Exhibit 10.50

 

DEBTOR IN POSSESSION CREDIT AGREEMENT

 

dated as of

 

September 24, 2002

 

by and among

 

PEREGRINE SYSTEMS, INC.,

a Delaware corporation and

a Chapter 11 Debtor-in-Possession, and

PEREGRINE REMEDY, INC., a Delaware corporation and

a Chapter 11 Debtor-in-Possession (collectively, “Borrowers”)

 

and

 

and the Subsidiaries of Borrowers named herein (“Guarantors”)

 

and

 

BMC SOFTWARE, INC.,

a Delaware corporation (“Lender”)

 

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TABLE OF CONTENTS

 

ARTICLE 1

DIP FACILITY

 

 

 

Section 1.1

Post-Petition Loans

 

 

ARTICLE 2

INTEREST, FEES AND CHARGES

 

Section 2.1

Interest

 

Section 2.2

Fees

 

Section 2.3

Computation of Interest and Fees

 

Section 2.4

Reimbursement Obligations

 

Section 2.5

Bank Charges

 

Section 2.6

Funding Losses

 

Section 2.7

Maximum Interest

 

 

ARTICLE 3

LOAN ADMINISTRATION

 

Section 3.1

Manner of Borrowing and Funding Post-Petition Loans

 

 

ARTICLE 4

PAYMENTS

 

 

 

 

Section 4.1

General Payment Provisions

 

Section 4.2

Repayment of Post-Petition Loans

 

Section 4.3

Payment of Other Obligations

 

Section 4.4

Marshalling; Payments Set Aside

 

Section 4.5

Application of Payments and Collections

 

Section 4.6

Receipt of Payments and Collections

 

Section 4.7

Prepayments

 

 

ARTICLE 5

DIP TERM AND TERMINATION OF COMMITMENT

 

Section 5.l

Term of Commitment

 

Section 5.2

Termination

 

 

ARTICLE 6

COLLATERAL SECURITY AND GUARANTEE

 

Section 6.1

Grant of Security Interest in Collateral

 

Section 6.2

Other Collateral

 

Section 6.3

Lien on Deposit Accounts

 

Section 6.4

Lien Perfection; Further Assurances

 

Section 6.5

Lien Priority

 

Section 6.6

Guarantee

 

Section 6.7

No Impairment of Guarantee

 

Section 6.8

Subrogation

 

 

ARTICLE 7

COLLATERAL ADMINISTRATION

 

Section 7.1

General Provisions

 

Section 7.2

Administration of Accounts

 

Section 7.3

Administration of Inventory

 

 

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Section 7.4

Administration of Equipment

 

Section 7.5

Pledged Securities

 

 

ARTICLE 8

REPRESENTATIONS AND WARRANTIES

 

Section 8.1

General Representations and Warranties

 

Section 8.2

Reaffirmation of Representations and Warranties

 

 

ARTICLE 9

COVENANTS AND CONTINUING AGREEMENTS

 

Section 9.1

Affirmative Covenants

 

Section 9.2

Negative Covenants

 

 

ARTICLE 10

CONDITIONS PRECEDENT

 

Section 10.1

Conditions Precedent to Initial Credit Extensions

 

Section 10.2

Conditions Precedent to All Credit Extensions

 

Section 10.3

Limited Waiver of Conditions Precedent

 

 

ARTICLE 11

EVENTS OF DEFAULT;

 RIGHTS AND REMEDIES ON DEFAULT

 

Section 11.1

Events of Default

 

Section 11.2

Acceleration of the Obligations

 

Section 11.3

Remedies

 

Section 11.4

Licenses and Sale of Collateral

 

Section 11.5

Setoff

 

Section 11.6

Pledged Securities

 

Section 11.7

Remedies Cumulative; No Waiver

 

 

ARTICLE 12

BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS

 

Section 12.1

Successors and Assigns

 

Section 12.2

Participations

 

Section 12.3

Assignments

 

 

ARTICLE 13

MISCELLANEOUS

 

Section 13.1

Power of Attorney

 

Section 13.2

General Indemnity

 

Section 13.3

Survival of All Indemnities

 

Section 13.4

Indulgences Not Waivers

 

Section 13.5

Modification of Agreement

 

Section 13.6

Severability

 

Section 13.7

Cumulative Effect; Conflict of Terms

 

Section 13.8

Execution in Counterparts

 

Section 13.9

Lender’s Consent

 

Section 13.10

Notices

 

Section 13.11

Performance of Borrowers’ Obligations

 

Section 13.12

Time of Essence

 

Section 13.13

Entire Agreement; Appendix A, Exhibits and Schedules

 

Section 13.14

Interpretation

 

 

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Section 13.15

Governing Law

 

Section 13.16

Waivers by Obligors

 

Section 13.17

Release

 

 

APPENDIX A

GENERAL DEFINITIONS

 

 

 

 

 

SCHEDULES AND EXHIBITS

 

 

 

 

Exhibit A -

Form of DIP Note

 

Exhibit B -

Form of Notice of Borrowing

 

 

 

 

Schedule 7.1

Location of Collateral

 

Schedule 8.1 (o)

Pledged Securities

 

Schedule 8.1 (q)

Subsidiaries of Borrowers

 

Schedule 9.2(b)

Liens

 

 

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DEFINED TERMS

 

 

 

Acceptable Plan

 

Account

 

Account Debtor

 

Acquisition Agreement

 

Affiliate

 

Agreement

 

Applicable Law

 

Asset Disposition

 

Average Loan Balance

 

Avoidance Claim

 

Base Rate

 

Base Rate Loan

 

Bid Procedures Order

 

Borrower

 

Borrowers

 

Borrowing

 

Break-Up Fee

 

Budget

 

Budgeted Expenses

 

Business Day

 

Capital Expenditures

 

Capitalized Lease Obligation

 

Carve Out

 

Cash Equivalents

 

CERCLA

 

Chapter 11 Case

 

Chapter 11 Cases

 

Chattel Paper

 

Claims

 

Closing Date

 

Collateral

 

Commitment

 

Commitment Termination Date

 

Committee

 

Company

 

Compliance Certificate

 

Confirmation Order

 

Contingent Obligation

 

Court

 

Critical Vendor

 

Debt

 

Default

 

Default Rate

 

 

 

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Deposit Account

 

DIP Facility

 

DIP Financing Documents

 

DIP Motion

 

DIP Note

 

DIP Term

 

Distribution

 

Document

 

Dollars and the sign $

 

Eligible Assignee

 

Environmental Laws

 

Environmental Release

 

Equipment

 

Equity Interest

 

ERISA

 

Estate

 

Event of Default

 

Extraordinary Expenses

 

Final Financing Order

 

Financing Orders

 

Fiscal Year

 

FLSA

 

Foreign Subsidiary

 

Full Payment

 

GAAP

 

General Intangible

 

Governmental Approvals

 

Governmental Authority

 

Guarantors

 

Hazardous Materials

 

Indemnified Amount

 

Indemnitee

 

Insolvency Proceeding

 

Instrument

 

Intellectual Property

 

Interim Financing Order

 

Interim Period

 

Inventory

 

Investment Property

 

Lender

 

Lender Professionals

 

LIBOR Loan

 

LIBOR Rate

 

Lien

 

Material Adverse Effect

 

Material Contract

 

 

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Maximum Rate

 

Money Borrowed

 

Moody’s

 

Multiemployer Plan

 

Net Proceeds

 

Notes

 

Notice of Borrowing

 

Obligations

 

Obligor

 

Ordinary Course of Business

 

Organization Documents

 

OSHA

 

Parent

 

Participant

 

Payment Items

 

Permitted Contingent Obligations

 

Permitted Liens

 

Permitted Purchase Money Debt

 

Person

 

Petition Date

 

Plan

 

Pledged Securities

 

Post-Petition Loan

 

Pre-Petition Emergency Loan

 

Pre-Petition Term Loan

 

primary obligations

 

primary obligor

 

Professional Expenses

 

Professional Person

 

Properly Contested

 

Property

 

Purchase Money Debt

 

Purchase Money Lien

 

Real Property

 

RELEASED CLAIMS

 

RELEASED PARTIES

 

RELEASING PARTIES

 

Reorganization Plan

 

Reportable Event

 

Restricted Investment

 

S&P

 

SEC

 

Security

 

Security Documents

 

Senior Officer

 

Subsidiary

 

 

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Tax Refund

 

Taxes

 

Transferee

 

UCC

 

 

viii

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DEBTOR IN POSSESSION CREDIT AGREEMENT

 

THIS DEBTOR IN POSSESSION CREDIT AGREEMENT dated as of September 24, 2002, by
and among PEREGRINE SYSTEMS, INC., a Delaware corporation and a Chapter 11
debtor-in-possession and PEREGRINE REMEDY, INC., a Delaware corporation and a
Chapter 11 debtor-in-possession (each individually a “Borrower”, and
collectively, “Borrowers”); each of the Subsidiaries of Borrowers listed on the
signature pages hereof (collectively, “Guarantors”) and BMC SOFTWARE, INC., a
Delaware corporation (“Lender”). Capitalized terms used in this Agreement have
the meanings assigned to them in Appendix A, General Definitions.

 

R E C I T A L S:

 

A.            Borrowers are debtors-in-possession under Chapter 11 of the
Bankruptcy Code in cases (the “Chapter 11 Cases”) pending in the United States
Bankruptcy Court for the District of Delaware (the “Court”).  Borrowers have
requested that Lender extend financing on a secured basis to Borrowers in
connection with the Chapter 11 Cases in accordance with the provisions of this
Agreement.

 

B.            Lender is willing to make loans and other extensions of credit to
Borrowers, subject to the terms and conditions of this Agreement and subject to
the terms and conditions set forth in the Financing Orders.

 

C.            Each of the Guarantors has agreed to guaranty the obligations of
Borrowers hereunder, and each of Borrowers and Guarantors has agreed to secure
its obligations to Lender hereunder with Liens on all of its Property, whether
real, personal or mixed, tangible or intangible, now existing or hereafter
acquired or arising, all as more fully provided herein.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements herein contained, the parties hereto hereby agree as follows:

 

ARTICLE 1
DIP FACILITY

 

Subject to the terms and conditions of, and in reliance upon the representations
and warranties made in, this Agreement and the other DIP Financing Documents,
Lender agrees to make the DIP Facility available to Borrowers, in an aggregate
amount up to the Commitment, as follows:

 

Section 1.1             Post-Petition Loans.

 

(a)           General.  Subject to the terms and conditions of this Agreement,
Lender agrees to make Post-Petition Loans to Borrowers, on any Business Day
during the period from the date hereof through the day before the last day of
the DIP Term, in an aggregate principal amount outstanding at any time which
does not exceed the Commitment at such time; provided, however, that Lender
shall have no obligation whatsoever to make any Post-Petition Loan if, at the
time of the proposed funding thereof, the aggregate principal amount of all the
Post-Petition

 

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Loans then outstanding would exceed the Commitment after the funding of such
Post-Petition Loan. The Post-Petition Loans shall bear interest as set forth in
Section 2.1 hereof, shall be guaranteed by the Guarantors and secured by all of
the Collateral and shall be evidenced by the DIP Note. Each Post-Petition Loan
shall, at the option of Borrowers unless otherwise specified herein, be made as
and consist entirely of either a Base Rate Loan or LIBOR Loan.  Amounts borrowed
under the DIP Facility and repaid or prepaid may not be reborrowed.

 

(b)           Use of Proceeds. The proceeds of the Post-Petition Loans shall be
used by Borrowers during the pendency of their Chapter 11 Cases exclusively for
one or more of the following purposes:  (i) to pay in full the Pre-Petition Term
Loan and the Pre-Petition Emergency Loan from the proceeds of the initial
Post-Petition Loan, to the extent authorized by the Court; (ii) to pay
expenditures described in the Budget or, with Lender’s consent after the
occurrence of an Event of Default, to fund the cost of an orderly liquidation of
the Collateral to the extent approved by Lender; (iii) to pay fees required to
be paid to the office of the United States Trustee; (iv) to pay any of the
Obligations; (v) to pay the Claims of Critical Vendors, to the extent authorized
by order of the Court; (vi) to pay the Break-Up Fee and for this purpose
$10,000,000 will be reserved from the Commitment; and (vii) to pay other
expenses authorized by order of the Court; provided that in no event shall the
outstanding Post-Petition Loans exceed $60,000,000 until the Bid Procedures
Order is entered. Notwithstanding anything to the contrary contained herein, in
no event shall proceeds of Post-Petition Loans be used to pay any Professional
Expenses incurred in connection with the assertion of or joinder in any claim,
counterclaim, action, contested matter, objection, defense or other proceeding,
the purpose of which is to seek or the result of which would be to obtain any
order, judgment, declaration, or similar relief (i) invalidating, setting aside,
avoiding or subordinating, in whole or in part, any of the Obligations or Liens
and security interests in any of the Collateral granted to Lender under this
Agreement or the Financing Orders; (ii) declaring any of the DIP Financing
Documents to be invalid, not binding or unenforceable in any respect, (iii)
preventing, enjoining, hindering or otherwise delaying Lender’s enforcement of
any of the DIP Financing Documents or any realization upon any Collateral
(unless such enforcement or realization is in direct violation of an explicit
provision in any of the Financing Orders); (iv) declaring any Liens granted or
purported to be granted under any of the DIP Financing Documents to have a
priority other than the priority set forth therein; or (v) objecting to the
amount or method of calculation by Lender of any of the Obligations.  Nothing in
this Section 1.1 (b) shall be construed to waive Lender’s right to object to any
requests, motions or applications made in or filed with the Court, including any
applications for interim or final allowances of Professional Expenses.

 

(c)           DIP Note. The Post-Petition Loans made by Lender and interest
accruing thereon shall be evidenced by the records of Lender and by the DIP Note
payable to Lender (or the assignee of Lender), which shall be executed by
Borrowers, completed in conformity with this Agreement and delivered to Lender
on the Closing Date. All outstanding principal amounts and accrued interest
under the DIP Note shall be due and payable as set forth in Section 4.2 hereof.

 

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ARTICLE 2

INTEREST, FEES AND CHARGES

 

Section 2.1             Interest.

 

(a)             Rates of Interest.  Borrowers agree to pay interest in respect
of all unpaid principal amounts of the Post-Petition Loans from the respective
dates such principal amounts are advanced until paid (whether at stated
maturity, on acceleration or otherwise) at a rate per annum equal to the
applicable rate indicated below:

 

(i)              for Post-Petition Loans made or outstanding as Base Rate Loans,
2% plus the Base Rate in effect from time to time; or

 

(ii)             for Post-Petition Loans made or outstanding as LIBOR Loans,
3.50% plus the LIBOR Rate for the applicable Post-Petition Loan as determined by
Lender in conformity with this Agreement.

 

Upon determining the LIBOR Rate for any LIBOR Loan requested by Borrowers,
Lender shall promptly notify Borrowers thereof by telephone and, if so requested
by Borrowers, confirmed in writing (including, by way of electronic
transmission). Such determination made in good faith shall, absent manifest
error, be final, conclusive and binding on all parties and for all purposes. The
applicable rate of interest for all Post-Petition Loans bearing interest based
upon the Base Rate shall be increased or decreased, as the case may be, by an
amount equal to any increase or decrease in the Base Rate, with such adjustments
to be effective as of the opening of business on the day that any such change in
the Base Rate becomes effective.

 

(b)           Interest Rate Not Ascertainable.  If Lender shall determine in
good faith (which determination shall, absent manifest error, be final,
conclusive and binding upon all parties) that on any date for determining the
LIBOR Rate for any Post-Petition Loan, by reason of any changes arising after
the date of this Agreement affecting the London interbank market, adequate and
fair means do not exist for ascertaining the applicable interest rate on the
basis provided for in the definition of LIBOR Rate, then, and in any such event,
Lender shall forthwith give notice (by telephone confirmed in writing) to
Borrowers of such determination.  Until Lender notifies Borrowers that the
circumstances giving rise to the suspension described herein no longer exist,
the obligation of Lender to make LIBOR Loans shall be suspended, and any
subsequent Post-Petition Loan shall bear interest as a Base Rate Loan.

 

(c)           Default Rate of Interest.  From and after the occurrence of any
Event of Default, but only so long as such Event of Default is continuing, the
principal amount of the Obligations (and, to the extent permitted by Applicable
Law, all past due interest) shall bear interest at the Default Rate.

 

Section 2.2            Fees.

 

(a)           Facility Fee.  Borrowers shall pay to Lender a facility fee of
.35% of the Commitment, which shall be fully earned and non-refundable and shall
be paid concurrently with the funding of the initial Post-Petition Loan
hereunder.

 

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(b)           Commitment Fee.  Borrowers shall pay to Lender a commitment fee
equal to 0.75% per annum of the amount by which the Average Loan Balance for any
month (or portion thereof that the Commitment is in effect) is less than
$110,000,000, such fee to be paid on the first Business Day of the following
month; but if the Commitment is terminated on a day other than the first day of
a month, then any such fee payable for the month in which termination shall
occur shall be paid on the effective date of such termination.

 

(c)           General Provisions.  All fees shall be fully earned by Lender
pursuant to the foregoing provisions of this Agreement on the due date thereof
and, except as otherwise set forth herein or required by Applicable Law, shall
not be subject to rebate, refund or proration. All fees provided for in this
Section 2.2 are and shall be deemed to be compensation for services and are not,
and shall not be deemed to be, interest or any other charge for the use,
forbearance or detention of money.

 

Section 2.3             Computation of Interest and Fees.  Interest shall be
calculated on a daily basis, commencing on the date of funding of the initial
Post-Petition Loan, and shall be payable monthly, in arrears, on the first
Business Day of each month. All interest, fees and other charges provided for in
this Agreement shall be calculated daily and shall be computed on the actual
number of days elapsed over a year of 360 days.

 

Section 2.4             Reimbursement Obligations.  Borrowers shall reimburse
Lender for all reasonable legal, accounting, appraisal and other fees and
expenses incurred by Lender in connection with (i) the negotiation and
preparation of any of the DIP Financing Documents, any amendment or modification
to any of the DIP Financing Documents, any waiver of any Default or Event of
Default thereunder, or any restructuring or forbearance with respect thereto;
(ii) the administration of the DIP Financing Documents and the transactions
contemplated thereby; (iii) any action taken to perfect or maintain the
perfection or priority of any of Lender’s Liens with respect to any of the
Collateral; (iv) any inspection of or audits conducted with respect to any
Obligor’s books and records or any of the Collateral; (v) any effort to verify,
protect, preserve, or restore any of the Collateral or to collect, sell,
liquidate or otherwise dispose of or realize upon any of the Collateral; (vi)
any litigation, contest, dispute, suit, proceeding or action (whether instituted
by or against Lender, any Obligor or any other Person) in any way arising out of
or relating to any of the Collateral (or the validity, perfection or priority of
any of Lender’s Liens thereon), any of the DIP Financing Documents or the
validity, allowance or amount of any of the Obligations; (vii) the protection or
enforcement of any rights or remedies of Lender in any Insolvency Proceeding;
and (viii) any other action taken by Lender to enforce any of the rights or
remedies of Lender against any Obligor or any Account Debtors to enforce
collection of any of the Obligations or payments with respect to any of the
Collateral.  All amounts chargeable to Borrowers under this Section 2.4 shall
constitute Obligations that are secured by all of the Collateral and shall be
payable to Lender on demand. Borrowers shall also reimburse Lender for
reasonable expenses incurred by Lender in its administration of any of the
Collateral to the extent and in the manner provided in Article 7 hereof or in
any of the other DIP Financing Documents. The foregoing shall be in addition to,
and shall not be construed to limit, any other provision of any of the DIP
Financing Documents regarding the reimbursement by Borrowers of costs, expenses
or liabilities suffered or incurred by Lender.

 

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Section 2.5             Bank Charges.  Borrowers shall pay to Lender, on demand,
any and all fees, costs or expenses which Lender pays to a bank or other similar
institution arising out of or in connection with (a) the forwarding to Borrowers
or any other Person on behalf of Borrowers by Lender of proceeds of
Post-Petition Loans made by Lender to Borrowers pursuant to this Agreement and
(b) the depositing for collection by Lender of any Payment Item received or
delivered to Lender on account of the Obligations. Borrowers acknowledge and
agree that Lender may charge such costs, fees and expenses to Borrowers based
upon Lender’s good faith estimate of such costs, fees and expenses as they are
incurred by Lender.

 

Section 2.6             Funding Losses.  Borrowers shall compensate Lender, upon
Lender’s written consent (which request shall set forth the basis for requesting
such amounts and which request shall, absent manifest error, be final,
conclusive and binding upon Borrowers), for all losses, expenses and liabilities
(including any interest paid by Lender to lenders of funds borrowed by Lender to
make or carry its LIBOR Loan to the extent not recovered by Lender in connection
with the re-employment of such funds), which Lender may sustain: (a) if for any
reason (other than a default by Lender) a Borrowing of any LIBOR Loan does not
occur on the date specified therefor in a Notice of Borrowing (whether or not
withdrawn), (b) if any repayment of any LIBOR Loan occurs on a date prior to the
Commitment Termination Date, or (c) if, for any reason, Borrowers default in
their obligation to repay any LIBOR Loan when required by the terms of this
Agreement.

 

Section 2.7             Maximum Interest.  In no event whatsoever shall the
aggregate of all amounts deemed interest hereunder or under the Notes and
charged or collected pursuant to the terms of this Agreement or pursuant to the
Notes exceed the Maximum Rate, nor shall any provisions hereof be construed as a
contract to pay for the use, forbearance or detention of money with interest at
a rate or in an amount in excess of the Maximum Rate. If any provisions of this
Agreement or the Notes contravene any Applicable Law, such provisions shall be
deemed amended to conform to such Applicable Law. Notwithstanding anything to
the contrary contained herein, no provision of this Agreement or the Notes shall
require the payment or permit the collection of interest in excess of the
Maximum Rate. If any excess of interest in such respect is herein provided for,
or shall be adjudicated to be so provided, in this Agreement, the Notes or
otherwise in connection with this loan transaction, the provisions of this
paragraph shall govern and prevail, and neither Borrowers nor the sureties,
guarantors, successors or assigns of Borrowers shall be obligated to pay the
excess amount of such interest, or any other excess sum paid for the use,
forbearance or detention of sums loaned pursuant hereto. If for any reason
interest in excess of the Maximum Rate shall be deemed charged, required or
permitted by any court of competent jurisdiction, any such excess shall be
applied as a payment and reduction of the principal of indebtedness evidenced by
this Agreement and the Notes; and, if the principal amount hereof has been paid
in full, any remaining excess shall forthwith be paid to Borrowers. In
determining whether or not the interest paid or payable exceeds the Maximum
Rate, Borrowers and Lender shall, to the extent permitted by Applicable Law, (a)
characterize any non-principal payment as an expense, fee, or premium rather
than as interest, (b) exclude voluntary prepayments and the effects thereof, and
(c) amortize, prorate, allocate, and spread in equal or unequal parts the total
amount of interest throughout the entire contemplated term of the indebtedness
evidenced by this Agreement and the Notes so that the interest for the entire
term does not exceed the Maximum Rate.

 

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ARTICLE 3

LOAN ADMINISTRATION

 

Section 3.1             Manner of Borrowing and Funding Post-Petition Loans. 
Borrowings under the Commitment established pursuant to Article 1 hereof shall
be made and funded as follows:

 

(a)           Notice of Borrowing.

 

(i)            Whenever Borrowers desire to make a Borrowing under this
Agreement, Borrowers shall give Lender prior written notice of such Borrowing
request (a “Notice of Borrowing”), which shall be in the form of Exhibit B
annexed hereto and signed by a Senior Officer. Except for the initial Notice of
Borrowing, such Notice of Borrowing shall be given by Borrowers no later than
11:00 a.m., Houston, Texas time, at the office of Lender, as designated by
Lender from time to time at least three (3) Business Days prior to the requested
funding date of such Borrowing, but no more frequently than once per week.
Notices received after 11:00 a.m. shall be deemed received on the next Business
Day. Each Post-Petition Loan shall be in the minimum amount of $2,500,000
(unless deemed requested pursuant to Section 3.l(a)(ii) or otherwise agreed by
Lender). Each Notice of Borrowing shall be irrevocable and shall specify (A) the
principal amount of the Borrowing, (B) the date of Borrowing (which shall be a
Business Day), (C) whether the Borrowing is to consist of a Base Rate Loan or
LIBOR Loan, and (D) the proposed use of the proceeds thereof.

 

(ii)           Unless payment is otherwise timely made by Borrowers, the
becoming due of the Break-Up Fee or of any amount required to be paid under this
Agreement or any of the other DIP Financing Documents with respect to the
Obligations (whether as principal, accrued interest, fees or other charges)
shall be deemed irrevocably to be a request for a Post-Petition Loan on the due
date of, and in an aggregate amount required to pay, such Break-Up Fee,
principal, accrued interest, fees or other charges, and the proceeds of such
Post-Petition Loan may be disbursed by way of direct payment of the Break-Up Fee
or relevant Obligation.

 

(b)           Fundings by Lender.  Subject to its receipt of a Notice of
Borrowing as provided in Section 3.1(a)(i), and in compliance with the terms and
conditions hereof, Lender shall make the proceeds of the Post-Petition Loan
available to Borrowers by disbursing such proceeds in accordance with Borrowers’
disbursement instructions set forth in the applicable Notice of Borrowing.

 

(c)           Disbursement Authorization.  Borrowers hereby irrevocably
authorize Lender to disburse the proceeds of each Post-Petition Loan requested
by Borrowers, or deemed to be requested pursuant to Section 3.1(a), as follows:
(i) the proceeds of each Post-Petition Loan requested under Section 3.1(a)(i)
shall be disbursed by Lender in accordance with the terms of the Notice of
Borrowing; and (ii) the proceeds of each Post-Petition Loan requested or deemed
requested under Section 3.1(a)(ii) shall be disbursed by Lender by way of direct
payment of the relevant interest or other Obligation.  Any proceeds disbursed in
payment of any of the Obligations shall be deemed to have been received by
Borrowers.

 

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ARTICLE 4

PAYMENTS

 

Section 4.1             General Payment Provisions.  All payments (including all
prepayments) of principal of and interest on the Post-Petition Loans and other
Obligations that are payable to Lender shall be made to Lender in Dollars,
without any offset or counterclaim and free and clear of (and without deduction
for) any present or future Taxes, by wire transfer of immediately available
funds not later than 12:00 noon, Houston, Texas time, on the due date.

 

Section 4.2             Repayment of Post-Petition Loans.

 

(a)           Payment of Principal.  The outstanding principal amounts with
respect to the Post-Petition Loans shall be due and payable on the Commitment
Termination Date.

 

(b)           Payment of Interest. Interest accrued on each Post-Petition Loan
shall be due and payable on the first Business Day of each month (for the
immediately preceding month), computed through the last calendar day of the
preceding month. Accrued but unpaid interest shall also be paid by Borrowers on
the Commitment Termination Date.

 

Section 4.3             Payment of Other Obligations. The balance of the
Obligations requiring the payment of money, including Extraordinary Expenses
incurred by Lender, shall be repaid by Borrowers to Lender as and when provided
in the DIP Financing Documents, or, if no date of payment is otherwise specified
in the DIP Financing Documents, on demand.

 

Section 4.4             Marshalling; Payments Set Aside.  Lender shall not be
under any obligation to marshall any assets in favor of any Obligor or against
or in payment of any or all of the Obligations. To the extent that Borrowers
make a payment or payments to Lender or Lender receives payment from the
proceeds of any Collateral or exercises its right of setoff, and such payment or
payments or the proceeds of Collateral or setoff or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party, then to the
extent of such recovery, the Obligations or part thereof originally intended to
be satisfied, and all Liens, rights and remedies therefor, 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. The provisions of the immediately
preceding sentence of this Section 4.4 shall survive any termination of the
Commitment and Full Payment of the Obligations.

 

Section 4.5             Application of Payments and Collections.  All monies to
be applied to the Obligations, whether such monies represent voluntary payments
by one or more Obligors or are received pursuant to demand for payment or
realized from any disposition of Collateral, shall be applied as follows: (i)
first, to pay the amount of Extraordinary Expenses and amounts owing to Lender
pursuant to Section 13.11 hereof that have not been reimbursed to Lender by
Borrowers, together with interest accrued thereon at the rate then applicable to
Base Rate Loans; (ii) second, to pay any Indemnified Amount that has not been
paid to Lender by Obligors, together with interest accrued thereon at the rate
then applicable to Base Rate Loans; (iii) third, to pay any fees due and payable
to Lender; (iv) fourth, in payment of accrued interest in respect of the Post-

 

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Petition Loans; (v) fifth, in payment of the unpaid principal of the
Post-Petition Loans; and (vi) sixth, in payment of any other Obligations then
outstanding.

 

Section 4.6             Receipt of Payments and Collections.  All payments
received by Lender by 12:00 noon, Houston, Texas time, on any Business Day shall
be deemed received on that Business Day. All Payment Items received by Lender
after 12:00 noon, Houston, Texas time, on any Business Day shall be deemed
received on the next Business Day. Except to the extent that the manner of
application to the Obligations of payments or proceeds of Collateral is
expressly governed by other provisions of this Agreement, Borrowers irrevocably
waive the right to direct the application of any and all payments and Collateral
proceeds at any time or times received by Lender from or on behalf of Borrowers,
and Borrowers do hereby irrevocably agree that Lender shall have the continuing
exclusive right to apply and reapply any and all such payments and Collateral
proceeds received at any time or times hereafter by Lender or its agent against
the Obligations, in such manner as Lender may deem advisable, notwithstanding
any entry by Lender upon any of its books and records.

 

Section 4.7             Prepayments.

 

(a)           Voluntary Prepayments.  Borrowers may, upon at least three (3)
Business Days notice to Lender, prepay the Post-Petition Loans at any time
without premium or penalty, but subject to any compensation payable pursuant to
Section 2.6 hereof.

 

(b)           Mandatory Prepayments.  A mandatory prepayment of the
Post-Petition Loans shall be due on any date (i) Borrowers or any Guarantor
shall receive Net Proceeds from any Asset Disposition in an amount equal to such
Net Proceeds, and (ii) Borrowers or any of their Subsidiaries shall receive any
Tax Refund in an amount equal to such Tax Refund.

 

ARTICLE 5

DIP TERM AND TERMINATION OF COMMITMENT

 

Section 5.1             Term of Commitment.  Subject to Lender’s right to cease
making Post-Petition Loans to Borrowers when any Default exists and is
continuing or upon the Commitment Termination Date, the Commitment shall be in
effect for the DIP Term. The DIP Term may be extended by written agreement
between Borrowers and Lender without further notice or hearing or order by the
Court.

 

Section 5.2             Termination.

 

(a)           Termination by Lender.  Lender may terminate the DIP Facility (and
any Commitment thereunder) at any time, without notice to Borrowers, after the
occurrence and during the continuance of an Event of Default.

 

(b)           Termination by Borrowers.  Borrowers may terminate the DIP
Facility at any time upon 10 days prior written notice to Lender; provided,
however, no such termination by Borrowers shall be effective until Full Payment
of the Obligations. Any notice of termination given by Borrowers shall be
irrevocable unless Lender otherwise agrees in writing. Borrowers may elect to
terminate the DIP Facility in its entirety only.

 

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(c)           Effect of Termination.  On the Commitment Termination Date, all of
the Obligations shall be immediately due and payable, and Lender shall have no
further obligation to make any Post-Petition Loans. All undertakings,
agreements, covenants, warranties and representations of Borrowers contained in
the DIP Financing Documents shall survive any such termination and Lender shall
retain its Liens in the Collateral and all of its rights and remedies under the
DIP Financing Documents notwithstanding such termination until Full Payment of
the Obligations. The provisions of Section 2.4, Section 4.4, and this Section
5.2(c) and all obligations of Borrowers to indemnify Lender pursuant to this
Agreement shall in all events survive any termination of the Commitment.

 

ARTICLE 6

COLLATERAL SECURITY AND GUARANTEE

 

Section 6.1             Grant of Security Interest in Collateral.  To secure the
prompt and Full Payment and performance of all of the Obligations, each Borrower
hereby grants to Lender, a continuing security interest in and Lien upon all of
the following Property and interests in Property of such Borrower, whether now
owned or existing or hereafter created, acquired or arising (irrespective of
whether the same existed on or was created or acquired after the Petition Date):

 

(a)           all Accounts;

 

(b)           all Inventory;

 

(c)           all Equipment;

 

(d)           all General Intangibles (including all Intellectual Property);

 

(e)           all Instruments;

 

(f)            all Chattel Paper;

 

(g)           all Documents;

 

(h)           all Investment Property (including all Pledged Securities);

 

(i)            all other goods and personal property, whether tangible or
intangible, wherever located, including money, letters of credit and all rights
of payment or performance under letters of credit;

 

(j)            all Real Property;

 

(k)           all Avoidance Claims;

 

(1)           all money and other Property of any kind, whether or not in the
possession or under the control of Lender or a bailee of Lender;

 

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(m)          all cash and non-cash proceeds of (a) through (1) above, including
proceeds of and unearned premiums with respect to insurance policies insuring
any of the Collateral; and

 

(n)           all books and records (including customer lists, files,
correspondence, tapes, computer programs, print-outs, and other computer
materials and records) of Borrower pertaining to any of (a) through (m) above.

 

In no event shall (i) the Lien granted above in all Avoidance Claims be
enforceable unless and until the Final Financing Order is entered nor (ii) the
Liens described herein extend to the Carve-Out. Lender agrees that so long as no
Default or Event of Default shall have occurred and be continuing, Borrowers
shall be permitted to pay Professional Expenses allowed and payable as part of
the Carve-Out.

 

Section 6.2             Other Collateral. In addition to the items of Property
referred to in Section 6.1 above, the Obligations shall also be secured by all
of the other items of Property from time to time described in the Financing
Orders or any of the Security Documents as security for all of the Obligations.

 

Section 6.3             Lien on Deposit Accounts.  As additional security for
the Full Payment and performance of the Obligations, each Borrower hereby grants
to Lender a continuing security interest in and Lien upon, and hereby
collaterally assigns to Lender, all of such Borrower’s right, title and interest
in and to any deposits or other sums at any time credited to each Deposit
Account. In connection with the foregoing, each Borrower hereby authorizes and
directs each bank or other depository to pay or deliver to Lender upon its
written demand therefor made at any time upon the occurrence and during the
continuation of an Event of Default and without further notice to such Borrower
(such notice being hereby expressly waived), all balances in each Deposit
Account maintained by such Borrower with such depository for application to the
Obligations then outstanding, and the rights given Lender in this Section shall
be cumulative with and in addition to Lender’s other rights and remedies in
regard to the foregoing Property as proceeds of Collateral. Each Borrower hereby
irrevocably appoints Lender as their attomey-in-fact to collect any and all such
balances to the extent any such payment is not made to Lender by such bank or
other depository after demand thereon is made by Lender pursuant hereto.

 

Section 6.4             Lien Perfection; Further Assurances.  Promptly after
Lender’s request therefor, but subject to Section 9.l(p), Borrowers shall
execute or cause to be executed and deliver to Lender such instruments,
assignments, title certificates or other documents as are necessary under the
UCC or other Applicable Law (including any motor vehicle certificates of title
act) to perfect (or continue the perfection of) Lender’s Lien upon the
Collateral, and shall take such other action as may be requested by Lender to
give effect to or carry out the intent and purposes of this Agreement.  Each
Borrower hereby authorizes Lender to file any financing statement which may be
necessary under the UCC. The parties agree that a carbon, photographic or other
reproduction of this Agreement shall be sufficient as a financing statement and
may be filed in any appropriate office in lieu thereof.

 

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Section 6.5             Lien Priority.  The Liens and security interests granted
to Lender pursuant to the provisions of this Article 6 and pursuant to any of
the DIP Financing Documents shall be first priority Liens and security interests
in the Collateral owned by each Borrower, subject only to (a) valid, perfected,
nonavoidable and enforceable Liens which constitute Permitted Liens, and (b) the
Carve-Out, and except as expressly provided otherwise in the Financing Orders.

 

Section 6.6             Guarantee.

 

(a)           Each of the Guarantors unconditionally and irrevocably guarantees
the due and punctual payment and performance by Borrowers of the Obligations. 
Each of the Guarantors further agrees that the Obligations may be extended or
renewed, in whole or in part, without notice to or further assent from it, and
it will remain bound upon this guarantee notwithstanding any extension or
renewal of any of the Obligations.  The Obligations of the Guarantors shall be
joint and several.

 

(b)           Each of the Guarantors waives presentation to, demand for payment
from and protest to Borrowers or any other Guarantor, and also waives notice of
protest for nonpayment. The Obligations of the Guarantors hereunder shall not be
affected by (i) the failure of Lender to assert any claim or demand or to
enforce any right or remedy against Borrowers or any other Guarantor under the
provisions of this Agreement or any other DIP Financing Documents or otherwise;
(ii) any extension or renewal of any provision hereof or thereof; (iii) any
rescission, waiver, compromise, acceleration, amendment or modification or any
of the terms or provisions of any of the DIP Financing Documents; (iv) the
release, exchange, waiver or foreclosure of any security held by Lender for
Obligations or any of them; (v) the failure of Lender to exercise any right or
remedy against any other Guarantor; or (vi) the release or substitution of any
Guarantor or any other Guarantor.

 

(c)           Each of the Guarantors further agrees that this guarantee
constitutes a guarantee of performance and of payment when due and not just of
collection, and waives any right to require that any resort be had by Lender to
any security held for payment of the Obligations or to any balance of any
deposit, account or credit on the books of Lender in favor of Borrowers or any
other Guarantor, or to any other Person.

 

(d)           Each of the Guarantors hereby waives any defense that it might
have based on a failure to remain informed of the financial condition of
Borrowers and of any other Guarantor and any circumstances affecting the ability
of the Borrowers to perform under this Agreement and the other DIP Financing
Documents.

 

(e)           Each Guarantor’s guarantee shall not be affected by the
genuineness, validity, regularity or enforceability of the Obligations, this
Agreement, the Notes, the other DIP Financing Documents or any other instrument
evidencing any Obligations, or by the existence, validity, enforceability,
perfection, or extent of any collateral therefore or by any other circumstance
relating to the Obligations which might otherwise constitute a defense to this
guarantee. Lender makes no representation or warranty in respect of any such
circumstances and shall have no duty or responsibility whatsoever to any
Guarantor in respect of the management and maintenance of the Obligations.

 

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(f)            Upon the Obligations becoming due and payable (by acceleration or
otherwise), Lender shall be entitled to immediate payment of such Obligations by
the Guarantors upon written demand by Lender without further application to or
order of the Court.

 

Section 6.7             No Impairment of Guarantee.  The obligations of the
Guarantors hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason (other than Full Payment), including
without limitation, any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense or set-off, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality or
unenforceability of the Obligations. Without limiting the generality of the
foregoing, the obligations of the Guarantors hereunder shall not be discharged
or impaired or otherwise affected by the failure of Lender to assert any claim
or demand or to enforce any remedy under this Agreement or any other agreement,
by any waiver or modification of any provision thereof, by any default, failure
or delay, willful or otherwise, in the performance of the Obligations, or by any
other act or thing or omission or delay to do any other act or thing which may
or might in any manner or to any extent vary the risk of the Guarantors or would
otherwise operate as a discharge of the Guarantors as a matter of law, unless
and until Full Payment of the Obligations.

 

Section 6.8             Subrogation.  Until Full Payment of the Obligations
guaranteed hereby, each Guarantor hereby waives all rights or subrogation of
contribution, whether arising by contract or operation of law.

 

ARTICLE 7

COLLATERAL ADMINISTRATION

 

Section 7.1             General Provisions.

 

(a)           Locations of Collateral.  All tangible items of Collateral, other
than Inventory in transit, shall at all times be kept by an Obligor at one or
more of the business locations of Obligors described in Schedule 7.1 hereof and
shall not be moved therefrom, without the prior written approval of Lender,
except that prior to an Event of Default and acceleration of the maturity of the
Obligations in consequence thereof, an Obligor may (i) make sales or other
dispositions of any Collateral to the extent authorized by Section 7.4(b) hereof
and (ii) move Inventory or any record relating to any Collateral to a location
in the United States other than those described in Schedule 7.1, so long as an
Obligor has given Lender at least 10 days prior written notice of such new
location.

 

(b)           Insurance of Collateral; Condemnation Proceeds.  Borrowers shall
maintain and pay for insurance upon all Collateral, wherever located, covering
casualty, hazard, public liability, and such other risks in such amounts and
with such insurance companies as are reasonably satisfactory to Lender. All
proceeds payable under each such policy shall be payable to Lender for
application to the Obligations.  Borrowers shall deliver the originals or
certified copies of such policies to Lender with loss payable endorsements
reasonably satisfactory to Lender, naming Lender as sole loss payee, assignee or
additional insured, as appropriate.  Each policy of insurance or endorsement
shall contain a clause requiring the insurer to give not less than 30 days prior
written notice to Lender in the event of cancellation of the policy for any
reason. If Borrowers fail to provide and pay for such insurance, Lender may, at
its option, but

 

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shall not be required to, procure the same and charge Borrowers therefor.
Borrowers agree to deliver to Lender, promptly as rendered, true copies of all
reports made in any reporting forms to insurance companies. For so long as no
Event of Default exists and is continuing, Borrowers shall have the right to
settle, adjust and compromise any claim with respect to any insurance maintained
by Borrowers provided that all proceeds thereof are applied in the manner
specified in this Agreement, and Lender agrees promptly to provide any necessary
endorsement to any checks or drafts issued in payment of any such claim. At any
time that an Event of Default exists and is continuing, only Lender shall be
authorized to settle, adjust and compromise such claims. Lender shall have all
rights and remedies with respect to such policies of insurance as are provided
for in this Agreement and the other DIP Financing Documents.

 

(c)           Protection of Collateral.  All expenses of protecting, storing,
warehousing, insuring, handling, maintaining and shipping any Collateral, all
Taxes imposed under any Applicable Law on any of the Collateral or in respect of
the sale thereof, and all other payments required to be made by Lender to any
Person to realize upon any Collateral shall be borne and paid by Obligors. If
any Obligor fails to pay promptly any portion thereof when due, Lender may, at
its option, but shall not be required to, pay the same and charge Borrowers
therefor. Lender shall not be liable or responsible in any way for the
safekeeping of any of the Collateral or for any loss or damage thereto (except
for reasonable care in the custody thereof while any Collateral is in Lender’s
actual possession) or for any diminution in the value thereof, or for any act or
default of any warehouseman, carrier, forwarding agency, or other Person
whomsoever, but the same shall be at Obligors’ sole risk.

 

(d)           Defense of Title to Collateral.  Each Obligor shall at all times
defend its title to the Collateral and Lender’s Liens therein against all
Persons and all claims and demands whatsoever.

 

Section 7.2             Administration of Accounts.

 

(a)           Records and Schedules of Accounts.  Each Obligor shall keep
accurate and complete records of its Accounts and all payments and collections
thereon and shall submit to Lender on such periodic basis as Lender shall
request a sales and collections report for the preceding period, in form
satisfactory to Lender.  On or before the 20th day of each month from and after
the date hereof, Borrowers shall deliver to Lender, in form acceptable to
Lender, a detailed aged trial balance of all Accounts existing as of the last
day of the preceding month, specifying the names, addresses, face value, dates
of invoices and due dates for each Account Debtor obligated on an Account so
listed (“Schedule of Accounts”), and, upon Lender’s request therefor, copies of
proof of delivery and a copy of all documents, including repayment histories and
present status reports relating to the Accounts so scheduled and such other
matters and information relating to the status of then existing Accounts as
Lender shall reasonably request. At the request of Lender made at any time, each
Obligor shall deliver to Lender copies of invoices or invoice registers related
to all of its Accounts.

 

(b)           Account Verification.  Whether or not a Default or an Event of
Default exists, Lender shall have the right at any time, in the name of Lender,
any designee of Lender or Borrowers, to verify the validity, amount or any other
matter relating to any Accounts of any

 

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Obligor by mail, telephone, telegraph or otherwise.  Each Obligor shall
cooperate fully with Lender in an effort to facilitate and promptly conclude any
such verification process.

 

Section 7.3             Administration of Inventory

 

(a)           Records and Reports of Inventory.  Each Obligor shall keep
accurate and complete records of its Inventory and shall furnish Lender periodic
inventory reports in form and detail satisfactory to Lender and certified to be
true and correct by the chief financial officer (or any other officer acceptable
to Lender in its sole discretion) of each Borrower.

 

(b)           Returns of Inventory.  An Obligor shall not return any of its
Inventory to a supplier or vendor thereof, or any other Person, whether for
cash, credit against future purchases or then existing payables, or otherwise,
unless (i) such return is in the ordinary course of business of Obligor and such
Person; (ii) no Default or Event of Default exists or would result therefrom;
(iii) Borrowers promptly notify Lender thereof if the aggregate value of all
Inventory returned in any month exceeds $100,000; and (iv) such return is not
made for the purpose of allowing such Person to credit its claim against an
Obligor arising prior to the Petition Date.

 

Section 7.4             Administration of Equipment.

 

(a)           Records and Schedules of Equipment.  Each Obligor shall keep
accurate records itemizing and describing the kind, type, quality, quantity and
cost of its Equipment and all dispositions made in accordance with Section
7.4(b) hereof, and shall furnish Lender with a current schedule containing the
foregoing information on at least an annual basis and more often if requested by
Lender. Promptly after request therefor by Lender, an Obligor shall deliver to
Lender any and all evidence of ownership, if any, of any of the Equipment.

 

(b)           Dispositions of Equipment.  Each Obligor will not sell, lease or
otherwise dispose of or transfer any of the Equipment or any part thereof
without the prior written consent of Lender; provided, however, that the
foregoing restriction shall not apply, for so long as no Default or Event of
Default exists, to (i) dispositions of Equipment in the Ordinary Course of
Business, (ii) dispositions of Equipment which, in the aggregate has a fair
market value or book value, whichever is less, of $250,000 or less, provided
that all Net Proceeds thereof are remitted to Lender for application to the
Obligations, or (iii) replacements of Equipment that is substantially worn,
damaged or obsolete with Equipment of like kind, function and value, provided
that the replacement Equipment shall be acquired prior to or concurrently with
any disposition of the Equipment that is to be replaced, the replacement
Equipment shall be free and clear of Liens other than Permitted Liens that are
not Purchase Money Liens, and such Obligor shall have given Lender at least 10
days prior written notice of such disposition.

 

(c)           Condition of Equipment.  The Equipment is in good operating
condition and repair, and all necessary replacements of and repairs thereto
shall be made so that the value and operating efficiency of the Equipment shall
be maintained and preserved, reasonable wear and tear excepted. Each Obligor
will not permit any of the Equipment to become affixed to any real Property
leased to such Obligor so that an interest arises therein under the real estate
laws of the applicable jurisdiction unless the landlord of such real Property
has executed a landlord waiver or leasehold mortgage in favor of and in form
acceptable to Lender, and each Obligor

 

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will not permit any of the Equipment to become an accession to any personal
Property that is subject to a Lien unless the Lien is a Permitted Lien.

 

Section 7.5             Pledged Securities.

 

(a)           Delivery of Certificates.  Each Obligor will deliver to Lender as
soon as reasonably practicable after the Closing Date all certificates or
instruments representing or evidencing any Pledged Securities, whether now
existing or hereafter acquired, in suitable form for transfer by delivery or, as
applicable, accompanied by such Obligor’s endorsement or duly executed
instruments of transfer in blank, all in form and substance satisfactory to
Lender.  Lender shall have the right, at any time in its discretion and without
notice to any Obligor, to transfer to or to register in its name or in the name
of its nominees any or all of the Pledged Securities.  Lender shall have the
right at any time to exchange certificates or instruments representing or
evidencing any of the Pledged Securities for certificates or instruments of
smaller or larger denominations.

 

(b)           Certain Distributions.  Any sums paid upon or in respect of any of
the Pledged Securities upon liquidation or dissolution of any issuer of any of
the Pledged Securities, any distribution of capital made on or in respect of any
of the Pledged Securities, or any property distributed upon or with respect to
any of the Pledged Securities pursuant to the recapitalization or
reclassification of the capital of any issuer of Pledged Securities or pursuant
to the reorganization thereof shall be delivered to Lender to be held by it
hereunder as additional security for the Obligations.  If any sums of money or
property so paid or distributed in respect of any of the Pledged Securities
shall be received by any Obligor, such Obligor shall, until such money or
property is paid or delivered to Lender, hold such money or such property in
trust for Lender, segregated from other funds of such Obligor, as additional
security for the Obligations.

 

(c)           Voting Rights.  Except as provided in Section 11.6, each Obligor
will be entitled to exercise all voting, consensual and corporate rights with
respect to the Pledged Securities; provided, however, that no vote shall be
cast, consent given or right exercised or other action taken by such Obligor
which would impair the Collateral or which would be inconsistent with or result
in any violation of any provision of this Agreement or any other DIP Financing
Document or, without prior written consent of Lender, to enable or take any
action to permit any issuer of Pledged Securities to issue any Equity Interest
of any nature or issue any other securities convertible into or granting the
right to purchase or exchange for any Equity Interest securities of any nature
of such issuer.

 

(d)           Control.  No Obligor shall grant control over any Investment
Property to any Person other than Lender.

 

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ARTICLE 8

REPRESENTATIONS AND WARRANTIES

 

Section 8.1             General Representations and Warranties.  To induce
Lender to enter into this Agreement and to make available the Commitment, each
Obligor warrants and represents to Lender that:

 

(a)           Organization and Qualification.  Each Obligor is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, has the power to own Properties and to
transact the business in which it is presently engaged or proposed to be engaged
and is duly qualified and in good standing in each jurisdiction in which it
presently is, or proposes to be, engaged in business, other than failures to be
so qualified and in good standing that could not reasonably be expected to have
a Material Adverse Effect.

 

(b)           Power and Authority.  The execution, delivery and performance by
each Obligor of the DIP Financing Documents are within such Obligor’s corporate
power, have been duly authorized by all necessary or proper corporate action
and, on the date of initial funding of Post-Petition Loans hereunder, will be
authorized by the Interim Financing Order pursuant to Sections 363 and 364 of
the Bankruptcy Code; are not in contravention of any provision of its own
Organizational Documents; will not violate any Applicable Law (following entry
of the Interim Financing Order); does not require the consent or approval of any
Governmental Authority or any other Person other than the entry by the Court of
the Interim Financing Order and thereafter the Final Financing Order.

 

(c)           Enforceable Agreements.  Each of the DIP Financing Documents has
been duly executed and delivered by such Obligor and constitutes a legal, valid
and binding obligation of Borrowers, enforceable against such Obligor in
accordance with its terms, subject to the Financing Orders.

 

(d)           Priority of Liens.  Upon entry of the Interim Financing Order, and
thereafter upon entry of the Final Financing Order, the security interests
granted pursuant to the DIP Financing Documents constitute valid, enforceable,
perfected and first priority Liens on the Collateral owned by the Obligors,
except to the extent otherwise expressly provided in the Financing Orders and
except for Permitted Liens.

 

(e)           Places of Business.  Each Obligor has no office or place of
business, nor does each Obligor store any Collateral, at any location other than
those identified in Schedule 7.1.

 

(f)            Compliance With Laws.  All of each Obligor’s business, operations
and Properties are conducted, maintained and owned in accordance with Applicable
Law, including all Environmental Laws, except to the extent that any such
noncompliance could not reasonably be expected to have a Material Adverse Effect
and except as heretofore described by Borrowers in filings with the SEC.

 

(g)           Governmental Approvals.  Each Obligor has obtained and holds in
full force and effect all Governmental Approvals necessary for the operation of
its business as

 

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presently and proposed to be conducted to the extent that the failure to obtain
same could not reasonably be expected to have a Material Adverse Effect.

 

(h)            No Adverse Changes.  Since the Petition Date, no event has
occurred that has or could reasonably be expected to have a Material Adverse
Effect.

 

(i)             Taxes.  Each Obligor has filed all federal, state and local tax
returns and other reports that it is required by Applicable Law to file and has
paid, or made for provision of the payment of, all Taxes upon it, its income and
properties as and when such Taxes are due and payable, except to the extent
being Properly Contested.

 

(j)             Brokers.  Except for possible claims of Ernst & Young LLP
payable by Borrowers, there are no claims for brokerage commissions, finders’
fees or investment banking fees in connection with the transactions contemplated
by this Agreement or any of the other DIP Financing Documents.

 

(k)            No Default.  No Default or Event of Default exists at the time,
or would result from the funding, of any Post-Petition Loan or other extension
of credit hereunder;

 

(1)            ERISA.  Borrowers and each of their Subsidiaries are in full
compliance with the requirements of ERISA and the regulations promulgated
thereunder with respect to each Plan. No fact or situation that is reasonably
likely to result in a material adverse change in the financial condition of
Borrowers or any of their Subsidiaries exists in connection with any Plan.
Neither Borrowers nor any of their Subsidiaries has any withdrawal liability in
connection with a Multiemployer Plan.

 

(m)           Not a Regulated Entity.  No Obligor is (i) an “investment company”
or a “person directly or indirectly controlled by or acting on behalf of an
investment company” within the meaning of the Investment Company Act of 1940; or
(ii) a “holding company,” or a “subsidiary company” of a “holding company,” or
an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding
company,” within the meaning of the Public Utility Holding Company Act of 1935.

 

(n)           Margin Stock.  Neither Borrowers nor any of their Subsidiaries is
engaged, principally or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any margin stock.

 

(o)           Pledged Securities.  All Pledged Securities of any Obligor as of
the date hereof are listed on Schedule 8.1(o), and all of such Pledged
Securities are owned by such Obligor free and clear of any Lien or adverse claim
except any Lien granted to secure the Pre-Petition Term Loan, which Lien shall
be released concurrently with the funding of the initial Post-Petition Loan. The
Pledged Securities pledged hereunder by the Obligors constitute that percentage
of the issued and outstanding Equity Interests of each issuer thereof as set
forth on Schedule 8.1(o).  All of the Pledged Securities have been duly and
validly issued and are fully paid and nonassessable. Except as set forth on
Schedule 8.1(o), all certificates or instruments evidencing the Pledged
Securities have been delivered to Lender.

 

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(p)           Acquisition Agreement.  All of the representations and warranties
made by Borrowers in Articles III and IV of the Acquisition Agreement are true
and correct in all material respects.

 

(q)           Subsidiaries.  All of the direct and indirect Subsidiaries of
Borrowers are listed on Schedule 8.1(q).

 

Section 8.2             Reaffirmation of Representations and Warranties.  All of
the foregoing representations and warranties made by any Obligor in this
Agreement or in any of the other DIP Financing Documents shall survive the
execution and delivery of this Agreement and such other DIP Financing Documents,
and shall be deemed to have been remade and reaffirmed on each day that any
Obligations are outstanding or that Borrowers request or are deemed to have
requested the funding of a Post-Petition Loan under the DIP Facility.

 

ARTICLE 9

COVENANTS AND CONTINUING AGREEMENTS

 

Section 9.1             Affirmative Covenants.  During the DIP Term and
thereafter until Full Payment of the Obligations, each Obligor covenants that it
shall and shall cause each of its Subsidiaries to:

 

(a)           Business and Existence.  Preserve and maintain its separate
corporate existence and all rights, privileges, and franchises in connection
therewith, and maintain its qualification and good standing in all states in
which such qualification is necessary to the ownership of its Properties or the
conduct of its businesses.

 

(b)           Business Records.  Keep adequate records and books of account with
respect to its business activities in which proper entries are made in
accordance with GAAP reflecting all financial transactions.

 

(c)           Visits and Inspections.  Permit representatives of Lender, from
time to time, as often as may be reasonably requested, but only during normal
business hours, to visit and inspect the Properties of any Obligor or any
Subsidiary, inspect and make extracts from their books and records, and discuss
with their officers, employees and independent accountants, the business,
assets, liabilities, financial condition, business prospects and results of
operations of any Obligor or any Subsidiary.

 

(d)           Further Assurances.  At Lender’s request, promptly execute or
cause to be executed and deliver to Lender any and all documents, instruments
and agreements deemed necessary by Lender to give effect to or carry out the
terms or intent of this Agreement or any of the DIP Financing Documents.

 

(e)           Compliance With Orders.  To the extent having applicability to any
Obligor, comply with the Interim Financing Order, the Final Financing Order and
all other orders entered by the Court in the Chapter 11 Cases.

 

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(f)            Financing of Company.  Provide financing in the minimum amount
set forth in the Budget, or such greater other amounts as Lender deems necessary
to enable Company and Guarantors to conduct normal business operations
throughout the DIP Term.

 

(g)           Financial Statements.  Cause to be prepared and to be furnished to
Lender the following:

 

(i)            as soon as available, and in any event within 30 days after the
end of each month hereafter, unaudited interim consolidated financial statements
of Parent and its Subsidiaries as of the end of such month and the related
unaudited consolidated statements of income and cash flow for such month and for
the portion of Parent’s Fiscal Year then elapsed, certified by the chief
financial officer of Parent as prepared in accordance with GAAP and fairly
presenting the consolidated financial position and results of operations of
Parent and its Subsidiaries for such month and period subject only to changes
from audit and year-end adjustments and the ongoing restatement process and
except that such statements need not contain notes;

 

(ii)           such other data and information (financial or otherwise) as
Lender, from time to time, may reasonably request, bearing upon or related to
the Collateral or any Obligor’s or any Subsidiary’s financial condition or
results of operations;

 

(iii)          promptly after the sending or filing thereof, as the case may be,
copies of any l0Qs, l0Ks and any proxy statements, financial statements or
reports which Parent has made generally available to their shareholders and
copies of any regular, periodic and special reports or registration statements
which Borrowers file with the SEC (or any other Governmental Authority which may
be substituted therefor), or any national securities exchange; and

 

(iv)          on or before the third Business Day of each week, (A) a report in
form acceptable to Lender setting forth any variances in actual cash receipts
and expenditures from those projected in the Budget and (B) an update to the
Budget setting forth any changes therein reasonably anticipated by Borrowers (it
being understood that no such changes shall become part of the Budget unless
approved by Lender in writing).

 

Concurrently with the delivery of the financial statements described in clause
(i) of this Section 9.1(g), or more frequently if requested by Lender during any
period that a Default or Event of Default exists, Borrowers shall cause to be
prepared and furnish to Lender a Compliance Certificate.

 

(h)           Notices.  Notify Lender in writing, promptly after such Obligor’s
obtaining knowledge thereof, of the termination or breach of any Material
Contract; the occurrence of any Default or Event of Default; such Obligor’s
violation (or asserted violation) of any Applicable Law (including the
Bankruptcy Code or any Environmental Law); any claim that such Obligor may make
under any policy of insurance with respect to the Collateral; any pleading filed
with the Court seeking relief from stay or conversion or dismissal of any
Chapter 11 Case; and any proposed sale of any of the Collateral (including with
such notice copies of drafts of all instruments and agreements applicable to any
such sale), which shall specify the identity of the proposed purchaser, the
terms of the proposed sale and the expected date of

 

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closing, subject to Court approval. Borrowers shall provide, or shall cause
their counsel in its Chapter 11 Cases to provide, Lender’s counsel with copies
of all pleadings, motions, reports, applications and other papers filed by
Borrowers with the Court as well as copies of all billing and expense statements
received from any Professional Person.  Each Obligor shall include counsel for
Lender on any “Special Notice List” or other similar list of parties to be
served with papers in its Chapter 11 Case.

 

(i)            Insurance.  In addition to the insurance required herein with
respect to the Collateral, maintain with financially sound and reputable
insurers, insurance with respect to its Properties and business against such
casualties and contingencies of such type (including product liability, business
interruption, larceny, embezzlement or other criminal misappropriation
insurance) and in such amounts as is customary in the business of such Obligor.

 

(j)            Compliance With Laws.  Comply with all Applicable Law, including
ERISA, FLSA, OSHA, all Environmental Laws, the Bankruptcy Code and all laws,
statutes, regulations and ordinances regarding the collection, payment and
deposit of Taxes, and obtain and keep in force any and all Governmental
Approvals necessary to the ownership of its Properties or to the conduct of its
business, to the extent that any such failure to comply, obtain or keep in force
could be reasonably expected to have a Material Adverse Effect.

 

(k)           Taxes.  Pay and discharge all Taxes prior to the date on which
such Taxes become delinquent or penalties attach thereto, except and to the
extent only that such Taxes are being Properly Contested or are not permitted to
be paid currently under federal bankruptcy law.

 

(1)           Reports to the U.S. Trustee.  As soon as available, and in any
event within 2 Business Days after the filing thereof, provide to Lender a copy
of each report filed by any Obligor with the office of the United States
Trustee.

 

(m)          Proposed Sale of Assets.  Promptly upon receipt thereof, provide to
Lender any and all documentation that in any way relates to a written
solicitation, offer, or proposed sale or disposition of any material amount of
real or personal Property of Parent or any of its Subsidiaries (other than
Company and any of the Guarantors), including letters of inquiry, solicitations,
letters of intent or asset purchase agreements.

 

(n)           Utility Deposits.  To the extent any Obligor has made or makes any
deposits for the benefit of utilities companies or any other Person, such
Obligor acknowledges that Lender has been granted a first priority perfected
Lien in such deposits, subject to any right of setoff by such utility company.
No Obligor shall use or transfer such deposits, and each Obligor hereby assigns
and sets over all such deposits to Lender, subject to any right of setoff by
such utility company.

 

(o)           Payment of Administrative Expenses.  Make all payments of (i)
post-petition operating costs and expenses as and when due and (ii)
administrative costs and expenses as and when such administrative costs and
expenses are due and payable, as approved by the Court.

 

(p)           Pledge of Stock of Guarantors.  Cooperate with Lender in executing
all collateral documents and taking all actions to enable Lender to obtain or
confirm, in accordance

 

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with the laws of the applicable foreign jurisdictions, valid, enforceable and
perfected Liens in all Equity Interests of each Guarantor on or before October
15, 2002. Borrowers’ failure to exert their diligent good faith efforts to
achieve compliance with this Section 9.l(p) by October 15, 2002 shall constitute
an Event of Default.

 

(q)           Acquisition Agreement.  Comply with all covenants contained in
Article VI of the Acquisition Agreement which are incorporated herein by
reference with the same effect as if all such covenants were restated herein.

 

(r)            Other Information.  Promptly (and in any event within 5 Business
Days) after any request of Lender, deliver to Lender such additional financial
or other information concerning the acts, conduct, properties, assets,
liabilities, operations, businesses, financial condition or transactions of
Borrowers or any of their Subsidiaries, or concerning any matter which may
affect the administration of any Obligor’s Estate, as Lender may from time to
time reasonably request.

 

Section 9.2             Negative Covenants.  During the DIP Term and thereafter
until Full Payment of the Obligations, each Obligor covenants that it shall not
and shall not permit any Subsidiary to:

 

(a)           Fundamental Changes.  Merge or consolidate with any Person,
acquire a material amount of assets of any Person, or liquidate, wind up its
affairs or dissolve itself.

 

(b)           Limitation on Liens.  Create or suffer to exist any Lien upon any
of its Property, income or profits, whether now owned or hereafter acquired,
except: (i) Liens in existence on the Petition Date as disclosed on Schedule
9.2(b) and not required to be terminated as noted thereon; (ii) Liens for Taxes
(excluding any Lien imposed pursuant to any of the provisions of ERISA) not yet
due or being Properly Contested; (iii) statutory Liens (excluding Liens imposed
pursuant to any of the provisions of ERISA) securing the claims or demands of
materialmen, mechanics, carriers, warehousemen, landlords and other like Persons
for labor, materials, supplies or rentals incurred in the Ordinary Course of
Business, but only if the payment thereof is not at the time required or the
Debt secured by such Lien is being Properly Contested; (iv) Liens resulting from
deposits made in the Ordinary Course of Business in connection with workmen’s
compensation, unemployment insurance, social security and other like laws; (v)
reservations, exceptions, easements, rights-of-way, and other similar
encumbrances affecting real Property of any Obligor that were in existence on
the Petition Date; (vi) Liens securing Permitted Purchase Money Debt; and (vii)
such other Liens as Lender may consent to in writing from time to time, in its
sole and absolute discretion.

 

(c)           Disposition of Assets.  Except as contemplated by the Acquisition
Agreement, sell, lease or otherwise dispose of any of their Property, including
any disposition of the Collateral as part of a sale and leaseback transaction,
to or in favor of any Person, except (i) sales of Inventory in the Ordinary
Course of Business for so long as no Event of Default exists hereunder, (ii)
dispositions of Equipment as authorized by Section 7.4 hereof, (iii)
dispositions of Property that are authorized by the Court after notice and
hearing, provided that the Net Proceeds thereof are remitted to Lender for
application to the Obligations as provided herein, (iv)

 

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dispositions which result in Full Payment of all of the Obligations and (v) the
rejection pursuant to Section 365 of the Bankruptcy Code of unexpired leases and
executory contracts.

 

(d)           Compromise of Accounts.  Compromise or settle, or extend the time
of payment of, any Account in excess of $250,000 without Lender’s prior written
consent.

 

(e)           Payment of Claims.  Make any payment of principal or interest on
account of any Claim against any Obligor that arose prior to the Petition Date,
other than rent under leases in existence on the Petition Date, Claims permitted
to be paid by the Budget and “first day orders” to the extent approved by order
of the Court, the Claims of Critical Vendors to the extent approved by Lender,
and any other payments authorized by the Court.

 

(f)            Filing of Motions and Applications.  Apply to the Court for
authority to (i) take any action that is prohibited by the terms of any of the
DIP Financing Documents, (ii) refrain from taking any action that is required to
be taken by the terms of any of the DIP Financing Documents or the Financing
Orders (iii) permit any Debt or Claim to be pari passu with or senior to any of
the Obligations, or (iv) use any cash proceeds of the Collateral other than in
payment of the Obligations or as otherwise expressly authorized herein.

 

(g)           Modifications to Orders.  Seek or consent to any amendment,
supplement or any other modification of any of the terms of the Financing
Orders.

 

(h)           Restricted Investments.  Make or have any new Restricted
Investment.

 

(i)            Distributions.  Make any Distribution, except Distributions by a
Subsidiary to a Borrower in cash or as otherwise expressly permitted by the
Budget.

 

(j)            Permitted Debt.  Incur or suffer to exist any Debt other than
Claims and Debt in existence on the Petition Date; the Obligations; Capitalized
Lease Obligations not to exceed $100,000.00 and Permitted Purchase Money Debt;
Debt (other than Debt for Money Borrowed, Capitalized Lease Obligations and
Permitted Purchase Money Debt) incurred in the Ordinary Course of Business
during the Chapter 11 Cases, so long as such Debt is not past due and payable
and is not secured by any Lien that is not a Permitted Lien; and Permitted
Contingent Obligations.

 

(k)           Conduct of Business.  Engage in any business other than the
business engaged in by it on the Petition Date and any business or activities
that are substantially similar, related or incidental thereto.

 

(1)           Use of Proceeds.  Use any proceeds of Post-Petition Loans for a
purpose that is not expressly permitted by Section 1.1(b).

 

(m)          Accounting Changes.  Change any method of accounting or accounting
practice used by it, except for any change required by GAAP or Applicable Law.

 

(n)           Organization Documents.  Amend, modify or otherwise change any of
the terms or provisions in any of its Organization Documents as in effect on the
date hereof, except for changes that do not affect in any way any Borrower’s or
such Subsidiary’s rights and

 

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obligations to enter into and perform the DIP Financing Documents to which it is
a party and to pay all of the Obligations and that do not otherwise have a
Material Adverse Effect.

 

(o)           Advances and Transfers to Subsidiaries.  Notwithstanding anything
in this Agreement to the contrary, while Post-Petition Loans are outstanding or
while any Commitment exists, make any loans, advances or transfers to any
Subsidiaries other than loans by Borrowers to Subsidiaries to pay expenditures
permitted by the Budget or otherwise approved by Lender in writing.

 

(p)           Budget.  Make or commit or agree to make, or permit any of its
Subsidiaries to make or commit or agree to make, any expenditures in any given
week or on a cumulative basis which are not set forth in the Budget, subject to
cumulative variances not to exceed five percent (5%) of such aggregate
expenditures.

 

ARTICLE 10

CONDITIONS PRECEDENT

 

Section 10.1           Conditions Precedent to Initial Credit Extensions. 
Notwithstanding any other provision of this Agreement or any of the other DIP
Financing Documents, and without affecting in any manner the rights of Lender
under other sections of this Agreement, Lender shall not be required to fund any
Post-Petition Loan requested by Borrowers, unless, on or before September 27,
2002, or the date of the Final Financing Order, as applicable, each of the
following conditions has been and continues thereafter to be satisfied:

 

(a)           All of the DIP Financing Documents (unless Section 9.1(p) applies)
shall have been executed in form and substance satisfactory to Lender by each of
the signatories thereto and accepted by Lender, and each Obligor shall be in
compliance with all of the terms thereof, and all representations and warranties
contained therein shall be true and correct in all material respects.

 

(b)           No Default or Event of Default shall exist at the time of, and
would not result from the funding of, any requested Post-Petition Loan, and no
event shall have occurred and no condition shall exist since the Petition Date
that has had or could reasonably be expected to have a Material Adverse Effect.

 

(c)           The Interim Financing Order shall have been entered, shall be in
full force and effect and shall not have been vacated, reversed, modified or
stayed in any respect (and, if such order is the subject of a pending appeal, no
performance of any obligation of any party shall have been stayed pending such
appeal).

 

(d)           Lender shall have received satisfactory proof of insurance by
Obligors, in accordance with the terms of this Agreement, and, no later than the
date of the Final Financing Order, evidence of loss payable endorsements naming
Lender as loss payee with respect to each policy and certified copies of
Obligors’ liability insurance policies, together with endorsements naming Lender
as an additional insured.

 

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(e)           No later than the date of the Final Financing Order, Lender shall
have received all certificates evidencing any of the Pledged Securities,
together with stock powers duly endorsed in blank relating thereto.

 

(f)            Lender shall have received the Budget and found it to be
acceptable in form and substance.

 

(g)           All fees and expenses required to be paid by Borrowers hereunder
on the Closing Date shall have been paid in full.

 

Section 10.2           Conditions Precedent to All Credit Extensions. 
Notwithstanding any other provision of this Agreement or any of the other DIP
Financing Documents, and without affecting in any manner the rights of Lender
under other sections of this Agreement, Lender shall not be required to fund any
Post-Petition Loan, unless and until each of the following conditions has been
and continues to be satisfied:

 

(a)           No Default or Event of Default exists at the time, or would result
from the funding, of any Post-Petition Loan or other extension of credit.

 

(b)           No action, proceeding, investigation, regulation or legislation
shall have been instituted, threatened or proposed before any court or
Governmental Authority to enjoin, restrain or prohibit any of the DIP Financing
Documents or the consummation of any of the transactions contemplated thereby.

 

(c)           No event shall have occurred and no condition shall exist that
could reasonably be expected to have a Material Adverse Effect.

 

(d)           With respect to all Post-Petition Loans requested after the sooner
to occur of (i) the final hearing on the DIP Motion or (ii) 30 days following
the entry of the Interim Financing Order, the Final Financing Order shall have
been entered, shall be in full force and effect and shall not have been vacated,
reversed, modified, amended or stayed without the prior written consent of
Lender.

 

(e)           Lender shall have received an officer’s certificate from Borrowers
(i) demonstrating Borrowers’ compliance with the Budget, (ii) certifying that
Borrowers shall apply the proceeds of the Post-Petition Loans only to Budgeted
Expenses and (iii) containing a comparison of the Budgeted Expenses to actual
expenditures for the most recent week then ended, all certified by a Senior
Officer, in form and substance satisfactory to Lender. The certificate required
by this Section shall be provided to Lender on a weekly basis.

 

(f)            All representations and warranties contained within the Agreement
and the Acquisition Agreement shall be true and correct in all material
respects.

 

(g)           Lender shall have received such other information or documents
regarding the requested Post-Petition Loan as Lender may reasonably request.

 

Section 10.3           Limited Waiver of Conditions Precedent.  If Lender shall
make any Post-Petition Loan or otherwise extend any credit to Borrowers under
this Agreement at a time when

 

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any of the foregoing conditions precedent are not satisfied (regardless of
whether the failure of satisfaction of any of such conditions precedent is known
or unknown to Lender), the funding of such Post-Petition Loan shall not operate
as a waiver of the right of Lender to insist upon the satisfaction of all
conditions precedent with respect to each subsequent Borrowing requested by
Borrowers or a waiver of any Default or Event of Default as a consequence of the
failure of any such conditions to be satisfied.

 

ARTICLE 11

EVENTS OF DEFAULT;

RIGHTS AND REMEDIES ON DEFAULT

 

Section 11.1           Events of Default.  The occurrence of any one or more of
the following events shall constitute an “Event of Default”:

 

(a)           Payment of Obligations.  Borrowers shall fail to pay (i) the
principal of or accrued interest with respect to any Post-Petition Loan on the
due date thereof (whether due at stated maturity, on demand, upon acceleration
or otherwise) or within three Business Days of such due date or (ii) any of the
other Obligations on the due date thereof (whether due at stated maturity, upon
acceleration or otherwise), but if no due date is specified therefor, within
three Business Days after demand for payment of such Obligation.

 

(b)           Misrepresentations.  Any warranty, representation, or other
statement made or furnished to Lender by or on behalf of any Borrower or any
other Obligor or in any instrument, certificate or financial statement furnished
in compliance with or in reference to this Agreement or any of the DIP Financing
Documents proves to have been false or misleading in any material respect when
made or furnished.

 

(c)           Breach of Specific Covenants.  Any Borrower or any other Obligor
shall fail or neglect to perform, keep or observe any covenant contained in
Section 1.l(b), Section 6.4, Section 7.1(a),  Section 7.1(b), Section 7.4(b),
Section 7.5(a), Section 9.1(a), Section 9.l(c), Section 9.l(d), Section 9.1(e),
Section 9.1(g), Section 9.l(i), Section 9.1(t), Section 9.l(k) or Section 9.2
hereof on the date that such Borrower or such Obligor is required to perform,
keep or observe such covenant.

 

(d)           Breach of Other Covenants.  Any Borrower or any other Obligor
shall fail or neglect to perform, keep or observe any covenant contained in this
Agreement (other than a covenant which is dealt with specifically elsewhere in
Section 11.1 hereof) and the breach of such other covenant is not cured to
Lender’s satisfaction within 10 days after the sooner to occur of any Senior
Officer’s receipt of notice of such breach from Lender or the date on which such
failure or neglect first becomes known to any Senior Officer; provided that if
any such breach is of a nature that is not reasonably susceptible of cure within
such 10-day period, no Event of Default shall be deemed to have occurred
hereunder by reason thereof so long as Borrowers commence to cure such breach
within such 10-day period and thereafter diligently pursue such cure to
completion within an additional 10-day period; and provided further, however,
that such notice and opportunity to cure shall not apply in the case of any
failure to perform, keep or observe any covenant which is not capable of being
cured at all or within such 10-day period or which is a willful and knowing
breach by a Borrower or such Obligor.

 

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(e)           Default Under Other DIP Financing Documents.  Any event of default
shall occur under, or any Borrower or any other Obligor shall default in the
performance or observance of any term, covenant, condition or agreement
contained in, any of the other DIP Financing Documents and such default shall
continue (i) beyond any applicable period of grace, or (ii) if no grace period
is specified within such DIP Financing Documents, within 10 days after the
sooner to occur of any Senior Officer’s receipt of notice of such breach from
Lender or the date on which such failure or neglect first becomes known to any
Senior Officer.

 

(f)            Cross-Defaults.  There shall occur any default or event of
default on the part of any Borrower or any other Obligor under any agreement,
document or instrument which is entered into after the Petition Date and which
relates to any Debt.

 

(g)           Uninsured Losses; Unauthorized Dispositions.  There shall occur
any material loss, theft, damage or destruction not fully covered by insurance
(as required by this Agreement and subject to such deductibles as Lender shall
have agreed to in writing), or any sale, lease or encumbrance of any of the
Collateral or the making of any levy, seizure, or attachment thereof or thereon,
except as may be specifically permitted by other provisions of this Agreement.

 

(h)           Certain Bankruptcy Events.  Any Borrower shall fail to comply with
any of the provisions of the Financing Orders in any material respect; a trustee
shall be appointed in any Chapter 11 Case; an examiner shall be appointed in any
Chapter 11 Case with enlarged powers (powers beyond those set forth in Section
1106(a)(3) and (4) of the Bankruptcy Code) under Section 1106(b) of the
Bankruptcy Code; any Chapter 11 Case shall be dismissed or converted to a case
under Chapter 7; Borrowers shall obtain Court approval of a disclosure statement
for a Reorganization Plan other than an Acceptable Plan or a Confirmation Order
shall be entered with respect to a Reorganization Plan proposed by a Person
other than Borrowers if such Reorganization Plan is not an Acceptable Plan;
there shall be filed by Borrowers any motion to sell all or a substantial part
of the Collateral (excluding any Acquisition Transaction as defined in the
Acquisition Agreement) on terms that are not acceptable to Lender in its sole
discretion; the Final Financing Order is not entered by October 22, 2002; any
Borrower shall file any motion to alter, amend, vacate, supplement, modify, or
reconsider, in any respect, either of the Financing Orders or, without Lender’s
prior written consent, either of the Financing Orders is amended, vacated,
stayed, reversed or otherwise modified; the Court shall enter an order granting
to any Person (other than Lender) relief from the automatic stay to foreclose
upon a Lien with respect to any Property of any Borrower that has an aggregate
book value in excess of $250,000 or to terminate or otherwise exercise remedies
under any material agreement, document or instrument which is entered into after
the Petition Date, whether or not it relates to any Debt; any Borrower shall
file a motion or other request with the Court seeking authority to use any cash
proceeds of the Collateral or to obtain any financing under Section 364(c) or
Section 364(d) of the Bankruptcy Code or otherwise secured by a Lien upon any
Collateral (in each case (i) without Lender’s prior written consent or (ii) if
such motion fails to contemplate payment in full of the Obligations); or,
without Lender’s consent, any Obligor shall discontinue or suspend all or any
material part of its business operations or commence an orderly wind-down or
liquidation of any material part of the Collateral.

 

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(i)            Failure of DIP Financing Documents.  Any material covenant,
agreement or obligation of any Obligor contained in or evidenced by any of the
DIP Financing Documents shall cease to be enforceable or shall be determined to
be unenforceable in accordance with its terms other than by reason of Lender’s
actions; any Obligor shall deny or disaffirm its obligations under any of the
DIP Financing Documents or Liens granted in connection therewith; any Obligor
shall initiate or support (in any such case by way of any motion or other
pleading filed with the Court or any other writing to another party-in-interest
executed by or behalf of an Obligor) any other Person’s opposition of or
challenge to the enforceability, validity and priority of the DIP Financing
Documents or the Liens granted thereby; or the Liens granted in any of the
Collateral owned by any Obligor shall be determined to be voidable, invalid or
subordinated or shall be determined, with respect to any material part of the
Collateral owned by any Obligor, to be unperfected or not to have the priority
contemplated by this Agreement.

 

(j)            Guarantor Defaults.  Any Guarantor shall be in default under the
terms of any agreement, document or instrument which relates to any Debt for
Money Borrowed; or any Insolvency Proceeding shall be commenced by or against
any Guarantor.

 

(k)           Material Contracts.  Any Material Contract shall be terminated or
amended in any material respect without the prior written consent of Lender,
unless said contract is concurrently replaced with a comparable agreement on
comparable terms.

 

Section 11.2           Acceleration of the Obligations.  Without in any way
limiting the right of Lender to demand payment of any portion of the Obligations
payable on demand in accordance with this Agreement, upon or at any time after
the occurrence of an Event of Default as above provided, Lender may, in its
discretion, (i) declare the principal of and any accrued interest on the
Post-Petition Loans and all other Obligations owing under any of the DIP
Financing Documents to be, whereupon the same shall become, without further
notice or demand (all of which notice and demand each Obligor expressly waives),
forthwith due and payable and Borrowers shall forthwith pay to Lender the entire
principal of and accrued and unpaid interest on the Post-Petition Loans and
other Obligations plus reasonable attorneys’ fees and expenses if such principal
and interest are collected by or through an attomey-at-law; and (ii) terminate
the Commitment.

 

Section 11.3           Remedies.  Subject to the Financing Orders, upon or at
any time after the occurrence of an Event of Default, Lender may, in its
discretion, exercise from time to time the following rights and remedies to
enforce collection of the Obligations (without prejudice to the rights of Lender
to enforce its Claims against any or all Obligors):

 

(a)           All of the rights and remedies of a secured party under the UCC or
under other Applicable Law, and all other legal and equitable rights to which
Lender may be entitled under any of the DIP Financing Documents or the Financing
Orders, all of which rights and remedies shall be cumulative and shall be in
addition to any other rights and remedies contained in this Agreement or any of
the other DIP Financing Documents, and none of which shall be exclusive.

 

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(b)           The right to collect Accounts, Chattel Paper, Instruments and
General Intangibles and all other rights of any Obligor to the payment of money
from any Person obligated therefor.

 

(c)           The right to take immediate possession of all tangible items of
the Collateral and (i) to require any Obligor to assemble such Collateral, at
such Obligor’s expense, and make it available to Lender at a place designated by
Lender that is reasonably convenient to both parties and (ii) to enter any of
the premises of any Obligor or wherever any of the Collateral shall be located,
and to keep and store the same on said premises until sold (and if said premises
be the Property of any Obligor, such Obligor agrees not to charge Lender for
storage thereof).

 

(d)           The right to sell or otherwise dispose of all or any Inventory in
its then condition, or after any further manufacturing or processing thereof, at
public or private sale or sales, with such notice as may be required by law, in
lots or in bulk, for cash or on credit, all as Lender, in its sole discretion,
may deem advisable; each Obligor agrees that 10 days written notice to such
Obligor of any public or private sale or other disposition of such Collateral
shall be reasonable notice thereof, and such sale shall be at such locations as
Lender may designate in said notice. Lender shall have the right to conduct such
sales on any Obligor’s premises, without charge therefor, and such sales may be
adjourned from time to time in accordance with Applicable Law; Lender may sell,
lease or otherwise dispose of such Collateral, or any part thereof, for cash,
credit or any combination thereof, and Lender may purchase all or any part of
such Collateral at public or, if permitted by Applicable Law, private sale and,
in lieu of actual payment of such purchase price,, may set off the amount of
such price against the Obligations.

 

Section 11.4           Licenses and Sale of Collateral.  Lender is hereby
irrevocably granted a license or other right to use, without charge, which
license or right can only be exercised upon an Event of Default, each Obligor’s
labels, patents, copyrights, rights of use of any name, trade secrets,
tradenames, trademarks and advertising matter, or any Property of a similar
nature, as it pertains to the Collateral, in advertising for sale and selling
any Collateral and each Obligor’s rights under all licenses and all franchise
agreements shall inure to Lender’s benefit, to the extent permissible under the
applicable agreement(s) and Applicable Law. Any proceeds realized from the sale
of any Collateral may be applied to the Obligations, after allowing 2 Business
Days for collection, to principal, interest, fees and expenses (including
Extraordinary Expenses) in such order and manner as Lender, in its sole
discretion, may determine.

 

Section 11.5           Setoff.  In addition to any Liens granted under any of
the DIP Financing Documents and any rights now or hereafter available under
Applicable Law, Lender (and each of its Affiliates) is hereby authorized by each
Obligor at any time that an Event of Default exists, without notice, except as
required by the Financing Orders, to such Obligor or any other Person (any such
notice being hereby expressly waived) to set off and to appropriate and to apply
any and all deposits, general or special (including Debt evidenced by
certificates of deposit whether matured or unmatured (but not including trust
accounts)) and any other Debt at any time held or owing by Lender, such Lender
or any of its Affiliates to or for the credit or the account of such Obligor
against and on account of the Obligations of such Obligor arising under the DIP
Financing Documents to Lender, or any of its Affiliates, including all
Post-Petition Loans and all claims of any nature or description arising out of
or in connection with this Agreement, irrespective of whether or not (i) Lender
shall have made any demand hereunder, (ii) Lender

 

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shall have declared the principal of and interest on the Post-Petition Loans and
other amounts due hereunder to be due and payable as permitted by this Agreement
and even though such Obligations may be contingent or unmatured or (iii) the
Collateral for the Obligations is adequate.

 

Section 11.6           Pledged Securities.

 

(a)           After the occurrence of an Event of Default, if Lender shall have
given notice of its intent to exercise such rights to the relevant Obligor or
Obligors, (i) Lender shall have the right to receive any and all cash dividends,
payments or other proceeds paid in respect of the Pledged Securities and make
application thereof to the Obligations in the order set forth herein, and (ii)
Lender or its nominee may exercise (A) all voting, consensual, corporate and
other rights pertaining to the Pledged Securities at any meeting of
shareholders, partners or members, as the case may be, of the relevant issuers
of Pledged Securities or otherwise and (B) any and all rights of conversion,
exchange and subscription and any other rights, privileges or options pertaining
to the Pledged Securities as if it were the absolute owner thereof (including
the right to exchange at its discretion any and all of the Pledged Securities
upon the merger, consolidation, reorganization, recapitalization or other
fundamental change in the corporate structure of any issuer of Pledged
Securities, the right to deposit and deliver any and all of the Pledged
Securities with any committee, depository, transfer agent, registrar or other
designated agency upon such terms and conditions as Lender may determine), all
without liability except to account for Property actually received by it, but
Lender shall have no duty to any Obligor to exercise any such right, privilege
or option and shall not be responsible for any failure to do so or delay in so
doing.

 

(b)           In order to permit Lender to exercise the voting and other
consensual rights which it may be entitled to exercise pursuant hereto and to
receive all dividends and other distributions which it may be entitled to
receive hereunder, (i) each Obligor shall promptly execute and deliver (or cause
to be executed and delivered) to Lender all such proxies, dividend payment
orders and other instruments as Lender may from time to time reasonably request
and (ii) without limiting the effect of clause (i) above, each Obligor hereby
grants to Lender an irrevocable proxy to vote all or any part of the Pledged
Securities and to exercise all of the rights, powers, privileges and remedies to
which a holder of the Pledged Securities would be entitled, which proxy shall be
effective, automatically and without the necessity of any action (including any
transfer of any Pledged Securities on the record books of the issuer thereof) by
any other Person (including the issuer of such Pledged Securities or any officer
or agent thereof), after the occurrence of an Event of Default and which proxy
shall only terminate upon the Full Payment of the Obligations.

 

(c)           Each Obligor hereby expressly authorizes and instructs each issuer
of any Pledged Securities pledged hereunder by such Obligor to (i) comply with
any instruction received by it from Lender in writing that (a) states that an
Event of Default has occurred and is continuing and (b) is otherwise in
accordance with the terms of this Agreement, without any other or further
instructions from such Obligor, and each Obligor agrees that such issuer shall
be fully protected in so complying and (ii) unless otherwise expressly permitted
hereby, pay any dividends or other payments with respect to the Pledged
Securities directly to Lender.

 

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Section 11.7           Remedies Cumulative: No Waiver.

 

(a)           All covenants, conditions, provisions, warranties, guaranties,
indemnities, and other undertakings of Obligors contained in this Agreement and
the other DIP Financing Documents, or in any document referred to herein or
contained in any agreement supplementary hereto or in any schedule given to
Lender or contained in any other agreement between Lender and any Obligor,
heretofore, concurrently, or hereafter entered into, shall be deemed cumulative
to and not in derogation or substitution of any of the terms, covenants,
conditions, or agreements of Obligors herein contained. The rights and remedies
of Lender under this Agreement and the other DIP Financing Documents shall be
cumulative and not exclusive of any rights or remedies that Lender would
otherwise have.

 

(b)           The failure or delay of Lender to require strict performance by
any Obligor of any provision of any of the DIP Financing Documents or to
exercise or enforce any rights, Liens, powers or remedies under any of the DIP
Financing Documents or with respect to any Collateral shall not operate as a
waiver of such performance, Liens, rights, powers and remedies, but all such
requirements, Liens, rights, powers, and remedies shall continue in full force
and effect until all Loans and all other Obligations owing or to become owing
from Obligors to Lender shall have been fully satisfied.  None of the
undertakings, agreements, warranties, covenants and representations of any
Obligor contained in this Agreement or any of the other DIP Financing Documents
and no Event of Default by Borrowers under this Agreement or any other DIP
Financing Documents shall be deemed to have been suspended or waived by Lender,
unless such suspension or waiver is by an instrument in writing specifying such
suspension or waiver and is signed by a duly authorized representative of Lender
and directed to Borrowers.

 

(c)           If Lender shall accept performance by any Obligor, in whole or in
part, of any obligation that such Obligor is required by any of the DIP
Financing Documents to perform only when a Default or Event of Default exists,
or if Lender shall exercise any right or remedy under any of the DIP Financing
Documents that may not be exercised other than when a Default or Event of
Default exists, Lender’s acceptance of such performance by such Obligor or
Lender’s exercise of any such right or remedy shall not operate to waive any
such Event of Default or to preclude the exercise by Lender of any other right
or remedy, unless otherwise expressly agreed in writing by Lender, as the case
may be.

 

ARTICLE 12

BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS

 

Section 12.1           Successors and Assigns.  This Agreement shall be binding
upon and inure to the benefit of Obligors, Lender and their respective
successors and assigns, except that (a) no Obligor shall have any right to
assign its rights or delegate performance of any of its obligations under any of
the DIP Financing Documents and (b) any assignment by Lender must be made in
compliance with Section 12.3 hereof. Any assignee or transferee of a Note agrees
by acceptance thereof to be bound by all the terms and provisions of the DIP
Financing Documents. Any request, authority or consent of any Person, who at the
time of making such request or giving such authority or consent is the holder of
a Note, shall be conclusive and binding on any

 

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subsequent holder, transferee or assignee of such Note or of any Note or Notes
issued in exchange therefor.

 

Section 12.2           Participations.

 

(a)           Permitted Participants;  Effect.  Lender may, in accordance with
Applicable Law, at any time sell to one or more Affiliates, banks or other
financial institutions (each a “Participant”) a participating interest in any of
the Obligations owing to Lender, any Commitment of Lender or any other interest
of Lender under any of the DIP Financing Documents.  In the event of any such
sale by Lender of participating interests to a Participant, Lender’s obligations
under the DIP. Financing Documents shall remain unchanged, Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, Lender shall remain the holder of any Note for all purposes under
the DIP Financing Documents, all amounts payable by any Obligor under this
Agreement and any of the Notes shall be determined as if Lender had not sold
such participating interests, and Borrowers shall continue to deal solely and
directly with Lender in connection with Lender’s rights and obligations under
the DIP Financing Documents. If Lender sells a participation to a Person other
than an Affiliate of Lender, then Lender shall give prompt written notice
thereof to Borrowers.

 

(b)           Voting Rights.  Lender shall retain the sole right to approve,
without the consent of any Participant, any amendment, modification or waiver of
any provision of the DIP Financing Documents other than an amendment,
modification or waiver with respect to any Post-Petition Loans or Commitment in
which such Participant has an interest which forgives principal, interest or
fees or reduces the stated interest rate or the stated rates at which fees are
payable with respect to any such Post-Petition Loan or Commitment, postpones the
Commitment Termination Date, or any date fixed for any regularly scheduled
payment of interest or fees on such Post-Petition Loan or Commitment, or
releases from liability Borrowers or any Guarantor or releases any substantial
portion of any of the Collateral.

 

(c)           Benefit of Set-Off.  Each Obligor agrees that each Participant
shall be deemed to have the right of set-off provided in Section 11.5 hereof in
respect of its participating interest in amounts owing under the DIP Financing
Documents to the same extent and subject to the same requirements under this
Agreement as if the amount of its participating interest were owing directly to
it as Lender under the DIP Financing Documents, provided that Lender shall
retain the right of set-off provided in Section 11.5 hereof with respect to the
amount of participating interests sold to each Participant.  Lender agrees to
share with each Participant, and each Participant by exercising the right of
set-off provided in Section 11.5 agrees to share with Lender, any amount
received pursuant to the exercise of its right of set-off.

 

Section 12.3  Assignments.

 

(a)           Permitted Assignments.  Lender may, in accordance with Applicable
Law, at any time assign to any Eligible Assignee any part (but not all) of its
rights and obligations under the DIP Financing Documents, so long as (i) each
assignment is of a constant, and not a varying, ratable percentage of all of the
transferor Lender’s rights and obligations under the DIP Financing Documents
with respect to the Post-Petition Loans and is in a minimum principal amount of
$1,000,000; and (ii) immediately after giving effect to any assignment, the
aggregate

 

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amount of the Commitment retained by the transferor Lender shall in no event be
less than $500,000. Each assignee shall be deemed to have consented and be
subject to, and to be bound by the terms of, all of the DIP Financing Documents.

 

(b)           Effect; Effective Date. On and after the effective date of any
assignment, such Eligible Assignee shall for all purposes be a Lender party to
the Agreement and any other DIP Financing Document executed by Lender and shall
have all the rights and obligations of Lender under the DIP Financing Documents
to the same extent as if it were an original party thereto, and no further
consent or action by any Obligor shall be required to release the transferor
Lender with respect to the Commitment (or portion thereof) of such Lender and
Obligations assigned to such Eligible Assignee.  Upon the consummation of any
assignment to an Eligible Assignee pursuant to this Section 12.3(b), the
transferor Lender and Borrowers shall make appropriate arrangements so that
replacement Notes are issued to such transferor Lender and new Notes or, as
appropriate, replacement Notes, are issued to such Eligible Assignee, in each
case in principal amounts reflecting their respective Commitments, as adjusted
pursuant to such assignment.  The transferring Lender shall continue to be
entitled to the benefits of all indemnities applicable to the period prior to
the effective date of the assignment.

 

(c)           Dissemination of Information.  Borrowers authorize Lender to
disclose to any Participant, any Eligible Assignee or any other Person acquiring
an interest in the DIP Financing Documents by operation of law (each a
“Transferee”), and any prospective Transferee, any and all information in
Lender’s possession concerning Borrowers, the Subsidiaries of Borrowers or the
Collateral, subject to appropriate confidentiality undertakings on the part of
such Transferee.

 

ARTICLE 13

MISCELLANEOUS

 

Section 13.1          Power of Attorney.  Each Obligor hereby irrevocably
designates, makes, constitutes and appoints Lender (and all Persons designated
by Lender) as such Obligor’s true and lawful attorney (and Lender-in-fact) and
Lender, or Lender’s designee, may, without notice to such Obligor and in either
such Obligor’s or Lender’s name, but at the cost and expense of such Obligor:

 

(a)           At such time or times as Lender or said designee, in its sole
discretion, may determine, endorse such Obligor’s name on any Payment Item or
proceeds of the Collateral which come into the possession of Lender or under
Lender’s control.

 

(b)           At any time that an Event of Default exists and subject to any
notice required under the Financing Orders:  (i) demand payment of the Accounts
from the Account Debtors, enforce payment of the Accounts by legal proceedings
or otherwise, and generally exercise all of such Obligor’s rights and remedies
with respect to the collection of the Accounts; (ii) settle, adjust, compromise,
discharge or release any of the Accounts or other Collateral or any legal
proceedings brought to collect any of the Accounts or other Collateral; (iii)
sell or assign any of the Accounts and other Collateral upon such terms, for
such amounts and at such time or times as Lender deems advisable; (iv) take
control, in any manner, of any item of payment or proceeds relating to any
Collateral; (v) prepare, file and sign such Obligor’s name to a proof of

 

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claim in bankruptcy or similar document against any Account Debtor or to any
notice of lien, assignment or satisfaction of Lien or similar document in
connection with any of the Collateral; (vi) receive, open and dispose of all
mail addressed to such Obligor and to notify postal authorities to change the
address for delivery thereof to such address as Lender may designate; (vii)
endorse the name of such Obligor upon any of the items of payment or proceeds
relating to any Collateral and deposit the same to the account of Lender on
account of the Obligations; (viii) endorse the name of such Obligor upon any
chattel paper, document, instrument, invoice, freight bill, bill of lading or
similar document or agreement relating to any Accounts or Inventory of any
Obligor and any other Collateral; (ix) use such Obligor’s stationery and sign
the name of such Obligor to verifications of the Accounts and notices thereof to
Account Debtors; (x) use the information recorded on or contained in any data
processing equipment and computer hardware and software relating to the
Accounts, Inventory and any other Collateral; (xi) make and adjust claims under
policies of insurance; and (xii) do all other acts and things necessary, in
Lender’s determination, to fulfill such Obligor’s obligations under this
Agreement.

 

Section 13.2           General Indemnity.  Each Obligor hereby agrees to
indemnify and defend the Indemnitees and to hold the Indemnitees harmless from
and against any Claim ever suffered or incurred by any of the Indemnitees
arising out of or related to this Agreement or any of the other DIP Financing
Documents, the performance by Lender of its duties or the exercise of any of its
rights or remedies hereunder, or the result of such Obligor’s failure to
observe, perform or discharge any of such Obligor’s duties hereunder. Each
Obligor shall also indemnify and defend the Indemnitees against and save the
Indemnitees harmless from all Claims of any Person arising out of, related to,
or with respect to any transactions entered into pursuant to this Agreement or
Lender’s Lien arising from the DIP Financing Documents upon the Collateral.
Without limiting the generality of the foregoing, these indemnities shall extend
to any Claims asserted against any of the Indemnitees by any Person under any
Environmental Laws or similar laws by reason of such Obligor’s or any other
Person’s failure to comply with laws applicable to Hazardous Materials.
Additionally, if any Taxes (excluding Taxes imposed upon or measured solely by
the net income of Lender, but including, any intangibles tax, stamp tax,
recording tax or franchise tax) shall be payable by Lender, or any Obligor on
account of the execution or delivery of this Agreement, or the execution,
delivery, issuance or recording of any of the other DIP Financing Documents, or
the creation or repayment of any of the Obligations hereunder, by reason of any
Applicable Law now or hereafter in effect, such Obligor shall pay (or will
promptly reimburse Lender for the payment of) all such Taxes, including any
interest and penalties thereon, and will indemnify and hold Indemnitees harmless
from and against liability in connection therewith. The foregoing indemnities
shall not apply to protect any of the Indemnitees for the consequences of their
own gross negligence or willful misconduct.

 

Section 13.3           Survival of All Indemnities.  Notwithstanding anything to
the contrary in this Agreement or any of the other DIP Financing Documents, the
obligation of each Obligor and Lender with respect to each indemnity given by it
in this Agreement shall survive the Full Payment of the Obligations and the
termination of any of the Commitment.

 

Section 13.4           Indulgences Not Waivers.  Lender’s failure at any time or
times hereafter to require strict performance by any Obligor of any provision of
this Agreement shall not waive, affect or diminish any right of Lender
thereafter to demand strict compliance and performance therewith.

 

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Section 13.5           Modification of Agreement.  This Agreement may not be
modified, altered or amended, except by an agreement in writing signed by
Obligors and Lender.

 

Section 13.6           Severability.  Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
Applicable Law, but if any provision of this Agreement shall be prohibited by or
invalid under Applicable Law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.

 

Section 13.7           Cumulative Effect: Conflict of Terms.  To the fullest
extent permitted by Applicable Law, the provisions of the Security Documents are
hereby made cumulative with the provisions of this Agreement. Except as
otherwise provided in any of the other DIP Financing Documents by specific
reference to the applicable provision of this Agreement, if any provision
contained in this Agreement is in direct conflict with, or inconsistent with,
any provision in any of the other DIP Financing Documents (other than the
Financing Orders), the provision contained in this Agreement shall govern and
control; in the event that any provision in this Agreement is in direct conflict
with, or inconsistent with, any provisions of the Financing Orders, the
provisions of the Financing Orders shall govern and control.

 

Section 13.8           Execution in Counterparts.  This Agreement and any
amendments hereto 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 to be an original and all of which counterparts taken
together shall constitute but one and the same instrument.

 

Section 13.9           Lender’s Consent.  Whenever Lender’s consent is required
to be obtained under this Agreement or any of the other DIP Financing Documents
as a condition to any action, inaction, condition or event, Lender shall be
authorized to give or withhold its consent in its sole and absolute discretion,
unless expressly stated otherwise.

 

Section 13.10         Notices.  All notices, requests and demands to or upon a
party hereto shall be in writing and shall be sent by certified or registered
mail, return receipt requested, personal delivery against receipt or by
telecopier or other facsimile transmission and shall be deemed to have been
validly served, given or delivered when delivered against receipt or 3 Business
Days after deposit in the U.S. mail, certified mail postage prepaid, or, in the
case of facsimile transmission, when received (if on a Business Day and, if not
received on a Business Day, then on the next Business Day after receipt) at the
office where the noticed party’s telecopier is located, in each case addressed
to the noticed party at the address shown for such party on the signature page
hereof. Notwithstanding the foregoing, no notice to or upon Lender pursuant to
Section 3.1 or Section 5.2(b) shall be effective until actually received by the
individual to whose attention at Lender such notice is required to be sent. Any
written notice or demand that is not sent in conformity with the provisions
hereof shall nevertheless be effective on the date that such notice is actually
received by the noticed party.

 

Section 13.11         Performance of Borrowers’ Obligations.  If any Obligor
shall fail to discharge any covenant, duty or obligation hereunder or under any
of the other DIP Financing Documents, Lender may, in its sole discretion at any
time or from time to time, for the Obligor’s account and at the Obligor’s
expense, pay any amount or do any act required of Obligor

 

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hereunder or under any of the DIP Financing Documents or otherwise lawfully
requested by Lender to enforce any of the DIP Financing Documents or
Obligations, preserve, protect, insure or maintain any of the Collateral, or
preserve, defend, protect or maintain the validity or priority of Lender’s Liens
in any of the Collateral, including the payment of any judgment against any
Obligor, any insurance premium, any warehouse charge, any finishing or
processing charge, any landlord claim, any other Lien upon or with respect to
any of the Collateral. All payments that Lender may make under this Section and
all out-of-pocket costs and expenses (including Extraordinary Expenses) that
Lender pays or incurs in connection with any action taken by it hereunder shall
be reimbursed to Lender by any Obligor on demand with interest from the date
such payment is made or such costs or expenses are incurred to the date of
payment thereof at the Default Rate applicable for Post-Petition Loans. Any
payment made or other action taken by Lender under this Section shall be without
prejudice to any right to assert, and without waiver of, an Event of Default
hereunder and to proceed thereafter as provided herein or in any of the other
DIP Financing Documents.

 

Section 13.12         Time of Essence.  Time is of the essence of this Agreement
and the Security Documents.

 

Section 13.13         Entire Agreement: Appendix A, Exhibits and Schedules. 
This Agreement and the other DIP Financing Documents, together with all other
instruments, agreements and certificates executed by the parties in connection
therewith or with reference thereto, embody the entire understanding and
agreement between the parties hereto and thereto with respect to the subject
matter hereof and thereof and supersede all prior agreements, understandings and
inducements, whether express or implied, oral or written. Appendix A, each of
the Exhibits and each of the Schedules attached hereto are incorporated into
this Agreement and by this reference made a part hereof.

 

Section 13.14         Interpretation.  No provision of this Agreement or any of
the other DIP Financing Documents shall be construed against or interpreted to
the disadvantage of any party hereto by any court or other governmental or
judicial authority by reason of such party having, or being deemed to have,
structured, drafted or dictated such provision.

 

Section 13.15         Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.

 

Section 13.16         Waivers by Obligors.  To the fullest extent permitted by
Applicable Law, each Obligor waives (a) the right to trial by jury (which Lender
hereby also waives) in any action, suit, proceeding or counterclaim of any kind
arising out of or related to any of the DIP Financing Documents, the Obligations
or the Collateral; (b) presentment, demand and protest and notice of
presentment, protest, default, non payment, maturity, release, compromise,
settlement, extension or renewal of any or all commercial paper, accounts,
contract rights, documents, instruments, chattel paper and guaranties at any
time held by Lender on which each Obligor may in any way be liable and hereby
ratifies and confirms whatever Lender may do in this regard; (c) except as
provided in the Financing Orders, notice prior to taking possession or control
of the Collateral or any bond or security which might be required by any court
prior to allowing Lender to exercise any of Lender’s remedies; (d) the benefit
of all valuation, appraisement and exemption laws; and (e) notice of acceptance
hereof. Each Obligor

 

35

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acknowledges that the foregoing waivers are a material inducement to Lender’s
entering into this Agreement and that Lender is relying upon the foregoing
waivers in its future dealings with Obligors. Each Obligor warrants and
represents that it has reviewed the foregoing waivers with its legal counsel and
has knowingly and voluntarily waived its jury trial rights following
consultation with legal counsel. In the event of litigation, this Agreement may
be filed as a written consent to a trial by the court in which such litigation
is brought.

 

Section 13.17 Release.  BORROWERS, IN THEIR OWN RIGHT AND ON BEHALF OF THEIR
RESPECTIVE ESTATES, REPRESENTATIVES, DIRECTORS, OFFICERS, EMPLOYEES, INDEPENDENT
CONTRACTORS, ATTORNEYS AND AGENTS, AND THEIR SUCCESSORS AND ASSIGNS
(COLLECTIVELY, THE “RELEASING PARTIES”), HEREBY JOINTLY AND SEVERALLY RELEASE,
ACQUIT, AND FOREVER DISCHARGE LENDER AND ITS REPRESENTATIVES, DIRECTORS,
OFFICERS, EMPLOYEES, INDEPENDENT CONTRACTORS, ATTORNEYS AND AGENTS, AND THEIR
SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE “RELEASED PARTIES”). FROM ANY AND ALL
ACTS AND OMISSIONS OF THE RELEASED PARTIES, AND FROM ANY AND ALL CLAIMS, CAUSES
OF ACTION, AVOIDANCE ACTIONS, COUNTERCLAIMS, DEMANDS, CONTROVERSIES, COSTS,
DEBTS, SUMS OF MONEY, ACCOUNTS, RECKONINGS, BONDS, BILLS, DAMAGES, OBLIGATIONS,
LIABILITIES, OBJECTIONS, LEGAL PROCEEDINGS, EQUITABLE PROCEEDINGS, AND
EXECUTIONS OF ANY NATURE, TYPE, OR DESCRIPTION WHICH THE RELEASING PARTIES HAVE
OR MAY COME TO HAVE AGAINST THE RELEASED PARTIES, WHETHER DIRECTLY, INDIRECTLY
OR DERIVATIVELY, WHETHER OR NOT IN CONNECTION WITH OR RELATED TO THE DIP
FINANCING DOCUMENTS OR ANY MATTER OR DOCUMENT RELATED HERETO, AT LAW OR IN
EQUITY, BY STATUTE OR COMMON LAW, IN CONTRACT, IN TORT, WHETHER THE LAW OF THE
UNITD STATES OR ANY OTHER COUNTRY, UNION, ORGANIZATION OF FOREIGN COUNTRIES OR
OTHERWISE, KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED, BUT EXCLUDING OBLIGATIONS
OF LENDER UNDER THE ACQUISITION AGREEMENT AND THE DIP FINANCING DOCUMENTS (THE
“RELEASED CLAIMS”). BORROWERS FURTHER COVENANT NOT TO SUE THE RELEASED PARTIES
ON ACCOUNT OF ANY RELEASED CLAIM. THIS SECTION IS IN ADDITION TO AND SHALL NOT
IN ANY WAY LIMIT ANY OTHER RELEASE, COVENANT NOT TO SUE, OR WAIVER BY THE
RELEASING PARTIES IN FAVOR OF THE RELEASED PARTIES.

 

[The remainder of this page is intentionally left blank. Signature pages
follow.]

 

36

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IN WITNESS WHEREOF, this Agreement has been duly executed on the day and year
specified at the beginning of this Agreement.

 

 

BORROWERS:

 

 

 

 

 

PEREGRINE SYSTEMS, INC., a Delaware corporation

 

 

 

 

By:

/s/ Ken Sexton

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

Address:

 

 

 

 

Telecopier No:

 

 

 

 

 

PEREGRINE REMEDY, INC., a Delaware corporation

 

 

 

 

 

By:

/s/ Ken Sexton

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

 

Address:

 

 

 

 

Telecopier No:

 

 

 

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IN WITNESS WHEREOF, this Agreement has been duly executed on the day and year
specified at the beginning of this Agreement.

 

 

BORROWERS:

 

 

 

 

 

PEREGRINE SYSTEMS, INC., a Delaware corporation

 

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

 

Address: 2611 Valley Centre Drive, Floor 5

 

 

 

San Diego, California 92130

 

 

 

Telecopier No: 858-481-1751

 

 

 

 

 

PEREGRINE REMEDY, INC., a Delaware corporation

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

 

Address: 1585 Charleston Road

 

 

 

Mountain View, California 94043

 

 

 

Telecopier No: 650-903-5200

 

 

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GUARANTORS:

 

 

 

PEREGRINE SYSTEMS GLOBAL LTD.

 

 

 

By:

/s/ Ken Sexton

 

 

Name:

Ken Sexton

 

 

Title:

Director

 

 

 

 

 

Address: 2611 Valley Centre Drive, Floor 5

 

 

San Diego, California 92130

 

 

Telecopier No: 858-481 -1751

 

 

 

REMEDY SOFTWARE IRELAND, LTD.

 

 

 

 

 

By:

/s/ Ken Sexton

 

 

Name:

Ken Sexton

 

 

Title:

Director

 

 

 

 

 

Address: 1585 Charleston Road

 

 

Mountain View, California 94043

 

 

 

Telecopier No: 650-903-5200

 

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LENDER:

 

 

 

BMC SOFTWARE, INC., a Delaware corporation

 

 

 

By:

/s/ Robert H. [ILLEGIBILE]

 

 

Name:

Robert H. [ILLEGIBILE]

 

 

Title:

Senior Vice President Land General Counsel

 

 

 

 

 

Address: 2101 City West Boulevard

 

 

Houston, Texas 77042-2827

 

 

Telecopier No: 713-918-8000

 

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