Exhibit 10.2

EXECUTION VERSION

CREDIT AND SECURITY AGREEMENT

by and among

PRIMO WATER CORPORATION

PRIMO PRODUCTS, LLC

PRIMO DIRECT, LLC

PRIMO REFILL, LLC

and

PRIMO ICE, LLC

(as Borrowers)

and

PRIMO REFILL CANADA CORPORATION

(as Guarantor)

and

COMVEST CAPITAL II, L.P.

(as Lender)

April 30, 2012

 

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TABLE OF CONTENTS

 

     Page  

1. DEFINITIONS

     1   

1.1 Accounting Terms

     1   

1.2 General Terms

     1   

1.3 Uniform Commercial Code Terms

     27   

1.4 Certain Matters of Construction

     27   

2. TERM LOAN, PAYMENTS

     27   

2.1 Term Loan

     27   

2.2 Fees and Premiums

     28   

2.3 Repayment of Term Loan

     28   

2.4 Statement of Account

     29   

2.5 Mandatory Prepayments

     29   

2.6 Use of Proceeds

     30   

2.7 Further Obligations / Maximum Lawful Rate

     31   

2.8 Application of Payments

     31   

2.9 Reversal of Payments

     32   

2.10 Joint and Several Liability

     32   

2.11 Interrelated Businesses

     33   

2.12 Appointment of Administrative Borrower as Agent for Receipt of Term Loan
and Statements and Receipt and Sending of Notices

     33   

2.13 Increased Costs

     34   

2.14 Capital Adequacy

     35   

2.15 Withholding Taxes

     36   

3. RESERVED

     36   

4. GRANT OF SECURITY INTEREST; COLLATERAL COVENANTS

     36   

4.1 Security Interest in the Collateral

     36   

4.2 Perfection of Security Interest

     37   

4.3 Preservation of Collateral

     38   

4.4 Ownership and Location of Collateral

     38   

4.5 Defense of Lender’s Interests

     39   

4.6 Books and Records

     39   

4.7 Financial Disclosure

     39   

4.8 Compliance with Laws

     40   

4.9 Inspection of Premises/Appraisals

     40   

4.10 Insurance

     40   

4.11 Failure to Pay Insurance

     41   

 

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4.12 Payment of Taxes

     41   

4.13 Payment of Leasehold Obligations

     41   

4.14 Accounts and other Receivables

     41   

4.15 Inventory

     45   

4.16 Maintenance of Equipment

     45   

4.17 Exculpation of Liability

     45   

4.18 Environmental Matters

     46   

4.19 Financing Statements

     47   

5. REPRESENTATIONS AND WARRANTIES

     48   

5.1 Authority, Etc.

     48   

5.2 Formation and Qualification

     48   

5.3 Survival of Representations and Warranties

     49   

5.4 Tax Returns

     49   

5.5 Financial Statements

     49   

5.6 Corporate Name

     50   

5.7 O.S.H.A. and Environmental Compliance

     50   

5.8 Solvency; No Litigation, Violation of Law; No ERISA Issues

     51   

5.9 Patents, Trademarks, Copyrights and Licenses

     52   

5.10 Licenses and Permits

     53   

5.11 No Contractual Default

     53   

5.12 No Burdensome Restrictions/No Liens

     53   

5.13 No Labor Disputes

     53   

5.14 Margin Regulations

     53   

5.15 Investment Company Act

     54   

5.16 Disclosure

     54   

5.17 Real Property

     54   

5.18 Hedging Agreements

     54   

5.19 Conflicting Agreements

     54   

5.20 Business and Property of Loan Parties

     54   

5.21 Material Contracts

     55   

5.22 Capital Structure

     55   

5.23 Bank Accounts, Security Accounts, Etc.

     56   

5.24 Related Agreements

     56   

5.25 OFAC

     57   

6. AFFIRMATIVE COVENANTS

     57   

6.1 Payment of Fees

     57   

6.2 Conduct of Business; Compliance with Laws and Maintenance of Existence and
Assets

     57   

6.3 Violations

     58   

6.4 Board Observation Rights

     58   

6.5 Execution of Supplemental Instruments; Further Assurances

     58   

6.6 Payment of Indebtedness

     59   

6.7 Standards of Financial Statements

     59   

 

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6.8 Post-Closing Deliveries

     59   

7. NEGATIVE COVENANTS

     60   

7.1 Merger, Amalgamation, Consolidation, Acquisition and Sale of Assets

     60   

7.2 Creation of Liens

     62   

7.3 Guarantees

     62   

7.4 Investments

     62   

7.5 Loans

     64   

7.6 Financial Covenants

     64   

7.7 Dividends and Distributions

     65   

7.8 Indebtedness

     66   

7.9 Nature of Business

     67   

7.10 Transactions with Affiliates

     67   

7.11 Leases

     68   

7.12 Subsidiaries

     68   

7.13 Fiscal Year and Accounting Changes

     68   

7.14 Pledge of Credit

     69   

7.15 Amendment of Organizational Documents; Revolving Loan Documents; and other
Related Agreements

     69   

7.16 Compliance with ERISA

     69   

7.17 Prepayment, Etc. of Money Borrowed

     70   

7.18 State of Organization/Names/Locations

     70   

7.19 Foreign Assets Control Regulations, Etc.

     70   

8. CONDITIONS PRECEDENT

     70   

8.1 Conditions to Term Loan

     70   

9. INFORMATION AS TO LOAN PARTIES

     74   

9.1 Disclosure of Material Matters Pertaining to Collateral

     74   

9.2 Collateral and Related Reports

     74   

9.3 Environmental Reports

     75   

9.4 Litigation

     76   

9.5 Material Occurrences

     76   

9.6 Retail Store Locations

     76   

9.7 Annual Financial Statements

     77   

9.8 [Reserved.]

     77   

9.9 Monthly Financial Statements

     77   

9.10 Notices re Equity Holders; the Revolving Loan Documents

     78   

9.11 Additional Information

     78   

9.12 Projected Operating Budget

     78   

9.13 Variances From Operating Budget

     78   

9.14 Notice of Governmental Body Items

     78   

9.15 ERISA Notices and Requests

     79   

9.16 Notice of Change in Management, Etc.

     79   

9.17 Additional Documents

     80   

 

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10. EVENTS OF DEFAULT

     80   

11. LENDER’S RIGHTS AND REMEDIES AFTER EVENT OF DEFAULT

     82   

11.1 Rights and Remedies

     82   

11.2 Waterfall

     84   

11.3 Lender’s Discretion

     84   

11.4 Setoff

     84   

11.5 Rights and Remedies not Exclusive

     85   

11.6 Commercial Reasonableness

     85   

12. WAIVERS AND JUDICIAL PROCEEDINGS

     86   

12.1 Waiver of Notice

     86   

12.2 Delay

     86   

12.3 Jury Waiver

     86   

12.4 Waiver of Counterclaims

     86   

13. EFFECTIVE DATE AND TERMINATION

     86   

13.1 Term

     86   

13.2 Termination

     87   

14. RESERVED

     87   

15. GUARANTEE

     87   

15.1 Guarantee; Contribution Rights

     87   

15.2 Waivers

     88   

15.3 No Defense

     88   

15.4 Guarantee of Payment

     88   

15.5 Liabilities Absolute

     88   

15.6 Waiver of Notice

     89   

15.7 Lender’s Discretion

     90   

15.8 Reinstatement

     90   

15.9 No Marshalling, Etc.

     90   

15.10 Action Upon Event of Default

     91   

15.11 Statute of Limitations

     91   

15.12 Interest

     92   

15.13 Guarantor’s Investigation

     92   

15.14 Termination of Guarantee

     92   

15.15 Extension of Guarantee

     92   

15.16 Applicability to Borrowers

     92   

 

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16. MISCELLANEOUS

     93   

16.1 Governing Law; Consent to Jurisdiction; Etc.

     93   

16.2 Entire Understanding; Amendments

     93   

16.3 Successors and Assigns; Participations; New Lenders; Taxes

     94   

16.4 Application of Payments

     97   

16.5 Indemnity/Currency Indemnity

     97   

16.6 Notice

     98   

16.7 Survival

     99   

16.8 Postponement of Subrogation, Etc. Rights

     99   

16.9 Severability

     99   

16.10 Expenses

     99   

16.11 Injunctive Relief

     100   

16.12 Consequential Damages

     100   

16.13 Captions

     100   

16.14 Counterparts; Facsimile or Emailed Signatures

     100   

16.15 Construction

     100   

16.16 Confidentiality; Sharing Information

     101   

16.17 Publicity

     101   

16.18 Patriot Act Notice

     102   

16.19 Conflict with Intercreditor Agreement

     102   

 

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List of Exhibits and Schedules

Exhibits

 

Exhibit A    Form of Term Note Exhibit 9.7    Form of Compliance Certificate

Schedules

Schedule R-1    Real Property Schedule 4.4    Equipment, Inventory and Books and
Records Locations Schedule 4.14(c)    Location of Chief Executive Offices
Schedule 5.2(a)    Jurisdictions of Qualification and Good Standing
Schedule 5.2(b)    Subsidiaries Schedule 5.4    Federal Tax Identification
Number Schedule 5.6    Corporate Names Schedule 5.8(b)    Litigation /
Commercial Tort Claims / Money Borrowed Schedule 5.8(d)    Plans Schedule 5.9   
Intellectual Property, Source Code Escrow Agreements Schedule 5.13    Labor
Disputes Schedule 5.21    Material Contracts Schedule 5.22    Capital Structure
Schedule 5.23    Bank Accounts Schedule 6.8    Post-Closing Deliveries Schedule
7.2    Existing Liens Schedule 7.8    Existing Indebtedness

 

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CREDIT AND SECURITY AGREEMENT

This CREDIT AND SECURITY AGREEMENT (this “Agreement”), dated April 30, 2012, is
entered into by and among PRIMO WATER CORPORATION, a corporation organized under
the laws of the State of Delaware (“Parent”), PRIMO PRODUCTS, LLC, a limited
liability company organized under the laws of the State of North Carolina
(“Products”), PRIMO DIRECT, LLC, a limited liability company organized under the
laws of the State of North Carolina (“Direct”), PRIMO REFILL, LLC, a limited
liability company organized under the laws of the State of North Carolina
(“Refill”), PRIMO ICE, LLC, a limited liability company organized under the laws
of the State of North Carolina (“ICE”; and together with Parent, Products,
Direct, Refill and any other Person that at any time after the date hereof
becomes a Borrower, each a “Borrower” and collectively, the “Borrowers”), PRIMO
REFILL CANADA CORPORATION, a corporation organized under the laws of the
Province of British Columbia, Canada (“Canadian Guarantor”; and together with
any other Person that at any time after the date hereof becomes a Guarantor,
each a “Guarantor” and collectively, the “Guarantors”), and COMVEST CAPITAL II,
L.P., a Delaware limited partnership (in its individual capacity, “Comvest”), in
its capacity as lender (in such capacity, the “Lender” and collectively with any
other lender which may hereafter become a party hereto, the “Lenders”).

IN CONSIDERATION of the mutual covenants and undertakings herein contained, Loan
Parties and the Lender hereby agree as follows:

 

1. DEFINITIONS.

 

  1.1 Accounting Terms.

As used in this Agreement, the Term Note, any Other Document, or any
certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 1.2 or elsewhere in this
Agreement and accounting terms partly defined in Section 1.2 to the extent not
defined, shall have the respective meanings given to them under GAAP.

 

  1.2 General Terms.

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

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

“Accounts” shall mean and include as to each Loan Party and each of its
Subsidiaries, all of such Loan Party’s and Subsidiary’s “accounts” as defined in
the UCC whether now owned or hereafter acquired including, without limitation
all present and future rights of such Loan Party to payment of a monetary
obligation, whether or not earned by performance, which is not evidenced by
chattel paper or an instrument, (a) for property that has been or is to be sold,
leased, licensed, assigned, or otherwise disposed of, (b) for services rendered
or to be rendered, (c) for a secondary obligation incurred or to be incurred, or
(d) arising out of the use of a credit or charge card or information contained
on or for use with any such card.

“Acquisition Pro Forma” shall have the meaning set forth in the definition of
Permitted Acquisition.

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“Administrative Borrower” shall mean Parent, in its capacity as Administrative
Borrower on behalf of itself and the other Borrowers pursuant to Section 2.12
hereof, and its successors and assigns in such capacity.

“Affiliate” of any Person shall mean (a) any Person (other than a Subsidiary)
which, directly or indirectly, is in control of, is controlled by, or is under
common control with such Person, or (b) any Person who is a director, manager or
officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. For purposes of this definition,
control of a Person shall mean the power, direct or indirect, (A) to vote twenty
(20%) percent or more of the Equity Interests having ordinary voting power for
the election of directors or managers (or other comparable body) of such Person,
or (B) to direct or cause the direction of the management and policies of such
Person whether by contract or otherwise.

“Agreement” shall mean this Credit and Security Agreement, as amended, restated,
modified and supplemented from time to time.

“Approved Fund” shall mean (a) any fund, trust or similar entity that invests in
commercial loans in the ordinary course of business and is advised or managed by
(i) the Lender, (ii) a Controlled Affiliate of the Lender, (iii) the same
investment advisor that manages the Lender or (iv) a Controlled Affiliate of an
investment advisor that manages the Lender or (b) any finance company, insurance
company or other financial institution which temporarily warehouses loans for
the Lender or any Person described in clause (a) above.

“Assignee Lender” shall have the meaning set forth in Section 16.3(c).

“Authority” shall have the meaning set forth in Section 4.18(d).

“Bankruptcy Code” shall have the meaning set forth in Section 2.10(a) and shall
include, with respect to Canadian Guarantor, the Bankruptcy & Insolvency Act,
the Companies’ Creditors Arrangement Act, the Winding Up and Restructuring Act
and the Business Corporations Act (Ontario) and any other statute with similar
application regarding the restructuring, reorganization, winding up or
liquidation of a debtor.

“BIA” shall mean the Bankruptcy and Insolvency Act (Canada), R.S.C. 1985, c.
B-3, as the same now exists or may from time to time hereafter be amended,
modified, recodified or supplemented, together with all official rules,
regulations and interpretations thereunder or related thereto.

“Blocked Accounts” shall have the meaning set forth in Section 4.14(h).

“Borrower” or “Borrowers” shall have the meanings set forth in the preamble to
this Agreement and shall extend to all permitted successors and assigns of such
Persons.

“Borrowers’ Account” shall have the meaning set forth in Section 2.4.

“Business Day” shall mean a day other than (a) a Saturday, (b) a Sunday, or
(c) a day on which banking institutions in the State of Florida, the State of
New York, the State of New Jersey or the State of New Hampshire are authorized
or required by applicable law or executive order to close.

 

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“Business Reduction Event” shall mean either (a) the complete discontinuation of
the sale of all product lines of the Loan Parties in any Walmart retail location
or any Lowes retail location (each a “retail store location reduction”), which
results in a net retail store location reduction for Walmart or Lowes,
individually relating to each such company and not in the aggregate, of 600 or
more at any time following the Closing Date or (b) the complete discontinuation
of the sale of the Refill product line in any Walmart retail location (each a
“Refill retail store location reduction”), which results in a net Refill retail
store location reduction for Walmart of 600 or more at any time following the
Closing Date. For purposes of determining whether or not a Business Reduction
Event has occurred, as of the Closing Date, the Loan Parties sell product lines
in (a) 2,759 Walmart retail locations and (b) 1,697 Lowes retail locations.

“Canadian Dollars” or “C$” shall mean the lawful currency of Canada.

“Canadian Guarantor” shall have the meaning set forth in the preamble to this
Agreement.

“Capital Expenditures” shall mean, with respect to any Person, without
duplication, all expenditures (including deposits) made by such Person for, or
contracts for expenditures with respect to any fixed assets or improvements, or
for replacements, substitutions or additions thereto, which have a useful life
of more than one (1) year, including the direct or indirect acquisition of such
assets by way of increased product or service charges, offset items or
otherwise, as determined in accordance GAAP consistently applied and all other
expenditures which, in accordance with GAAP, would be required to be capitalized
and shown on the consolidated balance sheet of such Person.

“Capital Lease” shall mean any lease of any property (whether real, personal or
mixed) that, in conformity with GAAP consistently applied, should be accounted
for as a capital lease.

“Cash Equivalents” shall mean: (a) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one (1) year from the date of acquisition thereof;
(b) commercial paper maturing no more than six (6) months from the date issued
and, at the time of acquisition, having a rating of at least A-1 from Standard &
Poor’s Corporation or at least P-1 from Moody’s Investors Service, Inc.;
(c) certificates of deposit or bankers’ acceptances maturing within one (1) year
from the date of issuance thereof issued by, or overnight reverse repurchase
agreements from, any commercial bank organized under the laws of the United
States of America or any state thereof or the District of Columbia having
combined capital and surplus of not less than $500,000,000 and whose debt
obligations, or those of a holding company of which it is a Subsidiary, are
rated not less than A (or the equivalent rating) by a nationally recognized
investment rating agency (an “A Rated Bank”); (d) time deposits maturing no more
than thirty (30) days from the date of creation thereof with A Rated Banks;
(e) mutual funds that invest solely in one or more of the investments described
in clauses (a) through (d) above; and (f) with respect to such investments in
currencies other than Dollars or in jurisdictions other than the United States,
other investments reasonably deemed by a Loan Party to be equivalent to the
investments described in clauses (a) through (e) above.

“Cash Interest Expense” shall mean, without duplication, for any period,
Interest Expense (excluding the following non-cash components of Interest
Expense: (a) the amortization of fees and costs with respect to the transactions
contemplated by this Agreement which have been capitalized as transaction costs,
and (b) interest paid in kind).

 

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“Cash Receipt Account” or “Cash Receipt Accounts” shall mean, individually or
collectively, all lockbox accounts, dominion accounts or other deposit accounts
established and maintained by Loan Parties for the purpose of collecting or
depositing cash, checks, notes, instruments, and other items of payment
(including insurance proceeds, cash proceeds of asset sales, rental proceeds,
and tax refunds), and which are designated as such and listed on Schedule 5.23.

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

“CFC” shall mean a “controlled foreign corporation” as defined in Section 957 of
the Code.

“Change in Tax Law” shall mean a change in the treaty, law or regulation after
the date on which the applicable Lender becomes a party to this Agreement (or,
if such Lender is a non-U.S. intermediary or flow-through entity for U.S.
federal income tax purposes, after the relevant beneficiary or member of such
Lender became such a beneficiary or member, if later); provided, however, such
term does not include regulations or other guidance issued by the IRS or U.S.
Treasury implementing or interpreting laws already enacted, but not yet
effective.

“Change of Control” shall mean the occurrence of any event (whether in one or
more transactions) which results in (a) fifty-one (51%) percent or more of the
Voting Equity Interests of Parent owned and controlled by a single Person (as
such term is used in Section 13(d)(3) of the Exchange Act), (b) one hundred
(100%) percent of the Equity Interests of each Borrower (other than Parent) is
no longer owned and controlled by Parent, (c) one hundred (100%) percent of the
Equity Interests of each Loan Party (other than Borrowers and Parent) is no
longer owned and controlled directly or indirectly by Borrowers or Parent or
(d) a “Change of Control” or other similar event shall occur, as defined in, or
under, the Revolving Loan Documents.

“Charges” shall mean all taxes, charges, fees, imposts, levies or other
assessments, including, without limitation, all net income, gross income, gross
receipts, sales, use, ad valorem, value added, transfer, franchise, profits,
inventory, capital stock, license, withholding, payroll, employment, social
security, unemployment, excise, severance, stamp, occupation and property taxes,
custom duties, fees, assessments, Liens, claims and charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts, imposed by any taxing or other authority, domestic or
foreign (including, without limitation, the PBGC or any environmental agency or
superfund), upon the Collateral, any Loan Party or any Subsidiary of any Loan
Party.

“Closing Date” shall mean April 30, 2012.

“Closing Fee” shall mean the closing fee payable in accordance with the Fee
Letter.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to
time and the regulations promulgated thereunder.

 

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“Collateral” shall mean any and all collateral granted under this Agreement or
any Other Document to secure any and all of the Obligations, including without
limitation all tangible and intangible property of each Loan Party, all personal
and real property of each Loan Party, all movable and immovable property of each
Loan Party, in each case whether now owned or hereafter acquired and wherever
located, including, but not limited to, the following of each Loan Party:

(a) all Accounts and other Receivables;

(b) all certificated and uncertificated securities;

(c) all chattel paper, including electronic chattel paper;

(d) all Computer Hardware and Software and all rights with respect thereto,
including, any and all licenses, options, warranties, service contracts, program
services, test rights, maintenance rights, supporting information, improvement
rights, renewal rights and indemnifications, and any substitutions,
replacements, additions or model conversions of any of the foregoing;

(e) all Contract Rights;

(f) all commercial tort claims, (including, without limitation any commercial
tort claims from time to time described on Schedule 5.8(b) (as such
Schedule 5.8(b) may from time to time be updated));

(g) all deposit accounts;

(h) all documents;

(i) all financial assets;

(j) all General Intangibles, including payment intangibles and software;

(k) all goods (including all Equipment and Inventory), and all embedded
software, accessions, additions, attachments, improvements, substitutions and
replacements thereto and therefor;

(l) all instruments;

(m) all Intellectual Property;

(n) all Investment Property;

(o) all of the Equity Interests issued by each Loan Party (other than Parent)
and each of their Subsidiaries;

(p) all leasehold interests;

(q) all cash, cash equivalents or other money;

(r) all letter of credit rights;

(s) all security entitlements;

 

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(t) all supporting obligations;

(u) all of each Loan Party’s right, title and interest in and to (i) all of its
respective goods and other property including, but not limited to, all
merchandise returned or rejected by Customers, relating to or securing any of
the Receivables; (ii) all of each Loan Party’s rights as a consignor, a
consignee, an unpaid vendor, mechanic, artisan, or other lienor, including
stoppage in transit, setoff, compensation, detinue, replevin, reclamation and
repurchase; (iii) all supporting obligations and all additional amounts due to
any Loan Party from any Customer relating to the Receivables; (iv) all other
property of any kind whatsoever of each Loan Party, including, but not limited
to, warranty claims, relating to any goods; (v) all of each Loan Party’s
Contract Rights, rights of payment which have been earned under a Contract
Right, letter of credit rights (whether or not the letter of credit is evidenced
by a writing), instruments (including promissory notes), documents, chattel
paper (whether tangible or electronic), warehouse receipts, deposit accounts,
money and securities; (vi) if and when obtained by any Loan Party, all real,
immovable, movable and personal property of third parties in which such Loan
Party has been granted a Lien; and (vii) any other goods, movable or personal
property or real or immovable property of any kind or description, wherever
located, now or hereafter owned or acquired by any Loan Party; and

(v) all books, records, writings, data bases, information and other property
relating to, used or useful in connection with, or evidencing, embodying,
incorporating or referring to any of the foregoing, and all proceeds, products,
offspring, rents, issues, profits and returns of and from any of the foregoing;

provided, however, that, no Excluded Assets shall be included in Collateral.

“Collateral Access Agreement” shall mean an agreement in writing, in form and
substance reasonably satisfactory to the Lender, from any lessor of premises to
any Loan Party, or any other Person to whom any Collateral is consigned or who
has custody, control or possession of any such Collateral or is otherwise the
owner or operator of any premises on which any of such Collateral is located,
duly executed and delivered in favor of the Lender with respect to the
Collateral at such premises or otherwise in the custody, control or possession
of such lessor, consignee or other Person.

“Compliance Certificate” shall mean the Compliance Certificate executed and
delivered by a Responsible Officer of Administrative Borrower pursuant to
Sections 9.7 and 9.9 in the form of Exhibit 9.7 appended hereto.

“Computer Hardware and Software” shall mean all of each Loan Party’s and each of
its Subsidiary’s rights (including rights as licensee and lessee) with respect
to (a) computer and other electronic data processing hardware, including all
integrated computer systems, central processing units, memory units, display
terminals, printers, computer elements, card readers, tape drives, hard and soft
disk drives, cables, electrical supply hardware, generators, power equalizers,
accessories, peripheral devices and other related computer hardware; (b) all
software and all software programs designed for use on the computers and
electronic data processing hardware described in clause (a) above, including all
operating system software, utilities and application programs in whatsoever form
(source code and object code in magnetic tape, disk or hard copy format or any
other listings whatsoever); (c) any firmware associated with any of the
foregoing; and (d) any documentation for hardware, software and firmware
described in clauses (a), (b) and (c) above, including flow charts, logic
diagrams, manuals, specifications, training materials, charts and pseudo codes.

 

6

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“Comvest” shall have the meaning set forth in the preamble to this Agreement and
shall include its successors and assigns.

“Consents” shall mean all filings and all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental Bodies and
other third parties, domestic or foreign, necessary to carry on any Loan Party’s
business or to permit the effectuation and performance of this Agreement, the
Other Documents and the Related Transactions, including, without limitation, any
Consents required under all applicable federal, state or other applicable law.

“Contract Right” shall mean any right of each Loan Party to payment under a
contract for the sale or lease of goods or the rendering of services, which
right is at the time not yet earned by performance.

“Control Notice” shall mean a written notice delivered by the Lender pursuant to
a “control” or other agreements instructing the depository bank to comply with
instructions originated by the Lender with respect to the Blocked Account that
is covered thereby without further consent of Loan Parties.

“Controlled Affiliate” of any Person shall mean any Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with
such Person. For purposes of this definition, control of a Person shall mean the
power, direct or indirect, to (a) vote fifty-one (51%) percent or more of the
Equity Interests having ordinary voting power for the election of directors or
managers (or other comparable body) of such Person, and (b) to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise.

“Controlled Group” shall mean all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with any Loan Party, are treated as a single employer under
Section 414 of the Code.

“Currency Due” shall have the meaning set forth in Section 16.5.

“Customer” shall mean and include the account debtor with respect to any
Receivable and/or the prospective purchaser of goods, services or both with
respect to any contract or Contract Right, and/or any party who enters into or
proposes to enter into any contract or other arrangement with any Loan Party,
pursuant to which such Loan Party is to deliver any personal property or perform
any services.

“Customs” shall mean the United States of America Customs and Border Protection
Agency of the United States Department of Homeland Security.

“Default” shall mean an event which, with the giving of notice or passage of
time or both, would constitute an Event of Default.

“Default Rate” shall have the meaning set forth in the Term Note.

 

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“Depository Accounts” shall have the meaning set forth in Section 4.14(h).

“Disposition” shall have the meaning set forth in Section 7.1; and “Dispose”
shall have the correlative meaning.

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

“Dollar Equivalent” shall mean, at any time, (a) as to any amount denominated in
Dollars, the amount thereof at such time, and (b) as to any amount denominated
in a currency other than Dollars, the equivalent amount in Dollars as reasonably
determined by the Lender at such time that such amount could be converted into
Dollars by the Lender according to prevailing exchange rates selected by the
Lender.

“EBITDA” shall mean for any period, without duplication, the total of the
following for Loan Parties and their Subsidiaries on a consolidated basis, each
calculated for such period:

(a) Net Income; plus

(b) (without duplication), to the extent included in the calculation of Net
Income, the sum of (i) income and franchise taxes paid or accrued, (ii) Interest
Expense, net of interest income, paid or accrued, (iii) amortization and
depreciation, (iv) non-cash impairment charges, (v) non-cash compensation
expense in an amount not to exceed $2,000,000 in the aggregate during any fiscal
year, (vi) non-cash equity charges, (vii) non-cash charges related to
acquisition, severance and reserves in an amount not to exceed $500,000 in the
aggregate during any fiscal year and (viii) severance costs paid during such
period in an amount not to exceed $375,000 in the aggregate during any fiscal
year; less

(c) (without duplication), to the extent included in the calculation of Net
Income, the sum of (i) the income of any Person (other than a Loan Party or a
Subsidiary of any Loan Party) in which any Loan Party or a Subsidiary of any
Loan Party has an ownership interest except to the extent such income is
received by any Loan Party or such Subsidiary in a cash distribution during such
period, (ii) gains or losses from sales or other dispositions of assets (other
than sales of Inventory in the normal course of business) and (iii) the greater
of (A) $0 and (B) the sum of extraordinary or non-recurring gains less
extraordinary or non-recurring losses;

provided that notwithstanding the foregoing, for purposes of the calculations
set forth in Section 7.6(b) and (c), EBITDA shall be deemed to be (i) $2,300,000
for the fiscal quarter ended June 30, 2011, (ii) $1,600,000 for the fiscal
quarter ended September 30, 2011 and (iii) ($400,000) for the fiscal quarter
ended December 31, 2011.

“Environmental Complaint” shall have the meaning set forth in Section 4.18(d).

“Environmental Laws” shall mean all federal, state, provincial, local and other
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances and codes relating to the protection of the
environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, formal agency, interpretations,
decisions, orders and directives of federal, state, local and other Governmental
Body with respect thereto.

 

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“Equipment” shall mean and include as to each Loan Party and each of its
Subsidiaries, all of such Loan Party’s and Subsidiary’s, whether now owned or
hereafter acquired and wherever located equipment, machinery, apparatus, motor
vehicles, fittings, furniture, furnishings, fixtures, parts, accessories, and
all other goods (other than Inventory) and all replacements and substitutions
therefor or accessions thereto.

“Equity Interest Option Holders” shall mean those directors, officers and
employees holding options and/or warrants in respect of the Equity Interests of
Parent.

“Equity Interests” shall mean, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person’s capital stock or partnership, limited liability company or other equity
interests at any time outstanding, and any and all rights, warrants or options
exchangeable for or convertible into such capital stock or other interests (but
excluding any debt security that is exchangeable for or convertible into such
capital stock or other equity interests).

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

“ERISA Affiliate” shall mean, with respect to any Loan Party, any trade or
business (whether or not incorporated) that, together with such Loan Party, are
treated as a single employer within the meaning of Sections 414(b), (c), (m) or
(o) of the Code.

“ERISA Event” shall mean, with respect to any Loan Party or any ERISA Affiliate,
(a) any event described in Section 4043(c) of ERISA with respect to a Title IV
Plan; (b) the withdrawal of any Loan Party or ERISA Affiliate from a Title IV
Plan subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the
complete or partial withdrawal of any Loan Party or any ERISA Affiliate from any
Multiemployer Plan; (d) the filing of a notice of intent to terminate a Title IV
Plan or the treatment of a plan amendment as a termination under Section 4041 of
ERISA; (e) the institution of proceedings to terminate a Title IV Plan or
Multiemployer Plan by the PBGC; (f) the failure by any Loan Party or ERISA
Affiliate to make when due required contributions to a Multiemployer Plan or
Title IV Plan unless such failure is cured within thirty (30) days; (g) the
imposition of a lien under Section 412 or 430 of the Code or Section 303 or 4068
of ERISA on any property (or rights to property, whether real or personal) of
any ERISA Affiliate; (h) a Title IV Plan is in “at risk status” within the
meaning of Code Section 430(i), (i) a Multiemployer Plan is in “endangered
status” or “critical status” within the meaning of Code Section 432(b); (j) an
ERISA Affiliate incurs a substantial cessation of operations within the meaning
of ERISA Section 4062(e), with respect to a Title IV Plan; (k) any other event
or condition that might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Title IV Plan or Multiemployer Plan or for the imposition of
liability under Section 4069 or 4212(c) of ERISA; (l) the termination of a
Multiemployer Plan under Section 4041A of ERISA or the reorganization or
insolvency of a Multiemployer Plan under Section 4241 or 4245 of ERISA; or
(m) the revocation or threatened revocation of a Qualified Plan’s qualification
or tax exempt status; or (n) the termination of a Plan described in Section 4064
of ERISA.

 

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“ESOP” shall mean a Plan that is intended to satisfy the requirements of
Section 4975(e)(7) of the Code.

“Event of Default” shall mean the occurrence of any of the events set forth in
Section 10.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended,
together with all rules, regulations and interpretations thereunder or related
thereto.

“Excess Availability” shall have the meaning set forth in the Revolving Loan
Agreement.

“Excluded Assets” shall mean:

(a) any Excluded Equity Interests;

(b) each instrument, contract (including each Intellectual Property-related
contract and any Accounts and other Receivables arising under such contract),
chattel paper, license, permit, General Intangible, and other agreement that is
with, or issued by, a Person that is not a Loan Party or Affiliate of any Loan
Party, but only while, and only to the extent that, the grant of a security
interest therein pursuant to this Agreement would result in a default or penalty
under, or a breach, violation or termination of, such instrument, contract,
chattel paper, license, permit, General Intangible, or other agreement (any such
provisions that would result in any of the foregoing being referred to herein as
a “Restriction”; and any such asset or property, or interest thereon, that is at
any time subject to a Restriction being referred to herein as a “Restricted
Asset”), except, in each case, to the extent that, pursuant to the Code or other
applicable law, the grant of a security interest therein can be made without
resulting in a default or penalty thereunder or breach, violation or termination
thereof; provided, that, none of the foregoing assets and properties, or
interests therein, shall constitute Excluded Assets if (i) the Restriction
applicable thereto has been waived or such other Person has otherwise consented
to the creation hereunder of a security interest in such Restricted Asset, or
(ii) such Restriction would be rendered ineffective pursuant to Section 9-406,
9-407, 9-408 or 9-409 of Article 9 of the UCC, as applicable, and as then in
effect in any relevant jurisdiction, or any other applicable law (including the
Bankruptcy Code or the PPSA) or principles of equity; provided further, that,
(A) immediately upon the ineffectiveness, lapse or termination of any such
Restriction with respect to a Restricted Asset (a “Non-Restricted Asset”), such
Loan Party shall be deemed to have automatically, without further act by any
Loan Party, the Lender or any other Person, granted a security interest in, all
its rights, title and interests in and to such Non-Restricted Asset as if such
Restriction had never been in effect; and (B) the foregoing exclusion shall in
no way be construed so as to limit, impair or otherwise affect the Lender’s
unconditional continuing security interest in and to all rights, title and
interests of such Loan Party in or to any payment obligations or other rights to
receive monies due or to become due under any such Restricted Asset and in any
such monies and other proceeds of such Restricted Asset;

(c) applications for any trademarks that have been filed with the U.S. Patent
and Trademark Office on the basis of an “intent-to-use” with respect to such
marks, unless and until a statement of use or amendment to allege use is filed
and accepted by the U.S. Patent and Trademark Office or any other filing is made
or circumstances otherwise change so that the interests of a Loan Party in such
marks is no longer on an “intent-to-use” basis, at which time such marks shall
automatically and without further action by the parties be subject to the
security interests and liens granted by a Loan Party to the Lender hereunder;

 

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(d) any Restricted Account but only while, and only to the extent that, the
grant of a security interest therein pursuant to this Agreement is prohibited
under applicable law;

(e) any “consumer goods” within the meaning of the PPSA of Canadian Guarantor;

(f) the last day of any term of any lease (whether oral or written) or any
agreement to lease (but Canadian Guarantor will stand possessed of any such
revision in trust for the Lender or as the Lender may direct and Canadian
Guarantor will assign and dispose thereof in accordance with such directions);
and

(g) any property of any Loan Party to the extent that the Lender shall determine
in its sole discretion that the costs of obtaining a Lien in such property is
excessive in relation to the value of the security to be afforded thereby.

“Excluded Equity Interests” shall mean (a) voting Equity Interests issued by a
Non-US Subsidiary that is a CFC and a “first-tier” foreign Subsidiary (other
than the Canadian Guarantor) representing in excess of sixty-six (66%) percent
(or such greater percentage to the extent such greater percentage would not
result in a material adverse tax consequence to Loan Parties under Treas. Reg.
Section 1.956-2) of the voting Equity Interests of such Non-US Subsidiary and
(b) the Equity Interests of any Non-US Subsidiary that is not a “first-tier”
foreign Subsidiary.

“Excluded Tax” shall mean, (a) with respect to the Lender (as defined in
Section 2.13) any Tax imposed on (or measured by) the Lender’s gross revenues or
net income (however denominated) and any franchise tax (in each case imposed in
lieu of a net income tax) by any jurisdiction (or any political subdivision
thereof) under the laws of which the Lender is organized or in which its
principal office or its applicable lending office is located, and any branch
profits taxes imposed on the Lender by the United States or any similar tax
imposed on the Lender by a jurisdiction in which the Lender is resident for tax
purposes, and (b) in the case of a Lender organized under the laws of a
jurisdiction outside the United States, any federal withholding Taxes resulting
from any law in effect (including FATCA) on the date such Lender becomes a party
to this Agreement (or designates a new lending office) or is attributable to
such Lender’s failure to comply with Section 16.3(f) or Section 16.3(h).

“Existing Deposit Accounts” shall have the meaning set forth in Section 4.14(h).

“Existing Deposit Banks” shall mean, collectively, Wells Fargo Bank, N.A., Bank
of America, N.A. and Royal Bank of Canada.

“Extraordinary Receipts” shall mean any cash received by any Loan Party or any
of their respective Subsidiaries consisting of (a) proceeds of judgments,
proceeds of settlements or other consideration of any kind in connection with
any cause of action, (b) indemnity payments (other than to the extent such
indemnity payments are (i) immediately payable to a Person that is not a Loan
Party or any of their respective Subsidiaries, or (ii) received by a Loan Party
or any of their respective Subsidiaries as reimbursement for any payment
previously made to such Person), (c) any purchase price adjustment received in
connection with any purchase or other acquisition agreement, (d) tax refunds,
(e) pension plan reversions, (f) proceeds of insurance (other than such proceeds
described in Section 2.5(a)) and (g) at any time that an Event of Default has
occurred and is continuing, at the sole discretion of the Lender, any other cash
received by any Loan Party or any of their respective Subsidiaries not in the
ordinary course of business (and not consisting of proceeds described in
Section 2.5(a) of this Agreement).

 

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“FATCA” shall mean Sections 1471 through 1474 of the Code and any regulations or
official interpretations thereof (including any Revenue Ruling, Revenue
Procedure, Notice or similar guidance issued by the U.S. Internal Revenue
Service thereunder as a precondition to relief or exemption from taxes under
such provisions).

“Fee Letter” shall mean the Fee Letter, dated as of the date hereof, by and
among the Borrowers and the Lender, as amended, restated, modified and
supplemented from time to time.

“Fixed Charge Coverage Ratio” shall mean, with respect to Loan Parties and their
Subsidiaries on a consolidated basis, for any applicable period, the ratio of
(a) EBITDA for such period minus all unfinanced Capital Expenditures (other than
Capital Expenditures financed with proceeds of debt, asset Dispositions (other
than sales of inventory) and insurance and condemnation proceeds in an amount
not to exceed the amount of any such proceeds) made during such period minus
cash taxes paid during such period, to (b) Fixed Charges for such period.

“Fixed Charges” shall mean, as to Loan Parties and their Subsidiaries determined
on a consolidated basis, with respect to any period, the sum of, without
duplication, (a) all Cash Interest Expense during such period, plus (b) all
regularly scheduled (as determined at the beginning of the respective period)
principal payments of Money Borrowed, Indebtedness with respect to earn-outs and
similar obligations and Indebtedness with respect to Capital Leases, in each
case made or required to be made during such period (and without duplicating
items in (a) and (b) of this definition, the interest component with respect to
Indebtedness under Capital Leases paid in cash), plus (c) all taxes paid or
required to be paid during such period in cash, plus (d) all cash dividends or
other cash distributions made or required to be made on account of Equity
Interests (other than those made to a Loan Party) and all repurchases or
redemptions of Equity Interests (other than those made to a Loan Party) made or
required to be made during such period, plus (e) all management and similar fees
paid in cash to any Affiliate of Loan Parties and their Subsidiaries for such
period.

“GAAP” shall mean generally accepted accounting principles in the United States
of America in effect from time to time, as may be amended from time to time by
the Financial Accounting Standards Board; except, that, if there occurs after
the date of this Agreement any change in GAAP that affects in any respect the
calculation of any covenant contained in Section 7.6 hereof, the Lender and the
Borrowers shall negotiate in good faith amendments to the provisions of this
Agreement that relate to the calculation of such covenants with the intent of
having the respective positions of the Lender and the Borrowers, after such
change in GAAP conform as nearly as possible to their respective positions as of
the date of this Agreement and, until any such amendments have been agreed upon,
the covenants in Section 7.6 hereof shall be calculated on the basis of such
principles in effect prior to such change and consistent with those used in the
preparation of the most recent audited financial statements delivered to the
Lender prior to the date of such change.

 

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“General Intangibles” shall mean and include as to each Loan Party and each of
its Subsidiaries, all of such Loan Party’s and Subsidiary’s general intangibles
(as such term is defined in the UCC) and intangibles (as such term is defined in
the PPSA), whether now owned or hereafter acquired including, without
limitation, all payment intangibles, choses in action, commercial tort claims,
causes of action, corporate or other business records, inventions, designs,
patents, patent applications, equipment formulations, manufacturing procedures,
quality control procedures, trademarks, service marks, trade secrets, goodwill,
copyrights, design rights, registrations, licenses, franchises, customer lists,
tax refunds, tax refund claims, computer programs and computer software, all
claims under guaranties, Liens or other security held by or granted to such Loan
Party or Subsidiary to secure payment of any of the Receivables by a Customer,
all rights of indemnification and all other intangible property of every kind
and nature (other than Receivables).

“Governmental Body” shall mean any nation or government, any state, province or
other political subdivision thereof or any entity exercising the legislative,
judicial, regulatory or administrative functions of or pertaining to a
government.

“Gross Profit” of any Person shall mean the total revenue of such Person for the
applicable period less the cost of goods sold, as determined in accordance with
GAAP consistently applied as in effect on the Closing Date.

“Guarantee” shall mean the guarantee set forth in Section 15 of this Agreement
and any other guarantee of the Obligations of the Borrowers now or hereafter
executed by a Guarantor in favor of the Lender.

“Guarantor” or “Guarantors” shall have the meaning set forth in the preamble to
this Agreement and shall extend to all permitted successors and assigns of such
Persons as well as each other Subsidiary of Parent and the Borrowers that
becomes a guarantor of any of the Obligations after the Closing Date pursuant to
Section 7.12(a) or otherwise.

“Hazardous Discharge” shall have the meaning set forth in Section 4.18(d).

“Hazardous Substance” shall mean, without limitation, any flammable explosives,
radon, radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous
materials, Hazardous Wastes, hazardous or Toxic Substances or related materials
as defined in CERCLA, the Hazardous Substances Transportation Act, as amended
(49 U.S.C. Sections 1801, et seq.), RCRA, Articles 15 and 27 of the New York
State Environmental Conservation Law or any other applicable Environmental Law
and in the regulations adopted pursuant thereto.

“Hazardous Wastes” shall mean all waste materials subject to regulation under
CERCLA, RCRA or applicable state or other law, and any other applicable federal,
state, provincial or other laws now in force or hereafter enacted relating to
hazardous waste disposal.

“Hedging Agreements” shall mean an agreement between any Loan Party and any
financial institution that is a rate swap agreement, basis swap, forward rate
agreement, commodity swap, interest rate option, forward foreign exchange
agreement, spot foreign exchange agreement, rate cap agreement rate, floor
agreement, rate collar agreement, currency swap agreement, cross-currency rate
swap agreement, currency option, any other similar agreement (including any
option to enter into any of the foregoing or a master agreement for any of the
foregoing together with all supplements thereto) for the purpose of protecting
against fluctuations in or managing exposure with respect to interest or
exchange rates, currency valuations or commodity prices.

 

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“Indebtedness” of a Person at a particular date shall mean (a) all indebtedness
for Money Borrowed of such Person whether direct or guaranteed; (b) that portion
of obligations with respect to Capital Leases that is properly classified as a
liability on a balance sheet in conformity with GAAP consistently applied;
(c) notes payable and drafts accepted representing extensions of credit; (d) any
obligation owed for all or any part of the deferred purchase price of property
or services if the purchase price is due more than six (6) months from the date
the obligation is incurred or is evidenced by a note or similar written
instrument (including, without limitation, the maximum potential amount of all
earn-outs and similar deferred payment obligations regardless of the length of
deferral); (e) all indebtedness secured by any Lien on any property or asset
owned or held by that Person regardless of whether the indebtedness secured
thereby shall have been assumed by that Person or is non-recourse to the credit
of that Person; (f) any contractual obligation, contingent or otherwise, of such
Person to pay or be liable for the payment of any indebtedness described in this
definition of another Person, including, without limitation, any such
indebtedness, directly or indirectly guaranteed, or any agreement to purchase,
repurchase, or otherwise acquire such indebtedness, obligation or liability or
any security therefor, or to provide funds for the payment or discharge thereof,
or to maintain solvency, assets, level of income, or other financial condition;
(g) all obligations evidenced by bonds, debentures, notes or similar
instruments; (h) all reimbursement obligations and other liabilities of such
Person with respect to surety bonds (whether bid, performance or otherwise),
letters of credit, banker’s acceptances, drafts or similar documents or
instruments issued for such Person’s account; (i) all obligations, liabilities
and indebtedness of such Person (marked to market) arising under Hedging
Agreements; and (j) the principal and interest portions of all rental
obligations of such Person under any synthetic lease or similar off-balance
sheet financing where such transaction is considered to be borrowed money for
tax purposes but is classified as an operating lease in accordance with GAAP
consistently applied, in each case whether such liabilities are present or
future, actual or contingent and whether owned jointly or severally.

“Intellectual Property” shall mean all trade secrets and other proprietary
information; trademarks, service marks, business names, Internet domain names,
designs, logos, trade dress, slogans, indicia and other source and/or business
identifiers, and the goodwill of the business relating thereto and all
registrations or applications for registrations which have heretofore been or
may hereafter be issued thereon throughout the world; copyrights (including
copyrights for computer programs and software) and copyright registrations or
applications for registrations which have heretofore been or may hereafter be
issued throughout the world and all tangible property embodying the copyrights;
unpatented inventions (whether or not patentable); patent applications and
patents; industrial designs, industrial design applications and registered
industrial designs; license agreements related to any of the foregoing and
income therefrom; books, records, writings, computer tapes or disks, flow
diagrams, specification sheets, source codes, object codes and other physical
manifestations, embodiments or incorporations of any of the foregoing; the right
to sue for all infringements of any of the foregoing; and all common law and
other rights throughout the world in and to all of the foregoing.

 

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“Intercreditor Agreement” shall mean that certain Intercreditor Agreement, dated
as of the date hereof, by and between the Lender and the Revolving Loan Agent,
and acknowledged and agreed to by Loan Parties.

“Interest Expense” shall mean, for any period, as to any Person, as determined
in accordance with GAAP consistently applied, the total interest expense of such
Person, whether paid or accrued during such period but without duplication
(including the interest component of Capital Leases for such period).

“Inventory” shall mean and include as to each Loan Party and each Subsidiary of
each Loan Party, all of such Loan Party’s and Subsidiary’s now owned or
hereafter acquired inventory (as such term is defined in the UCC or the PPSA, as
applicable), goods, merchandise and other personal property, wherever located,
to be furnished under any contract of service or held for sale or lease, all raw
materials, work in process, finished goods and materials and supplies of any
kind, nature or description which are or might be used or consumed in such Loan
Party’s or Subsidiary’s business or used in selling or furnishing such goods,
merchandise and other personal property, all other inventory of such Loan Party
or Subsidiary, and all documents of title or other documents representing them.

“Investment Property” shall mean any “investment property” as such term is
defined in Section 9-102 of the UCC or the PPSA, as applicable, now owned or
hereafter acquired by any Loan Party or any of its Subsidiaries, wherever
located, including (a) all securities, whether certificated or uncertificated,
including stocks, bonds, interests in limited liability companies, partnership
interests, treasuries, certificates of deposit, and mutual fund shares; (b) all
securities entitlements of any Loan Party or Subsidiary, including the rights of
any Loan Party or Subsidiary to any securities account and the financial assets
held by a securities intermediary in such securities account and any free credit
balance or other money owing by any securities intermediary with respect to that
account; (c) all securities accounts of any Loan Party or Subsidiary; (d) all
commodity contracts of any Loan Party or Subsidiary; and (e) all commodity
accounts held by any Loan Party or Subsidiary.

“IRS” shall mean the United States Internal Revenue Service.

“Judgment Currency” shall have the meaning set forth in Section 16.5.

“Lender” and “Lender” shall have the meaning ascribed to such term in the
preamble to this Agreement and shall include each Person which becomes a
transferee, successor or assign of any Lender.

“Lien” shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, security interest, lien (whether statutory or otherwise), charge,
claim or encumbrance, or preference, priority or other security agreement or
preferential arrangement held or asserted in respect of any asset of any kind or
nature whatsoever including, without limitation, any conditional sale or other
title retention agreement, any lease having substantially the same economic
effect as any of the foregoing, and the filing of, or agreement to give, any
financing statement under the UCC, PPSA or comparable law of any jurisdiction.
Any reference to the Lien of the Lender shall be construed in the broadest sense
possible and shall in each case include a security interest and other Lien as
the context implies.

 

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“Loan Party” shall mean, individually, each Borrower and each Guarantor, and
“Loan Parties” shall mean, collectively, the Borrowers and the Guarantors.

“Lowes” shall mean Lowes Companies, Inc.

“Material Adverse Effect” shall mean a material adverse effect on (a) the
financial condition, operations, assets or business of any Borrower on an
individual basis and/or Loan Parties and their Subsidiaries taken as a whole,
(b) any Loan Party’s ability to pay the Obligations or to comply with this
Agreement or any Other Document in accordance with the terms hereof or thereof,
(c) the value of the Collateral, or the Lender’s Liens on the Collateral or the
priority of any such Lien or (d) the Lender’s ability to realize on the
Collateral or otherwise enforce the terms of this Agreement or any of the Other
Documents.

“Material Contracts” shall have the meaning set forth in Section 5.21.

“Maximum Credit” shall have the meaning as defined in the Revolving Loan
Agreement as in effect on the date hereof; it being understood and agreed that
after the date hereof, the Maximum Credit may be increased in accordance with
Section 2.19 of the Revolving Loan Agreement as in effect on the date hereof and
the term “Maximum Credit” as used herein shall mean the Maximum Credit as so
increased.

“Maximum Lawful Rate” shall have the meaning set forth in Section 2.7.

“Money Borrowed” shall mean (a) Indebtedness for borrowed money arising from the
lending of money by any Person to any Loan Party or any of their respective
Subsidiaries, (b) Indebtedness, whether or not in any such case arising from the
lending by any Person of money to any Loan Party or any of their respective
Subsidiaries, (i) which is represented by notes payable or drafts accepted that
evidence extensions of credit, (ii) which constitutes obligations evidenced by
bonds, debentures, notes or similar instruments, or (iii) upon which interest
charges are customarily paid (other than accounts payable) or that was issued or
assumed as full or partial payment for property, (c) reimbursement obligations
with respect to letters of credit or guaranties of letters of credit, and
(d) Indebtedness of any Loan Party or any of their respective Subsidiaries under
any guarantee of obligations that would constitute Indebtedness for Money
Borrowed under clauses (a), (b) or (c) hereof, if owed directly by any Loan
Party or any of their respective Subsidiaries.

“Multiemployer Plan” shall mean a “multiemployer plan” as defined in Sections
3(37) and 4001(a)(3) of ERISA.

“Net Income” shall mean, for any period, the aggregate income (or loss) of Loan
Parties and their Subsidiaries for such period, all computed and calculated in
accordance with GAAP consistently applied on a consolidated basis.

“Non-Restricted Asset” shall have the meaning as set forth in the definition of
Excluded Assets.

“Non-US Loan Party” shall mean a Loan Party other than a US Loan Party.

“Non-US Subsidiary” shall mean any Subsidiary other than a US Subsidiary.

 

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“Obligations” shall mean and include any and all of each Loan Party’s
Indebtedness and/or liabilities pursuant to or evidenced by this Agreement, the
Term Note, the Warrants or any Other Documents to the Lender of every kind,
nature and description, direct or indirect, secured or unsecured, joint,
several, joint and several, absolute or contingent, due or to become due, now
existing or hereafter arising, contractual or tortious, liquidated or
unliquidated, regardless of how such indebtedness or liabilities arise
(including all interest accruing after the commencement of any bankruptcy or
similar proceeding whether or not enforceable in such proceeding) and all
obligations of any Loan Party to the Lender to perform acts or refrain from
taking any action under this Agreement or any Other Documents.

“OFAC” shall mean the U.S. Department of the Treasury’s Office of Foreign Assets
Control.

“Operating Account” or “Operating Accounts” shall mean, individually or
collectively, the operating accounts established and maintained by Loan Parties
and which are designated as such and listed on Schedule 5.23.

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

“Other Documents” shall mean the Term Note, the Questionnaire, any Guarantee,
any Collateral Access Agreement, the Intercreditor Agreement, the Warrants, the
Registration Rights Agreement and any and all other agreements, instruments and
documents, including, without limitation, guaranties, pledges, security
agreements, mortgages, deeds of trust, debentures, control agreements, other
collateral documents, subordination agreements, intercreditor agreements, powers
of attorney, consents, and all other writings heretofore, now or hereafter
executed and/or delivered by any Loan Party to the Lender in respect of the
transactions contemplated by this Agreement, in each case, as such agreements,
instruments and documents are amended, restated, modified or supplemented from
time to time.

“Parent” shall have the meaning set forth in the preamble to this Agreement and
shall include its successors and assigns.

“Participant” shall have the meaning set forth in Section 16.3(b).

“Payment in Full” or “Paid in Full” shall mean all of the Obligations have been
paid in full in cash or, in the case of any contingent Obligations, each Loan
Party shall have furnished the Lender with cash collateral from a Person, and
pursuant to terms and conditions which are satisfactory to the Lender in all
respects, or indemnification from a Person consistent with the terms and
provisions of this Agreement.

“PBGC” shall mean the Pension Benefit Guaranty Corporation.

“Permitted Acquisition” shall mean the purchase by a Borrower or wholly-owned US
Subsidiary of Borrower that is a Loan Party after the date hereof of all or
substantially all of the assets or property or all of the Equity Interests of
any Person or any business unit or division of such Person (such assets or
Person being referred to herein as the “Target”), subject to the satisfaction of
each of the following conditions:

 

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(a) the Lender shall receive at least thirty (30) days’ prior written notice of
such proposed Permitted Acquisition, which notice shall include a reasonably
detailed description of such proposed Permitted Acquisition;

(b) the Target’s assets shall only comprise a business of the type engaged in by
Loan Parties as of the date hereof or ancillary businesses reasonably related to
the business engaged in by Loan Parties as of the date hereof, and which
business would not subject the Lender to regulatory or third party approvals in
connection with the exercise of its rights and remedies under this Agreement or
any Other Documents other than approvals applicable to the exercise of such
rights and remedies with respect to Loan Parties prior to such proposed
Permitted Acquisition;

(c) the total cash and non-cash consideration paid by Loan Parties and their
Subsidiaries (including, without limitation, assumption or incurrence of all
Indebtedness (including without limitation earn-outs and deferred purchase price
obligations)) for (i) all Permitted Acquisitions shall not exceed $10,000,000 in
the aggregate during the Term or (ii) any Permitted Acquisition shall not exceed
$3,000,000;

(d) subject to the limitation in clause (c) immediately above and all of the
other terms and conditions of this Agreement, Borrowers may use proceeds of
Revolving Advances in an aggregate amount not to exceed (i) $3,000,000 in the
aggregate during the Term to fund the consideration paid by Loan Parties in all
Permitted Acquisitions or (ii) $1,000,000 to fund the consideration paid by Loan
Parties in any single Permitted Acquisition; provided, that, at the time of any
such proposed usage of Revolving Advances and after giving effect thereto,
Excess Availability (i) for the thirty (30) consecutive day period immediately
prior to the date of the consummation of such proposed Permitted Acquisition is
not less than $7,500,000 and (ii) is not less than $7,500,000 on the date of and
after giving effect to any such proposed Permitted Acquisition;

(e) Loan Parties and their Subsidiaries (including the Target), on a
consolidated basis, shall have a Fixed Charge Coverage Ratio of 1.1:1.0 on the
date of and on a pro forma basis for the trailing twelve (12) month period after
giving effect to such proposed Permitted Acquisition;

(f) Target must have had a positive EBITDA on a cumulative basis for the
immediately preceding four (4) fiscal quarters and no more than one (1) fiscal
quarter during such four fiscal quarter period may have a negative EBITDA;

(g) at or prior to the closing of such proposed Permitted Acquisition, the
Lender will be granted a second priority perfected security interest and lien
(subject to Permitted Encumbrances) in all assets and Equity Interests (other
than Excluded Assets) acquired in connection therewith and each Person acquired
in connection therewith shall have joined this Agreement as a Guarantor and each
Loan Party and each Person acquired in connection therewith shall have executed
(or caused to be executed) such documents and taken such actions as may be
required by the Lender in its Permitted Discretion in connection therewith;

(h) such proposed Permitted Acquisition shall not be hostile and, prior to its
closing, shall have been approved by the board of directors (or other similar
body) and/or the stockholders or other equity holders of the Target;

 

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(i) such proposed Permitted Acquisition shall only involve assets located in the
United States;

(j) all material consents necessary for such proposed Permitted Acquisition
(including such consents as the Lender deems reasonably necessary) have been
acquired and such proposed Permitted Acquisition is consummated in accordance
with the applicable acquisition documents and applicable law;

(k) each of the representations and warranties made by any Loan Party in or
pursuant to this Agreement and any Other Document to which it is a party, and
each of the representations and warranties contained in any certificate,
document or financial or other statement furnished at any time under or in
connection with this Agreement or any Other Document shall be true and correct
in all material respects (without duplication of any materiality qualifiers
already set forth therein) on and as of such date such proposed Permitted
Acquisition is consummated both before and after giving effect thereto as if
made on and as of such date, except to the extent that such representations and
warranties expressly relate solely to an earlier date (in which case such
representations and warranties shall have been true and correct in all material
respects (without duplication of any materiality qualifiers already set forth
therein) on and as of such earlier date);

(l) Administrative Borrower shall have delivered to the Lender, in form and
substance reasonably satisfactory to the Lender:

(A) a pro forma consolidated balance sheet, income statement and cash flow
statement of Parent and its Subsidiaries (the “Acquisition Pro Forma”), based on
recent financial statements, which shall be complete and shall fairly present in
all material respects the assets, liabilities, financial condition and results
of operations of Parent and its Subsidiaries in accordance with GAAP
consistently applied, but taking into account such proposed Permitted
Acquisition and the funding of all Revolving Advances in connection therewith,
and such Acquisition Pro Forma shall reflect that (x) Excess Availability
criteria set forth above has been satisfied, and (y) on a pro forma basis, no
Default or Event of Default has occurred and is continuing or would result after
giving effect to such proposed Permitted Acquisition and Borrowers would have
been in compliance with the financial covenants set forth in Section 7.6 for the
four (4) quarter period reflected in the Compliance Certificate most recently
delivered to the Lender pursuant to Section 9.7 prior to the consummation of
such proposed Permitted Acquisition (after giving effect to such proposed
Permitted Acquisition and all Revolving Advances funded in connection therewith
as if made on the first (1st) day of such period);

(B) updated versions of the most recently delivered projections delivered
pursuant to Section 5.5(b) covering the one (1) year period commencing on the
date of such proposed Permitted Acquisition and otherwise prepared in accordance
with such projections (the “Acquisition Projections”) and based upon historical
financial data of a recent date reasonably satisfactory to the Lender, taking
into account such proposed Permitted Acquisition; and

 

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(C) a certificate of the chief financial officer of Administrative Borrower to
the effect that: (w) each Loan Party (after taking into consideration all rights
of contribution and indemnity such Loan Party has against each other Loan Party)
will be Solvent upon the consummation of such proposed Permitted Acquisition;
(x) the Acquisition Pro Forma fairly presents the financial condition of Loan
Parties and their Subsidiaries (on a consolidated and consolidating basis) as of
the date thereof after giving effect to such proposed Permitted Acquisition;
(y) the Acquisition Projections are reasonable estimates of the future financial
performance of Loan Parties and their Subsidiaries subsequent to the date
thereof based upon the historical performance of Loan Parties, their
Subsidiaries and the Target and show that Loan Parties and their Subsidiaries
shall continue to be in compliance with the financial covenants set forth in
Section 6.8 for the remainder of the Term; and (z) Loan Parties have completed
their due diligence investigation with respect to the Target and such proposed
Permitted Acquisition, which investigation was conducted in a manner similar to
that which would have been conducted by a prudent purchaser of a comparable
business and the results of which investigation were delivered to the Lender;

(m) on or prior to the date of such proposed Permitted Acquisition, the Lender
shall have received, in form and substance reasonably satisfactory to the
Lender, copies of the acquisition agreement (which shall allow collateral
assignments of Loan Parties rights thereunder in favor of the Lender) or merger
agreement, as applicable, and all related agreements and instruments, and all
opinions, certificates, lien search results and other documents reasonably
requested by the Lender; and

(n) concurrently with consummation of such proposed Permitted Acquisition,
Administrative Borrower shall have delivered to the Lender a certificate stating
that the foregoing conditions have been satisfied.

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

“Permitted Encumbrances” shall mean:

(a) Liens in favor of the Lender, which, in each case, secure Obligations;

(b) Liens for taxes, assessments or other governmental charges (“Tax Lien”) not
delinquent or being contested in good faith and by appropriate proceedings by
the applicable Loan Party or Subsidiary of a Loan Party and with respect to
which proper reserves have been taken by Loan Parties and the Subsidiaries;
provided, that, the Tax Lien shall have no effect on the priority of the Liens
in favor of the Lender or the value of the Collateral in which the Lender has
such a Lien (taking into account any such reserves taken by the Loan Parties)
and a stay of enforcement of any such Tax Lien shall be in effect;

(c) deposits or pledges to secure obligations under worker’s compensation,
social security or similar laws, or under unemployment insurance, in each case
made in the ordinary course of business and excluding deposits, liens or pledges
under ERISA;

(d) deposits or pledges of cash to secure bids, tenders, contracts (other than
contracts for the payment of money), leases, statutory obligations, surety and
appeal bonds and other obligations of like nature arising in the ordinary course
of the applicable Loan Party’s or Subsidiary’s business;

(e) mechanics’, workers’, materialmen’s, carriers’, warehousemen’s, landlords or
other like Liens arising in the ordinary course of the applicable Loan Party’s
or Subsidiary’s business with respect to obligations which are (i) not due or
(ii) being contested in good faith and by appropriate proceedings by the
applicable Loan Party or Subsidiary of a Loan Party and with respect to which
proper reserves have been taken by Loan Parties and the Subsidiaries; provided,
that, the such Lien shall have no effect on the priority of the Liens in favor
of the Lender or the value of the Collateral in which the Lender has such a Lien
and a stay of enforcement of any such Lien shall be in effect;

 

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(f) Liens placed upon fixed assets and intellectual property related to such
fixed assets hereafter acquired by any Loan Party or any Subsidiary to secure a
portion of the purchase price thereof; provided, that, (i) any such Lien shall
not encumber any other property of Loan Parties or their Subsidiaries and
(ii) the aggregate amount secured by such Liens shall not exceed the applicable
amount provided for in Section 7.8(b);

(g) Liens in existence on the date hereof that are disclosed on Schedule 7.2;

(h) Liens on amounts not exceeding $100,000 in the aggregate deposited as
security for surety or appeal bonds in connection with obtaining such bonds in
the ordinary course of business;

(i) with respect to any Real Property, Liens consisting of easements, rights of
way and zoning restrictions that do not materially interfere with or impair the
use or operation thereof;

(j) Liens on Depository Accounts granted or arising in the ordinary course of
business in favor of depositary banks maintaining such Depository Accounts
solely to the extent they secure customary account fees and charges payable in
respect of such Depository Accounts;

(k) non-consensual statutory Liens (other than Liens securing the payment of
taxes or ERISA matters) arising in the ordinary course of a Loan Party or
Subsidiary’s business; provided, that, such Liens do not secure Indebtedness or
any other amounts in excess of $100,000 in the aggregate which are past due;

(l) Liens arising from (i) operating leases with respect to assets which are not
owned by any Loan Party or any Subsidiary and the precautionary UCC and PPSA
financing statement filings in respect thereof and (ii) equipment or other
materials which are not owned by any Loan Party or Subsidiary located on the
premises of such Loan Party or Subsidiary (but not in connection with, or as
part of, the financing thereof) from time to time in the ordinary course of
business and consistent with current practices of Loan Parties and their
Subsidiaries and the precautionary UCC and PPSA financing statement filings in
respect thereof;

(m) judgments and other similar Liens arising in connection with court
proceedings that do not constitute an Event of Default;

(n) Liens of a collection bank arising under Section 4-210 of the UCC on items
in the course of collection;

(o) Liens in favor of customs and revenue authorities arising as a matter of law
to secure custom duties which are not past due in connection with the
importation of goods by Loan Parties or their Subsidiaries in the ordinary
course of business;

(p) Liens on specific fixed assets and intellectual property related to such
specific fixed assets (as opposed to any blanket lien on any asset type)
acquired pursuant to a Permitted Acquisition in existence at the time such
assets are acquired pursuant to such Permitted Acquisition and not created in
contemplation thereof; provided, that, such Liens do not attach to any assets
other than the assets acquired pursuant to such Permitted Acquisition;

 

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(q) receipt of deposits and advances from customers in the ordinary course of
business which may create an interest in the Inventory to be sold to such
customers, but which do not constitute contractual Liens granted by a Loan Party
or any Subsidiary;

(r) Liens securing Indebtedness of any Loan Party under the Revolving Loan
Documents, subject in all respect to the Intercreditor Agreement;

(s) Liens of any counterparty to a Hedging Agreement to secure the Indebtedness
permitted under Section 7.8(e); and

(t) Liens on amounts not exceeding $100,000 in the aggregate deposited as
security for corporate credit card programs maintained in the ordinary course of
business.

“Person” shall mean any individual, sole proprietorship, partnership,
corporation, company, business trust, joint stock company, trust, unincorporated
organization, association, limited liability company, institution, public
benefit corporation, joint venture, entity or government (whether federal,
state, provincial, county, city, municipal or otherwise, including any
instrumentality, division, agency, body or department thereof).

“Plan” shall mean any employee benefit plan within the meaning of Section 3(3)
of ERISA, maintained for employees of Loan Parties or any member of the
Controlled Group or any such Plan to which any Loan Party or any member of the
Controlled Group is required to contribute on behalf of any of its employees.

“PPSA” shall mean the Personal Property Security Act (British Columbia) or any
other like applicable federal or provincial statute pertaining to the granting,
perfecting, priority or ranking of security interests, liens, hypothecs on
personal property, and any successor statutes, together with any regulations
thereunder, in each case as in effect from time to time. References to sections
of the PPSA shall be construed to also refer to any successor sections.

“Pro Forma Balance Sheet” shall have the meaning set forth in Section 5.5(a).

“Qualified Plan” shall mean a Plan that is intended to be tax qualified under
Section 401(a) of the Code.

“Questionnaire” shall mean each of the Information Certificates, each dated as
of the date hereof, executed by each Loan Party in favor of the Lender.

“RCRA” shall mean the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901
et seq., as same may be amended from time to time.

“Real Property” shall mean all of each Loan Party and each of their Subsidiary’s
right, title and interest in and to its owned and leased premises.

 

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“Receivables” shall mean and include, as to each Loan Party and each Subsidiary
of each Loan Party, all of such Loan Party’s and Subsidiary’s Accounts, Contract
Rights, instruments (including promissory notes and instruments evidencing
indebtedness owed to Loan Parties and their Subsidiaries by their Affiliates),
documents, chattel paper (whether tangible or electronic), general intangibles
relating to Accounts, drafts and acceptances, and all other forms of obligations
owing to such Loan Party and Subsidiary arising out of or in connection with the
sale, lease or other disposition of Inventory or the rendition of services, all
guarantees and other security therefor, whether secured or unsecured, now
existing or hereafter created, and whether or not specifically sold or assigned
to the Lender hereunder.

“Refill Division” shall mean the filtered drinking water refill business of the
Borrowers, whether operated by one or more of the Borrowers, including, without
limitation, the assets owned by any of the Borrowers and acquired from Culligan
of Canada, Ltd. and Culligan International Company pursuant to an Asset Purchase
Agreement dated as of March 8, 2011 and from Culligan Store Solutions, LLC
pursuant to an Asset Purchase Agreement dated as of June 1, 2010.

“Register” shall have the meaning set forth in Section 16.3(d).

“Registration Rights Agreement” shall mean the Registration Rights Agreement,
dated as of the Closing Date, made by the Parent for the benefit of the Lender
and any subsequent holders, as same may be amended, modified, supplemented
and/or restated from time to time.

“Related Agreements” shall mean the Revolving Loan Documents.

“Related Transactions” shall mean the transactions contemplated by the Related
Agreements.

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

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

“Responsible Officer” shall mean with respect to any Person, such Person’s chief
executive officer, president, chief operating officer, chief financial officer
or other officer having substantially the same authority and responsibility with
respect to the matters at hand (or having substantially the same knowledge of
the contents of the certificate, document or other document being delivered).

“Restricted Accounts” shall mean deposit accounts or other accounts
(a) established and used (and at all times will be used) solely for the purpose
of paying current payroll obligations of Loan Parties (and which do not (and
will not at any time) contain any deposits other than those necessary to fund
current payroll), in each case in the ordinary course of business,
(b) maintained (and at all times will be maintained) solely in connection with
an employee benefit plan, but solely to the extent that all funds on deposit
therein are solely held for the benefit of, and owned by, employees (and will
continue to be so held and owned) pursuant to such plan, and (c) used in the
ordinary course of business for petty cash, the balance of which shall not
exceed $25,000 in the aggregate at any time; provided, that, without limiting
the foregoing, in order for any such deposit account or other account to
constitute a “Restricted Account”, such deposit or other account must be
expressly designated as a “Restricted Account” on Schedule 5.23 (as such
schedule may from time to time be updated in accordance with Section 5.23),
which designation shall constitute a representation and warranty by each Loan
Party that such deposit account or other account satisfies the criteria set
forth in this definition to constitute a “Restricted Account”.

 

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“Restricted Asset” shall have the meaning as set forth in the definition of
Excluded Assets.

“Restriction” shall have the meaning as set forth in the definition of Excluded
Assets.

“Revolving Advances” shall mean all “Advances” as such term is defined in the
Revolving Loan Agreement.

“Revolving Loan Agent” shall mean T.D. Bank, N.A., a national banking
association, and its successors and assigns.

“Revolving Loan Agreement” shall mean that certain Loan and Security Agreement,
dated as of the date hereof, by and among the Revolving Loan Agent, the lenders
from time to time party thereto, the Borrowers, and the other Loan Parties party
thereto.

“Revolving Loan Documents” shall mean the “Other Documents” as defined in the
Revolving Loan Agreement.

“Revolving Loan Priority Collateral” shall mean the “Revolving Loan Priority
Collateral”, as such term is defined in the Intercreditor Agreement.

“Sanctioned Entity” shall mean (a) an agency of the government of, (b) an
organization directly or indirectly controlled by, or (c) a person resident in,
a country that is subject to a sanctions program identified on the list
maintained and published by OFAC and available at
http://www.treas.gov/offices/enforcement/ofac/programs, or as otherwise
published from time to time as such program may be applicable to such agency,
organization or person.

“Sanctioned Person” shall mean a person named on the list of Specially
Designated Nationals or Blocked Persons maintained by OFAC available at
http://www.treas.gov/offices/enforcement/ofac/sdn/index.html or as otherwise
published from time to time.

“Solvent” shall mean, at any time with respect to any Person, that at such time
such Person (a) is able to pay its debts as they mature and has (and has a
reasonable basis to believe it will continue to have) sufficient capital (and
not unreasonably small capital) to carry on its business consistent with its
practices as of the date hereof, and (b) the assets and properties of such
Person at a fair valuation (and including as assets for this purpose at a fair
valuation all rights of subrogation, contribution or indemnification arising
pursuant to any guarantees given by such Person) are greater than the
Indebtedness of such Person, and including subordinated and contingent
liabilities computed at the amount which, such Person has a reasonable basis to
believe, represents an amount which can reasonably be expected to become an
actual or matured liability (and including as to contingent liabilities arising
pursuant to any guarantee the face amount of such liability as reduced to
reflect the probability of it becoming a matured liability).

“Stated Rate” shall have the meaning set forth in Section 2.7.

 

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“Subordinated Debt” shall mean the subordinated Indebtedness described in
Section 7.8 (i).

“Subsidiary” shall mean, with respect to any Person, a corporation, partnership,
limited liability company or other entity of which such Person owns, directly or
indirectly, such number of outstanding shares or other equity interests as to
have more than 50% of the ordinary voting power for the election of directors or
other managers of such corporation, partnership, limited liability company or
other entity. Unless the context otherwise requires, each reference to
Subsidiaries herein shall be a reference to Subsidiaries of Borrowers.

“Target” shall have the meaning as set forth in the definition of Permitted
Acquisition.

“Tax” or “Taxes” shall mean any tax, fee, premium, charge, duty, escheat or
other amount imposed by a Governmental Body and any interest, penalty, or
addition to tax imposed with respect thereto or any applicable law, treaty,
regulation or directive.

“Tax Lien” shall have the meaning as set forth in the definition of Permitted
Encumbrances.

“Term” shall mean the period commencing on the Closing Date and ending on the
Termination Date.

“Term Loan” shall mean the term loan made pursuant to Section 2.1(a).

“Term Note” shall mean the promissory note of Borrowers issued to the Lender as
described in Section 2.1(c) below.

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

“Termination Event” shall mean (a) a Reportable Event with respect to any Plan
or Multiemployer Plan; (b) the withdrawal of any Loan Party or any of their
Subsidiaries or any member of the Controlled Group from a Plan or Multiemployer
Plan during a plan year in which such entity was a “substantial employer” as
defined in Section 4001(a)(2) of ERISA; (c) the providing of notice of intent to
terminate a Plan in a distress termination described in Section 4041(c) of
ERISA; (d) the institution by the PBGC of proceedings to terminate a Plan or
Multiemployer Plan; (e) any event or condition (i) which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan or Multiemployer Plan, or (ii) that may
result in termination of a Multiemployer Plan pursuant to Section 4041A of
ERISA; or (f) the partial or complete withdrawal within the meaning of Sections
4203 and 4205 of ERISA, of any Loan Party, any Subsidiary thereof or any member
of the Controlled Group from a Multiemployer Plan.

“Title IV Plan” shall mean a Plan (other than a Multiemployer Plan), that is
covered by Title IV of ERISA, and that any Loan Party or ERISA Affiliate
maintains, contributes to or has an obligation to contribute to on behalf of
participants who are or were employed by any of them.

“Toxic Substance” shall mean and include any material present on the Real
Property or the leasehold interests which has been shown to have significant
adverse effect on human health or which is subject to regulation under the Toxic
Substances Control Act (TSCA), 15 U.S.C. §§ 2601 et seq., or any other
applicable federal, state, provincial or other laws now in force or hereafter
enacted relating to toxic substances. “Toxic Substance” includes but is not
limited to asbestos, polychlorinated biphenyls (PCBs) and lead-based paints.

 

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“UCC” shall mean the Uniform Commercial Code as in effect in the State of New
York from time to time; provided, that, when used with respect to Canadian
Guarantor or when the context so requires, the term “UCC” shall mean the PPSA.

“Unfunded Pension Liability” shall mean, at any time, the aggregate amount, if
any, of the sum of (a) the amount by which the present value of all accrued
benefits under each Title IV Plan exceeds the fair market value of all assets of
such Title IV Plan allocable to such benefits in accordance with Title IV of
ERISA, all determined as of the most recent valuation date for each such Title
IV Plan using the actuarial assumptions for funding purposes in effect under
such Title IV Plan, and (b) for a period of five (5) years following a
transaction which might reasonably be expected to be covered by Section 4069 of
ERISA, the liabilities (whether or not accrued) that could be avoided by any
Loan Party or any ERISA Affiliate as a result of such transaction.

“US Loan Party” shall mean a Loan Party organized, incorporated or otherwise
formed under the laws of the United States or any state thereof or the District
of Columbia.

“US Subsidiary” shall mean a Subsidiary organized, incorporated or otherwise
formed under the laws of the United States or any state thereof or the District
of Columbia.

“Voting Equity Interests” shall mean with respect to any Person, (a) one (1) or
more classes of Equity Interests of such Person having general voting powers to
elect at least a majority of the board of directors, managers or trustees of
such Person, irrespective of whether at the time Equity Interests of any other
class or classes have or might have voting power by reason of the happening of
any contingency, and (b) any Equity Interests of such Person convertible or
exchangeable without restriction at the option of the holder thereof into Equity
Interests of such Person described in clause (a) of this definition.

“Walmart” shall mean Wal-Mart Stores, Inc.

“Warrants” shall mean the warrants to purchase shares of common equity interests
(such warrants covering an aggregate of one million seven hundred thirty-one
thousand four hundred twenty-nine (1,731,429) fully paid non-assessable shares
of common stock, with a par value of $.001 per share, of the Parent to be issued
by the Parent to the Lender and certain Participants on the Closing Date.

“Waterfall Event” shall mean the occurrence of (a) failure by Borrowers to repay
all of the Obligations as of the end of the Term or after the Obligations have
been accelerated, or (b) an Event of Default and the election by the Lender to
require that payments and proceeds of Collateral be applied pursuant to
Section 11.2(a).

 

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1.3 Uniform Commercial Code Terms.

All terms used herein and defined in the UCC or, solely with respect to the
Canadian Guarantor, in the PPSA, including, as the case may be, the terms
accessions, account debtor, certificated security, chattel paper, commercial
tort claim, deposit account, document, electronic chattel paper, equipment,
financial asset, fixtures, goods, health-care-insurance receivable, inventory,
instrument, investment property, letter-of-credit rights, payment intangibles,
proceeds, securities accounts, security, security entitlement, software,
supporting obligations and uncertificated security, shall (i) with respect to
any US Loan Party, have the meaning given in the UCC, or (ii) with respect to
the Canadian Guarantor, have the meaning given in the PPSA, in each case, unless
otherwise defined herein or unless the context provides otherwise.

1.4 Certain Matters of Construction.

The terms “herein”, “hereof” and “hereunder” and other words of similar import
refer to this Agreement as a whole and not to any particular section, paragraph
or subdivision. Each reference to a Section, an Exhibit or a Schedule shall be
deemed to refer to a Section, an Exhibit or a Schedule, as applicable, of this
Agreement unless otherwise specified. The terms “including” and other words of
similar import refer to “including, but not limited” unless otherwise specified.
Any pronoun used shall be deemed to cover all genders. Wherever appropriate in
the context, terms used herein in the singular also include the plural and vice
versa. All references to statutes (including the UCC and the PPSA) and related
regulations shall include any amendments of same and any successor statutes and
regulations. Unless otherwise provided, all references to any instruments or
agreements, including, without limitation, references to this Agreement or any
of the Other Documents, shall include any and all modifications or amendments
thereto and any and all extensions or renewals thereof to the extent not
prohibited by this Agreement or any Other Document. Unless otherwise provided
Dollar ($) baskets set forth in the representations and warranty, covenants and
event of default provisions of this Agreement (and other similar baskets) are
calculated as of each date of measurement by the Dollar Equivalents thereof as
of such date of measurement.

2. TERM LOAN, PAYMENTS.

2.1 Term Loan.

(a) Subject at all times to all of the terms and conditions of this Agreement,
the Lender hereby agrees to extend to the Borrowers a Term Loan in the principal
amount of $15,150,000. The Term Loan shall be borrowed in a single borrowing on
the Closing Date, and any principal amounts repaid in respect of the Term Loan
may not be reborrowed. The Term Loan shall be due and payable in full on the
Termination Date, subject to earlier prepayment as herein provided.

(b) The Borrowers shall pay the Lender interest on the principal balance of the
Term Loan at the rate(s) per annum as in effect from time to time in accordance
with the Term Note. Such interest shall be payable monthly in arrears on or
before the fifth day of each calendar month and on the Termination Date, and
shall be computed on the daily unpaid balance of the Term Loan, based on a three
hundred sixty (360) day year, counting the actual number of days elapsed. If any
payment to be made hereunder becomes due and payable on a day other than a
Business Day, the due date thereof shall be extended to the next succeeding
Business Day and interest thereon shall be payable during such extension. The
Borrowers hereby authorize the Lender to charge the Borrowers’ Account for all
such interest and/or for any or all principal amounts due and payable in respect
of the Term Loan.

 

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(c) The Term Loan shall be evidenced by a secured Term Note of the Borrowers
payable, jointly and severally, to the Lender or its registered assigns
substantially in the form of Exhibit A attached hereto. The terms of the Term
Note are incorporated into this Agreement by this reference.

2.2 Fees and Premiums.

(a) The Borrowers shall pay the Closing Fee to the Lender on the Closing Date
upon the execution and delivery of this Agreement in accordance with the Fee
Letter. The Closing Fee shall be deemed fully earned upon the parties’ execution
and delivery of this Agreement, and shall not be refundable in whole or in part
and shall not be subject to reduction or set-off under any circumstances.

(b) In the event of any prepayment of all or any portion of the Term Loan for
any reason whatsoever (including without limitation as a result of any
acceleration of the Term Loan resulting from an Event of Default, any mandatory
prepayment or any voluntary prepayment), in addition to the payment of the
subject principal amount and all unpaid accrued interest thereon, the Borrowers,
jointly and severally, shall be required to pay to the Lender a prepayment
premium in an amount equal to (i) seven (7%) percent of the principal amount
being prepaid if such prepayment is made or required to be made on or before the
first (1st) anniversary of the Closing Date, (ii) four (4%) percent of the
principal amount being prepaid if such prepayment is made or required to be made
after the first (1st) anniversary of the Closing Date but on or before the
second (2nd) anniversary of the Closing Date, or (iii) two (2%) percent of the
principal amount being prepaid if such prepayment is made or required to be made
after the second (2nd) anniversary of the Closing Date but on or before the
third (3rd) anniversary of the Closing Date; provided that, notwithstanding the
foregoing, if Parent’s publicly traded stock price exceeds $4.00 per share for
each day during the sixty (60) day period prior to the date of any such
prepayment, (x) the prepayment premium for the period after the first
(1st) anniversary of the Closing Date but on or before the second
(2nd) anniversary of the Closing Date shall be an amount equal to two
(2%) percent of the principal amount being prepaid and (y) the prepayment
premium for the period after the second (2nd) anniversary of the Closing Date
but on or before the third (3rd) anniversary of the Closing Date shall be an
amount equal to one (1%) percent of the principal amount being prepaid.

2.3 Repayment of Term Loan.

(a) Payments received in respect of the Obligations after 12:00 Noon Eastern
Time on any day shall be deemed to be received on the next succeeding Business
Day, and if any payment is received other than by wire transfer of immediately
available funds, such payment shall be subject to three (3) Business Days’
clearance prior to being credited to the Obligations for interest calculation
purposes.

(b) The Borrowers shall pay principal, interest, and all other amounts payable
hereunder and under each Other Document without any deduction whatsoever,
including, but not limited to, any deduction for any setoff or counterclaim.

 

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(c) If, notwithstanding the terms of this Agreement or any Other Document, the
Lender receives any payment from or on behalf of any Borrower or any other Loan
Party in a currency other than the Currency Due (including, without limitation,
payments in respect of any Account in the lawful currency of Canada), the Lender
may convert the payment (including the monetary proceeds of realization upon any
Collateral and any funds then held in a cash collateral account) into the
Currency Due at exchange rate selected by the Lender in the manner contemplated
by Section 16.5 and Borrowers shall reimburse the Lender on demand for all costs
they incur with respect thereto. To the extent permitted by law, the obligation
shall be satisfied only to the extent of the amount actually received by the
Lender upon such conversion.

2.4 Statement of Account.

The Lender shall maintain, in accordance with its customary procedures, a loan
account (the “Borrowers’ Account”) in the name of the Borrowers in which shall
be recorded the date and amount of the Term Loan made by the Lender and the date
and amount of each payment in respect thereof; provided, however, that, the
failure by the Lender to record the date or amount of payment or any other item
shall not adversely affect the Lender under this Agreement or any Other Document
or diminish any obligation of any Loan Party under this Agreement or any Other
Document. The records of the Lender with respect to Borrowers’ Account shall be
conclusive evidence absent manifest error of the amounts of the Term Loan and
other charges thereto and of payments applicable thereto.

2.5 Mandatory Prepayments.

Notwithstanding the following and subject to the terms of the Intercreditor
Agreement, (i) during a Waterfall Event, the order of application to the
Obligations shall be made pursuant to Section 11.2 rather than as is provided in
this Section 2.5 and (ii) the amount of any prepayments required to be made
under this Section 2.5 shall be reduced by the amount of proceeds which are
required to be paid under the corresponding mandatory prepayment provisions of
the Revolving Loan Agreement and which are in fact paid and applied to
permanently reduce the Maximum Credit under the Revolving Loan Agreement and any
commitment thereunder.

(a) When any Loan Party or any of their Subsidiaries Disposes of any Collateral
or other assets (other than sales of Inventory in the ordinary course of
business) or receives proceeds of property or casualty insurance, within one
(1) Business Day thereof, Loan Parties shall prepay the Term Loan in an amount
equal to one hundred (100%) percent of the net cash proceeds of such sale (i.e.,
gross cash proceeds less the reasonable out-of-pocket costs and expenses in
respect of such Dispositions (including any taxes and similar amounts)) or all
of the cash proceeds of such insurance, as applicable, such repayments to be
made promptly but in no event more than one (1) Business Day following receipt
of such proceeds, and until the date of payment, such proceeds shall be held in
trust for the Lender. Notwithstanding the foregoing, unless and until an Event
of Default has occurred and is continuing or would result therefrom, such
proceeds from Dispositions and insurance payments that do not exceed $250,000 in
the aggregate in any fiscal year may be retained by Loan Parties solely to
acquire replacement assets without making a mandatory prepayment hereunder so
long as (1) the fair market value of the acquired assets is equal to or greater
than the fair market value of the assets which were Disposed or subject to the
insurance payment, as applicable, (2) the acquired assets are purchased by the
applicable Loan Party within one hundred twenty (120) days of the Disposal of
the assets or receipt of the insurance payment, as applicable, (3) the acquired
assets are acceptable to the Lender in its Permitted Discretion, (4) if the
assets that were Disposed or that were the subject of the insurance payment, as
applicable, were Collateral, the acquired assets must all be Collateral and
shall be subject to the Lender’s first priority Lien created hereunder (other
than with respect to the Revolving Loan Priority Collateral (subject to the
Intercreditor Agreement) or subject to Permitted Encumbrances), and (5) until
such time as the proceeds are used to acquire such replacement assets, at the
Lender’s option, either (x) such proceeds shall be held by the Lender as cash
collateral for the Obligations pursuant to terms acceptable to the Lender in its
sole discretion or (y) such proceeds shall be applied as a prepayment of the
Term Loan. Such cash collateral shall be released by the Lender to be used by
the Borrowers solely for the purposes of funding the acquisition of replacement
assets pursuant to the terms of this Section 2.5. If a Loan Party fails to meet
the conditions set forth above, Loan Parties hereby authorize the Lender to
apply the proceeds held by the Lender as a prepayment of the Term Loan in the
manner set forth above. The provisions of this Section 2.5(a) shall not be
deemed to be implied consent to any such Disposition otherwise prohibited by the
terms and conditions of this Agreement or any Other Document.

 

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(b) Within one (1) Business Day of the date of receipt by any Loan Party or any
of its Subsidiaries of any Extraordinary Receipts in excess of $50,000
individually or in the aggregate, Borrowers shall prepay the outstanding amount
of the Term Loan in an amount equal to one hundred (100%) percent of such
Extraordinary Receipts, net of any reasonable out of pocket fees and expenses
incurred in collecting such Extraordinary Receipts. The provisions of this
Section 2.5(b) shall not be deemed to be implied consent to any event giving
rise to such Extraordinary Receipts otherwise prohibited by the terms and
conditions of this Agreement.

(c) Within one (1) Business Day of the date of the issuance by any Loan Party or
any of its Subsidiaries of any shares of its or their Equity Interests (other
than (i) the issuance of Equity Interests to another Loan Party or Subsidiary
thereof, (ii) the issuance of Equity Interests of Parent to directors, officers
and employees of a Loan Party and any of their respective Subsidiaries pursuant
to employee stock option plans (or other employee incentive plans or other
compensation arrangements) approved by the board of directors of Parent and
(iii) the issuance of Equity Interests of Parent, to the extent the proceeds
thereof are used concurrently with the issuance thereof to fund the purchase
price of a Permitted Acquisition) or the receipt by any Loan Party or any of its
Subsidiaries of any capital contribution from any Person (other than (i) from
another Loan Party or Subsidiary thereof and (ii) to the extent the proceeds
thereof are used concurrently to fund the purchase price of a Permitted
Acquisition), Borrowers shall prepay the outstanding amount of the Term Loan in
an amount equal to fifty (50%) percent of the net cash proceeds of such sale or
contribution (i.e., gross cash proceeds less the reasonable out-of-pocket costs
and expenses in respect of such issuance or contribution (including any taxes
and similar amounts)) received by such Person in connection with such issuance
or contribution. The provisions of this Section 2.5(c) shall not be deemed to be
implied consent to any such issuance otherwise prohibited by the terms and
conditions of this Agreement.

2.6 Use of Proceeds.

The Borrowers shall use the proceeds of the Term Loan hereunder only for:
(a) payments on the Closing Date to each of the Persons listed in the
disbursement direction letter furnished by the Borrowers to the Lender on or
about the Closing Date and (b) costs, expenses and fees incurred on or prior to
the Closing Date in connection with the preparation, negotiation, execution and
delivery of this Agreement and the Other Documents. Further, none of the
proceeds will be used, directly or indirectly, for the purpose of purchasing or
carrying any margin security or for the purposes of reducing or retiring any
Indebtedness which was originally incurred to purchase or carry any margin
security or for any other purpose which might cause the Term Loan to be
considered a “purpose credit” within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System, as amended.

 

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2.7 Further Obligations / Maximum Lawful Rate.

With respect to all Obligations for which the interest rate is not otherwise
specified herein (whether such Obligations arise hereunder, pursuant to the Term
Note or Other Documents, or otherwise), such Obligations shall bear interest at
the rate(s) in effect from time to time pursuant to the Term Note. In no event
shall the interest charged with respect to the Term Loan or any other Obligation
exceed the maximum amount permitted under the laws of the State of New York or
of any other applicable jurisdiction. Notwithstanding anything to the contrary
herein or elsewhere, if at any time the rate of interest payable or other
amounts hereunder or under the Term Note or Other Documents (the “Stated Rate”)
would exceed the highest rate of interest or other amount permitted under any
applicable law to be charged (the “Maximum Lawful Rate”), then for so long as
the Maximum Lawful Rate would be so exceeded, the rate of interest and other
amounts payable shall be equal to the Maximum Lawful Rate; provided, that if at
any time thereafter the Stated Rate is less than the Maximum Lawful Rate,
Borrowers shall, to the extent permitted by applicable law, continue to pay
interest and such other amounts at the Maximum Lawful Rate until such time as
the total interest and other such amounts received is equal to the total
interest and other such amounts which would have been received had the Stated
Rate been (but for the operation of this provision) the interest rate payable or
such other amounts payable. Thereafter, the interest rate and such other amounts
payable shall be the Stated Rate unless and until the Stated Rate again would
exceed the Maximum Lawful Rate, in which event this provision shall again apply.
In no event shall the total interest or other such amounts received by the
Lender exceed the amount which it could lawfully have received had the interest
and other such amounts been calculated for the full term hereof at the Maximum
Lawful Rate. If, notwithstanding the prior sentence, the Lender has received
interest or other such amounts hereunder in excess of the Maximum Lawful Rate,
such excess amount shall be applied to the reduction of the principal balance of
the Term Loan or to other amounts (other than interest) payable hereunder, and
if no such principal or other amounts are then outstanding, such excess or part
thereof remaining shall be paid to Borrowers. In computing interest payable with
reference to the Maximum Lawful Rate applicable to the Lender, such interest
shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by
the number of days in the year in which such calculation is made.

2.8 Application of Payments.

All amounts paid to or received by the Lender in respect of the Term Loan, from
whatever source (whether from any Loan Party, any realization upon any
Collateral, or otherwise) shall, unless otherwise directed by the Borrowers with
respect to any particular payment (unless an Event of Default shall then be
continuing, in which event the Lender may disregard the Borrowers’ direction),
be applied by the Lender to the Obligations in such order as the Lender may
elect, and absent such election shall be applied as follows: (a) first, to
reimburse the Lender for all out-of-pocket costs and expenses incurred by the
Lender which are reimbursable to the Lender in accordance with this Agreement,
the Term Note and/or any of the Other Documents, (b) next, to any accrued but
unpaid fees or prepayment premiums owing under this Agreement, the Term Note
and/or any Other Document, (c) next, to any unpaid accrued interest on the
Obligations, (d) next, to the outstanding principal of the Term Loan, to the
extent then due and payable, and (e) finally, to the payment of any other
outstanding Obligations; and after payment in full of the Obligations, any
further amounts paid to or received by the Lender in respect of the Term Loan
shall be paid over to the Borrowers or such other Person(s) as may be legally
entitled thereto.

 

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2.9 Reversal of Payments.

To the extent that any payment or payments made to or received by the Lender
pursuant to this Agreement or any Other Document are subsequently invalidated,
declared to be fraudulent or preferential, set aside, or required to be repaid
to any trustee, receiver or other Person under any state, federal or other
bankruptcy or other such applicable law, then, to the extent thereof, such
amounts (and all Liens, rights and remedies therefore) shall be revived as
Obligations and continue in full force and effect under this Agreement and under
the Other Documents as if such payment or payments had not been received by the
Lender. This Section 2.9 shall remain operative and in full force and effect
regardless of the expiration or any termination of this Agreement.

2.10 Joint and Several Liability.

(a) All Borrowers shall be liable, on a joint and several basis, for all
Obligations, including, without limitation, all amounts due to the Lender under
this Agreement and the Other Documents, regardless of which Borrower actually
receives the Term Loan or other proceeds of the Obligations or the manner in
which the Lender accounts for the Term Loan or other Obligations on its books
and records or for any other reason. The Obligations with respect to the Term
Loan made to a Borrower, and the Obligations arising as a result of the joint
and several liability of a Borrower hereunder, with respect to the Term Loan
made to the other Borrowers hereunder, shall be separate and distinct
obligations, but all such Obligations shall be primary obligations of all
Borrowers. The Obligations arising as a result of the joint and several
liability of a Borrower hereunder with respect to the Term Loan or other
Obligations shall, to the fullest extent permitted by law, be unconditional
irrespective of (i) the validity or enforceability, avoidance or subordination
of the Obligations of the other Borrowers or of any promissory note or other
document evidencing all or any part of the Obligations of the other Borrowers,
(ii) any incapacity or lack of power, authority or legal personality of any
other Borrower or other Person, (iii) the absence of any attempt to collect the
Obligations from the other Borrowers or any other security therefor, or the
absence of any other action to enforce or failure to realize the full value of
the same, (iv) any amendment (however fundamental) replacement variation,
assignment termination and/or the waiver, consent, extension, forbearance or
granting of any indulgence by the Lender with respect to any provisions of any
instrument evidencing the Obligations of the other Borrowers, or any part
thereof, or any other agreement now or hereafter executed by the other Borrowers
and delivered to the Lender, (v) the failure by the Lender or any other Person
to take any steps to perfect and maintain its Lien in, or to preserve its rights
and maintain its security or collateral for the Obligations of the other
Borrowers, (vi) the election of the Lender or any other Person in any proceeding
instituted under Title 11 of the United States Code, as amended (“Bankruptcy
Code”), of the application of Section 1111(b)(2) of the Bankruptcy Code,
(vii) the disallowance of all or any portion of the claim(s) of the Lender or
any other Person for the repayment of the Obligations of the other Borrowers
under Section 502 of the Bankruptcy Code, (viii) any insolvency, liquidation,
administration or similar procedure or corporate action in respect of any other
Borrower and/or any legal proceedings or procedures by any of the other
Borrowers’ creditors or (ix) any other circumstances which might constitute a
legal or equitable discharge or defense of the other Borrowers. With respect to
the Obligations arising as a result of the joint and several liability of a
Borrower hereunder with respect to the Term Loan or other Obligations, each
Borrower waives, until all of the Obligations have been Paid in Full, any right
to enforce any right of subrogation or any remedy which the Lender or any other
Person now has or may hereafter have against Borrowers, any endorser or any
guarantor of all or any part of the Obligations, and any benefit of, and any
right to participate in, any security or collateral given to the Lenders or any
other Person. Upon any Event of Default and for so long as the same is
continuing, the Lender may proceed directly and at once, without notice, against
any Borrower to collect and recover the full amount, or any portion of the
Obligations, without first proceeding against the other Borrowers or any other
Person, or against any security or collateral for the Obligations. Each Borrower
consents and agrees that neither the Lender nor any other Person shall be under
any obligation to marshal any assets in favor of Borrowers or any other Person
or against or in payment of any or all of the Obligations.

 

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(b) Each Borrower expressly waives any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution of any other claim which
such Borrower may now or hereafter have against the other Borrowers or any other
Person directly or contingently liable for the Obligations hereunder, or against
or with respect to the other Borrowers’ property (including, without limitation,
any property which is Collateral for the Obligations), arising from the
existence or performance of this Agreement.

2.11 Interrelated Businesses.

Loan Parties hereby represent and warrant to the Lender that (a) Loan Parties
and their respective Subsidiaries make up a related organization of various
entities constituting a single economic and business enterprise so that Loan
Parties and their respective Subsidiaries share an identity of interests such
that any benefit received by any Loan Party or any Subsidiary of any Loan Party
benefits each other Loan Party and each other Subsidiary of Loan Parties;
(b) certain of Loan Parties and their respective Subsidiaries render services to
or for the benefit of other Loan Parties and Subsidiaries, as the case may be,
purchase or sell and supply goods to or from or for the benefit of the others,
make loans, advances and provide other financial accommodations to or for the
benefit of the other Loan Parties and Subsidiaries (including, inter alia, the
payment by Loan Parties and Subsidiaries of creditors of the other Loan Parties
and Subsidiaries and guarantees by Loan Parties and Subsidiaries of indebtedness
of the other Loan Parties and Subsidiaries and provide administrative,
marketing, payroll and management services to or for the benefit of the other
Loan Parties and Subsidiaries), and (c) Loan Parties and their Subsidiaries have
centralized accounting and legal service, common officers and directors and are
identified to creditors as a single economic and business enterprise.

2.12 Appointment of Administrative Borrower as Agent for Receipt of Term Loan
and Statements and Receipt and Sending of Notices.

(a) Each Borrower hereby irrevocably appoints and constitutes Administrative
Borrower as its agent to request and receive the Term Loan pursuant to this
Agreement and the Other Documents from the Lender in the name or on behalf of
such Borrower. The Lender may disburse the Term Loan to such bank account of
Administrative Borrower or a Borrower or otherwise make the Term Loan to a
Borrower as Administrative Borrower may designate or direct, without notice to
any other Borrower or Loan Party.

 

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(b) Each Loan Party hereby irrevocably appoints and constitutes Administrative
Borrower as its agent to receive statements on account and all other notices
from the Lender with respect to the Obligations or otherwise under or in
connection with this Agreement and the Other Documents.

(c) Any notice, election, representation, warranty, agreement or undertaking by
or on behalf of any Loan Party by Administrative Borrower shall be deemed for
all purposes to have been made by such Loan Party and shall be binding upon and
enforceable against such Loan Party to the same extent as if made directly by
such Loan Party.

(d) Administrative Borrower hereby accepts the appointment by each Loan Party to
act as the agent of the Borrowers pursuant to this Section 2.12.

(e) No purported termination of the appointment of Administrative Borrower as
agent as aforesaid shall be effective, except after ten (10) days’ prior written
notice to the.

2.13 Increased Costs.

In the event that any applicable law, treaty or governmental regulation, or any
change therein or in the interpretation or application thereof is effected after
the Closing Date (provided, however, that, notwithstanding anything herein to
the contrary, this Section 2.13 shall be deemed to apply to the Dodd-Frank Wall
Street Reform and Consumer Protection Act and to The Basel III Accord published
by The Basel Committee on Banking Supervision, and to all requests, rules,
regulations, guidelines or directives under either of the foregoing or issued in
connection therewith, regardless of the date enacted, adopted or issued, even if
enacted, adopted or issued before the Closing Date), or compliance by the Lender
(for purposes of this Section 2.13, the term “Lender” shall include the Lender
and any corporation or bank controlling the Lender or any Subsidiary of the
Lender) with any request or directive (whether or not having the force of law)
from any central bank or other financial, monetary or other authority, in each
case adopted after the Closing Date, shall:

(a) subject the Lender to any tax (other than any Excluded Tax) of any kind
whatsoever, as a result of a Change in Tax Law, with respect to this Agreement
or any Other Document or change the basis of taxation of payments to the Lender
of principal, fees, interest or any other amount payable in respect thereof
(except for changes in any Excluded Tax);

(b) impose, modify or hold applicable any reserve, special deposit, assessment
or similar requirement against assets held by, or deposits in or for the account
of, advances or loans by, or other credit extended by, any office of the Lender,
including (without limitation) pursuant to Regulation D of the Board of
Governors of the Federal Reserve System; or

(c) impose on the Lender any other condition with respect to this Agreement or
any Other Document;

 

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and the result of any of the foregoing is to increase the cost to the Lender of
making, renewing or maintaining the Term Loan hereunder or to reduce the amount
of any payment (whether of principal, interest or otherwise) in respect of any
of the Term Loan or the Lender’s overall capital, then, in any case the
Borrowers shall promptly pay the Lender, upon its demand, such additional amount
as will compensate the Lender for such additional cost or such reduction, as the
case may be. The Lender shall certify the amount of such additional cost or
reduced amount to Administrative Borrower, and such certification shall be
conclusive absent manifest error. Notwithstanding anything to the contrary in
this Section 2.13, Loan Parties shall not be required to compensate the Lender
pursuant to this Section 2.13 for any amounts incurred more than one hundred
eighty (180) days prior to the date that the Lender notifies Administrative
Borrower of its intention to claim compensation therefor; provided, that, if the
circumstances giving rise to such claim have a retroactive effect, then such one
hundred eighty (180) day period shall be extended to include the period of such
retroactive effect.

If the Lender requests compensation under this Section 2.13, then the Lender
shall use reasonable efforts to designate a different lending office for funding
or booking the Term Loan or to assign its rights and obligations hereunder to
another of its offices, branches or affiliates if, in the judgment of the
Lender, such designation or assignment (i) would eliminate or reduce amounts
payable pursuant to this Section 2.13 in the future, and (ii) in each case,
would not subject the Lender to any unreimbursed cost or expense and would not
otherwise be disadvantageous to the Lender. Borrowers hereby agree to pay all
reasonable costs and expenses incurred by the Lender in connection with any such
designation or assignment.

2.14 Capital Adequacy.

(a) In the event that the Lender (for purposes of this Section 2.14, the term
“Lender” shall include the Lender and any corporation or bank controlling the
Lender) shall have determined that any applicable law, rule, regulation or
guideline regarding capital adequacy in effect on the Closing Date, or any
change therein effected after the Closing Date, or any change in the
interpretation or administration thereof by any Governmental Body, central bank
or other financial, monetary or other authority, in each case adopted after the
Closing Date, charged with the interpretation or administration thereof, or
compliance by the Lender with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on the Lender’s capital as a consequence of its obligations hereunder to
a level below that which the Lender could have achieved but for such adoption,
change or compliance (taking into consideration each Lender’s policies with
respect to capital adequacy), then, from time to time, the Borrowers shall pay
upon demand to the Lender such additional amount or amounts as will compensate
the Lender for such reduction; provided, however, that, notwithstanding anything
herein to the contrary, this Section 2.14 shall be deemed to apply to the
Dodd-Frank Wall Street Reform and Consumer Protection Act and to The Basel III
Accord published by The Basel Committee on Banking Supervision, and to all
requests, rules, regulations, guidelines or directives under either of the
foregoing or issued in connection therewith, regardless of the date enacted,
adopted or issued, even if enacted, adopted or issued before the Closing Date.
In determining such amount or amounts, the Lender may use any reasonable
averaging or attribution methods. The Lender shall certify the amount of such
reduction and provide a reasonably detailed calculation thereof to
Administrative Borrower. Notwithstanding anything to the contrary in this
Section 2.14, Loan Parties shall not be required to compensate the Lender
pursuant to this Section 2.14 for any amounts incurred more than one hundred
eighty (180) days prior to the date that the Lender notifies Administrative
Borrower of the Lender’s intention to claim compensation therefor; provided,
that, if the circumstances giving rise to such claim have a retroactive effect,
then such one hundred eighty (180) day period shall be extended to include the
period of such retroactive effect. The protection of this Section 2.14 shall be
available to the Lender regardless of any possible contention of invalidity or
inapplicability with respect to the applicable law, regulation or condition.

 

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(b) A certificate of the Lender setting forth such amount or amounts as shall be
necessary to compensate the Lender with respect to Section 2.14(a) when
delivered to Administrative Borrower shall be conclusive absent manifest error.

2.15 Withholding Taxes.

Except as otherwise required by law and subject to Section 16.3, each payment by
the Borrowers or the Guarantors under this Agreement or the Other Documents
shall be made without withholding or deduction for or on account of any present
or future Taxes or Charges (other than Excluded Taxes). If any such withholding
or deduction for Taxes or Charges is so required, the Borrowers or Guarantors,
as applicable, shall promptly upon becoming aware that such withholding or
deduction is necessary, notify the Lender and shall make the withholding or
deduction, pay the amount withheld to the appropriate Governmental Body before
penalties attach thereto or interest accrues thereon and except with respect to
Excluded Taxes forthwith pay such additional amount as may be necessary to
ensure that the net amount actually received by the Lender free and clear of
such taxes (including such taxes on such additional amount) is equal to the
amount which that the Lender (as the case may be) would have received had such
withholding or deduction not been made. Within thirty (30) days of paying any
amount withheld or deducted on account of tax, Administrative Borrower shall, or
shall procure that the other relevant Borrower shall, deliver to the Lender
evidence (reasonably satisfactory to the Lender) that the appropriate payment
has been paid to the relevant tax authority. If the Lender pays any amount in
respect of any such Taxes (other than Excluded Taxes), the Borrowers and
Guarantors shall reimburse the Lender for that payment on demand in the currency
in which such payment was made. If the Borrowers or Guarantors pay any such
Taxes, it shall deliver official tax receipts evidencing that payment or
certified copies thereof to the Lender on whose account such withholding was
made on or before the thirtieth (30th) day after payment.

3. RESERVED.

4. GRANT OF SECURITY INTEREST; COLLATERAL COVENANTS.

4.1 Security Interest in the Collateral.

To secure the prompt payment and performance of all of the Obligations to the
Lender, each Loan Party hereby collaterally assigns, pledges and grants to the
Lender a continuing Lien in and to all of its Collateral, whether now owned or
existing or hereafter acquired or arising and wheresoever located. Each Loan
Party shall mark its books and records as may be necessary or appropriate to
evidence, protect and perfect the Lender’s Lien and shall cause its financial
statements, where applicable, to reflect such Lien.

 

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4.2 Perfection of Security Interest.

(a) Each Loan Party shall take all action that may be necessary or desirable, or
that the Lender may request in its Permitted Discretion, so as at all times to
maintain the validity, perfection, enforceability and priority of the Lender’s
Lien in the Collateral to the extent required by this Agreement or any Other
Documents.

(b) The Lender may, and each Loan Party hereby authorizes the Lender to, at any
time and from time to time file in accordance with Section 9-509 of the UCC and
with the PPSA, financing statements and amendments thereto that describe the
Collateral as “all assets” or similar language of the applicable Loan Party and
which contain any other information required by the UCC or the PPSA, as
applicable, for the sufficiency or filing office acceptance of any financing
statements, continuation statements or amendments. Each Loan Party agrees to
furnish any such information to the Lender promptly upon request.

(c) Each Loan Party shall, at any time and from time to time, take such
commercially reasonable steps as the Lender may request in its Permitted
Discretion to (i) obtain an acknowledgment, in form and substance reasonably
satisfactory to the Lender, of any bailee having possession of any of the
Collateral, stating that the bailee holds such Collateral for the Lender,
(ii) obtain “control” of any letter-of-credit rights, deposit accounts (other
than Restricted Accounts) or electronic chattel paper (as such terms are defined
in the UCC with corresponding provisions thereof defining what constitutes
“control” for such items of Collateral), and any investment property, securities
entitlements, securities accounts, futures contracts, future accounts (as such
terms are defined in the PPSA or the Securities Transfer Act (British Columbia),
as applicable, with corresponding provisions thereof defining what constitutes
“control” for such items of Collateral), in each case, with any agreements
establishing control to be in form and substance reasonably satisfactory to the
Lender, and (iii) otherwise insure the continued perfection and priority of the
Lender’s Liens in any of the Collateral for the benefit of the Lenders and of
its rights therein. If any Loan Party shall at any time, acquire a “commercial
tort claim” (as such term is defined in the UCC) in excess of $250,000, such
Loan Party shall promptly notify the Lender thereof in writing (which notice
shall be deemed to be an update of Schedule 5.8(b)), therein providing a
reasonable description and summary thereof, and upon delivery thereof to the
Lender, such Loan Party shall be deemed to thereby have granted to the Lender
(and each Loan Party hereby grants to the Lender) a Lien in and to each such
commercial tort claim and all proceeds thereof, all upon the terms of and
governed by this Agreement to secure the prompt payment and performance of all
of the Obligations.

(d) Each Loan Party hereby confirms and ratifies all UCC and PPSA financing
statements filed by the Lender with respect to such Loan Party on or prior to
the date of the Agreement.

(e) All charges, expenses and fees the Lender may incur in doing any of the
foregoing, and any taxes relating thereto, shall be charged to the Borrowers’
Account and added to the Obligations, or, at the Lender’s option, shall be paid
by Loan Parties to the Lender promptly upon demand.

 

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4.3 Preservation of Collateral.

Following the occurrence and during the continuance of an Event of Default, in
addition to the rights and remedies set forth in Section 11.1 but subject to the
terms of the Intercreditor Agreement, the Lender: (a) may at any time take such
steps as the Lender deems necessary or appropriate to protect the Lender’s Lien
in and to preserve the Collateral, including, without limitation, the hiring of
such security guards or the placing of other security protection measures as the
Lender may deem appropriate; (b) may employ and maintain at any Loan Party’s
premises a custodian who shall have full authority to do all acts necessary to
protect the Lender’s interests in the Collateral; (c) may lease warehouse
facilities to which the Lender may move all or part of the Collateral; (d) may
use any Loan Party’s owned or leased lifts, hoists, trucks and other facilities
or equipment for handling or removing the Collateral; (e) shall have, and is
hereby granted, a right of ingress and egress to the places where the Collateral
is located, and may proceed over and through any Loan Party’s owned or leased
property; and (f) shall have a non-exclusive, royalty-free, license to use each
Loan Party’s Intellectual Property for the purposes of the completion,
processing and sale of such Loan Party’s Inventory and other assets. At such
time, each Loan Party shall cooperate fully with all of the Lender’s
commercially reasonable efforts to preserve the Collateral and will take such
actions to preserve the Collateral as the Lender may direct in connection
therewith. All of the Lender’s expenses of preserving the Collateral, including,
without limitation, any expenses relating to any actions by the Lender described
in this Section 4.3, may, at the election of the Lender, be charged to the
Borrowers’ Account and added to the Obligations.

4.4 Ownership and Location of Collateral.

(a) At the time the Collateral becomes subject to the Lender’s Lien, each Loan
Party shall be the sole owner of and fully authorized and able to sell,
transfer, pledge and/or grant a first priority Lien (other than with respect to
the Revolving Loan Priority Collateral (subject to the Intercreditor Agreement)
and, except for Permitted Encumbrances, the Collateral shall be free and clear
of all Liens and encumbrances whatsoever.

(b) Each Loan Party’s books and records, Equipment, Inventory and all other
assets (other than (i) motor vehicles and (ii) Equipment out for repair in the
ordinary course of business) shall be located at one of the locations set forth
on Schedule 4.4 (as such Schedule may from time to time be updated in accordance
with Section 7.18) and shall not be removed from such location(s) without the
prior written consent of the Lender.

 

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4.5 Defense of Lender’s Interests.

Until all of the Obligations have been Paid in Full, the Lender’s Liens in the
Collateral shall continue in full force and effect. For so long as the Lender’s
Liens in the Collateral continue in full force and effect, no Loan Party shall,
without the Lender’s prior written consent, pledge, assign, transfer, create,
charge or suffer to exist a Lien upon any part of the Collateral, except for
Permitted Encumbrances. Each Loan Party shall defend the Lender’s Liens in the
Collateral against any and all Persons whatsoever (other than holders of
Permitted Encumbrances in such Collateral). At any time following demand by the
Lender for payment of all Obligations in accordance with Section 11.1, in
addition to and not in limitation of the Lender’s rights and remedies set forth
in Section 11.1, but subject to the terms of the Intercreditor Agreement:
(a) the Lender shall have the right to take possession of the indicia of the
Collateral and the Collateral, (b) Loan Parties shall, upon the Lender’s demand,
assemble the Collateral in the best manner possible and make it available to the
Lender at a place reasonably convenient to the Lender, and (c) upon demand by
the Lender each Loan Party shall, and the Lender may, at its option, instruct
all suppliers, carriers, forwarders, warehouses or others receiving or holding
cash, checks, Inventory, documents or instruments of such Loan Party to deliver
same to the Lender (or any Person designated by the Lender) and/or subject to
the Lender’s order and if they shall come into any Loan Party’s possession, all
such Collateral shall be held by such Loan Party in trust as the Lender’s
trustee, and such Loan Party will immediately deliver such Collateral to the
Lender (or any Person designated by the Lender) in their original form, together
with any necessary endorsement.

4.6 Books and Records.

Each Loan Party shall, and shall cause each of its Subsidiaries to, (a) keep
proper books of record and account in which full, true and correct entries will
be made of all dealings or transactions of or in relation to its business and
affairs; (b) set up on its books accruals with respect to all taxes,
assessments, charges, levies and claims; and (c) on a reasonably current basis
set up on its books, from its earnings, allowances against doubtful Receivables,
advances and investments and all other proper accruals (including without
limitation by reason of enumeration, accruals for premiums, if any, due on
required payments and accruals for depreciation, obsolescence, or amortization
of properties), which should be set aside from such earnings in connection with
its business. All determinations pursuant to this subsection shall be made in
accordance with, or as required by, GAAP consistently applied.

4.7 Financial Disclosure.

Each Loan Party hereby irrevocably authorizes and directs all Accountants and
auditors employed by such Loan Party at any time during the Term to exhibit and
deliver to the Lender copies of any of such Loan Party’s and each of its
Subsidiaries’ financial statements, trial balances or other accounting records
of any sort in the Accountant’s or auditor’s possession, and to disclose to the
Lender any information such Accountants may have concerning such Loan Party’s
and each of its Subsidiaries’ financial status and business operations. Each
Loan Party hereby authorizes all federal, state, provincial and municipal
authorities to furnish to the Lender copies of reports or examinations relating
to such Loan Party or to any of its Subsidiaries, whether made by such Loan
Party or otherwise. Notwithstanding the foregoing authorization, so long as no
Default or Event of Default is in existence, the Lender will attempt to obtain
such information or materials directly from such Loan Party prior to obtaining
such information or materials from such Accountants, auditors or such
authorities.

 

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4.8 Compliance with Laws.

Each Loan Party shall, and shall cause each of its Subsidiaries to, comply in
all respects with all acts, rules, regulations and orders of any Governmental
Body applicable to its respective Collateral or any part thereof or to the
operation of such Person’s business the non-compliance with which could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. Each Loan Party may, however, contest or dispute any
acts, rules, regulations, orders and directions of those bodies or officials in
any reasonable manner; provided, that, if as a result of such contest or dispute
commenced at the option of any Loan Party, any related Lien is inchoate or
stayed, at the Lender’s option, sufficient reserves shall be established to the
satisfaction of the Lender to protect the Lender’s Lien in the Collateral. The
Collateral at all times shall be maintained in accordance in all material
respects with the requirements of all insurance carriers which provide insurance
with respect to the Collateral so that such insurance shall remain in full force
and effect.

4.9 Inspection of Premises/Appraisals.

At any time during the existence of an Event of Default, and otherwise at all
reasonable times during normal business hours, the Lender shall have the right,
at Borrowers’ expense (subject to Section 16.10(c)), (a) to audit, check,
inspect and make abstracts and copies from each Loan Party’s books, records,
audits, correspondence and all other papers relating to the Collateral and the
operation of each Loan Party’s business and (b) to enter, or to have their
agents enter, upon any Loan Party’s premises at any time during business hours
and at any other reasonable time, and from time to time, for the purpose of
inspecting the Collateral (and/or with respect to the Lender (and Persons
designated by the Lender) appraising the Collateral) and any and all records
pertaining thereto and the operation of such Loan Party’s business. From time to
time as determined by the Lender, the Lender shall have the right to conduct
appraisals (or have other Persons selected by the Lender conduct appraisals) of
the Inventory, Equipment, Real Property and other Collateral, in each case, at
all times subject to Section 16.10(c).

4.10 Insurance.

Each Loan Party shall bear the full risk of any loss of any nature whatsoever
with respect to the Collateral. At each Loan Party’s own cost and expense, each
Loan Party shall, and shall cause each of its Subsidiaries to, maintain
insurance in amounts, types and with carriers in each case acceptable to the
Lender. Without limiting the foregoing, each Loan Party shall, and shall cause
each of its Subsidiaries to, (a) keep all its insurable properties insured
against the hazards of fire, flood, those hazards covered by extended coverage
insurance and such other hazards, and for such amounts, not less than as is
customary in the case of companies engaged in businesses similar to such Loan
Party’s business, including, without limitation, business interruption
insurance; (b) maintain liability insurance against claims for personal injury,
death or property damage suffered by others; and (c) maintain all such worker’s
compensation or similar insurance as may be required under the laws of any
state, province or jurisdiction in which Loan Party is engaged in business. Each
Loan Party shall (i) furnish the Lender with copies of all policies and evidence
of the maintenance of such policies required hereby upon the request of the
Lender and (ii) cause all such policies to include appropriate loss payable
endorsements, and/or additional insured endorsements, in form and substance
reasonably satisfactory to the Lender, providing with respect to loss payable
endorsements that (A) all proceeds thereunder shall be payable to the Lender,
(B) no such insurance shall be affected by any act or neglect of the insured or
owner of the property described in such policy, and (C) that such policy and
loss payable clauses may not be cancelled, amended or terminated unless at least
thirty (30) days’ prior written notice is given to the Lender (or such shorter
period as the Lender may agree). If any insurance losses are paid by check,
draft or other instrument payable to any Loan Party and the Lender jointly, the
Lender may endorse such Loan Party’s name thereon and do such other things as
the Lender may deem advisable to reduce the same to cash and apply the same in
accordance with this Agreement.

 

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4.11 Failure to Pay Insurance.

If any Loan Party fails to obtain insurance as hereinabove provided, or to keep
the same in force, the Lender, at its option, may obtain such insurance and pay
the premium therefor for the Borrowers’ Account, and charge the Borrowers’
Account therefor and such expenses so paid shall be part of the Obligations.

4.12 Payment of Taxes.

Each Loan Party shall, and shall cause each of its Subsidiaries to, pay, when
due, all federal, state, provincial and other material Taxes and other Charges
lawfully levied or assessed upon such Person or any of the Collateral, except
for those Taxes and Charges that are being contested in good faith by
appropriate proceedings diligently pursued and available to such Loan Party,
which proceedings (or orders entered in connection with such proceedings) stay
the forfeiture or sale of, or other enforcement against, the property subject to
any such taxes, assessments, fees and other governmental charges and with
respect to which adequate reserves have been set aside on the books of such Loan
Party in accordance with GAAP consistently applied. If any Tax or other Charges
remain unpaid after the date fixed for their payment, or if any claim shall be
made which, in the Lender’s opinion, may possibly create a valid Lien on the
Collateral (which is not otherwise a Permitted Encumbrance), the Lender may
without notice to Loan Parties pay such Taxes or other Charges and each Loan
Party hereby indemnifies and holds the Lender harmless in respect thereof. The
amount of any payment by the Lender under this Section 4.12 may, at the election
of the Lender, be charged to the Borrowers’ Account and added to the Obligations
and, until Loan Parties shall furnish the Lender with an indemnity therefor (or
supply the Lender with evidence satisfactory to the Lender that due provision
for the payment thereof has been made), the Lender may hold without interest any
balance standing to Loan Parties’ credit and the Lender shall retain its Lien in
any and all Collateral held by the Lender.

4.13 Payment of Leasehold Obligations.

Each Loan Party shall, and shall cause each of its Subsidiaries to, at all times
pay, when and as due, its rental obligations under all leases under which it is
a tenant, and shall otherwise comply, in all material respects, with all other
terms of such leases and keep them in full force and effect and, at the Lender’s
request will provide evidence of having done so, except, in each case, where the
failure to do so could not reasonably be expected to have, either individually
or in the aggregate, a Material Adverse Effect.

4.14 Accounts and other Receivables.

(a) Reserved.

 

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(b) Reserved.

(c) Locations of Chief Executive Office. Each Loan Party’s chief executive
office is located at the addresses set forth on Schedule 4.14(c)) (as such
schedule may from time to time be updated in accordance with Section 7.18).
Until written notice is given to the Lender by Administrative Borrower of any
other office at which any Loan Party keeps its records pertaining to Accounts
and the other Receivables, all such records shall be kept at such executive
office or otherwise as set forth on Schedule 4.14(c).

(d) Collection of Accounts and other Receivables. Until any Loan Party’s
authority to do so is terminated by the Lender (which notice of termination the
Lender may give at any time following the occurrence and during the continuance
of an Event of Default), each Loan Party will, at such Loan Party’s sole cost
and expense, collect all amounts received on Accounts and other Receivables.
From and after the occurrence and during the continuance of an Event of Default,
upon the Lender’s demand, each Loan Party shall deliver to the Lender, in
original form and on the date of receipt thereof, all checks, drafts, notes,
money orders, acceptances, cash and other evidences of Indebtedness at any time
received by Loan Parties.

(e) Notification of Assignment of Accounts and other Receivables; Verification.
Subject to the terms of the Intercreditor Agreement and so long as an Event of
Default exists, the Lender shall have the right (i) to send notice of the
assignment of, and the Lender’s Lien in, the Accounts and other Receivables of
each Loan Party to any and all Customers, any other Person obligated on such
Accounts and other Receivables or any third party holding or otherwise concerned
with any of the Collateral (which notice may include a direction by the Lender
to make all payments thereon to an account designated by the Lender) and (ii) at
any time, in the name of the Lender, any designee of the Lender or any Borrower
or any other Loan Party, to verify the validity, amount or any other matter
relating to any Accounts and other Receivables of any Loan Party by mail,
telephone or otherwise. Each Loan Party shall cooperate fully with the Lender in
an effort to facilitate and promptly conclude any such verification process.
Following the occurrence and during the continuance of any Event of Default, at
its option and subject to the terms of Intercreditor Agreement, the Lender shall
have the exclusive right to collect the Accounts and other Receivables of each
Loan Party, take possession of the Collateral, or both. In such case, the
Lender’s actual collection expenses, including, but not limited to, stationery
and postage, telephone and facsimile, secretarial and clerical expenses and the
salaries of any collection personnel used for collection, may be charged to the
Borrowers’ Account and added to the Obligations.

 

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(f) Power of the Lender to Act on Loan Parties’ Behalf. The Lender shall have
the right to receive, endorse, assign and/or deliver in the name of the Lender
or any Loan Party any and all checks, drafts and other instruments for the
payment of money relating to the Accounts and other Receivables of each Loan
Party, and each Loan Party hereby waives notice of presentment, protest and
non-payment of any instrument so endorsed. Each Loan Party hereby constitutes
the Lender or the Lender’s designee as such Loan Party’s attorney with power,
subject to the terms of the Intercreditor Agreement, (i) to endorse such Loan
Party’s name upon any notes, acceptances, checks, drafts, money orders or other
evidences of payment or Collateral; (ii) upon the occurrence and during the
continuance of an Event of Default, to sign such Loan Party’s name on any
invoice or bill of lading relating to any of the Accounts and other Receivables
of each such Loan Party, drafts against Customers, assignments and verifications
of Accounts and other Receivables of each such Loan Party; (iii) at any time, to
send verifications of Accounts and other Receivables of each such Loan Party to
any Customer or Person; (iv) at any time, to sign such Loan Party’s name on all
financing statements or any other documents or instruments deemed necessary or
appropriate by the Lender to preserve, protect, or perfect the Lender’s interest
in the Collateral and to file same; (v) after the occurrence and during the
continuance of an Event of Default, to demand payment of the Accounts and other
Receivables of each such Loan Party; (vi) after the occurrence and during the
continuance of an Event of Default, to enforce payment of the Accounts and other
Receivables of each such Loan Party by legal proceedings or otherwise;
(vii) after the occurrence and during the continuance of an Event of Default, to
exercise all of Loan Parties’ rights and remedies with respect to the collection
of the Accounts, Receivables and any other Collateral; (viii) after the
occurrence and during the continuance of an Event of Default, to settle, adjust,
compromise, extend or renew the Accounts and other Receivables of each such Loan
Party; (ix) after the occurrence and during the continuance of an Event of
Default, to settle, adjust or compromise any legal proceedings brought to
collect Accounts and other Receivables of each such Loan Party; (x) after the
occurrence and during the continuance of an Event of Default, to prepare, file
and sign such Loan Party’s name on a proof of claim in bankruptcy or similar
document against any Customer or any other Person obligated with respect to an
Account or other Receivable of each such Loan Party; (xi) to prepare, file and
sign such Loan Party’s name on any notice of Lien, assignment or satisfaction of
Lien or similar document in connection with the Accounts and other Receivables
of each such Loan Party; and (xii) after the occurrence and during the
continuance of an Event of Default, to do all other acts and things necessary to
carry out this Agreement. All acts of said attorney or designee are hereby
ratified and approved, and said attorney or designee shall not be liable for any
acts of omission or commission nor for any error of judgment or mistake of fact
or of law, unless done maliciously or with gross (not mere) negligence, as
determined pursuant to a final, non-appealable order of a court of competent
jurisdiction; this power being coupled with an interest is irrevocable at all
times until all of the Obligations have been Paid in Full. Subject to the terms
of the Intercreditor Agreement, the Lender shall have the right at any time
following the occurrence and during the continuance of an Event of Default, to
change the address for delivery of mail addressed to any Loan Party to such
address as the Lender may designate and to receive, open and dispose of all mail
addressed to any Loan Party.

(g) No Liability. The Lender shall not, under any circumstances or in any event
whatsoever (other than damages caused by the Lender’s gross (not mere)
negligence or willful misconduct, as determined pursuant to a final,
non-appealable order of a court of competent jurisdiction), have any liability
for any error or omission or delay of any kind occurring in the settlement,
collection or payment of any of the Accounts, other Receivables or any
instrument received in payment thereof, or for any damage resulting therefrom.
Following the occurrence and at any time during the continuance of an Event of
Default and subject to the terms of the Intercreditor Agreement, the Lender may,
without notice or consent from any Loan Party, sue upon or otherwise collect,
extend the time of payment of, compromise or settle for cash, credit or upon any
terms any of the Accounts, other Receivables or any other securities,
instruments or insurance applicable thereto and/or release any obligor thereof.
The Lender is authorized and empowered to accept following the occurrence and
during the continuance of an Event of Default the return of the goods
represented by any of the Accounts and other Receivables, without notice to or
consent by any Loan Party, all without discharging or in any way affecting any
Loan Party’s liability hereunder.

 

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(h) Establishment of a Lockbox Account, Dominion Account; Cash Dominion. As of
the Closing Date and at all times thereafter, each Loan Party shall establish
and maintain a lockbox account, dominion account or such other “blocked account”
(together with the Cash Receipt Accounts and the Operating Accounts,
collectively, the “Blocked Accounts”) with TD Bank, N.A. or, with the Lender’s
prior written consent, such banks as may be selected by each such Loan Party and
reasonably acceptable to the Lender (it being understood and agreed that, as of
the Closing Date, the Existing Deposit Banks are reasonably acceptable to the
Lender despite the fact that the deposit accounts maintained at such Existing
Deposit Banks (the “Existing Deposit Accounts”) are not lockbox accounts,
dominion accounts or “blocked accounts”). As of the Closing Date and at all
times thereafter, all proceeds of Collateral and all other cash and Cash
Equivalents of each such Loan Party (other than amounts properly on deposit in
Restricted Accounts) shall at all times be deposited by each Loan Party in the
Blocked Accounts, and Loan Parties shall (as agent and trustee for the Lender)
cause each of their Customers and all other applicable Persons to at all times
send payments on all Accounts and other Receivables of Loan Parties into the
Blocked Accounts (it being understood and agreed that, notwithstanding the
foregoing, on or before the date that is ninety (90) days after the date hereof
(or such later date as the Lender shall agree in writing), all Customers of
Borrowers shall be remitting all payments to the Existing Deposit Accounts
maintained with Wells Fargo Bank, N.A. or Bank of America, N.A. or to a Blocked
Account). If, for any reason any Customer makes payments on any Account or other
Receivable directly to any Loan Party, such Loan Party shall collect (as agent
and trustee for the Lender) all such amounts and immediately pay all such
amounts into a Blocked Account (it being understood and agreed that,
notwithstanding the foregoing, on or before the date that is ninety (90) days
after the date hereof (or such later date as the Lender shall agree in writing),
all amounts shall be remitted to Existing Deposit Accounts maintained with Wells
Fargo Bank, N.A. or Bank of America, N.A., or to a Blocked Account); provided,
however, that, until such payment into a Blocked Account or an Existing Deposit
Account maintained with Wells Fargo Bank, N.A. or Bank of America, N.A., all
moneys so received will be held upon trust for and promptly remitted to the
Lender. Each Loan Party shall instruct all of its Customers to make all payments
into a Blocked Account (it being understood and agreed that, notwithstanding the
foregoing, on or before the date that is ninety (90) days after the date hereof
(or such later date as the Lender shall agree in writing), all Customers of
Borrowers shall be remitting all payments to the Existing Deposit Accounts
maintained with Wells Fargo Bank, N.A. or Bank of America, N.A. or to a Blocked
Account). All of the Blocked Accounts (but not the Restricted Accounts) shall be
governed by “control” or other agreements in form and substance acceptable to
the Lender satisfactory to, among other things, establish the Lender’s
perfection and rights in such Blocked Accounts or other accounts under the UCC,
PPSA and other applicable law. All invoices for sales of Inventory or services
by Loan Parties shall contain the address of the Blocked Accounts constituting
Cash Receipt Accounts as the address for remittance of payment (it being
understood and agreed that, notwithstanding the foregoing, on or before the date
that is ninety (90) days after the date hereof (or such later date as the Lender
shall agree in writing), all such invoices may contain the address of the
Existing Deposit Accounts maintained with Wells Fargo Bank, N.A. or Bank of
America, N.A.). The “control” agreements covering the Blocked Accounts
constituting Operating Accounts (other than Restricted Accounts) shall provide
that (i) after delivery of a Control Notice (which may be delivered by the
Lender upon the occurrence and during the continuance of an Event of Default),
(A) such bank or other institution shall comply with the instructions given by
the Lender with respect to such Blocked Accounts and funds therein without
further consent by Loan Parties and (B) all amounts in such Blocked Accounts
shall be transferred on a daily basis by such bank or other institution to the
such account as may be designated by the Lender, and (ii) such bank or other
institution shall waive any offset rights against the funds so deposited into
such Blocked Accounts, subject to exceptions to such waiver of offset rights as
shall be reasonably acceptable to the Lender. The “control” agreements covering
the Blocked Accounts constituting Cash Receipt Accounts shall provide that all
amounts in such Cash Receipt Accounts shall be transferred on a daily basis by
such bank or other institution to an Operating Account subject to a “control”
agreement. The Lender assumes no responsibility for any Blocked Account
arrangement, including without limitation, any claim of accord and satisfaction
or release with respect to deposits accepted by any bank thereunder.
Alternatively, upon the occurrence and during the continuance of an Event of
Default, the Lender may establish depository accounts (collectively, the
“Depository Accounts”) in the name of the Lender at a bank or banks for the
deposit of such funds and Loan Parties shall deposit all proceeds of Collateral
or cause same to be deposited, in kind, in such Depository Accounts of the
Lender in lieu of depositing same to the Blocked Accounts. Notwithstanding the
foregoing, no “control” agreement shall be required for (1) Restricted Accounts
and (2) any deposit accounts maintained at the Existing Deposit Banks so long as
(w) the existing cash management arrangements at the Existing Deposit Banks are
terminated within ninety (90) days after the Closing Date (subject to
Section 6.8), (x) with respect to all deposit accounts maintained at Wells Fargo
Bank, N.A. (other that the deposit account set forth in clause (y) below), Loan
Parties shall, on each Business Day, remit all amounts in such deposit accounts
directly to the Payment Account (as defined in the Revolving Loan Agreement),
(y) with respect to deposit account no. 2000026543086 maintained at Wells Fargo
Bank, N.A., Loan Parties shall, on each Business Day, remit all amounts in
excess of $500,000 in such deposit account directly to the Payment Account, and
(z) with respect to all lockbox and collection accounts maintained at Bank of
America, N.A., the Loan Parties shall, on each Business Day, remit all amounts
in excess of C$400,000 in such accounts directly to the Payment Account.

 

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(i) Adjustments. No Loan Party will, without the Lender’s consent, compromise or
adjust any Accounts or other Receivables (or extend the time for payment
thereof) of any such Loan Party or accept any returns of merchandise or grant
any additional discounts, allowances or credits thereon except for those
compromises, adjustments, returns, discounts, credits and allowances in the
ordinary course of business of such Loan Party, as previously disclosed to the
Lender.

4.15 Inventory.

All Inventory manufactured in the United States of America and held for sale or
lease by any Loan Party, has been and will be produced by such Loan Party in
accordance with the Federal Fair Labor Standards Act of 1938, as amended, and
all rules, regulations and orders thereunder.

4.16 Maintenance of Equipment.

All Equipment used or useful in the conduct of any Loan Party’s business shall
be maintained in good operating condition and repair (reasonable wear and tear
excepted) and all necessary replacements of and repairs thereto shall be made so
that the value and operating efficiency of such Equipment shall be maintained
and preserved (reasonable wear and tear excepted). Each Loan Party shall use or
operate any Equipment in compliance with Section 4.8. No Loan Party shall sell
or otherwise Dispose of any of its Equipment, except to the extent set forth in
Section 7.1.

4.17 Exculpation of Liability.

Nothing herein contained shall be construed to constitute the Lender as any Loan
Party’s agent for any purpose whatsoever, nor shall the Lender be responsible or
liable for any shortage, discrepancy, damage, loss or destruction of any part of
the Collateral wherever the same may be located and regardless of the cause
thereof (other than caused by the Lender’s gross (not mere) negligence or
willful misconduct, as determined pursuant to a final, non-appealable order of a
court of competent jurisdiction). The Lender, whether by anything herein or in
any assignment or otherwise, does not assume any of Loan Party’s obligations
under any contract or agreement to which it is a party, and the Lender shall not
be responsible in any way for the performance by any Loan Party of any of the
terms and conditions thereof.

 

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4.18 Environmental Matters.

(a) Loan Parties shall ensure any Real Property remains in compliance with all
Environmental Laws and they shall not place or permit to be placed any Hazardous
Substances on any such Real Property, except as not prohibited by applicable law
or appropriate Governmental Body and except where any such noncompliance or
placement could not reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect.

(b) Loan Parties shall assure and monitor continued compliance with all
applicable Environmental Laws, except where any failure to comply could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.

(c) Loan Parties shall (i) employ in connection with the use of any Real
Property appropriate technology necessary to maintain compliance with any
applicable Environmental Laws, except where any such noncompliance could not
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect and (ii) dispose of any and all Hazardous Waste
generated at such Real Property only at facilities and with carriers that
maintain valid permits under RCRA and any other applicable Environmental Laws,
except where the failure to do so could not reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. Loan Parties
shall use their best efforts to obtain certificates of disposal, such as
hazardous waste manifest receipts, from all treatment, transport, storage or
disposal facilities or operators employed by Loan Parties in connection with the
transport or disposal of any Hazardous Waste generated at such Real Property,
except where the failure to do so could not reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect.

(d) In the event any Loan Party obtains, gives or receives notice of any Release
or threat of Release of a reportable quantity of any Hazardous Substances at any
Real Property (any such event being hereinafter referred to as a “Hazardous
Discharge”) or receives any notice of violation, request for information or
notification that it is potentially responsible for investigation or cleanup of
environmental conditions at such Real Property, demand letter or complaint,
order, citation, or other written notice with regard to any Hazardous Discharge
or violation of Environmental Laws affecting such Real Property or any Loan
Party’s interest therein (any of the foregoing is referred to herein as an
“Environmental Complaint”) from any Person, including any state agency
responsible in whole or in part for environmental matters in the state in which
such Real Property is located or the United States Environmental Protection
Agency (any such Person hereinafter the “Authority”), then the Borrowers shall
promptly (but in any case within five (5) Business Days) give written notice of
same to the Lender detailing facts and circumstances of which any Loan Party is
aware giving rise to the Hazardous Discharge or Environmental Complaint. Such
information is to be provided to allow the Lender to protect its Lien in such
Real Property and is not intended to create nor shall it create any obligation
upon the Lender with respect thereto.

 

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(e) Loan Parties shall respond promptly to any Hazardous Discharge or
Environmental Complaint and take all necessary action in order to safeguard the
health of any Person and to avoid subjecting the Collateral or any Real Property
to any Lien, except where the failure to do so could not reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect.

(f) During the continuation of an Event of Default, promptly upon the written
request of the Lender, Loan Parties shall provide the Lender, at Loan Parties’
expense, with an environmental site assessment or environmental audit report
prepared by an environmental engineering firm acceptable in the reasonable
opinion of the Lender, to assess with a reasonable degree of certainty the
existence of a Hazardous Discharge and the potential costs in connection with
abatement, cleanup and removal of any Hazardous Substances found on, under, at
or within any Real Property.

(g) Loan Parties shall defend and indemnify the Lender and hold the Lender and
its employees, agents, directors and officers harmless from and against all
loss, liability, damage and expense, claims, costs, fines and penalties,
including attorney’s fees, suffered or incurred by the Lender under or on
account of any Environmental Laws, including, without limitation, the assertion
of any Lien thereunder, with respect to any Hazardous Discharge, the presence of
any Hazardous Substances affecting any Real Property, whether or not the same
originates or emerges from such Real Property or any contiguous real estate,
except to the extent such loss, liability, damage and expense is attributable to
any Hazardous Discharge resulting from actions on the part of the Lender caused
by their gross (not mere) negligence or willful misconduct, as determined
pursuant to a final, non-appealable order of a court of competent jurisdiction.
Loan Parties’ obligations under this Section 4.18 shall arise upon the discovery
of the presence of any Hazardous Substances at Real Property, whether or not any
federal, state, provincial or local environmental agency has taken or threatened
any action in connection with the presence of any Hazardous Substances. Loan
Parties’ obligation and the indemnifications hereunder shall survive the
termination of this Agreement.

(h) For purposes of Sections 4.18 and 5.7, all references to any Real Property
shall be deemed to include all of Loan Parties’ and their respective
Subsidiaries’ right, title and interest in and to their respective owned and
leased premises.

4.19 Financing Statements.

As of the Closing Date, except for the financing statements filed by the Lender
and the other financing statements described on Schedule 7.2 (if any), no
financing statement covering any of the Collateral or any proceeds thereof is on
file in any public office.

 

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5. REPRESENTATIONS AND WARRANTIES.

Each Loan Party represents and warrants as follows:

5.1 Authority, Etc.

Each Loan Party has the requisite limited liability company or corporate power
and authority and legal right to enter into this Agreement and the Other
Documents and to perform all its respective Obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement and of the
Other Documents (a) are within such Loan Party’s limited liability company,
partnership or corporate powers, as applicable, have been duly authorized, are
not in contravention of law or the terms of such Loan Party’s certificate of
formation, limited liability company agreement, certificate or articles of
incorporation, by-laws, partnership agreement or other applicable documents
relating to such Loan Party’s formation and governance or to the conduct of such
Loan Party’s business or of any material agreement or undertaking to which such
Loan Party is a party or by which such Loan Party is bound, and (b) will not
conflict with nor result in any breach in any of the provisions of or constitute
a default under or result in the creation of any Lien except Permitted
Encumbrances upon any asset of such Loan Party under the provisions of any
agreement or instrument to which such Loan Party or its property is a party or
by which it may be bound. The execution, delivery, and performance by each Loan
Party of this Agreement and the Other Documents to which such Loan Party is a
party and the consummation of the transactions contemplated by this Agreement
and the Other Documents do not and will not require any registration with,
Consent, or approval of, or notice to, or other action with or by, any
Government Body, other than Consents or approvals that have been obtained or
waived and that are still in force and effect or complied with, except for
filings and recordings with respect to the Collateral to be made, or otherwise
delivered to the Lender for filing or recordation, as of the Closing Date. This
Agreement and each Other Document has been duly executed and delivered by each
Loan Party that is a party thereto and is a legally valid and binding obligation
of such Loan Party, enforceable against such Loan Party in accordance with its
respective terms, except as enforcement may be limited by equitable principles
or by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors’ rights generally.

5.2 Formation and Qualification.

(a) Each Loan Party is duly formed or incorporated and in good standing under
the laws of its respective state, province or other jurisdiction of organization
or incorporation listed on Schedule 5.2(a) (as such schedule may from time to
time be updated in accordance with Section 7.18) and each Loan Party is
qualified to do business and is in good standing in the states, provinces and
other jurisdictions listed with respect to that Loan Party on Schedule 5.2(a)
(as such schedule may from time to time be updated in accordance with
Section 7.18), which constitute all states, provinces and other jurisdictions in
which qualification and good standing are necessary for such Loan Party to
conduct its business and own its property and where the failure to so qualify
could reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. The state or provincial organizational number of each
Loan Party is set forth on Schedule 5.2(a) (as such schedule may from time to
time be updated in accordance with Section 7.18). Each Loan Party has delivered
to the Lender true and complete copies of its certificate of formation, limited
liability company agreement, certificate of incorporation, by-laws, partnership
agreement or other applicable documents relating to such Loan Party’s formation
and governance, as the case may be, and will promptly notify the Lender of any
amendment or changes thereto.

(b) All of the Subsidiaries of each Loan Party are listed on Schedule 5.2(b) (as
such schedule may from time to time be updated in accordance with
Section 7.12(a)).

 

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5.3 Survival of Representations and Warranties.

All representations and warranties of such Loan Party contained in this
Agreement and the Other Documents shall be true at the time of such Loan Party’s
execution of this Agreement and the Other Documents, and shall survive the
execution, delivery and acceptance thereof by the parties thereto and the
closing of the transactions described therein or related thereto.

5.4 Tax Returns.

To the extent applicable, each Loan Party’s federal tax identification number is
set forth on Schedule 5.4. Except as otherwise expressly permitted by this
Agreement, each Loan Party and each of its Subsidiaries has (a) filed all
federal and all other material state, provincial, local and other tax returns,
reports and statements, including information returns, it is required by law to
file and (b) paid all federal and all other material state, provincial, local
and other Taxes that are due and payable with respect thereto or otherwise
owing. No federal or any other material state, provincial, local or other income
tax return of any Loan Party or Subsidiary that has been filed is known by any
Loan Party to be under examination as of the Closing Date. All federal and all
other material income tax returns have been timely filed as of the Closing Date.
The provisions for Taxes on the books of each Loan Party and each of its
Subsidiaries are adequate in all material respects for all years not closed by
applicable statutes, and for its current fiscal year, and no Loan Party nor any
of its Subsidiaries has any knowledge of any material deficiency or additional
assessment in connection therewith not provided for on its books.

5.5 Financial Statements.

(a) The pro forma balance sheet of Loan Parties and their Subsidiaries on a
consolidated basis (the “Pro Forma Balance Sheet”) furnished to the Lender on
the Closing Date reflects the consummation of the transactions contemplated
under this Agreement and the Related Transactions and is accurate, complete and
correct in all material respects and fairly reflects the financial condition of
Loan Parties and their Subsidiaries on a consolidated basis as of the Closing
Date after giving effect to the transactions under this Agreement and the
Related Transactions, and has been prepared in accordance with GAAP,
consistently applied.

(b) The projections, dated March 30, 2012, for the fiscal years ending 2012
through 2017 of Loan Parties and their Subsidiaries on a consolidated basis and
their projected balance sheets as of the Closing Date were prepared by a
Responsible Officer of Administrative Borrower and are based on underlying
assumptions which Loan Parties believe provide a reasonable basis for the
projections contained therein in light of conditions and facts known to Loan
Parties at the time such projections were made and reflect Loan Parties’ good
faith judgment.

(c) The consolidated balance sheets of Loan Parties, their Subsidiaries and such
other Persons described therein as of December 31, 2011 and the related
statements of income, changes in stockholders’ equity, and changes in cash flow
for the period ended on such date, all accompanied by reports thereon containing
opinions without qualification by independent certified public accountants,
copies of which have been delivered to the Lender, have been prepared in
accordance with GAAP consistently applied (except for changes in application in
which such accountants concur and present fairly the financial position of Loan
Parties and their Subsidiaries at such date and the results of their operations
and changes in stockholders’ equity and cash flow for such period) and fairly
reflects the financial condition of Loan Parties, their Subsidiaries and such
other Persons on a consolidated basis as of the date thereof.

 

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(d) The consolidated balance sheets of Loan Parties, their Subsidiaries and such
other Persons described therein as of March 31, 2012 and the related statements
of income, changes in stockholders’ equity, and changes in cash flow for the
period ended on such date, copies of which have been delivered to the Lender,
have been prepared in accordance with GAAP, consistently applied and such
balance sheet presents fairly the financial condition of Loan Parties, their
Subsidiaries and such other Persons on a consolidated basis as of such date,
subject to normal year-end audit adjustments and absence of footnotes, the
statement of cash flows and the statement of changes in shareholders’ equity.

(e) Since December 31, 2011, there has been no change in the condition,
financial or otherwise, of any Borrower (individually), or Loan Parties and
their Subsidiaries taken as a whole, except changes which could not reasonably
be expected to have, either individually or in the aggregate, a Material Adverse
Effect.

5.6 Corporate Name.

The exact legal name of each Loan Party is set forth in the first paragraph to
this Agreement (or, if such Loan Party is not listed in such first paragraph,
such exact legal name is set forth on Schedule 5.6 (as such schedule may from
time to time be updated in accordance with Section 7.18)). No Loan Party has
been known by any other corporate, limited liability company or partnership name
in the past five (5) years and no Loan Party sells Inventory or has submitted
tax returns under any other name except as set forth on Schedule 5.6 (as such
schedule may from time to time be updated in accordance with Section 7.18), nor
has any Loan Party been the surviving corporation of a merger, amalgamation or
consolidation or acquired all or substantially all of the assets of any Person
or has acquired any assets of any Person outside the ordinary course of business
during the preceding five (5) years except as set forth on Schedule 5.6 (as such
schedule may from time to time be updated in accordance with Section 7.18).

5.7 O.S.H.A. and Environmental Compliance.

(a) Each Loan Party and each of their Subsidiaries has duly complied, and each
of their facilities, businesses, assets, properties and leaseholds are in
compliance, in all material respects with the provisions of the Federal
Occupational Safety and Health Act, RCRA and any other applicable Environmental
Laws; there have been no outstanding citations, notices or orders of
non-compliance issued to any Loan Party or any of their Subsidiaries or relating
to its business, assets, property or leaseholds under any such laws, rules or
regulations, except as could not reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.

(b) Each Loan Party and each of their Subsidiaries has been issued all required
federal, state, provincial and local licenses, certificates or permits relating
to all applicable Environmental Laws, except as could not reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect.

 

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(c) (i) There are no visible signs of releases, spills, discharges, leaks or
disposal (each, a “Release”) of Hazardous Substances at, upon, under or within
any Real Property or any premises leased by any Loan Party or any of their
Subsidiaries; (ii) there are no underground storage tanks or polychlorinated
biphenyls on the Real Property or any premises leased by any Loan Party or any
of their Subsidiaries; (iii) neither the Real Property nor any premises leased
by any Loan Party or any of their Subsidiaries has ever been used as a
treatment, storage or disposal facility of Hazardous Waste; and (iv) no
Hazardous Substances are present on the Real Property or any premises leased by
any Loan Party or any of their Subsidiaries, excepting such quantities as are
handled in accordance with all applicable manufacturer’s instructions and
governmental regulations and in proper storage containers and as are necessary
for the operation of the commercial business of any Loan Party or any of their
Subsidiaries or of their respective tenants, in each case under clauses (c)(i),
(ii), (iii) and (iv), except as could not reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.

5.8 Solvency; No Litigation, Violation of Law; No ERISA Issues.

(a) After giving effect to the transactions contemplated by this Agreement and
the Related Transactions, each Borrower is Solvent and Loan Parties and their
Subsidiaries taken as a whole are Solvent.

(b) No Loan Party nor any of their Subsidiaries has (i) except as disclosed in
Schedule 5.8(b), any pending (or, to the knowledge of any Loan Party, threatened
in writing) litigation, arbitration, actions or proceedings which involve the
possibility of having a Material Adverse Effect, (ii) except as disclosed in
Schedule 5.8(b), as of the Closing Date, any pending (or, to the knowledge of
any Loan Party, threatened in writing) litigation, arbitration, actions or
proceedings which involve the possibility of having liability in excess of
$250,000, (iii) except as disclosed in Schedule 5.8(b) (as such schedule may
from time to time be updated by Administrative Borrower providing written notice
to the Lender of any new commercial tort claims reasonably estimated to exceed
$250,000), any commercial tort claims, and (iv) except as disclosed in
Schedule 5.8(b), as of the Closing Date, any Money Borrowed other than the
Obligations.

(c) No Loan Party nor any of their Subsidiaries is in violation of any
applicable statute, regulation or ordinance in any respect which could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect, nor is any Loan Party or any of their Subsidiaries in
violation of any order of any court or Governmental Body which could reasonably
be expected to have, either individually or in the aggregate, a Material Adverse
Effect.

 

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(d) Except with respect to Multiemployer Plans, each plan that is intended to
qualify under Section 401 of the Code has been determined by the IRS to qualify
under Section 401 of the Code, the trusts created thereunder have been
determined to be exempt from tax under the provisions of Section 501 of the
Code, and nothing has occurred that would cause the loss of such qualification
or tax exempt status. Each Plan is in compliance with the applicable provisions
of ERISA and the Code, except to the extent that the failure to comply,
individually or in the aggregate, could not reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. Neither any
Loan Party nor ERISA Affiliate has failed to make any material contribution or
pay any material amount due as required by either Section 412 of the Code or
Section 302 of ERISA or the terms of any such Plan. Neither any Loan Party nor
ERISA Affiliate has engaged in a “prohibited transaction,” as defined in
Section 406 of ERISA and Section 4975 of the Code, in connection with any Plan,
that would subject any Loan Party to a material tax on prohibited transactions
imposed by Section 502(i) of ERISA or Section 4975 of the Code. Except as set
forth in Schedule 5.8(d): (i) no Title IV Plan has any Unfunded Pension
Liability; (ii) no ERISA Event with respect to any Title IV Plan has occurred or
is reasonably expected to occur; (iii) there are no pending, or to the knowledge
of any Loan Party, threatened claims (other than claims for benefits in the
normal course), sanctions, actions or lawsuits, asserted or instituted against
any Title IV Plan or any Person as fiduciary or sponsor of any Title IV Plan;
(iv) no Loan Party or ERISA Affiliate has incurred or reasonably expects to
incur any liability as a result of a complete or partial withdrawal from a
Multiemployer Plan; (v) within the last five (5) years no Title IV Plan of any
Loan Party or ERISA Affiliate has been terminated, whether or not in a “standard
termination” as that term is used in Section 4041(b)(1) of ERISA, nor has any
Title IV Plan of any Loan Party or any ERISA Affiliate (determined at any time
within the last five (5) years) with Unfunded Pension Liabilities been
transferred outside of the “controlled group” (within the meaning of
Section 4001(a)(14) of ERISA) of any Loan Party or ERISA Affiliate (determined
at such time); (vi) except in the case of any ESOP, Equity Interests of all Loan
Parties and their ERISA Affiliates makes up, in the aggregate, no more than ten
(10%) percent of fair market value of the assets of any Title IV Plan measured
on the basis of fair market value as of the latest valuation date of any Title
IV Plan; and (vii) no liability under any Title IV Plan has been satisfied with
the purchase of a contract from an insurance company that is not rated AAA by
the Standard & Poor’s Corporation or an equivalent rating by another nationally
recognized rating agency.

5.9 Patents, Trademarks, Copyrights and Licenses.

All patents, patent applications, trademarks, trademark applications, service
marks, service mark applications, copyrights, copyright applications, design
rights, trade names, assumed names, trade secrets and licenses owned or utilized
by any Loan Party or any of their Subsidiaries are set forth on Schedule 5.9 (as
such schedule may from time to time be updated by Administrative Borrower
providing written notice to the Lender of any newly acquired Intellectual
Property rights, so long as Loan Parties have taken (or caused to be taken) all
steps required by the Lender to perfect the Lender’s Lien therein), are valid
and have been duly registered or filed with all appropriate Governmental Body
and constitute all of the Intellectual Property rights which are necessary for
the operation of its business; there is no objection to or pending challenge to
the validity of any such material patent, trademark, copyright, design right,
trade name, trade secret or license and no Loan Party nor any Subsidiary of any
Loan Party is aware of any grounds for any challenge. Each patent, patent
application, patent license, trademark, trademark application, trademark
license, service mark, service mark application, service mark license,
copyright, copyright application and copyright license owned or held by any Loan
Party or any such Subsidiary and all trade secrets used by any Loan Party or any
such Subsidiary consist of original material or property developed by such Loan
Party or such Subsidiary or was lawfully acquired by such Loan Party or such
Subsidiary from the proper and lawful owner thereof. Each of such items has been
maintained so as to preserve the value thereof from the date of creation or
acquisition thereof. With respect to all software used by any Loan Party, such
Loan Party is in possession of all source and object codes related to each piece
of software or is the beneficiary of a source code escrow agreement, each such
source code escrow agreement being listed on Schedule 5.9 (as such schedule may
from time to time be updated by Administrative Borrower providing written notice
to the Lender of any newly acquired Intellectual Property rights, so long as
Loan Parties have taken (or caused to be taken) all steps required by the Lender
with respect thereto).

 

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5.10 Licenses and Permits.

Each Loan Party and each Subsidiary of each Loan Party (a) is in compliance with
and (b) has procured and is now in possession of, all material licenses or
permits required by any applicable federal, state, provincial, local or other
law or regulation for the operation of its business in each jurisdiction wherein
it is now conducting or proposes to conduct business and where the failure to
procure such licenses or permits could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.

5.11 No Contractual Default.

No Loan Party is in default in the payment or performance of any of its
contractual obligations with respect to which a default thereunder could be
reasonably expected to have, either individually or in the aggregate, a Material
Adverse Effect.

5.12 No Burdensome Restrictions/No Liens.

No Loan Party nor any Subsidiary of any Loan Party is party to any contract or
agreement the performance of which could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No Loan Party nor
any Subsidiary of any Loan Party has agreed or consented to cause or permit in
the future (upon the happening of a contingency or otherwise) any of its
property, whether now owned or hereafter acquired, to be subject to a Lien which
is not a Permitted Encumbrance.

5.13 No Labor Disputes.

No Loan Party nor any Subsidiary of any Loan Party is involved in any labor
dispute; there are no strikes or walkouts or union organization of any Loan
Party’s or any of such Subsidiary’s employees in existence or threatened in
writing and no labor contract is scheduled to expire during the Term other than
as set forth on Schedule 5.13 (as such schedule may from time to time be updated
by Administrative Borrower providing written notice to the Lender of any newly
arising item, so long as (i) Loan Parties have taken (or caused to be taken) all
steps reasonably required by the Lender with respect thereto and (ii) such items
could not reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect).

5.14 Margin Regulations.

No Loan Party nor any Subsidiary of any Loan Party is engaged, nor will it
engage, principally or as one of its important activities, in the business of
extending credit for the purpose of “purchasing” or “carrying” any “margin
stock” within the meaning of the quoted term under Regulation U of the Board of
Governors of the Federal Reserve System as now and from time to time hereafter
in effect. No part of the proceeds of the Term Loan will be used for
“purchasing” or “carrying” “margin stock” as defined in Regulation U of such
Board of Governors.

 

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5.15 Investment Company Act.

No Loan Party nor any Subsidiary of any Loan Party is an “investment company”
registered or required to be registered under the Investment Company Act of
1940, as amended, nor is it controlled by such a company.

5.16 Disclosure.

No representation or warranty made by or on behalf of any Loan Party or any
Subsidiary of any Loan Party in this Agreement, any Other Document or in any
financial statement, report, certificate or any other document furnished in
connection herewith and no information at any time furnished by or on behalf of
any Loan Party or any Subsidiary of any Loan Party to the Lender pursuant hereto
or in connection herewith contains any untrue statement of a material fact or
omits to state any material fact necessary to make the statements herein or
therein not misleading in light of the circumstances under which they were made.

5.17 Real Property.

Each Loan Party and each of its Subsidiaries owns record title in fee simple or
the leasehold interest to the Real Property described on Schedule R-1 (as such
Schedule may from time to time be updated by written notice from Administrative
Borrower to the Lender, so long as Loan Parties have taken (or caused to be
taken) all steps reasonably required by the Lender with respect thereto), free
and clear of all Liens, except Permitted Encumbrances. The Real Property
described on Schedule R-1 (as such Schedule may from time to time be updated by
written notice from Administrative Borrower to the Lender, so long as Loan
Parties have taken (or caused to be taken) all steps reasonably required by the
Lender with respect thereto) constitutes all of the Real Property of Loan
Parties.

5.18 Hedging Agreements.

No Loan Party nor any Subsidiary of any Loan Party is a party to any Hedging
Agreement as of the Closing Date.

5.19 Conflicting Agreements.

No provision of any mortgage, indenture, contract, agreement, judgment, decree
or order binding on any Loan Party or affecting the Collateral conflicts with,
or requires any Consent which has not already been obtained, or would in any way
prevent the execution, delivery or performance of the terms of this Agreement or
the Other Documents.

5.20 Business and Property of Loan Parties.

Upon and after the Closing Date, Loan Parties and their Subsidiaries do not
propose to engage in any business other than as currently conducted and related
activities necessary to conduct the foregoing. Each Loan Party and each
Subsidiary of a Loan Party owns or leases all the property and possesses all of
the rights and consents necessary for the conduct of the business of such Loan
Party and such Subsidiary except as could not reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect.

 

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5.21 Material Contracts.

Except for the Related Agreements and the other agreements set forth on
Schedule 5.21 (collectively with the Related Agreements, the “Material
Contracts”, as such schedule may from time to time be updated by Administrative
Borrower providing written notice to the Lender of any new contracts, so long as
Loan Parties have taken (or caused to be taken) all steps required by the Lender
with respect thereto), as of the Closing Date there are no (a) employment
agreements covering the management of any Loan Party or any Subsidiary,
(b) collective bargaining agreements or other labor agreements covering any
employees of any Loan Party or any Subsidiary, (c) agreements for managerial,
consulting or similar services to which any Loan Party or any Subsidiary is a
party or by which it is bound, (d) agreements regarding any Loan Party or any
Subsidiary, its assets or operations or any investment therein to which any of
its equity holders is a party, (e) patent licenses, trademark licenses,
copyright licenses or other lease or license agreements in respect of
intellectual property to which any Loan Party or any Subsidiary is a party,
either as lessor or lessee, or as licensor or licensee, (f) distribution,
marketing or supply agreements to which any Loan Party or any Subsidiary is a
party, (g) customer agreements to which any Loan Party or any Subsidiary is a
party, (h) real estate leases to which any Loan Party or any Subsidiary is a
party, (in each case with respect to any agreement of the type described in the
preceding clauses (a), (b), (c), (d), (e), (f), (g) and (h) requiring payment of
more than $250,000 in the aggregate in any year), (i) partnership agreements to
which any Loan Party or any Subsidiary is a partner, limited liability company
agreements to which any Loan Party or any Subsidiary is a member or manager, or
joint venture agreements to which any Loan Party or any Subsidiary is a party,
or (j) any other agreements or instruments to which any Loan Party or any Loan
Party is a party the breach, nonperformance or cancellation of which, would
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. The consummation of the transactions contemplated by
this Agreement and the Other Documents and the other Related Agreements will not
give rise to a right of termination in favor of any party to any Material
Contract which would reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect. Each Material Contract is in full
force and effect and no defaults enforceable against any Loan Party or any
Subsidiary exist thereunder, except as could not reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. No Loan
Party nor any Subsidiary of any Loan Party has received notice from any party to
any Material Contract stating that it intends to terminate or amend such
contract, except to the extent such termination could not reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect.

5.22 Capital Structure.

Schedule 5.22 sets forth the authorized Equity Interests, and owner thereof, of
each of Loan Parties and each of their Subsidiaries as of the Closing Date. All
of the Equity Interests of each of Loan Parties (other than Parent) and each of
their Subsidiaries are owned directly or indirectly by one of the Borrowers. All
issued and outstanding Equity Interests of each of Loan Parties and each of
their Subsidiaries are duly authorized and validly issued, fully paid and
non-assessable, and such Equity Interests were issued in compliance with all
applicable laws. All issued and outstanding Equity Interests of each Loan Party
and each of their Subsidiaries are free and clear of all Liens other than
Permitted Encumbrances and the Lien in favor of the Lender. The identity of the
holders of the Equity Interests of each of the Loan Parties and each of their
Subsidiaries and the percentage of their fully diluted ownership of the Equity
Interests of each of Loan Parties and each of their Subsidiaries as of the
Closing Date is set forth on Schedule 5.22. No shares of the Equity Interests of
any Loan Party or any of their Subsidiaries, other than those described above,
are issued and outstanding as of the Closing Date. As of the Closing Date there
are no preemptive or other outstanding rights, options, warrants, conversion
rights or similar agreements or understandings for the purchase or acquisition
from any Loan Party or any of their Subsidiaries of any Equity Interests of any
such entity.

 

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5.23 Bank Accounts, Security Accounts, Etc.

No Loan Party has any bank accounts, deposit accounts, investments accounts,
securities accounts or any other similar accounts other than the accounts set
forth Schedule 5.23 (as such Schedule may from time to time be updated by
Administrative Borrower delivering a written update thereto to the Lender, so
long as such updates are approved by the Lender and Loan Parties take all action
required by Section 4.14(h) with respect thereto). The purpose and type of each
such account is specified on Schedule 5.23.

5.24 Related Agreements.

Administrative Borrower has furnished the Lender a true and correct copy of each
the Related Agreements, along with all agreements, side letters and other
documents executed by any Loan Party, Subsidiary or Affiliate thereof in
connection therewith. Each of Loan Parties and their respective Subsidiaries
and, to Loan Party’s knowledge, each other party to the Related Agreements, has
duly taken all necessary organizational action to authorize the execution,
delivery and performance of the Related Agreements and the consummation of
transactions contemplated thereby. As of the Closing Date, the Related
Transactions have been consummated (or are being consummated substantially
contemporaneously with the initial credit extension hereunder) in accordance
with the terms of the Related Agreements. The Related Transactions will comply
with all applicable legal requirements, and all necessary Consents required to
be obtained by a Loan Party or a Subsidiary thereof and, to each Loan Party’s
knowledge, each other party to the Related Agreements in connection with the
Related Transactions will be, prior to consummation of the Related Transactions,
duly obtained and will be in full force and effect. As of the date of the
Related Agreements, all applicable waiting periods with respect to the Related
Transactions will have expired without any action being taken by any competent
Governmental Body which restrains, prevents or imposes material adverse
conditions upon the consummation of the Related Transactions. The execution and
delivery of the Related Agreements did not, and the consummation of the Related
Transactions will not, violate any statute or regulation of the United States
(including any securities law), Canada or of any state, province or other
applicable jurisdiction, or any order, judgment or decree of any court or
Governmental Body binding on any Loan Party or Subsidiary or, to each Loan
Party’s knowledge, any other party to the Related Agreements, or result in a
breach of, or constitute a default under, any material agreement, indenture,
instrument or other document, or any judgment, order or decree, to which any
Loan Party or Subsidiary is a party or by which any Loan Party or Subsidiary is
bound or, to each Loan Party’s knowledge, to which any other party to the
Related Agreements is a party or by which any such party is bound. No statement
or representation made in the Related Agreements by any Loan Party or Subsidiary
or, to Loan Party’s knowledge, any other Person, contains any untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements made therein, in light of
the circumstances under which they are made, not misleading as of the time that
such statement or representation is made. As of the Closing Date and any other
date on which such representations and warranties are otherwise remade or deemed
remade hereunder, (a) each of the representations and warranties contained in
the Related Agreements made by a Loan Party or any Subsidiary is true and
correct in all material respects and (b) to each Loan Party’s knowledge, each of
the representations and warranties contained in the Related Agreements made by
any Person other than a Loan Party is true and correct in all material respects.

 

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5.25 OFAC.

None of Borrowers, any Subsidiary of any Borrower or any Affiliate of any
Borrower: (a) is a Sanctioned Person, (b) has more than ten (10%) percent of its
assets in Sanctioned Entities or (c) derives more than ten (10%) percent of its
operating income from investments in, or transactions with Sanctioned Persons or
Sanctioned Entities. The proceeds of any Loan will not be used and have not been
used to fund any operations in, finance any investments or activities in, or
make any payments to, a Sanctioned Person or a Sanctioned Entity.

6. AFFIRMATIVE COVENANTS.

Each Loan Party shall at all times until all of the Obligations have been Paid
in Full:

6.1 Payment of Fees.

Promptly following demand, pay to the Lender all usual and customary fees and
expenses which the Lender incurs in connection with (a) the forwarding of the
Term Loan proceeds and (b) the establishment and maintenance of any Blocked
Accounts or Depository Accounts as provided for in Section 4.14(h). The Lender
may, without making demand, charge the Borrowers’ Account for all such fees and
expenses.

6.2 Conduct of Business; Compliance with Laws and Maintenance of Existence and
Assets.

Conduct, and cause each Subsidiary of each Loan Party to conduct, continuously
and operate actively its business according to business practices and maintain,
and cause each Subsidiary of each Loan Party to maintain, all of its properties
useful or necessary in its business in good working order and condition in all
material respects (reasonable wear and tear excepted and except as may be
Disposed of in accordance with the terms of this Agreement (including, without
limitation, Section 7.1)), including, without limitation, all Intellectual
Property and take all actions necessary to enforce and protect the validity of
its Intellectual Property. Each Loan Party shall, and shall cause each
Subsidiary of each Loan Party to, (a) keep in full force and effect its
existence and its material rights and franchises, except as expressly permitted
by this Agreement (including pursuant to Section 7.1), (b) comply in all
material respects with the laws and regulations governing the conduct of its
business where the failure to do so could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect, and (c) except as
expressly permitted hereunder, make all such reports and pay all such franchise
and other taxes and license fees and do all such other acts and things as may be
lawfully required to maintain its rights, licenses, leases, powers and
franchises under the laws of the United States, Canada or any of their political
subdivisions or, based on commercially reasonable efforts, to do so in any
applicable foreign jurisdiction or any political subdivision of any of such
foreign jurisdictions.

 

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6.3 Violations.

Promptly after becoming aware of the same, notify the Lender in writing of any
violation of any law, statute, regulation or ordinance of any Governmental Body,
or of any agency thereof, applicable to any Loan Party or any of their
Subsidiaries which could reasonably be expected to have, either individually or
in the aggregate, a Material Adverse Effect.

6.4 Board Observation Rights.

Parent shall cause the Lender to have the right to designate one representative,
who shall: (a) receive prior notice (no later than such notice is given to the
members of the board of directors, the equityholders, and the committee members,
as applicable) of all meetings (both regular and special) of the board of
directors and of the equityholders of Parent and each committee of such board of
directors; (b) be entitled to attend (or, at the option of such representative,
monitor by telephone) all such meetings; (c) receive all notices, information,
reports and minutes of meetings, which are furnished (or made available) to the
members of the Parent board of directors and/or any committee of such board of
directors and/or equityholders of Parent at the same time and in the same manner
as the same is furnished (or made available) to such members and equity holders;
and (d) be entitled to participate in all discussions conducted at such
meetings. If any action is proposed to be taken by the Parent board of
directors, equityholders and/or committee by written consent in lieu of a
meeting, the Parent shall give, or shall cause to be given, written notice
thereof to such representative of the Lender, which notice shall describe in
reasonable detail the nature and substance of such proposed action and shall be
delivered not later than the date upon which any member of any such board of
directors, equityholders and/or committee receives the same. Parent shall
furnish, or shall cause to be furnished, to such representative a copy of each
such written consent not later than five (5) days after it has been signed by a
sufficient number of signatories to make it effective. Parent’s board shall meet
at least two times per fiscal year and a customary board package shall be
provided to each person who participates in each meeting, including to the
representative of the Lender. Notwithstanding the foregoing, the Lender may be
excluded from access to any material or meeting or portion thereof if Parent’s
board determines in good faith, upon advice of counsel, that such exclusion is
reasonably necessary to preserve the attorney-client privilege or Parent’s board
wishes to discuss the Lender with respect to this Agreement or any Other
Document. Any information and materials received pursuant to this Section 6.4
shall be subject to the terms of Section 16.16. Each representative of the
Lender referred to in this Section 6.4 shall acknowledge the confidentiality
provisions contained in Section 16.16 hereof and agree in writing to be bound by
the terms of Section 16.16 as if such representative was a party to this
Agreement.

6.5 Execution of Supplemental Instruments; Further Assurances.

Promptly upon request by the Lender, each Loan Party shall take such additional
actions (including, without limitation, execution and delivery of such
supplemental agreements or instruments, statements, assignments and transfers,
or instructions or documents relating to the Collateral) as the Lender may
require in its Permitted Discretion from time to time in order (a) to carry out
more effectively the purposes of this Agreement or any Other Document, (b) to
subject all of the existing or hereinafter acquired personal and real property
(other than Excluded Assets) of each Loan Party to first-priority perfected
Liens (other than with respect to the Revolving Loan Priority Collateral
(subject to the Intercreditor Agreement) and subject to Permitted Encumbrances)
in favor of the Lender to secure the Obligations, (c) to perfect and maintain
the validity, effectiveness and priority of any of the Liens created, or
intended to be created thereby, by this Agreement or any Other Document to the
extent required herein or therein, and (d) to better assure, convey, grant,
assign, transfer, preserve, protect and confirm to the Lender the rights granted
or now or hereafter intended to be granted to the Lender under this Agreement or
any Other Document. Without limiting the generality of the foregoing, each Loan
Party shall (and shall cause each other Loan Party to) guarantee (to the extent
not already directly obligated with respect thereto) all of the Obligations and
to grant to the Lender, a Lien in all of such Loan Party’s existing or
hereinafter acquired personal and real property (other than Excluded Assets) to
secure all of the Obligations; provided, that, no such guarantee or grant shall
be required by a Non-US Subsidiary that is a CFC (other than the Canadian
Guarantor) to the extent such guarantee or grant would result in material
adverse tax consequences to Loan Parties under Treas. Reg. Section 1.956-2.

 

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6.6 Payment of Indebtedness.

Each Loan Party shall, and shall cause each Subsidiary of each Loan Party to,
subject at all times to any applicable subordination or intercreditor
arrangement in favor of the Lender, pay, discharge or otherwise satisfy at or
before maturity (subject, where applicable, to specified grace periods and, in
the case of the trade payables, to normal payment practices) all its
Indebtedness of whatever nature, except when the failure to do so could not
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect or when the amount or validity thereof is currently
being contested in good faith by appropriate proceedings and each Loan Party and
each of their Subsidiaries shall have provided for such reserves as the Lender
may reasonably deem proper and necessary.

6.7 Standards of Financial Statements.

Each Loan Party shall, and shall cause each Subsidiary of each Loan Party to,
cause all financial statements referred to in Sections 9.7 and 9.9 as to which
GAAP is applicable to be true and correct in all material respects (subject, in
the case of interim financial statements, to normal year-end audit adjustments)
and to be prepared in reasonable detail and in accordance with GAAP consistently
applied.

6.8 Post-Closing Deliveries.

Without limiting any other obligation of the Loan Parties set forth herein or in
any of the Other Documents, the Loan Parties shall deliver or cause to be
delivered to the Lender, in form and substance reasonably satisfactory to the
Lender, as promptly as possible following the Closing Date, but in any event no
later than the dates referred to in Schedule 6.8 hereto with respect to each
such item (or such later date as the Lender shall agree in writing), each of the
items referred to in such Schedule.

 

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7. NEGATIVE COVENANTS.

No Loan Party shall, nor shall any Loan Party permit any of its Subsidiaries to,
at any time prior to the Payment in Full of all of the Obligations:

7.1 Merger, Amalgamation, Consolidation, Acquisition and Sale of Assets.

(a) Consummate any merger, amalgamation, consolidation or other reorganization
with or into any other Person or acquire all or a substantial portion of the
assets or Equity Interests of any Person or permit any other Person to
consolidate or amalgamate with or merge with it; except, that, (i) a Loan Party
may merge, amalgamate or consolidate into another Loan Party so long as (A) no
Event of Default shall have occurred and be continuing, (B) Administrative
Borrower shall give the Lender at least ten (10) Business Days prior notice
thereof, (C) if a Borrower is a party to such merger, amalgamation or
consolidation, a Borrower shall be the surviving entity, (D) no Loan Party shall
merge, amalgamate or consolidate with a Loan Party that exists under the laws of
a country different than the country in which such Loan Party exists and
(E) prior to such merger, amalgamation or consolidation Loan Parties have taken
(or caused to be taken) all steps required by the Lender with respect thereto
(including without limitation all steps required by the Lender to maintain the
Lender’s Lien on the Collateral granted by such Loan Parties, as well as the
priority and effectiveness of such Lien); and (ii) a Subsidiary of the Borrowers
that is not a Loan Party may merge, amalgamate or consolidate into another
Subsidiary of the Borrowers that is not a Loan Party so long as (A) no Event of
Default shall have occurred and be continuing, (B) Administrative Borrower shall
give the Lender at least ten (10) Business Days prior notice thereof, and
(C) prior to such merger, amalgamation or consolidation Loan Parties have taken
(or caused to be taken) all steps required by the Lender with respect thereto.

(b) Acquire all or a substantial portion of the assets or Equity Interests of
any Person except for investments permitted by Section 7.4.

(c) Directly or indirectly, sell, assign, lease, transfer, abandon or otherwise
dispose of any of its assets or properties (including, without limitation, the
Collateral) to any other Person (each, a “Disposition”), except for:

(i) the sale of Inventory in the ordinary course of business,

(ii) provided no Default or Event of Default shall have occurred and be
continuing or result therefrom, the Disposition of assets (other than equity
interests of any of its Subsidiaries) having a fair market value not to exceed
$250,000 in the aggregate in any fiscal year;

(iii) the sale, lease, transfer or other Disposition of property by a Loan Party
or a Subsidiary of a Loan Party to any other Loan Party or Subsidiary of a Loan
Party; provided, that, (A) if a Borrower or any of its assets is subject to a
Disposition, all parties to such Disposition must be Borrowers, (B) if a Loan
Party or any of its assets is subject to a Disposition, all parties to such
Disposition must be Loan Parties, (C) if a US Loan Party or any of its assets is
subject to a Disposition, all parties to such Disposition must be US Loan
Parties, (D) to the extent such transaction constitutes an investment, such
transaction must be permitted under Section 7.4 and (E) any Lien in favor of the
Lender on such property shall continue in all respects and shall not be deemed
released or terminated as a result of such sale, lease, transfer or other
Disposition and Loan Parties shall execute and deliver such agreements,
documents and instruments as the Lender may reasonably request with respect
thereto;

(iv) the sale, lease, transfer or Disposition of used, worn-out or obsolete
machinery and equipment and machinery and equipment no longer used or useful in
the conduct of business of Loan Parties or any of their Subsidiaries having a
fair market value not to exceed $250,000 in the aggregate in any fiscal year;

 

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(v) the grant in the ordinary course of business by any Loan Party or any of
their Subsidiaries after the date hereof of a non-exclusive license of any
Intellectual Property or any exclusive license of any Intellectual Property in a
particular territory; provided, that, the rights of the licensee shall be
subject to the rights of the Lender, and shall not adversely affect, limit or
restrict the rights of the Lender to use such Intellectual Property or to sell
or otherwise dispose of any Inventory or other Collateral in connection with the
exercise by the Lender of any rights or remedies hereunder or under any of the
Other Documents, or otherwise adversely limit or interfere in any material
respect with the use of any such Intellectual Property by the Lender in
connection with the exercise of its rights or remedies hereunder or under any of
the Other Documents or by any Loan Party or Subsidiary;

(vi) the issuance of Equity Interests by Loan Parties; provided, that, no Loan
Party or Subsidiary shall be required to pay any cash dividends, distributions
or repurchase or redeem such Equity Interests or make any other payments in
respect thereof, except as otherwise expressly permitted in Section 7.7;

(vii) the issuance of Equity Interests by Parent consisting of common stock (or
its equivalent) pursuant to an employee stock option plan or grant or similar
equity plan or 401(k) plan of Loan Parties and their Subsidiaries for the
benefit of their employees, directors and officers;

(viii) the abandonment or other disposition of Intellectual Property that is not
material and is no longer used or useful in any material respect in the business
of any Loan Party or any of its Subsidiaries and does not appear on or is
otherwise not affixed to or incorporated in any Inventory or Equipment or have
any material value;

(ix) involuntary Dispositions occurring by reason of casualty or condemnation;

(x) the leasing, occupancy agreements or sub-leasing of Real Property or
Equipment in the ordinary course of business consistent with past practices that
would not materially interfere with the required use of such Real Property or
Equipment by any Loan Party or any of its Subsidiaries;

(xi) transfers of condemned real property as a result of the exercise of
“eminent domain” or other similar policies to the respective governmental
authority or agency that has condemned the same (whether by deed in lieu of
condemnation or otherwise), and transfers of properties that have been subject
to a casualty to the respective insurer of such real property as part of an
insurance settlement; and

(xii) any Disposition of property or assets, or issuance of Equity Interests,
that is permitted under Sections 7.1(a) and 7.7.

 

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7.2 Creation of Liens.

Create or suffer to exist any Lien or transfer upon or against any of its
property or assets now owned or hereafter acquired, except for Permitted
Encumbrances.

7.3 Guarantees.

Become liable upon the obligations of any Person by assumption, endorsement or
guarantee thereof or otherwise (other than with respect to the Obligations)
except:

(a) for the endorsement of checks in the ordinary course of business;

(b) that (i) Loan Parties and their Subsidiaries may guarantee Indebtedness or
other obligations of Borrowers and their US Subsidiaries that are Loan Parties
and (ii) a Non-US Subsidiary may guarantee Indebtedness or other obligations of
another Non-US Subsidiary (provided if the Non-US Subsidiary that is providing
such guarantee is a Loan Party such other Non-US Subsidiary must also be a Loan
Party);

(c) that Loan Parties and their Subsidiaries may guarantee Indebtedness under
the Revolving Loan Documents; and

(d) guarantees not permitted under clauses (a) through (b) above in an aggregate
outstanding amount not to exceed $100,000 at any time.

7.4 Investments.

Purchase or acquire Indebtedness or Equity Interests of, or any other interest
in, any Person, except:

(a) cash or Cash Equivalents;

(b) as expressly permitted pursuant to Section 7.1, Section 7.5, Section 7.7 and
Section 7.8;

(c) the endorsement of instruments for collection or deposit in the ordinary
course of business;

(d) obligations under Hedging Agreements permitted under Section 7.8(e);

(e) Equity Interests or other obligations issued to Loan Parties by any Person
(or the representative of such Person) in compromise or settlement of
Indebtedness of such Person owing to Loan Parties (whether or not in connection
with the insolvency, bankruptcy, receivership or reorganization of such a Person
or a composition or readjustment of the debts of such Person) or upon the
foreclosure, perfection or enforcement of any Lien in favor of a Loan Party
securing any such obligations;

(f) obligations of account debtors to Loan Parties and their Subsidiaries
arising from Accounts which are evidenced by a promissory note made by such
account debtor payable to the applicable Loan Party or Subsidiary; provided,
that, promptly upon the receipt of the original of any such promissory note
issued to any Loan Party from any account debtor in excess of $250,000 in the
aggregate (or regardless of the amount after an Event of Default exists or has
occurred and is continuing, at the request of the Lender) and to the extent not
delivered to the Revolving Loan Agent in accordance with the terms of the
Revolving Loan Documents, such promissory note(s) shall, upon the request of the
Lender, be endorsed to the order of the Lender by Loan Parties and promptly
delivered to the Lender as so endorsed;

 

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(g) investments by Loan Parties and their Subsidiaries in the form of Equity
Interests received as part or all of the consideration for the sale of assets
pursuant to a Disposition by any such Loan Party of Subsidiary to the extent
permitted under Section 7.1(c);

(h) the existing investments of any Loan Party or Subsidiary thereof as of the
date hereof in their respective Subsidiaries;

(i) investments made after the date hereof by (i) Parent in another Loan Party,
(ii) a Loan Party (other than Parent) in another Loan Party, (iii) a US
Subsidiary of a Loan Party in a US Subsidiary of another Loan Party and (iv) a
Non-US Subsidiary of a Loan Party in a Non-US Subsidiary of a Loan Party;
provided, that, in no such case shall a Loan Party make an investment in a
Person that is not a Loan Party;

(j) Permitted Acquisitions;

(k) loans or advances to employees, officers and directors to the extent
permitted in Section 7.5(c); and

(l) investments not permitted under clauses (a) through (k) above in an
aggregate outstanding amount not to exceed the $100,000 at any time; provided,
that, as of the date of such investment or any payment made in respect thereof
and after giving effect to such investment or payment, no Default or Event of
Default shall exist or have occurred and be continuing.

7.5 Loans.

Make advances, loans or other extensions of credit to any Person, including,
without limitation, any Subsidiary or Affiliate, except with respect to:

(a) the extension of commercial trade credit in connection with the sale of
Inventory or the provision of services, each in the ordinary course of its
business;

(b) deposits of cash for leases, utilities, worker’s compensation and similar
matters in the ordinary course of business;

(c) advances or loans by a Loan Party or any Subsidiary of a Loan Party to its
employees, officers or directors in the ordinary course of business in an
aggregate amount not to exceed $75,000 at any time outstanding for:
(i) reasonable and necessary work-related travel or other ordinary business
expenses to be incurred by such employee, officer or director in connection with
their work for such Loan Party or Subsidiary and (ii) reasonable and necessary
relocation expenses of such employees, officers and directors (including home
mortgage financing for relocated employees, officers and directors); and

 

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(d) advances, loans or extensions of credit made by (i) Parent to another Loan
Party, (ii) a Loan Party (other than Parent) to another Loan Party, (iii) a US
Subsidiary of a Loan Party in a US Subsidiary of another Loan Party and (iv) a
Non-US Subsidiary of a Loan Party to a Non-US Subsidiary of a Loan Party;
provided, that, in no such case shall a Loan Party make an advance, loan or
extension of credit in a Person that is not a Loan Party.

7.6 Financial Covenants.

(a) Capital Expenditures. Contract for, purchase or make any Capital
Expenditures during any fiscal year set forth below in an aggregate amount in
excess of the amount set forth below for such year:

 

Fiscal Year

   Maximum Capital Expenditures  

Fiscal year ended December 31, 2012

   $ 5,500,000   

Fiscal year ended December 31, 2013 and each fiscal year thereafter

   $ 12,000,000   

(b) Minimum EBITDA. Permit EBITDA for the preceding twelve (12) month period
ending on any date set forth below to be less than the amount set forth below
for such date:

 

Date

   Minimum EBITDA  

March 31, 2012

   $ 3,800,000   

June 30, 2012

   $ 4,000,000   

September 30, 2012

   $ 5,500,000   

December 31, 2012

   $ 8,000,000   

March 31, 2013

   $ 9,000,000   

June 30, 2013

   $ 10,000,000   

September 30, 2013

   $ 11,000,000   

December 31, 2013

   $ 12,000,000   

March 31, 2014

   $ 12,000,000   

June 30, 2014

   $ 12,000,000   

September 30, 2014

   $ 12,000,000   

December 31, 2014

   $ 12,000,000   

March 31, 2015

   $ 12,000,000   

June 30, 2015

   $ 12,000,000   

September 30, 2015

   $ 12,000,000   

December 31, 2015

   $ 12,000,000   

March 31, 2016

   $ 14,000,000   

June 30, 2016

   $ 14,000,000   

 

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(c) Total Debt to EBITDA Ratio. Permit the ratio of total Indebtedness of the
Loan Parties on a consolidated basis to EBITDA for the preceding twelve
(12) month period ending on any date set forth below to exceed the ratio set
forth below for such date:

 

Date

   Ratio  

June 30, 2012

     5.5 : 1.00   

September 30, 2012

     4.7 : 1.00   

December 31, 2012

     4.3 : 1.00   

March 31, 2013

     4.0 : 1.00   

June 30, 2013

     3.9 : 1.00   

September 30, 2013

     3.8 : 1.00   

December 31, 2013

     3.7 : 1.00   

March 31, 2014

     3.5 : 1.00   

June 30, 2014

     3.5 : 1.00   

September 30, 2014

     3.5 : 1.00   

December 31, 2014

     3.5 : 1.00   

March 31, 2015

     3.3 : 1.00   

June 30, 2015

     3.3 : 1.00   

September 30, 2015

     3.3 : 1.00   

December 31, 2015

     3.3 : 1.00   

March 31, 2016

     3.0 : 1.00   

June 30, 2016

     3.0 : 1.00   

(d) Minimum Refill Gross Profit. Permit the Gross Profit of the Refill Division
for the preceding twelve (12) month period ending on
March 31, June 30, September 30 and December 31 of each calendar year to be less
than $10,500,000. For purposes of this Section 7.6(d), the Gross Profit of the
Refill Division shall be deemed to be (i) $3,527,999 for the fiscal quarter
ended June 30, 2011, (ii) $3,998,874 for the fiscal quarter ended September 30,
2011 and (iii) $2,707,596 for the fiscal quarter ended December 31, 2011.

7.7 Dividends and Distributions.

Declare, pay or make any dividend or distribution or payment with respect to:

(a) any shares of the Equity Interests of any Loan Party or any of their
Subsidiaries (other than dividends or distributions payable in its Equity
Interests permitted hereunder) or apply any of its funds, property or assets to
the purchase, redemption or other retirement of any such Equity Interests;
except, that, (i) in lieu of making tax payments directly, Loan Parties and
their Subsidiaries may make dividends and distributions to Parent from time to
time for the sole purpose of allowing Parent to, and Parent shall promptly upon
receipt thereof use the proceeds thereof solely to, pay federal, state and
provincial income taxes and franchise taxes solely arising out of the
consolidated operations of Parent, Borrowers and their Subsidiaries, after
taking into account all available credits and deductions (provided, that, no
Borrower or Subsidiary thereof shall make any distribution to Parent in any
amount greater than the share of such taxes arising out of Borrowers and their
Subsidiaries’ consolidated net income); (ii) Loan Parties and their Subsidiaries
may make dividends and distributions to any Loan Party from time to time in
respect of any Equity Interests owned by any Loan Party; and (iii) Parent may
purchase and redeem its Equity Interests for the sole purpose of providing
proceeds to Equity Interest Option Holders in order to permit such Equity
Interest Option Holders to pay federal, state and provincial income taxes solely
arising out of and relating to options and warrants owned by such Equity
Interest Option Holders; provided, that the aggregate amount of purchases and
redemptions under this clause (iii) shall not exceed $150,000 during any fiscal
year; and

 

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(b) any redemption, prepayment (whether mandatory or optional), defeasance,
repurchase or any other payment in respect of any Subordinated Debt, or apply
any of its funds, property or assets to the purchase, redemption or other
retirement of any Subordinated Debt; except, that, mandatory payments may be
made on Subordinated Debt to the extent expressly permitted in any subordination
or intercreditor agreement executed by the Lender with respect thereto.

7.8 Indebtedness.

Create, incur, assume or suffer to exist any Indebtedness (exclusive of trade
payables incurred in the ordinary course of business consistent with past
practices outstanding no more than thirty (30) days past its due date) except in
respect of:

(a) the Obligations;

(b) Indebtedness (other than the Obligations) to the extent incurred after the
Closing Date to finance Capital Expenditures in an aggregate amount not to
exceed $500,000 at any one time outstanding;

(c) Indebtedness existing on the Closing Date as set forth on Schedule 7.8 and
any refinancings, refundings, renewals or extensions thereof (without shortening
the maturity thereof or increasing the principal amount thereof (excluding
accrued interest, fees, discounts, premiums and expenses));

(d) Indebtedness expressly permitted by Section 7.3 and Section 7.5;

(e) Indebtedness arising under Hedging Agreements which are not entered into for
speculative purposes and are intended to provide protection against fluctuations
in interest rates or foreign currency exchange rates;

(f) Indebtedness in respect of netting services, overdraft protections, employee
credit card programs and otherwise in connection with deposit accounts and
Indebtedness arising from the honoring by a bank or other financial institution
of a check, draft or similar instrument inadvertently (except in the case of
daylight overdrafts) drawn against insufficient funds in the ordinary course of
business; provided, that, such Indebtedness is extinguished within five
(5) Business Days of incurrence;

(g) Indebtedness in respect of bid, performance and surety bonds, including
guarantees or obligations of Loan Parties with respect to letters of credit
supporting such bid, performance and surety bonds or other forms of credit
enhancement supporting performance obligations under services contracts,
workers’ compensation claims, self-insurance obligations, unemployment
insurance, health, disability and other employee benefits or property, casualty
or liability insurance in each case incurred in the ordinary course of business;
provided, that, upon the Lender’s request, the Lender shall have received true,
correct and complete copies of all material agreements, documents or instruments
evidencing or otherwise related to such Indebtedness, as duly authorized,
executed and delivered by the parties thereto;

 

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(h) unsecured Indebtedness arising from agreements to provide for customary
indemnification, adjustment of purchase price or similar obligations, earn-outs
or other similar obligations, in each case, incurred in connection with a
Permitted Acquisition or Disposition permitted hereunder and in the case of
earn-outs or other similar obligations so long as they have been subordinated to
the Obligations pursuant to a subordination agreement in favor of the Lender on
terms and conditions reasonably satisfactory to the Lender;

(i) unsecured subordinated Indebtedness of Loan Parties and their Subsidiaries
arising after the date hereof to any third person not otherwise permitted in
this Section 7.8, in an aggregate outstanding principal amount not to exceed
$100,000 at any time and any refinancings, refundings, renewals or extensions
thereof (without shortening the maturity thereof or increasing the principal
amount thereof (excluding accrued interest, fees, discounts, premiums and
expenses)); provided, that, (i) as of the date of incurring such Indebtedness
and after giving effect thereto, no Default or Event of Default shall exist or
have occurred and be continuing, (ii) the terms and provisions of such
Indebtedness shall provide that no principal or interest (other than interest
payable in kind (i.e., non-cash interest)) shall be paid in respect thereof
until after all of the Obligations are Paid in Full, and (iii) such third person
shall have entered into a subordination agreement with the Lender on terms and
conditions reasonably satisfactory to the Lender;

(j) Indebtedness arising pursuant to financing of insurance premiums payable on
insurance policies maintained by or for the benefit of Loan Parties or any of
their Subsidiaries; provided, that, upon the Lender’s request, the Lender shall
have received true, correct and complete copies of all material agreements,
documents and instruments evidencing or otherwise related to such Indebtedness;

(k) subject to the terms and conditions of the Intercreditor Agreement,
Indebtedness of any Loan Party under the Revolving Loan Documents; and

(l) additional unsecured Indebtedness of Loan Parties and their Subsidiaries in
an aggregate principal amount not to exceed $100,000 at any one time
outstanding.

7.9 Nature of Business.

Substantially change the nature of the business in which it is presently
engaged, and similar, related or complementary businesses subsequently engaged
in, nor except as specifically permitted hereby purchase or invest, directly or
indirectly, in any assets or property other than in the ordinary course of
business for assets or property which are useful in, necessary or appropriate
for and are to be used in its business as presently conducted or similar,
related or complementary businesses.

7.10 Transactions with Affiliates.

Directly or indirectly, purchase, acquire or lease any property from, or sell,
transfer or lease any property to, or otherwise deal with, any Affiliate, except
for:

(a) transactions, arrangements and other business activities entered into in the
ordinary course of business, on an arm’s-length basis on terms no less favorable
than terms which would have been obtainable from a Person other than an
Affiliate;

 

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(b) any employment or compensation arrangement or agreement, employee benefit
plan or arrangement, officer or director indemnification agreement or any
similar arrangement or other compensation arrangement entered into in good
faith, for actual services rendered to any Loan Party or any Subsidiary, by any
Loan Party and the Subsidiaries in the ordinary course of business and non-cash
payments, issuance of securities or awards pursuant thereto, and including the
grant of stock options, restricted stock, stock appreciation rights, phantom
stock awards or similar rights to employees and directors in each case approved
by the Board of Directors of such Loan Party; and

(c) transactions among Loan Parties and their Subsidiaries expressly permitted
by Section 7.1(c), Section 7.3(b), Section 7.4(i), Section 7.5(c),
Section 7.5(d) and Section 7.7.

7.11 Leases.

After the Closing Date, enter as lessee into any lease arrangement for Equipment
or Real Property (unless capitalized and permitted under Sections 7.6 and 7.8)
if after giving effect thereto, aggregate annual rental payments for all leased
property would exceed $500,000 in any one (1) fiscal year for all Loan Parties
and their Subsidiaries (or such higher amount as the Lender may approve in its
sole discretion). Any renewal, replacement or extension of any lease or lease
arrangement that exists as of the Closing Date shall not be taken into account
for the purposes of this Section 7.11.

7.12 Subsidiaries.

(a) Form any Subsidiary unless (i) such Subsidiary expressly joins in this
Agreement as a Loan Party, becomes jointly and severally liable for, or
otherwise guaranties, all of the Obligations and grants a Lien on substantially
all of its assets to secure all of the Obligations and consents to the pledge of
its Equity Interests to secure all of the Obligations in form and substance
reasonably satisfactory to the Lender (in each case, except (A) to the extent
that such assets constitute Excluded Assets and (B) no such guarantee or grant
shall be required by a Non-US Subsidiary that is a CFC to the extent such
guarantee or grant would result in material adverse tax consequences to Loan
Parties under Treas. Reg. Section 1.956-2), (ii) the Lender is provided with a
pledge of all of the outstanding Equity Interests of such Subsidiary to secure
all of the Obligations in form and substance reasonably satisfactory to the
Lender (except to the extent that such Equity Interests constitutes Excluded
Assets), and (iii) the Lender shall have received fifteen (15) days prior
written notice thereof (along with an update of Schedule 5.2(b)) and all
documents, including collateral documents, guaranties, corporate authority
documents and legal opinions, as the Lender may require in its Permitted
Discretion in connection therewith, all in form and substance reasonably
satisfactory to the Lender; provided, that, investments in any Subsidiary which
Loan Parties may form in accordance with this Section 7.12(a) may only be made
to the extent permitted by Section 7.4.

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

7.13 Fiscal Year and Accounting Changes.

Change its fiscal year-end from December 31, or make any change (a) in
accounting treatment and reporting practices except as required by GAAP
consistently applied or (b) in tax reporting treatment except as required by
law.

 

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7.14 Pledge of Credit.

Now or hereafter pledge the Lender’s credit on any purchases or for any purpose.

7.15 Amendment of Organizational Documents; Revolving Loan Documents; and other
Related Agreements.

(a) Amend, modify or waive any term or provision of its certificate of
formation, limited liability company agreement, certificate of incorporation,
by-laws, partnership agreement or other applicable documents relating to such
Loan Party’s or Subsidiary’s formation or governance, or any shareholders
agreement, unless the Lender is provided prior five (5) Business Days’ prior
written notice of any such amendment, modification or waiver and such amendment,
modification or waiver is not materially adverse in any respect to the Lender.

(b) Amend, modify or waive any term or provision of any Revolving Loan
Documents, unless the Lender is provided prior five (5) Business Days’ prior
written notice of any such amendment, modification or waiver and such amendment,
modification or waiver is permitted by the Intercreditor Agreement.

(c) Amend, modify or waive any term or provision of any Related Agreement or
Material Contract not specified in another clause of this Section 7.15, unless
the Lender is provided prior five (5) Business Days’ prior written notice of any
such amendment, modification or waiver and such amendment, modification or
waiver is not materially adverse in any respect to the Lender.

7.16 Compliance with ERISA.

(a) Maintain, or permit any member of the Controlled Group to maintain, or
become obligated to contribute, or permit any member of the Controlled Group to
become obligated to contribute, to any Title IV Plan, other than those Title IV
Plans disclosed on Schedule 5.8(d), (b) engage, or permit any member of the
Controlled Group to engage, in any non-exempt “prohibited transaction”, as that
term is defined in Section 406 of ERISA and Section 4975 of the Code, (c) incur,
or permit any member of the Controlled Group to fail the applicable “minimum
funding standard”, as that term is defined in Section 302 of ERISA or
Section 412 of the Code, (d) terminate, or permit any member of the Controlled
Group to terminate, any Title IV Plan where such event could result in any
liability of any Loan Party or any member of the Controlled Group or the
imposition of a Lien on the property of any Loan Party or any member of the
Controlled Group pursuant to Section 4068 of ERISA, (e) assume, or permit any
member of the Controlled Group to assume, any obligation to contribute to any
Multiemployer Plan not disclosed on Schedule 5.8(d), (f) incur, or permit any
member of the Controlled Group to incur, any withdrawal liability to any
Multiemployer Plan, except to the extent that the failure to comply,
individually or in the aggregate, could not reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect, (g) fail
promptly to notify the Lender of the occurrence of any Termination Event,
(h) fail to comply, or permit a member of the Controlled Group to fail to
comply, with the requirements of ERISA or the Code or other applicable laws in
respect of any Plan, or (i) fail to meet, or permit any member of the Controlled
Group to fail to meet, all minimum funding requirements under ERISA or the Code
or postpone or delay or allow any member of the Controlled Group to postpone or
delay any funding requirement with respect of any Title IV Plan.

 

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7.17 Prepayment, Etc. of Money Borrowed.

At any time, directly or indirectly, voluntarily prepay any Money Borrowed
(other than the Obligations), or voluntarily repurchase, redeem, retire or
otherwise acquire any Money Borrowed of any Loan Party or any Subsidiary, in
each case prior to the due date thereof.

7.18 State of Organization/Names/Locations.

Change the jurisdiction in which it is incorporated or otherwise organized, or
change its legal name (or use a different name), location of chief executive
office or location of any of the Collateral, unless Administrative Borrower has
given the Lender not less than thirty (30) days prior written notice thereof
(along with an update of Schedule 4.4, Schedule 4.14(c), Schedule 5.2(a) and
Schedule 5.6, as applicable) and Loan Parties have taken (or caused to be taken)
all steps required by the Lender with respect thereto (including without
limitation all steps required by the Lender to maintain the Lender’s Lien on
such Collateral, as well as the priority and effectiveness of such Lien);
provided, that, no Loan Party shall change its jurisdiction of incorporation or
organization or location of any of its Collateral to a jurisdiction or location
from (a) the continental United States to outside of the continental United
States or (b) one country to another country.

7.19 Foreign Assets Control Regulations, Etc.

None of the requesting or borrowing of the Term Loan or the use of the proceeds
of thereof will violate the Trading With the Enemy Act (50 U.S.C. §1 et seq., as
amended) (the “Trading With the Enemy Act”) or any of the foreign assets control
regulations of the United States Treasury Department (31 C.F.R., Subtitle B,
Chapter V, as amended) (the “Foreign Assets Control Regulations”) or any
enabling legislation or executive order relating thereto (including, but not
limited to (a) Executive order 13224 of September 21, 2001 Blocking Property and
Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support
Terrorism (66 Fed. Reg. 49079 (2001)) (the “Executive Order”) and (b) the
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56). Neither
Borrowers nor any other Loan Party is or will become a Sanctioned Entity or
Sanctioned Person as described in the Executive Order, the Trading with the
Enemy Act or the Foreign Assets Control Regulations or engages or will engage in
any dealings or transactions, or be otherwise associated, with any such
Sanctioned Entity or Sanctioned Person.

8. CONDITIONS PRECEDENT.

8.1 Conditions to Term Loan.

The agreement of the Lender to make the Term Loan requested to be made on the
Closing Date is subject to the satisfaction, or waiver by the Lender,
immediately prior to or concurrently with the making of the Term Loan, of the
following conditions precedent, all in form and substance acceptable to the
Lender:

(a) Agreement. The Lender shall have received this Agreement duly executed and
delivered by an authorized officer of each of the parties hereto;

(b) Term Note. The Lender shall have received the Term Note duly executed and
delivered by an authorized officer of the Borrowers in favor of the Lender;

 

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(c) Warrants. The Lender shall have received the Warrants duly executed and
delivered by an authorized officer of the Parent in favor of the Lender;

(d) Registration Rights Agreement. The Lender shall have received the
Registration Rights Agreement duly executed and delivered by an authorized
officer of the Parent in favor of the Lender;

(e) Filings, Registrations, Recordings and Searches. Each document (including,
without limitation, any UCC and PPSA financing statements) required by this
Agreement, any Other Document or under law or reasonably requested by the Lender
to be filed, registered or recorded in order to create, in favor of the Lender,
a perfected Lien upon the Collateral shall have been properly filed, registered
or recorded in each jurisdiction in which the filing, registration or
recordation thereof is so required or requested, and the Lender shall have
received an acknowledgment copy, or other evidence satisfactory to it, of each
such filing, registration or recordation and satisfactory evidence of the
payment of any necessary fee, tax or expense relating thereto. The Lender shall
also have received UCC, PPSA, tax, judgment and other Lien searches with respect
to each Loan Party in such jurisdictions as the Lender shall require, and the
results of such searches shall be satisfactory to the Lender;

(f) Payoff Letters; Releases. Fully executed payoff letters (or other evidence
of repayment) from all creditors being repaid (in whole or in part) in
connection with the making of the Term Loan, along with appropriate Lien
releases;

(g) Corporate Proceedings of Loan Parties. The Lender shall have received a copy
of the resolutions of the board of directors (or equivalent authority) of each
Loan Party authorizing (i) the execution, delivery and performance of this
Agreement and the Other Documents to which it is a party, and (ii) the granting
by each Loan Party of the Liens upon the Collateral in each case certified by
the Secretary or an Assistant Secretary of each Loan Party as of the Closing
Date; and, such certificate shall state that the resolutions thereby certified
have not been amended, modified, revoked or rescinded as of the date of such
certificate;

(h) Incumbency Certificates of Loan Parties. The Lender shall have received a
certificate of the Secretary or an Assistant Secretary of each Loan Party, dated
as of the Closing Date, as to the incumbency and signature of the officers of
each Loan Party executing this Agreement, any certificate or Other Documents to
be delivered by it pursuant hereto, together with evidence of the incumbency of
such Secretary or Assistant Secretary;

(i) Certificates. The Lender shall have received a copy of the certificate of
formation, limited liability company agreement, certificate of incorporation,
by-laws, partnership agreement or other applicable documents relating to each
Loan Party’s formation and governance, and all amendments thereto, certified in
the case of formation documents filed with a Governmental Body by the Secretary
of State or other appropriate official of its jurisdiction of incorporation or
formation and certified in the case of other formation and governance documents
as accurate and complete by the Secretary or Assistant Secretary of each Loan
Party;

 

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(j) Good Standing Certificates. The Lender shall have received good standing
certificates or certificates of status or certificates of compliance, as
applicable, for each Loan Party dated not more than thirty (30) days prior to
the Closing Date, issued by the Secretary of State or other appropriate official
of each such Loan Party’s jurisdiction of incorporation or formation and each
jurisdiction in which qualification and good standing are necessary for each
such Loan Party to conduct its business and own its property and where the
failure to so qualify could reasonably be expected to have, either individually
or in the aggregate, a Material Adverse Effect;

(k) Legal Opinion. The Lender shall have received the executed legal opinions of
Loan Parties’ legal counsel, which shall cover such matters incident to the
transactions contemplated by this Agreement and the Other Documents as the
Lender may reasonably require and each Loan Party hereby authorizes and directs
such counsel to deliver such opinions to the Lender;

(l) No Litigation. (i) No litigation, investigation or proceeding before or by
any arbitrator or Governmental Body shall be continuing or threatened in writing
against any Loan Party or against the officers or directors of any Loan Party in
connection with this Agreement and/or the Other Documents or any of the
transactions contemplated thereby and which, in the reasonable opinion of the
Lender, is deemed material and (ii) no injunction, writ, restraining order or
other order of any nature materially adverse to any Loan Party or the conduct of
its business or inconsistent with the due consummation of the transactions
contemplated by this Agreement or any of the other Related Transactions shall
have been issued by any Governmental Body;

(m) Collateral Examination. The Lender shall have completed Collateral
examinations and received appraisals, the results of which shall be satisfactory
in form and substance to Lender, of the Collateral of each Loan Party and all
books and records in connection therewith;

(n) Fees and Expenses. The Lender shall have received the Closing Fee on or
prior to the Closing Date pursuant to Section 2.2(a) and all reimbursable
expenses of the Lender invoiced to date in accordance with this Agreement;

(o) Financial Statements. The Lender shall have received a copy of the financial
statements referred to in Section 5.5;

(p) Other Documents. The Lender shall have received fully executed copies of all
Other Documents to the extent required to be executed on the Closing Date;

(q) Insurance. The Lender shall have received insurance certificates and loss
payable endorsements naming the Lender as loss payee or additional insured, as
applicable, with respect to Loan Parties’ property and liability insurance
policies;

(r) Payment Instructions. The Lender shall have received written instructions
from Administrative Borrower directing the application of proceeds of the Term
Loan made pursuant to this Agreement;

(s) Blocked Accounts; Cash Management. Loan Parties shall have established
deposit accounts and cash management arrangements in form and substance
reasonably satisfactory to the Lender (it being understood and agreed that, as
of the Closing Date, the cash management arrangements maintained at the Existing
Deposit Banks are reasonably satisfactory to the Lender);

 

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(t) Consents. The Lender shall have received any and all Consents necessary to
permit the effectuation of the transactions contemplated by this Agreement and
the Related Transactions; and, the Lender shall have received such Consents and
waivers of such third parties as might assert claims with respect to the
Collateral, as the Lender and its counsel shall deem necessary;

(u) No Adverse Material Change. Since December 31, 2011, there shall not have
occurred any event, condition or state of facts which could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect;

(v) Collateral Access Agreements. The Lender shall have received duly executed
Collateral Access Agreements with respect to all third party Collateral
locations required by the Lender;

(w) Equity Interests Pledge. The Lender shall have received a pledge agreement,
executed by each applicable Loan Party in favor of the Lender, pursuant to which
such Loan Party shall pledge to the Lender and grant to the Lender a Lien,
subject to the terms of the Intercreditor Agreement, upon all of the outstanding
Equity Interests of each Subsidiary (other than Equity Interests, if any,
constituting Excluded Assets) of such Loan Party, together with share powers
duly executed in blank and originals of any related share, membership or other
similar certificates;

(x) Revolving Loan Documents. The Lender shall have received executed copies of
the Intercreditor Agreement and all of the Revolving Loan Documents, and
evidence that Loan Parties have received $25,000,000 in the aggregate from
advances made on or about the date hereof as proceeds thereof;

(y) Related Transactions. Loan Parties and their Subsidiaries shall have
completed (or concurrently with the initial credit extension hereunder will
complete) the Related Transactions in accordance with the terms of the Related
Agreements (without any amendment thereto or waiver thereunder unless consented
to by the Lender). The Lender shall have received copies of the Related
Agreements (including a consent to the collateral assignment of rights and
indemnities under the appropriate Related Agreements in favor of the Lender)
certified by Administrative Borrower’s secretary or an assistant secretary (or
similar officer) as being in true, accurate and complete;

(z) Contract Review. The Lender shall have reviewed all Material Contracts of
Loan Parties, including, without limitation, and to the extent required by the
Lender, leases, union contracts, labor contracts, vendor supply contracts,
license agreements and distributorship agreements and such contracts and
agreements shall be satisfactory in all respects to the Lender;

(aa) Due Diligence. The Lender and its counsel shall have completed its business
and legal due diligence with results satisfactory to the Lender and its counsel,
including without limitation (i) pre-funding field examination of the business
and collateral of each Loan Party in accordance with the Lender’s customary
procedures and practices and as otherwise required by the nature and
circumstances of the businesses of each Loan Party, (ii) favorable trade and
customer references and (iii) background checks with respect to such individuals
as the Lender determines issued by investigatory firms satisfactory to the
Lender; and the Lender shall be satisfied with the corporate and capital
structure and management of each Loan Party’s license agreements and with all
legal, tax, accounting and other matters relating to each Loan Party;

 

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(bb) Representations and Warranties. Each of the representations and warranties
made by any Loan Party in or pursuant to this Agreement and any Other Document
to which it is a party, and each of the representations and warranties contained
in any certificate, document or financial or other statement furnished at any
time under or in connection with this Agreement or any Other Document shall be
true and correct in all material respects (without duplication of any
materiality qualifiers already set forth therein; or in all respects with
respect to representations and warranties made on the Closing Date) on and as of
such date as if made on and as of such date, except to the extent that such
representations and warranties expressly relate solely to an earlier date (in
which case such representations and warranties shall have been true and correct
in all material respects (without duplication of any materiality qualifiers
already set forth therein) on and as of such earlier date);

(cc) No Default. No Event of Default or Default shall have occurred and be
continuing on such date, or would exist after giving effect to the Term Loan
requested to be made on the Closing Date; and

(dd) Other. All corporate and other proceedings, and all documents, instruments
and other legal matters in connection with the transactions contemplated by this
Agreement and the other Related Transactions shall be satisfactory in form and
substance to the Lender and its counsel.

9. INFORMATION AS TO LOAN PARTIES.

Until all of the Obligations are Paid in Full, each Loan Party shall:

9.1 Disclosure of Material Matters Pertaining to Collateral.

Immediately upon learning thereof, report to the Lender all matters materially
affecting the value, enforceability or collectability of any portion of the
Collateral including, without limitation, any Loan Party’s reclamation or
repossession of, or the return to any Loan Party of, a material amount of goods
or claims or disputes asserted by any Customer or other obligor.

9.2 Collateral and Related Reports.

(a) Deliver to the Lender on or before the twentieth (20th) day of each calendar
month (or more frequently if required by the Lender after the occurrence and
during the continuance of an Event of Default) the following reports, which
shall be current as of the close of business on the last Business Day of the
calendar month immediately prior to such date:

(i) with respect to each Loan Party’s accounts payable and expenses for the
immediately preceding calendar month, a report including an accounts payable
aging, accrued expenses, and listing of checks held, together with a
reconciliation to each Loan Party’s general ledger and balance sheet for such
calendar month;

 

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(ii) (A) a detailed report of accrued and other liabilities of Loan Parties as
of the end of such immediately preceding calendar month reconciled to the
balance sheet for such calendar month; (B) listing of (1) past due amounts owing
to owners and lessors of leased premises, warehouses, processors and other third
parties from time to time in possession of any Collateral of Loan Parties,
(2) monthly rent, lease, warehouse and other amounts payable to the Persons
referred to in the foregoing clause (1), and (3) cost of all Inventory and other
Collateral then located at each of the locations referred to in the foregoing
clause (1); and (C) confirmation that all sales, personal property and payroll
and other taxes of Loan Parties are currently paid; and

(iii) notice of termination or breach of any Material Contract of a Loan Party
or any of their Subsidiaries (A) which could reasonably be expected to result in
a Material Adverse Effect or (B) with respect to a contract in which the
aggregate payments thereunder by any Loan Party or any of their Subsidiaries
exceed $500,000 in any fiscal year;

(b) Deliver to the Lender on or before the sixtieth (60th) day after the end of
each the Borrowers’ fiscal years:

(i) current certificates of insurance and loss payee endorsements for all
insurance policies which Loan Parties and their Subsidiaries are required to
maintain pursuant to Section 4.10; and

(ii) a list of all Customers of Loan Parties owing Accounts receivable as of the
end of such fiscal year, including such Customers’ respective name, address,
phone number, and e-mail address;

(c) Promptly, deliver to the Lender (i) current certificates of insurance and
loss payee endorsements for all insurance policies which Loan Parties and their
Subsidiaries are required to maintain pursuant to Section 4.10, immediately
following the renewal of each such policy and any amendments thereto; and
(ii) such other reports and information as to the Collateral, Loan Parties or
their Subsidiaries as the Lender shall request from time to time in its
Permitted Discretion;

(d) Promptly upon the occurrence thereof, deliver to the Lender notice of
termination or breach of any Material Contract of a Loan Party or any of their
Subsidiaries which could reasonably be expected to result in a Material Adverse
Effect; and

(e) All Collateral reporting which shall be provided to the Lender pursuant to
this Sections 9.2 shall be delivered to the Lender electronically (or other
manner reasonably satisfactory to the Lender) and in form and substance
satisfactory to the Lender. All such reports are solely for the Lender’s
convenience in maintaining records of the Collateral, and any Loan Party’s
failure to deliver any of such reports to the Lender shall not affect,
terminate, modify or otherwise limit the Lender’s Lien with respect to the
Collateral.

9.3 Environmental Reports.

Furnish the Lender, concurrently with the delivery of the financial statements
referred to in Sections 9.7 and 9.9, with a certificate signed by a Responsible
Officer of Administrative Borrower stating, to the best of such officer’s
knowledge, that each Loan Party and each of their respective Subsidiaries is in
compliance in all material respects with all Environmental Laws. To the extent
any Loan Party or any Subsidiary of any Loan Party is not in compliance with any
Environmental Laws, the certificate shall set forth with specificity all areas
of non-compliance and the proposed action such Loan Party or Subsidiary, as
applicable, will implement in order to achieve full compliance.

 

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  9.4 Litigation.

Promptly (but in any event within five (5) Business Days thereafter) notify the
Lender in writing of (or of any judgment, settlement or other material
development in) any litigation, suit or administrative proceeding affecting any
Loan Party or any Subsidiary, whether or not the claim is covered by insurance,
and of (or of any material development in) any suit or administrative
proceeding, which in any such matter could reasonably be expected to (i) result
in liability in excess of $250,000 or (ii) have a Material Adverse Effect.

 

  9.5 Material Occurrences.

Promptly (but in any event within five (5) Business Days thereafter) notify the
Lender in writing upon the occurrence of (a) any Event of Default or Default;
(b) any event, development or circumstance whereby any financial statements or
other reports furnished to the Lender fail in any material respect to present
fairly, in accordance with GAAP consistently applied, the financial condition or
operating results of any Loan Party or any Subsidiary of any Loan Party as of
the date of such statements; (c) any accumulated retirement plan funding
deficiency which, if such deficiency continued for two (2) plan years and was
not corrected as provided in Section 4971 of the Code, could subject any Loan
Party or any Subsidiary of any Loan Party to a tax imposed by Section 4971 of
the Code; (d) each and every default by any Loan Party or any Subsidiary of any
Loan Party which might result in the acceleration of the maturity of any
Indebtedness, including the names and addresses of the holders of such
Indebtedness with respect to which there is a default existing or with respect
to which the maturity has been or could be accelerated, and the amount of such
Indebtedness; and (e) any other development in the business or affairs of any
Loan Party or any Subsidiary of any Loan Party which could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect; in each case describing the nature thereof and the action Loan Parties
or such Subsidiaries propose to take with respect thereto.

 

  9.6 Retail Store Locations.

Furnish the Lender, concurrently with the delivery of the financial statements
referred to in Section 9.9 for each fiscal quarter end of the Loan Parties, with
a report as of such fiscal quarter end including (a) the number and location of
all new Walmart or Lowes retail store locations in which the sale of any product
lines of the Loan Parties was added during such fiscal quarter, (b) the number
and location of all Walmart or Lowes retail store locations in which the sale of
all product lines of the Loan Parties was discontinued during such fiscal
quarter and (c) the net number of retail store locations for each of Walmart and
Lowes in which any product lines of the Loan Parties are sold as of such fiscal
quarter end.

 

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9.7 Annual Financial Statements.

Furnish the Lender within one hundred twenty (120) days after the end of each
fiscal year of Loan Parties, financial statements of Loan Parties and their
Subsidiaries on a consolidated basis, including, but not limited to, statements
of income and stockholders’ equity and cash flow from the beginning of the
current fiscal year to the end of such fiscal year and the balance sheet as at
the end of such fiscal year, all prepared in accordance with GAAP applied on a
basis consistent with prior practices, and in reasonable detail and reported
upon without qualification by an independent certified public accounting firm
selected by Loan Parties and satisfactory to the Lender (the “Accountants”). The
report of the Accountants shall be accompanied by (a) copies of all management
letters, exception reports or similar letters or reports received by Loan
Parties or their Subsidiaries from the Accountants, and (b) a statement of the
Accountants certifying that (i) they have caused this Agreement to be reviewed,
and (ii) in making the examination upon which such report was based, either no
information came to their attention which to their knowledge constituted an
Event of Default or a Default under this Agreement or any related agreement or,
if such information came to their attention, specifying any such Default or
Event of Default, its nature, when it occurred and whether it is continuing, and
such report shall contain or have appended thereto calculations which set forth
Loan Parties’ compliance with the requirements or restrictions imposed by
Section 7.6. In addition, the reports shall be accompanied by a Compliance
Certificate of a Responsible Officer of Administrative Borrower which shall
state that, based on an examination sufficient to permit such Responsible
Officer to make an informed statement, no Default or Event of Default exists,
or, if such is not the case, specifying such Default or Event of Default, its
nature, when it occurred, whether it is continuing and the steps being taken by
Loan Parties with respect to such event, and such Compliance Certificate shall
have appended thereto calculations which set forth Loan Parties’ compliance with
the requirements or restrictions imposed by Section 7.6.

9.8 [Reserved.]

9.9 Monthly Financial Statements.

Furnish the Lender within thirty (30) days after the end of each month or within
forty-five (45) days after the end of each month that is the end of a fiscal
quarter, an unaudited balance sheet of Loan Parties and their Subsidiaries on a
consolidated basis and unaudited statements of income and stockholders’ equity
and cash flow of Loan Parties and their Subsidiaries on a consolidated basis
reflecting results of operations from the beginning of the fiscal year to the
end of such month and for such month, prepared on a basis consistent with prior
practices and complete and correct in all material respects, subject to normal
and recurring year end adjustments that individually and in the aggregate are
not material to the business of Loan Parties or their Subsidiaries. Each such
balance sheet, statement of income and stockholders’ equity and statement of
cash flow shall set forth a comparison of the figures for (a) the current fiscal
period and the current year-to-date with the figures for the same fiscal period
and year-to-date period of the immediately preceding fiscal year and (b) the
projections for such fiscal period and year-to-date period delivered pursuant to
Section 5.5(b) or Section 9.12, as applicable, and shall be accompanied by an
analysis and discussion of results (including a summary, discussion and analysis
of all variances from the relevant budget) prepared by senior management of Loan
Parties with respect thereto, satisfactory to the Lender. The financial
statements shall be accompanied by a Compliance Certificate signed by a
Responsible Officer of Administrative Borrower, which shall state that, based on
an examination sufficient to permit such Responsible Officer to make an informed
statement, no Default or Event of Default exists, or, if such is not the case,
specifying such Default or Event of Default, its nature, when it occurred,
whether it is continuing and the steps being taken by Loan Parties with respect
to the events giving risk to such Default or Event of Default and, such
Compliance Certificate shall have appended thereto calculations which set forth
Loan Parties’ compliance with the requirements or restrictions imposed by
Section 7.6. Such Compliance Certificate shall also set forth a calculation of
EBITDA for the preceding twelve (12) month period ending on the date of the
financial statements delivered with such Compliance Certificate for purposes of
determining the applicable interest rate on the Term Loan in accordance with the
Term Note.

 

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9.10 Notices re Equity Holders; the Revolving Loan Documents.

Furnish promptly to the Lender (a) with copies of such financial statements,
reports and returns as each Loan Party and their Subsidiaries shall send to its
equity holders and (b) copies of all notices or reports sent or received by any
Loan Party or any Subsidiary in connection with, along with all amendments,
modifications and new documents with respect to the Revolving Loan Documents.

9.11 Additional Information.

Furnish promptly to the Lender with such additional information as the Lender
shall reasonably request in order to enable the Lender to determine whether Loan
Parties are in compliance with the terms, covenants, provisions and conditions
of this Agreement and the Other Documents.

9.12 Projected Operating Budget.

Furnish the Lender, no later than twenty (20) days prior to the beginning of
each Loan Party’s fiscal years, commencing with Loan Party’s fiscal year ending
December 31, 2013, a month by month projected operating budget and cash flow of
Loan Parties and their Subsidiaries on a consolidated basis for such fiscal year
(including an income statement for each month and a balance sheet as at the end
of the last month in each fiscal quarter), such projections to be accompanied by
a certificate signed by a Responsible Officer of Administrative Borrower to the
effect that such projections have been prepared in good faith on the basis of
sound financial planning practice consistent with past budgets and financial
statements.

9.13 Variances From Operating Budget.

Furnish the Lender, concurrently with the delivery of the financial statements
referred to in Section 9.7 and Section 9.9, or more frequently if requested by
the Lender, a written report summarizing all material variances from budgets
submitted by Loan Parties pursuant to Section 9.12 and a discussion and analysis
by management with respect to such variances.

9.14 Notice of Governmental Body Items.

Furnish the Lender with prompt (and, in any event, not more than five
(5) Business Days) notice of (a) any lapse or other termination of any Consent
issued to any Loan Party or any Subsidiary of any Loan Party by any Governmental
Body or any other Person that is material to the operation of any Loan Party’s
or such Subsidiaries’ business, (b) any refusal by any Governmental Body or any
other Person to renew or extend any such Consent; and (c) copies of any periodic
or special reports filed by any Loan Party or any Subsidiary of any Loan Party
with any Governmental Body or Person, if such reports indicate any material
change in the business, operations, affairs or condition of any Loan Party or
any such Subsidiary, or if copies thereof are requested by the Lender,
(d) copies of any material notices and other communications from any
Governmental Body or Person which specifically relate to any Loan Party or any
Subsidiary of any Loan Party and (e) any federal, state, local or other income
tax return of any Loan Party or Subsidiary that has been filed becoming the
subject of an audit.

 

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9.15 ERISA Notices and Requests.

Furnish the Lender with immediate written notice in the event that (a) any Loan
Party, any Subsidiary of any Loan Party or any member of the Controlled Group
knows or has reason to know that a Termination Event has occurred, together with
a written statement describing such Termination Event and the action, if any,
which such Loan Party, such Subsidiary of any Loan Party or member of the
Controlled Group has taken, is taking, or proposes to take with respect thereto
and, when known, any action taken or threatened by the IRS, Department of Labor
or PBGC with respect thereto, (b) any Loan Party, any Subsidiary of any Loan
Party or any member of the Controlled Group knows or has reason to know that a
prohibited transaction (as defined in Sections 406 of ERISA and 4975 of the
Code) has occurred, together with a written statement describing such
transaction and the action which such Loan Party, such Subsidiary of any Loan
Party or any member of the Controlled Group has taken, is taking or proposes to
take with respect thereto, (c) a funding waiver request has been filed with
respect to any Title IV Plan together with all communications received by any
Loan Party, any Subsidiary of any Loan Party or any member of the Controlled
Group with respect to such request, (d) any increase in the benefits of any
existing Title IV Plan or the establishment of any new Title IV Plan or the
commencement of contributions to any Title IV Plan to which any Loan Party, any
Subsidiary of any Loan Party or any member of the Controlled Group was not
previously contributing shall occur, (e) any Loan Party, any Subsidiary of any
Loan Party or any member of the Controlled Group shall receive from the PBGC a
notice of intention to terminate a Title IV Plan or to have a trustee appointed
to administer a Title IV Plan, together with copies of each such notice, (f) any
Loan Party, any Subsidiary of any Loan Party or any member of the Controlled
Group shall receive any favorable or unfavorable determination letter from the
IRS regarding the qualification of a Title IV Plan, together with copies of each
such letter, (g) any Loan Party, any Subsidiary of any Loan Party or any member
of the Controlled Group shall receive a notice regarding the imposition of
withdrawal liability, together with copies of each such notice, (h) any Loan
Party, any Subsidiary of any Loan Party or any member of the Controlled Group
shall fail to make a required installment or any other required payment under
Section 412 of the Code on or before the due date for such installment or
payment, or (i) any Loan Party, any Subsidiary of any Loan Party or any member
of the Controlled Group knows that a (i) Multiemployer Plan has been terminated,
(ii) the administrator or plan sponsor of a Multiemployer Plan intends to
terminate a Multiemployer Plan, or (iii) the PBGC has instituted or will
institute proceedings under Section 4042 of ERISA to terminate a Multiemployer
Plan.

9.16 Notice of Change in Management, Etc.

Furnish the Lender with prompt (and, in any event, not more than five
(5) Business Days) notice of any person becoming after the date hereof an
officer, director or member of the senior management of any Loan Party.

 

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9.17 Additional Documents.

Execute and deliver to the Lender, upon request, such documents and agreements
as the Lender may, from time to time, request in its Permitted Discretion from
any Loan Party to carry out the purposes, terms or conditions of this Agreement
and the Other Documents.

10. EVENTS OF DEFAULT.

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

10.1 Failure by any Loan Party to pay (a) the principal or interest payment when
due and payable, and (b) any other Obligations within three (3) days of when
such Obligations are due and payable, whether at maturity or by reason of
acceleration pursuant to the terms of this Agreement or any Other Document;

10.2 Failure by Loan Parties to perform, keep or observe:

(a) any provision of Sections 4.9, 4.10, 4.14(h), 6.4, 7, 9.5(a), 9.7 or 9.9;

(b) any provision of Sections 4.2, 9.2 (other than Sections specified in the
foregoing clause (a)), 9.4, 9.5, 9.12 or 9.13, which is not cured within five
(5) days after the date thereof; provided, that, such five (5) day period shall
not apply in the case of any failure to observe any such provision which is not
capable of being cured at all;

(c) any other provision of this Agreement or any provision of any Other Document
(to the extent such breach is not otherwise embodied in any other provision of
this Section 10 for which a different grace or cure period is specified or which
constitute an immediate Event of Default under this Agreement or the Other
Documents), which is not cured within thirty (30) days after the date thereof;
provided, that, such thirty (30) day period shall not apply in the case of any
failure to observe any such provision which is not capable of being cured at
all;

10.3 Any representation or warranty made or deemed made by any Loan Party in
this Agreement or any Other Document or in any certificate, document or
financial or other statement furnished at any time in connection herewith or
therewith shall prove to have been misleading in any material respect (without
duplication of any materiality qualifiers already set forth herein) on the date
when made or deemed to have been made;

10.4 Except for Permitted Encumbrances, issuance of a notice of Lien, levy,
assessment, injunction or attachment against a material portion of any Loan
Party’s or any Subsidiary of any Loan Party’s property which is not stayed or
bonded pending appeal or lifted within thirty (30) days;

10.5 Any judgment or judgments for payment of money are rendered or judgment
Liens for payment of money filed against one or more Loan Parties or
Subsidiaries of Loan Parties for an amount, individually or in the aggregate (to
the extent not covered by independent third party insurance where the insurer
has not denied or disputed coverage in writing), in excess of $1,000,000, which
within thirty (30) days of such rendering or filing is not either satisfied,
stayed or discharged of record; or any action is taken to enforce any Lien over
the assets of any Loan Party (or any analogous procedure or step is taken in any
jurisdiction) for an amount, individually or in the aggregate, in excess of
$1,000,000;

 

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10.6 Any Loan Party or any Subsidiary of any Loan Party shall (a) apply for,
consent to or suffer the appointment of, or the taking of possession by, a
receiver, custodian, trustee, liquidator or similar fiduciary of itself or of
all or a substantial part of its property, (b) admit in writing its inability,
or be generally unable, to pay its debts as they become due or cease operations
of its present business, (c) make a general assignment for the benefit of
creditors, (d) commence a voluntary case under any state, federal or other
bankruptcy laws (as now or hereafter in effect), (e) be adjudicated a bankrupt
or insolvent, (f) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (g) acquiesce to, or fail to have
dismissed, within forty-five (45) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (h) take any action for the
purpose of effecting any of the foregoing;

10.7 Any Lien created hereunder or provided for hereby or under any Other
Document in any Collateral having a value in excess of $750,000 for any reason
ceases to be or is not a valid and perfected Lien having a first priority
interest (except with respect to the Revolving Loan Priority Collateral (subject
to the Intercreditor Agreement) and except for Permitted Encumbrances and as
otherwise expressly permitted herein);

10.8 Any default under (a) any of the Revolving Loan Documents, which default
continues for more than the applicable cure period, if any, with respect
thereto, or (b) any other documents, instruments or agreements to which any Loan
Party, any Subsidiary or any Loan Party is a party or by which any of its
properties is bound, relating to any Indebtedness (other than the Obligations)
individually or in aggregate in excess of $500,000, which default continues for
more than the applicable cure period, if any, with respect thereto;

10.9 Any of the Obligations for any reason shall cease to be permitted debt
under the Revolving Loan Documents;

10.10 Any Change of Control shall occur;

10.11 Any material provision hereof or of any of the Other Documents (other than
provisions relating to the creation, validity or perfection of a Lien) shall for
any reason cease to be valid, binding and enforceable with respect to any Loan
Party hereto or thereto in accordance with its terms, or any such Loan Party
shall challenge the enforceability hereof or thereof, or shall assert in
writing, or take any action or fail to take any action based on the assertion
that any material provision hereof or of any of the Other Documents (other than
provisions relating to the creation, validity or perfection of a Lien) has
ceased to be or is otherwise not valid, binding or enforceable in accordance
with its terms;

10.12 The indictment by any Governmental Body of any Loan Party or any
Subsidiary of any Loan Party of which any Loan Party, such Subsidiary or the
Lender receives notice, in either case, as to which there is a reasonable
possibility of an adverse determination, in the good faith determination of the
Lender, under any criminal statute, or commencement or threatened commencement
of criminal proceedings against such Loan Party or such Subsidiary, pursuant to
which criminal statute or proceedings the penalties or remedies sought or
available include forfeiture of (a) any of the Collateral having a value in
excess of $500,000 or (b) any other property of any Borrower, or of Loan Parties
and their Subsidiaries taken as a whole, which is necessary or material to the
conduct of any Borrower’s business or Loan Parties and their Subsidiaries taken
as a whole;

 

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10.13 Any material portion of the Collateral shall be seized or taken by a
Governmental Body, or any Loan Party or the title and rights of any Loan Party
in and to any material portion of the Collateral shall have become the subject
matter of litigation which might, in the opinion of the Lender, upon final
determination, result in impairment or loss of the security provided by this
Agreement or the Other Documents;

10.14 The operations of any Loan Party’s or any Subsidiary’s facilities is
interrupted in any material respect by virtue of any determination, ruling,
decision, decree or order of any court or Governmental Authority of competent
jurisdiction, and such interruption could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect;

10.15 An event or condition specified in Section 7.16 or Section 9.15 shall
occur or exist with respect to any Plan and, as a result of such event or
condition, together with all other such events or conditions, any Loan Party or
any member of the Controlled Group shall incur a liability to a Plan or the PBGC
(or both) in excess of $500,000; or

10.17 Any Business Reduction Event shall occur.

11. LENDER’S RIGHTS AND REMEDIES AFTER EVENT OF DEFAULT.

11.1 Rights and Remedies.

(a) Upon the occurrence of (i) an Event of Default pursuant to Section 10.6, all
Obligations shall be immediately due and payable and this Agreement shall be
deemed terminated, and (ii) any of the other Events of Default and at any time
thereafter, the Lender may declare that all or any portion of the Obligations
shall be immediately due and payable and the Lender shall have the right to
terminate this Agreement. Upon the occurrence and during the continuance of any
Event of Default, the Lender shall have the right to exercise any and all other
rights and remedies provided for herein, under the UCC, the PPSA and at law or
equity generally, including, without limitation, the right to foreclose the
Liens granted herein and in the Other Documents and to realize upon any
Collateral by any available judicial procedure and/or to take possession of and
sell any or all of the Collateral with or without judicial process. The Lender
may enter any Loan Party’s premises or other premises without legal process and
without incurring liability to any Loan Party therefor, and the Lender may
thereupon, or at any time thereafter, in its discretion, without notice or
demand, take the Collateral and remove the same to such place as the Lender may
deem advisable and the Lender may require Loan Parties to make the Collateral
available to the Lender at a convenient place. With or without having the
Collateral at the time or place of sale, the Lender may sell the Collateral, or
any part thereof, at public or private sale, at any time or place, in one or
more sales, at such price or prices, and upon such terms, either for cash,
credit or future delivery, as the Lender may elect. Except as to that part of
the Collateral which is perishable or threatens to decline speedily in value or
is of a type customarily sold on a recognized market, the Lender shall give Loan
Parties reasonable notification of such sale or sales, it being agreed that in
all events written notice mailed to Loan Parties at least ten (10) days prior to
such sale or sales is reasonable notification. At any public sale the Lender may
bid for and become the purchaser, and the Lender or any other purchaser at any
such sale thereafter shall hold the Collateral sold absolutely free from any
claim or right of whatsoever kind, including any equity of redemption and such
right and equity are hereby expressly waived and released by each Loan Party.
The Lender may specifically disclaim any warranties of title or the like at any
sale of Collateral. In connection with the exercise of the foregoing remedies,
the Lender shall have the right to use all of each Loan Party’s Intellectual
Property and other proprietary rights (subject to any licenses and other usage
rights therein granted in favor of other Persons) which are used in connection
with (A) Inventory for the purpose of disposing of such Inventory and
(B) Equipment for the purpose of completing the manufacture of unfinished goods,
in each case without any obligation to compensate any Loan Party therefor.

 

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(b) The Lender may seek the appointment of a receiver, interim receiver, manager
or receiver and manager (a “Receiver”) under the laws of Canada or any province
thereof to take possession of all or any portion of the Collateral of Canadian
Guarantor or to operate same and, to the maximum extent permitted by law, may
seek the appointment of such a Receiver without the requirement of prior notice
or a hearing. Any such Receiver shall, to the extent permitted by law, so far as
concerns responsibility for his/her acts, be deemed agent of Canadian Guarantor
and not the Lender, and the Lender shall not be in any way responsible for any
misconduct, negligence or non-feasance on the part of any such Receiver, his/her
servants or employees, absent the gross negligence or willful misconduct of the
Lender as determined pursuant to a final, non-appealable order of a court of
competent jurisdiction. Subject to the provisions of the instrument appointing
him/her, any such Receiver shall have power to take possession of Collateral of
Canadian Guarantor, to preserve Collateral of Canadian Guarantor or its value,
to carry on or concur in carrying on all or any part of the business of such
Loan Party and to sell, lease, license or otherwise dispose of or concur in
selling, leasing, licensing or otherwise disposing of Collateral of Canadian
Guarantor. To facilitate the foregoing powers, any such Receiver may, to the
exclusion of all others, including Canadian Guarantor, enter upon, use and
occupy all premises owned or occupied by Canadian Guarantor wherein Collateral
of Canadian Guarantor may be situated, maintain Collateral of Canadian Guarantor
upon such premises, borrow money on a secured or unsecured basis and use
Collateral of Canadian Guarantor directly in carrying on Canadian Guarantor’s
business or as security for loans or advances to enable the Receiver to carry on
Canadian Guarantor’s business or otherwise, as such Receiver shall, in its
discretion, determine. Except as may be otherwise directed by the Lender, all
money received from time to time by such Receiver in carrying out his/her
appointment shall be received in trust for and paid over to the Lender. Every
such Receiver may, in the discretion of the Lender, be vested with all or any of
the rights and powers of the Lender. The Lender may, either directly or through
its nominees, exercise any or all powers and rights given to a Receiver by
virtue of the foregoing provisions of this paragraph.

(c) The Lender may execute any of its rights and remedies under this Agreement
by or through agents, employees or attorneys-in-fact and shall be entitled to
advice of counsel and other consultants or experts concerning all matters
pertaining to such rights and remedies. The Lender shall not be responsible for
the negligence or misconduct of any agents or attorneys-in-fact selected by the
Lender with reasonable care absent the gross (not mere) negligence or willful
misconduct of the Agent or the Lenders as determined pursuant to a final,
non-appealable order of a court of competent jurisdiction. The Lender may also
from time to time, when the Lender deems it to be necessary or desirable,
appoint one or more trustees, co-trustees, collateral co-agents, collateral
subagents or attorneys-in-fact (each, a “Subagent”) with respect to all or any
part of the Collateral of the Canadian Guarantor; provided, that, no such
Subagent shall be authorized to take any action with respect to any such
Collateral unless and except to the extent expressly authorized in writing by
the Lender. Should any instrument in writing from the Lender be required by any
Subagent so appointed by the Lender to more fully or certainly vest in and
confirm to such Subagent such rights, powers, privileges and duties, the
Canadian Guarantor shall execute, acknowledge and deliver any and all such
instruments promptly upon request by the Lender. If any Subagent, or successor
thereto, shall die, become incapable of acting, resign or be removed, all
rights, powers, privileges and duties of such Subagent, to the extent permitted
by law, shall automatically vest in and be exercised by the Lender until the
appointment of a new Subagent. The Lender shall not be responsible for the
negligence or misconduct of any agent, attorney-in-fact or Subagent that it
selects in accordance with the foregoing provisions of this Section in the
absence of the Lender’s gross (not mere) negligence or willful misconduct as
determined pursuant to a final, non-appealable order of a court of competent
jurisdiction (but such agent, attorney-in-fact or Subagent may be responsible
for their own gross (not mere) negligence or willful misconduct as determined
pursuant to a final, non-appealable order of a court of competent jurisdiction).

 

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11.2 Waterfall.

(a) At any time that a Waterfall Event has occurred and is continuing, all
payments remitted to the Lender and all proceeds of Collateral received by the
Lender shall be applied to the Obligations as follows: first, to the Obligations
consisting of costs and expenses (including attorneys’ fees and expenses)
incurred by the Lender in connection with this Agreement or any Other Document;
second, to interest due to the Lender upon the Term Loan and to the Obligations
consisting of costs and expenses (including attorneys’ fees and expenses)
incurred by the Lender in connection with this Agreement or any Other Document
until paid in full; third, to fees due to the Lender, if any, in connection with
this Agreement or any Other Document until paid in full; fourth, to the
principal of the Term Loan made by the Lender until paid in full; and fifth, pro
rata to any other Obligations until paid in full.

(b) If any deficiency shall arise, Loan Parties shall remain liable to the
Lender therefor. If it is determined by an authority of competent jurisdiction
that a disposition by the Lender did not occur in a commercially reasonably
manner, the Lender may obtain a deficiency judgment for the difference between
the amount of the Obligation and the amount that a commercially reasonable sale
would have yielded. The Lender will not be considered to have offered to retain
the Collateral in satisfaction of the Obligations unless the Lender has entered
into a written agreement with Loan Party to that effect.

11.3 Lender’s Discretion.

The Lender shall have the right in its Permitted Discretion to determine which
rights, Liens or remedies the Lender may at any time pursue, relinquish,
subordinate, or modify or to take any other action with respect thereto and such
determination will not in any way modify or affect any of the Lender’s rights
hereunder.

11.4 Setoff.

In addition to any other rights and remedies which the Lender may have under
applicable law, this Agreement or any Other Document, upon the occurrence and
during the continuance of an Event of Default hereunder, the Lender and its
Affiliates shall have a right to setoff and apply any Loan Party’s property held
by the Lender or such Affiliate to reduce the Obligations, all without notice to
Loan Parties.

 

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11.5 Rights and Remedies not Exclusive.

The enumeration of the foregoing rights and remedies is not intended to be
exhaustive and the exercise of any right or remedy shall not preclude the
exercise of any other right or remedies provided for herein or otherwise
provided by law, all of which shall be cumulative and not alternative.

11.6 Commercial Reasonableness.

To the extent that applicable law imposes duties on the Lender to exercise
remedies in a commercially reasonable manner (which duties cannot be waived
under such law), each Loan Party acknowledges and agrees that it is not
commercially unreasonable for the Lender (a) to fail to incur expenses
reasonably deemed necessary or appropriate by the Lender to prepare Collateral
for disposition or otherwise to complete raw material or work in process into
finished goods or other finished products for disposition, (b) to fail to obtain
third party consents for access to Collateral to be disposed of, or to obtain
or, if not required by other law, to fail to obtain consents of any Governmental
Body or other third party for the collection or disposition of Collateral to be
collected or disposed of, (c) to fail to exercise collection remedies against
account debtors, secondary obligors or other Persons obligated on Collateral or
to remove Liens or encumbrances on or any adverse claims against Collateral,
(d) to exercise collection remedies against account debtors and other Persons
obligated on Collateral directly or through the use of collection agencies and
other collection specialists, (e) to advertise dispositions of Collateral
through publications or media of general circulation, whether or not the
Collateral is of a specialized nature, (f) to contact other Persons, whether or
not in the same business as any Loan Party, for expressions of interest in
acquiring all or any portion of the Collateral, (g) to hire one or more
professional auctioneers to assist in the disposition of Collateral, whether or
not the collateral is of a specialized nature, (h) to dispose of Collateral by
utilizing Internet sites that provide for the auction of assets of the types
included in the Collateral or that have the reasonable capability of doing so,
or that match buyers and sellers of assets, (i) to dispose of assets in
wholesale rather than retail markets, (j) to disclaim disposition warranties,
(k) to purchase insurance or credit enhancements to insure the Lender against
risks of loss, collection or disposition of Collateral or to provide to the
Lender a guaranteed return from the collection or disposition of Collateral, or
(l) to the extent deemed appropriate by the Lender, to obtain the services of
other brokers, investment bankers, consultants and other professionals to assist
the Lender in the collection or disposition of any of the Collateral. Each Loan
Party acknowledges that the purpose of this Section is to provide non-exhaustive
indications of what actions or omissions by the Lender would not be commercially
unreasonable in the exercise by the Lender of remedies against the Collateral
and that other actions or omissions by the Lender shall not be deemed
commercially unreasonable solely on account of not being indicated in this
Section. Without limitation of the foregoing, nothing contained in this Section
shall be construed to grant any rights to any Loan Party or to impose any duties
on the Lender that would not have been granted or imposed by this Agreement or
by applicable law in the absence of this Section.

 

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12. WAIVERS AND JUDICIAL PROCEEDINGS.

12.1 Waiver of Notice.

Each Loan Party hereby waives notice of non-payment of any of the Receivables,
demand, presentment, protest and notice thereof with respect to any and all
instruments, notice of acceptance hereof, notice of loans or advances made,
credit extended, Collateral received or delivered, or any other action taken in
reliance hereon, and all other demands and notices of any description, except
such as are expressly provided for herein or as otherwise by law.

12.2 Delay.

No delay or omission on the Lender’s part in exercising any right, remedy or
option shall operate as a waiver of such or any other right, remedy or option or
of any Default or Event of Default.

12.3 Jury Waiver.

EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY
OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT
OR ANY OTHER DOCUMENT, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL
TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER DOCUMENT, OR THE TRANSACTIONS RELATED HERETO OR THERETO
IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR
A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

12.4 Waiver of Counterclaims.

Each Loan Party waives all rights to interpose any claims, deductions, setoffs
or counterclaims of any nature (other then compulsory counterclaims) in any
action or proceeding with respect to this Agreement, the Obligations, the
Collateral or any matter arising therefrom or relating hereto or thereto.

13. EFFECTIVE DATE AND TERMINATION.

13.1 Term.

This Agreement, which shall inure to the benefit of and shall be binding upon
the respective successors and permitted assigns of each Loan Party and the
Lender, shall become effective on the date hereof and shall continue in full
force and effect until the earliest of (a) April 30, 2016 (the “Original Term”),
(b) the acceleration of all Obligations pursuant to the terms of this Agreement
or (c) the date on which this Agreement shall be terminated in accordance with
the provisions hereof or by operation of law (the “Termination Date”).

 

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13.2 Termination.

The termination of the Agreement shall not affect any Loan Party’s or the
Lender’s rights, or any of the Obligations arising or incurred prior to the
effective date of such termination, and each of the provisions of this Agreement
and of the Other Documents shall continue to be fully operative until all of the
Obligations have been Paid in Full. The Liens and rights granted to the Lender
hereunder and the financing statements filed hereunder shall continue in full
force and effect, notwithstanding the termination of this Agreement or the fact
that the Borrowers’ Account may from time to time be temporarily in a zero or
credit position, until all of the Obligations have been Paid in Full.
Accordingly, each Loan Party waives any rights which it may have under
Section 9-513 of the UCC to demand the filing of termination statements with
respect to the Collateral, and the Lender shall not be required to send such
termination statements to each Loan Party, or to file them with any filing
office, until all of the Obligations have been Paid in Full. All
representations, warranties, covenants, waivers and agreements contained herein
and in the Other Documents shall survive termination hereof until all of the
Obligations have been Paid in Full.

14. RESERVED.

15. GUARANTEE.

15.1 Guarantee; Contribution Rights.

Each Guarantor hereby unconditionally guarantees, as a primary obligor and not
merely as a surety, jointly and severally with each other Guarantor when and as
due, whether at maturity, by acceleration, by notice of prepayment or otherwise,
the due (whether at the stated maturity, by acceleration or otherwise) and
punctual performance of all Obligations. Each payment made by any Guarantor
pursuant to this Guarantee shall be made in lawful money of the United States in
immediately available funds without offset, counterclaim or deduction of any
kind.

Anything herein this Section 15 to the contrary notwithstanding, the maximum
liability of each Guarantor this Section 15 shall in no event exceed the amount
which can be guaranteed by such Guarantor under applicable federal and state
laws relating to the insolvency of debtors (after giving effect to the right of
contribution established in the following paragraph). It being understood that
no amendments or other modifications to any of the Loan Documents need to be
made to implement the provisions of this paragraph and instead the
implementation of the provisions of this paragraph shall occur automatically.

Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid
more than its proportionate share of any payment made hereunder, such Guarantor
shall be entitled to seek and receive contribution from and against any other
Guarantor hereunder which has not paid its proportionate share of such payment.
Each Guarantor’s right of contribution shall be subject to the terms and
conditions of Section 15.9(d). The provisions of this paragraph shall in no
respect limit the obligations and liabilities of any Guarantor to the Lender,
and each Guarantor shall remain liable to the Lender for the full amount
guaranteed by such Guarantor hereunder.

 

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15.2 Waivers.

Each Guarantor hereby absolutely, unconditionally and irrevocably waives
(a) promptness, diligence, notice of acceptance, notice of presentment of
payment and any other notice hereunder, (b) demand of payment, protest, notice
of dishonor or nonpayment, notice of the present and future amount of the
Obligations and any other notice with respect to the Obligations, (c) any
requirement that the Lender protect, secure, perfect or insure any Lien or any
property subject thereto or exhaust any right or take any action against any
other Loan Party, or any Person or any Collateral, (d) any other action, event
or precondition to the enforcement hereof or the performance by each such
Guarantor of the Obligations, (e) any defense arising by any lack of capacity or
authority or any other defense of any Loan Party or any notice, demand or
defense by reason of cessation from any cause of Obligations other than Payment
in Full of all of the Obligations, (f) any defense that any other guarantee or
security was or was to be obtained by the Lender, and (g) any other defense.

15.3 No Defense.

No invalidity, irregularity, voidableness, voidness or unenforceability of this
Agreement or any Other Document or any other agreement or instrument relating
thereto, or of all or any part of the Obligations or of any collateral security
therefor shall affect, impair or be a defense hereunder.

15.4 Guarantee of Payment.

The Guarantee hereunder is one of payment and performance, not collection, and
the obligations of each Guarantor hereunder are independent of the Obligations
of the other Loan Parties, and a separate action or actions may be brought and
prosecuted against any Guarantor to enforce the terms and conditions of this
Section 15, irrespective of whether any action is brought against any other Loan
Party or other Persons or whether any other Loan Party or other Persons are
joined in any such action or actions. Each Guarantor waives any right to require
that any resort be had by the Lender to any security held for payment of the
Obligations or to any balance of any deposit account or credit on the books of
the Lender in favor of any Loan Party or any other Person. No election to
proceed in one form of action or proceedings, or against any Person, or on any
Obligations, shall constitute a waiver of the Lender’s right to proceed in any
other form of action or proceeding or against any other Person unless the Lender
has expressed any such right in writing. Without limiting the generality of the
foregoing, no action or proceeding by the Lender against any Loan Party under
any document evidencing or securing Indebtedness of any Loan Party to the Lender
shall diminish the liability of any Guarantor hereunder, except to the extent
the Lender receives actual payment on account of Obligations by such action or
proceeding, notwithstanding the effect of any such election, action or
proceeding upon the right of subrogation of any Guarantor in respect of any Loan
Party and/or otherwise.

15.5 Liabilities Absolute.

The liability of each Guarantor hereunder shall be absolute, unlimited and
unconditional and shall not be subject to any reduction, limitation, impairment,
discharge or termination for any reason, including, without limitation, any
claim of waiver, release, surrender, alteration or compromise, and shall not be
subject to any claim, defense or setoff, counterclaim, recoupment or termination
whatsoever by reason of the invalidity, illegality or unenforceability of any
Obligation or otherwise. Without limiting the generality of the foregoing, the
obligations of each Guarantor shall not be discharged or impaired, released,
limited or otherwise affected by:

 

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(a) any change in the manner, place or terms of payment or performance, and/or
any change or extension of the time of payment or performance of, release,
renewal or alteration of, or any new agreements relating to any Obligation, any
security therefor, or any liability incurred directly or indirectly in respect
thereof, or any rescission of, or amendment, waiver or other modification of, or
any consent to departure from, this Agreement or any Other Document, including
any increase in the Obligations resulting from the extension of additional
credit to the Borrowers or otherwise;

(b) any sale, exchange, release, surrender, loss, abandonment, realization upon
any property by whomsoever at any time pledged or mortgaged to secure, or
howsoever securing, all or any of the Obligations, and/or any offset there
against, or failure to perfect, or continue the perfection of, any Lien in any
such property, or delay in the perfection of any such Lien, or any amendment or
waiver of or consent to departure from any other guarantee for all or any of the
Obligations;

(c) the failure of the Lender to assert any claim or demand or to enforce any
right or remedy against the Borrowers or any other Loan Party or any other
Person under the provisions of this Agreement or any Other Document or any other
document or instrument executed and delivered in connection herewith or
therewith;

(d) any settlement or compromise of any Obligation, any security therefor or any
liability (including any of those hereunder) incurred directly or indirectly in
respect thereof or hereof, and any subordination of the payment of all or any
part thereof to the payment of any obligation (whether due or not) of any Loan
Party to creditors of any Loan Party other than any other Loan Party;

(e) any manner of application of Collateral, or proceeds thereof, to all or any
of the Obligations, or any manner of sale or other disposition of any Collateral
for all or any of the Obligations or any other assets of any Loan Party; and

(f) any other agreements or circumstance of any nature whatsoever that may or
might in any manner or to any extent vary the risk of any Guarantor, or that
might otherwise at law or in equity constitute a defense available to, or a
discharge of, the Guarantee hereunder and/or the obligations of any Guarantor,
or a defense to, or discharge of, any Loan Party or any other Person or party
hereto or the Obligations or otherwise with respect to the Term Loan or other
financial accommodations to the Borrowers pursuant to this Agreement and/or the
Other Documents or otherwise.

15.6 Waiver of Notice.

Except as otherwise contemplated hereunder, the Lender shall have the right to
do any of the above without notice to or the consent of any Guarantor and each
Guarantor expressly waives any right to notice of, consent to, knowledge of and
participation in any agreements relating to any of the above or any other
present or future event relating to Obligations whether under this Agreement or
otherwise or any right to challenge or question any of the above and waives any
defenses of such Guarantor which might arise as a result of such actions.

 

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15.7 Lender’s Discretion.

The Lender may at any time and from time to time (whether prior to or after the
revocation or termination of this Agreement) without the consent of, or notice
to, any Guarantor, and without incurring responsibility to any Guarantor or
impairing or releasing the Obligations, apply any sums by whomsoever paid or
howsoever realized to any Obligations regardless of what Obligations remain
unpaid.

15.8 Reinstatement.

The Guarantee provisions herein contained shall continue to be effective or be
reinstated, as the case may be, if claim is ever made upon the Lender for
repayment or recovery of any amount or amounts received by the Lender in payment
or on account of any of the Obligations and the Lender repays all or part of
said amount for any reason whatsoever, including, without limitation, by reason
of any judgment, decree or order of any court or administrative body having
jurisdiction over the Lender or the respective property of each, or any
settlement or compromise of any claim effected by the Lender with any such
claimant (including any Loan Party); and in such event each Guarantor hereby
agrees that any such judgment, decree, order, settlement or compromise or other
circumstances shall be binding upon such Guarantor, notwithstanding any
revocation hereof or the cancellation of any note or other instrument evidencing
any Obligation, and each Guarantor shall be and remain liable to the Lender for
the amount so repaid or recovered to the same extent as if such amount had never
originally been received by the Lender.

15.9 No Marshalling, Etc.

(a) The Lender shall not be required to marshal any assets in favor of any
Guarantor, or against or in payment of Obligations.

(b) No Guarantor shall be entitled to claim against any present or future
security held by the Lender from any Person for Obligations in priority to or
equally with any claim of the Lender, or assert any claim for any liability of
any Loan Party to any Guarantor in priority to or equally with claims of the
Lender for Obligations, and no Guarantor shall be entitled to compete with the
Lender with respect to, or to advance any equal or prior claim to any security
held by the Lender for Obligations.

(c) If any Loan Party makes any payment to the Lender, which payment is wholly
or partly subsequently invalidated, declared to be fraudulent or preferential,
set aside or required to be repaid to any Person under any federal or provincial
or other statute or at common law or under equitable principles, then to the
extent of such payment, the Obligation intended to be paid shall be revived and
continued in full force and effect as if the payment had not been made, and the
resulting revived Obligation shall continue to be guaranteed, uninterrupted, by
each Guarantor hereunder.

(d) All present and future monies payable by any Loan Party or any other
Guarantor to any Guarantor, whether arising out of a right of subrogation,
contribution or otherwise, are assigned to the Lender as security for such
Guarantor’s liability to the Lender hereunder and are postponed and subordinated
to the Lender’s prior right to Payment in Full of all of the Obligations. Except
to the extent prohibited otherwise by this Agreement, all monies received by any
Guarantor from any Loan Party shall be held by such Guarantor as agent and
trustee for the Lender. This assignment, postponement and subordination shall
only terminate when all of the Obligations are Paid in Full.

 

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(e) Each Loan Party acknowledges this assignment, postponement and subordination
and, except as otherwise set forth herein, agrees to make no payments to any
Guarantor without the prior written consent of the Lender. Each Loan Party
agrees to give full effect to the provisions hereof.

15.10 Action Upon Event of Default.

Upon the occurrence and during the continuance of any Event of Default, the
Lender may, without notice to or demand upon any Loan Party, any Guarantor or
any other Person, declare all or any portion of the Obligations of such
Guarantor hereunder immediately due and payable, and shall be entitled to
enforce the Obligations of each Guarantor. Upon such declaration by the Lender,
the Lender and any of its Affiliates are hereby authorized at any time and from
time to time to set off and apply any and all deposits (general or special, time
or demand, provisional or final) at any time held and other Indebtedness at any
time owing by the Lender to or for the credit or the account of any Guarantor
against any and all of the Obligations of each Guarantor now or hereafter
existing hereunder in accordance with the terms of this Agreement, whether or
not the Lender shall have made any demand hereunder against any other Loan Party
and although such Obligations may be contingent and unmatured. The rights of the
Lender hereunder are in addition to other rights and remedies (including other
rights of set-off) which the Lender may have. Upon such declaration by the
Lender, with respect to any claims (other than those claims referred to in the
immediately preceding paragraph) of any Guarantor against any Loan Party (the
“Claims”), the Lender shall have the full right on the part of the Lender in its
own name or in the name of such Guarantor to collect and enforce such Claims by
legal action, proof of debt in bankruptcy or other liquidation proceedings, vote
in any proceeding for the arrangement of debts at any time proposed, or
otherwise, the Lender and each of its officers being hereby irrevocably
constituted attorneys-in-fact for each Guarantor for the purpose of such
enforcement and for the purpose of endorsing in the name of each Guarantor any
instrument for the payment of money. Each Guarantor will receive as trustee for
the Lender and will pay to the Lender forthwith upon receipt thereof any amounts
which such Guarantor may receive from any Loan Party on account of the Claims.
Each Guarantor agrees that at no time hereafter will any of the Claims be
represented by any notes or other negotiable instruments or writings, except and
in such event they shall either be made payable to the Lender, or if payable to
any Guarantor, shall forthwith be endorsed by such Guarantor to the Lender. Each
Guarantor agrees that no payment on account of the Claims or any Lien therein
shall be created, received, accepted or retained during the continuance of any
Event of Default nor shall any financing statement be filed with respect thereto
by any Guarantor.

15.11 Statute of Limitations.

Any acknowledgment or new promise, whether by payment of principal or interest
or otherwise and whether by any Loan Party or others (including the Lender) with
respect to any of the Obligations shall, if the statute of limitations in favor
of any Guarantor against the Lender shall have commenced to run, toll the
running of such statute of limitations and, if the period of such statute of
limitations shall have expired, prevent the operation of such statute of
limitations.

 

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15.12 Interest.

All amounts due, owing and unpaid from time to time by any Guarantor hereunder
shall bear interest at the interest rate per annum then chargeable with respect
to the Term Loan.

15.13 Guarantor’s Investigation.

Each Guarantor acknowledges receipt of a copy of each of this Agreement and the
Other Documents. Each Guarantor has made an independent investigation of Loan
Parties and of the financial condition of Loan Parties. The Lender has not made,
and the Lender does not hereby make, (a) any representations or warranties as to
the income, expense, operation, finances or any other matter or thing affecting
any Loan Party, or (b) any representations or warranties as to the amount or
nature of the Obligations of any Loan Party to which this Section 15 applies as
specifically herein set forth. Neither the Lender nor any officer, agent or
employee of the Lender or any representative thereof, has made any other oral
representations, agreements or commitments of any kind or nature, and each
Guarantor hereby expressly acknowledges that no such representations or
warranties have been made and such Guarantor expressly disclaims reliance on any
such representations or warranties.

15.14 Termination of Guarantee.

Subject to reinstatement as provided in Section 15.8, the provisions of this
Section 15 shall remain in effect until all of Obligations have been Paid in
Full.

15.15 Extension of Guarantee.

Without prejudice to the generality of this Section 15, each Guarantor expressly
confirms that it intends that the guarantee provided in this Section 15 shall
extend from time to time to any (however fundamental) variation, increase,
extension or addition of or to any of the provisions of this Agreement or any
Other Document and/or any facility or amount made available hereunder or
thereunder.

15.16 Applicability to Borrowers.

Without limiting any of any Borrower’s obligations under this Agreement or any
Other Document, each Borrower shall also be considered a Guarantor for purposes
of this Section 15 to the extent such Borrower is not directly and primarily
obligated with respect to the Obligations.

 

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16. MISCELLANEOUS.

16.1 Governing Law; Consent to Jurisdiction; Etc.

This Agreement shall be governed by and construed in accordance with the laws of
the State of New York applied to contracts to be performed wholly within the
State of New York, without regard to conflicts of laws principles; provided,
that the exercise of any rights and remedies with respect to the Collateral of
the Canadian Guarantor shall be governed by and construed in accordance with the
laws of the Province of British Columbia and the federal laws of Canada
applicable thereto. Any judicial proceeding brought by or against any Loan Party
with respect to any of the Obligations, this Agreement or any Other Document may
be brought in any court of competent jurisdiction located in the County and
State of New York, United States of America, and, by execution and delivery of
this Agreement, each Loan Party accepts for itself and in connection with its
properties, generally and unconditionally, the non-exclusive jurisdiction of the
aforesaid courts, and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement. Each Loan Party hereby waives
personal service of any and all process upon it and consents that all such
service of process may be made by registered mail (return receipt requested)
directed to Administrative Borrower (on behalf of the Borrowers) at its address
set forth in Section 16.6 and service so made shall be deemed completed five
(5) days after the same shall have been so deposited in the mails of the United
States of America, or, at the Lender’s option, by service upon Administrative
Borrower (on behalf of the Borrowers) which each Loan Party irrevocably appoints
as such Loan Party’s agent for the purpose of accepting service within the State
of New York. Nothing herein shall affect the right to serve process in any
manner permitted by law or shall limit the right of the Lender to bring
proceedings against any Loan Party in the courts of any other jurisdiction. Each
Loan Party waives any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens. Any judicial
proceeding by any Loan Party against the Lender involving, directly or
indirectly, any matter or claim in any way arising out of, related to or
connected with this Agreement or any Other Document (except to the extent, if
any, expressly provided otherwise in any Other Document), shall be brought only
in a federal or state court located in the City of New York, State of New York.

16.2 Entire Understanding; Amendments.

(a) This Agreement and the Other Documents executed concurrently herewith or on
or after the Closing Date contain the entire understanding between each Loan
Party and the Lender and supersedes all prior agreements and understandings, if
any, relating to the subject matter hereof or thereof. Any promises,
representations, warranties or guarantees of the Lender to any Loan Party not
herein contained or not contained in any Other Document executed on or after the
Closing Date shall have no force and effect. Neither this Agreement nor any
portion or provisions hereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any course of
dealing, or in any manner other than by an agreement in writing pursuant to
clause (b) below. Any Default or Event of Default that occurs hereunder shall
continue unless and until expressly waived in writing pursuant to clause
(b) below. Each Loan Party acknowledges that it has been advised by counsel in
connection with the execution of this Agreement and Other Documents and is not
relying upon oral representations or statements inconsistent with the terms and
provisions of this Agreement.

(b) Neither any amendment, modification or waiver of any provision of this
Agreement, the Term Note, or any Other Document, nor any consent to any
departure by any Loan Party therefrom, shall in any event be effective unless
the same shall be set forth in writing duly signed or acknowledged by the Lender
and all parties to such Other Document, and then such amendment, waiver or
consent shall be effective only in the specific instance, and for the specific
purpose, for which given. No notice to or demand on any Loan Party in any
instance shall entitle any Loan Party to any other or future notice or demand in
the same, similar or other circumstances.

 

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16.3 Successors and Assigns; Participations; New Lenders; Taxes.

(a) This Agreement and the Other Documents shall be binding upon and inure to
the benefit of each Loan Party and the Lender, all future holders of the
Obligations and their respective successors and assigns; except, that, no Loan
Party may assign or transfer any of its rights or obligations under this
Agreement or any Other Document (other than pursuant to a merger or
consolidation of Loan Parties permitted hereunder) without the prior written
consent of the Lender.

(b) Anything in this Agreement or any Other Document to the contrary
notwithstanding, the Lender may, at any time and from time to time, without in
any manner affecting or impairing the validity of any Obligations, sell to one
or more Persons participating interests in its Term Loan and/or other interests
hereunder and/or under any Other Document (any such Person, a “Participant”). In
the event of a sale by the Lender of a participating interest to a Participant,
(a) the Lender’s obligations hereunder and under the Other Documents shall
remain unchanged for all purposes, (b) Loan Parties and the Lender shall
continue to deal solely and directly with each other in connection with the
Lender’s rights and obligations hereunder and under the Other Documents and
(c) all amounts payable by Loan Parties shall be determined as if the Lender had
not sold such participation and shall be paid directly to the Lender. Loan
Parties agree that if amounts outstanding under this Agreement or any Other
Document are due and payable (as a result of acceleration or otherwise), each
Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement and the other Loan
Documents to the same extent as if the amount of its participating interest were
owing directly to it as a Lender under this Agreement; provided that such right
of set-off shall not be exercised without the prior written consent of the
Lender and shall be subject to the obligation of each Participant to share with
the Lender its share thereof. Loan Parties also agree that each Participant
shall be entitled to the benefits of Section 2.13 below as if it were the
Lender. Notwithstanding the granting of any such participating interests:
(i) Loan Parties shall look solely to the Lender for all purposes of this
Agreement, the Other Documents and the transactions contemplated hereby,
(ii) Loan Parties shall at all times have the right to rely upon any waivers or
consents signed by the Lender as being binding upon all of the Participants, and
(iii) all communications in respect of this Agreement and such transactions
shall remain solely between Loan Parties and the Lender (exclusive of
Participants) hereunder. The Lender shall maintain, as a non-fiduciary agent of
the Borrowers, a register as to the participations granted and transferred under
this Section containing the same information specified in Section 16.3(d) on the
Register as if each Participant were a Lender.

(c) Anything in this Agreement or any Other Document to the contrary
notwithstanding, the Lender may, at any time and from time to time, without in
any manner affecting or impairing the validity of any Obligations, transfer and
assign all or any interests in its Term Loan and/or other interests hereunder
and/or under any Other Document to any Person (an “Assignee Lender”) as the
Lender may determine. Upon any such transfer or assignment, the Assignee Lender
shall be deemed to succeed (to the extent of the interest transferred or
assigned) to the rights and obligations of the Lender for all purposes of this
Agreement and the Other Documents, and in the case of a partial transfer or
assignment, the Loan Parties shall, and shall cause each Subsidiary to, execute,
acknowledge and deliver to the Lender and the Assignee Lender all amendments and
modifications to this Agreement and the Other Documents required by the Lender
and the Assignee Lender in connection therewith, including, without limitation,
to reflect a multi-lender credit facility, including, without limitation, to
institute inter-lender voting provisions, waterfall provisions, assignment
provisions, and agency provisions, in each in form and substance acceptable to
the Lender and the Assignee Lender. Notwithstanding any provision of this
Agreement or any Other Document to the contrary, the Lender may at any time
pledge or grant a security interest in all or any portion of its rights under
this Agreement and the Other Documents to secure obligations of the Lender,
including, without limitation, any pledge or grant to secure obligations to a
Federal Reserve Bank.

 

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(d) In respect of any negotiation, transfer or assignment of all or any portion
of the Lender’s interest in this Agreement, the Term Note and/or any Other
Documents at any time and from time to time, the following provisions shall be
applicable:

(i) The Administrative Borrower, or any agent appointed by the Administrative
Borrower, shall maintain a register (the “Register”) in which there shall be
recorded the name and address of each Person holding any Term Note hereunder,
and the principal amount and stated interest payable to such Person under such
Person’s Term Note. The Administrative Borrower hereby irrevocably appoints the
Lender (and/or any subsequent Lender appointed by the Lender then maintaining
the Register) as the Administrative Borrower’s non-fiduciary agent for the
purpose of maintaining the Register.

(ii) In connection with any negotiation, transfer or assignment as aforesaid,
the transferor/assignor shall deliver to the Lender then maintaining the
Register an assignment and assumption agreement executed by the
transferor/assignor and the transferee/assignee, setting forth the specifics of
the subject transaction, including but not limited to the amount and nature of
Obligations being transferred or assigned (and being assumed, as applicable),
and the proposed effective date of such transfer or assignment and the related
assumption (if applicable).

(iii) Subject to receipt of any required tax forms reasonably required by the
Lender, such Person shall record the subject transfer, assignment and assumption
in the Register. Anything contained in the Term Note or Other Document to the
contrary notwithstanding, no negotiation, transfer or assignment shall be
effective until it is recorded in the Register pursuant to this Section 16.3(d).
The entries in the Register shall be conclusive and binding for all purposes,
absent manifest error; and the Borrowers and each Lender shall treat each Person
whose name is recorded in the Register as a Lender hereunder for all purposes of
this Agreement. The Register shall be available for inspection by the Borrowers
and each Lender at any reasonable time and from time to time upon reasonable
prior notice.

(e) Loan Parties authorize the Lender to disclose to any Participant or Assignee
Lender and any prospective Participant or Assignee Lender (who agrees in writing
or through electronic media to treat the information as confidential and use it
solely in connection with a proposed transfer under this Section 16.3) any and
all financial and other information in the Lender’s possession concerning Loan
Parties which has been delivered to the Lender by or on behalf of Loan Parties
pursuant to this Agreement or in connection with the Lender’s credit evaluation
of Loan Parties.

 

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(f) Each Assignee Lender or Participant organized under the laws of a
jurisdiction outside the United States, and from time to time thereafter if
either requested by the Borrowers (or Administrative Borrower on behalf of the
Borrowers) or the Lender or upon the obsolescence or expiration of any
previously delivered form, shall provide the Lender and Administrative Borrower
(on behalf of the Borrowers) with (i) two (2) original executed copies of a
correct and completed IRS Form W-8BEN, W-8ECI, or W-8IMY (with appropriate
attachments), as appropriate, or any successor or other form prescribed by the
IRS, certifying that payments to such Assignee Lender or Participant are not
subject to United States federal withholding tax under the Code because such
payment is either effectively connected with the conduct by such Assignee Lender
or Participant of a trade or business in the United States or totally exempt
from United States federal withholding tax by reason of the application of an
income tax treaty to which the United States is a party or such Assignee Lender
or Participant is otherwise exempt, (ii) or to the extent permitted by law, each
such Assignee Lender or Participant may provide Administrative Borrower (on
behalf of the Borrowers) and the Lender with two original executed copies of IRS
Form W-8BEN, or any successor form prescribed by the IRS, certifying that such
Assignee Lender or Participant is exempt from United States federal withholding
tax pursuant to Section 871(h) or 881(c) of the Code, together with an annual
certificate stating that such Assignee Lender or Participant is not a “person”
described in Section 871(h)(3) or 881(c)(3) of the Code and (iii) a duly
completed and executed IRS Form W-8BEN or W 9, as appropriate, or any successor
or other form establishing an exemption from United States federal backup
withholding tax. Each such Assignee Lender or Participant further agrees to
complete and deliver to Administrative Borrower (on behalf of the Borrowers),
upon its request, such other forms or other documentation as may be appropriate
to minimize any withholding tax on payments pursuant to this Agreement under the
laws of any other jurisdiction unless such completion and delivery may in any
event be disadvantageous for such Assignee Lender or Participant. For purposes
of this subsection (f), the term “United States” shall have the meaning
specified in Section 7701 of the Code. Each Assignee Lender or Participant that
is a United States person, shall provide the Lender and Administrative Borrower
with two original executed IRS Form W-9s, certifying as to status for United
States federal back up withholding tax purposes.

(g) At the request of the Lender from time to time both before and after the
Closing Date, Loan Parties will assist the Lender in the syndication of the
credit facility provided pursuant to this Agreement and the Other Documents.
Such assistance shall include, but not be limited to (i) prompt assistance in
the preparation of an information memorandum and the verification of the
completeness and accuracy of the information and the reasonableness of the
projections contained therein, (ii) preparation of offering materials and
financial projections by Loan Parties and their advisors, (iii) providing the
Lender with all information reasonably deemed necessary by the Lender to
successfully complete the syndication, (iv) confirmation as to the accuracy and
completeness of such offering materials and information and confirmation that
management’s projections are based on assumptions believed by Loan Parties to be
reasonable at the time made, and (v) participation of Loan Parties’ senior
management in meetings and conference calls with potential lenders at such times
and places as the Lender may reasonably request.

(h) If a payment made to any Lender hereunder or under any Other Document would
be subject to withholding tax imposed by FATCA if such Lender fails to comply
with applicable reporting and other requirements of FATCA, such Lender shall
deliver to Administrative Borrower, at the time or times prescribed by
applicable law or as reasonably requested by Administrative Borrower, (i) two
(2) accurate, complete and signed certifications prescribed by applicable law or
reasonably satisfactory to Administrative Borrower that establish that such
payment is exempt from withholding tax imposed by FATCA and (ii) any other
documentation reasonably requested by Administrative Borrower sufficient for
Administrative Borrower to comply with its obligations under FATCA and to
determine that such Lender has complied with such applicable reporting and other
requirements of FATCA.

 

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16.4 Application of Payments.

The Lender shall have the continuing and exclusive right to apply or reverse and
re-apply any payment and any and all proceeds of Collateral to any portion of
the Obligations. To the extent that any Loan Party makes a payment or the Lender
receives any payment or proceeds of the Collateral for any Loan Party’s benefit,
which are subsequently invalidated, declared to be fraudulent or preferential,
set aside or required to be repaid to a trustee, debtor in possession, receiver,
custodian or any other party under any bankruptcy law, common law or equitable
cause, then, to such extent, the Obligations or part thereof intended to be
satisfied shall be revived and continue as if such payment or proceeds had not
been received by the Lender.

16.5 Indemnity/Currency Indemnity.

(a) Each Loan Party shall indemnify the Lender and each of its officers,
directors, Affiliates, employees, representatives and agents (each, an
“Indemnitee”) from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses and disbursements
of any kind or nature whatsoever (including, without limitation, fees and
disbursements of counsel) arising from any action, litigation, proceeding,
dispute or investigation which may be imposed on, incurred by, or asserted
against the Lender in any litigation, proceeding, dispute or investigation
instituted or conducted by any Governmental Body or any other Person with
respect to any aspect of, or any transaction contemplated by, or referred to in,
or any matter related to, this Agreement or the Other Documents, whether or not
the Lender is a party thereto; except, that, no Indemnitee shall be entitled to
indemnification hereunder to the extent that any of the foregoing arises out of
the gross (not mere) negligence or willful misconduct of such Indemnitee as
determined pursuant to a final, non-appealable order of a court of competent
jurisdiction. Upon learning of any matter described above for which any
Indemnitee may want to seek indemnity from any Loan Party, such Indemnitee shall
promptly notify Administrative Borrower of such matter; provided, that, the
failure to do so shall not in any manner limit, impair or affect Loan Parties’
indemnification obligations hereunder. Nothing contained herein or in any Other
Document shall prohibit any Loan Party from seeking contribution or indemnity
from any Person other than the Lender.

(b) If for the purposes of obtaining or enforcing judgment in any court in any
jurisdiction with respect to this Agreement or any Other Document, it becomes
necessary to convert into the currency of such jurisdiction (the “Judgment
Currency”) any amount due under this Agreement or under any Other Document in
any currency other than the Judgment Currency (the “Currency Due”) (including
any Currency Due for the purposes of Section 2.3) then, to the extent permitted
by law, conversion shall be made at the exchange rate selected by the Lender on
the Business Day before the day on which judgment is given (or for the purposes
of Section 2.3 on the Business Day on which the payment was received by the
Lender). In the event that there is a change in such exchange rate between the
Business Day before the day on which the judgment is given and the date of
receipt by the Lender of the amount due, Borrowers shall to the extent permitted
by law, on the date of receipt by the Lender, pay such additional amounts, if
any, or be entitled to receive reimbursement of such amount, if any, as may be
necessary to ensure that the amount received by the Lender on such date is the
amount in the Judgment Currency which (when converted at such exchange rate on
the date of receipt by the Lender in accordance with normal banking procedures
in the relevant jurisdiction) is the amount then due under this Agreement or
such Other Document in the Currency Due. If the amount of the Currency Due
(including any Currency Due for purposes of Section 2.3) which the Lender is so
able to purchase is less than the amount of the Currency Due (including any
Currency Due for purposes of Section 2.3) originally due to it, Borrowers shall
to the extent permitted by law jointly and severally indemnify and save the
Lender harmless from and against loss or damage arising as a result of such
deficiency.

 

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16.6 Notice.

Any notice or request required to be given hereunder to any Loan Party or to the
Lender shall be in writing (except as expressly provided herein) at their
respective addresses set forth below or at such other address as may hereafter
be specified in a notice designated as a notice of change of address under this
Section 16.6. Any notice or request required to be given hereunder shall be
given by (a) hand delivery, (b) overnight courier, (c) registered or certified
mail, return receipt requested, or (d) facsimile to the number set out below (or
such other number as may hereafter be specified in a notice designated as a
notice of change of address) with electronic confirmation of its receipt. Any
notice or request required to be given hereunder shall be deemed given on the
earlier of (i) actual receipt thereof, and (ii) (A) one Business Day following
posting thereof by a recognized overnight courier, (B) three (3) days following
posting thereof by registered or certified mail, return receipt requested, or
(C) upon the sending thereof when sent by facsimile with electronic confirmation
of its receipt, in each case addressed to each party at its address set forth
below or at such other address as has been furnished in writing by a party to
the other by like notice:

 

If to the Lender at:

  

Comvest Capital II, L.P.

525 Okeechobee Blvd., Suite 1050

West Palm Beach, Florida 33401

Attention:          Greg Reynolds

Telephone:        561-727-1830

Facsimile:          561-727-2100

 

with a copy to:

 

McDermott Will & Emery LLP

227 West Monroe Street

Suite 4400

Chicago, Illinois 60606

Attention:         Michael L. Boykins

Telephone:        (312) 984-7599

Facsimile:         (312) 277-7630

If to a Lender other than Comvest, as specified in the applicable assignment
agreement.

 

If to any Borrower or any Loan Party:

  

Primo Water Corporation

104 Cambridge Plaza Drive

Winston-Salem, North Carolina 27104

Attention:         Mark Castaneda

Telephone:        (336) 331-4047

Facsimile:         (336) 331-4247

 

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16.7 Survival.

The obligations of Loan Parties under Sections 2.13, 2.15, 16.5 and 16.10 shall
survive termination of this Agreement and the Other Documents and Payment in
Full of the Obligations.

16.8 Postponement of Subrogation, Etc. Rights.

Each Loan Party expressly agrees not to exercise, until Payment in Full of all
of the Obligations, any and all rights of subrogation, reimbursement, indemnity,
exoneration, contribution of any other claim which such Loan Party may now or
hereafter have against the other Loan Parties or other Person directly or
contingently liable for the Obligations hereunder, or against or with respect to
the other Loan Parties’ property (including, without limitation, any property
which is Collateral for the Obligations), arising from the existence or
performance of this Agreement.

16.9 Severability.

If any part of this Agreement is contrary to, prohibited by, or deemed invalid
under applicable laws or regulations, such provision shall be inapplicable and
deemed omitted to the extent so contrary, prohibited or invalid, but the
remainder hereof shall not be invalidated thereby and shall be given effect so
far as possible.

16.10 Expenses.

The Borrowers shall reimburse the Lender for all costs and expenses (including
without limitation, travel expenses) paid or incurred by the Lender in
connection with this Agreement and the Other Documents, including, without
limitation:

(a) reasonable attorneys’ fees and disbursements incurred by the Lender (i) in
all efforts made to enforce payment of any Obligations or collection of or other
realization upon any Collateral, (ii) in defending or prosecuting any actions or
proceedings arising out of or relating to this Agreement and the Other
Documents, (iii) in connection with the enforcement of this Agreement or any
Other Document, and (iv) in enforcing the Lender’s security interest in or Lien
on any of the Collateral, whether through judicial proceedings or otherwise;

(b) reasonable attorneys’ fees and expenses, fees and expenses of financial
accountants, advisors, consultants, appraisers and other professionals incurred
by the Lender and other costs and expenses incurred by the Lender (i) in
connection with the preparing, negotiating, entering into or performing this
Agreement and/or the Other Documents, any amendment, waiver, consent or other
modification with respect thereto and the administration, work-out or
enforcement of this Agreement and the Other Documents, (ii) in instituting,
maintaining, preserving and foreclosing on Liens on any of the Collateral,
whether through judicial proceedings or otherwise, (iii) in connection with any
advice given to the Lender with respect to its rights and obligations under this
Agreement and all Other Documents or (iv) that the Lender reasonably deems
necessary or appropriate for the performance and fulfillment of its functions,
powers, and obligations pursuant to this Agreement and the Other Documents; and

 

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(c) reasonable fees and disbursements incurred by the Lender in connection with
any appraisals of Inventory, Equipment or other Collateral, field examinations,
collateral analysis or monitoring or other business analysis conducted by
outside Persons in connection with this Agreement and the Other Documents (it
being understood that Borrowers shall not be responsible for more than (i) one
(1) appraisal of Inventory during such year unless an Event of Default has
occurred and is continuing, in which case Borrowers shall be responsible for
such appraisals of Inventory as the Lender may request; and (ii) two (2) field
examinations during such year unless an Event of Default has occurred and is
continuing, in which case Borrowers shall be responsible for such field
examinations as the Lender may request).

16.11 Injunctive Relief.

Each Loan Party recognizes that, in the event any Loan Party fails to perform,
observe or discharge any of its obligations or liabilities under this Agreement,
any remedy at law may prove to be inadequate relief to the Lender; therefore,
the Lender, if the Lender so requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
that actual damages are not an adequate remedy.

16.12 Consequential Damages.

None of the Lender, any Loan Party nor any agent or attorney for any of them,
shall be liable for special, punitive, exemplary, indirect or consequential
damages arising from any breach of contract, tort or other wrong relating to the
establishment, administration or collection of the Obligations.

16.13 Captions.

The captions at various places in this Agreement are intended for convenience
only and do not constitute and shall not be interpreted as part of this
Agreement.

16.14 Counterparts; Facsimile or Emailed Signatures.

This Agreement may be executed in any number of and by different parties hereto
on separate counterparts, all of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute one and the same agreement.
Any signature delivered by a party by facsimile or email transmission shall be
deemed to be an original signature hereto.

16.15 Construction.

The parties acknowledge that each party and its counsel have reviewed this
Agreement and that the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement or any amendments, schedules or exhibits
thereto.

 

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16.16 Confidentiality; Sharing Information.

(a) The Lender, each Assignee Lender and each Participant shall hold all
non-public information designated as confidential and obtained by the Lender,
such Assignee Lender or such Participant pursuant to the requirements of this
Agreement in accordance with the Lender’s, such Assignee Lender’s or such
Participant’s customary procedures for handling confidential information of this
nature; provided, however, that, the Lender, each Assignee Lender and each
Participant may disclose such confidential information (i) to its examiners,
affiliates, outside auditors, counsel and other professional advisors, (ii) to
the Lender or to any prospective Assignee Lender or Participant (who agrees in
writing or through electronic media to treat the information as confidential and
use it solely in connection with a proposed transfer under Section 16.3),
(iii) that ceases to be non-public information through no fault of the Lender,
and (iv) as required or requested by any Governmental Body or representative
thereof or pursuant to legal process; provided, further, that, (A) unless
specifically prohibited by applicable law or court order, the Lender, each
Assignee Lender and each Participant shall use reasonable efforts prior to
disclosure thereof, to notify Administrative Borrower (on behalf of the
Borrowers) of the applicable request for disclosure of such non-public
information (1) by a Governmental Body or representative thereof (other than any
such request in connection with an examination of the financial condition of the
Lender, any Assignee Lender or any Participant by such Governmental Body) or
(2) pursuant to legal process, and (B) in no event shall the Lender, any
Assignee Lender or any Participant be obligated to return any materials
furnished by any Loan Party other than those documents and instruments in
possession of the Lender, any Assignee Lender or any Participant constituting
possessory Collateral once all of the Obligations have been Paid in Full.

(b) Each Loan Party acknowledges that from time to time financial advisory,
investment banking and other services may be offered or provided to such Loan
Party or one or more of its Affiliates (in connection with this Agreement or
otherwise) by the Lender or by one or more Subsidiaries or Affiliates of the
Lender and each Loan Party hereby authorizes the Lender to share any information
delivered to the Lender by such Loan Party and its Subsidiaries pursuant to this
Agreement, or in connection with the decision of the Lender to enter into this
Agreement, to any such Subsidiary or Affiliate of the Lender, it being
understood that any such Subsidiary or Affiliate of the Lender receiving such
information shall be bound by the provision of this Section 16.16 as if it were
a Lender hereunder. Such authorization shall survive the repayment of the
Obligations and the termination of this Agreement.

16.17 Publicity.

The Lender shall not make any announcements of the financial arrangement entered
into among Loan Parties and the Lender, including, without limitation,
announcements which are commonly known as tombstones, unless the Administrative
Borrower provides its prior written consent. In addition, the Lender shall not
include, without the prior written consent of the Administrative Borrower, any
Loan Party’s name or logo in select transaction profiles and client testimonials
prepared by the Lender for use in publications, company brochures and other
marketing materials of the Lender. Subject to the Lender’s prior written
approval (which shall not be unreasonably withheld or delayed), Loan Parties
shall have the right to make appropriate announcements of the financial
arrangement entered into among Loan Parties and the Lender in such publications
and to such selected parties as Loan Parties deem appropriate; except, that,
Loan Parties shall have the right to make any disclosure required by law or by
applicable SEC regulations without any requirement to obtain prior written
approval.

 

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16.18 Patriot Act Notice.

The Lender, in accordance with the USA Patriot Act of 2001 (31 U.S.C. 5318 et
seq.), hereby notifies Loan Parties that, pursuant to Section 326 thereof, it is
required to obtain, verify and record information that identifies Loan Parties,
including the name and address of each Loan Party and other information allowing
the Lender to identify Loan Parties in accordance with such act.

16.19 Conflict with Intercreditor Agreement.

Each of the parties hereto acknowledge and agree that whenever (a) any term or
provision of this Agreement or any term or provision of any Other Document are
incapable of being performed or complied with if the Loan Parties are also
required to perform and comply with the terms and provisions of the Revolving
Loan Documents, and (b) such conflict is resolved pursuant to the terms and
provisions of the Intercreditor Agreement, the terms and provisions of the
Intercreditor Agreement shall govern and control, and the failure of the Loan
Parties to comply with the terms and provisions of this Agreement and the Other
Documents shall not constitute a breach of any such terms or provisions of this
Agreement and such Other Documents.

[SIGNATURE PAGES FOLLOW]

 

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

 

BORROWERS:

PRIMO WATER CORPORATION By:   /s/ Mark Castaneda  

 

Name:   Mark Castaneda Title:   Chief Financial Officer

PRIMO PRODUCTS, LLC

By:   /s/ Mark Castaneda  

 

Name:   Mark Castaneda Title:   Chief Financial Officer

PRIMO DIRECT, LLC

By:   /s/ Mark Castaneda  

 

Name:   Mark Castaneda Title:   Chief Financial Officer

PRIMO REFILL, LLC

By:   /s/ Mark Castaneda  

 

Name:   Mark Castaneda Title:   Chief Financial Officer

PRIMO ICE, LLC

By:   /s/ Mark Castaneda  

 

Name:   Mark Castaneda Title:   Chief Financial Officer

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GUARANTOR:

PRIMO REFILL CANADA CORPORATION

By:

  /s/ Mark Castaneda  

 

Name:

  Mark Castaneda

Title:

  Chief Financial Officer

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LENDER:

COMVEST CAPITAL II, L.P.,

as Lender

By:  

ComVest Capital II Partners, L.P., its General Partner

By:  

ComVest Capital II Partners UGP, LLC, its General Partner

By:   /s/ Greg Reynolds  

 

Name:    

 

Title: