EXECUTION COPY

LOAN AND SECURITY AGREEMENT

among

AIRGATE INTERNATIONAL CORPORATION

as Borrower,

the GUARANTORS from time to time party hereto

and

BHC INTERIM FUNDING II, L.P.

as Lender

Dated  as of July 17, 2007

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TABLE OF CONTENTS
 
 
 
 
Page
SECTION 1
DEFINITIONS
1
     
 
1.1
Certain Defined Terms
1
 
1.2
Accounting Terms
13
 
1.3
Other Definitional Provisions
13
       
SECTION 2
 
TERM LOAN AND COLLATERAL
13
       
 
2.1
Term Loan
13
       
 
2.2
Use of Proceeds
14
       
 
2.3
Interest.
14
 
 
(A)
Rate of Interest
14
 
 
(B)
Computation and Payment of Interest
14
 
 
(C)
Interest Laws
14
       
 
2.4
Fees.
15
       
 
 
(A)
Transaction Fee
15
 
 
(B)
Late Payment Fee
15
 
 
(C)
Late Monthly Payment Fee
15
 
 
(D)
Maintenance Fee
15
 
 
(E)
Unused Facility Fee
16
 
 
(F)
Other Fees and Expenses
16
       
 
2.5
Payments and Prepayments.
16
       
 
 
(A)
Manner and Time of Payment
16
 
 
(B)
Payments on Business Days
17
 
 
(C)
Voluntary Prepayment
17
 
 
(D)
Mandatory Repayment
17
       
 
2.6
Grant of Security Interest
17
       
 
2.7
Preservation of Collateral and Perfection of Security Interests Therein
18
       
 
2.8
Possession of Collateral and Related Matters
19
       
 
2.9
Limited License
19
       
 
2.10
Release of Security Interests
19
       
SECTION 3
CONDITIONS TO TERM LOAN
19
     
 
3.1
Conditions
19
 
 
(A)
Closing Deliveries
19
 
 
(B)
Security Interests
19
 
 
(C)
Representations and Warranties
20
 
 
(D)
Fees
20
 
 
(E)
No Default
20

 
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(F)
Performance of Agreements
20
 
 
(G)
No Prohibition
20
 
 
(H)
No Litigation
20
 
 
(I)
No Material Adverse Effect
20
       
 
3.2
Conditions to any Additional Tranche
20
       
 
 
(A)
Request for Additional Tranche
20
 
 
(B)
Delivery of Documents
20
 
 
(C)
Representations and Warranties
20
 
 
(D)
No Prohibition
21
 
 
(E)
No Default
21
 
 
(F)
No Litigation
21
     
SECTION 4
BORROWER’S REPRESENTATIONS AND WARRANTIES
21
     
 
4.1
Organization, Powers, Capitalization.
21
 
 
(A)
Organization and Powers
21
 
 
(B)
Capitalization
21
       
 
4.2
Authorization of Borrowing; No Conflict
21
       
 
4.3
Financial Condition.
22
       
 
4.4
Indebtedness and Liabilities
22
       
 
4.5
Account Warranties
22
       
 
4.6
Names
23
       
 
4.7
Locations; FEIN
23
       
 
4.8
Title to Properties; Liens
23
       
 
4.9
Litigation; Adverse Facts
23
       
 
4.10
Payment of Taxes
23
       
 
4.11
Performance of Agreements
23
       
 
4.12
Employee Benefit Plans
24
       
 
4.13
Intellectual Property
24
       
 
4.14
Broker’s Fees
24
       
 
4.15
Environmental Compliance
24
       
 
4.16
Solvency
24
       
 
4.17
Disclosure
25
       
 
4.18
Insurance
25
       
 
4.19
Compliance with Laws
25
       
 
4.20
Bank Accounts
25
       
 
4.21
Subsidiaries
25
       
 
4.22
Employee Matters
25

 
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4.23
Governmental Regulation
26
       
 
4.24
Receivables and Payables
26
       
 
4.25
Trade Relations
26
       
 
4.26
Absence of Defaults
26
       
 
4.27
Loans to Shareholders, Directors, Officers or Affiliates
26
       
 
4.28
Projections
26
       
 
4.29
Surety Obligations
26
       
SECTION 5
AFFIRMATIVE COVENANTS
27
     
 
5.1
Financial Statements and Other Reports
27
 
 
(A)
Monthly Financials
27
 
 
(B)
Quarterly Financials
27
 
 
(C)
Year-End Financials
27
 
 
(D)
Accountants’ Certification and Reports
28
 
 
(E)
Management Report
28
 
 
(F)
Projections
29
 
 
(G)
Financial Statements for Alfred Lam
29
 
 
(H)
Revolving Advance Requests
29
 
 
(I)
Tax Returns
29
 
 
(J)
Government Notices
29
 
 
(K)
Events of Default, etc
29
 
 
(L)
Trade Names
30
 
 
(M)
Locations
30
 
 
(N)
Bank Accounts
30
 
 
(O)
Certified Public Accountants
30
 
 
(P)
Litigation
30
 
 
(Q)
Other Information
30
       
 
5.2
Access to Accountants
30
       
 
5.3
Inspection
31
       
 
5.4
Collateral Records
31
       
 
5.5
Account Covenants; Verification
31
       
 
5.6
Endorsement
31
       
 
5.7
Corporate Existence
31
       
 
5.8
Payment of Taxes
32
       
 
5.9
Maintenance of Properties; Insurance
32
       
 
5.10
Compliance with Laws
32
       
 
5.11
Further Assurances
32
       
 
5.12
Collateral Locations
32
       
 
5.13
Bailees
33

 
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5.14
Use of Proceeds and Margin Security
33
       
 
5.15
Observer and Other Rights
33
       
 
5.16
Revisions or Updates to Schedules
33
       
 
5.17
Accounting Methods and Financial Records
34
       
 
5.18
Life Insurance
34
       
 
5.19
Accuracy of Information
34
       
 
5.20
Notice of Management Changes
34
       
 
5.21
Landlord Waiver
34
       
 
5.22
Landlord and Storage Agreements
34
       
SECTION 6
NEGATIVE COVENANTS
34
     
 
6.1
Indebtedness and Liabilities
34
       
 
6.2
Guaranties
35
       
 
6.3
Transfers, Liens and Related Matters.
35
 
 
(A)
Transfers
35
 
 
(B)
Liens
35
 
 
(C)
No Pledge Restrictions
35
       
 
6.4
Restricted Payments
35
       
 
6.5
Restriction on Fundamental Changes
36
       
 
6.6
Transactions with Affiliates
36
       
 
6.7
Environmental Liabilities
36
       
 
6.8
Conduct of Business
36
       
 
6.9
Compliance with ERISA
36
       
 
6.10
Subsidiaries
37
       
 
6.11
Fiscal Year; Tax Consolidation
37
       
 
6.12
Press Release; Public Offering Materials
37
       
 
6.13
Bank Accounts
37
       
 
6.14
Charter Documents
37
       
 
6.15
No Impairment of Restricted Payments
38
       
 
6.16
Advances, Loans or Investments
38
       
 
6.17
Management or Consulting Fees
38
       
 
6.18
Financial Covenants
38
 
 
(A)
Aggregate Indebtedness
38
 
 
(B)
Fixed Charge Coverage Ratio
38
 
 
(C)
Capital Expenditures
38
 
 
(D)
Current Ratio
38

 
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(E)
EBITDA
38
       
 
6.19
Executive Compensation
40
       
 
6.20
Certain Payments
40
       
 
6.21
Amendments to Subordinated Debt
40
       
SECTION 7
DEFAULT, RIGHTS AND REMEDIES
40
     
 
7.1
Event of Default
40
 
 
(A)
Payment
40
 
 
(B)
Default in Other Agreements
40
 
 
(C)
Breach of Certain Provisions
41
 
 
(D)
Breach of Representation or Warranty
41
 
 
(E)
Other Defaults Under Loan Documents
41
 
 
(F)
Involuntary Bankruptcy; Appointment of Receiver, etc
41
 
 
(G)
Voluntary Bankruptcy; Appointment of Receiver, etc
41
 
 
(H)
Liens
41
 
 
(I)
Judgment and Attachments
42
 
 
(J)
Dissolution
42
 
 
(K)
Solvency
42
 
 
(L)
Injunction
42
 
 
(M)
Invalidity of Loan Documents
42
 
 
(N)
Failure of Security
42
 
 
(O)
Licenses and Permits
42
 
 
(P)
Forfeiture
42
 
 
(Q)
Change of Control
42
 
 
(R)
Material Adverse Change
42
       
 
7.2
Acceleration
43
       
 
7.3
Remedies
43
       
 
7.4
Appointment of Attorney-in-Fact
43
       
 
7.5
Limitation on Duty of Lender with Respect to Collateral
44
       
 
7.6
Application of Proceeds
44
       
 
7.7
License of Intellectual Property
44
       
 
7.8
Waivers, Non-Exclusive Remedies
44
       
SECTION 8
MISCELLANEOUS
45
     
 
8.1
Assignments and Participations
45
       
 
8.2
Set Off
45
       
 
8.3
Expenses and Attorneys’ Fees
45
       
 
8.4
Indemnity
46
       
 
8.5
Amendments and Waivers
47
       
 
8.6
Notices
47

 
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8.7
Survival of Warranties and Certain Agreements.
48
       
 
8.8
Indulgence Not Waiver
48
       
 
8.9
Marshaling; Payments Set Aside
48
       
 
8.10
Entire Agreement
48
       
 
8.11
Independence of Covenants
48
       
 
8.12
Severability
49
       
 
8.13
Headings
49
       
 
8.14
APPLICABLE LAW
49
       
 
8.15
Successors and Assigns
49
       
 
8.16
No Fiduciary Relationship; Limitation of Liabilities.
49
 
 
(A)
No Fiduciary Relationship
49
 
 
(B)
Limitation of Liabilities
49
       
 
8.17
CONSENT TO JURISDICTION
49
       
 
8.18
WAIVER OF JURY TRIAL
50
       
 
8.19
Construction
50
       
 
8.20
Counterparts; Effectiveness
50
       
 
8.21
No Duty
50
       
 
8.22
Communications by Borrower to Lender
51
       
 
8.23
Confidentiality
51
       
 
8.24
Lender’s Disclosure
51
       
 
8.25
Affiliate Guarantor
51
       
 
8.26
Electronic Execution of Loan Documents
52

 
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Exhibits and Schedules
 

     
Exhibit A - Form of Subordination Agreement
   
Schedule 1.1(A) - Liens
Schedule 1.1(B) - Pro Forma
Schedule 3.1(A) - Closing Deliveries
Schedule 3.1(H) - Litigation
Schedule 4.1(B) - Capitalization
Schedule 4.6 - Names
Schedule 4.7 - Locations; FEIN
Schedule 4.9 - Litigation; Adverse Facts
Schedule 4.10 - Payment of Taxes
Schedule 4.11 - Performance of Agreements
Schedule 4.13 - Intellectual Property
Schedule 4.14 - Broker’s Fees
Schedule 4.15 - Environmental Compliance
Schedule 4.19 - Compliance with Laws
Schedule 4.20 - Bank Accounts
Schedule 4.21 - Subsidiaries
Schedule 4.22 - Employee Matters
Schedule 4.24 - Receivables and Payables
Schedule 4.25 - Trade Relations
Schedule 4.26 - Absence of Defaults
Schedule 4.27 - Loans to Insiders
Schedule 4.28 - Projections
Schedule 6.2 - Guaranties
Schedule 6.6 - Transactions with Affiliates
Schedule 6.19 - Executive Compensation
Schedule 7.1(R) - Material Adverse Change

 
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LOAN AND SECURITY AGREEMENT
 
This LOAN AND SECURITY AGREEMENT is dated as of July 17, 2007 and entered into
by and among AIRGATE INTERNATIONAL CORPORATION, a New York corporation, as
borrower (“Borrower”), the subsidiary guarantors from time to time party to this
Agreement (collectively, the “Subsidiary Guarantors”), and BHC INTERIM FUNDING
II, L.P., a Delaware limited partnership, as lender (“Lender”), with offices at
444 Madison Avenue, New York, New York 10022.
 
RECITALS
 
WHEREAS, Borrower desires that Lender extend a term loan to Borrower, the
proceeds of which will be used by Borrower to redeem certain Series A Preferred
capital stock, repurchase certain outstanding warrants and for working capital
purposes; and
 
WHEREAS, Borrower desires to secure its Obligations under the Loan Documents,
inter alia by granting to Lender, and by causing Subsidiary Guarantors to grant
to Lender a security interest in and lien upon all of Borrower’s and such
Subsidiary Guarantors’ respective property and assets; and
 
WHEREAS, Subsidiary Guarantors, and Guarantors have each agreed, jointly and
severally, to guarantee Borrower’s Obligations.
 
NOW, THEREFORE, in consideration of the premises and the agreements, provisions
and covenants herein contained, Borrower and Lender agree as follows:
 
SECTION 1  DEFINITIONS
 
1.1  Certain Defined Terms. The following terms used in this Agreement shall
have the following meanings:
 
“Accounts” means all of each Credit Party’s now existing and future:
(a) accounts (as defined in the UCC), and any and all other receivables (whether
or not specifically listed on schedules furnished to Lender), including, without
limitation, all accounts created by, or arising from, all of each Credit Party’s
sales, leases, rentals of goods or renditions of services to its customers
(whether or not they have been earned by performance), including but not limited
to, those accounts arising under any Credit Party’s trade names, logos or
styles, or through any Credit Party’s divisions; (b) any and all instruments,
documents, chattel paper (including electronic chattel paper), contracts and
contract rights (all as defined in the UCC); (c) unpaid seller’s or lessor’s
rights (including rescission, replevin, reclamation, repossession and stoppage
in transit) relating to the foregoing or arising therefrom; (d) rights to any
goods represented by any of the foregoing, including rights to returned,
reclaimed or repossessed goods; (e) reserves and credit balances arising in
connection with or pursuant to any of the foregoing; (f) guaranties, supporting
obligations, payment intangibles and letter of credit rights (all as defined in
the UCC); (g) insurance policies or rights relating to any of the foregoing;
(h) General Intangibles pertaining to any and all of the foregoing (including
all rights to payment, including those arising in connection with bank and
non-bank credit cards), and including books and records and any electronic media
and software thereto; (i) notes, deposits or property of account debtors
securing the obligations of any such account debtors to the Credit Parties; and
(j) cash and non-cash proceeds (as defined in the UCC) of any and all of the
foregoing.
 
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“Additional Tranche” has the meaning assigned to such term in Section 2.1.
 
“Affiliate” means any Person (other than Lender): (a) directly or indirectly
controlling, controlled by, or under common control with any Credit Party;
(b) directly or indirectly owning, controlling or holding five percent (5%) or
more of any equity interest in any Credit Party; (c) five percent (5%) or more
of whose voting stock or other equity interest having ordinary voting power for
the election of directors or the power to direct or cause the direction of
management, is directly or indirectly owned or held by any Credit Party; or
(d) which has a senior executive officer who is also a senior executive officer
of any Credit Party. For purposes of this definition, “control” (including with
correlative meanings, the terms “controlling”, “controlled by” and “under common
control with”) means the possession directly or indirectly of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities or other equity interest, or
by contract or otherwise.
 
“Agreement” means this Loan and Security Agreement as amended, restated,
supplemented or otherwise modified from time to time.
 
“Asset Disposition” means the disposition, in any transaction or series of
related transactions, whether by sale, lease (including any disposition in
connection with a sale-lease back or synthetic lease transaction), transfer,
loss, damage, destruction, condemnation or otherwise, of all, or substantially
all, of the assets of any Credit Party (whether such assets are now owned or
hereafter acquired) or which has the effect of selling or otherwise disposing of
the whole or a major part of the business or operations of any Credit Party, in
each case, whether or not consideration therefore consists of cash, securities
or other assets owned by the acquiring Person, except where such disposition is
made to another Credit Party.
 
“Book Net Worth” means the Parent’s equity in the Credit Parties (excluding the
Parent) determined in accordance with GAAP.
 
“Borrower” has the meaning assigned to that term in the preamble to this
Agreement.
 
“Business Day” means any day excluding Saturday, Sunday and any day which is a
legal holiday under the laws of the State of New York, or is a day on which
banking institutions located in such state are permitted to be closed.
 
“Capital Expenditures” means, with respect to any period, the aggregate
expenditures (whether paid in cash or accrued as liabilities and including
expenditures for capitalized lease obligations) by the Credit Parties and their
Subsidiaries during such period that are required by GAAP to be included in or
reflected by the property, plant, equipment or similar fixed asset accounts (or
intangible accounts subject to amortization) on the balance sheet of their
Subsidiaries.
 
“Capitalized Lease” means, with respect to the Credit Parties and their
Subsidiaries: (a) any lease of property, real or personal, if the then present
value of the minimum rental commitment thereunder should, in accordance with
GAAP, be capitalized on a balance sheet of the Credit Parties and their
Subsidiaries, and (b) any other such lease, the obligations under which are
capitalized on the balance sheet of the Credit Parties and their Subsidiaries.
 
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“Capital Stock” means with respect to the Credit Parties, any and all capital
stock, membership, partnership or other equity interests of the Credit Parties.
 
“Change of Control” means either (a) Alfred Lam ceases to own and control,
beneficially and of record, directly or indirectly, sixty (60%) percent of the
equity interests in Parent; (b) Pacific CMA ceases to own and control,
beneficially and of record, directly or indirectly, ninety-nine percent (99%) of
the equity interests in any of the Credit Parties; (c) Alfred Lam fails to
remain actively engaged in the management of the Credit Parties and to hold the
positions held on the Closing Date, including as an officer and director, for
any reason other than his death or Disability; (d) a change in the majority of
directors of Parent, unless approved by the then majority of directors; (e) a
change in the majority of directors of any of the Credit Parties, unless
approved by the then majority of directors; (f) all or substantially all of any
of the Parent’s, Pacific CMA’s, AGI Logistics (Hong Kong) Limited’s, or the
Borrower’s assets are sold or transferred, or (g) all, or substantially all, of
the US Group’s assets are sold or transferred.
 
“Closing Date” means July 17, 2007.
 
“Collateral” means, collectively, any and all assets of any Credit Party on
which a Lien in favor of Lender has been created and/or granted to secure the
Obligations under the Loan Documents, specifically including without limitation,
the assets of the Credit Parties defined as “Collateral” in Section 2.6.
 
“Commitment Letter” means the commitment letter issued by Lender to Borrower on
November 13, 2006 as supplemented by the letter dated February 16, 2007.
 
“Confidential Information” has the meaning assigned to that term in Section
8.23.
 
“Consolidated” means the consolidation of accounts in accordance with GAAP,
including principles of consolidation.
 
“Consolidated Subsidiaries” means collectively, the Subsidiaries of any Credit
Party whose financial condition and results of operations are Consolidated with
such Credit Party in its Consolidated financial statements.
 
“Corporate Guarantors” means Pacific CMA, Parent, Airgate International
Corporation (Chicago), an Illinois corporation, Paradigm International, Inc., a
Florida corporation, and AGI Logistics (Hong Kong) Limited, a Hong Kong company.
 
“Credit Parties” means collectively, the Borrower and the US Group.
 
“Current Assets” means those assets of the Credit Parties and their Subsidiaries
which, in accordance with GAAP, are classified as current.
 
“Current Liabilities” means those liabilities of the Credit Parties and their
Subsidiaries which, in accordance with GAAP, are classified as current.
 
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“Default” means a condition, act or event that, after notice or lapse of time or
both, would constitute an Event of Default.
 
“Default Rate” has the meaning assigned to that term in Section 2.3(A).
 
“Disability” means, with respect to Alfred Lam, if as a result of a physical or
mental disability, injury or sickness, he is unable to perform the essential
functions of his duties for Borrower for a period or periods aggregating one
hundred twenty (120) days during any twelve month period, or such longer period
as may be required by applicable employment laws.
 
“Documents of Title” means all present and future documents (as defined in the
UCC), and any and all warehouse receipts, bills of lading, shipping documents,
chattel paper, instruments and similar documents, all whether negotiable or not
and all goods and Inventory relating thereto and all cash and non-cash proceeds
of the foregoing.
 
“EBITDA” means, for any period, all earnings before all interest, tax
obligations and depreciation and amortization expense of Borrower for such
period, all determined in conformity with GAAP on a basis consistent with the
latest audited financial statements of Borrower, but excluding the effect of
extraordinary and/or nonrecurring gains or losses for such period.
 
“Employee Benefit Plan” means any employee benefit plan within the meaning of
Section 3(3) of ERISA which (a) is maintained for employees of the Credit
Parties and their Subsidiaries or any ERISA Affiliate or (b) has at any time
within the preceding six (6) years been maintained for the employees of the
Credit Party and their Subsidiaries and/or any current or former ERISA
Affiliate.
 
“Environmental Claims” means claims, liabilities, investigations, litigation,
administrative proceedings, judgments or orders relating to Hazardous Materials.
 
“Environmental Laws” means any present or future federal, state and local laws,
rules, ordinances and regulations (as implemented and as interpreted) governing
the control, removal, storage, transportation, spill, release or discharge of
hazardous or toxic wastes, substances and petroleum products, including as
provided in the provisions of (a) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendment
and Reauthorization Act of 1986, (b) the Solid Waste Disposal Act, (c) the Clean
Water Act, (d) the Clean Air Act, (e) the Hazardous Materials Transportation
Act, (f) the Resource Conservation and Recovery Act of 1976, (g) the Federal
Water Pollution Control Act Amendments of 1972, and (h) any and all comparable
and/or similar laws of any foreign government (whether of any foreign national
government or any agency or instrumentality of or province, county, district,
department, subdivision or local unit of any such foreign national government);
and (i) the respective rules, regulations and ordinances of the EPA (or any
equivalent environmental regulatory or protection agency or instrumentality of
any foreign government), and any departments of health services, regional water
quality control boards, state water resources control boards, and/or cities in
which the Credit Parties and their Subsidiaries’ assets are located.
 
“Equipment” means all equipment, whether now owned or hereafter acquired (as
defined in the UCC), including, without limitation (whether or not included in
the UCC definition of “equipment”), all furniture, furnishings, fixtures,
machinery, motor vehicles, trucks, trailers, vessels, aircraft and rolling stock
and all parts thereof and all additions, accessories, motors, engines, and
accessions thereto and replacements therefor and all cash and non-cash proceeds
(as defined in the UCC) of any and all of the foregoing.
 
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“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and any successor statute and all rules and regulations
promulgated thereunder.
 
“ERISA Affiliate” as applied to the Credit Parties and their Subsidiaries, means
any Person who is a member of a group which is under common control with the
Credit Parties and their Subsidiaries, who together with the Credit Parties and
their Subsidiaries is treated as a single employer within the meaning of Section
414(b) and (c) of the IRC.
 
“Event of Default” means any of the events set forth in Section 7.1.
 
“Excess Interest” has the meaning assigned to that term in Section 2.3(C).
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
 
“Fiscal Quarter” means each period of three months, commencing on the first day
of a Fiscal Year.
 
“Fiscal Year” means each twelve month period ending on the last day of December
in each year.
 
“Fixed Charge Coverage Ratio” means, for any period, the ratio for the Credit
Parties and their Subsidiaries (determined on a consolidated basis, without
duplication, in accordance with GAAP) of (a) (i) EBITDA for such period minus
(ii) Capital Expenditures to the extent paid in cash during such period minus
(iii) taxes paid (or required to be paid) in cash in respect of such period,
minus (iv) tax distributions paid (or required to be paid) in cash in respect of
net income of Borrower for such period, to (b) the sum of (i) cash interest
payments made in respect of borrowed money during such period, plus (ii) net
cash payments made (or minus the net cash payments receivable) in respect of the
Hedging Agreements during such period, plus (iii) cash payments made in respect
of fees, including letter of credit fees and expenses (but excluding
reimbursement of legal fees) incurred hereunder during such period, plus (iv)
cash payments of principal in respect of borrowed money (including the principal
component of any payments in respect of Capital Lease obligations and
Subordinated Debt, but excluding principal payments made in respect of revolver
loans advanced under the in the Senior Financing Agreement) during such period.
 
“Foreign Subsidiary” means any Subsidiary of the Credit Parties that is
organized in a jurisdiction outside of the United States of America.
 
“Foreign Plan” means, any employee benefit plan or arrangement maintained or
contributed to by any Credit Party or any Subsidiary of any Credit Party that is
not subject to the laws of the United States, or any employee benefit plan or
arrangement mandated by a government other than the United States for employees
of any Credit Party or any Subsidiary of any Credit Party.
 
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“GAAP” means generally accepted accounting principles in effect from time to
time in the United States, applied on a consistent basis, provided that for the
purpose of Section 6.18 hereof and the definitions used therein, “GAAP” shall
mean generally accepted accounting principles in effect on the date hereof and
consistent with those used in the preparation of the audited financial
statements for the Fiscal Year ended on December 31, 2006, provided, further,
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 6.18
hereof, Lender and Borrower shall negotiate in good faith amendments to the
provisions of this Agreement that relate to the calculation of such covenant
with the intent of having the respective positions of Lender and Borrower 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 6.18 hereof shall be calculated as if no such
change in GAAP had occurred.
 
“General Intangibles” means, as to each Credit Party, all “general intangibles”
as defined in the UCC, now owned or hereafter acquired, including, without
limitation (whether or not included in the UCC definition of “general
intangibles”), all of such Credit Party’s then owned or existing and future
acquired or arising general intangibles, choses in action and causes of action
and all other intangible personal property of such Credit Party of every kind
and nature, including, without limitation, Intellectual Property, corporate or
other business records, inventions, designs, blueprints, plans, specifications,
trade secrets, goodwill, computer software, customer lists, licenses,
franchises, tax refund claims, reversions or any rights thereto and any other
amounts payable to Borrower from any Employee Benefit Plan, rights and claims
against carriers and shippers, rights to indemnification, and business
interruption, property, casualty or any similar type of insurance and any
proceeds thereof, and all cash and non-cash proceeds (as defined in the UCC) of
any and all of the foregoing.
 
“Guaranties” means, collectively, those certain respective unconditional
guaranty agreements executed by each respective Guarantor in favor of Lender
pursuant to which such Guarantor shall give a continuing and unconditional
agreement to guaranty and stand surety for the Obligations of Borrower under the
Loan Documents, whether such guaranty agreement shall be executed as of the date
hereof or at any time in the future, as each such agreement may be amended,
restated, supplemented or otherwise modified from time to time.
 
“Guarantors” means Alfred Lam and the Corporate Guarantors, and each such other
Person identified as a Guarantor, whose liability shall be joint and several,
and any other Person that may from time to time guaranty the Obligations of
Borrower under the Loan Documents.
 
“Guarantor Security Documents” means, collectively, those various agreements,
instruments and documents, including all security agreements, charging
agreements, mortgages, which may from time to time be executed by the Guarantors
pursuant to which each such Guarantor shall grant Liens to Lender in
substantially all of its assets, real and personal, tangible and intangible, as
security for the payment and performance of the Obligations, as each such
agreement, instrument or document may be amended, restated, supplemented or
otherwise modified from time to time.
 
“Hazardous Material” means all or any of the following: (a) substances that are
defined or listed in, or otherwise classified pursuant to, any Environmental
Laws or regulations as “hazardous substances”, “hazardous materials”, “hazardous
wastes”, “toxic substances” or any other formulation intended to define, list or
classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, or toxicity; (b) oil, petroleum or
petroleum derived substances, natural gas, natural gas liquids or synthetic gas
and drilling fluids, produced waters and other wastes associated with the
exploration, development or production of crude oil, natural gas or geothermal
resources; (c) any flammable substances or explosives or any radioactive
materials; and (d) friable asbestos in any form or electrical equipment which
contains any oil or dielectric fluid containing polychlorinated biphenyls.
 
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“Hedging Agreement” means any interest rate, foreign currency, commodity or
equity swap, collar, cap, floor or forward rate agreement, or other agreement or
arrangement designed to protect against fluctuations in interest rates or
currency, commodity or equity values (including, without limitation, any option
with respect to any of the foregoing and any combination of the foregoing
agreements or arrangements), and any confirmation executed in connection with
any such agreement or arrangement.
 
“Indebtedness” means, as applied to each Credit Party at a particular date,
without duplication: (a) all obligations of such Credit Party for borrowed
money, (b) all obligations of such Credit Party evidenced by bonds, debentures,
notes or similar instruments, (c) all obligations of such Credit Party upon
which interest charges are customarily paid, (d) all obligations of such Credit
Party under conditional sale or other title retention agreements relating to
property acquired by such Credit Party, (e) all obligations of such Credit Party
in respect of the deferred purchase price of property or services (excluding
current accounts payable incurred in the ordinary course of business and
excluding installments of premiums payable with respect to policies of insurance
contracted for in the ordinary course of business), (f) all Indebtedness of
others secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Credit Party, whether or not the Indebtedness secured thereby
has been assumed, (g) all guaranties or endorsements by such Credit Party of
Indebtedness of others, (h) all obligations under Capitalized Leases of such
Credit Party attributable to the payment of principal, (i) all obligations,
contingent or otherwise, of such Credit Party as an account party in respect of
letters of credit and letters of guaranty, and (j) all obligations, contingent
or otherwise, of such Credit Party in respect of bankers’ acceptances. The
Indebtedness of such Credit Party shall include the Indebtedness of any other
entity (including any partnership in which such Credit Party is a general
partner) to the extent such Credit Party is liable therefor as a result of such
Credit Party’s ownership interest in or other relationship with such entity,
except to the extent the terms of such Indebtedness expressly provide that such
Credit Party is not liable therefor.
 
“Indemnitees” has the meaning assigned to that term in Section 8.4.
 
“Indemnified Liabilities” has the meaning assigned to that term in Section 8.4.
 
“Intellectual Property” means all present and future (a) designs, patents,
patent rights and applications therefor, licenses rights, fees, and royalties
with respect thereof; (b) trademarks, service marks, trade names and
registrations and applications therefore, licenses, fees and royalties with
respect thereof; (c) copyrights, renewals and all applications and registrations
therefor, licenses, fees and royalties with respect thereof, (d) software or
computer programs, trade secrets, methods, processes, know-how, drawings,
specifications, and descriptions, and (e) all memoranda, notes and records with
respect to any research and development, whether now owned or hereafter
acquired, (f) all goodwill associated with any of the foregoing described in
subsections (a) - (e), and proceeds of all of the foregoing, including, without
limitation, proceeds of insurance policies thereon.
 
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“Intercreditor Agreement” means the Intercreditor Agreement, dated as of the
date hereof, by and among Lender, Borrower and the Senior Lender, as amended,
restated, supplemented or otherwise modified from time to time.
 
“Inventory” means, as to such Credit Party, all “inventory” as defined in the
UCC including, without limitation (whether or not included in the UCC definition
of “inventory”), all of such Credit Party’s then owned or existing and future
acquired or arising: (a) inventory, merchandise, goods and other personal
property intended for sale or lease or for display or demonstration; (b)
inventory and any portion thereof that may be returned, rejected, reclaimed or
repossessed by either Lender or such Credit Party from such Credit Party’s
customers; (c) work in process; (d) raw materials and other materials and
supplies, goods, incidentals, packaging materials and labels of every nature and
description used or which might be used in connection with the manufacture,
packing, shipping, advertising, selling, leasing or furnishing of the foregoing
or otherwise used or consumed in the conduct of business; (e) documents
evidencing, and General Intangibles relating to, any of the foregoing; and (f)
all cash and non-cash proceeds (as defined in the UCC) of any and all of the
foregoing.
 
“Investment Property” means a security, whether certificated or uncertificated,
security entitlement, securities account, commodity contract or commodity
account.
 
“IRC” means the Internal Revenue Code of 1986, as amended from time to time, and
any successor statute and all rules and regulations promulgated thereunder.
 
“Late Monthly Payment Fee” has the meaning assigned to that term in Section
2.4(C).
 
“Lender” means BHC Interim Funding II, L.P., together with its successors and
assigns permitted pursuant to Section 8.1.
 
“Liabilities” shall have the meaning given that term in accordance with GAAP and
shall include all Indebtedness.
 
“Lien” means any lien (whether statutory or otherwise), mortgage, deed of trust,
pledge, hypothecation, assignment, security interest, charge or encumbrance of
any kind, whether voluntary or involuntary (including any conditional sale or
other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest).
 
“Loan Documents” means this Agreement, the Term Note, the Guaranties, the
Intercreditor Agreement, the Guarantor Security Documents, and all other
instruments, documents, guaranties and agreements executed by or on behalf of
any Credit Party and delivered concurrently herewith or at any time hereafter to
or for Lender in connection with the Term Loan or any other transaction
contemplated by this Agreement, all as amended, restated, supplemented or
modified from time to time.
 
“Maintenance Fee” has the meaning assigned to that term in Section 2.4(D).
 
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“Material Adverse Effect” means a material adverse effect upon (a) the
businesses, operations, properties, assets or condition (financial or otherwise)
of the Credit Parties, taken as a whole, (b) the ability of any Credit Party to
perform its obligations under any Loan Document to which it is a party, (c) the
value of the Collateral, or (d) the ability of Lender to enforce or collect any
of the Obligations.
 
“Maturity Date” means July 16, 2009.
 
“Maximum Rate” has the meaning assigned to that term in Section 2.3(C).
 
“Midsummer Repurchase Agreement” means that certain Repurchase Agreement With
Mutual Release dated as of July 16, 2007, by and between Parent and Midsummer
Investments, Ltd., a corporation organized under the laws of Bermuda.
 
“Net Income” means fiscal year-to-date after-tax net income from continuing
operations including extraordinary losses but excluding extraordinary gains, all
as determined in accordance with GAAP.
 
“Obligations” means all obligations (including the full and faithful discharge
of each and every term, condition, agreement, representation and warranty now or
hereafter made by a Credit Party under the Loan Documents), liabilities and
indebtedness of every nature of each Credit Party from time to time owed to
Lender under the Loan Documents including the principal amount of the Term Loan,
all debts, claims and indebtedness (whether incurred before or after the
Maturity Date), accrued and unpaid interest and all fees, costs and expenses,
whether primary, secondary, direct, contingent, fixed or otherwise, heretofore,
or whether evidenced by a note or other writing, now and/or from time to time
hereafter owing, due or payable including, without limitation, all interest,
fees, costs and expenses accrued or incurred after the filing of any petition
under any bankruptcy or insolvency law whether or not a claim for post-petition
interest, fees or expenses is allowed in any bankruptcy case or proceeding.
 
“Officer’s Certificate” has the meaning assigned to that term in Section 5.1(E).
 
“Other Collateral” means:
 
(A)  all other goods and property, whether or not delivered, including, without
limitation, such other goods and property: (i) the sale or lease of which gives
or purports to give rise to any Account or other Collateral, including, but not
limited to, all Inventory and other merchandise returned or rejected by, or
repossessed from, customers; (ii) securing any Account or other Collateral,
including, without limitation, all rights as a consignor, a consignee, an unpaid
vendor or lienor (including, without limitation, stoppage in transit, replevin
and reclamation) with respect to such other goods and properties; or (iii) any
warranty claim relating to goods;
 
(B)  all substitutes and replacements for, accessories, attachments, and other
additions to, any of the above and any and all products or masses into which any
goods are physically united such that their identity is lost;
 
(C)  all policies and certificates of insurance relating to any of the
foregoing, now owned or hereafter acquired, evidencing or pertaining to any and
all items of Collateral;
 
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(D)  all files, correspondence, computer programs, tapes, discs and related data
processing software which contain information identifying or pertaining to any
of the Collateral or any account debtor, or showing the amounts thereof or
payments thereon or otherwise necessary or helpful in the realization thereon or
the collection thereof;
 
(E)  all cash deposited with Lender or any of its Affiliates, or which Lender or
such Affiliate is entitled to retain or otherwise possess as Collateral pursuant
to the provisions of this Agreement or any of the other Loan Documents;
 
(F)  any and all products and proceeds of the foregoing (including, but not
limited to, any claim to any item referred to in Section 2.6, and any claim
against any third party for loss of, damage to or destruction of any or all of,
the Collateral or for proceeds payable under, or unearned premiums with respect
to, policies of insurance) in whatever form, including, but not limited to,
cash, instruments, chattel paper, security agreements and other documents; and
 
(G)  all commercial tort claims.
 
“Pacific CMA” means Pacific CMA International, LLC, a Colorado limited liability
company.
 
“Parent” means Pacific CMA, Inc., a Delaware company.
 
“Payment Date” shall have the meaning given such term in Section 2.4(D).
 
“Permitted Encumbrances” means the following types of Liens:
 
(A)  Liens securing the Obligations;
 
(B)  Liens for taxes, assessments or other governmental charges (other than
Environmental Claims or ERISA) the payment of which is not yet due and payable
or is being contested in good faith and by appropriate proceedings promptly
initiated and diligently conducted, and a reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made therefor,
provided, that such liens shall have no effect on the priority of the Liens in
favor of Lender or the value of the assets in which Lender has such Liens and a
stay of enforcement of any such Liens shall be in effect.
 
(C)  Liens imposed by law, such as carrier’s, warehousemen’s, mechanic’s,
materialmen’s and other similar Liens arising in the ordinary course of business
and securing obligations (other than Indebtedness for borrowed money) that are
not overdue by more than thirty (30) days or are being contested in good faith
and by appropriate proceedings promptly initiated and diligently conducted, and
a reserve or other appropriate provision, if any, as shall be required by GAAP
shall have been made therefore, and, in the case of judgment Liens that have
been stayed or bonded, a reserve or other appropriate provision, if any, as
required by GAAP shall have been made therefor;
 
(D)  Liens described on Schedule 1.1(A), but not the extension of coverage
thereof to other property or assets;
 
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(E)  Liens arising under Capital Leases or securing purchase money Indebtedness
in favor of a seller of Equipment; provided, however, that (A) no such Lien
shall extend to or cover any other property of any Credit Party, and (B) the
principal amount of the Indebtedness secured by any such Lien shall not exceed
the lesser of the fair market value or the cost of the property so held or
acquired;
 
(F)  deposits and pledges of cash securing (i) obligations incurred in respect
of workers’ compensation, unemployment insurance or other forms of governmental
insurance or benefits, (ii) the performance of bids, tenders, leases, contracts
(other than for the payment of money) and statutory obligations or
(iii) obligations on surety or appeal bonds, but only to the extent such
deposits or pledges are incurred or otherwise arise in the ordinary course of
business and secure obligations not past due;
 
(G)  easements, zoning restrictions and similar encumbrances on real property
and minor irregularities in the title thereto that do not (i) secure obligations
for the payment of money or (ii) materially adversely impair the value of such
property or its use by any Credit Party in the normal conduct of such Person’s
business;
 
(H)  Liens in favor of Senior Lender securing Senior Indebtedness up to a
maximum amount of Thirteen Million Five Hundred Thousand Dollars ($13,500,000);
and
 
(I)  other Liens permitted to be incurred by any Credit Party pursuant to the
terms of this Agreement or any other Loan Document.
 
“Permitted Indebtedness” means Indebtedness of Borrower used to prepay the
Obligations pursuant to Section 2.5(D)(i).
 
“Permitted Investments” means: (a) investments of Borrower outstanding on the
date hereof; (b) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any state thereof
maturing within one (1) year from the date of acquisition thereof;
(c) commercial paper maturing no more than one (1) year from the date of
creation thereof and having the highest rating obtainable from either Standard &
Poor’s or Moody’s Investor Services, Inc.; (d) certificates of deposit maturing
no more than one (1) year from the date of investment therein;
(e) (A) investments in accounts receivable arising and trade credit granted in
the ordinary course of business and in any securities received in complete or
partial satisfaction thereof from financially troubled account debtors, and
(B) deposits, prepayments and other credits to suppliers made in the ordinary
course of business consistent with Borrower’s past practices; and
(f) investments made pursuant to or arising under Hedging Agreements entered
into in the ordinary course of business.
 
“Person” means and includes natural persons, corporations, limited partnerships,
general partnerships, limited liability companies, joint stock companies, joint
ventures, associations, companies, trusts, banks, trust companies, land trusts,
business trusts or other organizations, whether or not legal entities, and
governments and agencies and political subdivisions thereof.
 
“Pro Forma” means the unaudited Consolidated balance sheet of the Credit Parties
and their Subsidiaries as of the Closing Date after giving effect to the
transactions contemplated by this Agreement. The Pro Forma balance sheet of the
Credit Parties and their Subsidiaries as of the Closing Date is annexed hereto
as Schedule 1.1(B).
 
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“Projections” shall have the meaning given such term in Section 4.28.
 
“Restricted Payment” means: (a) any dividend or other distribution, direct or
indirect, on account of any shares of any class of the Capital Stock of any of
the Credit Parties and their Subsidiaries now or hereafter outstanding, except a
dividend payable solely with shares of the class of stock on which such dividend
is declared or distribution made, (b)  any payment or prepayment of principal
of, premium, if any, or interest on, or any redemption, conversion, exchange,
retirement, defeasance, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any Subordinated Debt or any
shares of any class of the Capital Stock of any Credit Party now or hereafter
outstanding, or the issuance of a notice of an intention to do any of the
foregoing (other than to satisfy Parent’s monetary obligations owing under the
Midsummer Repurchase Agreement ); (c) any payment made to retire, or to obtain
the surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of the Capital Stock of any Credit Party now or hereafter
outstanding (other than to satisfy Parent’s monetary obligations owing under the
Midsummer Repurchase Agreement and to repurchase certain outstanding warrants in
an amount not to exceed Three Hundred Fifty Thousand Dollars ($350,000); (d) any
payment by any Credit Party of any management, consulting or similar fees to any
Affiliate, whether pursuant to a management agreement or otherwise; and (e) any
other payments restricted by the terms of any of the Loan Documents.
 
“Senior Indebtedness” means the Indebtedness of the Credit Parties under the
Senior Financing Agreement.
 
“Senior Lender” means Wells Fargo Bank, National Association.
 
“Senior Financing Agreement” means the Credit and Security Agreement, dated as
of April 6, 2007 among Senior Lender, the Credit Parties, and the other parties
named therein, as amended, restated, supplemented or otherwise modified from
time to time.
 
“Subordination Agreement” means that certain Subordination Agreement, dated as
of the date hereof, between Lender and Alfred Lam, as amended, restated,
supplemented or otherwise modified from time to time.
 
“Subordinated Debt” means any Indebtedness of any of the Credit Parties with
respect to which the right of the holder of such Indebtedness to receive any
payments thereon is junior and subordinated to the prior right of Lender to
receive payment in full of all Obligations, pursuant to a subordination or
intercreditor agreement between Lender and such holder.
 
“Subsidiary” means, if applicable, with respect to any Person, any corporation,
association or other business entity of which more than fifty percent (50%) of
the total voting power of shares of stock, membership interests (or equivalent
ownership or controlling interest) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person (or any of its other Subsidiaries).
 
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“Subsidiary Guarantors” means collectively, the indirect or direct Subsidiary of
a Credit Party that binds itself as a party to this Agreement as contemplated by
Section 6.10 and that guarantees the payment or performance of the Obligations.
 
“Taxes” means all federal, state, municipal and other governmental taxes,
levies, charges, claims and assessments, and all interest, penalties and similar
liabilities relating thereto, which are or may be due by the Credit Parties with
respect to their business, operations, Collateral or otherwise.
 
“Term Loan” means the unpaid balance of the Term Loan made pursuant to
Section 2.1.
 
“Term Note” means the Secured Term Note of Borrower in a form acceptable to
Lender, issued pursuant to Section 2.1 and any amendment and restatement
thereof.
 
“UCC” means the Uniform Commercial Code as in effect on the date hereof in the
State of New York, as amended from time to time, and any successor statute.
 
“US Group” means Parent, Pacific CMA, Airgate International Corporation
(Chicago), and Paradigm International, Inc.
 
1.2  Accounting Terms. For purposes of this Agreement, all accounting terms not
otherwise defined herein shall have the meanings assigned to such terms in
conformity with GAAP. Financial statements and other information furnished to
Lender pursuant to Section 5.1 shall be prepared in accordance with GAAP,
consistently applied.
 
1.3  Other Definitional Provisions. References to “Sections”, “subsections”,
“Exhibits” and “Schedules” shall be to Sections, subsections, Exhibits and
Schedules, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in Section 1.1 may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference. In this Agreement, words importing any gender include the other
genders; the words “including,” “includes” and “include” shall be deemed to be
followed by the words “without limitation”; except as otherwise indicated (e.g.,
by references to agreements “as in effect as of the date hereof” or words to
that effect), references to agreements and other contractual instruments shall
be deemed to include subsequent amendments, assignments, and other modifications
thereto, but only to the extent such amendments, assignments and other
modifications are not prohibited by the terms of this Agreement or any other
Loan Document; references to Persons include their respective permitted
successors and assigns or, in the case of governmental Persons, Persons
succeeding to the relevant functions of such Persons; and all references to
statutes and related regulations shall include any amendments of same and any
successor statutes and regulations.
 
SECTION 2  TERM LOAN AND COLLATERAL
 
2.1  Term Loan. Subject to the terms and conditions of this Agreement and in
reliance upon the representations and warranties of Borrower set forth herein
and in the other Loan Documents, Lender agrees to lend to Borrower a Term Loan
in the aggregate original principal amount of up to Five Million Dollars
($5,000,000). The Term Loan shall be funded as follows: (a) on the Closing Date,
and subject to the conditions set forth in Section 3.1, the sum of Three Million
Five Hundred Thousand Dollars ($3,500,000) (the “First Tranche”); and (b)
subject to the conditions set forth in Section 3.2, at any time, on or prior to
December 31, 2007, an additional tranche (“Additional Tranche”) of up to One
Million Five Hundred Thousand ($1,500,000); provided that with respect to the
Additional Tranche: (i) (x) no Event of Default or Material Adverse Effect shall
have occurred and be continuing, (y) the Credit Parties shall have fully and
timely complied with all their obligations under this Agreement, including,
without limitation, the provisions of Section 6.18 of this Agreement, and (z)
Lender agrees, in its sole discretion, to fund the Additional Tranche. The Term
Loan shall be due and payable in full on the Maturity Date without defense, set
off or counterclaim of any sort. Amounts borrowed under this Section 2.1 and
repaid may not be reborrowed without Lender’s written consent. On or prior to
(i) the Closing Date, Borrower shall execute and deliver to Lender a Term Note
to further evidence the Term Loan, and (ii) on or prior to the date upon which
the Additional Tranche is advanced, Borrower shall execute and deliver to Lender
an amended and restated Term Note to reflect Borrower’s then aggregate
Indebtedness to Lender. 
 
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2.2  Use of Proceeds. The proceeds of the Term Loan shall be used exclusively to
redeem certain Series A Preferred capital stock, repurchase certain outstanding
warrants and for other strategic purposes approved by the Lender. 
 
2.3  Interest.
 
(A)  Rate of Interest. The Term Loan shall bear interest at the rate of twelve
percent (12.0%) per annum. Commencing five (5) days after the occurrence and
during the continuance of an Event of Default pursuant to Section 7.1(A) hereof,
the Term Loan shall bear interest at the rate of eighteen percent (18%) per
annum (the “Default Rate”). 
 
(B)  Computation and Payment of Interest. Interest on the Term Loan and all
other Obligations shall be computed on the daily principal balance on the basis
of a 360-day year for the actual number of days elapsed in the period during
which it accrues. In computing interest on the Term Loan, the date of funding of
the Additional Tranche shall be included and the date of payment of the
Additional Tranche shall be excluded. Interest on the Term Loan and all other
Obligations shall be payable to Lender monthly in arrears on the first Business
Day of each month by automatic wire transfer to Lender’s bank account, and on
the date of any prepayment of the Term Loan, and at maturity, whether by
acceleration or otherwise. As of the Closing Date, the amount of each monthly
installment of interest (based on a 30 day month and to be adjusted for 29 or 31
days months) shall equal Thirty Five Thousand Dollars ($35,000), which amount is
subject to change (i) after the occurrence of an Event of Default, (ii) in the
event of any prepayment of principal of the Term Loan, (iii) in the event of any
addition to the unpaid principal balance of the Term Loan of any other
Obligations, or (iv) the advance of the Additional Tranche.
 
(C)  Interest Laws. Notwithstanding any provision to the contrary contained in
this Agreement or any other Loan Document, Borrower shall not be required to
pay, and Lender shall not be permitted to collect, any amount of interest in
excess of the maximum amount of interest permitted by applicable law (“Excess
Interest”). If any Excess Interest is provided for or determined by a court of
competent jurisdiction to have been provided for in this Agreement or in any
other Loan Document, then in such event: (1) the provisions of this Section 2.3
shall govern and control; (2) neither Borrower nor any other Credit Party shall
be obligated to pay any Excess Interest; (3) any Excess Interest that Lender may
have received hereunder shall be, at Lender’s option, (a) applied as a credit
against the outstanding principal balance of the Obligations or accrued and
unpaid interest (not to exceed the maximum amount permitted by law),
(b) refunded to the payer thereof, or (c) any combination of the foregoing;
(4) the interest rate(s) provided for herein shall be automatically reduced to
the maximum lawful rate allowed from time to time under applicable law (the
“Maximum Rate”), and this Agreement and the other Loan Documents shall be deemed
to have been and shall be, reformed and modified to reflect such reduction; and
(5) neither Borrower nor any Credit Party shall have any action against Lender
for any damages arising out of the payment or collection of any Excess Interest.
Notwithstanding the foregoing, if for any period of time interest on any
Obligations is calculated at the Maximum Rate rather than the applicable rate
under this Agreement, and thereafter such applicable rate becomes less than the
Maximum Rate, the rate of interest payable on such Obligations shall remain at
the Maximum Rate until Lender shall have received the amount of interest which
Lender would have received during such period on such Obligations had the rate
of interest not been limited to the Maximum Rate during such period.
 
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2.4  Fees.
 
(A)  Transaction Fee. Borrower shall pay to Lender: (i) on the Closing Date a
transaction fee in the amount of Eighty-Seven Thousand Five Hundred Dollars
($87,500) plus an amount equal to all reasonable fees, costs and expenses
incurred by Lender in connection with any matters contemplated by this Agreement
which are due and payable as of the Closing Date, less the sum of $60,944.31
previously paid to Lender; and (ii) on the date of advance of the Additional
Tranche, a transaction fee equal to two and one-half percent (2.5%) of the
amount advanced by Lender on such date, in each case, plus an amount equal to
all reasonable fees, costs and expenses incurred by Lender in connection
therewith.
 
(B)  Late Payment Fee. In the event that the Term Loan has not been paid and
satisfied in full on or prior to the Maturity Date, and if such Event of Default
continues without remedy for fifteen (15) days following the Maturity Date,
then, on the sixteenth (16th) day immediately succeeding the Maturity Date, in
addition to any other fees or amounts payable under this Agreement, a late
payment fee in cash equal to five percent (5%) of the sum of each Additional
Tranche, to the extent that such Additional Tranches have been advanced, shall
be due and payable by Borrower to Lender. 
 
(C)  Late Monthly Payment Fee. In the event that any monthly installment of
interest referred to in Section 2.3(B) is not paid within five (5) Business Days
of its due date, a late monthly payment fee of Five Thousand Dollars ($5,000) (a
“Late Monthly Payment Fee”) shall be due and payable by Borrower with respect to
such monthly interest installment on the sixth (6th) day following such due
date, and for each thirty-day period thereafter during which such monthly
interest installment remains unpaid. Such additional Late Monthly Payment Fee
shall be due and payable at the end of each such thirty day period during which
such monthly installment of interest remains past due. 
 
(D)  Maintenance Fee. Borrower shall pay to Lender, in addition to any other
amounts payable under this Agreement, a maintenance fee (the “Maintenance Fee”)
on each date (each a “Payment Date”) on which any repayment of principal is made
(whether such payment is of all or any portion of the outstanding principal
balance of the Term Loan and whether such payment is optional or mandatory or
results from acceleration or enforcement of any rights granted hereunder). The
Maintenance Fee shall be determined in accordance with the schedule hereunder
set forth, which is based on an amount actually advanced at closing of Five
Million Dollars ($5,000,000):
 
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If the Payment Date is:
 
Then the amount of the Maintenance Fee shall equal:
(i) On or before July 11, 2008
 
$250,000
(ii) After July 11, 2008, but on or before October 9, 2008
 
$290,000
(iii) After October 9, 2008, 2008, but on or before January 7, 2009
 
$385,000
(iv) After January 7, 2009, but on or before April 7, 2009
 
$480,000
(v) Thereafter
 
$585,000
     

provided, however, that (i) if a portion of the Term Loan has not been funded,
the Maintenance Fee shall be reduced in the proportion that the amount funded
bears to the initial principal amount of the Term Loan and if only a portion of
the Term Loan is being repaid, the Maintenance Fee shall be equal to the product
of (1) the applicable Maintenance Fee set forth above and (2) a fraction, the
numerator of which is the amount of principal being repaid and the denominator
of which is the aggregate principal amount of the Term Loan advanced.
 
(E)  Unused Facility Fee. Effective from the Closing Date, as long as the
Additional Tranche has not been advanced to Borrower, Borrower shall pay to
Lender, a fee equal to three quarters of one percent (0.75%) per annum of the
amount of the Additional Tranche, payable monthly in arrears on the first
Business Day of each month, commencing August 1, 2007, by wire transfer to
Lender’s bank account; provided, however, such amount shall not accrue or be
payable from and after the date on which the Lender refuses to fund the
Additional Tranche under Section 2.1 hereof.
 
(F)  Other Fees and Expenses. Borrower shall pay to Lender, for its own account,
all reasonable and customary charges for returned items and all other bank
charges incurred by Lender, as well as reasonable and customary wire transfer
charges incurred by Lender for each wire transfer made under this Agreement.
 
2.5  Payments and Prepayments.
 
(A)  Manner and Time of Payment. All payments made by Borrower with respect to
the Obligations shall be made by wire transfer in United States Dollars to
Lender’s account, without deduction, defense, setoff or counterclaim. All
payments by Borrower on account of the principal of the Term Loan shall be
applied in the following manner: (i) first to the payment of any fees and
charges due under the Loan Documents, (ii) second to any Obligations for the
payment of expenses, costs and indemnities due under the Loan Documents, (iii)
third to the payment of interest due and owing under the Loan Documents, (iv)
fourth to the payment of principal due and owing under the Loan Documents, (v)
fifth to the payment of principal not yet due under the Loan Documents, and (vi)
sixth to any other Indebtedness of the Credit Parties and their Subsidiaries
owing to Lender.
 
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(B)  Payments on Business Days. Whenever any payment to be made hereunder shall
be stated to be due on a day that is not a Business Day, the payment may be made
on the next succeeding Business Day and such extension of time shall be included
in the computation of the amount of interest or fees due hereunder.
 
(C)  Voluntary Prepayment. Borrower shall have the right to prepay, at any time
and from time to time after the date hereof, without penalty or premium (other
than the Maintenance Fee), all or any portion of the outstanding Term Loan,
provided that each such prepayment shall be in an amount equal to or greater
than Two Hundred and Fifty Thousand Dollars ($250,000), and shall be accompanied
by payment of interest to date of payment on the amount prepaid.
 
(D)  Mandatory Repayment. In the event Borrower (i) procures financing from any
source, whether in the form of Indebtedness or equity, or (ii) makes an Asset
Disposition (other than sales of Inventory and dispositions of obsolete or
excess Equipment in the ordinary course of business), or (iii) issues or sells
any equity or debt securities or instruments, or (iv) undergoes a Change of
Control, then to the extent not prohibited under the terms of the Intercreditor
Agreement, an amount equal to the entire net proceeds thereof (after deducting
proceeds, if any, applied to the Senior Indebtedness), or the portion thereof
equal to the outstanding balance of the Term Loan plus accrued and unpaid
interest and Maintenance Fee, and all other amounts then due and owing
hereunder, shall be paid by Borrower to Lender to repay or reduce the Term Loan.
All payments hereunder shall be applied first, to accrued interest on the Term
Loan, second, to any outstanding fees (including the Maintenance Fee), costs
and/or expenses owing, due and payable to Lender, third to the outstanding
principal balance of the Term Loan, and fourth, to any other Obligations then
owing.
 
2.6  Grant of Security Interest. To secure the payment and performance of the
Obligations, including all renewals, extensions, restructurings and refinancings
of any or all of the Obligations, each Credit Party hereby assigns and grants to
Lender, a continuing first priority Lien, subject only to Permitted Encumbrances
and to the Intercreditor Agreement, in and to all right, title and interest of
such Credit Party in all assets and properties of such Credit Party, whether now
owned or existing or hereafter acquired or arising and regardless of where
located, including the proceeds thereof (all being collectively referred to as
the “Collateral”), and including, without limitation, the following property of
such Credit Party:
 
(i)  Accounts;
(ii)  Deposit Accounts (as defined in the UCC);
(iii)  Documents of Title;
(iv)  Equipment;
(v)  General Intangibles;
(vi)  Inventory;
(vii)  Investment Property;
(viii)  Intellectual Property; and
(ix)  Other Collateral.
 
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Without limiting the generality of the foregoing paragraph, the security
interests granted hereunder shall extend and attach to:
 

(i)  
all Equipment, whether any Credit Party’s interest in such Equipment is as
owner, lessee or conditional vendee;

 

(ii)  
all Equipment whether the same constituted personal property or fixtures,
including but without limiting the generality of the foregoing, all dies, jigs,
tools, benches, molds, tables, accretions component parts thereof and additions
thereto, as well as all accessories, motors, engines and auxiliary parts used in
connection with or attached to Equipment; and

 

(iii)  
all Inventory and any portion thereof that may be returned, rejected, reclaimed
or repossessed by either Lender or any Credit Party from such Credit Party’s
customers, as well as to all supplies, goods, incidentals, packaging materials,
labels and any other items that contribute to the finished goods or products
manufactured or processed by Borrower, or to the sale, promotion or shipment
thereof.

 
2.7  Preservation of Collateral and Perfection of Security Interests Therein.
Each Credit Party shall, at Lender’s reasonable request, at any time and from
time to time, execute and deliver to Lender within ten (10) days of such
request, such financing statements, documents and other agreements and
instruments (and pay the cost of filing or recording the same in all public
offices deemed reasonably necessary or desirable by Lender) and do such other
acts and things as Lender may deem necessary or desirable in order to establish
and maintain a valid, attached and perfected security interest in the Collateral
in favor of Lender (free and clear of all other liens, claims and rights of
third parties whatsoever, whether voluntarily or involuntarily created, except
Permitted Encumbrances) to secure payment of the Obligations, and in order to
facilitate the collection of the Collateral. Each Credit Party irrevocably
hereby makes, constitutes and appoints Lender (and all Persons designated by
Lender for that purpose) as such Credit Party’s true and lawful attorney and
agent-in-fact to execute such financing statements, documents and other
agreements and instruments and do such other acts and things as may be necessary
to preserve and perfect Lender’s security interest in the Collateral. Each
Credit Party further agrees that a carbon, photographic, photostatic or other
reproduction of this Agreement or of a financing statement shall be sufficient
as a financing statement. Each Credit Party hereby authorizes Lender to prepare
and file such financing statements or amendments thereof (including financing
statements and amendments thereof describing the Collateral as “all assets” or
“all personal property” or words to that effect) as Lender may from time to time
deem necessary or appropriate in order to perfect and maintain the security
interests granted hereunder in accordance with the UCC or the Uniform Commercial
Code of any applicable jurisdiction. Each Credit Party acknowledges and agrees
that the Collateral is intended to encompass all assets and property of such
Credit Party and if at any time such Credit Party acquires any interest in any
assets or property a security interest in which cannot be perfected by the
filing of a financing statement in the appropriate jurisdiction or any assets or
property a security interest in which can be perfected by the filing of a
financing statement in the appropriate jurisdiction but that are not covered by
the security interest grant set forth above (e.g., commercial tort claims, it
being certified by such Credit Party that it has no interest in any commercial
tort claims as of the Closing Date), then such Credit Party will promptly notify
Lender of the same and, if requested by Lender, cause such assets or property to
become part of the Collateral and take such reasonable steps as Lender may
require in accordance with the first sentence of this Section 2.7.
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2.8  Possession of Collateral and Related Matters. Until an Event of Default has
occurred and is continuing, each Credit Party shall have the right, except as
otherwise provided in this Agreement, in the ordinary course of such Credit
Party’s business, to (a) sell or lease any of such Credit Party’s Inventory
normally held by such Credit Party for any such purpose, (b) use and consume any
raw materials, work-in-process or other materials normally held by such Credit
Party for such purpose, or (c) dispose of any obsolete or excess equipment in
the ordinary course of business; provided, however, that a sale in the ordinary
course of business shall not include any transfer or sale in satisfaction,
partial or complete, of any debt owed by such Credit Party.
 
2.9  Limited License. The Credit Parties hereby irrevocably grant to Lender, a
royalty-free, non-exclusive license to use such Credit Party’s trademarks,
copyrights, patents and other proprietary and intellectual property rights, in
connection with the (a) advertisement for sale, and the sale or other
disposition of, any finished goods Inventory by Lender in accordance with the
provisions of this Agreement, and (b) manufacture, assembly, completion and
preparation for sale of any unfinished Inventory by Lender in accordance with
the provisions of this Agreement.
 
2.10  Release of Security Interests. Upon the indefeasible payment and
satisfaction in full of the Obligations, and at each Credit Party’s expense,
Lender shall release all liens and security interests granted by such Credit
Party by execution and/or delivery of appropriate documentation, including, but
not limited to, UCC termination statements, (A) within seven (7) Business Days
of such payment or (B) concurrently with such payment if such Credit Party gives
three (3) Business Days advance notice of such payment.
 
SECTION 3  CONDITIONS TO TERM LOAN
 
3.1  Conditions. The obligation of Lender to advance on the Closing Date is
subject to satisfaction or waiver (in each case, as determined by Lender) of
each of the conditions set forth below:
 
(A)  Closing Deliveries. Lender shall have received, in form and substance
satisfactory to Lender, all documents, instruments and information identified on
Schedule 3.1(A) and all other agreements, notes, certificates, orders,
authorizations, financing statements, mortgages and other documents which Lender
may request. 
 
(B)  Security Interests. Lender shall have received satisfactory evidence that
all security interests and Liens granted to Lender pursuant to this Agreement or
the other Loan Documents have been duly perfected and constitute valid Liens on
the Collateral, with priority over all other Liens subject only to Permitted
Encumbrances and to the Intercreditor Agreement. Without limiting the generality
of the foregoing: each Guarantor, including without limitation all Guarantors
that are Foreign Subsidiaries, shall have executed and delivered all Guarantor
Security Documents required by Lender and its counsel (each such document to be
in form and substance satisfactory to Lender) in order to create and grant Liens
in favor of Lender on substantially all of such Guarantor’s property and all
appropriate public filings or registrations of or related to such Guarantor
Security Documents and/or the Liens created and granted thereunder have been
made.
 
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(C)  Representations and Warranties. The representations and warranties
contained herein and in the Loan Documents shall be true, correct and complete
on and as of the Closing Date to the same extent as though made on and as of
that date, except for any representation or warranty limited by its terms to a
specific date.
 
(D)  Fees. Borrower shall have paid the fees and other amounts payable on the
Closing Date referred to in Section 2.4(A).
 
(E)  No Default. No event shall have occurred and be continuing or would result
from the consummation of the requested borrowing that would constitute an Event
of Default or a Default.
 
(F)  Performance of Agreements. Each Credit Party shall have performed all
agreements and satisfied all conditions which any Loan Document provides shall
be performed by it on or before the Closing Date.
 
(G)  No Prohibition. No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain Lender from
advancing.
 
(H)  No Litigation. Except as set forth on Schedule 3.1(H), there shall not be
pending or, to the knowledge of any Credit Party, threatened, any action,
charge, claim, demand, suit, proceeding, petition, governmental investigation or
arbitration by, against or affecting any Credit Party or any property of any
Credit Party that has not been disclosed by Borrower in writing, and there shall
have occurred no development in any such action, charge, claim, demand, suit,
proceeding, petition, governmental investigation or arbitration that, in the
opinion of Lender, could reasonably be expected to have a Material Adverse
Effect.
 
(I)  No Material Adverse Effect. Lender shall have received evidence reasonably
satisfactory to it that nothing has occurred since December 31, 2006, which
reasonably could be expected to have a Material Adverse Effect.
 
3.2  Conditions to the Additional Tranche. The obligation of Lender to advance
the Additional Tranche is subject to satisfaction (as determined by Lender in
its discretion) of each of the conditions set forth below:
 
(A)  Request for Additional Tranche. Lender shall have received from Borrower at
least thirty (30) days prior written notice requesting the advance of the
Additional Tranche and shall have furnished Lender with all such financial
records and information, as Lender may require. 
 
(B)  Delivery of Documents. Lender shall have received, in form and substance
reasonably satisfactory to Lender, all agreements, notes, certificates,
authorizations, and other documents as Lender may reasonably request to evidence
the advance of the Additional Tranche and Borrower’s corporate authorization to
request such Additional Tranche.
 
(C)  Representations and Warranties. The representations and warranties
contained herein and in the other Loan Documents shall be true, correct and
complete on and as of the date of the funding of the Additional Tranche to the
same extent as though made on and as of that date, except for any representation
or warranty limited by its terms to a specific date.
 
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(D)  No Prohibition. No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain Lender from advancing
the Additional Tranche.
 
(E)  No Default. No event shall have occurred and be continuing or would result
from the consummation of the requested borrowing that would constitute an Event
of Default or a Default.
 
(F)  No Litigation. On and as of the date of the funding of the Additional
Tranche, there shall not be pending or, to the knowledge of any Credit Party,
threatened, any action, charge, claim, demand, suit, proceeding, petition,
governmental investigation or arbitration by, against or affecting any Credit
Party or any property of any Credit Party that has not been disclosed by
Borrower in writing, and there shall have occurred no development in any such
action, charge, claim, demand, suit, proceeding, petition, governmental
investigation or arbitration that, in the opinion of Lender, could reasonably be
expected to have a Material Adverse Effect.
 
SECTION 4 BORROWER’S REPRESENTATIONS AND WARRANTIES
 
To induce Lender to enter into this Agreement, and to fund the Additional
Tranche, the Credit Parties represent and warrant to Lender that the following
statements are true, correct and complete. Such representations and warranties,
and all other representations and warranties made by the Credit Parties herein
or in the other Loan Documents, shall survive the execution and delivery of this
Agreement and the closing contemplated hereby:
 
4.1    Organization, Powers, Capitalization.
 
(A)  Organization and Powers. The Credit Parties are entities duly organized,
validly existing and in good standing under the laws of the jurisdiction of
their incorporation or formation and are qualified to do business as a foreign
corporation in each jurisdiction where such qualification is required except
where failure to be so qualified could not be reasonably expected to have a
Material Adverse Effect. The Credit Parties have all requisite power and
authority to own and operate their properties, to carry on their business as now
conducted and proposed to be conducted and to enter into each Loan Document to
which they are a party.
 
(B)  Capitalization. The Capital Stock of each Credit Party is as set forth on
Schedule 4.1(B). All Capital Stock of each Credit Party is duly authorized and
validly issued, fully paid, non-assessable, free and clear of all Liens (other
than Permitted Encumbrances) and such shares of Capital Stock were issued in
compliance with all applicable federal, state and local laws concerning the
issuance of securities. No Capital Stock of any Credit Party other than those
described above, are issued and outstanding. There are no preemptive or other
outstanding rights, options, warrants, conversion rights or similar agreements
or understandings for the purchase or acquisition from any Credit Party of any
equity interests or securities except as set forth on Schedule 4.1(B).
 
4.2   Authorization of Borrowing; No Conflict. The Credit Parties have the power
and authority to incur the Obligations and to grant security interests in the
Collateral. The execution, delivery and performance of the Loan Documents by the
Credit Parties will have been duly authorized by all necessary company and
shareholder action. The execution, delivery and performance of the Loan
Documents by the Credit Parties and the consummation of the transactions
contemplated by this Agreement and the other Loan Documents by the Credit
Parties, do not contravene and will not be in contravention of any applicable
law, organizational documents of any Credit Party or any agreement or order by
which they or any of their property is bound. This Agreement and the other Loan
Documents, including the Term Note, when executed and delivered, are and will
be, the legally valid and binding obligations of the Credit Parties, enforceable
against the Credit Parties in accordance with their respective terms except as
the enforceability thereof may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws effecting the enforcement of creditors rights
generally and subject to any equitable principles limiting the right to obtain
specific performance of any such obligation.
 
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4.3    Financial Condition. 
 
(A)  All financial statements (other than the Projections) concerning the Credit
Parties which have been or will hereafter be furnished by Borrower to Lender
pursuant to this Agreement (i) have been, or will be, prepared in accordance
with GAAP consistently applied throughout the periods involved (except as
disclosed therein); (ii) do, or will present fairly, the financial condition of
the Credit Parties as at the dates thereof and the results of their operations
for the periods then ended; and (iii) do, or will accurately reflect the
financial condition of the Credit Parties in all material respects. As of the
Closing Date, after giving effect to all of the transactions contemplated to
occur on such Closing Date, all Subsidiaries of the Credit Parties shall be
Consolidated Subsidiaries as determined in accordance with GAAP.
 
(B)  Except as set forth on Schedule 4.9, since December 31, 2006, there has
been no event or development which has had, or is reasonably likely to have, a
Material Adverse Effect. 
 
(C)  The Pro Forma was prepared by Borrower based on the audited Consolidated
balance sheet of Borrower and its Affiliates, dated December 31, 2006. 
 
4.4    Indebtedness and Liabilities. As of the Closing Date, the Credit Parties
have no (a) Indebtedness except as reflected on the Pro Forma and the most
recent financial statements delivered to Lender; or (b) Liabilities other than
as reflected on the Pro Forma, the most recent financial statements or other
written information delivered to Lender on or before the Closing Date or as
incurred in the ordinary course of business following the date of the most
recent financial statements delivered to Lender.
 
4.5    Account Warranties. As to each Account arising from the sale of Inventory
or from services rendered, that, at the time of its creation, (a) such Account
is a valid, bona fide account, representing an undisputed indebtedness incurred
by the named account debtor for goods actually sold and delivered or for
services completely rendered, and substantially in accordance with any purchase
order, contract or other document relating thereto; (b) to the Credit Parties’
knowledge, there are no defenses, setoffs, offsets or counterclaims, genuine or
otherwise, against such Account (other than customary prompt payment discounts,
the Credit Parties’ standard warranty policies and the Credit Parties’
promotional payment arrangements with such customers); (c) such Account does not
represent a sale to an Affiliate (except in accordance with Section 6.6) or a
consignment, sale or return, or a bill and hold transaction; (d) to the Credit
Parties’ knowledge, no agreement exists permitting any deduction or discount
(other than the discount stated on the invoice and deductions and discounts
arising from the Credit Parties’ promotional payment arrangements with
customers); (e) each Credit Party is the lawful owner of such Account and has
the right to assign the same to Lender; (f) such Account is free of all Liens
other than Permitted Encumbrances; (g) such Account is due and payable in
accordance with its terms; and (h) there are no proceedings or actions
threatened or pending against any account debtor that could reasonably be
expected to have a Material Adverse Effect on such account debtor’s financial
condition.
 
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4.6    Names. Schedule 4.6 sets forth all names, trade names, fictitious names
and business names under which the Credit Parties currently conduct business or
have at any time during the past five (5) years conducted business.
 
4.7   Locations; FEIN. Schedule 4.7 sets forth the jurisdiction of organization
of each Credit Party, location of each Credit Party’s chief executive office,
principal place of business, the location of each Credit Party’s books and
records, the location of all other offices of the Credit Parties and all
Collateral locations, and such locations are the Credit Parties’ sole locations
for their businesses and the Collateral. Each Credit Party’s federal employer
identification number and entity identification number in its state of
incorporation or formation is set forth on Schedule 4.7.
 
4.8    Title to Properties; Liens. The Credit Parties have good, sufficient and
legal title, to all of their respective properties and assets. Except for
Permitted Encumbrances, all such properties and assets are free and clear of
Liens. To the knowledge of the Credit Parties, there are no actual, threatened
or alleged defaults with respect to any leases of real property under which any
Credit Party is lessee or lessor which could reasonably be expected to have a
Material Adverse Effect. All Liens of the Lender in the Collateral are duly
perfected subject only to the Permitted Liens that are expressly allowed to have
priority over the Lender’s Liens.
 
4.9    Litigation; Adverse Facts. Except as set forth on Schedule 4.9, there are
no judgments outstanding against any Credit Party or affecting any property of
any Credit Party nor is there any action, charge, claim, demand, suit,
proceeding, petition, governmental investigation or arbitration now pending or
threatened against or affecting any Credit Party or any property of any Credit
Party which could have a Material Adverse Effect. No Credit Party has received
any opinion, memorandum or legal advice from legal counsel to the effect that it
is exposed to any liability which could reasonably be expected to have a
Material Adverse Effect.
 
4.10     Payment of Taxes. Except as set forth on Schedule 4.10, all material
tax returns and reports of the Credit Parties required to be filed by them have
been timely filed, and all Taxes upon such Persons and upon their respective
properties, assets, income and franchises which are shown on such returns as due
and payable, have been paid when due and payable. As of the Closing Date, none
of the income tax returns of the Credit Parties is under audit. No tax liens
have been filed or are being asserted with respect to any such Taxes. The
charges, accruals and reserves on the books of the Credit Parties in respect of
any Taxes or other governmental charges are in accordance with GAAP.
 
4.11     Performance of Agreements. Except as set forth on Schedule 4.11, none
of the Credit Parties is in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
contractual obligation of any such Person, and no condition exists that, with
the giving of notice or the lapse of time or both, would constitute a default,
which in any case could reasonably be expected to have a Material Adverse
Effect.
 
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4.12      Employee Benefit Plans. The Credit Parties and their Subsidiaries are
in compliance in all material respects with all applicable provisions of ERISA,
the IRC and all other applicable laws and the regulations and interpretations
thereof with respect to all Employee Benefit Plans and Foreign Plans. No
liability which could reasonably be expected to have a Material Adverse Effect
has been incurred and remains unsatisfied for any funding obligation, taxes or
penalties with respect to any Employee Benefit Plan or Foreign Plan. With
respect to the Foreign Subsidiaries of the Credit Parties, such Foreign
Subsidiaries are in compliance in all material respects with all Foreign Plans
and applicable provisions of all laws, and all regulations and interpretations
thereof, of all applicable foreign government(s) (whether of any foreign
national government or any agency or instrumentality of or province, county,
district, department, subdivision or local unit of any such foreign national
government) regarding employee pension plans or employee benefit and welfare
plans with respect to each employee pension plan or employee benefit and/or
welfare plans maintained by such Foreign Subsidiary, and no liability which
could reasonably be expected to have a Material Adverse Effect has been incurred
and remains unsatisfied for any funding obligation, taxes or penalties with
respect to any such employee pension plan or employee benefit and/or welfare
plans maintained by such Foreign Subsidiary.
 
4.13      Intellectual Property. The Credit Parties own, are licensed to use, or
otherwise have the lawful right to use, all Intellectual Property, if any, used
in or necessary for the conduct of their respective businesses as currently
conducted, and all such Intellectual Property, if any, is identified on
Schedule 4.13 without conflict with any rights of others. Except as disclosed on
Schedule 4.13, no Credit Party pays or owes any royalty or any other
compensation to any Person with respect to any Intellectual Property, if any.
 
4.14     Broker’s Fees. Except as set forth on Schedule 4.14, no broker’s or
finder’s fee or commissions or investing banking fees will be payable by reason
of any action of the Credit Parties with respect to any of the transactions
contemplated by the Loan Documents.
 
4.15     Environmental Compliance. Except as set forth on Schedule 4.15, the
Credit Parties have been, and are currently in compliance in all material
respects with all applicable Environmental Laws, including obtaining and
maintaining in effect all material permits, licenses or other authorizations
required by applicable Environmental Laws. Except as set forth on Schedule 4.15,
there are no claims, liabilities, investigations, litigation, administrative
proceedings, judgments or orders relating to any Hazardous Materials asserted
or, to the Credit Parties’ knowledge, threatened against any Credit Party or
relating to any real property currently or formerly owned, leased or operated by
any Credit Party which could reasonably be expected to have a Material Adverse
Effect, and the Credit Parties have no knowledge of any release  or threatened
release of hazardous substances at any real property currently or formerly
owned, leased or operated by any Credit Party for which a Credit Party is
legally responsible to remediate under applicable laws or which may be or could
result in a material liability.
 
4.16     Solvency. After giving effect to the transactions contemplated by the
Loan Documents and the Senior Financing Agreement, and, as of, from and after
the date of this Agreement, the Credit Parties individually and the Credit
Parties and their Subsidiaries taken as a whole (a) own and will own assets the
fair saleable value of which are (i) greater than the total amount of its or
their (as applicable) liabilities (including contingent liabilities) and
(ii) greater than the amount that will be required to pay the probable
liabilities of the Credit Parties individually and the Credit Parties and their
Subsidiaries taken as a whole (as applicable) as they mature; (b) has capital
that is not unreasonably small in relation to its or their (as applicable)
businesses as presently conducted or any contemplated or undertaken transaction;
and (c) does not intend to incur and does not believe that it or they (as
applicable) will incur debts beyond its or their (as applicable) ability to pay
such debts as they become due.
 
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4.17   Disclosure. No representation or warranty of the Credit Parties contained
in this Agreement, the other Loan Documents, the financial statements, or any
other document, certificate or written statement furnished to Lender by or on
behalf of the Credit Parties for use in connection with the Loan Documents
contains any untrue statement of a material fact or omitted, omits or will omit
to state a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances in which the same
were made. There is no material fact known to any Credit Party that has had or
could reasonably be expected to have a Material Adverse Effect and that has not
been fully disclosed herein or in such other documents, certificates and
statements furnished to Lender for use in connection with the transactions
contemplated by the Loan Documents.
 
4.18     Insurance. The Credit Parties maintain insurance policies for public
liability, worker’s compensation, property damage, larceny, embezzlement or
other criminal misappropriation insurance for their businesses and properties,
product liability, and business interruption, of types and in amounts
customarily maintained by comparable businesses; and, as of the Closing Date, no
notice of cancellation has been received with respect to such policies and the
Credit Parties are in compliance in all material respects with all conditions
contained in such policies.
 
4.19      Compliance with Laws. Except as set forth on Schedule 4.19, the Credit
Parties are not in violation of any law, ordinance, rule, regulation, order,
policy, guideline or other requirement of any domestic or foreign government or
any instrumentality or agency thereof, having jurisdiction over the conduct of
their business or the ownership of their properties, including, without
limitation, any violation relating to any use, release, storage, transport or
disposal of any Hazardous Material, which violation would subject any Credit
Party or any of its officers to criminal liability or have a Material Adverse
Effect, and no notice of any such violation has been received.
 
4.20      Bank Accounts. Schedule 4.20 sets forth the account numbers and
locations of all bank accounts of the Credit Parties.
 
4.21     Subsidiaries. Except as set forth on Schedule 4.21, the Credit Parties
have no Subsidiaries.
 
4.22     Employee Matters. Except as set forth on Schedule 4.22, (a) the Credit
Parties’ employees are not subject to any collective bargaining agreement,
management agreement or consulting agreement, (b) no petition for certification
or union election is pending with respect to the employees of Borrower and no
union or collective bargaining unit has sought such certification or recognition
with respect to the employees of the Credit Parties and (c) there are no
strikes, slowdowns, work stoppages or controversies pending or threatened
between the Credit Parties and their employees, other than employee grievances
arising in the ordinary course of business which could not reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect. Except as set forth on Schedule 4.22, the Credit Parties are not subject
to any employment contracts.
 
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4.23    Governmental Regulation. The Credit Parties are not, and, after giving
effect to any borrowing hereunder, will not be, subject to regulation under the
Public Utility Holding Company Act of 1935, the Federal Power Act or the
Investment Company Act of 1940 or to any foreign, federal or state statute or
regulation limiting their ability to incur indebtedness for borrowed money.
 
4.24    Receivables and Payables. As of the Closing Date the Credit Parties’
receivables and payables are as set forth in detail on Schedule 4.24, all of
which are respectively collectible and payable in the ordinary course of
business in accordance with the usual terms and conditions of the Credit
Parties’ businesses, except for uncollectible receivables arising in the
ordinary course of business, and the Credit Parties have no knowledge of any
fact or circumstance not already disclosed to Lender in writing which could
impair the validity or collectibility of any Account.
 
4.25     Trade Relations. Except as set forth on Schedule 4.25, as of the
Closing Date there exists no actual or, to the knowledge of the Credit Parties,
threatened, termination, limitation or cancellation of, or any material adverse
modification or change in the business relationship of the Credit Parties with
any customer or supplier or group of customers or suppliers, either individually
or in the aggregate, material to their operations.
 
4.26    Absence of Defaults. Except as set forth on Schedule 4.26, as of the
Closing Date the Credit Parties are not in default under their respective
articles/certificates of incorporation, certificates of formation, by-laws,
operating agreements or similar entity governance documents, and no event has
occurred, which has not been remedied (to the extent expressly permitted
hereunder) or waived in writing by Lender, which constitutes a Default or an
Event of Default, or which constitutes, or which with the passage of time or
giving of notice or both would constitute, a default or event of default by any
Credit Party under any material agreement or judgment, decree or order to which
such Credit Party is a party or by which any Credit Party’s properties may be
bound or which would require any Credit Party to make any payment under any of
the foregoing prior to the scheduled maturity date therefor.
 
4.27     Loans to Shareholders, Directors, Officers or Affiliates. Except as set
forth in detail on Schedule 4.27, the Credit Parties have not made any loans or
advances to or for the benefit of any shareholder, director, officer or
Affiliate of the Credit Parties, nor will any such loans or advances be made
while the Obligations are outstanding except for loans that constitute Permitted
Investments.
 
4.28     Projections. The projections (“Projections”) attached hereto as
Schedule 4.28 (a) fairly represent the Credit Parties’ financial projections for
the period covered thereby, and (b) were prepared in a manner consistent with
GAAP. The Projections and pro forma financial information contained in such
materials are based upon good faith estimates and assumptions believed by the
Credit Parties to be reasonable at the time made, it being recognized by Lender
that such projections as to future events are not to be viewed as facts and that
actual results during the period or periods covered by any such projections may
differ from the projected results.
 
4.29    Surety Obligations. None of the Credit Parties is obligated as surety or
indemnitor under any bond or other contract that assumes payment or performance
of any obligation of any Person, except as permitted hereunder.
 
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SECTION 5 AFFIRMATIVE COVENANTS
 
The Credit Parties covenant and agree that until payment and performance in full
of all monetary Obligations hereunder unless Borrower has received the prior
written consent of Lender, each Credit Party shall perform and shall cause each
of its Subsidiaries to perform all covenants in this Section 5 applicable to
such Person.
 
5.1    Financial Statements and Other Reports. Credit Parties and their
Subsidiaries shall maintain a system of accounting and keep such books, records
and accounts (which shall be true and complete in all material respects), as may
be required or as may be necessary to permit the performance of an annual audit
and the preparation of financial statements in accordance with GAAP,
consistently applied. Credit Parties and their Subsidiaries will deliver to
Lender the financial statements and other reports described below until payment
and performance in full of all Obligations. All financial statements to be
delivered hereunder may be delivered by facsimile, regular or express mail or by
hand, but shall also be delivered in electronic form using the Microsoft
Excel.xls format.
 
(A)  Monthly Financials. As soon as available and in any event within thirty
(30) days after the end of each month, and including, without limitation, each
March, June, September and December, the Credit Parties will deliver (1) the
consolidated and consolidating balance sheet of the Credit Parties as at the end
of such month and the related consolidated and consolidating statements of
income, stockholder’s or member’s (as the case may be) equity and cash flow for
such month and for the period from the beginning of the then current Fiscal Year
to the end of such month; provided, however, that for the months of July and
August 2007, the Credit Parties shall not be required to deliver the
consolidated balance sheet, statements of income, stockholder’s or member’s cash
flow (as the case may be) for such month, but shall deliver unconsolidated
balance sheets, statements of income, stockholders’ or members’ cash flow (as
the case may be) for such months, and (2) a schedule of the outstanding
Indebtedness for borrowed money of the Credit Parties describing in reasonable
detail each such debt issue or loan outstanding and the principal amount and
amount of accrued and unpaid interest with respect to each such debt issue or
loan. 
 
(B)  Quarterly Financials. In addition to the relevant monthly financial
statements referred to in Section 5.1(A), as soon as available and in any event
within fifty (50) days after the end of each quarter of each Fiscal Year, the
Credit Parties and their Subsidiaries will deliver the Consolidated and
consolidating balance sheet of the Credit Parties and their Subsidiaries, as
adjusted in conformity with GAAP, as at the end of such period and the related
consolidated and consolidating statements of income, stockholder’s or member’s
(as applicable), equity and cash flow for such quarter of such Fiscal Year and
for the period from the beginning of the then current Fiscal Year to the end of
such quarter of such Fiscal Year.
 
(C)  Year-End Financials. In addition to the relevant monthly and quarterly
financial statements referred to in Section 5.1(A) and 5.1(B), as soon as
available and in any event within one hundred five (105) days after the end of
each Fiscal Year, the Credit Parties and their Subsidiaries will deliver to
Lender: (1) the audited Consolidated and consolidating balance sheet of the
Credit Parties and their Subsidiaries as at the end of such year and the related
consolidated and consolidating statements of income, stockholder’s or member’s
(as applicable) equity and cash flow for such Fiscal Year; (2) a schedule of the
outstanding Indebtedness of the Credit Party and their Subsidiaries describing
in reasonable detail each such debt issue or loan outstanding and the principal
amount and amount of accrued and unpaid interest with respect to each such debt
issue or loan; (3) a report with respect to the financial statements from
Virchow, Krouse and Company LLP or another firm of independent certified public
accountants selected by Borrower and reasonably acceptable to Lender, which
report shall be unqualified as to going concern and scope of audit of the Credit
Parties and their Subsidiaries and shall state (a) that such financial
statements present fairly the financial position of the Credit Parties and their
Subsidiaries as at the dates indicated and the results of their operations and
cash flow for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years and (b)  that the examination by such accountants in
connection with such financial statements has been made in accordance with
generally accepted auditing standards and (c) such accountants acknowledge that
Lender is relying on such statements.
 
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(D)  Accountants’ Certification and Reports. Promptly upon receipt thereof, the
Credit Parties and their Subsidiaries will deliver (i) copies of all reports
submitted to the Credit Parties and their Subsidiaries by their independent
public accountants in connection with each annual, interim or special audit or
review of the financial statements or financial controls of the Credit Parties
and their Subsidiaries made by such accountants, including the comment letter
submitted by such accountants to management or any member or committee of the
Credit Parties and their Subsidiaries in connection with their annual, interim
or special audit or review, and (ii) a certificate of the independent public
accountants who performed such annual, interim or special audits or review, to
the effect that, in making the examination necessary for the audits or review,
they have obtained no knowledge of any condition or event which constitutes a
Default or Event of Default, or if such accountants shall have obtained
knowledge of any such condition or event, specifying in such certificate each
such condition or event of which they have knowledge and the nature and status
thereof.
 
(E)  Management Report. Together with each delivery of financial statements of
the Credit Parties pursuant to subsections (A), (B) and (C) of this Section 5.1,
except as specified otherwise in Section 5.1 (E)(3) below, Borrower will deliver
a management report: (1) describing the operations and financial condition of
the Credit Parties and their Subsidiaries for the month then ended and the
portion of the current Fiscal Year then elapsed (or for the Fiscal Year then
ended in the case of year-end financials); (2) setting forth in comparative form
(x) the corresponding figures for such monthly and year-to-date (or yearly, if
applicable) periods as set forth in the Projections (or, if applicable, the
yearly projections delivered to Lender under Section 5.1(F) below) and (y) the
corresponding figures for the corresponding monthly and year-to-date (or yearly,
if applicable) period in the previous Fiscal Year, in each case setting forth
the variances between the current figures and the corresponding figures from the
applicable Projections or projections and prior Fiscal Year; (3) with respect
only to the financial statements to be delivered pursuant to subdivisions (B)
and (C) of this Section 5.1, setting forth a schedule showing the calculation of
the financial covenants specified in Section 6.18; (4) a copy of any written
statements or reports made to Senior Lender during the period under review; and
(5) a true and complete copy of the applicable month end borrowing base
certificate delivered by Borrower to Senior Lender. The information above shall
be presented in reasonable detail and shall be certified (the “Officer’s
Certificate”) (which such Officer’s Certificate shall be reasonably satisfactory
to Lender in form and substance) on behalf of the Credit Parties and their
Subsidiaries by the chief financial officer, director of finance, chief
executive officer or president of Borrower to the effect that (i) such
information is accurate and complete in all material aspects or, in the case of
financial statements, fairly presents the results of operations and financial
condition of the Credit Parties and their Subsidiaries as at the dates and for
the periods indicated, (ii) as of the date of such certification, there does not
exist any Default or Event of Default or, if an Event of Default or Default
existed, describing the nature and period of existence thereof and the action
which the Credit Parties and their Subsidiaries propose to take or have taken
with respect thereto, and (iii) the representations and warranties contained in
this Agreement and in the other Loan Documents remain in full force and effect
and are true and accurate in all respects as of the date of delivery of the
management report, except (x) to the extent such representations and warranties
relate solely and expressly to an earlier date, (y) for revisions or updates to
any Schedule(s) approved by Lender pursuant to Section 5.16, and (z) for such
changes in circumstances of the Credit Parties and their Subsidiaries that are
expressly permitted under this Agreement.
 
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(F)  Projections. At least sixty (60) days before the beginning of each Fiscal
Year of the Credit Parties, the Credit Parties and their Subsidiaries shall
deliver to Lender the projected Consolidated and consolidating balance sheets
and income and cash flow statements of the Credit Parties and their Subsidiaries
for each month of such Fiscal Year, each in reasonable detail, reporting the
Credit Parties’ good faith projections and certified by the Credit Parties’
chief financial officer as being the most accurate projections available and
identical to the projections used by the Credit Parties and their Subsidiaries
for internal planning purposes, together with a statement of underlying
assumptions and such supporting schedules and information as Lender may in its
discretion require.
 
(G)  Financial Statements for Alfred Lam. As soon as available, and in any event
within one hundred twenty (120) days after the close of each Fiscal Year,
Borrower shall deliver to Lender financial statements for Alfred Lam, in form
and substance satisfactory to Lender.
 
(H)  Revolving Advance Requests. Borrower shall deliver to the Lender,
simultaneously with delivery thereof to Senior Lender, true, complete and
accurate copies of each request for Revolving Advances (as defined in the Senior
Financing Agreement) delivered by Borrower to Senior Lender from time to time
pursuant to the Senior Financing Agreement.
 
(I)  Tax Returns. Within twenty (20) days after the filing thereof, the Credit
Parties shall deliver to Lender a copy of the annual federal (and, if requested
by Lender, state or other) tax return (and any amended return) of the Credit
Parties, certified by the chief financial officer or chief executive officer of
such Credit Party to be accurate and complete in all material respects. 
 
(J)  Government Notices. The Credit Parties will deliver to Lender promptly
after receipt copies of all notices, requests, subpoenas, inquiries or other
writings received from any governmental agency concerning the violation or
alleged violation of any Environmental Laws, the storage, use or disposal of any
Hazardous Material, the violation or alleged violation of the Fair Labor
Standards Act or the Credit Parties’ payment or non-payment of any taxes
including any tax audit.
 
(K)      Events of Default, etc. Within three (3) Business Days following the
day any officer of any Credit Party obtains knowledge of any of the following
events or conditions, the Credit Parties shall deliver to Lender a certificate
signed by Borrower’s chief executive officer or president specifying the nature
and period of existence of such condition or event and what action the Credit
Parties have taken, are taking, and propose to take, with respect to: (1) any
condition or event that constitutes an Event of Default or Default; (2) any
notice of material default that any Person has given to any Credit Party or any
other action taken with respect to a claimed material default under any
contractual or other obligation; (3) any matter which has had or could
reasonably be expected to have a Material Adverse Effect; (4) the resignation or
termination of Alfred Lam or (5) the chief executive officer or chief financial
officer resigns, is terminated or ceases to exercise the rights and duties of
their respective office.
 
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(L)  Trade Names. The Credit Parties will give Lender at least thirty (30) days
advance written notice of any change of name or of any new trade name or
fictitious business name. Any Credit Party’s use of any trade name or fictitious
business name will be in compliance with all laws regarding the use of such
names.
 
(M)     Locations. The Credit Parties will give Lender at least thirty (30) days
advance written notice of any change in any Credit Party’s principal place of
business or any change in the location of their books and records or the
Collateral or of any new location for their books and records or the Collateral.
 
(N)      Bank Accounts. The Credit Parties will give Lender prompt notice of any
new bank accounts any Credit Party intends to establish prior to their opening
same, and if required by Lender, the Credit Parties will cause such bank
accounts to be subject to a control agreement in favor of Lender.
 
(O)  Certified Public Accountants. Within three (3) Business Days of the
resignation or termination of the Credit Parties’ current certified public
accountants Virchow, Krouse and Company LLP or any certified public accountants
hereafter engaged by the Credit Parties with Lender’s prior written consent, the
Credit Parties shall notify Lender in writing of such occurrence and the
reason(s) therefor.
 
(P)  Litigation. Within one (1) day after any officer of any Credit Party
obtains knowledge of (1) the institution of any action, suit, proceeding,
governmental investigation or arbitration against or affecting any Credit Party
or any property of the Credit Parties not previously disclosed by the Credit
Parties to Lender in writing or (2) any material development in any action,
suit, proceeding, governmental investigation or arbitration at any time pending
against or affecting the Credit Parties or any property of the Credit Parties
which, in the case of the preceding clauses (1) or (2), could reasonably be
expected to have a Material Adverse Effect, the Credit Parties will promptly
give written notice thereof to Lender and provide such other information as may
be reasonably available to them to enable Lender and its counsel to evaluate
such matter.
 
(Q)  Other Information. With reasonable promptness, the Credit Parties shall
deliver such other information and data as may be available to and disclosable
by the Credit Parties with respect to any Credit Party, or the Collateral as
Lender may reasonably request from time to time.
 
5.2       Access to Accountants. The Credit Parties authorize Lender to discuss
the financial condition and financial statements of the Credit Parties with the
Credit Parties’ independent public accountants upon reasonable notice to the
Credit Parties of Lender’s intention to do so, and irrevocably authorize and
direct such accountants to respond to all of Lender’s inquiries relating to the
Credit Parties’ financial condition and financial statements and furnish Lender
with all such documentation as Lender may reasonably request. The Credit Parties
release their independent public accountants from any liability for furnishing
the information and documents required by Lender. On the Closing Date, the
Credit Parties shall deliver to Lender a written and irrevocable letter
addressed to the Credit Parties’ accountants directing them to comply with the
provisions of this Section 5.2.
 
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5.3    Inspection. The Credit Parties shall, at the Credit Parties’ cost and
expense, permit Lender and any authorized representatives designated by Lender
to visit and inspect any of the properties of the Credit Parties, including
their financial and accounting records, and in conjunction with such inspection,
to make copies and take extracts therefrom, and to discuss their affairs,
finances and business with their officers and independent public accountants, at
such reasonable times during normal business hours and as often as may be
reasonably requested. 
 
5.4   Collateral Records. The Credit Parties shall keep full and accurate books
and records relating to the Collateral and, promptly after being requested by
Lender, shall mark such books and records to indicate Lender’s security
interests in the Collateral.
 
5.5   Account Covenants; Verification. The Credit Parties shall, at their own
expense use their best efforts to assure prompt payment of all amounts due or to
become due under the Accounts. No discounts, credits or allowances (other than
normal prompt payment discounts and customer promotional arrangements discounts)
will be issued, granted or allowed by the Credit Parties to customers, other
than in the ordinary course of business, and no returns will be accepted,
without Lender’s prior written consent, except in the ordinary course of
business and to the extent authorized under the Senior Financing Agreement or
authorized by the Senior Lender. The Credit Parties will promptly notify Lender
in the event that a customer alleges any material dispute or claim with respect
to an Account or Accounts in excess of Five Thousand Dollars ($5,000)
individually or Ten Thousand Dollars ($10,000) in the aggregate during any
fiscal year or of any other circumstances known to the Credit Parties that may
impair, in any material respect, the validity or collectibility of the Accounts
so as to cause a Material Adverse Effect. Lender shall have the right, at any
time or times hereafter, to verify the validity, amount or any other matter
relating to an Account, by mail, telephone or in person. After the occurrence
and during the continuance of an Event of Default, the Credit Parties shall not,
without the prior consent of Lender, adjust, settle or compromise the amount or
payment of any Account, or release wholly or partly any customer or obligor
thereof, or allow any credit or discount thereon, except to the extent
authorized by the Senior Financing Agreement or by the Senior Lender. 
 
5.6    Endorsement. Upon the occurrence of and during the continuance of an
Event of Default, Borrower hereby constitutes and appoints Lender and all
Persons designated by Lender for that purpose as the Credit Parties’ true and
lawful attorney-in-fact, with power to endorse the Credit Parties’ names to any
check or other instrument and all proceeds of Collateral that come into Lender’s
possession or under Lender’s control. Both the appointment of Lender as the
Credit Parties’ attorney and Lender’s rights and powers are coupled with an
interest and are irrevocable until payment in full and complete performance of
all of the Obligations.
 
5.7    Corporate Existence. Each Credit Party will at all times preserve and
keep in full force and effect its corporate existence and all rights and
franchises material to its business. Each Credit Party will notify Lender within
one (1) Business Day of any change in its ownership or corporate structure.
 
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5.8    Payment of Taxes. The Credit Parties will pay all Taxes imposed upon them
or any of their properties or assets or with respect to any of their franchises,
businesses, income or property before any penalty accrues thereon, provided that
no such tax need be paid if the Credit Parties are contesting the same in good
faith by appropriate proceedings promptly instituted and diligently conducted
and if the Credit Parties have established appropriate reserves as shall be
required in conformity with GAAP or as required by the IRC.
 
5.9    Maintenance of Properties; Insurance. The Credit Parties will maintain or
cause to be maintained in good repair, working order and condition, normal wear
and tear excepted, all properties used in the businesses of the Credit Parties
and will make or cause to be made all appropriate repairs, renewals and
replacements thereof, and will protect and preserve all material registered or
registrable Intellectual Property (now or hereafter existing). The Credit
Parties will maintain or cause to be maintained, with financially sound and
reputable insurers (rated A+ or better by Best Rating Guide), public liability,
worker’s compensation, property damage, larceny, embezzlement, or other criminal
misappropriation insurance with respect to their businesses and properties
against loss or damage of the kinds customarily carried or maintained by
corporations of established reputation engaged in similar businesses and in
amounts reasonably acceptable to Lender. Subject to the rights of the Senior
Lender, the Credit Parties shall cause Lender to be named as “lender’s loss
payee” on all insurance policies relating to any Collateral and as “additional
insured” under all liability policies, in each case pursuant to appropriate
endorsements in form and substance reasonably satisfactory to Lender and shall,
subject to the Intercreditor Agreement, collaterally assign to Lender as
security for the payment of the Obligations all business interruption insurance
of the Credit Parties. Subject to the rights of the Senior Lender, the Credit
Parties shall apply any proceeds received from any policies of insurance
relating to any Collateral to the Obligations. 
 
5.10     Compliance with Laws. Except to the extent provided in Schedule 4.19,
the Credit Parties will comply with the requirements of all applicable laws,
rules, regulations and orders of any governmental authority as now in effect and
which may be imposed in the future in all jurisdictions in which the Credit
Parties are now doing business or may hereafter be doing business, except to the
extent that non-compliance with such laws, rules, regulations and orders the
noncompliance with which could not reasonably be expected to have a Material
Adverse Effect.
 
5.11     Further Assurances. The Credit Parties will, from time to time, execute
such guaranties, financing or continuation statements, security agreements,
reports and other documents or deliver to Lender such instruments, certificates
of title or other documents as Lender may reasonably request to evidence,
perfect or otherwise implement the guaranties and security for repayment of the
Obligations provided for in the Loan Documents. At Lender’s request, the Credit
Parties shall cause any wholly-owned or substantially wholly-owned Subsidiaries
of Borrower promptly to guaranty the Obligations and to grant to Lender security
interests in the real, personal and mixed property of such Subsidiary to secure
the Obligations (it being acknowledged that the creation of Subsidiaries is
restricted by Section 6.10).
 
5.12      Collateral Locations. The Credit Parties will keep the Collateral
(other than in-transit Collateral, including Inventory, Equipment and supplies
and materials or Collateral that is otherwise moved in the ordinary course of
business) at the locations specified on Schedule 4.7; provided, however, that
the Credit Parties may amend Schedule 4.7 so long as such amendment occurs by
written notice to Lender not less than thirty (30) days prior to the date on
which such Collateral is moved. With respect to any new location (which with
respect to Borrower, in any event shall be within the continental United
States), the Credit Parties will execute such documents and take such actions as
Lender deems necessary to perfect and protect the security interests of Lender
in the Collateral prior to the transfer or removal of any Collateral to such new
location.
 
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5.13      Bailees. If any Collateral is at any time in the possession or control
of any warehouseman, bailee or any of the Credit Parties’ agents or processors,
the Credit Parties shall, upon the request of Lender, notify such warehouseman,
bailee, agent or processor of the security interests in favor of Lender created
hereby, shall instruct such Person to hold all such Collateral for Lender’s
account subject to Lender’s instructions and shall cause such Person to execute
an access and waiver agreement reasonably acceptable to Lender.
 
5.14     Use of Proceeds and Margin Security. The Credit Parties shall use the
proceeds of all Loans for proper business purposes (as described in Section 2.2)
consistent with all applicable laws, statutes, rules and regulations. No portion
of the proceeds of any Loan shall be used by the Credit Parties for the purpose
of purchasing or carrying of margin stock within the meaning of Regulation U, or
in any manner that might cause the borrowing or the application of such proceeds
to violate Regulation T or Regulation X or any other regulation of the Board of
Governors of the Federal Reserve System, or to violate the Exchange Act.
 
5.15     Observer and Other Rights. The Credit Parties shall hold regularly
scheduled meetings of the directors at least quarterly, and Lender shall have
the right from time to time (i) to designate a representative to attend and
serve as an observer at such meetings and who shall have the right to receive
twenty-eight (28) days prior notice of any quarterly meeting (specifying the
matters to be discussed or acted upon) of the directors of the Credit Parties,
and (ii) to receive on a timely basis and simultaneously with receipt thereof by
directors, copies of all written information provided to the directors of the
Credit Parties. Borrower agrees to reimburse Lender for all of its reasonable
hotel, travel, meals and other out-of-pocket expenses incurred by Lender’s
representative in attending any meeting of directors of any Credit Party, if
any, upon presentation of invoices or other documentation of such expenses. The
first meeting of the directors of Borrower shall be held on or about
September 1, 2007.
 
5.16    Revisions or Updates to Schedules. Should any of the information or
disclosures provided on any of the Schedules originally attached hereto become
outdated or incorrect in any material respect, the Credit Parties shall deliver
to Lender, along with the Officer’s Certificate required under Section 5.1(E),
such revisions or updates to such Schedule(s) as may be necessary or appropriate
to update or correct such Schedule(s), provided, that no such revisions or
updates to any Schedule(s) shall be deemed to have amended, modified or
superseded such Schedule(s) as originally attached hereto, or to have cured any
breach of warranty or representation resulting from the inaccuracy or
incompleteness of any such Schedule(s), unless and until Lender, in the exercise
of its reasonable credit judgment, shall have accepted in writing such revisions
or updates to such Schedule(s). Without limiting the generality of the foregoing
or of Section 5.1(E), each representation and warranty contained in this
Agreement and the other Loan Documents shall be continuous in nature and shall
remain accurate, complete and not misleading in all material respects at all
times during the term of this Agreement, except for revisions or updates to any
Schedule(s) approved by Lender pursuant to the preceding sentence and such
changes in the circumstances of the Credit Parties that are expressly permitted
under this Agreement.
 
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5.17      Accounting Methods and Financial Records. The Credit Parties shall
maintain a system of accounting, and keep such books, records and accounts
(which shall be true and complete in all material respects), as may be required
or as may be necessary to permit the performance of an annual audit and the
preparation of financial statements in accordance with GAAP, consistently
applied.
 
5.18     Life Insurance. Borrower shall obtain and thereafter maintain a life
insurance policy on the life of Alfred Lam in the amount of One Million Dollars
($1,000,000), and collaterally assign and deliver such policy to Lender (in form
and substance satisfactory to Lender) as additional Collateral for the
Obligations within Thirty (30) days of the Closing Date. Without the prior
written consent of Lender, Borrower shall not cancel, terminate, modify or amend
said life insurance policy or the coverages thereunder, nor shall it borrow
against same, further assign, hypothecate or alienate its interest in same. 
 
5.19      Accuracy of Information. All written information, reports, statements
and other papers and data furnished to Lender, whether pursuant to this
Section 5 or any other provision of this Agreement or of any other Loan
Document, shall be, at the time the same is so furnished, complete and correct
in all material respects (subject to the provisions regarding Projections set
forth in Section 4.28) to the extent necessary to give Lender true and accurate
knowledge of the subject matter thereof.
 
5.20     Notice of Management Changes. The Credit Parties shall provide notice
to Lender via e-mail and telephone to one of the managing partners of Lender
within one (1) Business Day following the occurrence of the following: Alfred
Lam leaves his office for whatever reason or ceases to exercise the rights and
duties of such office. After such notice, the Credit Parties shall, within three
(3) Business Days, provide written notice in accordance with Section 8.6 of this
Agreement of any of the foregoing occurrence.
 
5.21     Landlord Waiver. Borrower shall deliver to Lender, a landlord waiver
(together with copy of the related lease), in form and substance satisfactory to
Lender, for the premises located at 153-04 Rockaway Blvd, Jamaica, New York
11434.
 
5.22     Landlord and Storage Agreements. Borrower shall deliver to Lender
copies of all existing agreements, and promptly after execution thereof, provide
the Lender with copies of all future agreements, between any Credit Party and
any landlord, warehouseman, processor, shipper, bailee or other Person that owns
any premises at which any Collateral may be kept or that otherwise may possess,
control or handle any Collateral. 
 
SECTION 6 NEGATIVE COVENANTS
 
The Credit Parties covenant and agree that until payment and performance in full
of all monetary Obligations hereunder unless Borrower has received the prior
written consent of Lender, each Credit Party shall perform and shall cause each
of its Subsidiaries to perform all covenants in this Section 6 applicable to
such Person.
 
6.1    Indebtedness and Liabilities. The Credit Parties shall not directly or
indirectly create, incur, assume, guaranty, or otherwise become or remain
directly or indirectly liable, on a fixed or contingent basis, with respect to
any Indebtedness except: (a) the Obligations; (b) Capital Leases and purchase
money financing for Equipment entered into in the ordinary course of business
(subject to Section 6.18); (c) trade payables and normal accruals in the
ordinary course of business not yet due and payable or with respect to which the
Credit Parties are contesting in good faith the amount or validity thereof by
appropriate proceedings and then only to the extent that the Credit Parties have
established adequate reserves therefor, if appropriate under GAAP,
(d) shareholder debt, so long as each obligee of shareholder debt, prior to or
contemporaneously with the incurrence of the shareholder debt, shall have
subordinated the right of such obligee to receive payments thereon pursuant to a
subordination agreement in favor of Lender in form and substance satisfactory to
Lender, and subordinated debt permitted under Section 6.10 below,
(e) Indebtedness described in Section 4.4(a) hereof, (f) Permitted Indebtedness,
and (g) the Senior Indebtedness.
 
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6.2    Guaranties. Except as set forth on Schedule 6.2 and except for the
Guaranties and endorsements of instruments or items of payment for collection in
the ordinary course of business, the Credit Parties shall not guaranty, endorse,
or otherwise in any way become or be responsible for any obligations of any
other Person, whether directly or indirectly, by agreement to purchase the
Indebtedness of any other Person or through the purchase of goods, supplies or
services, or maintenance of working capital or other balance sheet covenants or
other financial conditions, or by way of stock purchase, capital contribution,
advance or loan for the purpose of paying or discharging any indebtedness or
obligation of such other Person or otherwise.
 
6.3    Transfers, Liens and Related Matters.
 
(A)  Transfers. The Credit Parties shall not sell, assign (by operation of law
or otherwise) or otherwise dispose of, or grant any option with respect to any
of the Collateral or other assets, except that the Credit Parties may (i) sell
Inventory and dispose of obsolete or excess Equipment in the ordinary course of
business; and (ii)  make other Asset Dispositions (subject to Section 2.5(D)
above) if all of the following conditions are met: (1) the aggregate market
value of assets sold or otherwise disposed of does not exceed Seventy-Five
Thousand Dollars ($75,000) in the aggregate during any period of twelve
consecutive month; (2) the consideration received is at least equal to the fair
market value of such assets; (3) the sole consideration received is cash; and
(4) no Default or Event of Default shall then exist or shall result from such
Asset Disposition. 
 
(B)  Liens. Except for Permitted Encumbrances, the Credit Parties shall not
directly or indirectly create, incur or assume (or agree to create, incur or
assume) or permit to exist any Lien on or with respect to any of the Collateral
or other assets or any proceeds, income or profits therefrom.
 
(C)   No Pledge Restrictions. The Credit Parties shall not enter into or assume
any agreement (other than the Loan Documents, the Senior Financing Agreement,
and any document evidencing or governing Permitted Indebtedness) restricting the
creation or assumption of any Lien upon any of their properties or assets,
whether now owned or hereafter acquired.
 
6.4    Restricted Payments. The Credit Parties and their Subsidiaries shall not
directly or indirectly declare, order, pay, make or set apart any sum for any
Restricted Payment, except as expressly permitted in this Agreement or any other
Loan Document, except that as long as no Event of Default has occurred and is
continuing or would occur hereunder as a result of such payment(s), Borrower may
make distributions to its directors in an aggregate amount equal to each
director’s actual federal, state and local income tax liability for any
applicable tax year (or applicable portion thereof) attributable to each such
director’s taxable income, for each taxable year (or portion thereof) of the
Credit Parties and their Subsidiaries, provided further that (x) as a condition
precedent to any such payment, the Credit Parties and their Subsidiaries shall
(1) deliver to Lender a letter, in form and substance reasonably satisfactory to
Lender, from their independent public accountants, detailing the amount
necessary to be applied to the applicable period with respect to which such tax
payment is to be made, and (2) such payment or distribution shall be limited to
amount(s) specified in said letter; and (y) after any redetermination of the
Credit Parties and their Subsidiaries’ taxable income for such period, each of
the Credit Parties’ directors shall be obligated to repay to such Credit Party
the aggregate amount (if any) by which such distribution exceeded the allocable
amount of such director’s actual tax liability.
 
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6.5    Restriction on Fundamental Changes. The Credit Parties shall not:
(a) undergo a Change of Control; or (b) except with thirty (30) days prior
written notice to Lender, change their jurisdiction of incorporation, type of
organization (as defined in the UCC) tax, charter or other organizational
number, or their legal name/s; or (c) acquire by purchase or otherwise all or
substantially all of the assets of, or stock or other evidence of beneficial
ownership, of any Person or any business division of any Person without Lender’s
prior written consent; or (d) merge into or consolidate with any other Person,
except that any Subsidiary of Borrower may merge into or consolidate with
Borrower or any other wholly-owned Subsidiary of Borrower; or (e) liquidate,
wind up their affairs or undergo any dissolution. 
 
6.6    Transactions with Affiliates. Except as set forth on Schedule 6.6, the
Credit Parties shall not directly or indirectly, enter into or permit to exist
any transaction (including the purchase, sale or exchange of property or the
rendering of any service) with any Affiliate or with any officer, director or
employee of any Credit Party, except for (subject to Section 6.17) transactions
in the ordinary course of and pursuant to the reasonable requirements of the
Credit Parties’ businesses and upon fair and reasonable terms which are fully
disclosed to Lender and which are no less favorable to the Credit Parties than
they would obtain in a comparable arm’s length transaction with an unaffiliated
Person.
 
6.7    Environmental Liabilities. The Credit Parties shall not: (a) except to
the extent provided in Schedule 4.19, violate in any material respect any
applicable Environmental Law; (b) dispose of any Hazardous Materials (except in
accordance with applicable law) into, onto or from, any real property owned,
leased or operated by any Credit Party; or (c) permit any Lien imposed pursuant
to any Environmental Law to be imposed or to remain on any real property owned,
leased or operated by any Credit Party.
 
6.8    Conduct of Business. The Credit Parties shall not engage in any business
other than businesses of the type engaged in by the Credit Parties on the
Closing Date and any businesses reasonably related thereto without the prior
consent of Lender which consent shall not be unreasonably withheld, conditioned
or delayed.
 
6.9    Compliance with ERISA. The Credit Parties shall not establish any new
Employee Benefit Plan or Foreign Plan or amend any existing Employee Benefit
Plan or Foreign Plan after the Closing Date if the liability or increased
liability resulting from such establishment or amendment could reasonably be
expected to have a Material Adverse Effect. The Credit Parties shall establish,
maintain and operate each Employee Benefit Plan and Foreign Plan in compliance
in all material respects with the provisions of ERISA, the IRC and all other
applicable laws and the regulations and interpretations thereof. No Foreign
Subsidiary of Borrower shall establish any employee pension plan or employee
benefit and/or welfare plans or amend any existing employee pension plan or
employee benefit and/or welfare plans if the liability or increased liability
resulting from such establishment or amendment could reasonably be expected to
have a Material Adverse Effect, and each Foreign Subsidiary shall establish
maintain and operate each employee pension plan or employee benefit and/or
welfare plans in compliance in all material respects with all applicable
provisions of all laws, and all regulations and interpretations thereof, of all
applicable foreign government(s) (whether of any foreign national government or
any agency or instrumentality of or province, county, district, department,
subdivision or local unit of any such foreign national government) regarding
such employee pension plans or employee benefit and welfare plans with respect
to each employee pension plan or employee benefit and/or welfare plans
maintained by such Foreign Subsidiary.
 
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6.10     Subsidiaries. The Credit Parties shall not establish, create or acquire
any Subsidiaries after the Closing Date unless (i) Lender grants its prior
written consent thereto (such consent not to be unreasonably withheld,
conditioned, or delayed); (ii) the Credit Parties shall have given Lender not
less than twenty (20) days prior written notice of the proposed establishment,
creation or acquisition which notice shall include, in reasonable detail, (x) a
description of the proposed transaction including all relevant financial
information, and (y) a subordination agreement to and in favor of Lender of any
Indebtedness to be incurred by the Credit Parties in making the proposed
transaction; (iii) such Subsidiary conducts substantially the same business as
is being conducted by the Credit Parties; (iv) such transaction otherwise
complies with the provisions of this Agreement; (v) no Event of Default shall
have occurred and remain outstanding at the time such transaction occurs, or
would occur after giving effect to such transaction; (vi) such Subsidiary shall
have bound itself as a party to this Agreement or as guarantor of the
Obligations of the Credit Parties, on such terms and conditions as Lender may
reasonably require; and (vii) such Subsidiary shall have granted to Lender, and
Lender shall have perfected, a first priority lien on, and security interest in,
all of its personal property and real property (if so requested by Lender),
subject to Permitted Encumbrances and to the Intercreditor Agreement. 
 
6.11     Fiscal Year; Tax Consolidation. The Credit Parties shall not change
their Fiscal Year or adopt a Fiscal Year other than the Fiscal Year for tax or
accounting purposes. The Credit Parties shall not file or consent to the filing
of any Consolidated income tax return with any Person other than the Credit
Parties and their Subsidiaries.
 
6.12     Press Release; Public Offering Materials. The Credit Parties shall not
disclose the name of Lender in any press release or in any prospectus, proxy
statement or other materials filed with any governmental entity relating to a
public offering of the Capital Stock of any Credit Party, except as may be
required by law or with Lender’s prior written approval.
 
6.13     Bank Accounts. The Credit Parties shall not establish any new bank
accounts, or amend or terminate any blocked account or lockbox agreement without
Lender’s prior written consent (such consent not to be unreasonably withheld,
conditioned or delayed).
 
6.14         Charter Documents. The Credit Parties shall not amend or otherwise
modify their articles of incorporation or bylaws (or equivalent charter
documents) or any existing shareholder’s agreement or similar agreement (all of
such agreements having been previously delivered to Lender) in a manner which
could impact Lender’s rights under the Loan Documents or enter into any new
shareholder’s agreement or similar agreement.
 
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6.15     No Impairment of Restricted Payments. The Credit Parties shall not
directly or indirectly enter into or become bound by any agreement, instrument,
indenture or other obligation (other than this Agreement and the other Loan
Documents, the Senior Financing Agreement and any agreement evidencing or
governing Permitted Indebtedness) which could directly or indirectly restrict,
prohibit or require the consent of any Person with respect to the making of any
Restricted Payment by the Credit Parties. 
 
6.16     Advances, Loans or Investments. Except for Permitted Investments and as
otherwise expressly permitted hereunder, the Credit Parties shall not make any
advance or loan to, or any investment in, or purchase or acquire all or
substantially all of the stock, equity, assets or Accounts of any Person or any
business division of any Person.
 
6.17     Management or Consulting Fees. Except as expressly permitted hereunder,
the Credit Parties shall not pay any management, consulting or other similar
fees to any Affiliate.
 
6.18     Financial Covenants. The Credit Parties, and their Subsidiaries, as
applicable, shall not fail to maintain or keep in full force and effect, any of
the financial covenants set forth below. The calculation and determination of
each such financial covenant, and all accounting terms contained therein, shall
be so calculated and construed in accordance with GAAP, applied on a consistent
basis with the financial statements of the Credit Parties, and their
Subsidiaries, as applicable, delivered on or before the Closing Date: 
 
(A)  Aggregate Indebtedness. The aggregate principal amount of all Indebtedness
of the Credit Parties, including the Obligations shall not exceed (Eleven
Million Dollars ($11,000,000) and, in the case of the Credit Parties and their
Subsidiaries, Twenty-Two Million Five Hundred Thousand Dollars ($22,500,000) at
any time.
 
(B)  Fixed Charge Coverage Ratio. The Credit Parties and their Subsidiaries, on
a Consolidated basis, shall maintain a Fixed Charge Coverage Ratio (a) during
each Fiscal Quarter of not less than .80 to 1.00, and (b) during each period of
four consecutive Fiscal Quarters of not less than 1.15 to 1.00.
 
(C)  Capital Expenditures. The Credit Parties and their Subsidiaries, on a
Consolidated basis, shall not make any Capital Expenditures during any Fiscal
Year, if after giving effect thereto, the aggregate amount of all such
expenditures made by the Credit Parties and their Subsidiaries, on a
Consolidated basis, exceeds One Million Five Hundred Thousand Dollars
($1,500,000) for each trailing twelve month period. 
 
(D)  Current Ratio. The Credit Parties and their Subsidiaries, on a Consolidated
basis, shall maintain a ratio of Current Assets to Current Liabilities of not
less than 1.10 to 1.00 at all times. 
 
(E)  Minimum Book Net Worth. The Credit Parties (excluding Parent), on a
Consolidated basis, shall maintain, for each period described below, Book Net
Worth, determined as of the end of each month, in an amount not less than the
amount set forth for each such period (numbers appearing between “< >” are
negative):
 
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Period Ending
 
Minimum Book Net Worth
 
As of September 30, 2007
 
$
530,000
 
As of December 31, 2007
 
$
1,165,000
 
As of March 31, 2008
 
$
1,200,000
 
As of June 30, 2008
 
$
2,133,000
 
As of September 30, 2008
 
$
2,040,000
 
As of December 31, 2008
 
$
2,635,000
 

 
(F)  Minimum Book Net Worth. The Credit Parties, on a Consolidated basis, will
maintain, for each period described below, Book Net Worth, determined as of the
end of each month, in an amount not less than the amount set forth for each such
period (numbers appearing between “< >” are negative):
 
Period Ending
 
Minimum Book Net Worth
 
As of September 30, 2007
 
$
3,375,000
 
As of December 31, 2007
 
$
4,725,000
 
As of March 31, 2008
 
$
4,575,000
 
As of June 30, 2008
 
$
5,165,000
 
As of September 30, 2008
 
$
6,360,000
 
As of December 31, 2008
 
$
7,620,000
 

 
(G)      Minimum Net Income. The Credit Parties (excluding the Parent), on a
Consolidated basis, will achieve, for each period described below, Net Income of
not less than the amount set forth for each such period (numbers appearing
between “< >” are negative):
 
Quarter Ending
 
Minimum Net Income
 
Nine months ending September 30, 2007
 
$
675,000
 
Twelve months ending December 31, 2007
 
$
1,300,000
 
Three months ending March 31, 2008
 
$
185,000
 
Six months ending June 30, 2008
 
$
375,000
 
Nine months ending September 30, 2008
 
$
1,030,000
 
Twelve months ending December 31, 2008
 
$
1,620,000
 

 
(H)  Minimum Net Income. The Credit Parties, on a Consolidated basis, will
achieve, for each period described below, Net Income of not less than the amount
set forth for each such period (numbers appearing between “< >” are negative): 
 
Quarter Ending
 
Minimum Net Income
 
Nine months ending September 30, 2007
   
<$2,390,000>
 
Twelve months ending December 31, 2007
   
<$790,000>
 
Three months ending March 31, 2008
 
$
480,000
 
Six months ending June 30, 2008
 

$

1,070,000
 
Nine months ending September 30, 2008
 
$
2,265,000
 
Twelve months ending December 31, 2008
 
$
3,525,000
 

 
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6.19     Executive Compensation. The maximum annual cash remuneration, whether
as salary, bonus, expenses, distributions or in any other form, payable by the
Credit Party and their Subsidiaries, if any, shall not exceed that set forth on
Schedule 6.19 to the persons named thereon. 
 
6.20     Certain Payments. The Credit Parties shall not make any payment on all
or part of the Subordinated Debt or any other Indebtedness subordinated to the
Obligations other than in strict compliance with the applicable written
subordination agreement.
 
6.21    Amendments to Subordinated Debt. The Credit Parties shall not amend,
supplement or otherwise modify any document, instrument or agreement relating to
any Subordinated Debt, if such modification (a) increases the principal of such
Subordinated Debt, or increases any required payment of principal or interest;
(b) accelerates the date on which any installment of principal or any interest
is due, or adds any additional redemption, put or prepayment provisions; (c)
shortens the final maturity date or otherwise accelerates amortization, (d)
increases the interest rate, (e) increases or adds any fees or charges, (f)
modifies any covenant in a manner or adds any representation, covenant or
default that that is more onerous or restrictive in any material respect for any
Credit Party, or that is otherwise materially adverse to any Credit Party or the
Lender, or (g) results in the Obligations not being fully benefited by the
subordination provisions thereof.
 
SECTION 7 DEFAULT, RIGHTS AND REMEDIES
 
7.1   Event of Default. “Event of Default” means the occurrence or existence of
any one or more of the following:
 
(A)     Payment. Failure to make payment of any of the Obligations when due,
and, in the case of fees, interest, costs or expenses, such failure shall not be
remedied within five (5) days of the applicable due date; or
 
(B)      Default in Other Agreements. (1) Failure of Borrower or any other
Credit Party to pay when due (or within any applicable grace period) any
principal or interest on any Indebtedness (other than the Obligations)
specifically including the Senior Indebtedness, or (2) default by Borrower or
any other Credit Party under any agreement or agreements evidencing any
Indebtedness, in either case in excess of Five Hundred Thousand Dollars
($500,000) in the aggregate (other than the Obligations) or pursuant to which
such Indebtedness was issued or governed, specifically including the Senior
Financing Agreement, if the effect of such default is to enable the holder of
such Indebtedness to accelerate the payment of such Person’s obligations which
are the subject thereof prior to the maturity date thereof or prior to the
regularly-scheduled date of payment thereof, and such default continues beyond
any applicable grace or cure period (whether or not the holder of such
Indebtedness actually accelerates such payment); or
 
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(C)   Breach of Certain Provisions. Failure of any Credit Party to perform or
comply with any term or condition contained in Sections 5.1 through 5.5 or
contained in Sections 5.7 through 5.22 or contained in Section 6; or
 
(D)  Breach of Representation or Warranty. Any representation, warranty,
certification or other statement made by any Credit Party in any Loan Document
or in any statement or certificate at any time given by such Person in writing
pursuant to or in connection with any Loan Document is false or misleading in
any material respect on the date made or reaffirmed; or
 
(E)  Other Defaults Under Loan Documents. Any Credit Party defaults in the
performance of or compliance with any term, provision, covenant or agreement
contained in this Agreement or the other Loan Documents (other than occurrences
described in other provisions of this Section 7.1); or
 
(F)  Involuntary Bankruptcy; Appointment of Receiver, etc. (1) A court enters a
decree or order for relief with respect to Borrower or any other Credit Party or
any of their respective properties in an involuntary case under the Bankruptcy
Code or any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect; or (2) Subject to Section 7.1(G), the continuance of any of
the following events for sixty (60) days unless dismissed or discharged: (a) an
involuntary case is commenced against Borrower or any other Credit Party, under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect; or (b) a decree or order of a court for the appointment of a receiver,
liquidator, sequestrator, trustee, custodian or other officer having similar
powers over Borrower or any other Credit Party, or over all or a substantial
part of their respective property, is entered; or (c) an interim receiver,
trustee or other custodian is appointed without the consent of Borrower or any
other Credit Party, for all or a substantial part of the property of any such
Person; or
 
(G)  Voluntary Bankruptcy; Appointment of Receiver, etc. (1) An order for relief
is entered with respect to Borrower or any other Credit Party or any of their
respective properties or Borrower or any other Credit Party commence a voluntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for relief in an
involuntary case or to the conversion of an involuntary case to a voluntary case
under any such law or consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of their
property; or (2) Borrower or any other Credit Party make any assignment for the
benefit of creditors; or (3) the manager of Borrower or any other Credit Party
adopt any resolution or otherwise authorizes action to approve any of the
actions referred to in this Section 7.1(G); or
 
(H)  Liens. Any Lien, levy or assessment is filed or recorded with respect to or
otherwise imposed upon all or any part of the Collateral or the assets of
Borrower or any other Credit Party by the United States or any department or
instrumentality thereof or by any state, county, municipality or other
governmental agency (other than Permitted Encumbrances) and such lien, levy or
assessment is not stayed, vacated, paid or discharged within thirty (30) days;
or
 
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(I)   Judgment and Attachments. Any money judgment, writ or warrant of
attachment, or similar process involving an amount in the aggregate in excess of
Fifty Thousand Dollars ($50,000) (not adequately covered by insurance as to
which the insurance company has acknowledged coverage or undertaken the defense
thereof subject only to customary reservation of rights) is entered or filed
against any Credit Party or any of their respective assets and remains
unsatisfied, undischarged, unvacated, unbonded or unstayed for a period of sixty
(60) days or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
 
(J)   Dissolution. Any order, judgment or decree is entered against Borrower or
any other Credit Party decreeing the dissolution or split up of such Person and
such order remains undischarged or unstayed for a period in excess of sixty (60)
days; or
 
(K)  Solvency. Borrower or any other Credit Party, individually, ceases to be
solvent (as defined in Section 4.16 with respect to Borrower) or admit in
writing the present or prospective inability to pay such Persons’ or Person’s
debts as they become due; or
 
(L)  Injunction. Borrower or any other Credit Party is enjoined, restrained or
in any way prevented by the order of any court or any administrative or
regulatory agency from conducting all or any material part of its business and
such order continues for more than sixty (60) days; or
 
(M)     Invalidity of Loan Documents. Any of the Loan Documents for any reason
ceases to be in full force and effect (except pursuant to the express terms
thereof) or is declared to be null and void, or any Credit Party denies that it
has any further liability under any Loan Documents to which it is party, or
gives notice to such effect or any Guarantor who is a natural person shall die;
or
 
(N)  Failure of Security. Lender does not have or ceases to have a valid and
perfected first priority security interest in the Collateral (subject only to
the priority of Permitted Encumbrances), in each case, for any reason other than
the failure of Lender to take any ministerial action within its control; or
 
(O)  Licenses and Permits. The loss, suspension or revocation of, or failure to
renew, any license or permit now held or hereafter acquired by the Credit
Parties, if such loss, suspension, revocation or failure to renew could
reasonably be expected to have a Material Adverse Effect; or
 
(P)  Forfeiture. There is filed against Borrower or any other Credit Party any
civil or criminal action, suit or proceeding under any federal or state
racketeering statute (including, without limitation, the Racketeer Influenced
and Corrupt Organization Act of 1970), which action, suit or proceeding (1) is
not dismissed within one hundred twenty (120) days; and (2) could result in the
confiscation or forfeiture of any material portion of the Collateral or other
assets of such Person; or
 
(Q)  Change of Control. A Change of Control shall have occurred as to Borrower;
or
 
(R)  Material Adverse Change. Except as disclosed on Schedule 7.(R) attached
hereto, any other event, development or condition which has had or could
reasonably be expected to have a Material Adverse Effect. 
 
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7.2    Acceleration. Upon the occurrence of any Event of Default described in
the foregoing Sections 7.1(F) or 7.1(G) with respect to Borrower or any other
Credit Party, all Obligations shall automatically become immediately due and
payable, without presentment, demand, protest or other requirements of any kind,
all of which are hereby expressly waived by Borrower. Upon the occurrence of any
other Event of Default, Lender may declare all Obligations to be immediately due
and payable, without presentment, demand, protest or other requirements of any
kind, all of which are hereby expressly waived by Borrower.
 
7.3   Remedies. If any Event of Default shall have occurred and be continuing,
in addition to and not in limitation of any rights or remedies available to
Lender at law or in equity, Lender may exercise in respect of the Collateral, in
addition to all other rights and remedies provided for herein or in any of the
Guarantor Security Documents or otherwise available to it, all the rights and
remedies of a secured party on default under the UCC (whether or not the UCC
applies to the affected Collateral) and may also (a) notify any or all obligors
on the Accounts to make all payments directly to Lender; (b) require the Credit
Parties to, and each Credit Party hereby agrees that it will, at its expense and
upon request of Lender forthwith, assemble all or part of the Collateral as
directed by Lender and make it available to Lender at a place to be designated
by Lender which is reasonably convenient to both parties; (c) without notice or
demand or legal process, enter upon any premises of the Credit Parties and take
possession of the Collateral; and (d) without notice except as specified below,
sell the Collateral or any part thereof in one or more parcels at public or
private sale, at any of Lender’s offices or elsewhere, at such time or times,
for cash, on credit or for future delivery, and at such price or prices and upon
such other terms as Lender may deem commercially reasonable. Each Credit Party
agrees that, to the extent notice of sale shall be required by law, at least ten
(10) days notice to Borrower of the time and place of any public sale or the
time after which any private sale is to be made shall constitute reasonable
notification. At any sale of the Collateral, if permitted by law, Lender may bid
(which bid may be, in whole or in part, in the form of cancellation of
indebtedness) for the purchase of the Collateral or any portion thereof for the
account of Lender and/or disclaim all warranties. Lender shall not be obligated
to make any sale of Collateral regardless of notice of sale having been given.
Borrower and each of the Guarantors shall remain liable for any deficiency.
Lender may adjourn any public or private sale from time to time by announcement
at the time and place fixed thereof, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. To the extent
permitted by law, each Credit Party hereby specifically waives all rights of
redemption, stay or appraisal which it has or may have under any law now
existing or hereafter enacted. Lender shall not be required to proceed against
any Collateral but may proceed against any Credit Party directly.
 
7.4   Appointment of Attorney-in-Fact. Each Credit Party hereby constitutes and
appoints Lender as such Credit Party’s attorney-in-fact with full authority in
the place and stead of such Credit Party and in the name of such Credit Party,
Lender or otherwise, from time to time in Lender’s discretion while an Event of
Default is continuing to take any action and to execute any instrument that
Lender may deem necessary or advisable to accomplish the purposes of this
Agreement, including: (a) to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become due under
or in respect of any of the Collateral; (b) to adjust, settle or compromise the
amount or payment of any Account, or release wholly or partly any customer or
obligor thereunder or allow any credit or discount thereon; (c) to receive,
endorse, and collect any drafts or other instruments, documents and chattel
paper, in connection with clause (a) above; (d) to file any claims or take any
action or institute any proceedings that Lender may deem necessary or desirable
for the collection of any of the Collateral or otherwise to enforce the rights
of Lender with respect to any of the Collateral; and (e) to sign and endorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, assignments, verifications and notices in connection with Accounts and
other documents relating to the Collateral. The appointment of Lender as each
Credit Party’s attorney and Lender’s rights and powers are coupled with an
interest and are irrevocable until payment in full and complete performance of
all of the Obligations.
 
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7.5    Limitation on Duty of Lender with Respect to Collateral. Beyond the safe
custody thereof, Lender shall have no duty with respect to any Collateral in its
possession or control (or in the possession or control of any agent or bailee)
or with respect to any income thereon or the preservation of rights against
prior parties or any other rights pertaining thereto. Lender shall be deemed to
have exercised reasonable care in the custody and preservation of the Collateral
in its possession if the Collateral is accorded treatment substantially equal to
that which Lender accords its own property. Lender shall not be liable or
responsible for any loss or damage to any of the Collateral, or for any
diminution in the value thereof, by reason of the act or omission of any
warehouseman, carrier, forwarding agency, consignee or other agent or bailee
selected by Lender in good faith.
 
7.6    Application of Proceeds. Upon the occurrence and during the continuance
of an Event of Default, (a) each Credit Party irrevocably waives the right to
direct the application of any and all payments at any time or times thereafter
received by Lender from or on behalf of such Credit Party, and each Credit Party
hereby irrevocably agrees that Lender shall have the continuing exclusive right
to apply and to reapply any and all payments received at any time or times after
the occurrence and during the continuance of an Event of Default against the
Obligations in such manner as Lender may deem advisable notwithstanding any
previous entry by Lender upon any books and records and (b) the proceeds of any
sale of, or other realization upon, all or any part of the Collateral shall be
applied: first, to all fees, costs and expenses incurred by Lender with respect
to this Agreement, the other Loan Documents or the Collateral; second, to all
fees due and owing to Lender; third, to accrued and unpaid interest on the
Obligations; fourth, to the principal amounts of the Obligations outstanding;
and fifth, to any other indebtedness or obligations of Borrower owing to Lender.
 
7.7    License of Intellectual Property. The Credit Parties hereby assign,
transfer and convey to Lender, the non-exclusive right and license to use all
Intellectual Property, if any, owned or used by the Credit Parties together with
any goodwill associated therewith, all to the extent necessary to enable Lender,
after the occurrence and during the continuance of any Event of Default
hereunder and in connection with Lender exercising its rights with respect to
all of the Collateral, to realize on all of the Collateral and any successor or
assign to enjoy the benefits of such Collateral. This right and license shall
inure to the benefit of all successors, assigns and transferees of Lender and
its successors, assigns and transferees, whether by voluntary conveyance,
operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure
or otherwise. Such right and license is granted free of charge, without
requirement that any monetary payment whatsoever be made to the Credit Parties
by Lender.
 
7.8   Waivers, Non-Exclusive Remedies. By making the advance of the Term Loan
hereunder, Lender does not thereby waive a breach of any warranty or
representation made by the Credit Parties hereunder or under any of the other
Loan Documents or a breach under any agreement, document, or instrument
delivered to Lender or otherwise referred to herein, and all of Lender’s claims
and rights resulting from any breach or misrepresentation by the Credit Parties
is specifically reserved by Lender. No failure on the part of Lender to
exercise, and no delay in exercising and no course of dealing with respect to,
any right under this Agreement or the other Loan Documents shall operate as a
waiver thereof; nor shall any single or partial exercise by Lender of any right
under this Agreement or any other Loan Document preclude any other or further
exercise thereof or the exercise of any other right. The rights in this
Agreement and the other Loan Documents are cumulative and are not exclusive of
any other remedies provided by law.
 
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SECTION 8 MISCELLANEOUS
 
8.1    Assignments and Participations. Lender may assign its rights and delegate
its obligations under this Agreement and further may assign, or sell
participations in, all or any part of the Term Loan or any other interest herein
to an Affiliate or to another Person. In the case of an assignment authorized
under this Section 8.1, the assignee shall have, to the extent of such
assignment, the same rights, benefits and obligations as it would if it were a
Lender hereunder and Lender shall be relieved of its obligations hereunder with
respect to the commitments or assigned portion thereof. The Credit Parties
hereby acknowledge and agree that any assignment will give rise to a direct
obligation of the Credit Parties to the assignee and that the assignee shall be
deemed to be a “Lender”. Lender shall act as agent of each assignee for the sole
purpose (and not for any other purpose) of perfecting and maintaining a security
interest in the Collateral to the extent that perfection of a security interest
in the Collateral is achieved by means of filing a financing statement in the
applicable jurisdiction. Lender may furnish any information concerning the
Credit Parties in its possession from time to time to assignees and participants
(including prospective assignees and participants), provided that any such
assignee or participant or prospective assignee or participant agrees to
maintain the confidentiality of such information pursuant to a confidentiality
agreement reasonably acceptable to Borrower. All communications by the Credit
Parties with Lender and every assignee shall be required to be sent or given to
only Lender or one of the assignees in place of Lender.
 
8.2   Set Off. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence, and during the continuance, of any Event of Default, Lender, each
assignee of Lender’s interest, and each participant is hereby authorized by
Borrower at any time or from time to time, without notice to Borrower or to any
other Person, any such notice being hereby expressly waived, to set off and to
appropriate and to apply any and all balances held by it at any of its offices
for the account of Borrower (regardless of whether such balances are then due to
Borrower) and any other property at any time held or owing by that Lender or
assignee to or for the credit or for the account of Borrower against and on
account of any of the Obligations then outstanding, provided, that no
participant shall exercise such right without the prior written consent of
Lender. The Credit Parties hereby agree, to the fullest extent permitted by law,
that any Lender, assignee or participant may exercise their right of setoff with
respect to amounts in excess of its pro rata share of the Obligations (or, in
the case of a participant, in excess of its pro rata participation interest in
the Obligations) and that such Lender, assignee or participant, as the case may
be, shall be deemed to have purchased for cash in the amount of such excess,
participations in each other Lender’s or holder’s share of the Obligations.
 
8.3    Expenses and Attorneys’ Fees. Whether or not the transactions
contemplated hereby shall be consummated, Borrower agrees to promptly pay all
reasonable fees, costs and expenses incurred by Lender in connection with any
matters contemplated by or arising out of this Agreement or the other Loan
Documents including the following, and all such fees, costs and expenses shall
be part of the Obligations, payable on demand and secured by the Collateral:
(a) fees, costs and expenses (including reasonable attorneys’ fees, and fees of
environmental consultants, accountants and other professionals retained by
Lender) incurred in connection with the examination, review, due diligence
investigation, documentation and closing of the financing arrangements evidenced
by the Loan Documents; (b) fees, costs and expenses (including reasonable
attorneys’ fees, reasonable allocated costs of internal counsel and reasonable
fees of environmental consultants, accountants and other professionals retained
by Lender) incurred in connection with the review, negotiation, preparation,
documentation, execution and administration of the Loan Documents, the Term
Loan, and any amendments, waivers, consents, forbearance and other modifications
relating thereto or any subordination or intercreditor agreements; (c) fees, out
of pocket costs and expenses incurred in creating, perfecting and maintaining
perfection of Liens in favor of Lender including title insurance premiums, real
estate survey costs and mortgage or recording taxes and fees; (d) fees, out of
pocket costs and expenses incurred in connection with forwarding to Borrower the
proceeds of Loans including Lender’s standard wire transfer fee; (e) fees, out
of pocket costs, expenses and bank charges, including bank charges for returned
checks, incurred by Lender in establishing, maintaining and handling lock box
accounts, blocked accounts or other accounts for collection of the Collateral;
(f) fees, costs, expenses (including reasonable attorneys’ fees and reasonable
allocated costs of internal counsel) and costs of settlement incurred in
collecting upon or enforcing rights against the Collateral or incurred in any
action to enforce this Agreement or the other Loan Documents or to collect any
payments due from Borrower or any other Credit Party under this Agreement or any
other Loan Document or incurred in connection with any refinancing or
restructuring of the credit arrangements provided under this Agreement, whether
in the nature of a “workout” or in connection with any insolvency or bankruptcy
proceedings or otherwise; (g) Lender’s reasonable out of pocket expenses and
internal costs and disbursements, whenever incurred, in monitoring and
administering the Term Loan; and (h) the cost of procuring background checks or
updating background checks previously obtained by Lender relating to officers of
Borrower (Borrower shall use its best efforts to obtain the consent of all
officers to such checks or updated checks).
 
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8.4    Indemnity. In addition to the payment of expenses pursuant to Section
8.3, whether or not the transactions contemplated hereby shall be consummated,
each Credit Party agrees to indemnify, pay and hold Lender, its participants and
assignees and their respective officers, directors, employees, agents,
consultants, auditors, persons engaged by any of them to evaluate or monitor the
Collateral, affiliates and attorneys of any of them (collectively called the
“Indemnitees”) harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs, expenses
and disbursements of any kind or nature whatsoever (including the reasonable
fees and disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnitee shall be designated a party thereto) that may be
imposed on, incurred by, or asserted against that Indemnitee, in any manner
relating to or arising out of this Agreement or the other Loan Documents, the
consummation of the transactions contemplated by this Agreement, the statements
contained in the Commitment Letter(s), if any, delivered by Lender, Lender’s
agreement to make the Term Loan hereunder, the use or intended use of the
proceeds of any of the Term Loan or the exercise of any right or remedy
hereunder or under the other Loan Documents (the “Indemnified Liabilities”),
provided that Borrower shall have no obligation to an Indemnitee hereunder with
respect to Indemnified Liabilities directly arising from the gross negligence or
willful misconduct of that Indemnitee as finally determined by a court of
competent jurisdiction.
 
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8.5    Amendments and Waivers. No amendment, modification, termination or waiver
of any provision of this Agreement or of the other Loan Documents, or consent to
any departure by Borrower therefrom or any of the terms, conditions, or
provisions thereof, shall be effective unless the same shall be in writing and
signed by Lender and Borrower. Each amendment, modification, termination or
waiver shall be effective only in the specific instance and for the specific
purpose for which it was given.
 
8.6    Notices. Unless otherwise specifically provided herein, all notices shall
be in writing addressed to the respective party as set forth below and may be
personally served, telecopied or sent by overnight courier service or United
States mail and shall be deemed to have been given: (a) if delivered in person,
when delivered; (b) if delivered by telecopy, on the date of transmission if
transmitted on a Business Day before 4:00 p.m. Eastern standard time or, if not,
on the next succeeding Business Day; (c) if delivered by overnight courier, two
(2) days after delivery to such courier properly addressed; or (d) if by U.S.
Mail, four (4) Business Days after depositing in the United States mail, with
postage prepaid and properly addressed.
 
If to any
Credit Party:
c/o Airgate International Corporation
153-04 Rockaway Boulevard
Jamaica, New York 11434
Attention: Alfred Lam, Chairman
Facsimile: (212) 391-5288
   
With copies to:
Gusrae, Kaplan & Bruno & Nusbaum, PLLC.
120 Wall Street
New York, New York 10005
Attention: Lawrence Nusbaum, Esq.
Facsimile: (212) 809-5449
   
If to Lender:
BHC Interim Funding II, L.P.
444 Madison Avenue, 25th Floor
New York, New York 10022
 
Attention: Gerald H. Houghton, Managing Partner
 
Facsimile: (212) 753-7730
 
Telephone: (212) 753-1991
   
With a copy to:
Blank Rome LLP
 
The Chrysler Building
 
405 Lexington Avenue
 
New York, NY 10174
 
Attention: George N. Abrahams, Esq.
 
Facsimile: (212) 885-5001

 
or to such other address as the party addressed shall have previously designated
by written notice to the serving party, given in accordance with this Section
8.6.
 
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8.7    Survival of Warranties and Certain Agreements.
 
(A)  All representations and warranties made hereunder and in any other Loan
Document or other document delivered pursuant hereto or thereto or in connection
herewith or therewith shall survive the execution and delivery hereof and
thereof. Such representations and warranties have been or will be relied upon by
Lender regardless of any investigation made by Lender or on its behalf and
notwithstanding that Lender may have had notice or knowledge of any breach of a
representation or warranty, and shall continue in full force and effect as long
as any Obligation shall remain outstanding.
 
(B)  This Agreement and the Loan Documents shall remain in full force and effect
until such time as the Obligations have been indefeasibly paid and satisfied in
full, at which time this Agreement shall be terminated; provided, however, that
the agreements set forth in Sections 8.3 and 8.4 (and any guaranty by the
Guarantors of the Obligations of Borrower with respect to such Sections 8.3 and
8.4) shall survive termination of this Agreement. Notwithstanding the foregoing,
this Agreement and the Loan Documents shall continue to be effective or be
automatically reinstated, as the case may be, if at any time payment, in whole
or in part, of any of the Obligations is rescinded or must otherwise be restored
or returned by Lender as a preference, fraudulent conveyance or otherwise, all
as though such payment had not been made.
 
8.8    Indulgence Not Waiver. No failure or delay on the part of Lender in the
exercise of any power, right or privilege shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege.
 
8.9    Marshaling; Payments Set Aside. Lender shall not be under any obligation
to marshal any assets in favor of any Credit Party or any other party or against
or in payment of any or all of the Obligations. To the extent that any Credit
Party makes a payment or payments to Lender or Lender enforces its security
interests or exercise its rights of setoff, and such payment or payments or the
proceeds of such enforcement or setoff or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such recovery, the Obligations or part thereof originally intended to
be satisfied, and all Liens, rights and remedies thereof, shall be revived and
continued in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
 
8.10     Entire Agreement. This Agreement, the Term Note, and the other Loan
Documents referred to herein embody the final, entire agreement among the
parties hereto and supersede any and all prior commitments, agreements,
representations, and understandings, whether written or oral, relating to the
subject matter hereof (including, without limitation, the Commitment Letter) and
may not be contradicted or varied by evidence of prior, contemporaneous, or
subsequent oral agreements or discussions of the parties hereto. There are no
oral agreements among the parties hereto.
 
8.11     Independence of Covenants. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default or an Event of Default if such action is taken or
condition exists.
 
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8.12     Severability. The invalidity, illegality or unenforceability in any
jurisdiction of any provision in or obligation under this Agreement or the other
Loan Documents shall not affect or impair the validity, legality or
enforceability of the remaining provisions or obligations under this Agreement,
or the other Loan Documents or of such provision or obligation in any other
jurisdiction.
 
8.13     Headings. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
 
8.14     APPLICABLE LAW. THIS AGREEMENT AND ALL MATTERS RELATING HERETO AND
ARISING HEREFROM (WHETHER ARISING UNDER CONTRACT LAW, TORT LAW OR OTHERWISE)
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
 
8.15   Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns
except that Borrower may not assign its rights or obligations hereunder without
the prior written consent of Lender.
 
8.16   No Fiduciary Relationship; Limitation of Liabilities.
 
(A)  No Fiduciary Relationship. Except in the instance of gross negligence or
willful misconduct, no provision in this Agreement or in any of the other Loan
Documents and no course of dealing between the parties shall be deemed to create
any fiduciary duty by Lender to Borrower or any other Credit Party.
 
(B)  Limitation of Liabilities. Neither Lender, nor any Affiliate, officer,
director, shareholder, employee, attorney, or agent of Lender shall have any
liability with respect to, and the Credit Parties hereby waive, release, and
agree not to sue any of them upon, any claim for any special, indirect,
incidental, or consequential damages suffered or incurred by the Credit Parties
in connection with, arising out of, or in any way related to, this Agreement or
any of the other Loan Documents, or any of the transactions contemplated by this
Agreement or any of the other Loan Documents. The Credit Parties hereby waive,
release, and agree not to sue Lender or any of Lender’s Affiliates, officers,
directors, employees, attorneys, or agents for punitive damages in respect of
any claim in connection with, arising out of, or in any way related to, this
Agreement or any of the other Loan Documents, or any of the transactions
contemplated by this Agreement or any of the transactions contemplated hereby.
 
8.17   CONSENT TO JURISDICTION. EACH CREDIT PARTY HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW
YORK, STATE OF NEW YORK, AND IRREVOCABLY AGREES THAT, SUBJECT TO LENDER’S
ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT, THE TERM NOTE, OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH
COURTS. EACH CREDIT PARTY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY
AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS
AGREEMENT, THE TERM NOTE, THE OTHER LOAN DOCUMENTS OR THE OBLIGATIONS. IF ANY
CREDIT PARTY PRESENTLY IS, OR IN THE FUTURE BECOMES, A NONRESIDENT OF THE STATE
OF NEW YORK, EACH CREDIT PARTY HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON SUCH PERSON
BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO SUCH
PERSON, AT SUCH PERSON’S ADDRESS AS SET FORTH IN SECTION 8.6 OR AS MOST RECENTLY
NOTIFIED BY SUCH PERSON IN WRITING PURSUANT TO SECTION 8.6 AND SERVICE SO MADE
SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED AS AFORESAID.
 
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8.18     WAIVER OF JURY TRIAL. EACH CREDIT PARTY AND LENDER HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT, THE TERM NOTE OR THE OTHER LOAN DOCUMENTS. EACH
CREDIT PARTY AND LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER
IN ENTERING INTO THIS AGREEMENT, THE TERM NOTE AND THE OTHER LOAN DOCUMENTS AND
THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS.
EACH CREDIT PARTY SIGNATORY HERETO AND LENDER FURTHER WARRANT AND REPRESENT THAT
EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY
AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
 
8.19     Construction. Borrower and each Credit Party signatory hereto and
Lender each acknowledge that it has had the benefit of legal counsel of its own
choice and has been afforded an opportunity to review this Agreement and the
other Loan Documents with its legal counsel and that this Agreement and the
other Loan Documents shall be construed as if jointly drafted by Borrower and
each Credit Party signatory hereto and Lender.
 
8.20     Counterparts; Effectiveness. This Agreement and any amendments,
waivers, consents, or supplements may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto. Delivery of an executed counterpart of a signature
page to this Agreement, any amendments, waivers, consents or supplements, or to
any other Loan Document by Facsimile shall be as effective as delivery of a
manually executed counterpart thereof.
 
8.21     No Duty. All attorneys, accountants, appraisers, and other professional
Persons and consultants retained by Lender shall have the right to act
exclusively in the interest of Lender and shall have no duty of disclosure, duty
of loyalty, duty of care, or other duty or obligation of any type or nature
whatsoever to the Credit Parties or any of Borrower’s shareholders or the
shareholders (or members, as applicable) of Borrower’s Subsidiaries or any other
Person.
 
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8.22     Communications by Borrower to Lender. Nothing contained in any letter,
email, written notification, financial statement or other communication, written
or oral, from Borrower to Lender, shall be deemed to be binding on Lender,
unless Lender acknowledges same in writing and expressly agrees to be bound
thereby.
 
8.23     Confidentiality. For the purposes of this Section 8.23, “Confidential
Information” means all financial projections and all other information delivered
to Lender by or on behalf of Borrower or any of the other Credit Parties in
connection with the transactions contemplated by or otherwise pursuant to this
Agreement that is proprietary in nature or that is clearly marked or labeled (or
otherwise adequately identified) as being confidential information of Borrower
or the other Credit Parties, provided, that such term does not include
information that (a) was publicly known or otherwise known to Lender prior to
the time of such disclosure, (b) subsequently becomes publicly known through no
act or omission by Lender or any Person acting on its behalf, (c) otherwise
becomes known to Lender other than through disclosure by Borrower or any of the
other Credit Parties, or (d) constitutes financial statements delivered
hereunder that are otherwise publicly available. Lender will maintain the
confidentiality of such Confidential Information in accordance with commercially
reasonable procedures adopted by Lender in good faith to protect confidential
information of third parties delivered to it, provided, that Lender may deliver
or disclose Confidential Information to:
 
(i)     its directors, officers, employees, agents, attorneys and affiliates (to
the extent such disclosure reasonably relates to the administration of the Term
Loan);
 
(ii)       its financial advisors and other professional advisors who are
advised to hold confidential the Confidential Information substantially in
accordance with the terms of this Section 8.23;
 
(iii)      any other Lender; or
 
(iv)     any other Person (including auditors and other regulatory officials) to
which such delivery or disclosure may be necessary or appropriate (A) to comply
with any applicable law, rule, regulation or order, (B) in response to any
subpoena, examination, or other legal process, (C) in connection with any
litigation to which Lender is a party or (D) if an Event of Default shall have
occurred and remain outstanding, to the extent Lender may reasonably determine
such delivery and disclosure to be necessary or appropriate in the enforcement
or for the protection of the rights and remedies hereunder. Each assignee and
participant of Lender’s interest, by its execution and delivery of documents to
evidence its assignment or participation (as the case may be), will be deemed to
have agreed to be bound by, and to be entitled to the benefits of, inter alia,
this Section 8.23.

8.24     Lender’s Disclosure. Borrower and each Credit Party signatory hereto
acknowledge that one or more members of Blank Rome LLP are limited partners of
Lender.
 
8.25     Affiliate Guarantor. The Affiliate Guarantor, although not a borrower
hereunder, has signed this Agreement to indicate its acknowledgment of, and
agreement to be bound by, the representations, warranties and covenants
contained herein (to the extent such representations, warranties and covenants
apply to the Affiliate Guarantor) and to assign and grant to Lender the Lien on
its assets and properties as set forth in Section 2.6 hereof.
 
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8.26      Electronic Execution of Loan Documents. The words “execution,”
“signed,” “signature,” and words of like import in any Loan Document shall be
deemed to include electronic signatures or the keeping of records in electronic
form, each of which shall be of the same legal effect, validity or
enforceability as a manually executed signature or the use of a paper-based
recordkeeping system, as the case may be, to the extent and as provided for in
any applicable law, including the Federal Electronic Signatures in Global and
National Commerce Act, the New York State Electronic Signatures and Records Act,
or any other similar state laws based on the Uniform Electronic Transactions
Act.
 
This space intentionally left blank - signature page follows.

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Witness the due execution hereof by the respective duly authorized officers of
the undersigned as of the date first written above.

       
LENDER:
BHC INTERIM FUNDING II, L.P.
     
By: BHC Interim Funding Management, L.L.C.,
 
its General Partner
     
By: BHC Investors II, L.L.C.,
 
its Managing Member
     
By: GHH Holdings, L.L.C.
     
By:
/s/ Gerald Houghton
 
Name: Gerald H. Houghton
Title: Managing Member
       
BORROWER:
AIRGATE INTERNATIONAL CORPORATION
     
By:
/s/ Scott Turner
 
Name: Scott Turner
Title: Vice President
   

Signature Page to Loan and Security Agreement

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Joinder
 
Each of the undersigned, intending to be legally bound hereby, joins in the
representations, warranties and covenants and consents to be bound by the terms
and conditions applicable to the undersigned as set forth in the foregoing Loan
and Security Agreement, by and among Airgate International Corporation, the
Guarantors and BHC International Funding II, L.P. dated July __, 2007.

       
PACIFIC CMA, INC.
 
   
   
    By:   /s/ Scott Turner  

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Name: Scott Turner
 
Title: Vice President

       
AIRGATE INTERNATIONAL CORPORATION (Chicago)
 
   
   
  By:   /s/ Scott Turner  

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Name: Scott Turner
 
Title: Vice President

       
PACIFIC CMA INTERNATIONAL, LLC
 
   
   
    By:   /s/ Ling Kwok  

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Name: Ling Kwok
 
Title: Agent

        PARADIGM INTERNATIONAL, INC.  
   
   
    By:   /s/ Scott Turner  

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Name: Scott Turner
 
Title: Vice President

         
   
   
    By:   /s/ Alfred Lam  

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Name: Alfred Lam
 
Title: Director

 

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