct or indirect and whether now existing or hereafter acquired),
Borrower hereby grants to Issuer, and Issuer hereby assigns to Lender, a
security interest constituting a first lien on (i) the Equipment, (ii) all
general intangibles, software intangibles and other property relating thereto,
(iii) all accessories, attachments, parts, equipment and repairs now or
hereafter attached or affixed or used in connection with any of the foregoing
property, (iv) all warehouse receipts, bills of lading and other documents of
title now or hereafter covering any of the foregoing property, (v) all
securities, funds, moneys, deposits and other property at any time held in or
subject to the Escrow Fund, (vi) all accessions thereto, (vii) all substitutions
for any of the foregoing property, and (viii) products and proceeds of any of
the foregoing property (including, without limitation, any property acquired by
Borrower with such proceeds). To the extent that the same entity (or an
affiliate thereof) is Lender under this Agreement and any other document or
agreement with Borrower, the security interest in the Equipment shall secure all
of Borrower’s obligations under all such agreements, but shall not secure
Borrower’s obligations under such agreements under which a different entity is
Lender. Borrower ratifies its previous authorization for Lender to pre-file UCC
financing statements and any amendments thereto describing the Equipment and all
other collateral described above and containing any other information required
by the applicable UCC. Borrower authorizes Lender, and hereby grants Lender a
power of attorney (which is coupled with an interest), to file financing
statements and amendments thereto describing the Equipment and containing any
other information required by the applicable UCC and all proper terminations of
the filings of other secured parties with respect to the Equipment, in such form
and substance as Lender, in its sole discretion, may determine. Issuer and
Borrower agree to execute such additional documents, including demands for
terminations, assignments, affidavits, notices and similar instruments, in form
satisfactory to Lender, and take such other actions that Lender deems necessary
or appropriate to establish and maintain the security interest created by this
Section, and Issuer and Borrower hereby designate and appoint Lender as their
agent, and grant to Lender a power of attorney (which is coupled with an
interest), to execute on behalf of Issuer and Borrower, as the case may be, such
additional documents and to take such other actions. Borrower hereby waives any
right that Borrower may have to file with the applicable filing officer any
financing statement, amendment, termination or other record pertaining to the
Equipment and/or Lender’s interest therein. If requested by Lender, Borrower
shall obtain a landlord and/or mortgagee’s consent and waiver with respect to
the property where the Equipment is located. If requested by Lender, Borrower
shall conspicuously mark the Equipment with appropriate lettering, labels or
tags, and maintain such markings, so as clearly to disclose Lender’s security
interest in the Equipment.
     Section 6.03. Change in Name or Corporate Structure of Borrower; Change in
Location of Borrower’s Chief Executive Office or Principal Executive Office.
Borrower’s chief executive office and principal executive office are located at
the address set forth above, and all of Borrower’s records relating to its
business and the Equipment are kept at such location. Borrower hereby agrees to
provide written notice to Lender and Issuer of any change or proposed change in
its name, corporate structure, chief executive office or principal executive
office or change or proposed change in the location of the Equipment. Such
notice shall be provided 30 days in advance of the date that such change or
proposed change is planned to take effect. Borrower does business, and has done
business, only under its own name and the trade names, if any, set forth on the
execution page hereof.
     Section 6.04. Liens and Encumbrances to Title. Borrower shall not, directly
or indirectly, create, incur, assume or suffer to exist any mortgage, deed of
trust, pledge, lien, charge, encumbrance or claim (together, “Liens”) on or with
respect to the Equipment or on or with respect to the real property where the
Equipment will be located other

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than the respective rights of Lender and Issuer as herein provided; provided,
however, Borrower may create, incur, assume or suffer to exist a mortgage, deed
of trust or similar lien on the real property where the Equipment will be
located if Borrower provides Lender with a mortgagee’s waiver or similar waiver
in form and substance acceptable to Lender. Borrower shall promptly, at its own
expense, take such action as may be necessary to discharge or remove any such
Lien or to provide Lender with a mortgagee’s waiver or similar waiver. Borrower
shall reimburse Lender for any expenses incurred by Lender to discharge or
remove any Lien or for obtaining such waiver.
     Section 6.05. Personal Property. The parties hereby agree that the
Equipment is, and during the period this Agreement is in force will remain,
personal property and, when subjected to use by Borrower hereunder, will not be
or become fixtures; provided, however, that if contrary to the parties’ intent
the Equipment is or may be deemed to be a fixture, Borrower shall cause filings
to be made with the applicable government officials or filing offices to create
and preserve for Lender as assignee of Issuer a perfected first priority
security interest in the Equipment.
     Section 6.06. Assignment of Insurance. As additional security for the
payment and performance of Borrower’s obligations hereunder, Borrower hereby
assigns to Lender, as assignee of Issuer, any and all moneys (including, without
limitation, proceeds of insurance and refunds of unearned premiums) due or to
become due under, and all other rights of Borrower with respect to, any and all
policies of insurance now or at any time hereafter covering the Equipment or any
evidence thereof or any business records or valuable papers pertaining thereto,
and Borrower hereby directs the issuer of any such policy to pay all such moneys
directly to Lender. Borrower hereby assigns to Lender, as assignee of Issuer,
any and all moneys due or to become due with respect to any condemnation
proceeding affecting the Equipment. At any time, whether before or after the
occurrence of any Event of Default, Lender may (but need not), in Lender’s name
or in Borrower’s name, execute and deliver proof of claim, receive all such
moneys, endorse checks and other instruments representing payment of such
moneys, and adjust, litigate, compromise or release any claim against the issuer
of any such policy or party in any condemnation proceeding.
     Section 6.07. Occupancy. (a) Borrower hereby irrevocably grants to Lender
the right to occupy the property where the Equipment is located (the “Premises”)
at any time after the occurrence and during the continuance of an Event of
Default.
     (b) Lender may occupy the Premises only to hold, sell, store, liquidate,
realize upon or otherwise dispose of the Equipment and for other purposes that
Lender may in good faith deem to be related or incidental purposes.
     (c) The right of Lender to occupy the Premises shall cease and terminate
upon the earlier of (i) payment in full and discharge of all obligations of
Borrower and Issuer hereunder, and (ii) final sale or disposition of all of the
Equipment and delivery of all such Equipment to purchasers.
     (d) Lender shall not be obligated to pay or account for any rent or other
compensation for the occupancy of the Premises. Borrower will pay, or reimburse
Lender for, all taxes, fees, duties, levies, charges and expenses at any time
incurred by or imposed upon Lender by reason of the execution, delivery,
existence, recordation, performance or enforcement of this Section.
     Section 6.08. Agreement as Financing Statement. To the extent permitted by
applicable law, a carbon, photographic or other reproduction of this Agreement
or of any financing statements signed by Borrower is sufficient as a financing
statement in any state to perfect the security interests granted in this
Agreement.
ARTICLE VII
AFFIRMATIVE COVENANTS OF BORROWER
     So long as the Loan shall remain unpaid, Borrower will comply with the
following requirements:
     Section 7.01. Reporting Requirements. Borrower will deliver, or cause to be
delivered, to Lender each of the following, which shall be in form and detail
acceptable to Lender:
     (a) as soon as available, and in any event within 120 days after the end of
each fiscal year of Borrower and Guarantor, consolidated audited financial
statements of Borrower and Guarantor with the unqualified opinion of independent
certified public accountants selected by Borrower and Guarantor and acceptable
to Lender, which annual consolidated financial statements shall include the
balance sheet of Borrower and

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Guarantor as at the end of such fiscal year and the related statements of
income, retained earnings and cash flows of Borrower and Guarantor for the
fiscal year then ended, all in reasonable detail and prepared in accordance with
generally accepted accounting principles applied on a consistent basis, together
with (i) a report signed by such accountants stating that in making the
investigations necessary for said opinion they obtained no knowledge, except as
specifically stated, of any Default or Event of Default hereunder and all
relevant facts in reasonable detail to evidence, and the computations as to,
whether or not Borrower and Guarantor are in compliance with the requirements
set forth in Sections 7.09 through 7.11 hereof; and (ii) a certificate of the
chief financial officer of Borrower or Guarantor in the form of Exhibit F hereto
stating that such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis and
whether or not such officer has knowledge of the occurrence of any Default or
Event of Default hereunder and, if so, stating in reasonable detail the facts
with respect thereto;
     (b) as soon as available and in any event within 90 days after the end of
each fiscal quarter of Borrower and Guarantor, a consolidated unaudited/internal
balance sheet and statements of income and retained earnings of Borrower and
Guarantor as at the end of and for such quarter and for the year to date period
then ended, in reasonable detail and stating in comparative form the figures for
the corresponding date and periods in the previous year, all prepared in
accordance with generally accepted accounting principles applied on a consistent
basis and certified by the chief financial officer of Borrower or Guarantor,
subject to year-end audit adjustments; and accompanied by a certificate of that
officer in the form of Exhibit F hereto stating (i) that such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis, (ii) whether or not such officer has
knowledge of the occurrence of any Default or Event of Default hereunder not
theretofore reported and remedied and, if so, stating in reasonable detail the
facts with respect thereto, and (iii) all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not Borrower and Guarantor are
in compliance with the requirements set forth in Sections 7.09 through 7.11
hereof;
     (c) immediately after the commencement thereof, notice in writing of all
litigation and of all proceedings before any governmental or regulatory agency
affecting Borrower or Guarantor of the type described in Article V hereof or
which seek a monetary recovery against Borrower or Guarantor in excess of
$100,000;
     (d) as promptly as practicable (but in any event not later than five
Business Days) after an officer of Borrower obtains knowledge of the occurrence
of any event that constitutes a Default or an Event of Default hereunder, notice
of such occurrence, together with a detailed statement by a responsible officer
of Borrower of the steps being taken by Borrower to cure the effect of such
Default or Event of Default;
     (e) promptly upon knowledge thereof, notice of any loss or destruction of
or damage to any Equipment or of any material adverse change in any Equipment;
     (f) promptly upon their distribution, copies of all financial statements,
reports and proxy statements that Borrower shall have sent to its stockholders;
     (g) promptly after the amending thereof, copies of any and all amendments
to its certificate of incorporation, articles of incorporation or bylaws;
     (h) promptly upon knowledge thereof, notice of the violation by Borrower of
any law, rule or regulation;
     (i) as soon as available, and in any event within 120 days after the end of
each fiscal year of Borrower and Guarantor forecasts and projections of
Borrower’s and Guarantor’s financial results for the current fiscal year,
together with a balance sheet, an income statement and supporting facts and
assumptions used to formulate such forecasts and projections;
     (j) within 30 days of request by Lender, evidence satisfactory to Lender
that Borrower has complied with the capital expenditure limitations of Code
section 144(a)(4);

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     (k) promptly upon knowledge thereof, notice of any material adverse change
in the financial or operating condition of Borrower or Guarantor; and
     (l) a copy of any notice of inquiry or audit from the Internal Revenue
Service promptly upon receipt thereof.
     Section 7.02. Books and Records; Inspection and Examination. Borrower will
keep accurate books of record and account for itself pertaining to the Equipment
and pertaining to Borrower’s business and financial condition and such other
matters as Lender may from time to time request in which true and complete
entries will be made in accordance with generally accepted accounting principles
consistently applied and, upon request of Lender, will permit any officer,
employee, attorney or accountant for Lender to audit, review, make extracts
from, or copy any and all corporate and financial books, records and properties
of Borrower at all times during ordinary business hours, and to discuss the
affairs of Borrower with any of its directors, officers, employees or agents.
Borrower will permit Lender, or its employees, accountants, attorneys or agents,
to examine and copy any or all of its records and to examine and inspect the
Equipment at any time during Borrower’s business hours.
     Section 7.03. Compliance With Laws; Environmental Indemnity. Borrower will
(a) comply with the requirements of applicable laws and regulations, the
noncompliance with which would materially and adversely affect its business or
its financial condition, (b) comply with all applicable Environmental Laws and
regulations and obtain any permits, licenses or similar approvals required by
any such laws or regulations and (c) use and keep the Equipment, and will
require that others use and keep the Equipment, only for lawful purposes,
without violation of any federal, state or local law, statute or ordinance.
Borrower shall secure all permits and licenses, if any, necessary for the
installation and operation of the Equipment. Borrower shall comply in all
respects (including, without limitation, with respect to the use, maintenance
and operation of each item of the Equipment) with all laws of the jurisdictions
in which its operations involving any component of Equipment may extend and of
any legislative, executive, administrative or judicial body exercising any power
or jurisdiction over the items of the Equipment or its interest or rights under
this Agreement. Borrower will indemnify, defend and hold Lender harmless from
and against any claims, loss or damage to which Lender may be subjected as a
result of any past, present or future existence, use, handling, storage,
transportation or disposal of any hazardous waste or substance or toxic
substance by Borrower or on property owned, leased or controlled by Borrower.
This indemnification shall survive the termination of this Agreement and payment
of the indebtedness hereunder and under the Bond.
     Section 7.04. Payment of Taxes and Other Claims. Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits, upon any properties belonging
to it (including, without limitation, the Equipment) or upon or against the
creation, perfection or continuance of the security interest created pursuant to
this Agreement, prior to the date on which penalties attach thereto, (b) all
federal, state and local taxes required to be withheld by it, and (c) all lawful
claims for labor, materials and supplies which, if unpaid, might by law become a
lien or charge upon any properties of Borrower; provided, that Borrower shall
not be required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings. Borrower will pay, as the same respectively come due, all taxes and
governmental charges of any kind whatsoever that may at any time be lawfully
assessed or levied against or with respect to the Equipment, as well as all gas,
water, steam, electricity, heat, power, telephone, utility and other charges
incurred in the operation, maintenance, use, occupancy and upkeep of the
Equipment.
     Section 7.05. Maintenance of Equipment. (a) Borrower shall, at its own
expense, maintain, preserve and keep the Equipment in good repair, working order
and condition, and shall from time to time make all repairs and replacements
necessary to keep the Equipment in such condition, and in compliance with state
and federal laws, ordinary wear and tear excepted. Borrower shall maintain the
Equipment in a condition suitable for certification by the manufacturer thereof
(if certification is available) and in conformance with all manufacturer’s
recommended maintenance requirements. In the event that any parts or accessories
forming part of any item or items of Equipment become worn out, lost, destroyed,
damaged beyond repair or otherwise rendered unfit for use, Borrower, at its own
expense and expeditiously, will replace or cause the replacement of such parts
or accessories by replacement parts or accessories free and clear of all liens
and encumbrances and with a value and utility at least equal to that of the
parts or accessories being replaced (assuming that such replaced parts and
accessories were otherwise in good working order and repair). All such
replacement parts and accessories shall be deemed to be incorporated immediately
into

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and to constitute an integral portion of the Equipment and, as such, shall be
subject to the terms of this Agreement. Neither Lender nor Issuer shall have any
responsibility in any of these matters, or for the making of improvements or
additions to the Equipment.
     (b) Borrower will defend the Equipment against all claims or demands of all
persons (other than Lender) claiming the Equipment or any interest therein.
     (c) Borrower will keep the Equipment free and clear of all security
interests, liens and encumbrances except the security interest created pursuant
to this Agreement.
     Section 7.06. Insurance. (a) Borrower shall, at its own expense, procure
and maintain continuously in effect: (i) public liability insurance for personal
injuries, death or damage to or loss of property arising out of or in any way
relating to the Equipment sufficient to protect Lender from liability in all
events, with a coverage limit of not less than $1,000,000 per occurrence unless
a different coverage minimum with respect to particular Equipment is required by
Lender, and (ii) insurance against such hazards as Lender may require,
including, but not limited to, all-risk casualty and property insurance, in an
amount equal to the greater of the full replacement cost of the Equipment with
new equipment having substantially similar specifications or the applicable
Prepayment Amount.
     (b) If required by State law, Borrower shall carry workers’ compensation
insurance covering all employees on, in, near or about the Equipment, and upon
request, shall furnish to Lender certificates evidencing such coverage.
     (c) All insurance policies required by this Article shall be taken out and
maintained with insurance companies acceptable to Lender; and shall contain a
provision that the insurer shall not cancel or revise coverage thereunder
without giving written notice to the insured parties at least 30 days before the
cancellation or revision becomes effective. No insurance shall be subject to any
co-insurance clause. Each insurance policy required by this Article shall name
Lender as an additional insured party and loss payee without regard to any
breach of warranty or other act or omission of Borrower and shall include a
lender’s loss payable endorsement for the benefit of Lender. Prior to the
delivery of Equipment, Borrower shall deposit with Lender evidence satisfactory
to Lender of such insurance and, prior to the expiration thereof, shall provide
Lender evidence of all renewals or replacements thereof.
     (d) As among Lender, Borrower and Issuer, Borrower assumes all risks and
liabilities from any cause whatsoever, whether or not covered by insurance, for
loss or damage to any Equipment and for injury to or death of any person or
damage to any property, whether such injury or death be with respect to agents
or employees of Borrower or of third parties, and whether such property damage
be to Borrower’s property or the property of others. Whether or not covered by
insurance, Borrower hereby assumes responsibility for and agrees to reimburse
Lender and Issuer for and will indemnify, defend and hold Lender and Issuer
harmless from and against all liabilities, obligations, losses, damages,
penalties, claims, actions, costs and expenses (including reasonable attorneys’
fees) of whatsoever kind and nature, imposed on, incurred by or asserted against
Lender or Issuer that in any way relate to or arise out of this Agreement, the
transactions contemplated hereby and the Equipment, including but not limited
to, (i) the selection, manufacture, purchase, acceptance or rejection of
Equipment or the ownership of the Equipment, (ii) the delivery, lease,
possession, maintenance, use, condition, return or operation of the Equipment,
(iii) the condition of the Equipment sold or otherwise disposed of after
possession by Borrower, (iv) any patent or copyright infringement, (v) the
conduct of Borrower, its officers, employees and agents, (vi) a breach of
Borrower of any of its covenants or obligations hereunder and (vii) any claim,
loss, cost or expense involving alleged damage to the environment relating to
the Equipment, including, but not limited to investigation, removal, cleanup and
remedial costs. All amounts payable by Borrower pursuant to the immediately
preceding sentence shall be paid immediately upon demand of Issuer or Lender, as
the case may be. This provision shall survive the termination of this Agreement.
     Section 7.07. Preservation of Corporate Existence. Borrower will preserve
and maintain its corporate existence and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its business; and
shall conduct its business in an orderly, efficient and regular manner.
     Section 7.08. Performance by Lender. If Borrower at any time fails to
perform or observe any of the covenants or agreements contained in this
Agreement, and if such failure shall continue for a period of 10 calendar days
after Lender gives Borrower written notice thereof (or in the case of the
agreements contained in Sections 7.05 and 7.06

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hereof, immediately upon the occurrence of such failure, without notice or lapse
of time), Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of Borrower (or, at Lender’s option, in
Lender’s name) and may, but need not, take any and all other actions which
Lender may reasonably deem necessary to cure or correct such failure (including,
without limitation, the payment of taxes, the satisfaction of security
interests, liens or encumbrances, the performance of obligations owed to account
debtors or other obligors, the procurement and maintenance of insurance, the
execution of assignments, security agreements and financing statements, and the
endorsement of instruments); and Borrower shall thereupon pay to Lender on
demand the amount of all moneys expended by Lender and all costs and expenses
(including reasonable attorneys’ fees and legal expenses) incurred by Lender in
connection with or as a result of the performance or observance of such
agreements or the taking of such action by Lender, together with interest
thereon from the date expended or incurred at the lesser of 18% per annum or the
highest rate permitted by law. To facilitate the performance or observance by
Lender of such covenants of Borrower, Borrower hereby irrevocably appoints
Lender, or the delegate of Lender, acting alone, as the attorney in fact of
Borrower with the right (but not the duty) from time to time to create, prepare,
complete, execute, deliver, endorse or file in the name and on behalf of
Borrower any and all instruments, documents, assignments, security agreements,
financing statements, applications for insurance and other agreements and
writings required to be obtained, executed, delivered or endorsed by Borrower
under this Agreement.
     Section 7.09. Ratio of Debt to Tangible Net Worth. Borrower and Guarantor,
on a consolidated basis, shall maintain at all times its ratio of Debt (as
defined below) to Tangible Net Worth (as defined below) at not more than 1.50 to
1.00. “Debt” shall mean (i) all items of indebtedness or liability which in
accordance with generally accepted accounting principles or federal tax law
would be included in determining total liabilities as shown on the liabilities
side of a balance sheet, (ii) indebtedness secured by any mortgage, pledge, lien
or security interest existing on property owned by Borrower and Guarantor,
whether or not the indebtedness secured thereby shall have been assumed, and
(iii) guaranties and endorsements (other than for purposes of collection in the
ordinary course of business) by Borrower or Guarantor and other contingent
obligations of Borrower or Guarantor in respect of, or to purchase or otherwise
acquire, indebtedness of others. “Tangible Net Worth” means the excess of:
     (a) the tangible assets of Borrower and Guarantor, which, in accordance
with generally accepted accounting principles, are tangible assets, after
deducting adequate reserves in each case where, in accordance with generally
accepted accounting principles, a reserve is proper over
     (b) all Debt of Borrower and Guarantor;
provided, however, that (i) inventory shall be taken into account on the basis
of the cost (determined on a first-in, first-out basis) or current market value,
whichever is lower, (ii) in no event shall there be included as such tangible
assets patents, trademarks, trade names, copyrights, licenses, good will,
advances or loans to, or receivables from, directors, officers, employees or
affiliates, prepaid or intangible assets, amounts relating to covenants not to
compete, pensions assets, deferred charges or treasury stock or any securities
or Debt of Borrower or Guarantor or any other securities unless the same are
readily marketable in the United States of America or entitled to be used as a
credit against federal income tax liabilities, (iii) securities included as such
tangible assets shall be taken into account at their current market price or
cost, whichever is lower, and (iv) any write-up in the book value of any assets
shall not be taken into account.
     Section 7.10. Debt Service Coverage Ratio of Borrower. Borrower and
Guarantor, on a consolidated basis, shall maintain for each fiscal year its Debt
Service Coverage Ratio (as defined below) at not less than 1.75 to 1.00 “Debt
Service Coverage Ratio” means the ratio of (i) Borrower’s and Guarantor’s Cash
Flow Available for Debt Service (as defined below) to (ii) Borrower’s and
Guarantor’s Debt Service (as defined below). “Cash Flow Available for Debt
Service” of Borrower and Guarantor means, with respect to the applicable period
of determination, Borrower’s and Guarantor’s income, plus interest expense,
depreciation, amortization and other non-cash charges. “Debt Service” of
Borrower and Guarantor means, with respect to the applicable period of
determination, the aggregate of (i) interest expense of Borrower and Guarantor,
(ii) all installments of principal on Debt of Borrower and Guarantor that are
due on demand or during the period of determination, (iii) all installments of
rent under capitalized lease obligations (to the extent not already accounted
for in computation of net income or Debt) of Borrower and Guarantor that are due
on demand or during the period of determination and (iv) distributions and
dividends to stockholders and advances to affiliates of Borrower and Guarantor
during the period of determination.

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     Section 7.11. Tangible Net Worth. Borrower and Guarantor, on a consolidated
basis, shall maintain its Tangible Net Worth (as defined in Section 7.09 hereof)
at all times at not less than $12,000,000.
ARTICLE VIII
NEGATIVE COVENANTS OF BORROWER
     So long as the Loan and the Bond shall remain unpaid, Borrower agrees that:
     Section 8.01. Lien. Borrower will not create, incur or suffer to exist any
mortgage, deed of trust, pledge, lien, security interest, assignment or transfer
upon or of any of the Equipment except for the security interest created
pursuant to this Agreement.
     Section 8.02. Sale of Assets. Neither Borrower nor Guarantor will sell,
lease, assign, transfer or otherwise dispose of all or a substantial part of its
assets or of any of the Equipment or any interest therein (whether in one
transaction or in a series of transactions).
     Section 8.03. Consolidation and Merger. Neither Borrower nor Guarantor will
consolidate with or merge into any person, or permit any other person to merge
into it, or acquire (in a transaction analogous in purpose or effect to a
consolidation or merger) all or substantially all of the assets of any other
person.
     Section 8.04. Accounting. Neither Borrower nor Guarantor will adopt, permit
or consent to any material change in accounting principles other than as
required by generally accepted accounting principles. Neither Borrower nor
Guarantor will adopt, permit or consent to any change in its fiscal year.
     Section 8.05. Transfers. Neither Borrower nor Guarantor will in any manner
transfer any property without prior or present receipt of full and adequate
consideration.
     Section 8.06. Place of Business. Borrower will not permit any of the
Equipment or any records pertaining to the Equipment to be located in any state
or area in which, in the event of such location, a financing statement covering
such Equipment would be required to be, but has not in fact been, filed in order
to perfect the security interest created pursuant to this Agreement.
     Section 8.07. Modifications and Substitutions. (a) Borrower will not make
any material alterations, modifications or additions to the Equipment which
cannot be removed without materially damaging the functional capabilities or
economic value of the Equipment. Upon return of the Equipment to Lender and at
the request of Lender, Borrower, at its sole cost and expense, will remove all
alterations, modifications and additions and repair the Equipment as necessary
to return the Equipment to the condition in which it was furnished, ordinary
wear and tear and permitted modifications excepted.
     (b) Notwithstanding the provisions of subparagraph (a) of this Section,
Borrower may, with the prior written consent of Lender, substitute for parts,
elements, portions or all of the Equipment, other parts, elements, portions,
equipment or facilities; provided, however, that any substitutions made pursuant
to Borrower’s obligations to make repairs referenced under any provision of this
Agreement shall not require such prior written consent. Borrower shall provide
such documents or assurances as Lender may reasonably request to maintain or
confirm the security interest assigned to Lender in the Equipment as so modified
or substituted.
     Section 8.08. Use of the Equipment. Borrower will not install, use, operate
or maintain the Equipment improperly, carelessly, in violation of any applicable
law or in a manner contrary to that contemplated by this Agreement.

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ARTICLE IX
DAMAGE AND DESTRUCTION; USE OF NET PROCEEDS
     Borrower shall provide a complete written report to Lender immediately upon
any loss, theft, damage or destruction of any Equipment and of any accident
involving any Equipment. If all or any part of the Equipment is lost, stolen,
destroyed or damaged beyond repair (“Damaged Equipment”), Borrower shall as soon
as practicable after such event either: (a) replace the same at Borrower’s sole
cost and expense with equipment having substantially similar specifications and
of equal or greater value to the Damaged Equipment immediately prior to the time
of the loss occurrence, such replacement equipment to be subject to Lender’s
approval, whereupon such replacement equipment shall be substituted in this
Agreement and the other related documents by appropriate endorsement or
amendment; or (b) pay the applicable Prepayment Amount of the Damaged Equipment.
Borrower shall notify Lender of which course of action it will take within 15
calendar days after the loss occurrence. If, within 45 calendar days of the loss
occurrence, (a) Borrower fails to notify Lender; (b) Borrower and Lender fail to
execute an amendment to this Agreement to delete the Damaged Equipment and add
the replacement equipment or (c) Borrower fails to pay the applicable Prepayment
Amount, then Lender may, at its sole discretion, declare the applicable
Prepayment Amount to be immediately due and payable, and Borrower is required to
pay the same. The Net Proceeds of insurance with respect to the Damaged
Equipment shall be made available by Lender to be applied to discharge
Borrower’s obligation under this Article. The payment of the Prepayment Amount
and the termination of Lender’s interest in the Damaged Equipment is subject to
the terms of Section 2.07 hereof. For purposes of this Article, the term “Net
Proceeds” shall mean the amount remaining from the gross proceeds of any
insurance claim or condemnation award after deducting all expenses (including
reasonable attorneys’ fees) incurred in the collection of such claim or award.
ARTICLE X
ASSIGNMENT, SUBLEASING AND SELLING
     Section 10.01. Assignment by Lender. This Agreement, and the obligations of
Borrower to make payments hereunder, may be assigned and reassigned in whole or
in part to one or more assignees or subassignees (who shall be the purchaser of
the Bond or an interest therein) by Lender at any time subsequent to its
execution, without the necessity of obtaining the consent of Issuer (except as
stated below) or Borrower; provided, however, that no such assignment or
reassignment shall be effective unless and until (a) Issuer and Borrower shall
have received notice of the assignment or reassignment disclosing the name and
address of the assignee or subassignee, which notice Issuer shall maintain as
evidence of the ownership and registration of the Bond, and (b) in the event
that such assignment or reassignment is made to a bank or trust company as
trustee for holders of certificates representing interests in this Agreement and
the Bond, Issuer shall have consented in writing to such assignment or
reassignment and such bank or trust company agrees to maintain, or cause to be
maintained, a book-entry system by which a record of the names and addresses of
such holders as of any particular time is kept and agrees, upon request of
Issuer or Borrower, to furnish such information to Issuer or Borrower. Upon
receipt of notice of assignment, Borrower will reflect in a book-entry the
assignee designated in such notice of assignment, and shall agree to make all
payments to the assignee designated in the notice of assignment, notwithstanding
any claim, defense, setoff or counterclaim whatsoever (whether arising from a
breach of this Agreement or otherwise) that Issuer and Borrower may from time to
time have against Lender or the assignee. Issuer and Borrower agree to execute
all documents, including notices of assignment and chattel mortgages, which may
be reasonably requested by Lender or its assignee to protect their interest in
the Equipment and in this Agreement.
     Section 10.02. No Sale or Assignment by Borrower. This Agreement and the
interest of Borrower in the Equipment may not be sold, assumed, assigned or
encumbered by Borrower.
ARTICLE XI
EVENTS OF DEFAULT AND REMEDIES
     Section 11.01. Events of Default. The following constitute “Events of
Default” under this Agreement:

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     (a) failure by Borrower to pay to Lender, as assignee of Issuer, when due
any Loan Payment or to pay any other payment required to be paid hereunder and
the continuation of such failure for a period of 10 days;
     (b) failure by Borrower to maintain insurance on the Equipment in
accordance with Section 7.06 hereof;
     (c) failure by Borrower and/or Guarantor to comply with the provisions of
Sections 7.09, 7.10, 7.11, 8.01, 8.02 or 8.03 hereof;
     (d) failure by Borrower, Issuer or Guarantor, as the case may be, to
observe and perform any other covenant, condition or agreement contained herein,
in the Escrow Agreement, in the No-Arbitrate Certificate, in the Certificate
Regarding Use of Proceeds, in the Guaranty Agreement or in any other document or
agreement executed in connection herewith on its part to be observed or
performed for a period of 30 days after written notice is given to Borrower,
Issuer or Guarantor, as the case may be, specifying such failure and directing
that it be remedied; provided, however, that, if the failure stated in such
notice cannot be corrected within such 30-day period, Lender will not
unreasonably withhold its consent to an extension of such time if corrective
action is instituted by Borrower, Issuer or Guarantor, as the case may be,
within the applicable period and diligently pursued until the default is
corrected;
     (e) initiation by Issuer of a proceeding under any federal or state
bankruptcy or insolvency law seeking relief under such laws concerning the
indebtedness of Issuer;
     (f) Borrower or Guarantor shall be or become insolvent, or admit in writing
its inability to pay its debts as they mature, or make an assignment for the
benefit of creditors; or Borrower or Guarantor shall apply for or consent to the
appointment of any receiver, trustee or similar officer for it or for all or any
substantial part of its property; or such receiver, trustee or similar officer
shall be appointed without the application or consent of Borrower or Guarantor,
as the case may be; or Borrower or Guarantor shall institute (by petition,
application, answer, consent or otherwise) any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution, liquidation or
similar proceeding relating to it under the laws of any jurisdiction; or any
such proceeding shall be instituted (by petition, application or otherwise)
against Borrower or Guarantor; or any judgment, writ, warrant of attachment or
execution or similar process shall be issued or levied against a substantial
part of the property of Borrower or Guarantor;
     (g) determination by Lender that any representation or warranty made by
Borrower, Issuer or Guarantor herein, in the No-Arbitrage Certificate, in the
Certificate Regarding Use of Proceeds, in the Guaranty Agreement or in any other
document executed in connection herewith was untrue in any material respect when
made;
     (h) an Event of Taxability shall occur;
     (i) an amendment or termination relating to a filed financing statement
describing any of the Equipment is improperly filed;
     (j) the occurrence of a default or an event of default under any
instrument, agreement or other document evidencing, relating to or securing any
indebtedness or other monetary obligation of Borrower or Guarantor;
     (k) Guarantor shall repudiate, purport to revoke or fail to perform its
obligations under the Guaranty Agreement;
     (l) ownership of the stock of Borrower changes during the period that the
Loan is outstanding (Borrower hereby acknowledges that Lender has made its
decision to enter into the transactions contemplated hereby based upon the
management expertise of Guarantor, the current stockholder of Borrower, and its
ownership of the stock of Borrower); or

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          (m) the occurrence of a default or an event of default (however
defined) under any agreement between or among Lender or any GE Capital Entity
and Borrower, including without limitation, that certain Tax-Exempt Loan
Agreement dated as of March 1, 2003 among Lender, Borrower and Issuer.
     Section 11.02. Remedies on Default. Whenever an Event of Default described
in Section 11.01(f) hereof shall have occurred, the Prepayment Amount
automatically shall be due and payable, whereupon the Prepayment Amount
automatically shall become and be forthwith due and payable without presentment,
notice of dishonor, protest or further notice of any kind, all of which are
hereby expressly waived by Borrower. Whenever any other Event of Default shall
have occurred, Lender, as assignee of Issuer, shall have the right, at its sole
option without any further demand or notice, to take any one or any combination
of the following remedial steps insofar as the same are available to secured
parties under Article 9 of the UCC in effect in the State from time to time and
which are otherwise accorded to Lender, as assignee of Issuer, by applicable
law:
     (a) by notice to Issuer and Borrower, declare the Prepayment Amount to be
forthwith due and payable, whereupon the Prepayment Amount shall become and be
forthwith due and payable, without presentment, notice of dishonor, protest or
further notice of any kind, all of which are hereby expressly waived by
Borrower;
     (b) take possession of the Equipment wherever situated, without any court
order or other process of law and without liability for entering the premises,
and lease, sublease or make other disposition of the Equipment for use over a
term in a commercially reasonable manner, all for the account of Lender,
provided that Borrower shall remain directly liable for the deficiency, if any,
between the rent or other amounts paid by a lessee or sublessee of the Equipment
pursuant to such lease or sublease during the same period of time, after
deducting all costs and expenses, including reasonable attorneys’ fees and
expenses, incurred with respect to the recovery, repair and storage of the
Equipment during such period of time;
     (c) take possession of the Equipment wherever situated, without any court
order or other process of law and without liability for entering the premises,
and sell the Equipment in a commercially reasonable manner. All proceeds from
such sale shall be applied in the following manner:
     FIRST, to pay all proper and reasonable costs and expenses associated with
the recovery, repair, storage and sale of the Equipment, including reasonable
attorneys’ fees and expenses;
     SECOND, to pay (i) Lender the amount of all unpaid Loan Payments or other
obligations (whether direct or indirect owed by Borrower to Lender), if any,
which are then due and owing, together with interest and late charges thereon,
(ii) Lender the then applicable Prepayment Amount (taking into account the
payment of past-due Loan Payments as aforesaid), plus a pro rata allocation of
interest, at the rate utilized to calculate the Loan Payments, from the next
preceding due date of a Loan Payment until the date of payment by the buyer, and
(iii) any other amounts due hereunder, including indemnity payments, taxes,
charges, reimbursement of any advances and other amounts payable to Lender or
Issuer hereunder; and
     THIRD, to pay the remainder of the sale proceeds, purchase moneys or other
amounts paid by a buyer of the Equipment to Borrower;
     (d) proceed by appropriate court action to enforce specific performance by
Issuer or Borrower of the applicable covenants of this Agreement or to recover
for the breach thereof, including the payment of all amounts due from Borrower.
Borrower shall pay or repay to Lender or Issuer all costs of such action or
court action, including, without limitation, reasonable attorneys’ fees; and
     (e) take whatever action at law or in equity that may appear necessary or
desirable to enforce its rights with respect to the Equipment. Borrower shall
pay or repay to Lender or Issuer all costs of such action or court action,
including, without limitation, reasonable attorneys’ fees.
     Notwithstanding any other remedy exercised hereunder, Borrower shall remain
obligated to pay to Lender any unpaid portion of the Prepayment Amount.

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     Section 11.03. Return of Equipment. Upon an Event of Default, Borrower
shall within 10 calendar days after notice from Lender, at its own cost and
expense: (a) perform any testing and repairs required to place the Equipment in
the condition required by Article VII; (b) if deinstallation, disassembly or
crating is required, cause the Equipment to be deinstalled, disassembled and
crated by an authorized manufacturer’s representative or such other service
person as is satisfactory to Lender; and (c) deliver the Equipment to a location
specified by Lender, freight and insurance prepaid by Borrower. If Borrower
refuses to deliver the Equipment in the manner designated, Lender may enter upon
Borrower’s premises where the Equipment is kept and take possession of the
Equipment and charge to Borrower the costs of such taking. Borrower hereby
expressly waives any damages occasioned by such taking.
     Section 11.04. No Remedy Exclusive. No remedy herein conferred upon or
reserved to Lender or Issuer is intended to be exclusive and every such remedy
shall be cumulative and shall be in addition to every other remedy given under
this Agreement or now or hereafter existing at law or in equity. No delay or
omission to exercise any right or power accruing upon any Event of Default shall
impair any such right or power or shall be construed to be a waiver thereof, but
any such right or power may be exercised from time to time and as often as may
be deemed expedient. In order to entitle Lender or Issuer to exercise any remedy
reserved to it in this Article, it shall not be necessary to give any notice
other than such notice as may be required by this Article. All remedies herein
conferred upon or reserved to Lender or Issuer shall survive the termination of
this Agreement.
     Section 11.05. Late Charge. Any Loan Payment not paid by Borrower on the
due date thereof shall, to the extent permissible by law, bear a late charge
equal to the lesser of five cents ($.05) per dollar of the delinquent amount or
the lawful maximum, and Borrower shall be obligated to pay the same immediately
upon receipt of Lender’s written invoice therefor.
ARTICLE XII
MISCELLANEOUS
     Section 12.01. Costs and Expenses of Lender. Borrower shall pay to Lender,
in addition to the Loan Payments payable by Borrower hereunder, such amounts in
each year as shall be required by Lender in payment of any reasonable costs and
expenses incurred by Lender in connection with the execution, performance or
enforcement of this Agreement, including but not limited to payment of all
reasonable fees, costs and expenses and all administrative costs of Lender in
connection with the Equipment, expenses (including, without limitation,
attorneys’ fees and disbursements), fees of auditors or attorneys, insurance
premiums not otherwise paid hereunder and all other direct and necessary
administrative costs of Lender or charges required to be paid by it in order to
comply with the terms of, or to enforce its rights under, this Agreement. Such
costs and expenses shall be billed to Borrower by Lender from time to time,
together with a statement certifying that the amount so billed has been paid by
Lender for one or more of the items above described, or that such amount is then
payable by Lender for such items. Amounts so billed shall be due and payable by
Borrower within 30 days after receipt of the bill by Borrower.
     Section 12.02. Disclaimer of Warranties. LENDER AND ISSUER MAKE NO WARRANTY
OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN,
CONDITION, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR FITNESS FOR
USE OF THE EQUIPMENT, OR ANY OTHER WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, WITH RESPECT THERETO. In no event shall Lender or Issuer be liable for
any loss or damage in connection with or arising out of this Agreement, the
Equipment or the existence, furnishing, functioning or Borrower’s use of any
item or products or services provided for in this Agreement.
     Section 12.03. Notices. All notices, certificates, requests, demands and
other communications provided for hereunder or under the Escrow Agreement or the
No-Arbitrage Certificate shall be in writing and shall be (a) personally
delivered, (b) sent by first class United States mail, (c) sent by overnight
courier of national reputation, or (d) transmitted by telecopy, in each case
addressed to the party to whom notice is being given at its address as set forth
above and, if telecopied, transmitted to that party at its telecopier number set
forth above or, as to each party, at such other address or telecopier number as
may hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when

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deposited in the mail if delivered by mail, (c) the date sent if sent by
overnight courier, or (d) the date of transmission if delivered by telecopy. If
notice to Borrower of any intended disposition of the Equipment or any other
intended action is required by law in a particular instance, such notice shall
be deemed commercially reasonable if given (in the manner specified in this
Section) at least 10 calendar days prior to the date of intended disposition or
other action.
     Section 12.04. Further Assurance and Corrective Instruments. Issuer and
Borrower hereby agree that they will, from time to time, execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered, such further
acts, instruments, conveyances, transfers and assurances, as Lender reasonably
deems necessary or advisable for the implementation, correction, confirmation or
perfection of this Agreement, the Assignment, the Escrow Agreement, the
No-Arbitrage Certificate or the Certificate Regarding Use of Proceeds and any
rights of Lender hereunder or thereunder.
     Section 12.05. Binding Effect; Time of the Essence. This Agreement shall
inure to the benefit of and shall be binding upon Lender, Issuer, Borrower and
their respective successors and assigns. Time is of the essence.
     Section 12.06. Severability. In the event any provision of this Agreement
shall be held invalid or unenforceable by any court of competent jurisdiction,
such holding shall not invalidate or render unenforceable any other provision
hereof.
     Section 12.07. Amendments. To the extent permitted by law, the terms of
this Agreement shall not be waived, altered, modified, supplemented or amended
in any manner whatsoever except by written instrument signed by the parties
hereto, and then such waiver, consent, modification or change shall be effective
only in the specific instance and for the specific purpose given.
     Borrower and Lender agree to amend Exhibit A to this Agreement to more
specifically identify the Equipment being financed hereunder at such time as
such identification is possible. Such amendment shall be effected by written
instrument signed by Borrower and Lender. Issuer’s consent to the amendment
referred to in this paragraph shall not be required. Such amendment may take the
form of a Payment Request Form in the form attached to the Escrow Agreement as
Exhibit A executed by Borrower and Lender.
     Section 12.08. Execution in Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute one and the same instrument, and any of the parties hereto may
execute this Agreement by signing any such counterpart, provided that only the
original marked “Original: 1 of 6” on the execution page thereof shall
constitute chattel paper under the UCC. A purchase of this chattel paper from
Issuer would violate the rights of Lender.
     Section 12.09. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State.
     Section 12.10. Washington State Notice. Lender hereby notifies Borrower as
follows: ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY/EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.
     Section 12.11. Captions. The captions or headings in this Agreement are for
convenience only and in no way define, limit or describe the scope or intent of
any provisions or sections of this Agreement.
     Section 12.12. Entire Agreement. This Agreement, the No-Arbitrage
Certificate, the Certificate Regarding Use of Proceeds, the Escrow Agreement,
the Assignment and the exhibits hereto and thereto constitute the entire
agreement among Lender, Issuer, Borrower and Escrow Agent. There are no
understandings, agreements, representations or warranties, express or implied,
not specified herein or in such documents regarding this Agreement or the
Equipment financed hereby.
     Section 12.13. Usury. It is the intention of the parties hereto to comply
with any applicable usury laws; accordingly, it is agreed that, notwithstanding
any provisions to the contrary in this Agreement, in no event shall this

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Agreement require the payment or permit the collection of interest or any amount
in the nature of interest or fees in excess of the maximum permitted by
applicable law.
     Section 12.14. Bound Transcripts. Within 60 days of the day of closing,
Borrower shall cause to be prepared and furnished, at Borrower’s expense, to
Issuer, Lender and their counsel, bound transcripts in CD Rom format containing
this Agreement, the Assignment, the Escrow Agreement, the No-Arbitrage
Certificate, the Certificate Regarding Use of Proceeds and all other documents
related thereto.
     Section 12.15. Waiver of Jury Trial. lender, issuer and borrower hereby
waive their respective rights to a jury trial of any claim or cause of action
based upon or arising out of, directly or indirectly, this agreement, any of the
related documents, any dealings among lender, issuer or borrower relating to the
subject matter of the transactions contemplated by this agreement or any related
transactions, and/or the relationship that is being established among lender,
issuer and borrower. the scope of this waiver is intended to be all encompassing
of any and all disputes that may be filed in any court (including, without
limitation, contract claims, tort claims, breach of duty claims and all other
common law and statutory claims). this waiver is irrevocable, meaning that it
may not be modified either orally or in writing, and this waiver shall apply to
any subsequent amendments, renewals, supplements or modifications to this
agreement, any related documents, or to any other documents or agreements
relating to the transactions contemplated by this agreement or any related
transactions. in the event of litigation, this agreement may be filed as a
written consent to a trial by the court.
[REMAINDER OF PAGE INTENTIONALLY BLANK; EXECUTION PAGE FOLLOWS.]

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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
their respective corporate names by their duly authorized officers, all as of
the date first written above.

              Lender:             GE CAPITAL PUBLIC FINANCE, INC.    
 
           
 
  By:
Title:   /s/ Phillip Long
 
Vice President    
 
            Issuer:             WASHINGTON ECONOMIC DEVELOPMENT         FINANCE
AUTHORITY    
 
           
 
  By:
Title:   /s/ Jonathan A. Hayes
 
Executive Director    
 
            Borrower:             ABSORPTION CORP.    
 
           
 
  By:
Title:   /s/ David Thompson
 
Treasurer    

Trade Names of Borrower, if any:
NONE

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