Exhibit 10.11

 

REVOLVING CREDIT, TERM LOAN

 

AND

 

SECURITY AGREEMENT

 

PNC BANK, NATIONAL ASSOCIATION

(AS LENDER AND AS AGENT)

 

WITH

 

APPLIANCE RECYCLING CENTERS OF AMERICA, INC.

APPLIANCE RECYCLING CENTERS OF AMERICA-CALIFORNIA, INC.

 

AND

 

ARCA CANADA INC.

 

(collectively, BORROWERS)

 

January 24, 2011

 

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TABLE OF CONTENTS

 

 

 

Page

I.

DEFINITIONS

 

1

 

 

 

 

1.1.

Accounting Terms

 

1

1.2.

General Terms

 

1

1.3.

Uniform Commercial Code Terms

 

23

1.4.

Certain Matters of Construction

 

24

 

 

 

 

II.

ADVANCES, PAYMENTS

 

25

 

 

 

 

2.1.

Revolving Advances

 

25

2.2.

Procedure for Revolving Advances Borrowing

 

27

2.3.

Disbursement of Advance Proceeds

 

29

2.4.

Term Loan

 

29

2.5.

Maximum Advances

 

30

2.6.

Repayment of Advances

 

30

2.7.

Repayment of Excess Advances

 

30

2.8.

Statement of Account

 

30

2.9.

Letters of Credit

 

31

2.10.

Issuance of Letters of Credit

 

31

2.11.

Requirements For Issuance of Letters of Credit

 

32

2.12.

Disbursements, Reimbursement

 

32

2.13.

Repayment of Participation Advances

 

34

2.14.

Documentation

 

34

2.15.

Determination to Honor Drawing Request

 

34

2.16.

Nature of Participation and Reimbursement Obligations

 

34

2.17.

Indemnity

 

36

2.18.

Liability for Acts and Omissions

 

36

2.19.

Additional Payments

 

37

2.20.

Manner of Borrowing and Payment

 

37

2.21.

Mandatory Prepayments

 

39

2.22.

Use of Proceeds

 

39

2.23.

Defaulting Lender

 

40

 

 

 

 

III.

INTEREST AND FEES

 

41

 

 

 

 

3.1.

Interest

 

41

3.2.

Letter of Credit Fees

 

42

3.3.

Facility Fee

 

 

3.4.

Fee Letter

 

43

3.5.

Computation of Interest and Fees

 

43

3.6.

Maximum Charges

 

43

3.7.

Increased Costs

 

43

3.8.

Basis For Determining Interest Rate Inadequate or Unfair

 

44

3.9.

Capital Adequacy

 

45

3.10.

Gross Up for Taxes

 

45

 

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3.11.

Withholding Tax Exemption

 

45

 

 

 

 

IV.

COLLATERAL:   GENERAL TERMS

 

46

 

 

 

 

4.1.

Security Interest in the Collateral

 

46

4.2.

Perfection of Security Interest

 

47

4.3.

Disposition of Collateral

 

47

4.4.

Preservation of Collateral

 

47

4.5.

Ownership of Collateral

 

48

4.6.

Defense of Agent’s and Lenders’ Interests

 

48

4.7.

Books and Records

 

49

4.8.

Financial Disclosure

 

49

4.9.

Compliance with Laws

 

49

4.10.

Inspection of Premises

 

49

4.11.

Insurance

 

50

4.12.

Failure to Pay Insurance

 

50

4.13.

Payment of Taxes

 

50

4.14.

Payment of Leasehold Obligations

 

51

4.15.

Receivables

 

51

4.16.

Inventory

 

53

4.17.

Maintenance of Equipment

 

53

4.18.

Exculpation of Liability

 

54

4.19.

Environmental Matters

 

54

4.20.

Financing Statements

 

56

4.21.

Appraisals

 

56

 

 

 

 

V.

REPRESENTATIONS AND WARRANTIES

 

56

 

 

 

 

5.1.

Authority

 

57

5.2.

Formation and Qualification

 

57

5.3.

Survival of Representations and Warranties

 

57

5.4.

Tax Returns

 

57

5.5.

Financial Statements

 

58

5.6.

Entity Names

 

58

5.7.

O

 

59

5.8.

Solvency; No Litigation, Violation, Indebtedness or Default; ERISA Compliance

 

59

5.9.

Patents, Trademarks, Copyrights and Licenses

 

60

5.10.

Licenses and Permits

 

61

5.11.

Default of Indebtedness

 

61

5.12.

No Default

 

61

5.13.

No Burdensome Restrictions

 

61

5.14.

No Labor Disputes

 

61

5.15.

Margin Regulations

 

61

5.16.

Investment Company Act

 

62

5.17.

Disclosure

 

62

5.18.

RESERVED/

 

62

5.19.

Swaps

 

62

5.20.

Conflicting Agreements

 

62

5.21.

Application of Certain Laws and Regulations

 

62

 

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5.22.

Business and Property of Borrowers

 

62

5.23.

Section 20 Subsidiaries

 

62

5.24.

Anti-Terrorism Laws

 

63

5.25.

Trading with the Enemy

 

63

5.26.

Federal Securities Laws

 

63

5.27.

Equity Interests

 

64

5.28.

Commercial Tort Claims

 

64

5.29.

Letter of Credit Rights: As of the Closing Date, no Borrower has any letter of
credit rights, except as set forth on Schedule 5

 

64

5.30.

Material Contracts

 

64

 

 

 

 

VI.

AFFIRMATIVE COVENANTS

 

64

 

 

 

 

6.1.

Payment of Fees

 

64

6.2.

Conduct of Business and Maintenance of Existence and Assets

 

64

6.3.

Violations

 

65

6.4.

Government Receivables

 

65

6.5.

Fixed Charge Coverage Ratio

 

65

6.6.

Execution of Supplemental Instruments

 

65

6.7.

Payment of Indebtedness

 

65

6.8.

Standards of Financial Statements

 

65

6.9.

Federal Securities Laws

 

65

6.10.

Post Closing Conditions

 

65

 

 

 

 

VII.

NEGATIVE COVENANTS

 

66

 

 

 

 

7.1.

Merger, Consolidation, Acquisition and Sale of Assets

 

67

7.2.

Creation of Liens

 

67

7.3.

Guarantees

 

67

7.4.

Investments

 

67

7.5.

Loans

 

67

7.6.

Capital Expenditures

 

67

7.7.

Indebtedness

 

68

7.8.

Nature of Business

 

68

7.9.

Transactions with Affiliates

 

68

7.10.

Leases

 

68

7.11.

Subsidiaries

 

68

7.12.

Fiscal Year and Accounting Changes

 

68

7.13.

Pledge of Credit

 

68

7.14.

Amendment of Articles of Incorporation, By-Laws Certificate of Formation, or
Operating Agreement

 

68

7.15.

Compliance with ERISA

 

69

7.16.

Prepayment of Indebtedness

 

69

7.17.

Anti-Terrorism Laws

 

69

7.18.

Membership/Partnership Interests

 

69

7.19.

Trading with the Enemy Act

 

70

7.20.

Subordinated Indebtedness

 

 

 

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VIII.

CONDITIONS PRECEDENT

 

70

 

 

 

 

8.1.

Conditions to Initial Advances

 

70

8.2.

Conditions to Each Advance

 

73

 

 

 

 

IX.

INFORMATION AS TO BORROWERS

 

74

 

 

 

 

9.1.

Disclosure of Material Matters

 

74

9.2.

Schedules

 

74

9.3.

Environmental Reports

 

74

9.4.

Litigation

 

74

9.5.

Material Occurrences

 

75

9.6.

Government Receivables

 

75

9.7.

Annual Financial Statements

 

75

9.8.

Quarterly Financial Statements

 

76

9.9.

Monthly Financial Statements

 

76

9.10.

Other Reports

 

76

9.11.

Additional Information

 

76

9.12.

Projected Operating Budget

 

76

9.13.

Variances From Operating Budget

 

77

9.14.

Notice of Suits, Adverse Events

 

77

9.15.

ERISA Notices and Requests

 

77

9.16.

Additional Documents

 

78

 

 

 

 

X.

EVENTS OF DEFAULT

 

78

 

 

 

 

10.1.

Nonpayment

 

78

10.2.

Breach of Representation

 

78

10.3.

Financial Information

 

78

10.4.

Judicial Actions

 

78

10.5.

Noncompliance

 

78

10.6.

Judgments

 

78

10.7.

Bankruptcy

 

79

10.8.

Inability to Pay

 

79

10.9.

Affiliate Bankruptcy

 

79

10.10.

Material Adverse Effect

 

79

10.11.

Lien Priority

 

79

10.12.

Subordinated Loan Default

 

79

10.13.

Cross Default

 

79

10.14.

Breach of Guaranty or Pledge Agreement

 

79

10.15.

Change of Ownership

 

80

10.16.

Invalidity

 

80

10.17.

Licenses

 

80

10.18.

Seizures

 

80

10.19.

Operations

 

80

10.20.

Pension Plans

 

80

 

 

 

 

XI.

LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT

 

81

 

 

 

 

11.1.

Rights and Remedies

 

81

11.2.

Agent’s Discretion

 

83

11.3.

Setoff

 

83

 

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11.4.

Rights and Remedies not Exclusive

 

83

11.5.

Allocation of Payments After Event of Default

 

83

 

 

 

 

XII.

WAIVERS AND JUDICIAL PROCEEDINGS

 

84

 

 

 

 

12.1.

Waiver of Notice

 

84

12.2.

Delay

 

84

12.3.

Jury Waiver

 

84

 

 

 

 

XIII.

EFFECTIVE DATE AND TERMINATION

 

86

 

 

 

 

13.1.

Term

 

86

13.2.

Termination

 

86

 

 

 

 

XIV.

REGARDING AGENT

 

86

 

 

 

 

14.1.

Appointment

 

86

14.2.

Nature of Duties

 

87

14.3.

Lack of Reliance on Agent and Resignation

 

87

14.4.

Certain Rights of Agent

 

88

14.5.

Reliance

 

88

14.6.

Notice of Default

 

88

14.7.

Indemnification

 

88

14.8.

Agent in its Individual Capacity

 

89

14.9.

Delivery of Documents

 

89

14.10.

Borrowers’ Undertaking to Agent

 

89

14.11.

No Reliance on Agent’s Customer Identification Program

 

89

14.12.

Other Agreements

 

89

 

 

 

 

XV.

BORROWING AGENCY

 

90

 

 

 

 

15.1.

Borrowing Agency Provisions

 

90

15.2.

Waiver of Subrogation

 

90

 

 

 

 

XVI.

MISCELLANEOUS

 

90

 

 

 

 

Governing Law

 

90

16.1.

Entire Understanding

 

91

16.2.

Successors and Assigns; Participations; New Lenders

 

93

16.3.

Application of Payments

 

95

16.4.

Indemnity

 

95

16.5.

Notice

 

96

16.6.

Survival

 

98

16.7.

Severability

 

98

16.8.

Expenses

 

98

16.9.

Injunctive Relief

 

99

16.10.

Consequential Damages

 

99

16.11.

Captions

 

99

16.12.

Counterparts; Facsimile Signatures

 

99

16.13.

Construction

 

99

16.14.

Confidentiality; Sharing Information

 

99

16.15.

Publicity

 

100

 

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16.16.

Certifications From Banks and Participants; USA PATRIOT Act

 

100

 

vi

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LIST OF EXHIBITS AND SCHEDULES

 

Exhibits

 

 

 

Exhibit 1.2

Borrowing Base Certificate

Exhibit 1.2(a)

Compliance Certificate

Exhibit 2.1(a)

Revolving Credit Note

Exhibit 2.4(a)

Term Note

Exhibit 5.5(b)

Financial Projections

Exhibit 8.1(h)

Financial Condition Certificate

Exhibit 16.3

Commitment Transfer Supplement

 

 

Schedules

 

 

 

Schedule 1.2

Permitted Encumbrances

Schedule 1.2(a)

Cash Contributions to AAP Joint Venture

Schedule 4.5

Equipment and Inventory Locations; Place of Business, Chief Executive Office,
Real Property

Schedule 4.15(h)

Deposit and Investment Accounts

Schedule 5.1

Consents

Schedule 5.2(a)

States of Qualification and Good Standing

Schedule 5.2(b)

Subsidiaries

Schedule 5.4

Federal Tax Identification Number

Schedule 5.6

Prior Names

Schedule 5.8(b)

Litigation

Schedule 5.8(d)

Plans

Schedule 5.9

Intellectual Property, Source Code Escrow Agreements

Schedule 5.10

Licenses and Permits

Schedule 5.14

Labor Disputes

Schedule 5.27

Equity Interests

Schedule 5.28

Commercial Tort Claims

Schedule 5.29

Letter of Credit Rights

Schedule 5.30

Material Contracts

Schedule 7.3

Guarantees

 

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REVOLVING CREDIT, TERM LOAN

 

AND

 

SECURITY AGREEMENT

 

Revolving Credit, Term Loan and Security Agreement dated as of January 24, 2011
among APPLIANCE RECYCLING CENTERS OF AMERICA, INC., a corporation organized
under the laws of the State of Minnesota (“ARCA”), APPLIANCE RECYCLING CENTERS
OF AMERICA-CALIFORNIA, INC., a corporation organized under the laws of the State
of California (“ARCA-CA”), ARCA CANADA INC., a corporation organized under the
laws of the province of Ontario (“ARCA Canada”, together with ARCA, ARCA-CA and
each Person joined hereto as a borrower from time to time, collectively, the
“Borrowers”, and each a “Borrower”), the financial institutions which are now or
which hereafter become a party hereto (collectively, the “Lenders” and each
individually a “Lender”) and PNC BANK, NATIONAL ASSOCIATION (“PNC”), as agent
for Lenders (PNC, in such capacity, the “Agent”).

 

IN CONSIDERATION of the mutual covenants and undertakings herein contained,
Borrowers, Lenders and Agent hereby agree as follows:

 

I.              DEFINITIONS.

 

1.1.          Accounting Terms.  As used in this Agreement, the Other Documents
or any certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 1.2 or elsewhere in this
Agreement and accounting terms partly defined in Section 1.2 to the extent not
defined, shall have the respective meanings given to them under GAAP; provided,
however, whenever such accounting terms are used for the purposes of determining
compliance with financial covenants in this Agreement, such accounting terms
shall be defined in accordance with GAAP as applied in preparation of the
audited financial statements of Borrowers for the fiscal year ended January 2,
2010.

 

1.2.          General Terms.  For purposes of this Agreement the following terms
shall have the following meanings:

 

“AAP Joint Venture” shall mean ARCA Advanced Processing, LLC, a Minnesota
limited liability company, which is a joint venture entered into between ARCA
and 4301 Operations, LLC.

 

“AAP Joint Venture Term Loan” shall mean the term loan made by PNC to the AAP
Joint Venture on the Closing Date in the original principal amount of $2,100,000
pursuant to the AAP Joint Venture Term Loan Note, including any increases in the
principal amount thereof, and all interest, fees, costs and expenses owing to
PNC in connection therewith.

 

“AAP Joint Venture Term Loan Note” shall mean the Term Loan Note dated the
Closing Date executed by AAP Joint Venture in favor PNC in the original
principal amount of $2,100,000 (as amended, restated, modified or supplemented
from time to time).

 

1

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“AAP Joint Venture Reserve” shall mean, as of any date of determination, a
reserve in the amount of the outstanding AAP Joint Venture Term Loan as of such
date.

 

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

 

“Advance Rates” shall have the meaning set forth in
Section 2.1(a)(y)(vi) hereof.

 

“Advances” shall mean and include the Revolving Advances, Letters of Credit and
the Term Loan.

 

“Affiliate” of any Person shall mean (a) any Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with
such Person, or (b) any Person who is a director, manager, member, managing
member, general partner or officer (i) of such Person, (ii) of any Subsidiary of
such Person or (iii) of any Person described in clause (a) above.  For purposes
of this definition, control of a Person shall mean the power, direct or
indirect, (x) to vote 5% or more of the Equity Interests having ordinary voting
power for the election of directors of such Person or other Persons performing
similar functions for any such Person, or (y) to direct or cause the direction
of the management and policies of such Person whether by ownership of Equity
Interests, contract or otherwise.

 

“Aged Inventory Advance Rate” shall have the meaning set forth in
Section 2.1(a)(y)(v).

 

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

 

“Agreement” shall mean this Revolving Credit, Term Loan and Security Agreement,
as the same may be amended, restated, supplemented or otherwise modified from
time to time.

 

“Alternate Base Rate” shall mean, for any day, a rate per annum equal to the
highest of (i) the Base Rate in effect on such day, (ii) the Federal Funds Open
Rate in effect on such day plus one half of one-percent (1/2 of 1%), and
(iii) the sum of the Daily LIBOR Rate in effect on such day plus one percent
(1.0%), so long as a Daily LIBOR Rate is offered, ascertainable and not
unlawful.

 

“Anti-Terrorism Laws” shall mean any Applicable Laws relating to terrorism or
money laundering, including Executive Order No. 13224, the USA PATRIOT Act, the
Applicable Laws comprising or implementing the Bank Secrecy Act, and the
Applicable Laws administered by the United States Treasury Department’s Office
of Foreign Asset Control, and the Proceeds of Crime (Money Laundering) and
Terrorist Financing Act (Canada) (as any of the foregoing Applicable Laws may
from time to time be amended, renewed, extended, or replaced).

 

“Applicable Law” shall mean all laws, rules and regulations applicable to the
Person, conduct, transaction, covenant, Other Document or contract in question,
including all applicable common law and equitable principles; all provisions of
all applicable state, federal and foreign constitutions, statutes, rules,
regulations, treaties, directives and orders of any Governmental Body, and all
orders, judgments and decrees of all courts and arbitrators.

 

“Authority” shall have the meaning set forth in Section 4.19(d) hereof.

 

2

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“Base Rate” shall mean the base commercial lending rate of PNC as publicly
announced to be in effect from time to time, such rate to be adjusted
automatically, without notice, on the effective date of any change in such
rate.  This rate of interest is determined from time to time by PNC as a means
of pricing some loans to its customers and is neither tied to any external rate
of interest or index nor does it necessarily reflect the lowest rate of interest
actually charged by PNC to any particular class or category of customers of PNC.

 

“Benefited Lender” shall have the meaning set forth in Section 2.20(d) hereof.

 

“Billed Receivables Advance Rate” shall have the meaning set forth in
Section 2.1(a)(y)(i).

 

“Blocked Accounts” shall have the meaning set forth in Section 4.15(h) hereof.

 

“Blocked Account Bank” shall have the meaning set forth in
Section 4.15(h) hereof.

 

“Blocked Person” shall have the meaning set forth in Section 5.24(b) hereof.

 

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

 

“Borrowers on a Consolidated Basis” shall mean the consolidation in accordance
with GAAP of the accounts or other items of the Borrowers and their respective
Subsidiaries.

 

“Borrowers’ Account” shall have the meaning set forth in Section 2.8 hereof.

 

“Borrowing Agent” shall mean ARCA.

 

“Borrowing Base Certificate” shall mean a certificate in substantially the form
of Exhibit 1.2 duly executed by the President, Chief Financial Officer or
Controller of the Borrowing Agent and delivered to the Agent, appropriately
completed, by which such officer shall certify to Agent the Formula Amount and
calculation thereof as of the date of such certificate.

 

“Business Day” shall mean any day other than Saturday or Sunday or a legal
holiday on which commercial banks are authorized or required by law to be closed
for business in East Brunswick, New Jersey and, if the applicable Business Day
relates to any Eurodollar Rate Loans, such day must also be a day on which
dealings are carried on in the London interbank market.

 

“Canadian Borrower” shall mean ARCA-Canada and any other Borrower existing
pursuant to the laws of Canada or any province or territory thereof.

 

“Canadian Dollars” shall mean lawful money of Canada.

 

“Capital Expenditures” shall mean expenditures made or liabilities incurred for
the acquisition of any fixed assets or improvements, replacements, substitutions
or additions thereto which have a useful life of more than one year, including
the total principal portion of Capitalized Lease Obligations, which, in
accordance with GAAP, would be classified as capital expenditures.

 

3

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“Capitalized Lease Obligation” shall mean any Indebtedness of any Borrower
represented by obligations under a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.

 

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

 

“Change of Control” shall mean (a) 100% of the Equity Interests of ARCA-CA or
ARCA Canada are no longer owned directly or indirectly (on a fully diluted
basis) by ARCA;    (b) any person or group of persons (within the meaning of
Section 13(d) or 14(a) of the Exchange Act) shall have acquired beneficial
ownership of (within the meaning of Rule 13d-3 promulgated by the SEC under the
Exchange Act) 20% or more of the voting Equity Interests of ARCA, (c) during any
period of 12 consecutive months, a majority of the members of the board of
directors of ARCA cease to be composed of individuals: (i) who were members of
that board or equivalent governing body on the first day of such period,
(ii) whose election or nomination to that board was approved by individuals
referred to in clause (i) above constituting at the time of such election or
nomination at least a majority of that board, or (iii) whose election or
nomination to that board was approved by individuals referred to in clauses
(i) and (ii) above constituting at the time of such election or nomination at
least a majority of that board, or (d) any merger or consolidation by, or sale
of substantially all of the property or assets of, any Borrower.

 

“Charges” shall mean all taxes, charges, fees, imposts, levies or other
assessments, including all net income, gross income, gross receipts, sales, use,
ad valorem, value added, transfer, franchise, profits, inventory, capital stock,
license, withholding, payroll, employment, social security, unemployment,
excise, severance, stamp, occupation and property taxes, custom duties, fees,
assessments, liens, claims and charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts, imposed by
any taxing or other authority, domestic or foreign (including the Pension
Benefit Guaranty Corporation or any environmental agency or superfund), upon the
Collateral, any Borrower or any of its Affiliates.

 

“Closing Date” shall mean January 24, 2011 or such other date as may be agreed
to by the parties hereto.

 

“Code” shall mean the Internal Revenue Code of 1986, as the same may be amended
or supplemented from time to time, and any successor statute of similar import,
and the rules and regulations thereunder, as from time to time in effect.

 

“Collateral” shall mean and include:

 

(a)           all Receivables;

 

(b)           all Equipment;

 

(c)           all General Intangibles;

 

(d)           all Inventory;

 

(e)           all Investment Property;

 

4

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(f)            all Real Property;

 

(g)           all Subsidiary Stock;

 

(h)           all of each Borrower’s right, title and interest in and to,
whether now owned or hereafter acquired and wherever located; (i) its respective
goods and other property including, but not limited to, all merchandise returned
or rejected by Customers, relating to or securing any of the Receivables;
(ii) all of each Borrower’s rights as a consignor, a consignee, an unpaid
vendor, mechanic, artisan, or other lienor, including stoppage in transit,
setoff, detinue, replevin, reclamation and repurchase; (iii) all additional
amounts due to any Borrower from any Customer relating to the Receivables;
(iv) other property, including warranty claims, relating to any goods securing
the Obligations; (v) all of each Borrower’s contract rights, rights of payment
which have been earned under a contract right, instruments (including promissory
notes), documents, chattel paper (including electronic chattel paper), warehouse
receipts, deposit accounts, letters of credit and money; (vi) all commercial
tort claims (whether now existing or hereafter arising); (vii) if and when
obtained by any Borrower, all real and personal property of third parties in
which such Borrower has been granted a lien or security interest as security for
the payment or enforcement of Receivables; (viii) all letter of credit rights
(whether or not the respective letter of credit is evidenced by a writing);
(ix) all supporting obligations; and (x) any other goods, personal property or
real property now owned or hereafter acquired in which any Borrower has
expressly granted a security interest or may in the future grant a security
interest to Agent hereunder, or in any amendment or supplement hereto or
thereto, or under any other agreement between Agent and any Borrower;

 

(i)            all of each Borrower’s ledger sheets, ledger cards, files,
correspondence, records, books of account, business papers, computers, computer
software (owned by any Borrower or in which it has an interest), computer
programs, tapes, disks and documents relating to (a), (b), (c), (d), (e), (f),
(g) or (h) of this paragraph; and

 

(j)            all proceeds and products of (a), (b), (c), (d), (e), (f), (g),
(h) and (i) in whatever form, including, but not limited to:  cash, deposit
accounts (whether or not comprised solely of proceeds), certificates of deposit,
insurance proceeds (including hazard, flood and credit insurance), negotiable
instruments and other instruments for the payment of money, chattel paper,
security agreements, documents, eminent domain proceeds, condemnation proceeds
and tort claim proceeds.

 

“Commitment Percentage” of any Lender shall mean the percentage set forth below
such Lender’s name on the signature page hereof as same may be adjusted upon any
assignment by a Lender pursuant to Section 16.3(c) or (d) hereof.

 

“Commitment Transfer Supplement” shall mean a document in the form of
Exhibit 16.3 hereto, properly completed and otherwise in form and substance
satisfactory to Agent by which the Purchasing Lender purchases and assumes a
portion of the obligation of Lenders to make Advances under this Agreement.

 

“Compliance Certificate” shall mean a compliance certificate substantially in
the form attached hereto as Exhibit 1.2(a) to be signed by the Chief Financial
Officer or Controller of

 

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Borrowing Agent, which shall state that, based on an examination sufficient to
permit such officer to make an informed statement, (a) no Default or Event of
Default exists, or if such is not the case, specifying such Default or Event of
Default, its nature, when it occurred, whether it is continuing and the steps
being taken by Borrowers with respect to such default and, such certificate
shall have appended thereto calculations which set forth Borrowers’ compliance
with the requirements or restrictions imposed by Sections 6.5, 7.4, 7.5, 7.6,
7.7, 7.8, 7.10 and 7.11; and (b) that to the best of such officer’s knowledge,
each Borrower is in compliance in all material respects with all federal, state
and local Environmental Laws, or if such is not the case, specifying all areas
of non-compliance and the proposed action such Borrower will implement in order
to achieve full compliance.

 

“Consents” shall mean all filings and all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental Bodies and
other third parties, domestic or foreign, necessary to carry on any Borrower’s
business or necessary (including to avoid a conflict or breach under any
agreement, instrument, other document, license, permit or other authorization)
for the execution, delivery or performance of this Agreement or the Other
Documents, including any Consents required under all applicable federal, state
or other Applicable Law.

 

“Consigned Inventory” shall mean Inventory of any Borrower that is in the
possession of another Person on a consignment, sale or return, or other basis
that does not constitute a final sale and acceptance of such Inventory.

 

“Contract Rate” shall have the meaning set forth in Section 3.1 hereof.

 

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

 

“Credit Card Receivables” shall mean each “Account” (as defined in the UCC)
together with all income, payments and proceeds thereof, owed by a credit or
debit card issuer (including, but not limited to, Visa, MasterCard and American
Express and such other issuers approved by the Agent) to a Borrower resulting
from charges by a Customer of a Borrower on credit or debit cards issued by such
issuer in connection with the sale of goods by a Borrower, or services performed
by a Borrower, in each case in the Ordinary Course of Business.

 

“Credit Card Receivables Advance Rate” shall have the meaning set forth in
Section 2.1(a)(y)(iii).

 

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

 

“Customs” shall have the meaning set forth in Section 2.11(b) hereof.

 

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“Daily  LIBOR  Rate”  shall  mean,  for  any  day, the rate per annum
determined  by  the Agent by dividing (x) the Published Rate by (y) a number
equal to 1.00 minus the Reserve Percentage.

 

“Debt Payments” shall mean and include (a) all cash actually expended by any
Borrower to make interest payments on any Advances hereunder, plus (b) accrued
but unpaid interest on account of Eurodollar Rate Loans, plus (c) scheduled
principal payments on the Term Loan, plus (d) all cash actually expended by any
Borrower to make payments for all fees, commissions and charges set forth herein
and with respect to any Advances, plus (e) all cash actually expended by any
Borrower to make payments on Capitalized Lease Obligations, plus (f) all cash
actually expended by any Borrower to make payments with respect to any other
Indebtedness for borrowed money.

 

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

 

“Default Rate” shall have the meaning set forth in Section 3.1 hereof.

 

“Defaulting Lender” shall have the meaning set forth in Section 2.23(a) hereof.

 

“Depository Accounts” shall have the meaning set forth in
Section 4.15(h) hereof.

 

“Designated Lender” shall have the meaning set forth in Section 16.2(b) hereof.

 

“Documents” shall have the meaning set forth in Section 8.1(c) hereof.

 

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

 

“Domestic Rate Loan” shall mean any Advance that bears interest based upon the
Alternate Base Rate.

 

“Drawing Date” shall have the meaning set forth in Section 2.12(b) hereof.

 

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

 

“Earnings Before Interest and Taxes” shall mean for any period the sum of
(i) net income (or loss) of Borrowers on a Consolidated Basis for such period
(excluding extraordinary gains and losses), plus (ii) all interest expense of
Borrowers on a Consolidated Basis for such period, plus (iii) all charges
against income of Borrowers on a Consolidated Basis for such period for federal,
state and local taxes.

 

“EBITDA” shall mean for any period the sum of (i) Earnings Before Interest and
Taxes for such period, plus (ii) depreciation expenses for such period, plus
(iii) amortization expenses for such period, plus (iv) any other non-cash
charges, including without limitation, any stock or other equity consideration
and/or compensation for such period, acceptable to Agent in its reasonable
discretion.

 

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“Eligible Canadian Receivables” shall mean an Eligible Receivable owing to a
Borrower from a Customer located in Canada.

 

“Eligible Credit Card Receivables Amount” shall mean, on any date of
determination, an amount equal to Borrowers’ aggregate Credit Card Receivables
for the prior month (as reported to Agent in compliance with Section 9.2
hereof), divided by the number of days in such month, and multiplied by two (2);
provided however that if Borrowers’ fail to report the prior months’ Credit Card
Receivables by the date set forth herein, such amount shall mean an amount
determined by Agent.

 

“Eligible Inventory” shall mean and include Inventory, excluding work in
process, with respect to each Borrower, valued at the lower of cost or market
value, determined on a first-in-first-out basis, which is not, in Agent’s
opinion, obsolete, slow moving or unmerchantable and which Agent, in its sole
discretion, shall not deem ineligible Inventory, based on such considerations as
Agent may from time to time deem appropriate including whether the Inventory is
subject to a perfected, first priority security interest in favor of Agent and
no other Lien (other than a Permitted Encumbrance).  In addition, Inventory
shall not be Eligible Inventory if it (i) does not conform to all standards
imposed by any Governmental Body which has regulatory authority over such goods
or the use or sale thereof, (ii) is in transit, (iii) is located outside the
continental United States or at a location that is not otherwise in compliance
with this Agreement, (iv) constitutes Consigned Inventory, (v) is the subject of
an Intellectual Property Claim; (vi) is subject to a License Agreement or other
agreement that limits, conditions or restricts any Borrower’s or Agent’s right
to sell or otherwise dispose of such Inventory, unless Agent is a party to a
Licensor/Agent Agreement with the Licensor under such License Agreement;
(vii) is situated at a location not owned by a Borrower unless (a) the owner or
occupier of such location has executed in favor of Agent a Lien Waiver
Agreement, or (b) so long as all lease payment for such location are current,
Agent has established a reserve equal to one month’s rent for such location or
such greater amount as Agent in its reasonable discretion exercised in good
faith determines is necessary to protect its interest in the Collateral;
(viii) if the sale of such Inventory would result in an ineligible Receivable,
or (ix) the Inventory is Whirlpool Inventory.

 

“Eligible Receivables” shall mean and include with respect to each Borrower,
each Receivable of such Borrower arising in the Ordinary Course of Business and
which Agent, in its sole credit judgment, shall deem to be an Eligible
Receivable, based on such considerations as Agent may from time to time deem
appropriate.  A Receivable shall not be deemed eligible unless such Receivable
is subject to Agent’s first priority perfected security interest and no other
Lien (other than Permitted Encumbrances), and is evidenced by an invoice or
other documentary evidence satisfactory to Agent.  In addition, no Receivable
shall be an Eligible Receivable if:

 

(a)           it arises out of a sale made by any Borrower to an Affiliate of
any Borrower or to a Person controlled by an Affiliate of any Borrower;

 

(b)           it is due or unpaid more than sixty (60) days after the due date
or ninety (90) days after the original invoice date;

 

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(c)           fifty percent (50%) or more of the Receivables from such Customer
are not deemed Eligible Receivables hereunder.  Such percentage may, in Agent’s
sole discretion, be increased or decreased from time to time;

 

(d)           any covenant, representation or warranty contained in this
Agreement with respect to such Receivable has been breached;

 

(e)           the Customer shall (i) apply for, suffer, or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property or call
a meeting of its creditors, (ii) admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its present
business, (iii) make a general assignment for the benefit of creditors,
(iv) commence a voluntary case or proceeding under any state or federal
bankruptcy laws (as now or hereafter in effect), (v) be adjudicated a bankrupt
or insolvent, (vi) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vii) acquiesce to, or fail to have
dismissed, any petition which is filed against it in any involuntary case under
such bankruptcy laws, or (viii) take any action for the purpose of effecting any
of the foregoing;

 

(f)            the sale is to a Customer outside the continental United States
of America or Canada, unless the sale is on letter of credit, guaranty or
acceptance terms, in each case acceptable to Agent in its sole discretion;

 

(g)           the sale to the Customer is on a bill-and-hold, guaranteed sale,
sale-and-return, sale on approval, consignment or any other repurchase or return
basis or is evidenced by chattel paper;

 

(h)           Agent believes, in its sole judgment, that collection of such
Receivable is insecure or that such Receivable may not be paid by reason of the
Customer’s financial inability to pay;

 

(i)            the Customer is the United States of America, any state or any
department, agency or instrumentality of any of them, unless the applicable
Borrower assigns its right to payment of such Receivable to Agent pursuant to
the Assignment of Claims Act of 1940, as amended (31 U.S.C. Sub-Section 3727 et
seq. and 41 U.S.C. Sub-Section 15 et seq.) or has otherwise complied with other
applicable statutes or ordinances;

 

(j)            the goods giving rise to such Receivable have not been delivered
to and accepted by the Customer or the services giving rise to such Receivable
have not been performed by the applicable Borrower and accepted by the Customer
or the Receivable otherwise does not represent a final sale;

 

(k)           the Receivables of the Customer exceed a credit limit determined
by Agent, in its sole discretion, to the extent such Receivable exceeds such
limit;

 

(l)            the Receivable is subject to any offset, deduction, defense,
dispute, or counterclaim (to the extent of such offset, deduction, defense or
counterclaim), the Customer is also a creditor or supplier of a Borrower or the
Receivable is contingent in any respect or for any reason;

 

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(m)          the applicable Borrower has made any agreement with any Customer
for any deduction therefrom, except for discounts or allowances made in the
Ordinary Course of Business for prompt payment, all of which discounts or
allowances are reflected in the calculation of the face value of each respective
invoice related thereto;

 

(n)           any return, rejection or repossession of the merchandise has
occurred or the rendition of services has been disputed;

 

(o)           such Receivable is not payable to a Borrower; or

 

(p)           such Receivable is not otherwise satisfactory to Agent as
determined in good faith by Agent in the exercise of its discretion in a
reasonable manner.

 

“Eligible Unbilled Receivables” shall mean Receivables of any Borrower which
meet all criteria for Eligible Receivables except that such Borrower has not
issued an invoice for such Receivable; provided however that, Borrowers shall
have delivered documentation, in form and substance satisfactory to Agent in its
reasonable discretion, relating to such Receivable, Customer and/or goods or
services provided.  Eligible Unbilled Receivables shall specifically exclude
Receivables which are not invoiced by Borrower within thirty (30) days of the
performance of the work that is the subject of such Receivable.

 

“Eligible Whirlpool Inventory” shall mean Whirlpool Inventory of any Borrower
which (a) meets all criteria for Eligible Inventory other than clause
(ix) thereof, and (b) is subject to a repurchase agreement acceptable in form
and substance to Agent in its sole discretion.

 

“Eligible Whirlpool Aged Inventory” shall mean Whirlpool Inventory of any
Borrower which (a) meets all criteria for Eligible Inventory other than clause
(x) thereof, (b) is not subject to a repurchase agreement acceptable in form and
substance to Agent in its sole discretion, and (c) is aged greater than one
(1) year but less than two (2) years.

 

“Environmental Complaint” shall have the meaning set forth in
Section 4.19(d) hereof.

 

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

 

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

 

“Equity Interests” of any Person shall mean any and all shares, rights to
purchase, options, warrants, general, limited or limited liability partnership
interests, member interests, participation or other equivalents of or interest
in (regardless of how designated) equity of such

 

10

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Person, whether voting or nonvoting, including common stock, preferred stock,
convertible securities or any other “equity security” (as such term is defined
in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under
the Exchange Act).

 

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

 

“Eurodollar Rate” shall mean for any Eurodollar Rate Loan for the then current
Interest Period relating thereto, the interest rate per annum determined by
Agent by dividing (the resulting quotient rounded upwards, if necessary, to the
nearest 1/100th of 1% per annum) (i) the rate which appears on the Bloomberg
Page BBAM1 (or on such other substitute Bloomberg page that displays rates at
which US dollar deposits are offered by leading banks in the London interbank
deposit market), or the rate which is quoted by another source selected by Agent
which has been approved by the British Bankers’ Association as an authorized
information vendor for the purpose of displaying rates at which U.S. dollar
deposits are offered by leading banks in the London interbank deposit market (an
“Alternate Source”), at approximately 11:00 a.m., London time, two (2) Business
Days prior to the commencement of such Interest Period as the London interbank
offered rate for U.S. Dollars for an amount comparable to such Eurodollar Rate
Loan and having a borrowing date and a maturity comparable to such Interest
Period (or if there shall at any time, for any reason, no longer exist a
Bloomberg Page BBAM1 (or any substitute page) or any Alternate Source, a
comparable replacement rate determined by Agent at such time (which
determination shall be conclusive absent manifest error)), by (ii) a number
equal 1.00 minus the Reserve Percentage. The Eurodollar Rate may also be
expressed by the following formula:

 

 

 

Average of London interbank offered rates quoted by Bloomberg or appropriate
Successor as shown on

 

 

 

Eurodollar Rate =

 

Bloomberg Page BBAM1

 

 

 

1.00 - Reserve Percentage

 

 

The Eurodollar Rate shall be adjusted with respect to any Eurodollar Rate Loan
that is outstanding on the effective date of any change in the Reserve
Percentage as of such effective date.  The Agent shall give prompt notice to the
Borrowing Agent of the Eurodollar Rate as determined or adjusted in accordance
herewith, which determination shall be conclusive absent manifest error.

 

“Eurodollar Rate Loan” shall mean an Advance at any time that bears interest
based on the Eurodollar Rate.

 

“Event of Default” shall have the meaning set forth in Article X hereof.

 

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

“Executive Order No. 13224” shall mean the Executive Order No. 13224 on
Terrorist Financing, effective September 24, 2001, as the same has been, or
shall hereafter be, renewed, extended, amended or replaced.

 

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“Federal Funds Effective Rate” for any day shall mean the rate per annum (based
on a year of 360 days and actual days elapsed and rounded upward to the nearest
1/100 of 1%) announced by the Federal Reserve Bank of New York (or any
successor) on such day as being the weighted average of the rates on overnight
federal funds transactions arranged by federal funds brokers on the previous
trading day, as computed and announced by such Federal Reserve Bank (or any
successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the “Federal Funds
Effective Rate” as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
“Federal Funds Effective Rate” for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.

 

“Federal Funds Open Rate” for any day shall mean the rate per annum (based on a
year of 360 days and actual days elapsed) which is the daily federal funds open
rate as quoted by ICAP North America, Inc. (or any successor) as set forth on
the Bloomberg Screen BTMM for that day opposite the caption “OPEN” (or on such
other substitute Bloomberg Screen that displays such rate), or as set forth on
such other recognized electronic source used for the purpose of displaying such
rate as reasonably selected by PNC (an “Alternate Source”) (or if such rate for
such day does not appear on the Bloomberg Screen BTMM (or any substitute screen)
or on any Alternate Source, or if there shall at any time, for any reason, no
longer exist a Bloomberg Screen BTMM (or any substitute screen) or any Alternate
Source, a comparable replacement rate determined by the PNC at such time (which
determination shall be conclusive absent manifest error); provided however, that
if such day is not a Business Day, the Federal Funds Open Rate for such day
shall be the “open” rate on the immediately preceding Business Day.  If and when
the Federal Funds Open Rate changes, the rate of interest with respect to any
advance to which the Federal Funds Open Rate applies will change automatically
without notice to the Borrowers, effective on the date of any such change.

 

“Fee Letter” shall mean the fee letter dated the Closing Date among Borrowers
and PNC.

 

“Fixed Charge Coverage Ratio” shall mean and include, with respect to any fiscal
period, the ratio of (a) EBITDA, minus Unfunded Capital Expenditures made during
such period, minus cash distributions (including tax distributions) and cash
dividends made during such period (excluding any cash contributions made to AAP
during fiscal year 2010 in the amounts set forth on Schedule 1.2(a) hereto),
minus cash taxes paid during such period to (b) all Debt Payments made during
such period.

 

“Foreign Subsidiary” of any Person, shall mean any Subsidiary of such Person
that is not organized or incorporated in the United States or any State or
territory thereof.

 

“Formula Amount” shall have the meaning set forth in Section 2.1(a) hereof.

 

“GAAP” shall mean generally accepted accounting principles in the United States
of America in effect from time to time.

 

“General Intangibles” shall mean and include as to each Borrower all of such
Borrower’s general intangibles, whether now owned or hereafter acquired,
including all payment intangibles, all choses in action, causes of action,
corporate or other business records, inventions, designs,

 

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patents, patent applications, equipment formulations, manufacturing procedures,
quality control procedures, trademarks, trademark applications, service marks,
trade secrets, goodwill, copyrights, design rights, software, computer
information, source codes, codes, records and updates, registrations, licenses,
franchises, customer lists, tax refunds, tax refund claims, computer programs,
all claims under guaranties, security interests or other security held by or
granted to such Borrower to secure payment of any of the Receivables by a
Customer (other than to the extent covered by Receivables) all rights of
indemnification and all other intangible property of every kind and nature
(other than Receivables).

 

“Governmental Acts” shall have the meaning set forth in Section 2.17 hereof.

 

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

 

“Guarantor” shall mean any Person who may hereafter guarantee payment or
performance of the whole or any part of the Obligations and “Guarantors” means
collectively all such Persons.

 

“Guarantor Security Agreement” shall mean any security agreement executed by any
Guarantor in favor of Agent securing the Obligations or the Guaranty of such
Guarantor, in form and substance satisfactory to Agent.

 

“Guaranty” shall mean any guaranty of the Obligations executed by a Guarantor in
favor of Agent for its benefit and for the ratable benefit of Lenders, in form
and substance satisfactory to Agent.

 

“Hazardous Discharge” shall have the meaning set forth in
Section 4.19(d) hereof.

 

“Hazardous Substance” shall mean, without limitation, any flammable explosives,
radon, radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous
materials, Hazardous Wastes, hazardous or Toxic Substances or related materials
as defined in CERCLA, the Hazardous Materials Transportation Act, as amended (49
U.S.C. Sections 5101, et  seq.), RCRA, or any other applicable Environmental Law
and in the regulations adopted pursuant thereto.

 

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

 

“Hedge Liabilities” shall have the meaning provided in the definition of
“Lender-Provided Interest Rate Hedge”.

 

“Indebtedness” of a Person at a particular date shall mean all obligations of
such Person which in accordance with GAAP would be classified upon a balance
sheet as liabilities (except capital stock and surplus earned or otherwise) and
in any event, without limitation by reason of enumeration, shall include all
indebtedness, debt and other similar monetary obligations of such Person whether
direct or guaranteed, and all premiums, if any, due at the required prepayment

 

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dates of such indebtedness, and  all indebtedness secured by a Lien on assets
owned by such Person, whether or not such indebtedness actually shall have been
created, assumed or incurred by such Person.  Any indebtedness of such Person
resulting from the acquisition by such Person of any assets subject to any Lien
shall be deemed, for the purposes hereof, to be the equivalent of the creation,
assumption and incurring of the indebtedness secured thereby, whether or not
actually so created, assumed or incurred.

 

“Ineligible Security” shall mean any security which may not be underwritten or
dealt in by member banks of the Federal Reserve System under Section 16 of the
Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended.

 

“Intellectual Property” shall mean property constituting under any Applicable
Law a patent, patent application, copyright, trademark, service mark, trade
name, mask work, trade secret or license or other right to use any of the
foregoing.

 

“Intellectual Property Claim” shall mean the assertion by any Person of a claim
(whether asserted in writing, by action, suit or proceeding or otherwise) that
any Borrower’s ownership, use, marketing, sale or distribution of any Inventory,
Equipment, Intellectual Property or other property or asset is violative of any
ownership of or right to use any Intellectual Property of such Person.

 

“Interest Period” shall mean the period provided for any Eurodollar Rate Loan
pursuant to Section 2.2(b) hereof.

 

“Interest Rate Hedge” shall mean an interest rate exchange, collar, cap, swap,
adjustable strike cap, adjustable strike corridor or similar agreements entered
into by any Borrower or its Subsidiaries in order to provide protection to, or
minimize the impact upon, such Borrower, any Guarantor and/or their respective
Subsidiaries of increasing floating rates of interest applicable to
Indebtedness.

 

“Inventory” shall mean and include as to each Borrower all of such Borrower’s
now owned or hereafter acquired goods, merchandise and other personal property,
wherever located, to be furnished under any consignment arrangement, contract of
service or held for sale or lease, all raw materials, work in process, finished
goods and materials and supplies of any kind, nature or description which are or
might be used or consumed in such Borrower’s business or used in selling or
furnishing such goods, merchandise and other personal property, and all
documents of title or other documents representing them.

 

“Inventory Advance Rate” shall have the meaning set forth in
Section 2.1(a)(y)(vi) hereof.

 

“Investment Property” shall mean and include as to each Borrower, all of such
Borrower’s now owned or hereafter acquired securities (whether certificated or
uncertificated), securities entitlements, securities accounts, commodities
contracts and commodities accounts.

 

“Issuer” shall mean any Person who issues a Letter of Credit and/or accepts a
draft pursuant to the terms hereof.

 

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

 

“Lender Default” shall have the meaning set forth in Section 2.23(a) hereof.

 

“Lender-Provided Interest Rate Hedge” shall mean an Interest Rate Hedge which is
provided by any Lender and with respect to which the Agent confirms meets the
following requirements: such Interest Rate Hedge (i) is documented in a standard
International Swap Dealer Association Agreement, (ii) provides for the method of
calculating the reimbursable amount of the provider’s credit exposure in a
reasonable and customary manner, and (iii) is entered into for hedging (rather
than speculative) purposes.  The liabilities of any Borrower to the provider of
any Lender-Provided Interest Rate Hedge (the “Hedge Liabilities”) shall be
“Obligations” hereunder, guaranteed obligations under the Guaranty and secured
obligations under the Guarantor Security Agreement and otherwise treated as
Obligations for purposes of each of the Other Documents. The Liens securing the
Hedge Liabilities shall be pari passu with the Liens securing all other
Obligations under this Agreement and the Other Documents.

 

“Letters of Credit” shall have the meaning set forth in Section 2.9 hereof.

 

“Letter of Credit Application” shall have the meaning set forth in Section 2.10
hereof.

 

“Letter of Credit Borrowing” shall have the meaning set forth in
Section 2.12(d) hereof.

 

“Letter of Credit Fees” shall have the meaning set forth in Section 3.2 hereof.

 

“Letter of Credit Sublimit” shall mean $2,000.000.00.

 

“License Agreement” shall mean any agreement between any Borrower and a Licensor
pursuant to which such Borrower is authorized to use any Intellectual Property
in connection with the manufacturing, marketing, sale or other distribution of
any Inventory of such Borrower or otherwise in connection with such Borrower’s
business operations.

 

“Licensor” shall mean any Person from whom any Borrower obtains the right to use
(whether on an exclusive or non-exclusive basis) any Intellectual Property in
connection with such Borrower’s manufacture, marketing, sale or other
distribution of any Inventory or otherwise in connection with such Borrower’s
business operations.

 

“Licensor/Agent Agreement” shall mean an agreement between Agent and a Licensor,
in form and content satisfactory to Agent, by which Agent is given the
unqualified right, vis-a-vis such Licensor, to enforce Agent’s Liens with
respect to and to dispose of any Borrower’s Inventory with the benefit of any
Intellectual Property applicable thereto, irrespective of such Borrower’s
default under any License Agreement with such Licensor.

 

“Lien” shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, security interest, lien (whether statutory or otherwise), Charge,
claim or encumbrance, or preference, priority or other security agreement or
preferential arrangement held or asserted in respect of any asset of any kind or
nature whatsoever including any conditional sale or other title

 

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retention agreement, any lease having substantially the same economic effect as
any of the foregoing, and the filing of, or agreement to give, any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction.

 

“Lien Waiver Agreement” shall mean an agreement which is executed in favor of
Agent by a Person who owns or occupies premises at which any Collateral may be
located from time to time and by which such Person shall waive any Lien that
such Person may ever have with respect to any of the Collateral and shall
contain such other provisions as shall be reasonably acceptable to Agent.

 

“Material Adverse Effect” shall mean a material adverse effect on (a) the
condition (financial or otherwise), results of operations, assets, business,
properties or prospects of any Borrower or any Guarantor, (b) any Borrower’s
ability to duly and punctually pay or perform the Obligations in accordance with
the terms thereof, (c) the value of the Collateral, or Agent’s Liens on the
Collateral or the priority of any such Lien or (d) the practical realization of
the benefits of Agent’s and each Lender’s rights and remedies under this
Agreement and the Other Documents.

 

“Material Contract” shall mean any contract, agreement, instrument, permit,
lease or license, written or oral, of Borrowers, which are material to any
Borrower’s business or which, the failure to comply with, could reasonably be
expected to result in a Material Adverse Effect.

 

“Maximum Face Amount” shall mean, with respect to any outstanding Letter of
Credit, the face amount of such Letter of Credit including all automatic
increases provided for in such Letter of Credit, whether or not any such
automatic increase has become effective.

 

“Maximum Loan Amount” shall mean $17,550,000.

 

“Maximum Revolving Advance Amount” shall mean $15,000,000 less the AAP Joint
Venture Reserve.

 

“Maximum Undrawn Amount” shall mean with respect to any outstanding Letter of
Credit, the amount of such Letter of Credit that is or may become available to
be drawn, including all automatic increases provided for in such Letter of
Credit, whether or not any such automatic increase has become effective.

 

“Modified Commitment Transfer Supplement” shall have the meaning set forth in
Section 16.3(d) hereof.

 

“Mortgage” shall mean the mortgage on the Real Property located at 1920 South
Acacia Avenue, Compton, California, securing the Obligations together with all
extensions, renewals, amendments, supplements, modifications, substitutions and
replacements thereto and thereof.

 

“Multiemployer Plan” shall mean a “multiemployer plan” as defined in Sections
3(37) and 4001(a)(3) of ERISA to which contributions are required by any
Borrower or any member of the Controlled Group.

 

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“Multiple Employer Plan” shall mean a Plan which has two or more contributing
sponsors (including any Borrower or any member of the Controlled Group) at least
two of whom are not under common control, as such a plan is described in
Section 4064 of ERISA.

 

“Non-Defaulting Lender” shall have the meaning set forth in
Section 2.23(b) hereof.

 

“Non-Whirlpool Inventory Advance Rate” shall have the meaning set forth in
Section 2.1(a)(y)(iv).

 

“Note” shall mean collectively, the Term Note, and the Revolving Credit Note.

 

“Obligations” shall mean and include (a) any and all loans (including without
limitation, all Advances), advances, debts, liabilities, obligations, covenants
and duties owing by any Borrower to Lenders or Agent or to any other direct or
indirect subsidiary or affiliate of Agent or any Lender of any kind or nature,
present or future (including any interest or other amounts accruing thereon, and
any costs and expenses of any Person payable by Borrower and any indemnification
obligations payable by Borrower arising or payable after maturity, or after the
filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding relating to any Borrower, whether or not a
claim for post-filing or post-petition interest or other amounts is allowable or
allowed in such proceeding), whether or not evidenced by any note, guaranty or
other instrument, whether arising under any agreement, instrument or document,
(including this Agreement and the Other Documents) whether or not for the
payment of money, whether arising by reason of an extension of credit, opening
of a letter of credit, loan, equipment lease or guarantee, under any interest or
currency swap, future, option or other similar agreement, or in any other
manner, whether arising out of overdrafts or deposit or other accounts or
electronic funds transfers (whether through automated clearing houses or
otherwise) or out of the Agent’s or any Lenders non-receipt of or inability to
collect funds or otherwise not being made whole in connection with depository
transfer check or other similar arrangements, whether direct or indirect
(including those acquired by assignment or participation), absolute or
contingent, joint or several, due or to become due, now existing or hereafter
arising, contractual or tortious, liquidated or unliquidated, regardless of how
such indebtedness or liabilities arise or by what agreement or instrument they
may be evidenced or whether evidenced by any agreement or instrument, including,
but not limited to, any and all of any Borrower’s Indebtedness and/or
liabilities under this Agreement, the Other Documents or under any other
agreement between Agent or Lenders and any Borrower and any amendments,
extensions, renewals or increases and all costs and expenses of Agent and any
Lender incurred in the documentation, negotiation, modification, enforcement,
collection or otherwise in connection with any of the foregoing, including but
not limited to reasonable attorneys’ fees and expenses and all obligations of
any Borrower to Agent or Lenders to perform acts or refrain from taking any
action, and (b) the AAP Joint Venture Term Loan.

 

“Ordinary Course of Business” shall mean with respect to any Borrower, the
ordinary course of such Borrower’s business as conducted on the Closing Date.

 

“Other Documents” shall mean the Mortgage, the Note, the Perfection
Certificates, the Fee Letter, any Guaranty, any Guarantor Security Agreement,
any Pledge Agreement, any Lender-Provided Interest Rate Hedge, the AAP Joint
Venture Term Loan Note and any and all

 

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other agreements, instruments and documents, including any subordination
agreements, intercreditor agreements, guaranties, pledges, powers of attorney,
consents, interest or currency swap agreements or other similar agreements and
all other writings heretofore, now or hereafter executed by any Borrower or any
Guarantor and/or delivered to Agent or any Lender in respect of the transactions
contemplated by this Agreement.

 

“Out-of-Formula Loans” shall have the meaning set forth in
Section 16.2(b) hereof.

 

“Parent” of any Person shall mean a corporation or other entity owning, directly
or indirectly at least 50% of the shares of stock or other ownership interests
having ordinary voting power to elect a majority of the directors of the Person,
or other Persons performing similar functions for any such Person.

 

“Participant” shall mean each Person who shall be granted the right by any
Lender to participate in any of the Advances and who shall have entered into a
participation agreement in form and substance satisfactory to such Lender.

 

“Participation Advance” shall have the meaning set forth in
Section 2.12(d) hereof.

 

“Participation Commitment” shall mean each Lender’s obligation to buy a
participation of the Letters of Credit issued hereunder.

 

“Payee” shall have the meaning set forth in Section 3.10 hereof.

 

“Payment Office” shall mean initially Two Tower Center Boulevard, East
Brunswick, New Jersey 08816; thereafter, such other office of Agent, if any,
which it may designate by notice to Borrowing Agent and to each Lender to be the
Payment Office.

 

“PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA or any successor.

 

“Pension Benefit Plan” shall mean at any time any employee pension benefit plan
(including a Multiple Employer Plan, but not a Multiemployer Plan) which is
covered by Title IV of ERISA or is subject to the minimum funding standards
under Section 412 of the Code or is a pension benefit plan within the meaning of
the Pension Benefits Act (Ontario) and either (i) is maintained or to which
contributions are required by any member of the Controlled Group for employees
of any member of the Controlled Group; or (ii) has at any time within the
preceding five years been maintained or to which contributions have been
required by any entity which was at such time a member of the Controlled Group
for employees of any entity which was at such time a member of the Controlled
Group.

 

“Perfection Certificates” shall mean collectively, the Perfection Certificates
and the responses thereto provided by each Borrower and delivered to Agent.

 

“Permitted Encumbrances” shall mean (a) Liens in favor of Agent for the benefit
of Agent and Lenders; (b) Liens for taxes, assessments or other governmental
charges not delinquent or being Properly Contested; (c) Liens disclosed in the
financial statements referred to in Section 5.5, the existence of which Agent
has consented to in writing; (d) deposits or pledges

 

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to secure obligations under worker’s compensation, social security or similar
laws, or under unemployment insurance; (e) deposits or pledges to secure bids,
tenders, contracts (other than contracts for the payment of money), leases,
statutory obligations, surety and appeal bonds and other obligations of like
nature arising in the Ordinary Course of Business; (f) Liens arising by virtue
of the rendition, entry or issuance against any Borrower or any Subsidiary, or
any property of any Borrower or any Subsidiary, of any judgment, writ, order, or
decree for so long as each such Lien (I) is in existence for less than 20
consecutive days after it first arises or is being Properly Contested and
(II) is at all times junior in priority to any Liens in favor of Agent;
(g) mechanics’, workers’, materialmen’s or other like Liens arising in the
Ordinary Course of Business with respect to obligations which are not due or
which are being Properly Contested; (h) Liens placed upon fixed assets hereafter
acquired to secure a portion of the purchase price thereof, provided that
(I) any such lien shall not encumber any other property of any Borrower and
(II) the aggregate amount of Indebtedness secured by such Liens incurred as a
result of such purchases during any fiscal year shall not exceed the amount
provided for in Section 7.6; (i) easements, rights-of-way, zoning restrictions,
minor defects or irregularities in title and other charges or encumbrances, in
each case, which do not interfere in any material respect with the Ordinary
Course of Business of the Borrowers and their Subsidiaries; (j) any exceptions
listed on Schedule B of the title insurance policies delivered to and accepted
by, Agent and the Lenders under Section 8.1(r); (k) Liens on machinery and
equipment securing the SBA Loan to the extent such Liens are subordinated to the
Liens of Agent and subject to an intercreditor agreement in form and substance
reasonably satisfactory to Agent; and (l) Liens disclosed on Schedule 1.2
provided that such Liens shall secure only those obligations which they secure
on the Closing Date and shall not subsequently apply to any other property or
assets of any Borrower other than the property and assets to which they apply as
of the Closing Date.

 

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

 

“Plan” shall mean any employee benefit plan within the meaning of
Section 3(3) of ERISA or within the meaning of the Pension Benefits Act
(Ontario) (including a Pension Benefit Plan and a Multiemployer Plan),
maintained for employees of any Borrower or any member of the Controlled Group
or any such Plan to which any Borrower or any member of the Controlled Group is
required to contribute.

 

“Pledge Agreement” shall mean (i) that certain Collateral Pledge Agreement
executed by ARCA in favor of Agent dated as of the Closing Date, (ii) that
certain Negative Pledge Agreements executed by ARCA in favor of Agent dated as
of the Closing Date, and (iii) any other pledge agreements executed subsequent
to the Closing Date by any other Person to secure the Obligations.

 

“PNC” shall have the meaning set forth in the preamble to this Agreement and
shall extend to all of its successors and assigns.

 

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

 

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“Pro Forma Financial Statements” shall have the meaning set forth in
Section 5.5(b) hereof.

 

“Properly Contested” shall mean, in the case of any Indebtedness or Lien, as
applicable, of any Person (including any taxes) that is not paid as and when due
or payable by reason of such Person’s bona fide dispute concerning its liability
to pay same or concerning the amount thereof: (i) such Indebtedness or Lien, as
applicable, is being properly contested in good faith by appropriate proceedings
promptly instituted and diligently conducted; (ii) such Person has established
appropriate reserves as shall be required in conformity with GAAP; (iii) the
non-payment of such Indebtedness will not have a Material Adverse Effect and
will not result in the forfeiture of any assets of such Person; (iv) no Lien is
imposed upon any of such Person’s assets with respect to such Indebtedness
unless such Lien is at all times junior and subordinate in priority to the Liens
in favor of the Agent (except only with respect to property taxes that have
priority as a matter of applicable state law) and enforcement of such Lien is
stayed during the period prior to the final resolution or disposition of such
dispute; (v) if such Indebtedness or Lien, as applicable, results from, or is
determined by the entry, rendition or issuance against a Person or any of its
assets of a judgment, writ, order or decree, enforcement of such judgment, writ,
order or decree is stayed pending a timely appeal or other judicial review; and
(vi) if such contest is abandoned, settled or determined adversely (in whole or
in part) to such Person, such Person forthwith pays such Indebtedness and all
penalties, interest and other amounts due in connection therewith.

 

“Projections” shall have the meaning set forth in Section 5.5(b) hereof.

 

“Published  Rate”  shall mean the rate of interest published each Business Day
in the Wall Street Journal “Money Rates” listing under the  caption  “London
Interbank Offered Rates” for a one month period (or, if no such rate is
published therein for any reason, then the Published Rate shall be the
Eurodollar Rate for a one month period as published in another comparable
publication reasonably selected by the Agent).

 

“Purchasing CLO” shall have the meaning set forth in Section 16.3(d) hereof.

 

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

 

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

 

“Real Property” shall mean all of each Borrower’s right, title and interest in
and to the owned and leased premises identified on Schedule 4.5 hereto or which
is hereafter owned or leased by any Borrower.

 

“Receivables” shall mean and include, as to each Borrower, all of such
Borrower’s accounts, contract rights, instruments (including those evidencing
indebtedness owed to such Borrower by its Affiliates), documents, chattel paper
(including electronic chattel paper), general intangibles relating to accounts,
drafts and acceptances, credit card receivables and all other forms of
obligations owing to such Borrower arising out of or in connection with the sale
or lease of Inventory or the rendition of services, all supporting obligations,
guarantees and other

 

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security therefor, whether secured or unsecured, now existing or hereafter
created, and whether or not specifically sold or assigned to Agent hereunder.

 

“Receivables Advance Rate” shall have the meaning set forth in
Section 2.1(a)(y)(iii) hereof.

 

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

 

“Reimbursement Obligation” shall have the meaning set forth in
Section 2.12(b) hereof.

 

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

 

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

 

“Required Lenders” shall mean Lenders holding at least sixty-six and two-thirds
percent (66 2/3%) of the Advances and, if no Advances are outstanding, shall
mean Lenders holding sixty-six and two-thirds percent (66 2/3%) of the
Commitment Percentages; provided, however, if there are fewer than three
(3) Lenders, Required Lenders shall mean all Lenders.

 

“Reserve Percentage” shall mean as of any day the maximum percentage in effect
on such day as prescribed by the Board of Governors of the Federal Reserve
System (or any successor) for determining the reserve requirements (including
supplemental, marginal and emergency reserve requirements) with respect to
eurocurrency funding (currently referred to as “Eurocurrency Liabilities”).

 

“Revolving Advances” shall mean Advances made other than Letters of Credit and
the Term Loan.

 

“Revolving Credit Note” shall mean, collectively, the promissory notes referred
to in Section 2.1(a) hereof.

 

“Revolving Interest Rate” shall mean, (a) with respect to Domestic Rate
Loans, an interest rate per annum equal to the sum of the Alternate Base Rate
plus one and three quarters of one percent (1.75%), and (b) with respect to
Eurodollar Rate Loans, the sum of the Eurodollar Rate plus two and three
quarters of one percent (2.75%).

 

“SBA Loan” shall have the meaning set forth in Section 6.10 hereof.

 

“SEC” shall mean the Securities and Exchange Commission or any successor
thereto.

 

“Section 20 Subsidiary” shall mean the Subsidiary of the bank holding company
controlling PNC, which Subsidiary has been granted authority by the Federal
Reserve Board to underwrite and deal in certain Ineligible Securities.

 

“Securities Act” shall mean the Securities Act of 1933, as amended.

 

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“Settlement Date” shall mean the Closing Date and thereafter Wednesday or
Thursday of each week or more frequently if Agent deems appropriate unless such
day is not a Business Day in which case it shall be the next succeeding Business
Day.

 

“Subordinated Indebtedness” shall mean any Indebtedness incurred by Borrowers
subsequent to the Closing Date that is consented to by Agent and subordinated to
the Obligations on terms and conditions acceptable to Agent in its sole
discretion.

 

“Subordinated Lender” shall mean any lender with respect to Subordinated
Indebtedness.

 

“Subsidiary” of any Person shall mean a corporation or other entity of whose
Equity Interests having ordinary voting power (other than Equity Interests
having such power only by reason of the happening of a contingency) to elect a
majority of the directors of such corporation, or other Persons performing
similar functions for such entity, are owned, directly or indirectly, by such
Person.

 

“Subsidiary Stock” shall mean all of the issued and outstanding Equity Interests
of any Subsidiary owned by any Borrower (not to exceed 65% of the Equity
Interests of any Foreign Subsidiary).

 

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

 

“Term Loan” shall mean the Advances made pursuant to Section 2.4 hereof.

 

“Term Loan Rate” shall mean, (a) with respect to Domestic Rate Loans, an
interest rate per annum equal to the sum of the Alternate Base Rate plus two and
one quarter of one percent (2.25%), and (b) with respect to Eurodollar Rate
Loans, the sum of the Eurodollar Rate plus three and one quarter of one percent
(3.25%).

 

“Term Note” shall mean, collectively, the promissory notes described in
Section 2.4 hereof.

 

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

 

“Toxic Substance” shall mean and include any material present on the Real
Property or the Leasehold Interests which has been shown to have significant
adverse effect on human health or which is subject to regulation under the Toxic
Substances Control Act (TSCA), 15 U.S.C. §§ 2601 et seq., applicable state law,
or any other applicable Federal or state laws or Canadian or provincial laws now
in force or hereafter enacted relating to toxic substances.  “Toxic

 

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Substance” includes but is not limited to asbestos, polychlorinated biphenyls
(PCBs) and lead-based paints.

 

“Trading with the Enemy Act” shall mean the foreign assets control regulations
of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as
amended) and any enabling legislation or executive order relating thereto.

 

“Transactions” shall have the meaning set forth in Section 5.5 hereof.

 

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

 

“Unbilled Receivables Advance Rate” shall have the meaning set forth in
Section 2.1(a)(y)(ii).

 

“Undrawn Availability” at a particular date shall mean an amount equal to
(a) Borrower’s unrestricted cash on deposit in a U.S. deposit account, plus 60%
of Borrower’s unrestricted cash on deposit in a Canadian deposit acount, plus
the lesser of (i) the Formula Amount or (ii) the Maximum Revolving Advance
Amount less the Maximum Undrawn Amount of all outstanding Letters of Credit,
minus (b) the sum of (i) the outstanding amount of Advances (other than the Term
Loan) plus (ii) all amounts due and owing to any Borrower’s trade creditors
which are outstanding sixty (60) days past their due date, plus (iii) fees and
expenses for which Borrowers are liable hereunder but which have not been paid
or charged to Borrowers’ Account.

 

“Unfunded Capital Expenditures” shall mean Capital Expenditures made through
Revolving Advances or out of Borrowers’ own funds other than through equity
contributed subsequent to the Closing Date or purchase money or other financing
or lease transactions permitted hereunder.

 

“Uniform Commercial Code” shall have the meaning set forth in Section 1.3
hereof.

 

“USA PATRIOT Act” shall mean the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001,
Public Law 107-56, as the same has been, or shall hereafter be, renewed,
extended, amended or replaced.

 

“Week” shall mean the time period commencing with the opening of business on a
Wednesday and ending on the end of business the following Tuesday.

 

“Whirlpool Inventory” shall mean Inventory that is manufactured by Whirlpool or
purchased by Borrowers from Whirlpool.

 

“Whirlpool Inventory Advance Rate” shall have the meaning set forth in
Section 2.1(a)(y)(vi).

 

1.3.          Uniform Commercial Code Terms.  All terms used herein and defined
in the Uniform Commercial Code as adopted in the State of Illinois from time to
time (the “Uniform Commercial Code”) shall have the meaning given therein unless
otherwise defined herein.  Without limiting the foregoing, the terms “accounts”,
“chattel paper”, “commercial tort claims”, “instruments”, “general intangibles”,
“goods”, “payment intangibles”, “proceeds”, “supporting

 

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obligations”, “securities”, “investment property”, “documents”, “deposit
accounts”, “software”, “letter of credit rights”, “inventory”, “equipment” and
“fixtures”, as and when used in the description of Collateral shall have the
meanings given to such terms in Articles 8 or 9 of the Uniform Commercial Code. 
To the extent the definition of any category or type of collateral is expanded
by any amendment, modification or revision to the Uniform Commercial Code, such
expanded definition will apply automatically as of the date of such amendment,
modification or revision. With respect to any Canadian Borrower, any reference
to the Uniform Commercial Code shall be deemed to mean the Personal Property
Security Act of the relevant province.

 

1.4.          Certain Matters of Construction.

 

(a)           The terms “herein”, “hereof” and “hereunder” and other words of
similar import refer to this Agreement as a whole and not to any particular
section, paragraph or subdivision.  All references herein to Articles, Sections,
Exhibits and Schedules shall be construed to refer to Articles and Sections of,
and Exhibits and Schedules to, this Agreement.  Any pronoun used shall be deemed
to cover all genders.  Wherever appropriate in the context, terms used herein in
the singular also include the plural and vice versa.  All references to statutes
and related regulations shall include any amendments of same and any successor
statutes and regulations.  Unless otherwise provided, all references to any
instruments or agreements to which Agent is a party, including references to any
of the Other Documents, shall include any and all modifications, supplements or
amendments thereto, any and all restatements or replacements thereof and any and
all extensions or renewals thereof.  All references herein to the time of day
shall mean the time in New York, New York.  Unless otherwise provided, all
financial calculations shall be performed with Inventory valued on a first-in,
first-out basis.  Whenever the words “including” or “include” shall be used,
such words shall be understood to mean “including, without limitation” or
“include, without limitation”.  A Default or Event of Default shall be deemed to
exist at all times during the period commencing on the date that such Default or
Event of Default occurs to the date on which such Default or Event of Default is
waived in writing pursuant to this Agreement or, in the case of a Default, is
cured within any period of cure expressly provided for in this Agreement; and an
Event of Default shall “continue” or be “continuing” until such Event of Default
has been waived in writing by the Required Lenders or all Lenders, as
applicable.  Any Lien referred to in this Agreement or any of the Other
Documents as having been created in favor of Agent, any agreement entered into
by Agent pursuant to this Agreement or any of the Other Documents, any payment
made by or to or funds received by Agent pursuant to or as contemplated by this
Agreement or any of the Other Documents, or any act taken or omitted to be taken
by Agent, shall, unless otherwise expressly provided, be created, entered into,
made or received, or taken or omitted, for the benefit or account of Agent and
Lenders. Wherever the phrase “to the best of Borrowers’ knowledge” or words of
similar import relating to the knowledge or the awareness of any Borrower are
used in this Agreement or Other Documents, such phrase shall mean and refer to
(i) the actual knowledge of a senior officer of any Borrower or (ii) the
knowledge that a senior officer would have obtained if he had engaged in good
faith and diligent performance of his duties, including the making of such
reasonably specific inquiries as may be necessary of the employees or agents of
such Borrower and a good faith attempt to ascertain the existence or accuracy of
the matter to which such phrase relates.  All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or otherwise within the limitations of, another covenant shall not

 

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avoid the occurrence of a default if such action is taken or condition exists. 
In addition, all representations and warranties hereunder shall be given
independent effect so that if a particular representation or warranty proves to
be incorrect or is breached, the fact that another representation or warranty
concerning the same or similar subject matter is correct or is not breached will
not affect the incorrectness of a breach of a representation or warranty
hereunder.

 

(b)           Canadian Terms.  In this Agreement, (i) any term defined in this
Agreement by reference to the “Uniform Commercial Code” shall also have any
extended, alternative or analogous meaning given to such term in applicable
Canadian personal property security and other laws (including, without
limitation, the Personal Property Security Act (Ontario), the Bills of Exchange
Act (Canada) and the Depository Bills and Notes Act (Canada)), in all cases for
the extension, preservation or betterment of the security and rights of the
Agent, (ii) all references in this Agreement to “Article 8 of the Code” or
“Article 8 of the Uniform Commercial Code” shall be deemed to refer also to
applicable Canadian securities transfer laws (including, without limitation, the
Securities Transfer Act, 2006 (Ontario)), (iii) all references in this Agreement
to the United States Copyright Office or the United States Patent and Trademark
Office shall be deemed to refer also to the Canadian Intellectual Property
Office, (iv) all references in this Agreement to a financing statement,
continuation statement, amendment or termination statement shall be deemed to
refer also to the analogous documents used under applicable Canadian personal
property security laws, (v) all references to the United States of America, or
to any subdivision, department, agency or instrumentality thereof shall be
deemed to refer also to Canada, or to any subdivision, department, agency or
instrumentality thereof, (vi) all references to federal or state securities law
of the United States shall be deemed to refer also to analogous federal and
provincial securities laws in Canada, (vii) all references to “state or federal
bankruptcy laws” shall be deemed to refer also to any insolvency proceeding
occurring in Canada or under Canadian law, and (viii) all calculations of Dollar
amounts which utilize amounts expressed in Canadian Dollars shall be made using
the US Dollar Equivalent of such Canadian Dollar amounts in a manner reasonably
calculated by the Agent.

 

II.           ADVANCES, PAYMENTS.

 

2.1.          Revolving Advances.

 

(a)           Amount of Revolving Advances.  Subject to the terms and conditions
set forth in this Agreement including Sections 2.1(b), (c), (d) and (e), each
Lender, severally and not jointly, will make Revolving Advances to Borrowers in
aggregate amounts outstanding at any time equal to such Lender’s Commitment
Percentage of the lesser of (x) the Maximum Revolving Advance Amount less the
aggregate Maximum Undrawn Amount of all outstanding Letters of Credit or (y) an
amount equal to the sum of:

 

(i)            up to 85%, subject to the provisions of Sections 2.1(b) and
(c) hereof (the “Billed Receivables Advance Rate”), of Eligible Receivables,
plus

 

(ii)           up to 80%, subject to the provisions of Sections 2.1(b) and
(c) hereof (the “Unbilled Receivables Advance Rate”), of Eligible Unbilled
Receivables, plus

 

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(iii)          up to 85%, subject to the provisions of Sections 2.1(b), (c) and
(d) hereof (the “Credit Card Receivables Rate”, together with the “Billed
Receivables Advance Rate” and the “Unbilled Receivables Advance Rate”, the
“Receivables Advance Rates”) of the Eligible Credit Card Receivable Amount, plus

 

(iv)          up to 50%, subject to the provisions of Sections 2.1(b) and
(e) hereof, of the cost of the Eligible Inventory aged less than one (1) year
(the “Non-Whirlpool Inventory Advance Rate”), plus

 

(v)           up to 85%, subject to the provisions of Sections 2.1(b) and
(e) hereof (the “Aged Inventory Advance Rate”), of the appraised net orderly
liquidation value of all Eligible Inventory aged greater than one (1) year but
less than two (2) years and Eligible Whirlpool Aged Inventory (as evidenced by
an Inventory appraisal satisfactory to Agent in its sole discretion exercised in
good faith), plus

 

(vi)          up to 80%, subject to the provisions of Sections 2.1(b) and
(e) hereof (the “Whirlpool Inventory Advance Rate”, together with the
Non-Whirlpool Inventory Advance Rate and Aged Inventory Advance Rate, the
“Inventory Advance Rates”, and together with the Receivables Advance Rates, the
“Advance Rates”), of the cost of Eligible Whirlpool Inventory, minus

 

(vii)         the aggregate Maximum Undrawn Amount of all outstanding Letters of
Credit, minus

 

(viii)        the AAP Joint Venture Reserve, minus

 

(ix)           such reserves as Agent may reasonably deem proper and necessary
from time to time.

 

The amount derived from the sum of (x) Sections 2.1(a)(y)(i), (ii), (iii), (iv),
(v) and (vi)  minus (y) Sections 2.1(a)(y)(vii), (viii) and (ix) at any time and
from time to time shall be referred to as the “Formula Amount”.  The Revolving
Advances shall be evidenced by one or more secured promissory notes
(collectively, the “Revolving Credit Note”) substantially in the form attached
hereto as Exhibit 2.1(a).

 

(b)           Discretionary Rights.  The Advance Rates may be increased or
decreased by Agent at any time and from time to time in the exercise of its
reasonable discretion.  Each Borrower consents to any such increases or
decreases and acknowledges that decreasing the Advance Rates or increasing or
imposing reserves may limit or restrict Advances requested by Borrowing Agent. 
The rights of Agent under this subsection are subject to the provisions of
Section 16.2(b).

 

(c)           Sublimit for Revolving Advances made against Eligible Canadian
Receivables. The aggregate amount of Revolving Advances made to Borrowers
against Eligible Canadian Receivables shall not exceed in the aggregate, at any
time outstanding, $1,500,000.

 

(d)           Sublimit for Revolving Advances made against Eligible Credit Card
Receivables Amount.  The aggregate amount of Revolving Advances made to
Borrowers against

 

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the Eligible Credit Card Receivables Amount shall not exceed in the aggregate,
at any time outstanding, $500,000.

 

(e)           Sublimit for Revolving Advances made against Eligible Inventory, 
Eligible Whirlpool Inventory and Eligible Whirlpool Aged Inventory.  The
aggregate amount of Revolving Advances made to Borrowers against Eligible
Inventory, Eligible Whirlpool Inventory and Eligible Whirlpool Aged Inventory
(a) shall not exceed in the aggregate, at any time outstanding, $14,000,000, or
(b) 90% of the appraised net orderly liquidation value of all Inventory (as
evidenced by an Inventory appraisal satisfactory to Agent in its sole discretion
exercised in good faith).

 

2.2.          Procedure for Revolving Advances Borrowing.

 

(a)           Borrowing Agent on behalf of any Borrower may notify Agent prior
to 10:00 a.m. on a Business Day of a Borrower’s request to incur, on that day, a
Revolving Advance hereunder.  Should any amount required to be paid as interest
hereunder, or as fees or other charges under this Agreement or any other
agreement with Agent or Lenders, or with respect to any other Obligation become
due, including without limitation the AAP Joint Venture Term Loan, same shall be
deemed a request for a Revolving Advance maintained as a Domestic Rate Loan as
of the date such payment is due, in the amount required to pay in full such
interest, fee, charge or Obligation under this Agreement or any other agreement
with Agent or Lenders, and such request shall be irrevocable.

 

(b)           Notwithstanding the provisions of subsection (a) above, in the
event any Borrower desires to obtain a Eurodollar Rate Loan, Borrowing Agent
shall give Agent written notice by no later than 10:00 a.m. on the day which is
three (3) Business Days prior to the date such Eurodollar Rate Loan is to be
borrowed, specifying (i) the date of the proposed borrowing (which shall be a
Business Day), (ii) the type of borrowing and the amount on the date of such
Advance to be borrowed, which amount shall be in a minimum amount of $1,000,000
and in integral multiples of $100,000 thereafter, and (iii) the duration of the
first Interest Period therefor.  Interest Periods for Eurodollar Rate Loans
shall be for one, two or three months; provided, if an Interest Period would end
on a day that is not a Business Day, it shall end on the next succeeding
Business Day unless such day falls in the next succeeding calendar month in
which case the Interest Period shall end on the next preceding Business Day.  No
Eurodollar Rate Loan shall be made available to any Borrower during the
continuance of a Default or an Event of Default.  After giving effect to each
requested Eurodollar Rate Loan, including those which are converted from a
Domestic Rate Loan under Section 2.2(d), there shall not be outstanding more
than four (4) Eurodollar Rate Loans, in the aggregate.

 

(c)           Each Interest Period of a Eurodollar Rate Loan shall commence on
the date such Eurodollar Rate Loan is made and shall end on such date as
Borrowing Agent may elect as set forth in subsection (b)(iii) above provided
that the exact length of each Interest Period shall be determined in accordance
with the practice of the interbank market for offshore Dollar deposits and no
Interest Period shall end after the last day of the Term.

 

Borrowing Agent shall elect the initial Interest Period applicable to a
Eurodollar Rate Loan by its notice of borrowing given to Agent pursuant to
Section 2.2(b) or by its notice of

 

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conversion given to Agent pursuant to Section 2.2(d), as the case may be. 
Borrowing Agent shall elect the duration of each succeeding Interest Period by
giving irrevocable written notice to Agent of such duration not later than
10:00 a.m. on the day which is three (3) Business Days prior to the last day of
the then current Interest Period applicable to such Eurodollar Rate Loan.  If
Agent does not receive timely notice of the Interest Period elected by Borrowing
Agent, Borrowing Agent shall be deemed to have elected to convert to a Domestic
Rate Loan subject to Section 2.2(d) hereinbelow.

 

(d)           Provided that no Event of Default shall have occurred and be
continuing, Borrowing Agent may, on the last Business Day of the then current
Interest Period applicable to any outstanding Eurodollar Rate Loan, or on any
Business Day with respect to Domestic Rate Loans, convert any such loan into a
loan of another type in the same aggregate principal amount provided that any
conversion of a Eurodollar Rate Loan shall be made only on the last Business Day
of the then current Interest Period applicable to such Eurodollar Rate Loan.  If
Borrowing Agent desires to convert a loan, Borrowing Agent shall give Agent
written notice by no later than 10:00 a.m. (i) on the day which is three
(3) Business Days’ prior to the date on which such conversion is to occur with
respect to a conversion from a Domestic Rate Loan to a Eurodollar Rate Loan, or
(ii) on the day which is one (1) Business Day prior to the date on which such
conversion is to occur with respect to a conversion from a Eurodollar Rate Loan
to a Domestic Rate Loan, specifying, in each case, the date of such conversion,
the loans to be converted and if the conversion is from a Domestic Rate Loan to
any other type of loan, the duration of the first Interest Period therefor.

 

(e)           At its option and upon written notice given prior to 10:00 a.m. at
least three (3) Business Days’ prior to the date of such prepayment, any
Borrower may prepay the Eurodollar Rate Loans in whole at any time or in part
from time to time with accrued interest on the principal being prepaid to the
date of such repayment.  Such Borrower shall specify the date of prepayment of
Advances which are Eurodollar Rate Loans and the amount of such prepayment.  In
the event that any prepayment of a Eurodollar Rate Loan is required or permitted
on a date other than the last Business Day of the then current Interest Period
with respect thereto, such Borrower shall indemnify Agent and Lenders therefor
in accordance with Section 2.2(f) hereof.

 

(f)            Each Borrower shall indemnify Agent and Lenders and hold Agent
and Lenders harmless from and against any and all losses or expenses that Agent
and Lenders may sustain or incur as a consequence of any prepayment, conversion
of or any default by any Borrower in the payment of the principal of or interest
on any Eurodollar Rate Loan or failure by any Borrower to complete a borrowing
of, a prepayment of or conversion of or to a Eurodollar Rate Loan after notice
thereof has been given, including, but not limited to, any interest payable by
Agent or Lenders to lenders of funds obtained by it in order to make or maintain
its Eurodollar Rate Loans hereunder.  A certificate as to any additional amounts
payable pursuant to the foregoing sentence submitted by Agent or any Lender to
Borrowing Agent shall be conclusive absent manifest error.

 

(g)           Notwithstanding any other provision hereof, if any Applicable Law,
treaty, regulation or directive, or any change therein or in the interpretation
or application thereof, shall make it unlawful for any Lender (for purposes of
this subsection (g), the term “Lender” shall

 

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include any Lender and the office or branch where any Lender or any corporation
or bank controlling such Lender makes or maintains any Eurodollar Rate Loans) to
make or maintain its Eurodollar Rate Loans, the obligation of Lenders to make
Eurodollar Rate Loans hereunder shall forthwith be cancelled and Borrowers
shall, if any affected Eurodollar Rate Loans are then outstanding, promptly upon
request from Agent, either pay all such affected Eurodollar Rate Loans or
convert such affected Eurodollar Rate Loans into loans of another type.  If any
such payment or conversion of any Eurodollar Rate Loan is made on a day that is
not the last day of the Interest Period applicable to such Eurodollar Rate Loan,
Borrowers shall pay Agent, upon Agent’s request, such amount or amounts as may
be necessary to compensate Lenders for any loss or expense sustained or incurred
by Lenders in respect of such Eurodollar Rate Loan as a result of such payment
or conversion, including (but not limited to) any interest or other amounts
payable by Lenders to lenders of funds obtained by Lenders in order to make or
maintain such Eurodollar Rate Loan.  A certificate as to any additional amounts
payable pursuant to the foregoing sentence submitted by Lenders to Borrowing
Agent shall be conclusive absent manifest error.

 

2.3.          Disbursement of Advance Proceeds.  All Advances shall be disbursed
from whichever office or other place Agent may designate from time to time and,
together with any and all other Obligations of Borrowers to Agent or Lenders,
shall be charged to Borrowers’ Account on Agent’s books.  In no event, however,
shall Agent disburse Advances other than to an account located in the United
States of America.  During the Term, Borrowers may use the Revolving Advances by
borrowing, prepaying and reborrowing, all in accordance with the terms and
conditions hereof.  The proceeds of each Revolving Advance requested by
Borrowing Agent on behalf of any Borrower or deemed to have been requested by
any Borrower under Section 2.2 hereof shall, with respect to requested Revolving
Advances to the extent Lenders make such Revolving Advances, be made available
to the applicable Borrower on the day so requested by way of credit to such
Borrower’s operating account at PNC, or such other bank as Borrowing Agent may
designate following notification to Agent, in immediately available federal
funds or other immediately available funds or, with respect to Revolving
Advances deemed to have been requested by any Borrower, be disbursed to Agent to
be applied to the outstanding Obligations giving rise to such deemed request.

 

2.4.          Term Loan.  Subject to the terms and conditions of this Agreement,
each Lender, severally and not jointly, will make a Term Loan to Borrowers in
the sum equal to such Lender’s Commitment Percentage of $2,550,000.  The Term
Loan shall be advanced on the Closing Date and shall be, with respect to
principal, payable as follows, subject to acceleration upon the occurrence of an
Event of Default under this Agreement or termination of this Agreement: one
hundred nineteen (119) consecutive monthly installments each in the amount of
Twenty Five Thousand Dollars ($21,250.00) commencing February 1, 2011 and
continuing on the first day of each month thereafter followed by a one hundred
twentieth (120th) payment of all unpaid principal, accrued and unpaid interest
and all unpaid fees and expenses.   The Term Loan shall be evidenced by one or
more secured promissory notes (collectively, the “Term Note”) in substantially
the form attached hereto as Exhibit 2.4.  The Term Loan may consist of Domestic
Rate Loans or Eurodollar Rate Loans, or a combination thereof, as Borrowing
Agent may request.  In the event that Borrowers desire to obtain or extend a
Eurodollar Rate Loan or to convert a Domestic Rate Loan to a Eurodollar Rate
Loan, Borrowing Agent shall comply with

 

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the notification requirements set forth in Sections 2.2(b) and (d) and the
provisions of Sections 2.2(b) through (g) shall apply.

 

2.5.          Maximum Advances.  The aggregate balance of Revolving Advances
outstanding at any time shall not exceed the lesser of (a) the Maximum Revolving
Advance Amount less the Maximum Undrawn Amount of all issued and outstanding
Letters of Credit or (b) the Formula Amount.

 

2.6.          Repayment of Advances.

 

(a)           The Revolving Advances shall be due and payable in full on the
last day of the Term subject to earlier prepayment as herein provided.  The Term
Loan shall be due and payable as provided in Section 2.4 hereof and in the Term
Note, subject to mandatory prepayments as herein provided.

 

(b)           Each Borrower recognizes that the amounts evidenced by checks,
notes, drafts or any other items of payment relating to and/or proceeds of
Collateral may not be collectible by Agent on the date received.  In
consideration of Agent’s agreement to conditionally credit Borrowers’ Account as
of the next Business Day following Agent’s receipt of those items of payment,
each Borrower agrees that, in computing the charges under this Agreement, all
items of payment shall be deemed applied by Agent on account of the Obligations
one (1) Business Day after (i) the Business Day following Agent’s receipt of
such payments via wire transfer or electronic depository check or (ii) in the
case of payments received by Agent in any other form, the Business Day such
payment constitutes good funds in Agent’s account.  Agent is not, however,
required to credit Borrowers’ Account for the amount of any item of payment
which is unsatisfactory to Agent and Agent may charge Borrowers’ Account for the
amount of any item of payment which is returned to Agent unpaid.

 

(c)           All payments of principal, interest and other amounts payable
hereunder, or under any of the Other Documents shall be made to Agent at the
Payment Office not later than 1:00 P.M. on the due date therefor in lawful money
of the United States of America in federal funds or other funds immediately
available to Agent.  Agent shall have the right to effectuate payment on any and
all Obligations due and owing hereunder by charging Borrowers’ Account or by
making Advances as provided in Section 2.2 hereof.

 

(d)           Borrowers shall pay principal, interest, and all other amounts
payable hereunder, or under any related agreement, without any deduction
whatsoever, including, but not limited to, any deduction for any setoff or
counterclaim.

 

2.7.          Repayment of Excess Advances.  The aggregate balance of Advances
outstanding at any time in excess of the maximum amount of Advances permitted
hereunder shall be immediately due and payable without the necessity of any
demand, at the Payment Office, whether or not a Default or Event of Default has
occurred.

 

2.8.          Statement of Account.  Agent shall maintain, in accordance with
its customary procedures, a loan account (“Borrowers’ Account”) in the name of
Borrowers in which shall be recorded the date and amount of each Advance made by
Agent and the date and amount of each payment in respect thereof; provided,
however, the failure by Agent to record the date and

 

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amount of any Advance shall not adversely affect Agent or any Lender.  Each
month, Agent shall send to Borrowing Agent a statement showing the accounting
for the Advances made, payments made or credited in respect thereof, and other
transactions between Agent and Borrowers during such month.  The monthly
statements shall be deemed correct and binding upon Borrowers in the absence of
manifest error and shall constitute an account stated between Lenders and
Borrowers unless Agent receives a written statement of Borrowers’ specific
exceptions thereto within thirty (30) days after such statement is received by
Borrowing Agent.  The records of Agent with respect to the loan account shall be
conclusive evidence absent manifest error of the amounts of Advances and other
charges thereto and of payments applicable thereto.

 

2.9.          Letters of Credit.  Subject to the terms and conditions hereof,
Agent shall issue or cause the issuance of standby and/or trade letters of
credit (“Letters of Credit”) for the account of any Borrower except to the
extent that the issuance thereof would then cause the sum of (i) the outstanding
Revolving Advances plus (ii) the Maximum Undrawn Amount of all outstanding
Letters of Credit to exceed the lesser of (x) the Maximum Revolving Advance
Amount or (y) the sum of the Formula Amount plus the Maximum Undrawn Amount of
all outstanding Letters of Credit.  The Maximum Undrawn Amount of outstanding
Letters of Credit shall not exceed in the aggregate at any time the Letter of
Credit Sublimit.  All disbursements or payments related to Letters of Credit
shall be deemed to be Domestic Rate Loans consisting of Revolving Advances and
shall bear interest at the Revolving Interest Rate for Domestic Rate Loans;
Letters of Credit that have not been drawn upon shall not bear interest.

 

2.10.        Issuance of Letters of Credit.

 

(a)           Borrowing Agent, on behalf of Borrowers, may request Agent to
issue or cause the issuance of a Letter of Credit by delivering to Agent at the
Payment Office, prior to 10:00 a.m., at least five (5)  Business Days’ prior to
the proposed date of issuance, Agent’s form of Letter of Credit Application (the
“Letter of Credit Application”) completed to the satisfaction of Agent; and,
such other certificates, documents and other papers and information as Agent may
reasonably request.  Borrowing Agent, on behalf of Borrowers, also has the right
to give instructions and make agreements with respect to any application, any
applicable letter of credit and security agreement, any applicable letter of
credit reimbursement agreement and/or any other applicable agreement, any letter
of credit and the disposition of documents, disposition of any unutilized funds,
and to agree with Agent upon any amendment, extension or renewal of any Letter
of Credit.

 

(b)           Each Letter of Credit shall, among other things, (i) provide for
the payment of sight drafts, other written demands for payment, or acceptances
of usance drafts when presented for honor thereunder in accordance with the
terms thereof and when accompanied by the documents described therein and
(ii) have an expiry date not later than twelve (12) months after such Letter of
Credit’s date of issuance and in no event later than the last day of the Term. 
Each standby Letter of Credit shall be subject either to the Uniform Customs and
Practice for Documentary Credits as most recently published by the International
Chamber of Commerce at the time a Letter of Credit is issued (the “UCP”) or the
International Standby Practices (ISP98-International Chamber of Commerce
Publication Number 590) (the

 

31

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“ISP98 Rules”), and any subsequent revision thereof at the time a standby Letter
of Credit is issued, as determined by Agent, and each trade Letter of Credit
shall be subject to the UCP.

 

(c)           Agent shall use its reasonable efforts to notify Lenders of the
request by Borrowing Agent for a Letter of Credit hereunder.

 

2.11.        Requirements For Issuance of Letters of Credit.

 

(a)           Borrowing Agent shall authorize and direct any Issuer to name the
applicable Borrower as the “Applicant” or “Account Party” of each Letter of
Credit.  If Agent is not the Issuer of any Letter of Credit, Borrowing Agent
shall authorize and direct the Issuer to deliver to Agent all instruments,
documents, and other writings and property received by the Issuer pursuant to
the Letter of Credit and to accept and rely upon Agent’s instructions and
agreements with respect to all matters arising in connection with the Letter of
Credit, the application therefor or any acceptance thereof.

 

(b)           In connection with all Letters of Credit issued or caused to be
issued by Agent under this Agreement, each Borrower hereby appoints Agent, or
its designee, as its attorney, with full power and authority if an Event of
Default shall have occurred, (i) to sign and/or endorse such Borrower’s name
upon any warehouse or other receipts, letter of credit applications and
acceptances, (ii) to sign such Borrower’s name on bills of lading; (iii) to
clear Inventory through the United States of America Customs Department
(“Customs”) in the name of such Borrower or Agent or Agent’s designee, and to
sign and deliver to Customs officials powers of attorney in the name of such
Borrower for such purpose; and (iv) to complete in such Borrower’s name or
Agent’s, or in the name of Agent’s designee, any order, sale or transaction,
obtain the necessary documents in connection therewith, and collect the proceeds
thereof.  Neither Agent nor its attorneys will be liable for any acts or
omissions nor for any error of judgment or mistakes of fact or law, except for
Agent’s or its attorney’s willful misconduct.  This power, being coupled with an
interest, is irrevocable as long as any Letters of Credit remain outstanding.

 

2.12.        Disbursements, Reimbursement.

 

(a)           Immediately upon the issuance of each Letter of Credit, each
Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to,
purchase from Agent a participation in such Letter of Credit and each drawing
thereunder in an amount equal to such Lender’s Commitment Percentage of the
Maximum Face Amount of such Letter of Credit and the amount of such drawing,
respectively.

 

(b)           In the event of any request for a drawing under a Letter of Credit
by the beneficiary or transferee thereof, Agent will promptly notify Borrowing
Agent.  Provided that Borrowing Agent shall have received such notice, the
Borrowers shall reimburse (such obligation to reimburse Agent shall sometimes be
referred to as a “Reimbursement Obligation”) Agent prior to 12:00 Noon on each
date that an amount is paid by Agent under any Letter of Credit (each such date,
a “Drawing Date”) in an amount equal to the amount so paid by Agent.  In the
event Borrowers fail to reimburse Agent for the full amount of any drawing under
any Letter of Credit by 12:00 Noon on the Drawing Date, Agent will promptly
notify each Lender

 

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thereof, and Borrowers shall be deemed to have requested that a Revolving
Advance maintained as a Domestic Rate Loan be made by the Lenders to be
disbursed on the Drawing Date under such Letter of Credit, subject to the amount
of the unutilized portion of the lesser of (i) the Maximum Revolving Advance
Amount, less the Maximum Undrawn Amount of all outstanding Letters of Credit, or
(ii) the Formula Amount and, in each case, subject to Section 8.2 hereof.  Any
notice given by Agent pursuant to this Section 2.12(b) may be oral if
immediately confirmed in writing; provided that the lack of such an immediate
confirmation shall not affect the conclusiveness or binding effect of such
notice.

 

(c)           Each Lender shall upon any notice pursuant to Section 2.12(b) make
available to Agent an amount in immediately available funds equal to its
Commitment Percentage of the amount of the drawing, whereupon the participating
Lenders shall (subject to Section 2.12(d)) each be deemed to have made a
Revolving Advance maintained as a Domestic Rate Loan to Borrowers in that
amount.  If any Lender so notified fails to make available to Agent the amount
of such Lender’s Commitment Percentage of such amount by no later than
2:00 p.m., New York time on the Drawing Date, then interest shall accrue on such
Lender’s obligation to make such payment, from the Drawing Date to the date on
which such Lender makes such payment (i) at a rate per annum equal to the
Federal Funds Effective Rate during the first three days following the Drawing
Date and (ii) at a rate per annum equal to the rate applicable to Revolving
Advances maintained as a Domestic Rate Loans on and after the fourth day
following the Drawing Date.  Agent will promptly give notice of the occurrence
of the Drawing Date, but failure of Agent to give any such notice on the Drawing
Date or in sufficient time to enable any Lender to effect such payment on such
date shall not relieve such Lender from its obligation under this
Section 2.12(c), provided that such Lender shall not be obligated to pay
interest as provided in Section 2.12(c) (i) and (ii) until and commencing from
the date of receipt of notice from Agent of a drawing.

 

(d)           With respect to any unreimbursed drawing that is not converted
into a Revolving Advance maintained as a Domestic Rate Loan to Borrowers in
whole or in part as contemplated by Section 2.12(b), because of Borrowers’
failure to satisfy the conditions set forth in Section 8.2 hereof (other than
any notice requirements) or for any other reason, Borrowers shall be deemed to
have incurred from Agent a borrowing (each a “Letter of Credit Borrowing”) in
the amount of such drawing. Such Letter of Credit Borrowing shall be due and
payable on demand (together with interest) and shall bear interest at the rate
per annum applicable to a Revolving Advance maintained as a Domestic Rate Loan. 
Each Lender’s payment to Agent pursuant to Section 2.12(c) shall be deemed to be
a payment in respect of its participation in such Letter of Credit Borrowing and
shall constitute a “Participation Advance” from such Lender in satisfaction of
its Participation Commitment under this Section 2.12.

 

(e)           Each Lender’s Participation Commitment shall continue until the
last to occur of any of the following events: (x) Agent ceases to be obligated
to issue or cause to be issued Letters of Credit hereunder; (y) no Letter of
Credit issued or created hereunder remains outstanding and uncancelled; and
(z) all Persons (other than the Borrowers) have been fully reimbursed for all
payments made under or relating to Letters of Credit.

 

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2.13.        Repayment of Participation Advances.

 

(a)           Upon (and only upon) receipt by Agent for its account of
immediately available funds from Borrowers (i) in reimbursement of any payment
made by the Agent under the Letter of Credit with respect to which any Lender
has made a Participation Advance to Agent, or (ii) in payment of interest on
such a payment made by Agent under such a Letter of Credit, Agent will pay to
each Lender, in the same funds as those received by Agent, the amount of such
Lender’s Commitment Percentage of such funds, except Agent shall retain the
amount of the Commitment Percentage of such funds of any Lender that did not
make a Participation Advance in respect of such payment by Agent.

 

(b)           If Agent is required at any time to return to any Borrower, or to
a trustee, receiver, liquidator, custodian, or any official in any insolvency
proceeding, any portion of the payments made by Borrowers to Agent pursuant to
Section 2.13(a) in reimbursement of a payment made under the Letter of Credit or
interest or fee thereon, each Lender shall, on demand of Agent, forthwith return
to Agent the amount of its Commitment Percentage of any amounts so returned by
Agent plus interest at the Federal Funds Effective Rate.

 

2.14.        Documentation.  Each Borrower agrees to be bound by the terms of
the Letter of Credit Application and by Agent’s reasonable interpretations of
any Letter of Credit issued on behalf of such Borrower and by Agent’s written
regulations and customary practices relating to letters of credit, though
Agent’s interpretations may be different from such Borrower’s own.  In the event
of a conflict between the Letter of Credit Application and this Agreement, this
Agreement shall govern.  It is understood and agreed that, except in the case of
gross negligence or willful misconduct (as determined by a court of competent
jurisdiction in a final non-appealable judgment), Agent shall not be liable for
any error, negligence and/or mistakes, whether of omission or commission, in
following the Borrowing Agent’s or any Borrower’s instructions or those
contained in the Letters of Credit or any modifications, amendments or
supplements thereto.

 

2.15.        Determination to Honor Drawing Request.  In determining whether to
honor any request for drawing under any Letter of Credit by the beneficiary
thereof, Agent shall be responsible only to determine that the documents and
certificates required to be delivered under such Letter of Credit have been
delivered and that they comply on their face with the requirements of such
Letter of Credit and that any other drawing condition appearing on the face of
such Letter of Credit has been satisfied in the manner so set forth.

 

2.16.        Nature of Participation and Reimbursement Obligations.  Each
Lender’s obligation in accordance with this Agreement to make the Revolving
Advances or Participation Advances as a result of a drawing under a Letter of
Credit, and the obligations of Borrowers to reimburse Agent upon a draw under a
Letter of Credit, shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Section 2.16 under all
circumstances, including the following circumstances:

 

(i)            any set-off, counterclaim, recoupment, defense or other right
which such Lender may have against Agent, any Borrower or any other Person for
any reason whatsoever;

 

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(ii)           the failure of any Borrower or any other Person to comply, in
connection with a Letter of Credit Borrowing, with the conditions set forth in
this Agreement for the making of a Revolving Advance, it being acknowledged that
such conditions are not required for the making of a Letter of Credit Borrowing
and the obligation of the Lenders to make Participation Advances under
Section 2.12;

 

(iii)          any lack of validity or enforceability of any Letter of Credit;

 

(iv)          any claim of breach of warranty that might be made by Borrower or
any Lender against the beneficiary of a Letter of Credit, or the existence of
any claim, set-off, recoupment, counterclaim, cross-claim, defense or other
right which any Borrower or any Lender may have at any time against a
beneficiary, any successor beneficiary or any transferee of any Letter of Credit
or the proceeds thereof (or any Persons for whom any such transferee may be
acting), Agent or any Lender or any other Person, whether in connection with
this Agreement, the transactions contemplated herein or any unrelated
transaction (including any underlying transaction between any Borrower or any
Subsidiaries of such Borrower and the beneficiary for which any Letter of Credit
was procured);

 

(v)           the lack of power or authority of any signer of (or any defect in
or forgery of any signature or endorsement on) or the form of or lack of
validity, sufficiency, accuracy, enforceability or genuineness of any draft,
demand, instrument, certificate or other document presented under or in
connection with any Letter of Credit, or any fraud or alleged fraud in
connection with any Letter of Credit, or the transport of any property or
provisions of services relating to a Letter of Credit, in each case even if
Agent or any of Agent’s Affiliates has been notified thereof;

 

(vi)          payment by Agent under any Letter of Credit against presentation
of a demand, draft or certificate or other document which does not comply with
the terms of such Letter of Credit;

 

(vii)         the solvency of, or any acts or omissions by, any beneficiary of
any Letter of Credit, or any other Person having a role in any transaction or
obligation relating to a Letter of Credit, or the existence, nature, quality,
quantity, condition, value or other characteristic of any property or services
relating to a Letter of Credit;

 

(viii)        any failure by the Agent or any of Agent’s Affiliates to issue any
Letter of Credit in the form requested by Borrowing Agent, unless the Agent has
received written notice from Borrowing Agent of such failure within three
(3) Business Days after the Agent shall have furnished Borrowing Agent a copy of
such Letter of Credit and such error is material and no drawing has been made
thereon prior to receipt of such notice;

 

(ix)           any Material Adverse Effect;

 

(x)            any breach of this Agreement or any Other Document by any party
thereto;

 

(xi)           the occurrence or continuance of an insolvency proceeding with
respect to any Borrower or any Guarantor;

 

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(xii)          the fact that a Default or Event of Default shall have occurred
and be continuing;

 

(xiii)         the fact that the Term shall have expired or this Agreement or
the Obligations hereunder shall have been terminated; and

 

(xiv)        any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing.

 

2.17.        Indemnity.  In addition to amounts payable as provided in
Section 16.5, each Borrower hereby agrees to protect, indemnify, pay and save
harmless Agent and any of Agent’s Affiliates that have issued a Letter of Credit
from and against any and all claims, demands, liabilities, damages, taxes,
penalties, interest, judgments, losses, costs, charges and expenses (including
reasonable fees, expenses and disbursements of counsel and allocated costs of
internal counsel) which the Agent or any of Agent’s Affiliates may incur or be
subject to as a consequence, direct or indirect, of the issuance of any Letter
of Credit, other than as a result of (a) the gross negligence or willful
misconduct of the Agent as determined by a final and non-appealable judgment of
a court of competent jurisdiction or (b) the wrongful dishonor by the Agent or
any of Agent’s Affiliates of a proper demand for payment made under any Letter
of Credit, except if such dishonor resulted from any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto Governmental
Body (all such acts or omissions herein called “Governmental Acts”).

 

2.18.        Liability for Acts and Omissions.  As between Borrowers and Agent
and Lenders, each Borrower assumes all risks of the acts and omissions of, or
misuse of the Letters of Credit by, the respective beneficiaries of such Letters
of Credit.  In furtherance and not in limitation of the respective foregoing,
Agent shall not be responsible for: (i) the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted by any party in
connection with the application for an issuance of any such Letter of Credit,
even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged (even if Agent shall have been
notified thereof); (ii) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any such Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (iii) the
failure of the beneficiary of any such Letter of Credit, or any other party to
which such Letter of Credit may be transferred, to comply fully with any
conditions required in order to draw upon such Letter of Credit or any other
claim of any Borrower against any beneficiary of such Letter of Credit, or any
such transferee, or any dispute between or among any Borrower and any
beneficiary of any Letter of Credit or any such transferee; (iv) errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, facsimile, telex or otherwise, whether or not they be in cipher;
(v) errors in interpretation of technical terms; (vi) any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any such Letter of Credit or of the proceeds thereof; (vii) the
misapplication by the beneficiary of any such Letter of Credit of the proceeds
of any drawing under such Letter of Credit; or (viii) any consequences arising
from causes beyond the control of Agent, including any governmental acts, and
none of the above shall affect or impair, or prevent the vesting of, any of
Agent’s rights or powers hereunder. Nothing in the preceding sentence shall
relieve Agent from liability for Agent’s gross negligence or willful misconduct
(as

 

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determined by a court of competent jurisdiction in a final non-appealable
judgment) in connection with actions or omissions described in such clauses
(i) through (viii) of such sentence.  In no event shall Agent or Agent’s
Affiliates be liable to any Borrower for any indirect, consequential,
incidental, punitive, exemplary or special damages or expenses (including
without limitation attorneys’ fees), or for any damages resulting from any
change in the value of any property relating to a Letter of Credit.

 

Without limiting the generality of the foregoing, Agent and each of its
Affiliates: (i) may rely on any oral or other communication believed in good
faith by Agent or  such Affiliate to have been authorized or given by or on
behalf of the applicant for a Letter of Credit; (ii) may honor any presentation
if the documents presented appear on their face substantially to comply with the
terms and conditions of the relevant Letter of Credit; (iii) may honor a
previously dishonored presentation under a Letter of Credit, whether such
dishonor was pursuant to a court order, to settle or compromise any claim of
wrongful dishonor, or otherwise, and shall be entitled to reimbursement to the
same extent as if such presentation had initially been honored, together with
any interest paid by Agent or its Affiliates; (iv) may honor any drawing that is
payable upon presentation of a statement advising negotiation or payment, upon
receipt of such statement (even if such statement indicates that a draft or
other document is being delivered separately), and shall not be liable for any
failure of any such draft or other document to arrive, or to conform in any way
with the relevant Letter of Credit; (v) may pay any paying or negotiating bank
claiming that it rightfully honored under the laws or practices of the place
where such bank is located; and (vi) may settle or adjust any claim or demand
made on Agent or its Affiliate in any way related to any order issued at the
applicant’s request to an air carrier, a letter of guarantee or of indemnity
issued to a carrier or any similar document (each an “Order”) and honor any
drawing in connection with any Letter of Credit that is the subject of such
Order, notwithstanding that any drafts or other documents presented in
connection with such Letter of Credit fail to conform in any way with such
Letter of Credit.

 

In furtherance and extension and not in limitation of the specific provisions
set forth above, any action taken or omitted by Agent under or in connection
with the Letters of Credit issued by it or any documents and certificates
delivered thereunder, if taken or omitted in good faith and without gross
negligence (as determined by a court of competent jurisdiction in a final
non-appealable judgment), shall not put Agent under any resulting liability to
any Borrower or any Lender.

 

2.19.        Additional Payments.  Any sums expended by Agent or any Lender due
to any Borrower’s failure to perform or comply with its obligations under this
Agreement or any Other Document including any Borrower’s obligations under
Sections 4.2, 4.4, 4.12, 4.13, 4.14, 4.20 and 6.1 hereof, may be charged to
Borrowers’ Account as a Revolving Advance and added to the Obligations.

 

2.20.        Manner of Borrowing and Payment.

 

(a)           Each borrowing of Revolving Advances shall be advanced according
to the applicable Commitment Percentages of Lenders.  The Term Loan shall be
advanced according to the Commitment Percentages of Lenders.

 

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(b)           Each payment (including each prepayment) by any Borrower on
account of the principal of and interest on the Revolving Advances, shall be
applied to the Revolving Advances pro rata according to the applicable
Commitment Percentages of Lenders.  Each payment (including each prepayment) by
any Borrower on account of the principal of and interest on the Term Note, shall
be applied to that portion of the Term Loan evidenced by the Term Note pro rata
according to the Commitment Percentages of Lenders.  Except as expressly
provided herein, all payments (including prepayments) to be made by any Borrower
on account of principal, interest and fees shall be made without set off or
counterclaim and shall be made to Agent on behalf of the Lenders to the Payment
Office, in each case on or prior to 1:00 P.M., in Dollars and in immediately
available funds.

 

(c)           (i)            Notwithstanding anything to the contrary contained
in Sections 2.20(a) and (b) hereof, commencing with the first Business Day
following the Closing Date, each borrowing of Revolving Advances shall be
advanced by Agent and each payment by any Borrower on account of Revolving
Advances shall be applied first to those Revolving Advances advanced by Agent. 
On or before 1:00 P.M., on each Settlement Date commencing with the first
Settlement Date following the Closing Date, Agent and Lenders shall make certain
payments as follows: (I) if the aggregate amount of new Revolving Advances made
by Agent during the preceding Week (if any) exceeds the aggregate amount of
repayments applied to outstanding Revolving Advances during such preceding Week,
then each Lender shall provide Agent with funds in an amount equal to its
applicable Commitment Percentage of the difference between (w) such Revolving
Advances and (x) such repayments and (II) if the aggregate amount of repayments
applied to outstanding Revolving Advances during such Week exceeds the aggregate
amount of new Revolving Advances made during such Week, then Agent shall provide
each Lender with funds in an amount equal to its applicable Commitment
Percentage of the difference between (y) such repayments and (z) such Revolving
Advances.

 

(ii)           Each Lender shall be entitled to earn interest at the applicable
Contract Rate applicable Revolving Interest Rate on outstanding Advances which
it has funded.

 

(iii)          Promptly following each Settlement Date, Agent shall submit to
each Lender a certificate with respect to payments received and Advances made
during the Week immediately preceding such Settlement Date.  Such certificate of
Agent shall be conclusive in the absence of manifest error.

 

(d)           If any Lender or Participant (a “Benefited Lender”) shall at any
time receive any payment of all or part of its Advances, or interest thereon, or
receive any Collateral in respect thereof (whether voluntarily or involuntarily
or by set-off) in a greater proportion than any such payment to and Collateral
received by any other Lender, if any, in respect of such other Lender’s
Advances, or interest thereon, and such greater proportionate payment or receipt
of Collateral is not expressly permitted hereunder, such Benefited Lender shall
purchase for cash from the other Lenders a participation in such portion of each
such other Lender’s Advances, or shall provide such other Lender with the
benefits of any such Collateral, or the proceeds thereof, as shall be necessary
to cause such Benefited Lender to share the excess payment or benefits of such
Collateral or proceeds ratably with each of the other Lenders; provided,
however, that if all or any portion of such excess payment or benefits is
thereafter recovered from such Benefited Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the

 

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extent of such recovery, but without interest.  Each Lender so purchasing a
portion of another Lender’s Advances may exercise all rights of payment
(including rights of set-off) with respect to such portion as fully as if such
Lender were the direct holder of such portion.

 

(e)           Unless Agent shall have been notified by telephone, confirmed in
writing, by any Lender that such Lender will not make the amount which would
constitute its applicable Commitment Percentage of the Advances available to
Agent, Agent may (but shall not be obligated to) assume that such Lender shall
make such amount available to Agent on the next Settlement Date and, in reliance
upon such assumption, make available to Borrowers a corresponding amount.  Agent
will promptly notify Borrowing Agent of its receipt of any such notice from a
Lender.  If such amount is made available to Agent on a date after such next
Settlement Date, such Lender shall pay to Agent on demand an amount equal to the
product of (i) the daily average Federal Funds Effective Rate (computed on the
basis of a year of 360 days) during such period as quoted by Agent, times
(ii) such amount, times (iii) the number of days from and including such
Settlement Date to the date on which such amount becomes immediately available
to Agent.  A certificate of Agent submitted to any Lender with respect to any
amounts owing under this paragraph (e) shall be conclusive, in the absence of
manifest error.  If such amount is not in fact made available to Agent by such
Lender within three (3) Business Days after such Settlement Date, Agent shall be
entitled to recover such an amount, with interest thereon at the rate per annum
then applicable to such Revolving Advances hereunder, on demand from Borrowers;
provided, however, that Agent’s right to such recovery shall not prejudice or
otherwise adversely affect Borrowers’ rights (if any) against such Lender.

 

2.21.        Mandatory Prepayments.   Subject to Section 4.3 hereof, when any
Borrower sells or otherwise disposes of any Collateral, other than Inventory in
the Ordinary Course of Business, resulting in the receipt of net proceeds in an
amount in excess of $10,000 for any individual item or in excess of $50,000 in
the aggregate in any twelve (12) month period,  Borrowers shall repay the
Advances in an amount equal to the net proceeds of such sale (i.e., gross
proceeds less the reasonable costs of such sales or other dispositions), such
repayments to be made promptly but in no event more than one (1) Business Day
following receipt of such net proceeds, and until the date of payment, such
proceeds shall be held in trust for Agent.  The foregoing shall not be deemed to
be implied consent to any such sale otherwise prohibited by the terms and
conditions hereof.  Such repayments shall be applied, (y) first, to the
outstanding principal installments of the Term Loan in the inverse order of the
maturities thereof and (z) next, to the remaining Advances in such order as
Agent may determine, subject to Borrowers’ ability to reborrow Revolving
Advances in accordance with the terms hereof.

 

2.22.        Use of Proceeds.

 

(a)           Borrowers shall apply the proceeds of Advances to (i) repay
existing indebtedness owed to Spectrum Commercial Services, (ii) pay fees and
expenses relating to this transaction, and (iii) provide for its working capital
needs and reimburse drawings under Letters of Credit.

 

(b)           Without limiting the generality of Section 2.22(a) above, neither
the Borrowers, the Guarantors nor any other Person which may in the future
become party to this Agreement or the Other Documents as a Borrower or
Guarantor, intends to use nor shall they use

 

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any portion of the proceeds of the Advances, directly or indirectly, for any
purpose in violation of the Trading with the Enemy Act.

 

2.23.        Defaulting Lender.

 

(a)           Notwithstanding anything to the contrary contained herein, in the
event any Lender (x) has refused (which refusal constitutes a breach by such
Lender of its obligations under this Agreement) to make available its portion of
any Advance or (y) notifies either Agent or Borrowing Agent that it does not
intend to make available its portion of any Advance (if the actual refusal would
constitute a breach by such Lender of its obligations under this Agreement)
(each, a “Lender Default”), all rights and obligations hereunder of such Lender
(a “Defaulting Lender”) as to which a Lender Default is in effect and of the
other parties hereto shall be modified to the extent of the express provisions
of this Section 2.23 while such Lender Default remains in effect.

 

(b)           Advances shall be incurred pro rata from Lenders (the
“Non-Defaulting Lenders”) which are not Defaulting Lenders based on their
respective Commitment Percentages, and no Commitment Percentage of any Lender or
any pro rata share of any Advances required to be advanced by any Lender shall
be increased as a result of such Lender Default.  Amounts received in respect of
principal of any type of Advances shall be applied to reduce the applicable
Advances of each Lender (other than any Defaulting Lender) pro rata based on the
aggregate of the outstanding Advances of that type of all Lenders at the time of
such application; provided, that, Agent shall not be obligated to transfer to a
Defaulting Lender any payments received by Agent for the Defaulting Lender’s
benefit, nor shall a Defaulting Lender be entitled to the sharing of any
payments hereunder (including any principal, interest or fees).  Amounts payable
to a Defaulting Lender shall instead be paid to or retained by Agent.  Agent may
hold and, in its discretion, re-lend to a Borrower the amount of such payments
received or retained by it for the account of such Defaulting Lender.

 

(c)           A Defaulting Lender shall not be entitled to give instructions to
Agent or to approve, disapprove, consent to or vote on any matters relating to
this Agreement and the Other Documents.  All amendments, waivers and other
modifications of this Agreement and the Other Documents may be made without
regard to a Defaulting Lender and, for purposes of the definition of “Required
Lenders”, a Defaulting Lender shall be deemed not to be a Lender and not to have
either Advances outstanding or a Commitment Percentage.

 

(d)           Other than as expressly set forth in this Section 2.23, the rights
and obligations of a Defaulting Lender (including the obligation to indemnify
Agent) and the other parties hereto shall remain unchanged.  Nothing in this
Section 2.23 shall be deemed to release any Defaulting Lender from its
obligations under this Agreement and the Other Documents, shall alter such
obligations, shall operate as a waiver of any default by such Defaulting Lender
hereunder, or shall prejudice any rights which any Borrower, Agent or any Lender
may have against any Defaulting Lender as a result of any default by such
Defaulting Lender hereunder.

 

(e)           In the event a Defaulting Lender retroactively cures to the
satisfaction of Agent the breach which caused a Lender to become a Defaulting
Lender, such Defaulting Lender shall no longer be a Defaulting Lender and shall
be treated as a Lender under this Agreement.

 

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III.           INTEREST AND FEES.

 

3.1.          Interest.

 

(a)           Interest on Advances shall be payable in arrears on the first day
of each month with respect to Domestic Rate Loans and, with respect to
Eurodollar Rate Loans, at the end of each Interest Period or, for Eurodollar
Rate Loans with an Interest Period in excess of three months, at the earlier of
(a) each three months from the commencement of such Eurodollar Rate Loan or
(b) the end of the Interest Period.  Interest charges shall be computed on the
actual principal amount of Advances outstanding during the month at a rate per
annum equal to (i) with respect to Revolving Advances, the applicable Revolving
Interest Rate and (ii) with respect to the Term Loan, the applicable Term Loan
Rate (as applicable, the “Contract Rate”).  Whenever, subsequent to the date of
this Agreement, the Alternate Base Rate is increased or decreased, the
applicable Contract Rate for Domestic Rate Loans shall be similarly changed
without notice or demand of any kind by an amount equal to the amount of such
change in the Alternate Base Rate during the time such change or changes remain
in effect.  The Eurodollar Rate shall be adjusted with respect to Eurodollar
Rate Loans without notice or demand of any kind on the effective date of any
change in the Reserve Percentage as of such effective date.  Upon and after the
occurrence of an Event of Default, and during the continuation thereof, at the
option of Agent or at the direction of Required Lenders, the Obligations shall
bear interest at the applicable Contract Rate for Domestic Rate Loans plus two
(2%) percent per annum (the “Default Rate”).

 

(b)           For the purposes of the Interest Act (Canada) and disclosure
thereunder, whenever any interest or any fee to be paid hereunder or in
connection herewith is to be calculated on the basis of a 360-day year, the
yearly rate of interest to which the rate used in such calculation is equivalent
is the rate so used multiplied by the actual number of days in the calendar year
in which the same is to be ascertained and divided by 360.  The rates of
interest under this Agreement are nominal rates, and not effective rates or
yields.  The principle of deemed reinvestment of interest does not apply to any
interest calculation under this Agreement.

 

(c)           Any provision of this Agreement that would oblige a Canadian
Borrower to pay any fine, penalty or rate of interest on any arrears of
principal or interest secured by a mortgage on real property or hypothec on
immovables that has the effect of increasing the charge on arrears beyond the
rate of interest payable on principal money not in arrears shall not apply to
such Canadian Borrower, which shall be required to pay interest on money in
arrears at the same rate of interest payable on principal money not in arrears.

 

(d)           If any provision of this Agreement would oblige a Canadian
Borrower to make any payment of interest or other amount payable to any Lender
in an amount or calculated at a rate which would be prohibited by law or would
result in a receipt by that Lender of “interest” at a “criminal rate” (as such
terms are construed under the Criminal Code (Canada)), then, notwithstanding
such provision, such amount or rate shall be deemed to have been adjusted with
retroactive effect to the maximum amount or rate of interest, as the case may
be, as would not be so prohibited by applicable law or so result in a receipt by
that Lender of “interest” at a “criminal rate”, such adjustment to be effected,
to the extent necessary (but only to the extent necessary), as follows:

 

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(e)           first, by reducing the amount or rate of interest; and

 

(f)            thereafter, by reducing any fees, commissions, costs, expenses,
premiums and other amounts required to be paid which would constitute interest
for purposes of section 347 of the Criminal Code (Canada).

 

3.2.          Letter of Credit Fees.

 

(a)           Borrowers shall pay (x) to Agent, for the ratable benefit of
Lenders, fees for each Letter of Credit for the period from and excluding the
date of issuance of same to and including the date of expiration or termination,
equal to the average daily face amount of each outstanding Letter of Credit
multiplied by two and three quarters of one percent (2.75%) per annum, such fees
to be calculated on the basis of a 360-day year for the actual number of days
elapsed and to be payable quarterly in arrears on the first day of each quarter
and on the last day of the Term, and (y) to the Issuer, a fronting fee of one
quarter of one percent (0.25%) per annum, together with any and all
administrative, issuance, amendment, payment and negotiation charges with
respect to Letters of Credit and all fees and expenses as agreed upon by the
Issuer and the Borrowing Agent in connection with any Letter of Credit,
including in connection with the opening, amendment or renewal of any such
Letter of Credit and any acceptances created thereunder and shall reimburse
Agent for any and all fees and expenses, if any, paid by Agent to the Issuer
(all of the foregoing fees, the “Letter of Credit Fees”).  All such charges
shall be deemed earned in full on the date when the same are due and payable
hereunder and shall not be subject to rebate or pro-ration upon the termination
of this Agreement for any reason.  Any such charge in effect at the time of a
particular transaction shall be the charge for that transaction, notwithstanding
any subsequent change in the Issuer’s prevailing charges for that type of
transaction.  All Letter of Credit Fees payable hereunder shall be deemed earned
in full on the date when the same are due and payable hereunder and shall not be
subject to rebate or pro-ration upon the termination of this Agreement for any
reason.  Upon and after the occurrence of an Event of Default, and during the
continuation thereof, at the option of Agent or at the direction of Required
Lenders, the Letter of Credit Fees described in clause (x) of this
Section 3.2(a) shall be increased by an additional two percent (2.0%) per annum.

 

(b)           At any time following the occurrence of an Event of Default and
upon the reasonable request by Agent, or the expiration of the Term Borrowers
will cause cash to be deposited and maintained in an account with Agent, as cash
collateral, in an amount equal to one hundred and five percent (105%) of the
Maximum Undrawn Amount of all outstanding Letters of Credit, and each Borrower
hereby irrevocably authorizes Agent, in its discretion, on such Borrower’s
behalf and in such Borrower’s name, to open such an account and to make and
maintain deposits therein, or in an account opened by such Borrower, in the
amounts required to be made by such Borrower, out of the proceeds of Receivables
or other Collateral or out of any other funds of such Borrower coming into any
Lender’s possession at any time.  Agent will invest such cash collateral (less
applicable reserves) in such short-term money-market items as to which Agent and
such Borrower mutually agree and the net return on such investments shall be
credited to such account and constitute additional cash collateral.  No Borrower
may withdraw amounts credited to any such account except upon the occurrence of
all of the following: (x) payment and performance in full of all Obligations;
(y) expiration of all Letters of Credit; and (z) termination of this Agreement.

 

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3.3.          Reserved.

 

3.4.          Fee Letter.

 

(a)           Borrowers shall pay the amounts required to be paid in the Fee
Letter in the manner and at the times required by the Fee Letter.

 

(b)           All of the fees and out-of-pocket costs and expenses of any
appraisals conducted pursuant to Section 4.21 hereof shall be paid for when due,
in full and without off-set, by Borrowers; provided however that so long as no
Default or Event of Default has occurred, Borrowers shall only be liable for the
fees, out-of-pocket costs and expenses of one such appraisal per fiscal year.

 

3.5.          Computation of Interest and Fees.  Interest and fees hereunder
shall be computed on the basis of a year of 360 days and for the actual number
of days elapsed.  If any payment to be made hereunder becomes due and payable on
a day other than a Business Day, the due date thereof shall be extended to the
next succeeding Business Day and interest thereon shall be payable at the
applicable Contract Rate for Domestic Rate Loans during such extension.

 

3.6.          Maximum Charges.  In no event whatsoever shall interest and other
charges charged hereunder exceed the highest rate permissible under law. In the
event interest and other charges as computed hereunder would otherwise exceed
the highest rate permitted under law, such excess amount shall be first applied
to any unpaid principal balance owed by Borrowers, and if the then remaining
excess amount is greater than the previously unpaid principal balance, Lenders
shall promptly refund such excess amount to Borrowers and the provisions hereof
shall be deemed amended to provide for such permissible rate.

 

3.7.          Increased Costs.  In the event that any Applicable Law, treaty or
governmental regulation, or any change therein or in the interpretation or
application thereof, or compliance by any Lender (for purposes of this
Section 3.7, the term “Lender” shall include Agent or any Lender and any
corporation or bank controlling Agent or any Lender and the office or branch
where Agent or any Lender (as so defined) makes or maintains any Eurodollar Rate
Loans) with any request or directive (whether or not having the force of law)
from any central bank or other financial, monetary or other authority, shall:

 

(a)           subject Agent or any Lender to any tax of any kind whatsoever with
respect to this Agreement or any Other Document or change the basis of taxation
of payments to Agent or any Lender of principal, fees, interest or any other
amount payable hereunder or under any Other Documents (except for changes in the
rate of tax on the overall net income of Agent or any Lender by the jurisdiction
in which it maintains its principal office);

 

(b)           impose, modify or hold applicable any reserve, special deposit,
assessment or similar requirement against assets held by, or deposits in or for
the account of, advances or loans by, or other credit extended by, any office of
Agent or any Lender, including pursuant to Regulation D of the Board of
Governors of the Federal Reserve System; or

 

(c)           impose on Agent or any Lender or the London interbank Eurodollar
market any other condition with respect to this Agreement or any Other Document;

 

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and the result of any of the foregoing is to increase the cost to Agent or any
Lender of making, renewing or maintaining its Advances hereunder by an amount
that Agent or such Lender deems to be material or to reduce the amount of any
payment (whether of principal, interest or otherwise) in respect of any of the
Advances by an amount that Agent or such Lender deems to be material, then, in
any case Borrowers shall promptly pay Agent or such Lender, upon its demand,
such additional amount as will compensate Agent or such Lender for such
additional cost or such reduction, as the case may be, provided that the
foregoing shall not apply to increased costs which are reflected in the
Eurodollar Rate, as the case may be.  Agent or such Lender shall certify the
amount of such additional cost or reduced amount to Borrowing Agent, and such
certification shall be conclusive absent manifest error.

 

Borrowers shall not be under any obligation to compensate any Lender under this
Section 3.7 with respect to increased costs or reductions with respect to any
period prior to the date that is 180 days prior to such request; provided
further, that the foregoing limitation shall not apply to any increased costs or
reductions arising out of the retroactive application of any change in law
within such 180 day period.

 

3.8.          Basis For Determining Interest Rate Inadequate or Unfair.  In the
event that Agent or any Lender shall have determined that:

 

(a)           reasonable means do not exist for ascertaining the Eurodollar
Rate  for any Interest Period; or

 

(b)           Dollar deposits in the relevant amount and for the relevant
maturity are not available in the London interbank Eurodollar market, with
respect to an outstanding Eurodollar Rate Loan, a proposed Eurodollar Rate Loan,
or a proposed conversion of a Domestic Rate Loan into a Eurodollar Rate Loan,

 

then Agent shall give Borrowing Agent prompt written or telephonic notice of
such determination.  If such notice is given, (i) any such requested Eurodollar
Rate Loan shall be made as a Domestic Rate Loan, unless Borrowing Agent shall
notify Agent no later than 10:00 a.m. two (2) Business Days prior to the date of
such proposed borrowing, that its request for such borrowing shall be cancelled
or made as an unaffected type of Eurodollar Rate Loan, (ii) any Domestic Rate
Loan or Eurodollar Rate Loan which was to have been converted to an affected
type of Eurodollar Rate Loan shall be continued as or converted into a Domestic
Rate Loan, or, if Borrowing Agent shall notify Agent, no later than 10:00 a.m.
two (2) Business Days prior to the proposed conversion, shall be maintained as
an unaffected type of Eurodollar Rate Loan, and (iii) any outstanding affected
Eurodollar Rate Loans shall be converted into a Domestic Rate Loan, or, if
Borrowing Agent shall notify Agent, no later than 10:00 a.m. two (2) Business
Days prior to the last Business Day of the then current Interest Period
applicable to such affected Eurodollar Rate Loan, shall be converted into an
unaffected type of Eurodollar Rate Loan, on the last Business Day of the then
current Interest Period for such affected Eurodollar Rate Loans.  Until such
notice has been withdrawn, Lenders shall have no obligation to make an affected
type of Eurodollar Rate Loan or maintain outstanding affected Eurodollar Rate
Loans and no Borrower shall have the right to convert a Domestic Rate Loan or an
unaffected type of Eurodollar Rate Loan into an affected type of Eurodollar Rate
Loan.

 

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3.9.          Capital Adequacy.

 

(a)           In the event that Agent or any Lender shall have determined that
any Applicable Law, rule, regulation or guideline regarding capital adequacy, or
any change therein, or any change in the interpretation or administration
thereof by any Governmental Body, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by Agent or any
Lender (for purposes of this Section 3.9, the term “Lender” shall include Agent
or any Lender and any corporation or bank controlling Agent or any Lender and
the office or branch where Agent or any Lender (as so defined) makes or
maintains any Eurodollar Rate Loans) with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on Agent or any Lender’s capital as a consequence of its
obligations hereunder to a level below that which Agent or such Lender could
have achieved but for such adoption, change or compliance (taking into
consideration Agent’s and each Lender’s policies with respect to capital
adequacy) by an amount deemed by Agent or any Lender to be material, then, from
time to time, Borrowers shall pay upon demand (including documentation
supporting such request) to Agent or such Lender such additional amount or
amounts as will compensate Agent or such Lender for such reduction.  In
determining such amount or amounts, Agent or such Lender may use any reasonable
averaging or attribution methods.  The protection of this Section 3.9 shall be
available to Agent and each Lender regardless of any possible contention of
invalidity or inapplicability with respect to the Applicable Law, regulation or
condition.

 

(b)           A certificate of Agent or such Lender setting forth such amount or
amounts as shall be necessary to compensate Agent or such Lender with respect to
Section 3.9(a) hereof when delivered to Borrowing Agent shall be conclusive
absent manifest error.

 

3.10.        Gross Up for Taxes.  If any Borrower shall be required by
Applicable Law to withhold or deduct any taxes from or in respect of any sum
payable under this Agreement or any of the Other Documents to Agent, or any
Lender, assignee of any Lender, or Participant (each, individually, a “Payee”
and collectively, the “Payees”), (a) the sum payable to such Payee or Payees, as
the case may be, shall be increased as may be necessary so that, after making
all required withholding or deductions, the applicable Payee or Payees receives
an amount equal to the sum it would have received had no such withholding or
deductions been made (the “Gross-Up Payment”), (b) such Borrower shall make such
withholding or deductions, and (c) such Borrower shall pay the full amount
withheld or deducted to the relevant taxation authority or other authority in
accordance with Applicable Law.  Notwithstanding the foregoing, no Borrower
shall be obligated to make any portion of the Gross-Up Payment that is
attributable to any withholding or deductions that would not have been paid or
claimed had the applicable Payee or Payees properly claimed a complete exemption
with respect thereto pursuant to Section 3.11 hereof.

 

3.11.        Withholding Tax Exemption.

 

(a)           Each Payee that is not incorporated under the Laws of the United
States of America or a state thereof (and, upon the written request of Agent,
each other Payee) agrees that it will deliver to Borrowing Agent and Agent two
(2) duly completed appropriate valid

 

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Withholding Certificates (as defined under §1.1441-1(c)(16) of the Income Tax
Regulations (“Regulations”)) certifying its status (i.e., U.S. or foreign
person) and, if appropriate, making a claim of reduced, or exemption from, U.S.
withholding tax on the basis of an income tax treaty or an exemption provided by
the Code.  The term “Withholding Certificate” means a Form W-9; a Form W-8BEN; a
Form W-8ECI; a Form W-8IMY and the related statements and certifications as
required under §1.1441-1(e)(2) and/or (3) of the Regulations; a statement
described in §1.871-14(c)(2)(v) of the Regulations; or any other certificates
under the Code or Regulations that certify or establish the status of a payee or
beneficial owner as a U.S. or foreign person.

 

(b)           Each Payee required to deliver to Borrowing Agent and Agent a
valid Withholding Certificate pursuant to Section 3.11(a) hereof shall deliver
such valid Withholding Certificate as follows:  (i) each Payee which is a party
hereto on the Closing Date shall deliver such valid Withholding Certificate at
least five (5) Business Days prior to the first date on which any interest or
fees are payable by any Borrower hereunder for the account of such Payee;
(ii) each Payee shall deliver such valid Withholding Certificate at least five
(5) Business Days before the effective date of such assignment or participation
(unless Agent in its sole discretion shall permit such Payee to deliver such
Withholding Certificate less than five (5) Business Days before such date in
which case it shall be due on the date specified by Agent).  Each Payee which so
delivers a valid Withholding Certificate further undertakes to deliver to
Borrowing Agent and Agent two (2) additional copies of such Withholding
Certificate (or a successor form) on or before the date that such Withholding
Certificate expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent Withholding Certificate so delivered by
it, and such amendments thereto or extensions or renewals thereof as may be
reasonably requested by Borrowing Agent or Agent.

 

(c)           Notwithstanding the submission of a Withholding Certificate
claiming a reduced rate of or exemption from U.S. withholding tax required under
Section 3.11(b) hereof, Agent shall be entitled to withhold United States
federal income taxes at the full 30% withholding rate if in its reasonable
judgment it is required to do so under the due diligence requirements imposed
upon a withholding agent under §1.1441-7(b) of the Regulations.  Further, Agent
is indemnified under §1.1461-1(e) of the Regulations against any claims and
demands of any Payee for the amount of any tax it deducts and withholds in
accordance with regulations under §1441 of the Code.

 

IV.           COLLATERAL:   GENERAL TERMS

 

4.1.          Security Interest in the Collateral.  To secure the prompt payment
and performance to Agent and each Lender of the Obligations, each Borrower
hereby assigns, pledges and grants to Agent for its benefit and for the ratable
benefit of each Lender a continuing security interest in and to and Lien on all
of its Collateral, whether now owned or existing or hereafter acquired or
arising and wheresoever located.  Each Borrower shall mark its books and records
as may be necessary or appropriate to evidence, protect and perfect Agent’s
security interest and shall cause its financial statements to reflect such
security interest.  Each Borrower shall promptly provide Agent with written
notice of all commercial tort claims, such notice to contain the case title
together with the applicable court and a brief description of the claim(s).

 

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Upon delivery of each such notice, such Borrower shall be deemed to hereby grant
to Agent a security interest and lien in and to such commercial tort claims and
all proceeds thereof.

 

4.2.          Perfection of Security Interest.  Each Borrower shall take all
action that may be necessary or desirable, or that Agent may request, so as at
all times to maintain the validity, perfection, enforceability and priority of
Agent’s security interest in and Lien on the Collateral or to enable Agent to
protect, exercise or enforce its rights hereunder and in the Collateral,
including, but not limited to, (i) immediately discharging all Liens other than
Permitted Encumbrances, (ii) obtaining Lien Waiver Agreements, (iii) delivering
to Agent, endorsed or accompanied by such instruments of assignment as Agent may
specify, and stamping or marking, in such manner as Agent may specify, any and
all chattel paper, instruments, letters of credits and advices thereof and
documents evidencing or forming a part of the Collateral, (iv) entering into
warehousing, lockbox and other custodial arrangements satisfactory to Agent, and
(v) executing and delivering financing statements, control agreements,
instruments of pledge, mortgages, notices and assignments, in each case in form
and substance satisfactory to Agent, relating to the creation, validity,
perfection, maintenance or continuation of Agent’s security interest and Lien
under the Uniform Commercial Code or other Applicable Law.  By its signature
hereto, each Borrower hereby authorizes Agent to file against such Borrower, one
or more financing, continuation or amendment statements pursuant to the Uniform
Commercial Code in form and substance satisfactory to Agent (which statements
may have a description of collateral which is broader than that set forth
herein).  All charges, expenses and fees Agent may incur in doing any of the
foregoing, and any local taxes relating thereto, shall be charged to Borrowers’
Account as a Revolving Advance of a Domestic Rate Loan and added to the
Obligations, or, at Agent’s option, shall be paid to Agent for its benefit and
for the ratable benefit of Lenders immediately upon demand.

 

4.3.          Disposition of Collateral.  Each Borrower will safeguard and
protect all Collateral for Agent’s general account and make no disposition
thereof whether by sale, lease or otherwise except (a) the sale of Inventory in
the Ordinary Course of Business and (b) the disposition or transfer of obsolete
and worn-out Equipment in the Ordinary Course of Business during any fiscal year
having an aggregate fair market value of not more than $100,000 and only to the
extent that (i) the proceeds of any such disposition are used to acquire
replacement Equipment which is subject to Agent’s first priority security
interest or (ii) the proceeds of which are remitted to Agent to be applied
pursuant to Section 2.21.

 

4.4.          Preservation of Collateral.  Following the occurrence of a Default
or Event of Default in addition to the rights and remedies set forth in
Section 11.1 hereof, Agent: (a) may at any time take such steps as Agent deems
necessary to protect Agent’s interest in and to preserve the Collateral,
including the hiring of such security guards or the placing of other security
protection measures as Agent may deem appropriate; (b) may employ and maintain
at any of any Borrower’s premises a custodian who shall have full authority to
do all acts necessary to protect Agent’s interests in the Collateral; (c) may
lease warehouse facilities to which Agent may move all or part of the
Collateral; (d) may use any Borrower’s owned or leased lifts, hoists, trucks and
other facilities or equipment for handling or removing the Collateral; and
(e) shall have, and is hereby granted, a right of ingress and egress to the
places where the Collateral is located, and may proceed over and through any of
Borrowers’ owned or leased property.  Each Borrower shall cooperate fully with
all of Agent’s efforts to preserve the Collateral and will take such

 

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actions to preserve the Collateral as Agent may direct.  All of Agent’s expenses
of preserving the Collateral, including any expenses relating to the bonding of
a custodian, shall be charged to Borrowers’ Account as a Revolving Advance
maintained as a Domestic Rate Loan and added to the Obligations.

 

4.5.          Ownership of Collateral.

 

(a)           With respect to the Collateral, at the time the Collateral becomes
subject to Agent’s security interest:  (i) each Borrower shall be the sole owner
of and fully authorized and able to sell, transfer, pledge and/or grant a first
priority security interest in each and every item of its respective Collateral
to Agent; and, except for Permitted Encumbrances the Collateral shall be free
and clear of all Liens and encumbrances whatsoever; (ii) each document and
agreement executed by each Borrower or delivered to Agent or any Lender in
connection with this Agreement shall be true and correct in all respects;
(iii) all signatures and endorsements of each Borrower that appear on such
documents and agreements shall be genuine and each Borrower shall have full
capacity to execute same; and (iv) each Borrower’s Equipment and Inventory shall
be located as set forth on Schedule 4.5 and shall not be removed from such
location(s) without the prior written consent of Agent except with respect to
the sale of Inventory in the Ordinary Course of Business and Equipment to the
extent permitted in Section 4.3 hereof.

 

(b)           (i) There is no location at which any Borrower has any Inventory
(except for Inventory in transit) other than those locations listed on Schedule
4.5; (ii) Schedule 4.5 hereto contains a correct and complete list, as of the
Closing Date, of the legal names and addresses of each warehouse at which
Inventory of any Borrower is stored;  none of the receipts received by any
Borrower from any warehouse states that the goods covered thereby are to be
delivered to bearer or to the order of a named Person or to a named Person and
such named Person’s assigns;  (iii) Schedule 4.5 hereto sets forth a correct and
complete list as of the Closing Date of (A) each place of business of each
Borrower and (B) the chief executive office of each Borrower; and (iv) Schedule
4.5 hereto sets forth a correct and complete list as of the Closing Date of the
location, by state and street address, of all Real Property owned or leased by
each Borrower, together with the names and addresses of any landlords.

 

4.6.          Defense of Agent’s and Lenders’ Interests.  Until (a) payment and
performance in full of all of the Obligations and (b) termination of this
Agreement, Agent’s interests in the Collateral shall continue in full force and
effect.  During such period no Borrower shall, without Agent’s prior written
consent, pledge, sell (except Inventory in the Ordinary Course of Business and
Equipment to the extent permitted in Section 4.3 hereof), assign, transfer,
create or suffer to exist a Lien upon or encumber or allow or suffer to be
encumbered in any way except for Permitted Encumbrances, any part of the
Collateral.  Each Borrower shall defend Agent’s interests in the Collateral
against any and all Persons whatsoever.  At any time following demand by Agent
for payment of all Obligations, Agent shall have the right to take possession of
the indicia of the Collateral and the Collateral in whatever physical form
contained, including:  labels, stationery, documents, instruments and
advertising materials.  If Agent exercises this right to take possession of the
Collateral, Borrowers shall, upon demand, assemble it in the best manner
possible and make it available to Agent at a place reasonably convenient to
Agent.  In addition, with respect to all Collateral, Agent and Lenders shall be
entitled to all of the rights and remedies set forth herein and further provided
by the Uniform Commercial Code or other

 

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Applicable Law.  Each Borrower shall, and Agent may, at its option, instruct all
suppliers, carriers, forwarders, warehousers or others receiving or holding
cash, checks, Inventory, documents or instruments in which Agent holds a
security interest to deliver same to Agent and/or subject to Agent’s order and
if they shall come into any Borrower’s possession, they, and each of them, shall
be held by such Borrower in trust as Agent’s trustee, and such Borrower will
immediately deliver them to Agent in their original form together with any
necessary endorsement.

 

4.7.          Books and Records.  Each Borrower shall (a) keep proper books of
record and account in which full, true and correct entries will be made of all
dealings or transactions of or in relation to its business and affairs; (b) set
up on its books accruals with respect to all taxes, assessments, charges, levies
and claims; and (c) on a reasonably current basis set up on its books, from its
earnings, allowances against doubtful Receivables, advances and investments and
all other proper accruals (including by reason of enumeration, accruals for
premiums, if any, due on required payments and accruals for depreciation,
obsolescence, or amortization of properties), which should be set aside from
such earnings in connection with its business.  All determinations pursuant to
this subsection shall be made in accordance with, or as required by, GAAP
consistently applied in the opinion of such independent public accountant as
shall then be regularly engaged by Borrowers.

 

4.8.          Financial Disclosure.  Each Borrower hereby irrevocably authorizes
and directs all accountants and auditors employed by such Borrower at any time
during the Term to exhibit and deliver to Agent and each Lender copies of any of
such Borrower’s financial statements, trial balances or other accounting records
of any sort in the accountant’s or auditor’s possession, and to disclose to
Agent and each Lender any information such accountants may have concerning such
Borrower’s financial status and business operations.  Each Borrower hereby
authorizes all Governmental Bodies to furnish to Agent and each Lender copies of
reports or examinations relating to such Borrower, whether made by such Borrower
or otherwise; however, Agent and each Lender will attempt to obtain such
information or materials directly from such Borrower prior to obtaining such
information or materials from such accountants or Governmental Bodies.

 

4.9.          Compliance with Laws.  Each Borrower shall comply in all material
respects with all Applicable Laws with respect to the Collateral or any part
thereof or to the operation of such Borrower’s business the non-compliance with
which could reasonably be expected to have a Material Adverse Effect.  Each
Borrower may, however, contest or dispute any Applicable Laws in any reasonable
manner, provided that any related Lien is inchoate or stayed and sufficient
reserves are established to the reasonable satisfaction of Agent to protect
Agent’s Lien on or security interest in the Collateral.

 

4.10.        Inspection of Premises.  At all reasonable times Agent and each
Lender shall have full access to and the right to audit, check, inspect and make
abstracts and copies from each Borrower’s books, records, audits, correspondence
and all other papers relating to the Collateral and the operation of each
Borrower’s business.  Agent, any Lender and their agents may enter upon any
premises of any Borrower at any time during business hours and at any other
reasonable time, and from time to time, for the purpose of inspecting the
Collateral and any and all records pertaining thereto and the operation of such
Borrower’s business.

 

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4.11.        Insurance.  The assets and properties of each Borrower at all times
shall be maintained in accordance with the requirements of all insurance
carriers which provide insurance with respect to the assets and properties of
such Borrower so that such insurance shall remain in full force and effect. 
Each Borrower shall bear the full risk of any loss of any nature whatsoever with
respect to the Collateral.  At each Borrower’s own cost and expense in amounts
and with carriers acceptable to Agent, each Borrower shall (a) keep all its
insurable properties and properties in which such Borrower has an interest
insured against the hazards of fire, flood, sprinkler leakage, those hazards
covered by extended coverage insurance and such other hazards, and for such
amounts, as is customary in the case of companies engaged in businesses similar
to such Borrower’s including business interruption insurance; (b) maintain a
bond in such amounts as is customary in the case of companies engaged in
businesses similar to such Borrower insuring against larceny, embezzlement or
other criminal misappropriation of insured’s officers and employees who may
either singly or jointly with others at any time have access to the assets or
funds of such Borrower either directly or through authority to draw upon such
funds or to direct generally the disposition of such assets; (c) maintain public
and product liability insurance against claims for personal injury, death or
property damage suffered by others; (d) maintain all such worker’s compensation
or similar insurance as may be required under the laws of any state or
jurisdiction in which such Borrower is engaged in business; (e) furnish Agent
with (i) copies of all policies and evidence of the maintenance of such policies
by the renewal thereof at least thirty (30) days before any expiration date, and
(ii) appropriate loss payable endorsements in form and substance satisfactory to
Agent, naming Agent as a co-insured and lender loss payee as its interests may
appear with respect to all insurance coverage referred to in clauses (a), and
(c) above, and providing (A) that all proceeds thereunder shall be payable to
Agent, (B) no such insurance shall be affected by any act or neglect of the
insured or owner of the property described in such policy, and (C) that such
policy and loss payable clauses may not be cancelled, amended or terminated
unless at least thirty (30) days’ prior written notice is given to Agent.  In
the event of any loss thereunder, the carriers named therein hereby are directed
by Agent and the applicable Borrower to make payment for such loss to Agent and
not to such Borrower and Agent jointly.  If any insurance losses are paid by
check, draft or other instrument payable to any Borrower and Agent jointly,
Agent may endorse such Borrower’s name thereon and do such other things as Agent
may deem advisable to reduce the same to cash.  Agent is hereby authorized to
adjust and compromise claims under insurance coverage referred to in clauses
(a), and (b) above.  All loss recoveries received by Agent upon any such
insurance may be applied to the Obligations, in such order as Agent in its sole
discretion shall determine.  Any surplus shall be paid by Agent to Borrowers or
applied as may be otherwise required by law.  Any deficiency thereon shall be
paid by Borrowers to Agent, on demand.

 

4.12.        Failure to Pay Insurance.  If any Borrower fails to obtain
insurance as hereinabove provided, or to keep the same in force, Agent, if Agent
so elects, may obtain such insurance and pay the premium therefor on behalf of
such Borrower, and charge Borrowers’ Account therefor as a Revolving Advance of
a Domestic Rate Loan and such expenses so paid shall be part of the Obligations.

 

4.13.        Payment of Taxes.  Each Borrower will pay, when due, all taxes,
assessments and other Charges lawfully levied or assessed upon such Borrower or
any of the Collateral including real and personal property taxes, assessments
and charges and all franchise, income, employment, social security benefits,
withholding, and sales taxes.  If any tax by any

 

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Governmental Body is or may be imposed on or as a result of any transaction
between any Borrower and Agent or any Lender which Agent or any Lender may be
required to withhold or pay or if any taxes, assessments, or other Charges
remain unpaid after the date fixed for their payment, or if any claim shall be
made which, in Agent’s or any Lender’s opinion, may possibly create a valid Lien
on the Collateral, Agent may without notice to Borrowers pay the taxes,
assessments or other Charges and each Borrower hereby indemnifies and holds
Agent and each Lender harmless in respect thereof.  Agent will not pay any
taxes, assessments or Charges to the extent that any applicable Borrower has
Properly Contested those taxes, assessments or Charges.  The amount of any
payment by Agent under this Section 4.13 shall be charged to Borrowers’ Account
as a Revolving Advance maintained as a Domestic Rate Loan and added to the
Obligations and, until Borrowers shall furnish Agent with an indemnity therefor
(or supply Agent with evidence satisfactory to Agent that due provision for the
payment thereof has been made), Agent may hold without interest any balance
standing to Borrowers’ credit and Agent shall retain its security interest in
and Lien on any and all Collateral held by Agent.

 

4.14.        Payment of Leasehold Obligations.  Each Borrower shall at all times
pay, when and as due, its rental obligations under all leases under which it is
a tenant, and shall otherwise comply, in all material respects, with all other
terms of such leases and keep them in full force and effect and, at Agent’s
request will provide evidence of having done so.

 

4.15.        Receivables.

 

(a)           Nature of Receivables.  Each of the Receivables shall be a bona
fide and valid account representing a bona fide indebtedness incurred by the
Customer therein named, for a fixed sum as set forth in the invoice relating
thereto (provided immaterial or unintentional invoice errors shall not be deemed
to be a breach hereof) with respect to an absolute sale or lease and delivery of
goods upon stated terms of a Borrower, or work, labor or services theretofore
rendered by a Borrower as of the date each Receivable is created.  Same shall be
due and owing in accordance with the applicable Borrower’s standard terms of
sale without dispute, setoff or counterclaim except as may be stated on the
accounts receivable schedules delivered by Borrowers to Agent.

 

(b)           Solvency of Customers.  Each Customer, to the best of each
Borrower’s knowledge, as of the date each Receivable is created, is and will be
solvent and able to pay all Receivables on which the Customer is obligated in
full when due or with respect to such Customers of any Borrower who are not
solvent such Borrower has set up on its books and in its financial records bad
debt reserves adequate to cover such Receivables.

 

(c)           Location of Borrowers.  Each Borrower’s chief executive office is
located at 7400 Excelsior Boulevard, Minneapolis, MN 55426.  Until written
notice is given to Agent by Borrowing Agent of any other office at which any
Borrower keeps its records pertaining to Receivables, all such records shall be
kept at such executive office.

 

(d)           Collection of Receivables.  Borrowers shall instruct their
Customers to deliver all remittances upon Receivables to such lockbox account or
Blocked Account as Agent shall designate from time to time as contemplated by
Section 4.15(h) or as otherwise agreed to from time to time by Agent. 
Notwithstanding the foregoing, to the extent any Borrower directly

 

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receives any remittances upon Receivables, such Borrower will, at such
Borrower’s sole cost and expense, but on Agent’s behalf and for Agent’s account,
collect as Agent’s property and in trust for Agent all amounts received on
Receivables, and shall not commingle such collections with any Borrower’s funds
or use the same except to pay Obligations.  Each Borrower shall deposit in the
Blocked Account or, upon request by Agent, deliver to Agent, in original form
and on the date of receipt thereof, all checks, drafts, notes, money orders,
acceptances, cash and other evidences of Indebtedness.

 

(e)           Notification of Assignment of Receivables.  At any time Agent
shall have the right to send notice of the assignment of, and Agent’s security
interest in and Lien on, the Receivables to any and all Customers or any third
party holding or otherwise concerned with any of the Collateral.  At any time
after the occurrence and during the continuance of an Event of Default, Agent
shall have the sole right to collect the Receivables, take possession of the
Collateral, or both.  Agent’s actual collection expenses, including, but not
limited to, stationery and postage, telephone and telegraph, secretarial and
clerical expenses and the salaries of any collection personnel used for
collection, may be charged to Borrowers’ Account and added to the Obligations.

 

(f)            Power of Agent to Act on Borrowers’ Behalf.  Agent shall have the
right to receive, endorse, assign and/or deliver in the name of Agent or any
Borrower any and all checks, drafts and other instruments for the payment of
money relating to the Receivables, and each Borrower hereby waives notice of
presentment, protest and non-payment of any instrument so endorsed.  Each
Borrower hereby constitutes Agent or Agent’s designee as such Borrower’s
attorney with power (i) at any time: (A) to endorse such Borrower’s name upon
any notes, acceptances, checks, drafts, money orders or other evidences of
payment or Collateral; (B) to sign such Borrower’s name on any invoice or bill
of lading relating to any of the Receivables, drafts against Customers,
assignments and verifications of Receivables; (C) to send verifications of
Receivables to any Customer; (D) to sign such Borrower’s name on all financing
statements or any other documents or instruments deemed necessary or appropriate
by Agent to preserve, protect, or perfect Agent’s interest in the Collateral and
to file same; and (E) to receive, open and dispose of all mail addressed to any
Borrower; and (ii) at any time following the occurrence of a Default or Event of
Default: (A) to demand payment of the Receivables; (B) to enforce payment of the
Receivables by legal proceedings or otherwise; (C) to exercise all of such
Borrower’s rights and remedies with respect to the collection of the Receivables
and any other Collateral; (D) to settle, adjust, compromise, extend or renew the
Receivables; (E) to settle, adjust or compromise any legal proceedings brought
to collect Receivables; (F) to prepare, file and sign such Borrower’s name on a
proof of claim in bankruptcy or similar document against any Customer; (G) to
prepare, file and sign such Borrower’s name on any notice of Lien, assignment or
satisfaction of Lien or similar document in connection with the Receivables; and
(H) to do all other acts and things necessary to carry out this Agreement.  All
acts of said attorney or designee are hereby ratified and approved, and said
attorney or designee shall not be liable for any acts of omission or commission
nor for any error of judgment or mistake of fact or of law, unless done
maliciously or with gross (not mere) negligence (as determined by a court of
competent jurisdiction in a final non-appealable judgment); this power being
coupled with an interest is irrevocable while any of the Obligations remain
unpaid.  Agent shall have the right at any time following the occurrence of an
Event of Default or Default to change the address for delivery of mail addressed
to any Borrower.

 

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(g)           No Liability.  Neither Agent nor any Lender shall, under any
circumstances or in any event whatsoever, have any liability for any error or
omission or delay of any kind occurring in the settlement, collection or payment
of any of the Receivables or any instrument received in payment thereof, or for
any damage resulting therefrom.  Following the occurrence of an Event of Default
or Default Agent may, without notice or consent from any Borrower, sue upon or
otherwise collect, extend the time of payment of, compromise or settle for cash,
credit or upon any terms any of the Receivables or any other securities,
instruments or insurance applicable thereto and/or release any obligor thereof. 
Agent is authorized and empowered to accept following the occurrence of an Event
of Default or Default the return of the goods represented by any of the
Receivables, without notice to or consent by any Borrower, all without
discharging or in any way affecting any Borrower’s liability hereunder.

 

(h)           Establishment of a Lockbox Account, Dominion Account.  All
proceeds of Collateral shall be deposited by Borrowers into either (i) a lockbox
account, dominion account or such other “blocked account” (“Blocked Accounts”)
established at a bank or banks (each such bank, a “Blocked Account Bank”)
pursuant to an arrangement with such Blocked Account Bank as may be selected by
Borrowing Agent and be acceptable to Agent or (ii) depository accounts
(“Depository Accounts”) established at the Agent for the deposit of such
proceeds.  Each applicable Borrower, Agent and each Blocked Account Bank shall
enter into a deposit account control agreement in form and substance
satisfactory to Agent directing such Blocked Account Bank to transfer such funds
so deposited to Agent, either to any account maintained by Agent at said Blocked
Account Bank or by wire transfer to appropriate account(s) of Agent.  All funds
deposited in such Blocked Accounts shall immediately become the property of
Agent and Borrowing Agent shall obtain the agreement by such Blocked Account
Bank to waive any offset rights against the funds so deposited.  Neither Agent
nor any Lender assumes any responsibility for such blocked account arrangement,
including any claim of accord and satisfaction or release with respect to
deposits accepted by any Blocked Account Bank thereunder.  All deposit accounts
and investment accounts of each Borrower and its Subsidiaries are set forth on
Schedule 4.15(h).

 

(i)            Adjustments.  No Borrower will, without Agent’s consent,
compromise or adjust any Receivables (or extend the time for payment thereof) or
accept any returns of merchandise or grant any additional discounts, allowances
or credits thereon except for those compromises, adjustments, returns,
discounts, credits and allowances as have been heretofore customary in the
Ordinary Course of Business of such Borrower.

 

4.16.        Inventory.  To the extent Inventory held for sale or lease has been
produced by any Borrower, it has been and will be produced by such Borrower in
accordance with the Federal Fair Labor Standards Act of 1938, as amended, and
all rules, regulations and orders thereunder.

 

4.17.        Maintenance of Equipment.  The Equipment shall be maintained in
good operating condition and repair (reasonable wear and tear excepted) and all
necessary replacements of and repairs thereto shall be made so that the value
and operating efficiency of the Equipment shall be maintained and preserved.  No
Borrower shall use or operate the Equipment in violation of any law, statute,
ordinance, code, rule or regulation.  Each Borrower shall have the right to sell
Equipment to the extent set forth in Section 4.3 hereof.

 

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4.18.        Exculpation of Liability.  Nothing herein contained shall be
construed to constitute Agent or any Lender as any Borrower’s agent for any
purpose whatsoever, nor shall Agent or any Lender be responsible or liable for
any shortage, discrepancy, damage, loss or destruction of any part of the
Collateral wherever the same may be located and regardless of the cause
thereof.  Neither Agent nor any Lender, whether by anything herein or in any
assignment or otherwise, assume any of any Borrower’s obligations under any
contract or agreement assigned to Agent or such Lender, and neither Agent nor
any Lender shall be responsible in any way for the performance by any Borrower
of any of the terms and conditions thereof.

 

4.19.        Environmental Matters.

 

(a)           Borrowers shall ensure that the Real Property and all operations
and businesses conducted thereon remains in compliance with all Environmental
Laws and they shall not place or permit to be placed any Hazardous Substances on
any Real Property except as permitted by Applicable Law or appropriate
governmental authorities.

 

(b)           Borrowers shall establish and maintain a system to assure and
monitor continued compliance with all applicable Environmental Laws which system
shall include periodic reviews of such compliance.

 

(c)           Borrowers shall (i) employ in connection with the use of the Real
Property appropriate technology necessary to maintain compliance with any
applicable Environmental Laws and (ii) dispose of any and all Hazardous Waste
generated at the Real Property only at facilities and with carriers that
maintain valid permits under RCRA and any other applicable Environmental Laws. 
Borrowers shall use their best efforts to obtain certificates of disposal, such
as hazardous waste manifest receipts, from all treatment, transport, storage or
disposal facilities or operators employed by Borrowers in connection with the
transport or disposal of any Hazardous Waste generated at the Real Property.

 

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

 

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(e)           Borrowing Agent shall promptly forward to Agent copies of any
request for information, notification of potential liability, demand letter
relating to potential responsibility with respect to the investigation or
cleanup of Hazardous Substances at any other site owned, operated or used by any
Borrower to dispose of Hazardous Substances and shall continue to forward copies
of correspondence between any Borrower and the Authority regarding such claims
to Agent until the claim is settled.  Borrowing Agent shall promptly forward to
Agent copies of all documents and reports concerning a Hazardous Discharge at
the Real Property that any Borrower is required to file under any Environmental
Laws.  Such information is to be provided solely to allow Agent to protect
Agent’s security interest in and Lien on the Real Property and the Collateral.

 

(f)            Borrowers shall respond promptly to any Hazardous Discharge or
Environmental Complaint and take all necessary action in order to safeguard the
health of any Person and to avoid subjecting the Collateral or Real Property to
any Lien.  If any Borrower shall fail to respond promptly to any Hazardous
Discharge or Environmental Complaint or any Borrower shall fail to comply with
any of the requirements of any Environmental Laws, Agent on behalf of Lenders
may, but without the obligation to do so, for the sole purpose of protecting
Agent’s interest in the Collateral:  (i) give such notices or (ii) enter onto
the Real Property (or authorize third parties to enter onto the Real Property)
and take such actions as Agent (or such third parties as directed by Agent) deem
reasonably necessary or advisable, to clean up, remove, mitigate or otherwise
deal with any such Hazardous Discharge or Environmental Complaint.  All
reasonable costs and expenses incurred by Agent and Lenders (or such third
parties) in the exercise of any such rights, including any sums paid in
connection with any judicial or administrative investigation or proceedings,
fines and penalties, together with interest thereon from the date expended at
the Default Rate for Domestic Rate Loans constituting Revolving Advances shall
be paid upon demand by Borrowers, and until paid shall be added to and become a
part of the Obligations secured by the Liens created by the terms of this
Agreement or any other agreement between Agent, any Lender and any Borrower.

 

(g)           Promptly upon the written request of Agent from time to time,
Borrowers shall provide Agent, at Borrowers’ expense, with an environmental site
assessment or environmental audit report prepared by an environmental
engineering firm acceptable in the reasonable opinion of Agent, to assess with a
reasonable degree of certainty the existence of a Hazardous Discharge and the
potential costs in connection with abatement, cleanup and removal of any
Hazardous Substances found on, under, at or within the Real Property; provided
however that so long as Agent does not reasonably believe that a Hazardous
Discharge may have occurred or no Default or Event of Default has occurred and
is continuing, Borrowers shall not be liable for the cost of more than one such
site assessment or audit report during the Term.  Any report or investigation of
such Hazardous Discharge proposed and acceptable to an appropriate Authority
that is charged to oversee the clean-up of such Hazardous Discharge shall be
acceptable to Agent.  If such estimates, individually or in the aggregate,
exceed $100,000, Agent shall have the right to require Borrowers to post a bond,
letter of credit or other security reasonably satisfactory to Agent to secure
payment of these costs and expenses.

 

(h)           Borrowers shall defend and indemnify Agent and Lenders and hold
Agent, Lenders and their respective employees, agents, directors and officers
harmless from and against all loss, liability, damage and expense, claims,
costs, fines and penalties, including attorney’s

 

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fees, suffered or incurred by Agent or Lenders under or on account of any
Environmental Laws, including the assertion of any Lien thereunder, with respect
to any Hazardous Discharge, the presence of any Hazardous Substances affecting
the Real Property, whether or not the same originates or emerges from the Real
Property or any contiguous real estate, including any loss of value of the Real
Property as a result of the foregoing except to the extent such loss, liability,
damage and expense is attributable to any Hazardous Discharge resulting from
actions on the part of Agent or any Lender.  Borrowers’ obligations under this
Section 4.19 shall arise upon the discovery of the presence of any Hazardous
Substances at the Real Property, whether or not any federal, state, or local
environmental agency has taken or threatened any action in connection with the
presence of any Hazardous Substances.  Borrowers’ obligation and the
indemnifications hereunder shall survive the termination of this Agreement.

 

(i)            For purposes of Section 4.19 and 5.7 (except as otherwise
specifically provided), all references to Real Property shall be deemed to
include all of each Borrower’s right, title and interest in and to its owned and
leased premises.

 

4.20.        Financing Statements.  Except as respects the financing statements
filed by Agent and the financing statements described on Schedule 1.2, no
financing statement covering any of the Collateral or any proceeds thereof is on
file in any public office.

 

4.21.        Appraisals.  Agent may, in its sole discretion, exercised in a
commercially reasonable manner, at any time after the Closing Date, engage the
services of an independent appraisal firm or firms of reputable standing,
satisfactory to Agent, for the purpose of appraising the then current values of
Borrowers’ assets. Absent the occurrence and continuance of an Event of Default
at such time, Agent shall consult with Borrowers as to the identity of any such
firm.  In the event the value of Borrowers’ Inventory, as so determined pursuant
to such appraisal, is less than anticipated by Agent or Lenders, such that the
Revolving Advances against Eligible Inventory, Eligible Whirlpool Aged Inventory
or Eligible Whirlpool Inventory, are in fact in excess of such Advances
permitted hereunder, then, promptly upon Agent’s demand for same, Borrowers
shall make mandatory prepayments of the then outstanding Revolving Advances made
against such Eligible Inventory, Eligible Whirlpool Aged Inventory or Eligible
Whirlpool Inventory, as applicable, so as to eliminate the excess Advances.

 

4.22.        Canadian Attachment.  The security interests granted herein shall
not attach to (i) any consumer goods of a Canadian Borrower, or (ii) the last
day of any real property lease, or any agreement to lease, to which a Canadian
Borrower is now or becomes a party as lessee, provided that any such last day
shall be held in trust by a Canadian Borrower for the Agent and, on the exercise
by the Agent of it rights and remedies hereunder, shall be assigned by a
Canadian Borrower as directed by the Agent.  Notwithstanding Section 4.1 hereof,
the Agent shall only have a security interest in, and not a present assignment
of, any Canadian trademarks forming part of the Collateral

 

V.            REPRESENTATIONS AND WARRANTIES.

 

Each Borrower represents and warrants as follows:

 

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5.1.          Authority.  Each Borrower has full power, authority and legal
right to enter into this Agreement and the Other Documents and to perform all
its respective Obligations hereunder and thereunder.  This Agreement and the
Other Documents have been duly executed and delivered by each Borrower, and this
Agreement and the Other Documents constitute the legal, valid and binding
obligation of such Borrower enforceable in accordance with their terms, except
as such enforceability may be limited by any applicable bankruptcy, insolvency,
moratorium or similar laws affecting creditors’ rights generally.  The
execution, delivery and performance of this Agreement and of the Other Documents
(a) are within such Borrower’s corporate powers, have been duly authorized by
all necessary corporate action, are not in contravention of law or the terms of
such Borrower’s by-laws, certificate of incorporation or other applicable
documents relating to such Borrower’s formation or to the conduct of such
Borrower’s business or of any material agreement or undertaking to which such
Borrower is a party or by which such Borrower is bound, (b) will not conflict
with or violate any law or regulation, or any judgment, order or decree of any
Governmental Body, (c) will not require the Consent of any Governmental Body,
any party to a Material Contract or any other Person, except those Consents set
forth on Schedule 5.1 hereto, all of which will have been duly obtained, made or
compiled prior to the Closing Date and which are in full force and effect and
(d) will not conflict with, nor result in any breach in any of the provisions of
or constitute a default under or result in the creation of any Lien except
Permitted Encumbrances upon any asset of such Borrower under the provisions of
any agreement, charter document, instrument, by-law or other instrument to which
such Borrower is a party or by which it or its property is a party or by which
it may be bound.

 

5.2.          Formation and Qualification.

 

(a)           Each Borrower is duly incorporated and in good standing under the
laws of the state or jurisdiction listed on Schedule 5.2(a) and is qualified to
do business and is in good standing in the states or jurisdiction listed on
Schedule 5.2(a) which constitute all states or jurisdiction in which
qualification and good standing are necessary for such Borrower to conduct its
business and own its property and where the failure to so qualify could
reasonably be expected to have a Material Adverse Effect.  Each Borrower has
delivered to Agent true and complete copies of its certificate of incorporation
and by-laws and will promptly notify Agent of any amendment or changes thereto.

 

(b)           The only Subsidiaries of each Borrower are listed on Schedule
5.2(b).

 

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

 

5.4.          Tax Returns.  Each Borrower’s federal tax identification number is
set forth on Schedule 5.4.  Each Borrower has filed all federal, Canadian,
provincial, state and local tax returns and other reports each is required by
law to file and has paid all taxes, assessments, fees and other governmental
charges that are due and payable.  Federal, state and local income tax returns
of each Borrower have been examined and reported upon by the appropriate taxing
authority or closed by applicable statute and satisfied for all fiscal years
prior to and including

 

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the fiscal year ending on or around December 31, 2006.  The provision for taxes
on the books of each Borrower is adequate for all years not closed by applicable
statutes, and for its current fiscal year, and no Borrower has any knowledge of
any deficiency or additional assessment in connection therewith not provided for
on its books.

 

5.5.          Financial Statements.

 

(a)           The pro forma balance sheet of Borrowers on a Consolidated Basis
(the “Pro Forma Balance Sheet”) furnished to Agent on the Closing Date reflects
the consummation of the transactions contemplated under this Agreement
(collectively, the “Transactions”) and is accurate, complete and correct and
fairly reflects the financial condition of Borrowers on a Consolidated Basis as
of the Closing Date after giving effect to the Transactions, and has been
prepared in accordance with GAAP, consistently applied.  The Pro Forma Balance
Sheet has been certified as accurate, complete and correct in all material
respects by the President and Chief Financial Officer of Borrowing Agent.  All
financial statements referred to in this subsection 5.5(a), including the
related schedules and notes thereto, have been prepared, in accordance with
GAAP, except as may be disclosed in such financial statements.

 

(b)           The twelve-month cash flow projections of Borrowers on a
Consolidated Basis and their projected balance sheets as of the Closing Date,
copies of which are annexed hereto as Exhibit 5.5(b) (the “Projections”) were
prepared by the Chief Financial Officer of Borrowing Agent, are based on
underlying assumptions which provide a reasonable basis for the projections
contained therein and reflect Borrowers’ judgment based on present circumstances
of the most likely set of conditions and course of action for the projected
period.  The cash flow Projections together with the Pro Forma Balance Sheet,
are referred to as the “Pro Forma Financial Statements”.

 

(c)           The consolidated and consolidating balance sheets of Borrowers,
and such other Persons described therein as of October 31, 2010, and the related
statements of income, changes in stockholder’s equity, and changes in cash flow
for the period ended on such date, all accompanied by reports thereon containing
opinions without qualification by independent certified public accountants,
copies of which have been delivered to Agent, have been prepared in accordance
with GAAP, consistently applied (except for changes in application in which such
accountants concur and present fairly the financial position of Borrowers at
such date and the results of their operations for such period.  Since
October 31, 2010 there has been no change in the condition, financial or
otherwise, of Borrowers as shown on the consolidated balance sheet as of such
date and no change in the aggregate value of machinery, equipment and Real
Property owned by Borrowers, except changes in the Ordinary Course of Business,
none of which individually or in the aggregate has been materially adverse.

 

5.6.          Entity Names.  No Borrower has been known by any other corporate
name in the past five years and does not sell Inventory under any other name
except as set forth on Schedule 5.6, nor has any Borrower been the surviving
corporation or company of a merger or consolidation or acquired all or
substantially all of the assets of any Person during the preceding five
(5) years.

 

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

 

(a)           Each Borrower has duly complied with, and its facilities,
business, assets, property, leaseholds, Real Property and Equipment are in
compliance in all material respects with, the provisions of the Federal
Occupational Safety and Health Act, the Environmental Protection Act, RCRA and
all other Environmental Laws; there have been no outstanding citations, notices
or orders of non-compliance issued to any Borrower or relating to its business,
assets, property, leaseholds or Equipment under any such laws, rules or
regulations.

 

(b)           Each Borrower has been issued all required federal, state,
Canadian, provincial, and local licenses, certificates or permits relating to
all applicable Environmental Laws.

 

(c)           (i) There are no visible signs of releases, spills, discharges,
leaks or disposal (collectively referred to as “Releases”) of Hazardous
Substances at, upon, under or within any Real Property; (ii) Borrowers have
never owned or used, and to their knowledge there are no underground storage
tanks or polychlorinated biphenyls on, the Real Property; (iii) Borrowers have
never used the Real Property as a treatment, storage or disposal facility of
Hazardous Waste and to their knowledge the Real Property has never been used as
a treatment, storage or disposal facility of Hazardous Waste; and (iv) Borrowers
have never released or used, and to their knowledge, no Hazardous Substances are
present on the Real Property including any premises leased by any Borrower,
excepting such quantities as are handled in accordance with all applicable
manufacturer’s instructions and governmental regulations and in proper storage
containers and as are necessary for the operation of the commercial business of
any Borrower or of its tenants.

 

5.8.          Solvency; No Litigation, Violation, Indebtedness or Default; ERISA
Compliance.

 

(a)           Each Borrower is solvent, able to pay its debts as they mature,
has capital sufficient to carry on its business and all businesses in which it
is about to engage, and (i) as of the Closing Date, the fair present saleable
value of its assets, calculated on a going concern basis, is in excess of the
amount of its liabilities and (ii) subsequent to the Closing Date, the fair
saleable value of its assets (calculated on a going concern basis) will be in
excess of the amount of its liabilities.

 

(b)           Except as disclosed in Schedule 5.8(b), no Borrower has (i) any
pending or threatened litigation, arbitration, actions or proceedings which
involve the possibility of having a Material Adverse Effect, and (ii) any
liabilities or indebtedness for borrowed money other than the Obligations.

 

(c)           No Borrower is in violation of any applicable statute, law, rule,
regulation or ordinance in any respect which could reasonably be expected to
have a Material Adverse Effect, nor is any Borrower in violation of any order of
any court, Governmental Body or arbitration board or tribunal.

 

(d)           No Borrower nor any member of the Controlled Group maintains or is
required to contribute to any Plan other than those listed on Schedule
5.8(d) hereto.  (i) No Plan has incurred any “accumulated funding deficiency,”
as defined in Section 302(a)(2) of ERISA

 

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and Section 412(a) of the Code, whether or not waived, each Borrower and each
member of the Controlled Group has met all applicable minimum funding
requirements under Section 302 of ERISA and Section 412 of the Code in respect
of each Plan, and each Plan is in compliance with Sections 412, 430 and 436 of
the Code and Sections 206(g), 302 and 303 of ERISA, without regard to waivers
and variances; (ii) each Plan which is intended to be a qualified plan under
Section 401(a) of the Code as currently in effect has been determined by the
Internal Revenue Service to be qualified under Section 401(a) of the Code and
the trust related thereto is exempt from federal income tax under
Section 501(a) of the Code; (iii) neither any Borrower nor any member of the
Controlled Group has incurred any liability to the PBGC other than for the
payment of premiums, and there are no premium payments which have become due
which are unpaid; (iv) no Plan has been terminated by the plan administrator
thereof nor by the PBGC, and there is no occurrence which would cause the PBGC
to institute proceedings under Title IV of ERISA to terminate any Plan; (v) at
this time, the current value of the assets of each Plan exceeds the present
value of the accrued benefits and other liabilities of such Plan and neither any
Borrower nor any member of the Controlled Group knows of any facts or
circumstances which would materially change the value of such assets and accrued
benefits and other liabilities; (vi) neither any Borrower nor any member of the
Controlled Group has breached any of the responsibilities, obligations or duties
imposed on it by ERISA with respect to any Plan; (vii) neither any Borrower nor
any member of a Controlled Group has incurred any liability for any excise tax
arising under Section 4971, 4972 or 4980B of the Code, and no fact exists which
could give rise to any such liability; (viii) neither any Borrower nor any
member of the Controlled Group nor any fiduciary of, nor any trustee to, any
Plan, has engaged in a “prohibited transaction” described in Section 406 of the
ERISA or Section 4975 of the Code nor taken any action which would constitute or
result in a Termination Event with respect to any such Plan which is subject to
ERISA; (ix) each Borrower and each member of the Controlled Group has made all
contributions due and payable with respect to each Plan; (x) there exists no
event described in Section 4043(b) of ERISA, for which the thirty (30) day
notice period has not been waived; (xi) neither any Borrower nor any member of
the Controlled Group has any fiduciary responsibility for investments with
respect to any plan existing for the benefit of persons other than employees or
former employees of any Borrower or any member of the Controlled Group;
(xii) neither any Borrower nor any member of the Controlled Group maintains or
is required to contribute to any Plan which provides health, accident or life
insurance benefits to former employees, their spouses or dependents, other than
in accordance with Section 4980B of the Code; (xiii) neither any Borrower nor
any member of the Controlled Group has withdrawn, completely or partially,
within the meaning of Section 4203 or 4205 of ERISA, from any Multiemployer Plan
so as to incur liability under the Multiemployer Pension Plan Amendments Act of
1980 and there exists no fact which would reasonably be expected to result in
any such liability; and (xiv) no Plan fiduciary (as defined in Section 3(21) of
ERISA) has any liability for breach of fiduciary duty or for any failure in
connection with the administration or investment of the assets of a Plan.

 

5.9.          Patents, Trademarks, Copyrights and Licenses.  All patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, copyrights, copyright applications, design rights, tradenames,
assumed names, trade secrets and licenses owned or utilized by any Borrower are
set forth on Schedule 5.9, are valid and have been duly registered or filed with
all appropriate Governmental Bodies and constitute all of the intellectual
property rights which are necessary for the operation of its business; there is
no objection to or

 

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pending challenge to the validity of any such patent, trademark, copyright,
design rights, tradename, trade secret or license and no Borrower is aware of
any grounds for any challenge, except as set forth in Schedule 5.9 hereto.  Each
patent, patent application, patent license, trademark, trademark application,
trademark license, service mark, service mark application, service mark license,
design rights, copyright, copyright application and copyright license owned or
held by any Borrower and all trade secrets used by any Borrower consist of
original material or property developed by such Borrower or was lawfully
acquired by such Borrower from the proper and lawful owner thereof.  Each of
such items has been maintained so as to preserve the value thereof from the date
of creation or acquisition thereof.  With respect to all software used by any
Borrower, such Borrower is in possession of all source and object codes related
to each piece of software or is the beneficiary of a source code escrow
agreement, each such source code escrow agreement being listed on Schedule 5.9
hereto.

 

5.10.        Licenses and Permits.  Except as set forth in Schedule 5.10, each
Borrower (a) is in compliance with and (b) has procured and is now in possession
of, all material licenses or permits required by any applicable federal, state,
provincial or local law, rule or regulation for the operation of its business in
each jurisdiction wherein it is now conducting or proposes to conduct business
and where the failure to procure such licenses or permits could have a Material
Adverse Effect.

 

5.11.        Default of Indebtedness.  No Borrower is in default in the payment
of the principal of or interest on any Indebtedness or under any instrument or
agreement under or subject to which any Indebtedness has been issued and no
event has occurred under the provisions of any such instrument or agreement
which with or without the lapse of time or the giving of notice, or both,
constitutes or would constitute an event of default thereunder.

 

5.12.        No Default.  No Borrower is in default in the payment or
performance of any of its contractual obligations and no Default has occurred.

 

5.13.        No Burdensome Restrictions.  No Borrower is party to any contract
or agreement the performance of which could have a Material Adverse Effect. 
Each Borrower has heretofore delivered to Agent true and complete copies of all
Material Contracts to which it is a party or to which it or any of its
properties is subject.  No Borrower has agreed or consented to cause or permit
in the future (upon the happening of a contingency or otherwise) any of its
property, whether now owned or hereafter acquired, to be subject to a Lien which
is not a Permitted Encumbrance.

 

5.14.        No Labor Disputes.  No Borrower is involved in any labor dispute;
there are no strikes or walkouts or union organization of any Borrower’s
employees threatened or in existence and no labor contract is scheduled to
expire during the Term other than as set forth on Schedule 5.14 hereto.

 

5.15.        Margin Regulations.  No Borrower is engaged, nor will it engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of “purchasing” or “carrying” any “margin stock” within
the respective meanings of each of the quoted terms under Regulation U of the
Board of Governors of the Federal Reserve System as now and from time to time
hereafter in effect.  No part of the proceeds of any Advance will be

 

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used for “purchasing” or “carrying” “margin stock” as defined in Regulation U of
such Board of Governors.

 

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

 

5.17.        Disclosure.  No representation or warranty made by any Borrower in
this Agreement or in any financial statement, report, certificate or any other
document furnished in connection herewith contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein not misleading.  There is no fact known to any
Borrower or which reasonably should be known to such Borrower which such
Borrower has not disclosed to Agent in writing with respect to the transactions
contemplated by this Agreement which could reasonably be expected to have a
Material Adverse Effect.

 

5.18.        Reserved.

 

5.19.        Swaps.  No Borrower is a party to, nor will it be a party to, any
swap agreement whereby such Borrower has agreed or will agree to swap interest
rates or currencies unless same provides that damages upon termination following
an event of default thereunder are payable on an unlimited “two-way basis”
without regard to fault on the part of either party.

 

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

 

5.21.        Application of Certain Laws and Regulations.  Neither any Borrower
nor any Affiliate of any Borrower is subject to any law, statute, rule or
regulation which regulates the incurrence of any Indebtedness, including laws,
statutes, rules or regulations relative to common or interstate carriers or to
the sale of electricity, gas, steam, water, telephone, telegraph or other public
utility services.

 

5.22.        Business and Property of Borrowers.  Upon and after the Closing
Date, Borrowers do not propose to engage in any business other than retail sales
of special-buy household appliances and recycler of major household appliances
for the energy conservation programs of electric utilities and activities
necessary to conduct the foregoing.  On the Closing Date, each Borrower will own
all the property and possess all of the rights and Consents necessary for the
conduct of the business of such Borrower.

 

5.23.        Section 20 Subsidiaries.  Borrowers do not intend to use and shall
not use any portion of the proceeds of the Advances, directly or indirectly, to
purchase during the underwriting period, or for 30 days thereafter, Ineligible
Securities being underwritten by a Section 20 Subsidiary.

 

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5.24.        Anti-Terrorism Laws.

 

(a)           General.  Neither any Borrower nor any Affiliate of any Borrower
is in violation of any Anti-Terrorism Law or engages in or conspires to engage
in any transaction that evades or avoids, or has the purpose of evading or
avoiding, or attempts to violate, any of the prohibitions set forth in any
Anti-Terrorism Law.

 

(b)           Executive Order No. 13224.  Neither any Borrower nor any Affiliate
of any Borrower or their respective agents acting or benefiting in any capacity
in connection with the Advances or other transactions hereunder, is any of the
following (each a “Blocked Person”):

 

(i)            a Person that is listed in the annex to, or is otherwise subject
to the provisions of, the Executive Order No. 13224;

 

(ii)           a Person owned or controlled by, or acting for or on behalf of,
any Person that is listed in the annex to, or is otherwise subject to the
provisions of, the Executive Order No. 13224;

 

(iii)          a Person or entity with which any Lender is prohibited from
dealing or otherwise engaging in any transaction by any Anti-Terrorism Law;

 

(iv)          a Person or entity that commits, threatens or conspires to commit
or supports “terrorism” as defined in the Executive Order No. 13224;

 

(v)           a Person or entity that is named as a “specially designated
national” on the most current list published by the U.S. Treasury Department
Office of Foreign Asset Control at its official website or any replacement
website or other replacement official publication of such list, or

 

(vi)          a Person or entity who is affiliated or associated with a Person
or entity listed above.

 

Neither any Borrower nor to the knowledge of any Borrower, any of its agents
acting in any capacity in connection with the Advances or other transactions
hereunder (i) conducts any business or engages in making or receiving any
contribution of funds, goods or services to or for the benefit of any Blocked
Person, or (ii) deals in, or otherwise engages in any transaction relating to,
any property or interests in property blocked pursuant to the Executive Order
No. 13224.

 

5.25.        Trading with the Enemy.  No Borrower has engaged, nor does it
intend to engage, in any business or activity prohibited by the Trading with the
Enemy Act.

 

5.26.        Federal Securities Laws.  Other than ARCA, no Borrower no any
Subsidiary (i) is required to file periodic reports under the Exchange Act,
(ii) has any securities registered under the Exchange Act or (iii) has filed a
registration statement that has not yet become effective under the Securities
Act.

 

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5.27.        Equity Interests. The authorized and outstanding Equity Interests
of each Borrower is as set forth on Schedule 5.27 hereto.  All of the Equity
Interests of each Borrower has been duly and validly authorized and issued and
is fully paid and non-assessable and has been sold and delivered to the holders
hereof in compliance with, or under valid exemption from, all federal and state
laws and the rules and regulations of each Governmental Body governing the sale
and delivery of securities.  Except for the rights and obligations set forth on
Schedule 5.27, there are no subscriptions, warrants, options, calls,
commitments, rights or agreement by which any Borrower or any of the
shareholders of any Borrower is bound relating to the issuance, transfer, voting
or redemption of shares of its Equity Interests or any pre-emptive rights held
by any Person with respect to the Equity Interests of Borrowers.  Except as set
forth on Schedule 5.27, Borrowers have not issued any securities convertible
into or exchangeable for shares of its Equity Interests or any options, warrants
or other rights to acquire such shares or securities convertible into or
exchangeable for such shares.

 

5.28.        Commercial Tort Claims.  No Borrower is a party to any commercial
tort claims except as set forth on Schedule 5.28 hereto.

 

5.29.        Letter of Credit Rights.  As of the Closing Date, no Borrower has
any letter of credit rights, except as set forth on Schedule 5.29 hereto.

 

5.30.        Material Contracts.              Schedule 5.30 sets forth all
Material Contracts of the Borrowers.  All Material Contracts are in full force
and effect and no material defaults currently exist thereunder.

 

VI.           AFFIRMATIVE COVENANTS.

 

Each Borrower shall, until payment in full of the Obligations and termination of
this Agreement:

 

6.1.          Payment of Fees.  Pay to Agent on demand all usual and customary
fees and expenses which Agent incurs in connection with (a) the forwarding of
Advance proceeds and (b) the establishment and maintenance of any Blocked
Accounts or Depository Accounts as provided for in Section 4.15(h).  Agent may,
without making demand, charge Borrowers’ Account for all such fees and expenses.

 

6.2.          Conduct of Business and Maintenance of Existence and Assets. 
(a) Conduct continuously and operate actively its business according to good
business practices and maintain all of its properties useful or necessary in its
business in good working order and condition (reasonable wear and tear excepted
and except as may be disposed of in accordance with the terms of this
Agreement), including all licenses, patents, copyrights, design rights,
tradenames, trade secrets and trademarks and take all actions necessary to
enforce and protect the validity of any intellectual property right or other
right included in the Collateral; (b) keep in full force and effect its
existence and comply in all material respects with the laws and regulations
governing the conduct of its business where the failure to do so could
reasonably be expected to have a Material Adverse Effect; and (c) make all such
reports and pay all such franchise and other taxes and license fees and do all
such other acts and things as may be lawfully required to maintain its rights,
licenses, leases, powers and franchises under the laws of the United States,
Canada or any

 

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political subdivisions thereof where the failure to do so could reasonably be
expected to have a Material Adverse Effect.

 

6.3.          Violations.  Promptly notify Agent in writing of any violation of
any law, statute, regulation or ordinance of any Governmental Body, or of any
agency thereof, applicable to any Borrower which could reasonably be expected to
have a Material Adverse Effect.

 

6.4.          Government Receivables.  Take all steps necessary to protect
Agent’s interest in the Collateral under the Federal Assignment of Claims Act,
the Financial Administration Act (Canada), the Uniform Commercial Code and all
other applicable state or local statutes or ordinances and deliver to Agent
appropriately endorsed, any instrument or chattel paper connected with any
Receivable arising out of contracts between any Borrower and the United States,
any state, Canada, any province or any department, agency or instrumentality of
any of them.

 

6.5.          Fixed Charge Coverage Ratio.  Commencing with the fiscal quarter
ending March 31, 2011, cause to be maintained as of the end of each fiscal
quarter, a Fixed Charge Coverage Ratio of not less than 1.10 to 1.00, measured
on a trailing twelve (12) month basis.

 

6.6.          Execution of Supplemental Instruments.  Execute and deliver to
Agent from time to time, upon demand, such supplemental agreements, statements,
assignments and transfers, or instructions or documents relating to the
Collateral, and such other instruments as Agent may request, in order that the
full intent of this Agreement may be carried into effect.

 

6.7.          Payment of Indebtedness.  Pay, discharge or otherwise satisfy at
or before maturity (subject, where applicable, to specified grace periods and,
in the case of the trade payables, to normal payment practices) all its
obligations and liabilities of whatever nature, except when the failure to do so
could not reasonably be expected to have a Material Adverse Effect or when the
amount or validity thereof is currently being Properly Contested, subject at all
times to any applicable subordination arrangement in favor of Lenders.

 

6.8.          Standards of Financial Statements.  Cause all financial statements
referred to in Sections 9.7, 9.8, 9.9, 9.10, 9.11, 9.12, and 9.13 as to which
GAAP is applicable to be complete and correct in all material respects (subject,
in the case of interim financial statements, to normal year-end audit
adjustments) and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein (except as
concurred in by such reporting accountants or officer, as the case may be, and
disclosed therein).

 

6.9.          Federal Securities Laws.  Promptly notify Agent in writing if any
Borrower other than ARCA (i) is required to file periodic reports under the
Exchange Act, (ii) registers any securities under the Exchange Act or
(iii) files a registration statement under the Securities Act.

 

6.10.        Post Closing Conditions.

 

(a)           Within ninety (90) days after the Closing Date, Agent shall have
received an inventory appraisal performed by an appraiser satisfactory to Agent
in its reasonable discretion;

 

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(b)           Borrowers shall deliver to Agent, within ninety (90) days of the
Closing Date, Lien Waiver Agreements, in form and substance satisfactory to
Agent, for the Collateral located at Real Property leased by the Borrowers, each
executed by the owner of such real property in favor of Agent; provided however,
that failure to obtain such Lien Waiver Agreement shall not be deemed an Event
of Default hereunder, provided further that, to the extent such Lien Waiver
Agreement is not delivered, Borrowers acknowledge that Agent shall have the
right to impose a reserve under the Formula Amount in an amount equal to one
month’s rent due under the lease for such Collateral location or such greater
amount as Agent in its reasonable discretion exercised in good faith determines
is necessary to protect its interest in the Collateral.

 

(c)           Within sixty (60) days after the Closing Date, Borrowers will
close their lockbox and deposit accounts located at Bremer Bank and direct all
Customers to remit payment upon Receivables to a lockbox maintained at Agent.

 

(d)           Within sixty (60) days after the Closing Date, Borrowers shall
deliver to Agent, deposit account control agreements with the applicable
depository bank, in form and substance satisfactory to Agent with respect to the
deposit accounts listed on Schedule 4.15(h), as required by Agent.

 

(e)           Within sixty (60) days after the Closing Date, Borrowers shall
obtain a small business loan (the “SBA Loan”), on terms and conditions and with
a financial institution reasonably acceptable to Agent, and upon the closing of
such SBA Loan, Borrowers shall pay to Agent, or cause the AAP Joint Venture to
pay to Agent, an amount not less than $2,100,000 from the proceeds of such SBA
Loan, to be applied to the Advances in such order as Agent may determine,
subject to Borrowers’ ability to reborrow Revolving Advances in accordance with
the terms hereof.

 

(f)            Within sixty (60) days after the Closing Date, Borrower shall
have caused the appropriate party on behalf of the Tax Collector of Los Angeles
County, California to execute and record a lien release (“Release”) in the
official land records of Los Angeles County, California.  The Release shall be
in form and substance sufficient to satisfy and release of record that certain
lien for unsecured property taxes in the amount of $4,580.73 (plus all accrued
interest and penalties), which lien is evidenced by a Certificate of Tax Lien in
favor of the Tax Collector of Los Angeles County recorded on November, 25, 2002
as Instrument No. 20022843226.  Borrower shall deliver to Agent a copy of the
recorded Release within said sixty (60) day time period.

 

(g)           Within thirty (30) days after the Closing Date, Borrowers shall
deliver to Agent, evidence of termination of the Personal Property Security Act
(Ontario) filing #656494083-20090923 filed against ARCA Canada by De Lage Landen
Financial Services Canada Inc.

 

VII.          NEGATIVE COVENANTS.

 

No Borrower shall, until satisfaction in full of the Obligations and termination
of this Agreement:

 

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

 

(a)           Enter into any merger, consolidation or other reorganization with
or into any other Person or acquire all or a substantial portion of the assets
or Equity Interests of any Person or permit any other Person to consolidate with
or merge with it.

 

(b)           Sell, lease, transfer or otherwise dispose of any of its
properties or assets, except (i) dispositions of Inventory and Equipment to the
extent expressly permitted by Section 4.3 and (ii) any other sales or
dispositions expressly permitted by this Agreement.

 

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

 

7.3.          Guarantees.  Become liable upon the obligations or liabilities of
any Person by assumption, endorsement or guaranty thereof or otherwise (other
than to Lenders) except (a) as disclosed on Schedule 7.3, (b) the endorsement of
checks in the Ordinary Course of Business, (c) guarantees of the AAP Joint
Venture Term Loan, (d) guarantees of Indebtedness of the AAP Joint Venture
arising under the SBA Loan so long as such guarantees and any Liens granted in
connection therewith are subject to an Intercreditor Agreement, in form and
substance reasonably satisfactory to Agent.

 

7.4.          Investments.  Purchase or acquire obligations or Equity Interests
of, or any other interest in, any Person, except (a) obligations issued or
guaranteed by the United States of America or any agency thereof, (b) commercial
paper with maturities of not more than 180 days and a published rating of not
less than A-1 or P-1 (or the equivalent rating), (c) certificates of time
deposit and bankers’ acceptances having maturities of not more than 180 days and
repurchase agreements backed by United States government securities of a
commercial bank if (i) such bank has a combined capital and surplus of at least
$500,000,000, or (ii) its debt obligations, or those of a holding company of
which it is a Subsidiary, are rated not less than A (or the equivalent rating)
by a nationally recognized investment rating agency, (d) U.S. money market funds
that invest solely in obligations issued or guaranteed by the United States of
America or an agency thereof, and (e) investments in the AAP Joint Venture
existing on the Closing Date.

 

7.5.          Loans.  Make advances, loans or extensions of credit to any
Person, including any Parent, Subsidiary or Affiliate except (i) with respect to
the extension of commercial trade credit in connection with the sale of
Inventory in the Ordinary Course of Business, (ii) Borrowers may make short term
loans (with a term not greater than six months) to the AAP Joint Venture until
June 30, 2011 in an amount not to exceed $800,000 at any time so long as (x) no
Default or Event of Default has occurred and is continuing or would occur as a
result of such loan, and (y) Borrowers’ Undrawn Availability is not less than
$1,500,000 at the time of or after giving effect to the making of such loan; and
(iii) Borrowers may make loans to the AAP Joint Venture after June 30, 2011 in
an amount not to exceed $300,000 at any time.

 

7.6.          Capital Expenditures.  Contract for, purchase or make any
expenditure or commitments for Capital Expenditures in any fiscal year in an
aggregate amount for all Borrowers in excess of $800,000.

 

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7.7.          Dividends.  Declare, pay or make any dividend or distribution on
any Equity Interests of any Borrower (other than dividends or distribution
payable in its stock, or split-ups or reclassifications of its stock) or apply
any of its funds, property or assets to the purchase, redemption or other
retirement of any Equity Interest, or of any options to purchase or acquire any
Equity Interest of any Borrower.

 

7.8.          Indebtedness.  Create, incur, assume or suffer to exist any
Indebtedness (exclusive of trade debt) except in respect of (i) Indebtedness to
Lenders; (ii) Indebtedness incurred for Capital Expenditures permitted under
Section 7.6 hereof, (iii) Indebtedness under the SBA Loan; and (iv) Indebtedness
described on Schedule 5.8(b).

 

7.9.          Nature of Business.  Substantially change the nature of the
business in which it is presently engaged, nor except as specifically permitted
hereby purchase or invest, directly or indirectly, in any assets or property
other than in the Ordinary Course of Business for assets or property which are
useful in, necessary for and are to be used in its business as presently
conducted.

 

7.10.        Transactions with Affiliates.  Directly or indirectly, purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
or otherwise enter into any transaction or deal with, any Affiliate, except
transactions disclosed to the Agent, which are in the Ordinary Course of
Business, on an arm’s-length basis on terms and conditions no less favorable
than terms and conditions which would have been obtainable from a Person other
than an Affiliate.

 

7.11.        Leases.  Enter as lessee into any lease arrangement for real or
personal property (unless capitalized and permitted under Section 7.6 hereof) if
after giving effect thereto, aggregate annual rental payments for all leased
property would exceed $4,600,000 in any one fiscal year in the aggregate for all
Borrowers.

 

7.12.        Subsidiaries.

 

(a)           Form any Subsidiary.

 

(b)           Enter into any partnership, joint venture or similar arrangement
(other than the AAP Joint Venture).

 

7.13.        Fiscal Year and Accounting Changes.  Change its fiscal year from
the fiscal year in effect on the Closing Date or make any significant change
(i) in accounting treatment and reporting practices except as required by GAAP
or (ii) in tax reporting treatment except as required by law.

 

7.14.        Pledge of Credit.  Now or hereafter pledge Agent’s or any Lender’s
credit on any purchases or for any purpose whatsoever or use any portion of any
Advance in or for any business other than such Borrower’s business as conducted
on the date of this Agreement.

 

7.15.        Amendment of Articles of Incorporation, By-Laws, Certificate of
Formation, or Operating Agreement.  Amend, modify or waive any term or material
provision of its Articles of Incorporation, By-Laws, Certificate of Formation,
Operating Agreement or other governing documents unless required by law.

 

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7.16.        Compliance with ERISA.  (i) (x) Maintain, or permit any member of
the Controlled Group to maintain, or (y) become obligated to contribute, or
permit any member of the Controlled Group to become obligated to contribute, to
any Plan, other than those Plans disclosed on Schedule 5.8(d), (ii) engage, or
permit any member of the Controlled Group to engage, in any non-exempt
“prohibited transaction”, as that term is defined in Section 406 of ERISA or
Section 4975 of the Code, (iii) incur, or permit any Plan to incur, any
“accumulated funding deficiency”, as that term is defined in Section 302 of
ERISA or Section 412 of the Code, (iv) terminate, or permit any member of the
Controlled Group to terminate, any Plan where such event could result in any
liability of any Borrower or any member of the Controlled Group or the
imposition of a lien on the property of any Borrower or any member of the
Controlled Group pursuant to Section 4068 of ERISA, (v) assume, or permit any
member of the Controlled Group to assume, any obligation to contribute to any
Multiemployer Plan not disclosed on Schedule 5.8(d), (vi) incur, or permit any
member of the Controlled Group to incur, any withdrawal liability to any
Multiemployer Plan; (vii) fail promptly to notify Agent of the occurrence of any
Termination Event, (viii) fail to comply, or permit a member of the Controlled
Group to fail to comply, with the requirements of ERISA or the Code or other
Applicable Laws in respect of any Plan, (ix) fail to meet, or permit any member
of the Controlled Group to fail to meet, all minimum funding requirements under
ERISA and the Code, without regard to any waivers or variances, or postpone or
delay or allow any member of the Controlled Group to postpone or delay any
funding requirement with respect of any Plan, or (x) cause, or permit any member
of the Controlled Group to cause, a representation or warranty in Section 5.8(d)
to cease to be true and correct.

 

7.17.        Prepayment of Indebtedness.  At any time, directly or indirectly,
prepay any Indebtedness (other than to Lenders), or repurchase, redeem, retire
or otherwise acquire any Indebtedness of any Borrower.

 

7.18.        Anti-Terrorism Laws.  No Borrower shall, until satisfaction in full
of the Obligations and termination of this Agreement, nor shall it permit any
Affiliate or agent to:

 

(a)           Conduct any business or engage in any transaction or dealing with
any Blocked Person, including the making or receiving any contribution of funds,
goods or services to or for the benefit of any Blocked Person.

 

(b)           Deal in, or otherwise engage in any transaction relating to, any
property or interests in property blocked pursuant to the Executive Order
No. 13224.

 

(c)           Engage in or conspire to engage in any transaction that evades or
avoids, or has the purpose of evading or avoiding, or attempts to violate, any
of the prohibitions set forth in the Executive Order No. 13224, the USA PATRIOT
Act or any other Anti-Terrorism Law.  Borrower shall deliver to Lenders any
certification or other evidence requested from time to time by any Lender in its
sole discretion, confirming Borrower’s compliance with this Section.

 

7.19.        Membership/Partnership Interests.  Elect to treat or permit any of
its Subsidiaries to (x) treat its limited liability company membership interests
or partnership interests, as the case may be, as securities as contemplated by
the definition of “security” in Section 8-102(15) and by

 

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Section 8-103 of Article 8 of Uniform Commercial Code or (y) certificate its
limited liability company membership interests or partnership interests, as the
case may be.

 

7.20.        Trading with the Enemy Act.  Engage in any business or activity in
violation of the Trading with the Enemy Act.

 

VIII.        CONDITIONS PRECEDENT.

 

8.1.          Conditions to Initial Advances.  The agreement of Lenders to make
the initial Advances requested to be made on the Closing Date is subject to the
satisfaction, or waiver by Agent, immediately prior to or concurrently with the
making of such Advances, of the following conditions precedent:

 

(a)           Note.  Agent shall have received the Notes duly executed and
delivered by an authorized officer of each Borrower;

 

(b)           Filings, Registrations and Recordings.  Each document (including
any Uniform Commercial Code financing statement) required by this Agreement, any
related agreement or under law or reasonably requested by the Agent to be filed,
registered or recorded in order to create, in favor of Agent, a perfected
security interest in or lien upon the Collateral shall have been properly filed,
registered or recorded in each jurisdiction in which the filing, registration or
recordation thereof is so required or requested, and Agent shall have received
an acknowledgment copy, or other evidence satisfactory to it, of each such
filing, registration or recordation and satisfactory evidence of the payment of
any necessary fee, tax or expense relating thereto;

 

(c)           Leasehold Agreements.  Agent shall have received landlord,
mortgagee or warehouseman agreements satisfactory to Agent with respect to all
premises leased by Borrowers at which Inventory and books and records are
located;

 

(d)           Pledge and Other Documents.  Agent shall have received (i) the
Pledge Agreement, and (ii) the executed Other Documents, all in form and
substance satisfactory to Agent;

 

(e)           Mortgage and Surveys. Agent shall have received in form and
substance satisfactory to Lenders (i) an executed Mortgage and (ii) surveys;

 

(f)            Title Insurance.  Agent shall have received fully paid mortgagee
title insurance policies (or binding commitments to issue title insurance
policies, marked to Agent’s satisfaction to evidence the form of such policies
to be delivered with respect to the Mortgage), in standard ALTA form, issued by
a title insurance company satisfactory to Agent, each in an amount equal to not
less than the fair market value of the Real Property subject to the Mortgage,
insuring the Mortgage to create a valid Lien on the Real Property with no
exceptions which Agent shall not have approved in writing and no survey
exceptions;

 

(g)           Environmental Reports.  Agent shall have received all
environmental studies and reports prepared by independent environmental
engineering firms with respect to all Real Property owned;

 

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(h)           Financial Condition Certificates.  Agent shall have received an
executed Financial Condition Certificate in the form of Exhibit 8.1(h).

 

(i)            Closing Certificate.  Agent shall have received a closing
certificate signed by the Chief Financial Officer of Borrowing Agent dated as of
the date hereof, stating that (i) all representations and warranties set forth
in this Agreement and the Other Documents are true and correct on and as of such
date, and (ii) on such date no Default or Event of Default has occurred or is
continuing;

 

(j)            Borrowing Base.  Agent shall have received evidence from
Borrowers that the aggregate amount of Eligible Receivables, Eligible Unbilled
Receivables, Eligible Credit Card Receivables Amount, Eligible Whirlpool
Inventory, Eligible Whirlpool Aged Inventory and Eligible Inventory is
sufficient in value and amount to support Advances in the amount requested by
Borrowers on the Closing Date;

 

(k)           Blocked Accounts.  Agent shall have received duly executed
agreements establishing the Blocked Accounts or Depository Accounts with
financial institutions acceptable to Agent for the collection or servicing of
the Receivables and proceeds of the Collateral;

 

(l)            Proceedings of Borrowers.  Agent shall have received a copy of
the resolutions in form and substance reasonably satisfactory to Agent, of the
Board of Directors of each Borrower authorizing (i) the execution, delivery and
performance of this Agreement, the Notes, the Mortgage, and any related
agreements, and (ii) the granting by each Borrower of the security interests in
and liens upon the Collateral in each case certified by the Secretary, or an
Assistant Secretary of each Borrower as of the Closing Date; and, such
certificate shall state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded as of the date of such certificate;

 

(m)          Incumbency Certificates of Borrowers.  Agent shall have received a
certificate of the Secretary or an Assistant Secretary of each Borrower, dated
the Closing Date, as to the incumbency and signature of the officers of each
Borrower and Guarantor, as applicable, executing this Agreement, the Other
Documents and any certificate or other documents to be delivered by it pursuant
hereto, together with evidence of the incumbency of such Secretary or Assistant
Secretary;

 

(n)           Certificates.  Agent shall have received a copy of the Articles or
Certificate of Incorporation of each Borrower, and all amendments thereto,
certified by the Secretary of State or other appropriate official of its
jurisdiction of incorporation together with copies of the By-Laws of each
Borrower and all agreements of each Borrower’s shareholders certified as
accurate and complete by the Secretary of each Borrower;

 

(o)           Good Standing Certificates.  Agent shall have received good
standing certificates for each Borrower dated not more than 20 days prior to the
Closing Date, issued by the Secretary of State or other appropriate official of
each Borrower’s jurisdiction of incorporation and each jurisdiction where the
conduct of each Borrower’s and each Guarantor’s business activities or the
ownership of its properties necessitates qualification;

 

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(p)           Legal Opinion.  Agent shall have received the executed legal
opinions of (i) Mackall, Crounse & Moore, P.C., (ii) local California counsel,
and (iii) local Canadian counsel, each in form and substance satisfactory to
Agent which shall cover such matters incident to the transactions contemplated
by this Agreement, the Notes, the Fee Letter, the Mortgage, the Other Documents,
and related agreements as Agent may reasonably require and each Borrower hereby
authorizes and directs such counsel to deliver such opinions to Agent and
Lenders;

 

(q)           AAP Joint Venture.  Agent shall have received the certificate of
formation and operating agreement of the AAP Joint Venture, all other agreements
among members of the AAP Joint Venture, any guarantees by any Borrower of any
obligations the AAP Joint Venture and any other documents, instruments and
agreements requested by Agent with respect to the AAP Joint Venture.

 

(r)            Whirlpool Inventory.  Agent shall have received all repurchase
agreements with respect to Whirlpool Inventory and all such agreements shall be
satisfactory to both Agent;

 

(s)           No Litigation.  (i) No litigation, investigation or proceeding
before or by any arbitrator or Governmental Body shall be continuing or
threatened against any Borrower or against the officers or directors of any
Borrower (A) in connection with this Agreement, the Other Documents or any of
the transactions contemplated thereby and which, in the reasonable opinion of
Agent, is deemed material or (B) which could, in the reasonable opinion of
Agent, have a Material Adverse Effect; and (ii) no injunction, writ, restraining
order or other order of any nature materially adverse to any Borrower or the
conduct of its business or inconsistent with the due consummation of the
Transactions shall have been issued by any Governmental Body;

 

(t)            Collateral Examination.  Agent shall have completed Collateral
examinations and received appraisals, the results of which shall be satisfactory
in form and substance to Lenders, of the Receivables, Inventory, General
Intangibles, Real Property, and Equipment of each Borrower and all books and
records in connection therewith;

 

(u)           Fees.  Agent shall have received all fees payable to Agent and
Lenders on or prior to the Closing Date hereunder, including pursuant to
Article III hereof;

 

(v)           Pro Forma Financial Statements.  Agent shall have received a copy
of the Pro Forma Financial Statements which shall be satisfactory in all
respects to Lenders;

 

(w)          Insurance.  Agent shall have received in form and substance
satisfactory to Agent, certified copies of Borrowers’ casualty insurance
policies, together with loss payable endorsements on Agent’s standard form of
loss payee endorsement naming Agent as loss payee, and certified copies of
Borrowers’ liability insurance policies, together with endorsements naming Agent
as a co-insured;

 

(x)            Payment Instructions.  Agent shall have received written
instructions from Borrowing Agent directing the application of proceeds of the
initial Advances made pursuant to this Agreement;

 

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

 

(z)            No Adverse Material Change.  (i) since October 31, 2010, there
shall not have occurred any event, condition or state of facts which could
reasonably be expected to have a Material Adverse Effect and (ii) no
representations made or information supplied to Agent or Lenders shall have been
proven to be inaccurate or misleading in any material respect;

 

(aa)         Contract Review.  Agent shall have reviewed all Material Contracts
of Borrowers including leases, union contracts, labor contracts, vendor supply
contracts, license agreements and distributorship agreements and such contracts
and agreements shall be satisfactory in all respects to Agent;

 

(bb)         Undrawn Availability.  After giving effect to the initial Advances
hereunder, Borrowers shall have Undrawn Availability of at least $2,000,000;

 

(cc)         Compliance with Laws.  Agent shall be reasonably satisfied that
each Borrower is in compliance with all pertinent federal, state, local or
territorial regulations, including those with respect to the Federal
Occupational Safety and Health Act, the Environmental Protection Act, ERISA and
the Trading with the Enemy Act; and

 

(dd)         Other.  All corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the Transactions shall be
satisfactory in form and substance to Agent and its counsel.

 

8.2.          Conditions to Each Advance.  The agreement of Lenders to make any
Advance requested to be made on any date (including the initial Advance), is
subject to the satisfaction of the following conditions precedent as of the date
such Advance is made:

 

(a)           Representations and Warranties.  Each of the representations and
warranties made by any Borrower in or pursuant to this Agreement, the Other
Documents and any related agreements to which it is a party, and each of the
representations and warranties contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement, the Other Documents or any related agreement shall be true and
correct in all respects on and as of such date as if made on and as of such
date;

 

(b)           No Default.  No Event of Default or Default shall have occurred
and be continuing on such date, or would exist after giving effect to the
Advances requested to be made, on such date; provided, however that Agent, in
its sole discretion, may continue to make Advances notwithstanding the existence
of an Event of Default or Default and that any Advances so made shall not be
deemed a waiver of any such Event of Default or Default; and

 

(c)           Maximum Advances.  In the case of any type of Advance requested to
be made, after giving effect thereto, the aggregate amount of such type of
Advance shall not exceed the maximum amount of such type of Advance permitted
under this Agreement.

 

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Each request for an Advance by any Borrower hereunder shall constitute a
representation and warranty by each Borrower as of the date of such Advance that
the conditions contained in this subsection shall have been satisfied.

 

IX.           INFORMATION AS TO BORROWERS.

 

Each Borrower shall, or (except with respect to Section 9.11) shall cause
Borrowing Agent on its behalf to, until satisfaction in full of the Obligations
and the termination of this Agreement:

 

9.1.          Disclosure of Material Matters.  Immediately upon learning
thereof, report to Agent all matters materially affecting the value,
enforceability or collectibility of any portion of the Collateral, including any
Borrower’s reclamation or repossession of, or the return to any Borrower of, a
material amount of goods or claims or disputes asserted by any Customer or other
obligor.

 

9.2.          Schedules.  Deliver to Agent on or before (i) the twentieth (20th)
day of each month as and for the prior month: (a) accounts receivable ageings
inclusive of reconciliations to the general ledger, (b) accounts payable
ageings; and (ii) Thursday of each week, as and for the prior week, (a) Credit
Card Receivables reports, (b) Inventory reports, (c) sales, collections and
credits reports, and (d) a Borrowing Base Certificate in form and substance
satisfactory to Agent (which shall be calculated as of the last day of the prior
month and which shall not be binding upon Agent or restrictive of Agent’s rights
under this Agreement).  In addition, each Borrower will deliver to Agent at such
intervals as Agent may require: (i) confirmatory assignment schedules; (ii)
copies of Customer’s invoices; (iii) evidence of shipment or delivery; and (iv)
such further schedules, documents and/or information regarding the Collateral as
Agent may require including trial balances and test verifications.  Agent shall
have the right to confirm and verify all Receivables by any manner and through
any medium it considers advisable and do whatever it may deem reasonably
necessary to protect its interests hereunder.  The items to be provided under
this Section are to be in form satisfactory to Agent and executed by each
Borrower and delivered to Agent from time to time solely for Agent’s convenience
in maintaining records of the Collateral, and any Borrower’s failure to deliver
any of such items to Agent shall not affect, terminate, modify or otherwise
limit Agent’s Lien with respect to the Collateral.

 

9.3.          Environmental Reports.  Furnish Agent, concurrently with the
delivery of the financial statements referred to in Sections 9.7 and 9.8, with a
certificate signed by the President of Borrowing Agent stating, to the best of
his knowledge, that each Borrower is in compliance in all material respects with
all federal, state and local Environmental Laws.  To the extent any Borrower is
not in compliance with the foregoing laws, the certificate shall set forth with
specificity all areas of non-compliance and the proposed action such Borrower
will implement in order to achieve full compliance.

 

9.4.          Litigation.  Promptly notify Agent in writing of any claim,
litigation, suit or administrative proceeding affecting any Borrower or any
Guarantor, whether or not the claim is covered by insurance, and of any
litigation, suit or administrative proceeding, which in any such

 

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case affects the Collateral or which could reasonably be expected to have a
Material Adverse Effect.

 

9.5.          Material Occurrences.  Promptly notify Agent in writing upon the
occurrence of: (a) any Event of Default or Default; (b) any event of default
under any Subordinated Indebtedness; (c) any event which with the giving of
notice or lapse of time, or both, would constitute an event of default under any
Subordinated Indebtedness; (d) any event, development or circumstance whereby
any financial statements or other reports furnished to Agent fail in any
material respect to present fairly, in accordance with GAAP consistently
applied, the financial condition or operating results of any Borrower as of the
date of such statements; (e) any accumulated retirement plan funding deficiency
which, if such deficiency continued for two plan years and was not corrected as
provided in Section 4971 of the Code, could subject any Borrower to a tax
imposed by Section 4971 of the Code; (f) each and every default by any Borrower
which might result in the acceleration of the maturity of any Indebtedness,
including the names and addresses of the holders of such Indebtedness with
respect to which there is a default existing or with respect to which the
maturity has been or could be accelerated, and the amount of such Indebtedness;
and (g) any other development in the business or affairs of any Borrower or any
Guarantor, which could reasonably be expected to have a Material Adverse Effect;
in each case describing the nature thereof and the action Borrowers propose to
take with respect thereto.

 

9.6.          Government Receivables.  Notify Agent immediately if any of its
Receivables arise out of contracts between any Borrower and the United States,
any state, Canada, any province, or any department, agency or instrumentality of
any of them.

 

9.7.          Annual Financial Statements.  Furnish Agent and Lenders within
ninety (90) days after the end of each fiscal year of Borrowers, financial
statements of Borrowers on a consolidating and consolidated basis including, but
not limited to, statements of income and stockholders’ equity and cash flow from
the beginning of the current fiscal year to the end of such fiscal year and the
balance sheet as at the end of such fiscal year, all prepared in accordance with
GAAP applied on a basis consistent with prior practices, and in reasonable
detail and reported upon without qualification by an independent certified
public accounting firm selected by Borrowers and satisfactory to Agent (the
“Accountants”); provided however that if Borrowers file their annual report on
Form 10-K with the SEC for the applicable fiscal year and such annual report
contains the financial statements and reports described above, in a form
acceptable to Agent in its reasonable discretion, then Borrowers may satisfy the
forgoing requirement by delivering a copy of such annual report to Agent and
each Lender.  The report of the Accountants shall be accompanied by a statement
of the Accountants certifying that (i) they have caused this Agreement to be
reviewed, (ii) in making the examination upon which such report was based either
no information came to their attention which to their knowledge constituted an
Event of Default or a Default under this Agreement or any related agreement or,
if such information came to their attention, specifying any such Default or
Event of Default, its nature, when it occurred and whether it is continuing, and
such report shall contain or have appended thereto calculations which set forth
Borrowers’ compliance with the requirements or restrictions imposed by Sections
6.5, 7.4, 7.5, 7.6, 7.7, 7.8 and 7.11 hereof.  In addition, the reports shall be
accompanied by a Compliance Certificate.

 

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9.8.          Quarterly Financial Statements.  Furnish Agent and Lenders within
forty five (45) days after the end of each fiscal quarter, an unaudited balance
sheet of Borrowers on a consolidated and consolidating basis and unaudited
statements of income and stockholders’ equity and cash flow of Borrowers on a
consolidated and consolidating basis reflecting results of operations from the
beginning of the fiscal year to the end of such quarter and for such quarter,
prepared on a basis consistent with prior practices and complete and correct in
all material respects, subject to normal and recurring year end adjustments that
individually and in the aggregate are not material to Borrowers’ business;
provided however that if Borrowers file their quarterly report on Form 10-Q with
the SEC for the applicable fiscal quarter and such quarterly report contains the
financial statements and reports described above, in a form acceptable to Agent
in its reasonable discretion, then Borrowers may satisfy the forgoing
requirement by delivering a copy of such quarterly report to Agent and each
Lender.. The reports shall be accompanied by a Compliance Certificate.

 

9.9.          Monthly Financial Statements.  Furnish Agent and Lenders within
thirty (30) days after the end of each month (other than for the months of
March, June, September and December which shall be delivered in accordance with
Sections 9.7 and 9.8 as applicable), an unaudited balance sheet of Borrowers on
a consolidated and consolidating basis and unaudited statements of income and
stockholders’ equity and cash flow of Borrowers on a consolidated and
consolidating basis reflecting results of operations from the beginning of the
fiscal year to the end of such month and for such month, prepared on a basis
consistent with prior practices and complete and correct in all material
respects, subject to normal and recurring year end adjustments that individually
and in the aggregate are not material to Borrowers’ business.  The monthly
reports shall be accompanied by a Compliance Certificate and a certification
that all rental payments owing for leased Real Property are paid and current.

 

9.10.        Other Reports.  Furnish Agent as soon as available, but in any
event within ten (10) days after the issuance thereof, with copies of such
financial statements, reports and returns as each Borrower shall send to its
stockholders.

 

9.11.        Additional Information.  Furnish Agent with such additional
information as Agent shall reasonably request in order to enable Agent to
determine whether the terms, covenants, provisions and conditions of this
Agreement and the Notes have been complied with by Borrowers including, without
the necessity of any request by Agent, (a) copies of all environmental audits
and reviews, (b) at least thirty (30) days prior thereto, notice of any
Borrower’s opening of any new office or place of business or any Borrower’s
closing of any existing office or place of business, and (c) promptly upon any
Borrower’s learning thereof, notice of any labor dispute to which any Borrower
may become a party, any strikes or walkouts relating to any of its plants or
other facilities, and the expiration of any labor contract to which any Borrower
is a party or by which any Borrower is bound.

 

9.12.        Projected Operating Budget.  Furnish Agent and Lenders, no later
than thirty (30) days prior to the beginning of each Borrower’s fiscal years
commencing with fiscal year 2012, a month by month projected operating budget
and cash flow of Borrowers on a consolidated and consolidating basis for such
fiscal year (including an income statement for each month and a balance sheet as
at the end of the last month in each fiscal quarter), such projections to be
accompanied by a certificate signed by the President or Chief Financial Officer
of each Borrower

 

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to the effect that such projections have been prepared on the basis of sound
financial planning practice consistent with past budgets and financial
statements and that such officer has no reason to question the reasonableness of
any material assumptions on which such projections were prepared.

 

9.13.        Variances From Operating Budget.  Furnish Agent, concurrently with
the delivery of the financial statements referred to in Section 9.7 and 9.8
report, a written report summarizing all material variances from budgets
submitted by Borrowers pursuant to Section 9.12 and a discussion and analysis by
management with respect to such variances.

 

9.14.        Notice of Suits, Adverse Events.  Furnish Agent with prompt written
notice of (i) any lapse or other termination of any Consent issued to any
Borrower by any Governmental Body or any other Person that is material to the
operation of any Borrower’s business, (ii) any refusal by any Governmental Body
or any other Person to renew or extend any such Consent; and (iii) copies of any
periodic or special reports filed by any Borrower or any Guarantor with any
Governmental Body or Person, if such reports indicate any material change in the
business, operations, affairs or condition of any Borrower or any Guarantor, or
if copies thereof are requested by Lender, and (iv) copies of any material
notices and other communications from any Governmental Body or Person which
specifically relate to any Borrower or any Guarantor.

 

9.15.        ERISA Notices and Requests.  Furnish Agent with immediate written
notice in the event that (i) any Borrower or any member of the Controlled Group
knows or has reason to know that a Termination Event has occurred, together with
a written statement describing such Termination Event and the action, if any,
which such Borrower or any member of the Controlled Group has taken, is taking,
or proposes to take with respect thereto and, when known, any action taken or
threatened by the Internal Revenue Service, Department of Labor or PBGC with
respect thereto, (ii) any Borrower or any member of the Controlled Group knows
or has reason to know that a prohibited transaction (as defined in Sections 406
of ERISA and 4975 of the Code) has occurred together with a written statement
describing such transaction and the action which such Borrower or any member of
the Controlled Group has taken, is taking or proposes to take with respect
thereto, (iii) a funding waiver request has been filed with respect to any Plan
together with all communications received by any Borrower or any member of the
Controlled Group with respect to such request, (iv) any increase in the benefits
of any existing Plan or the establishment of any new Plan or the commencement of
contributions to any Plan to which any Borrower or any member of the Controlled
Group was not previously contributing shall occur, (v) any Borrower or any
member of the Controlled Group shall receive from the PBGC a notice of intention
to terminate a Plan or to have a trustee appointed to administer a Plan,
together with copies of each such notice, (vi) any Borrower or any member of the
Controlled Group shall receive any favorable or unfavorable determination letter
from the Internal Revenue Service regarding the qualification of a Plan under
Section 401(a) of the Code, together with copies of each such letter; (vii) any
Borrower or any member of the Controlled Group shall receive a notice regarding
the imposition of withdrawal liability, together with copies of each such
notice; (viii) any Borrower or any member of the Controlled Group shall fail to
make a required installment or any other required payment under Section 412 of
the Code on or before the due date for such installment or payment; or (ix) any
Borrower or any member of the Controlled Group knows that (a) a Multiemployer
Plan has been terminated, (b) the administrator or plan sponsor of a
Multiemployer Plan intends to terminate a Multiemployer Plan, or (c) the PBGC
has

 

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instituted or will institute proceedings under Section 4042 of ERISA to
terminate a Multiemployer Plan.

 

9.16.        Additional Documents.  Execute and deliver to Agent, upon request,
such documents and agreements as Agent may, from time to time, reasonably
request to carry out the purposes, terms or conditions of this Agreement.

 

X.            EVENTS OF DEFAULT.

 

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

 

10.1.        Nonpayment.  Failure by any Borrower to pay any principal or
interest on the Obligations when due, whether at maturity or by reason of
acceleration pursuant to the terms of this Agreement or by notice of intention
to prepay, or by required prepayment or failure to pay when due any other
liabilities or make any other payment, fee or charge provided for herein when
due or in any Other Document;

 

10.2.        Breach of Representation.  Any representation or warranty made or
deemed made by any Borrower or any Guarantor in this Agreement, any Other
Document or any related agreement or in any certificate, document or financial
or other statement furnished at any time in connection herewith or therewith
shall prove to have been misleading in any material respect on the date when
made or deemed to have been made;

 

10.3.        Financial Information.  Failure by any Borrower to (i) furnish
financial information when due or when requested (which failure, with respect to
Sections 9.7, 9.8 or 9.9 shall not be cured within fifteen (15) days), or
(ii) permit the inspection of its books or records;

 

10.4.        Judicial Actions.  Issuance of a notice of Lien, levy, assessment,
injunction or attachment against any Borrower’s Inventory or Receivables or
against a material portion of any Borrower’s other property which is not stayed
or lifted within thirty (30) days;

 

10.5.        Noncompliance.  Except as otherwise provided for in Sections 10.1,
10.3 and 10.5(ii), (i) failure or neglect of any Borrower or any Guarantor to
perform, keep or observe any term, provision, condition, covenant herein
contained, or contained in any Other Document or any other agreement or
arrangement, now or hereafter entered into between any Borrower or any
Guarantor, and Agent or any Lender, or (ii) failure or neglect of any Borrower
to perform, keep or observe any term, provision, condition or covenant,
contained in Sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.12, 4.14, 6.1, 6.3, 6.4, 6.6,
9.4 or 9.6 hereof which is not cured within fifteen (15) days from the
occurrence of such failure or neglect;

 

10.6.        Judgments.  Any judgment or judgments are rendered against any
Borrower or any Guarantor for an aggregate amount in excess of $100,000 or
against all Borrowers or Guarantors for an aggregate amount in excess of
$100,000 and (i) enforcement proceedings shall have been commenced by a creditor
upon such judgment, (ii) there shall be any period of thirty (30) consecutive
days during which a stay of enforcement of such judgment, by reason of a pending
appeal or otherwise, shall not be in effect, or (iii) any such judgment results
in the creation of a Lien upon any of the Collateral (other than a Permitted
Encumbrance);

 

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10.7.        Bankruptcy.  Any Borrower or any Guarantor shall (i) apply for,
consent to or suffer the appointment of, or the taking of possession by, a
receiver, custodian, trustee, liquidator or similar fiduciary of itself or of
all or a substantial part of its property, (ii) make a general assignment for
the benefit of creditors, (iii) commence a voluntary case under any state or
federal bankruptcy laws (as now or hereafter in effect), (iv) be adjudicated a
bankrupt or insolvent, (v) file a petition seeking to take advantage of any
other law providing for the relief of debtors, (vi) acquiesce to, or fail to
have dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (vii) take any action for the
purpose of effecting any of the foregoing;

 

10.8.        Inability to Pay.  Any Borrower or any Guarantor shall admit in
writing its inability, or be generally unable, to pay its debts as they become
due or cease operations of its present business;

 

10.9.        Affiliate Bankruptcy.  Any Affiliate or any Subsidiary of any
Borrower, shall (i) apply for, consent to or suffer the appointment of, or the
taking of possession by, a receiver, custodian, trustee, liquidator or similar
fiduciary of itself or of all or a substantial part of its property, (ii) admit
in writing its inability, or be generally unable, to pay its debts as they
become due or cease operations of its present business, (iii) make a general
assignment for the benefit of creditors, (iv) commence a voluntary case under
any state or federal bankruptcy laws (as now or hereafter in effect), (v) be
adjudicated a bankrupt or insolvent, (vi) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (vii) acquiesce
to, or fail to have dismissed, within thirty (30) days, any petition filed
against it in any involuntary case under such bankruptcy laws, or (viii) take
any action for the purpose of effecting any of the foregoing;

 

10.10.      Material Adverse Effect. The occurrence of any Material Adverse
Effect;

 

10.11.      Lien Priority.  Any Lien created hereunder or provided for hereby or
under any related agreement (i) on Receivables or Inventory for any reason
ceases to be or is not a valid and perfected Lien having a first priority
security interest, or (ii) on any other Collateral for any reason cease to be or
is not a valid and perfected Lien having a first priority security interest
(other than Permitted Encumbrances).

 

10.12.      Subordinated Indebtedness Default.  An event of default has occurred
under any Subordinated Indebtedness or related subordination agreement, which
default shall not have been cured or waived within any applicable grace period;

 

10.13.      Cross Default.  A (a) default of the obligations of any Borrower
under any other agreement to which it is a party shall occur which causes a
Material Adverse Effect which default is not cured within any applicable grace
period, or (b) an Event of Default as defined in and under the AAP Joint Venture
Term Loan Note or any event of default under any security agreement or guaranty
executed in connection therewith;

 

10.14.      Breach of Guaranty or Pledge Agreement.  Termination or breach of
any Guaranty, Guaranty Security Agreement, Pledge Agreement or similar agreement
executed and delivered to Agent in connection with the Obligations of any
Borrower, or if any Guarantor

 

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attempts to terminate, challenges the validity of, or its liability under, any
such Guaranty, Guaranty Security Agreement, Pledge Agreement or similar
agreement;

 

10.15.      Change of Ownership.  Any Change of Control shall occur;

 

10.16.      Invalidity.  Any material provision of this Agreement or any Other
Document shall, for any reason, cease to be valid and binding on any Borrower or
any Guarantor, or any Borrower or any Guarantor shall so claim in writing to
Agent or any Lender;

 

10.17.      Licenses.  (i) Any Governmental Body shall (a) revoke, terminate,
suspend or adversely modify any license, permit, patent trademark or tradename
of any Borrower or any Guarantor, the continuation of which is material to the
continuation of any Borrower’s business, or (b) commence proceedings to suspend,
revoke, terminate or adversely modify any such license, permit, trademark,
tradename or patent and such proceedings shall not be dismissed or discharged
within sixty (60) days, or (c) schedule or conduct a hearing on the renewal of
any license, permit, trademark, tradename or patent necessary for the
continuation of any Borrower’s business and the staff of such Governmental Body
issues a report recommending the termination, revocation, suspension or
material, adverse modification of such license, permit, trademark, tradename or
patent; (ii) any agreement which is necessary or material to the operation of
any Borrower’s or any Guarantor’s business shall be revoked or terminated and
not replaced by a substitute acceptable to Agent within thirty (30) days after
the date of such revocation or termination, and such revocation or termination
and non-replacement would reasonably be expected to have a Material Adverse
Effect;

 

10.18.      Seizures.  Any portion of the Collateral shall be seized or taken by
a Governmental Body, or any Borrower or any Guarantor or the title and rights of
any Borrower, any Guarantor or any Original Owner which is the owner of any
material portion of the Collateral shall have become the subject matter of
claim, litigation, suit or other proceeding which might, in the opinion of
Agent, upon final determination, result in impairment or loss of the security
provided by this Agreement or the Other Documents;

 

10.19.      Operations.  The operations of any Borrower are interrupted at any
time for more than five (5) consecutive days, unless such Borrower shall (i) be
entitled to receive for such period of interruption, proceeds of business
interruption insurance sufficient to assure that its per diem cash needs during
such period is at least equal to its average per diem cash needs for the
consecutive three month period immediately preceding the initial date of
interruption and (ii) receive such proceeds in the amount described in clause
(i) preceding not later than thirty (30) days following the initial date of any
such interruption; provided, however, that notwithstanding the provisions of
clauses (i) and (ii) of this section, an Event of Default shall be deemed to
have occurred if such Borrower shall be receiving the proceeds of business
interruption insurance for a period of thirty (30) consecutive days; or

 

10.20.      Pension Plans.  An event or condition specified in Sections 7.16 or
9.15 hereof shall occur or exist with respect to any Plan and, as a result of
such event or condition, together with all other such events or conditions, any
Borrower or any member of the Controlled Group shall incur, or in the opinion of
Agent be reasonably likely to incur, a liability to a Plan or the

 

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PBGC (or both) which, in the reasonable judgment of Agent, would have a Material
Adverse Effect.

 

XI.                                LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT.

 

11.1.                        Rights and Remedies.

 

(a)                                  Upon the occurrence of: (i) an Event of
Default pursuant to Section 10.7 all Obligations shall be immediately due and
payable and this Agreement and the obligation of Lenders to make Advances shall
be deemed terminated; and, (ii) any of the other Events of Default and at any
time thereafter, at the option of Required Lenders all Obligations shall be
immediately due and payable and Lenders shall have the right to terminate this
Agreement and to terminate the obligation of Lenders to make Advances; and
(iii) a filing of a petition against any Borrower in any involuntary case under
any state or federal bankruptcy laws, all Obligations shall be immediately due
and payable and the obligation of Lenders to make Advances hereunder shall be
terminated other than as may be required by an appropriate order of the
bankruptcy court having jurisdiction over such Borrower.  Upon the occurrence of
any Event of Default, Agent shall have the right to exercise any and all rights
and remedies provided for herein, under the Other Documents, under the Uniform
Commercial Code and at law or equity generally, including the right to foreclose
the security interests granted herein and to realize upon any Collateral by any
available judicial procedure and/or to take possession of and sell any or all of
the Collateral with or without judicial process.  Agent may enter any of any
Borrower’s premises or other premises without legal process and without
incurring liability to any Borrower therefor, and Agent may thereupon, or at any
time thereafter, in its discretion without notice or demand, take the Collateral
and remove the same to such place as Agent may deem advisable and Agent may
require Borrowers to make the Collateral available to Agent at a convenient
place.  With or without having the Collateral at the time or place of sale,
Agent may sell the Collateral, or any part thereof, at public or private sale,
at any time or place, in one or more sales, at such price or prices, and upon
such terms, either for cash, credit or future delivery, as Agent may elect. 
Except as to that part of the Collateral which is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, Agent shall give Borrowers reasonable notification of such sale or
sales, it being agreed that in all events written notice mailed to Borrowing
Agent at least ten (10) days prior to such sale or sales is reasonable
notification.  At any public sale Agent or any Lender may bid for and become the
purchaser, and Agent, any Lender or any other purchaser at any such sale
thereafter shall hold the Collateral sold absolutely free from any claim or
right of whatsoever kind, including any equity of redemption and all such
claims, rights and equities are hereby expressly waived and released by each
Borrower.  In connection with the exercise of the foregoing remedies, including
the sale of Inventory, Agent is granted a perpetual nonrevocable, royalty free,
nonexclusive license and Agent is granted permission to use all of each
Borrower’s (a) trademarks, trade styles, trade names, patents, patent
applications, copyrights, service marks, licenses, franchises and other
proprietary rights which are used or useful in connection with Inventory for the
purpose of marketing, advertising for sale and selling or otherwise disposing of
such Inventory and (b) Equipment for the purpose of completing the manufacture
of unfinished goods.  The cash proceeds realized from the sale of any Collateral
shall be applied to the Obligations in the order set forth in Section 11.5
hereof.  Noncash proceeds will only be applied to the Obligations as

 

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they are converted into cash.  If any deficiency shall arise, Borrowers shall
remain liable to Agent and Lenders therefor.

 

(b)                                 To the extent that Applicable Law imposes
duties on the Agent to exercise remedies in a commercially reasonable manner,
each Borrower acknowledges and agrees that it is not commercially unreasonable
for the Agent: (i) to fail to incur expenses reasonably deemed significant by
the Agent to prepare Collateral for disposition or otherwise to complete raw
material or work in process into finished goods or other finished products for
disposition; (ii) to fail to obtain third party consents for access to
Collateral to be disposed of, or to obtain or, if not required by other law, to
fail to obtain governmental or third party consents for the collection or
disposition of Collateral to be collected or disposed of; (iii) to fail to
exercise collection remedies against Customers or other Persons obligated on
Collateral or to remove Liens on or any adverse claims against Collateral;
(iv) to exercise collection remedies against Customers and other Persons
obligated on Collateral directly or through the use of collection agencies and
other collection specialists; (v) to advertise dispositions of Collateral
through publications or media of general circulation, whether or not the
Collateral is of a specialized nature; (vi) to contact other Persons, whether or
not in the same business as any Borrower, for expressions of interest in
acquiring all or any portion of such Collateral; (vii) to hire one or more
professional auctioneers to assist in the disposition of Collateral, whether or
not the Collateral is of a specialized nature; (viii) to dispose of Collateral
by utilizing internet sites that provide for the auction of assets of the types
included in the Collateral or that have the reasonable capacity of doing so, or
that match buyers and sellers of assets; (ix) to dispose of assets in wholesale
rather than retail markets; (x) to disclaim disposition warranties, such as
title, possession or quiet enjoyment, (xi) to purchase insurance or credit
enhancements to insure the Agent against risks of loss, collection or
disposition of Collateral or to provide to the Agent a guaranteed return from
the collection or disposition of Collateral; or (xii) to the extent deemed
appropriate by the Agent, to obtain the services of other brokers, investment
bankers, consultants and other professionals to assist the Agent in the
collection or disposition of any of the Collateral.  Each Borrower acknowledges
that the purpose of this Section 11.1(b) is to provide non-exhaustive
indications of what actions or omissions by the Agent would not be commercially
unreasonable in the Agent’s exercise of remedies against the Collateral and that
other actions or omissions by the Agent shall not be deemed commercially
unreasonable solely on account of not being indicated in this Section 11.1(b). 
Without limitation upon the foregoing, nothing contained in this
Section 11.1(b) shall be construed to grant any rights to any Borrower or to
impose any duties on Agent that would not have been granted or imposed by this
Agreement or by Applicable Law in the absence of this Section 11.1(b).

 

(c)                                  Without limiting any right or remedy of the
Agent in this Agreement, upon the occurrence and during the continuance of any
Event of Default, the Agent may by instrument in writing appoint any person as a
receiver of all or any part of the Collateral of any Canadian Borrower.  The
Agent may from time to time remove or replace a receiver, or make application to
any court of competent jurisdiction for the appointment of a receiver.  Any
receiver appointed by the Agent shall (for purposes relating to responsibility
for the receiver’s acts or omissions) be considered to be the agent of the
applicable Canadian Borrower.  The Agent may from time to time fix the
receiver’s remuneration and the Borrowers shall pay the amount of such
remuneration to the Agent.  The Agent shall not be liable to any Canadian

 

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Borrower or any other person in connection with appointing or not appointing a
receiver or in connection with the receiver’s actions or omissions.

 

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

 

11.3.                        Setoff.  Subject to Section 14.12, in addition to
any other rights which Agent or any Lender may have under Applicable Law, upon
the occurrence of an Event of Default hereunder, Agent and such Lender shall
have a right, immediately and without notice of any kind, to apply any
Borrower’s property held by Agent and such Lender to reduce the Obligations.

 

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

 

11.5.                        Allocation of Payments After Event of Default. 
Notwithstanding any other provisions of this Agreement to the contrary, after
the occurrence and during the continuance of an Event of Default, all amounts
collected or received by the Agent on account of the Obligations or any other
amounts outstanding under any of the Other Documents or in respect of the
Collateral may, at Agent’s discretion, be paid over or delivered as follows:

 

FIRST, to the payment of all reasonable out-of-pocket costs and expenses
(including reasonable attorneys’ fees) of the Agent in connection with enforcing
its rights and the rights of the Lenders under this Agreement and the Other
Documents and any protective advances made by the Agent with respect to the
Collateral under or pursuant to the terms of this Agreement;

 

SECOND, to payment of any fees owed to the Agent;

 

THIRD, to the payment of all reasonable out-of-pocket costs and expenses
(including reasonable attorneys’ fees) of each of the Lenders to the extent
owing to such Lender pursuant to the terms of this Agreement;

 

FOURTH, to the payment of all of the Obligations consisting of accrued fees and
interest;

 

FIFTH, to the payment of the outstanding principal amount of the Obligations
(including the payment or cash collateralization of any outstanding Letters of
Credit) to be applied first to the AAP Joint Venture Term Loan;

 

SIXTH, to all other Obligations and other obligations which shall have become
due and payable under the Other Documents or otherwise and not repaid pursuant
to clauses “FIRST” through “FIFTH” above; and

 

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SEVENTH, to the payment of the surplus, if any, to whoever may be lawfully
entitled to receive such surplus.

 

In carrying out the foregoing, (i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; (ii) each of the Lenders shall receive (so long as it is
not a Defaulting Lender) an amount equal to its pro rata share (based on the
proportion that the then outstanding Advances held by such Lender bears to the
aggregate then outstanding Advances) of amounts available to be applied pursuant
to clauses “FOURTH”, “FIFTH” and “SIXTH” above; and (iii) to the extent that any
amounts available for distribution pursuant to clause “FIFTH” above are
attributable to the issued but undrawn amount of outstanding Letters of Credit,
such amounts shall be held by the Agent in a cash collateral account and applied
(A) first, to reimburse the Issuer from time to time for any drawings under such
Letters of Credit and (B) then, following the expiration of all Letters of
Credit, to all other obligations of the types described in clauses “FIFTH” and
“SIXTH” above in the manner provided in this Section 11.5.

 

XII.                            WAIVERS AND JUDICIAL PROCEEDINGS.

 

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

 

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

 

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

 

12.4.                        Additional Waivers.  As provided by Section 16.1,
this Agreement shall be governed by, and construed in accordance with, the laws
of the State of Illinois.  The following

 

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waivers and the provisions which pertain to California law are included solely
out of an abundance of caution, and shall not be construed to mean that any of
the above-referenced provisions of California law are in any way applicable to
this Agreement or the Obligations:

 

(a)                                  Each Borrower, in the event it shall be
held or deemed to be a guarantor of the Obligations of any other Borrower,
hereby expressly waives any rights and defenses that are or may become available
to such Borrower by reason of Sections 2787 to 2855, inclusive, and Sections
2899 and 3433 of the California Civil Code;

 

(b)                                 Each Borrower, in the event it shall be held
or deemed to be a guarantor of the Obligations of any other Borrower,
understands and acknowledges that if Agent forecloses judicially or
nonjudicially against any Real Property security for the Obligations, that
foreclosure could impair or destroy any ability that such Borrower may have to
seek reimbursement, contribution, or indemnification from the other Borrowers or
others based on any right such Borrower may have of subrogation, reimbursement,
contribution, or indemnification for any amounts paid by such Borrower under
this Agreement.  Each Borrower further understands and acknowledges that in the
absence of this paragraph, such potential impairment or destruction of such
Borrower’s rights, if any, may entitle such Borrower to assert a defense to this
Agreement based on Section 580d of the California Code of Civil Procedure as
interpreted in Union Bank v. Gradsky, 265 Cal. App. 2d 40 (1968).  By executing
this Agreement, such Borrower freely, irrevocably, and unconditionally: 
(i) waives and relinquishes that defense and agrees that such Borrower will be
fully liable under this Agreement even though the Agent may foreclose, either by
judicial foreclosure or by exercise of power of sale, any deed of trust securing
the Obligations; (ii) agrees that such Borrower will not assert that defense in
any action or proceeding which Agent or Lenders may commence to enforce this
Agreement; (iii) acknowledges and agrees that the rights and defenses waived by
such Borrower in this Agreement include any right or defense that such Borrower
may have or be entitled to assert based upon or arising out of any one or more
of §§ 580a, 580b, 580d, or 726 of the California Code of Civil Procedure or §
2848 of the California Civil Code; and (iv) acknowledges and agrees that Agent
and Lenders are relying on this waiver in creating the Obligations, and that
this waiver is a material part of the consideration which Agent and Lenders are
receiving for creating the Obligations;

 

(c)                                  Each Borrower waives all rights and
defenses that such Borrower may have because any of the Obligations are secured
by real property.  This means, among other things:  (i) Agent and Lenders may
collect from such Borrower without first foreclosing on any real or personal
property collateral pledged by any other Borrower or Guarantor; and (ii) if
Agent forecloses on any real property collateral pledged by any other Borrower
or Guarantor: (A) the amount of the Obligations may be reduced only by the price
for which that collateral is sold at the foreclosure sale, even if the
collateral is worth more than the sale price, and (B) the Agent may collect from
such Borrower even if Agent, by foreclosing on the real property collateral, has
destroyed any right such Borrower may have to collect from the other Borrowers. 
This is an unconditional and irrevocable waiver of any rights and defenses such
Borrower may have because any of the Obligations are secured by real property. 
These rights and defenses include, but are not limited to, any rights or
defenses based upon § 580a, 580b, 580d, or 726 of the California Code of Civil
Procedure; and

 

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(d)                                 Each Borrower waives any right or defense it
may have at law or equity, including California Code of Civil Procedure § 580a,
to a fair market value hearing or action to determine a deficiency judgment
after a foreclosure.

 

XIII.                        EFFECTIVE DATE AND TERMINATION.

 

13.1.                        Term.  This Agreement, which shall inure to the
benefit of and shall be binding upon the respective successors and permitted
assigns of each Borrower, Agent and each Lender, shall become effective on the
date hereof and shall continue in full force and effect until January 24, 2014
(the “Term”) unless sooner terminated as herein provided.  Borrowers may
terminate this Agreement at any time upon ninety (90) days’ prior written notice
upon payment in full of the Obligations.

 

13.2.                        Termination.  The termination of the Agreement
shall not affect any Borrower’s, Agent’s or any Lender’s rights, or any of the
Obligations having their inception prior to the effective date of such
termination, and the provisions hereof shall continue to be fully operative
until all transactions entered into, rights or interests created or Obligations
have been fully and indefeasibly paid, disposed of, concluded or liquidated. 
The security interests, Liens and rights granted to Agent and Lenders hereunder
and the financing statements filed hereunder shall continue in full force and
effect, notwithstanding the termination of this Agreement or the fact that
Borrowers’ Account may from time to time be temporarily in a zero or credit
position, until all of the Obligations of each Borrower have been indefeasibly
paid and performed in full after the termination of this Agreement or each
Borrower has furnished Agent and Lenders with an indemnification satisfactory to
Agent and Lenders with respect thereto.  Accordingly, each Borrower waives any
rights which it may have under the Uniform Commercial Code to demand the filing
of termination statements with respect to the Collateral, and Agent shall not be
required to send such termination statements to each Borrower, or to file them
with any filing office, unless and until this Agreement shall have been
terminated in accordance with its terms and all Obligations have been
indefeasibly paid in full in immediately available funds. All representations,
warranties, covenants, waivers and agreements contained herein shall survive
termination hereof until all Obligations are indefeasibly paid and performed in
full.

 

XIV.                        REGARDING AGENT.

 

14.1.                        Appointment.  Each Lender hereby designates PNC to
act as Agent for such Lender under this Agreement and the Other Documents.  Each
Lender hereby irrevocably authorizes Agent to take such action on its behalf
under the provisions of this Agreement and the Other Documents and to exercise
such powers and to perform such duties hereunder and thereunder as are
specifically delegated to or required of Agent by the terms hereof and thereof
and such other powers as are reasonably incidental thereto and Agent shall hold
all Collateral, payments of principal and interest, fees (except the fees set
forth in the Fee Letter), charges and collections (without giving effect to any
collection days) received pursuant to this Agreement, for the ratable benefit of
Lenders.  Agent may perform any of its duties hereunder by or through its agents
or employees.  As to any matters not expressly provided for by this Agreement
(including collection of the Note) Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of the Required Lenders, and such

 

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instructions shall be binding; provided, however, that Agent shall not be
required to take any action which exposes Agent to liability or which is
contrary to this Agreement or the Other Documents or Applicable Law unless Agent
is furnished with an indemnification reasonably satisfactory to Agent with
respect thereto.

 

14.2.                        Nature of Duties.  Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement and the
Other Documents.  Neither Agent nor any of its officers, directors, employees or
agents shall be (i) liable for any action taken or omitted by them as such
hereunder or in connection herewith, unless caused by their gross (not mere)
negligence or willful misconduct (as determined by a court of competent
jurisdiction in a final non-appealable judgment), or (ii) responsible in any
manner for any recitals, statements, representations or warranties made by any
Borrower or any officer thereof contained in this Agreement, or in any of the
Other Documents or in any certificate, report, statement or other document
referred to or provided for in, or received by Agent under or in connection
with, this Agreement or any of the Other Documents or for the value, validity,
effectiveness, genuineness, due execution, enforceability or sufficiency of this
Agreement, or any of the Other Documents or for any failure of any Borrower to
perform its obligations hereunder.  Agent shall not be under any obligation to
any Lender to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, this Agreement or any of the
Other Documents, or to inspect the properties, books or records of any
Borrower.  The duties of Agent as respects the Advances to Borrowers shall be
mechanical and administrative in nature; Agent shall not have by reason of this
Agreement a fiduciary relationship in respect of any Lender; and nothing in this
Agreement, expressed or implied, is intended to or shall be so construed as to
impose upon Agent any obligations in respect of this Agreement except as
expressly set forth herein.

 

14.3.                        Lack of Reliance on Agent and Resignation. 
Independently and without reliance upon Agent or any other Lender, each Lender
has made and shall continue to make (i) its own independent investigation of the
financial condition and affairs of each Borrower and each Guarantor in
connection with the making and the continuance of the Advances hereunder and the
taking or not taking of any action in connection herewith, and (ii) its own
appraisal of the creditworthiness of each Borrower and each Guarantor.  Agent
shall have no duty or responsibility, either initially or on a continuing basis,
to provide any Lender with any credit or other information with respect thereto,
whether coming into its possession before making of the Advances or at any time
or times thereafter except as shall be provided by any Borrower pursuant to the
terms hereof.  Agent shall not be responsible to any Lender for any recitals,
statements, information, representations or warranties herein or in any
agreement, document, certificate or a statement delivered in connection with or
for the execution, effectiveness, genuineness, validity, enforceability,
collectibility or sufficiency of this Agreement or any Other Document, or of the
financial condition of any Borrower or any Guarantor, or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement, the Note, the Other Documents or the
financial condition of any Borrower, or the existence of any Event of Default or
any Default.

 

Agent may resign on sixty (60) days’ written notice to each of Lenders and
Borrowing Agent and upon such resignation, the Required Lenders will promptly
designate a successor Agent reasonably satisfactory to Borrowers.

 

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Any such successor Agent shall succeed to the rights, powers and duties of
Agent, and the term “Agent” shall mean such successor agent effective upon its
appointment, and the former Agent’s rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent.  After any Agent’s resignation as Agent, the provisions of this
Article XIV shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement.

 

14.4.                        Certain Rights of Agent.  If Agent shall request
instructions from Lenders with respect to any act or action (including failure
to act) in connection with this Agreement or any Other Document, Agent shall be
entitled to refrain from such act or taking such action unless and until Agent
shall have received instructions from the Required Lenders; and Agent shall not
incur liability to any Person by reason of so refraining.  Without limiting the
foregoing, Lenders shall not have any right of action whatsoever against Agent
as a result of its acting or refraining from acting hereunder in accordance with
the instructions of the Required Lenders.

 

14.5.                        Reliance.  Agent shall be entitled to rely, and
shall be fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram, order
or other document or telephone message believed by it to be genuine and correct
and to have been signed, sent or made by the proper person or entity, and, with
respect to all legal matters pertaining to this Agreement and the Other
Documents and its duties hereunder, upon advice of counsel selected by it. 
Agent may employ agents and attorneys-in-fact and shall not be liable for the
default or misconduct of any such agents or attorneys-in-fact selected by Agent
with reasonable care.

 

14.6.                        Notice of Default.  Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder or under the Other Documents, unless Agent has received notice from a
Lender or Borrowing Agent referring to this Agreement or the Other Documents,
describing such Default or Event of Default and stating that such notice is a
“notice of default”.  In the event that Agent receives such a notice, Agent
shall give notice thereof to Lenders.  Agent shall take such action with respect
to such Default or Event of Default as shall be reasonably directed by the
Required Lenders; provided, that, unless and until Agent shall have received
such directions, Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of Lenders.

 

14.7.                        Indemnification.  To the extent Agent is not
reimbursed and indemnified by Borrowers, each Lender will reimburse and
indemnify Agent in proportion to its respective portion of the Advances (or, if
no Advances are outstanding, according to its Commitment Percentage), from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against Agent
in performing its duties hereunder, or in any way relating to or arising out of
this Agreement or any Other Document; provided that, Lenders shall not be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from
Agent’s gross (not mere) negligence or willful misconduct (as determined by a
court of competent jurisdiction in a final non-appealable judgment).

 

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14.8.                        Agent in its Individual Capacity.  With respect to
the obligation of Agent to lend under this Agreement, the Advances made by it
shall have the same rights and powers hereunder as any other Lender and as if it
were not performing the duties as Agent specified herein; and the term “Lender”
or any similar term shall, unless the context clearly otherwise indicates,
include Agent in its individual capacity as a Lender.  Agent may engage in
business with any Borrower as if it were not performing the duties specified
herein, and may accept fees and other consideration from any Borrower for
services in connection with this Agreement or otherwise without having to
account for the same to Lenders.

 

14.9.                        Delivery of Documents.  To the extent Agent
receives financial statements required under Sections 9.7, 9.8, 9.9, 9.12 and
9.13 or Borrowing Base Certificates from any Borrower pursuant to the terms of
this Agreement which any Borrower is not obligated to deliver to each Lender,
Agent will promptly furnish such documents and information to Lenders.

 

14.10.                  Borrowers’ Undertaking to Agent.  Without prejudice to
their respective obligations to Lenders under the other provisions of this
Agreement, each Borrower hereby undertakes with Agent to pay to Agent from time
to time on demand all amounts from time to time due and payable by it for the
account of Agent or Lenders or any of them pursuant to this Agreement to the
extent not already paid.  Any payment made pursuant to any such demand shall pro
tanto satisfy the relevant Borrower’s obligations to make payments for the
account of Lenders or the relevant one or more of them pursuant to this
Agreement.

 

14.11.                  No Reliance on Agent’s Customer Identification Program. 
Each Lender acknowledges and agrees that neither such Lender, nor any of its
Affiliates, participants or assignees, may rely on the Agent to carry out such
Lender’s, Affiliate’s, participant’s or assignee’s customer identification
program, or other obligations required or imposed under or pursuant to the USA
PATRIOT Act or the regulations thereunder, including the regulations contained
in 31 CFR 103.121 (as hereafter amended or replaced, the “CIP Regulations”), or
any other Anti-Terrorism Law, including any programs involving any of the
following items relating to or in connection with any Borrower, its Affiliates
or its agents, this Agreement, the Other Documents or the transactions hereunder
or contemplated hereby: (1) any identity verification procedures, (2) any
record-keeping, (3) comparisons with government lists, (4) customer notices or
(5) other procedures required under the CIP Regulations or such other laws.

 

14.12.                  Other Agreements.  Each of the Lenders agrees that it
shall not, without the express consent of Agent, and that it shall, to the
extent it is lawfully entitled to do so, upon the request of Agent, set off
against the Obligations, any amounts owing by such Lender to any Borrower or any
deposit accounts of any Borrower now or hereafter maintained with such Lender. 
Anything in this Agreement to the contrary notwithstanding, each of the Lenders
further agrees that it shall not, unless specifically requested to do so by
Agent, take any action to protect or enforce its rights arising out of this
Agreement or the Other Documents, it being the intent of Lenders that any such
action to protect or enforce rights under this Agreement and the Other Documents
shall be taken in concert and at the direction or with the consent of Agent or
Required Lenders.

 

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XV.                            BORROWING AGENCY.

 

15.1.                        Borrowing Agency Provisions.

 

(a)                                  Each Borrower hereby irrevocably designates
Borrowing Agent to be its attorney and agent and in such capacity to borrow,
sign and endorse notes, and execute and deliver all instruments, documents,
writings and further assurances now or hereafter required hereunder, on behalf
of such Borrower or Borrowers, and hereby authorizes Agent to pay over or credit
all loan proceeds hereunder in accordance with the request of Borrowing Agent.

 

(b)                                 The handling of this credit facility as a
co-borrowing facility with a borrowing agent in the manner set forth in this
Agreement is solely as an accommodation to Borrowers and at their request. 
Neither Agent nor any Lender shall incur liability to Borrowers as a result
thereof.  To induce Agent and Lenders to do so and in consideration thereof,
each Borrower hereby indemnifies Agent and each Lender and holds Agent and each
Lender harmless from and against any and all liabilities, expenses, losses,
damages and claims of damage or injury asserted against Agent or any Lender by
any Person arising from or incurred by reason of the handling of the financing
arrangements of Borrowers as provided herein, reliance by Agent or any Lender on
any request or instruction from Borrowing Agent or any other action taken by
Agent or any Lender with respect to this Section 15.1 except due to willful
misconduct or gross (not mere) negligence by the indemnified party (as
determined by a court of competent jurisdiction in a final and non-appealable
judgment).

 

(c)                                  All Obligations shall be joint and several,
and each Borrower shall make payment upon the maturity of the Obligations by
acceleration or otherwise, and such obligation and liability on the part of each
Borrower shall in no way be affected by any extensions, renewals and forbearance
granted to Agent or any Lender to any Borrower, failure of Agent or any Lender
to give any Borrower notice of borrowing or any other notice, any failure of
Agent or any Lender to pursue or preserve its rights against any Borrower, the
release by Agent or any Lender of any Collateral now or thereafter acquired from
any Borrower, and such agreement by each Borrower to pay upon any notice issued
pursuant thereto is unconditional and unaffected by prior recourse by Agent or
any Lender to the other Borrowers or any Collateral for such Borrower’s
Obligations or the lack thereof.  Each Borrower waives all suretyship defenses.

 

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

 

XVI.                        MISCELLANEOUS.

 

16.1.                        Governing Law.  This Agreement shall be governed by
and construed in accordance with the laws of the State of Illinois applied to
contracts to be performed wholly within the State of Illinois.  Any judicial
proceeding brought by or against any Borrower with respect to any of the
Obligations, this Agreement, the Other Documents or any related agreement may be
brought in any court of competent jurisdiction in the State of Illinois, United
States of

 

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America, and, by execution and delivery of this Agreement, each Borrower accepts
for itself and in connection with its properties, generally and unconditionally,
the non-exclusive jurisdiction of the aforesaid courts, and irrevocably agrees
to be bound by any judgment rendered thereby in connection with this Agreement. 
Each Borrower hereby waives personal service of any and all process upon it and
consents that all such service of process may be made by registered mail (return
receipt requested) directed to Borrowing Agent at its address set forth in
Section 16.6 and service so made shall be deemed completed five (5) days after
the same shall have been so deposited in the mails of the United States of
America, or, at the Agent’s option, by service upon Borrowing Agent which each
Borrower irrevocably appoints as such Borrower’s Agent for the purpose of
accepting service within the State of Illinois.  Nothing herein shall affect the
right to serve process in any manner permitted by law or shall limit the right
of Agent or any Lender to bring proceedings against any Borrower in the courts
of any other jurisdiction.  Each Borrower waives any objection to jurisdiction
and venue of any action instituted hereunder and shall not assert any defense
based on lack of jurisdiction or venue or based upon forum non conveniens.  Each
Borrower waives the right to remove any judicial proceeding brought against such
Borrower in any state court to any federal court.  Any judicial proceeding by
any Borrower against Agent or any Lender involving, directly or indirectly, any
matter or claim in any way arising out of, related to or connected with this
Agreement or any related agreement, shall be brought only in a federal or state
court located in the County of Cook, State of Illinois.

 

16.2.                        Entire Understanding.

 

(a)                                  This Agreement and the documents executed
concurrently herewith contain the entire understanding between each Borrower,
Agent and each Lender and supersedes all prior agreements and understandings, if
any, relating to the subject matter hereof.  Any promises, representations,
warranties or guarantees not herein contained and hereinafter made shall have no
force and effect unless in writing, signed by each Borrower’s, Agent’s and each
Lender’s respective officers.  Neither this Agreement nor any portion or
provisions hereof may be changed, modified, amended, waived, supplemented,
discharged, cancelled or terminated orally or by any course of dealing, or in
any manner other than by an agreement in writing, signed by the party to be
charged.  Each Borrower acknowledges that it has been advised by counsel in
connection with the execution of this Agreement and Other Documents and is not
relying upon oral representations or statements inconsistent with the terms and
provisions of this Agreement.

 

(b)                                 The Required Lenders, Agent with the consent
in writing of the Required Lenders, and Borrowers may, subject to the provisions
of this Section 16.2 (b), from time to time enter into written supplemental
agreements to this Agreement or the Other Documents executed by Borrowers, for
the purpose of adding or deleting any provisions or otherwise changing, varying
or waiving in any manner the rights of Lenders, Agent or Borrowers thereunder or
the conditions, provisions or terms thereof or waiving any Event of Default
thereunder, but only to the extent specified in such written agreements;
provided, however, that no such supplemental agreement shall, without the
consent of all Lenders:

 

(i)                                     increase the Commitment Percentage, the
maximum dollar commitment of any Lender or the Maximum Revolving Advance Amount;

 

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(ii)                                  extend the maturity of any Note or the due
date for any amount payable hereunder, or decrease the rate of interest or
reduce any fee payable by Borrowers to Lenders pursuant to this Agreement;

 

(iii)                               alter the definition of the term Required
Lenders or alter, amend or modify this Section 16.2(b);

 

(iv)                              release any Collateral during any calendar
year (other than in accordance with the provisions of this Agreement) having an
aggregate value in excess of $1,000,000;

 

(v)                                 change the rights and duties of Agent;

 

(vi)                              permit any Revolving Advance to be made if
after giving effect thereto the total of Revolving Advances outstanding
hereunder would exceed the Formula Amount for more than sixty (60) consecutive
Business Days or exceed one hundred and ten percent (110%) of the Formula
Amount;

 

(vii)                           increase the Advance Rates above the Advance
Rates in effect on the Closing Date; or

 

(viii)                        release any Guarantor.

 

Any such supplemental agreement shall apply equally to each Lender and shall be
binding upon Borrowers, Lenders and Agent and all future holders of the
Obligations.  In the case of any waiver, Borrowers, Agent and Lenders shall be
restored to their former positions and rights, and any Event of Default waived
shall be deemed to be cured and not continuing, but no waiver of a specific
Event of Default shall extend to any subsequent Event of Default (whether or not
the subsequent Event of Default is the same as the Event of Default which was
waived), or impair any right consequent thereon.

 

In the event that Agent requests the consent of a Lender pursuant to this
Section 16.2 and such consent is denied, then PNC may, at its option, require
such Lender to assign its interest in the Advances to PNC or to another Lender
or to any other Person designated by the Agent (the “Designated Lender”), for a
price equal to (i) the then outstanding principal amount thereof plus
(ii) accrued and unpaid interest and fees due such Lender, which interest and
fees shall be paid when collected from Borrowers.  In the event PNC elects to
require any Lender to assign its interest to PNC or to the Designated Lender,
PNC will so notify such Lender in writing within forty five (45) days following
such Lender’s denial, and such Lender will assign its interest to PNC or the
Designated Lender no later than five (5) days following receipt of such notice
pursuant to a Commitment Transfer Supplement executed by such Lender, PNC or the
Designated Lender, as appropriate, and Agent.

 

Notwithstanding (a) the existence of a Default or an Event of Default, (b) that
any of the other applicable conditions precedent set forth in Section 8.2 hereof
have not been satisfied or (c) any other provision of this Agreement, Agent may
at its discretion and without the consent of the Required Lenders, voluntarily
permit the outstanding Revolving Advances at any time to exceed the Formula
Amount by up to ten percent (10%) of the Formula Amount for up to sixty (60)

 

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consecutive Business Days (the “Out-of-Formula Loans”).  If Agent is willing in
its sole and absolute discretion to make such Out-of-Formula Loans, such
Out-of-Formula Loans shall be payable on demand and shall bear interest at the
Default Rate for Revolving Advances consisting of Domestic Rate Loans; provided
that, if Lenders do make Out-of-Formula Loans, neither Agent nor Lenders shall
be deemed thereby to have changed the limits of Section 2.1(a).  For purposes of
this paragraph, the discretion granted to Agent hereunder shall not preclude
involuntary overadvances that may result from time to time due to the fact that
the Formula Amount was unintentionally exceeded for any reason, including, but
not limited to, Collateral previously deemed to be either “Eligible
Receivables”, “Eligible Unbilled Receivable”, Eligible Credit Card Receivables
Amuont”, “Eligible Whirlpool Inventory”, “Eligible Whirlpool Aged Inventory” or
“Eligible Inventory”, as applicable, becomes ineligible, collections of
Receivables applied to reduce outstanding Revolving Advances are thereafter
returned for insufficient funds or overadvances are made to protect or preserve
the Collateral.  In the event Agent involuntarily permits the outstanding
Revolving Advances to exceed the Formula Amount by more than ten percent (10%),
Agent shall use its efforts to have Borrowers decrease such excess in as
expeditious a manner as is practicable under the circumstances and not
inconsistent with the reason for such excess.  Revolving Advances made after
Agent has determined the existence of involuntary overadvances shall be deemed
to be involuntary overadvances and shall be decreased in accordance with the
preceding sentence.

 

In addition to (and not in substitution of) the discretionary Revolving Advances
permitted above in this Section 16.2, the Agent is hereby authorized by
Borrowers and the Lenders, from time to time in the Agent’s sole discretion,
(A) after the occurrence and during the continuation of a Default or an Event of
Default, or (B) at any time that any of the other applicable conditions
precedent set forth in Section 8.2 hereof have not been satisfied, to make
Revolving Advances to Borrowers on behalf of the Lenders which the Agent, in its
reasonable business judgment, deems necessary or desirable (a) to preserve or
protect the Collateral, or any portion thereof, (b) to enhance the likelihood
of, or maximize the amount of, repayment of the Advances and other Obligations,
or (c) to pay any other amount chargeable to Borrowers pursuant to the terms of
this Agreement; provided, that at any time after giving effect to any such
Revolving Advances the outstanding Revolving Advances do not exceed one hundred
and ten percent (110%) of the Formula Amount.

 

16.3.                        Successors and Assigns; Participations; New
Lenders.

 

(a)                                  This Agreement shall be binding upon and
inure to the benefit of Borrowers, Agent, each Lender, all future holders of the
Obligations and their respective successors and assigns, except that no Borrower
may assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of Agent and each Lender.

 

(b)                                 Each Borrower acknowledges that in the
regular course of commercial banking business one or more Lenders may at any
time and from time to time sell participating interests in the Advances to other
financial institutions (each such transferee or purchaser of a participating
interest, a “Participant”).  Each Participant may exercise all rights of payment
(including rights of set-off) with respect to the portion of such Advances held
by it or other Obligations payable hereunder as fully as if such Participant
were the direct holder thereof provided that Borrowers shall not be required to
pay to any Participant more than the amount

 

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which it would have been required to pay to Lender which granted an interest in
its Advances or other Obligations payable hereunder to such Participant had such
Lender retained such interest in the Advances hereunder or other Obligations
payable hereunder and in no event shall Borrowers be required to pay any such
amount arising from the same circumstances and with respect to the same Advances
or other Obligations payable hereunder to both such Lender and such
Participant.  Each Borrower hereby grants to any Participant a continuing
security interest in any deposits, moneys or other property actually or
constructively held by such Participant as security for the Participant’s
interest in the Advances.

 

(c)                                  Any Lender, with the consent of Agent which
shall not be unreasonably withheld or delayed, may sell, assign or transfer all
or any part of its rights and obligations under or relating to Revolving
Advances, and/or Term Loans under this Agreement and the Other Documents to one
or more additional banks or financial institutions and one or more additional
banks or financial institutions may commit to make Advances hereunder (each a
“Purchasing Lender”), in minimum amounts of not less than $3,000,000, pursuant
to a Commitment Transfer Supplement, executed by a Purchasing Lender, the
transferor Lender, and Agent and delivered to Agent for recording.  Upon such
execution, delivery, acceptance and recording, from and after the transfer
effective date determined pursuant to such Commitment Transfer Supplement,
(i) Purchasing Lender thereunder shall be a party hereto and, to the extent
provided in such Commitment Transfer Supplement, have the rights and obligations
of a Lender thereunder with a Commitment Percentage as set forth therein, and
(ii) the transferor Lender thereunder shall, to the extent provided in such
Commitment Transfer Supplement, be released from its obligations under this
Agreement, the Commitment Transfer Supplement creating a novation for that
purpose.  Such Commitment Transfer Supplement shall be deemed to amend this
Agreement to the extent, and only to the extent, necessary to reflect the
addition of such Purchasing Lender and the resulting adjustment of the
Commitment Percentages arising from the purchase by such Purchasing Lender of
all or a portion of the rights and obligations of such transferor Lender under
this Agreement and the Other Documents.  Each Borrower hereby consents to the
addition of such Purchasing Lender and the resulting adjustment of the
Commitment Percentages arising from the purchase by such Purchasing Lender of
all or a portion of the rights and obligations of such transferor Lender under
this Agreement and the Other Documents.  Borrowers shall execute and deliver
such further documents and do such further acts and things in order to
effectuate the foregoing.

 

(d)                                 Any Lender, with the consent of Agent which
shall not be unreasonably withheld or delayed, may directly or indirectly sell,
assign or transfer all or any portion of its rights and obligations under or
relating to Revolving Advances and/or Term Loans under this Agreement and the
Other Documents to an entity, whether a corporation, partnership, trust, limited
liability company or other entity that (i) is engaged in making, purchasing,
holding or otherwise investing in bank loans and similar extensions of credit in
the ordinary course of its business and (ii) is administered, serviced or
managed by the assigning Lender or an Affiliate of such Lender (a “Purchasing
CLO” and together with each Participant and Purchasing Lender, each a
“Transferee” and collectively the “Transferees”), pursuant to a Commitment
Transfer Supplement modified as appropriate to reflect the interest being
assigned (“Modified Commitment Transfer Supplement”), executed by any
intermediate purchaser, the Purchasing CLO, the transferor Lender, and Agent as
appropriate and delivered to Agent for recording.  Upon such execution and
delivery, from and after the transfer effective date determined pursuant

 

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to such Modified Commitment Transfer Supplement, (i) Purchasing CLO thereunder
shall be a party hereto and, to the extent provided in such Modified Commitment
Transfer Supplement, have the rights and obligations of a Lender thereunder and
(ii) the transferor Lender thereunder shall, to the extent provided in such
Modified Commitment Transfer Supplement, be released from its obligations under
this Agreement, the Modified Commitment Transfer Supplement creating a novation
for that purpose.  Such Modified Commitment Transfer Supplement shall be deemed
to amend this Agreement to the extent, and only to the extent, necessary to
reflect the addition of such Purchasing CLO.  Each Borrower hereby consents to
the addition of such Purchasing CLO.  Borrowers shall execute and deliver such
further documents and do such further acts and things in order to effectuate the
foregoing.

 

(e)                                  Agent shall maintain at its address a copy
of each Commitment Transfer Supplement and Modified Commitment Transfer
Supplement delivered to it and a register (the “Register”) for the recordation
of the names and addresses of each Lender and the outstanding principal, accrued
and unpaid interest and other fees due hereunder.  The entries in the Register
shall be conclusive, in the absence of manifest error, and each Borrower, Agent
and Lenders may treat each Person whose name is recorded in the Register as the
owner of the Advance recorded therein for the purposes of this Agreement.  The
Register shall be available for inspection by Borrowing Agent or any Lender at
any reasonable time and from time to time upon reasonable prior notice.  Agent
shall receive a fee in the amount of $3,500 payable by the applicable Purchasing
Lender and/or Purchasing CLO upon the effective date of each transfer or
assignment (other than to an intermediate purchaser) to such Purchasing Lender
and/or Purchasing CLO.

 

(f)                                    Each Borrower authorizes each Lender to
disclose to any Transferee and any prospective Transferee any and all financial
information in such Lender’s possession concerning such Borrower which has been
delivered to such Lender by or on behalf of such Borrower pursuant to this
Agreement or in connection with such Lender’s credit evaluation of such
Borrower.

 

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

 

16.5.                        Indemnity.  Each Borrower shall indemnify Agent,
each Lender and each of their respective officers, directors, Affiliates,
attorneys, employees and agents from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses and disbursements of any kind or nature whatsoever (including fees and
disbursements of counsel) which may be imposed on, incurred by, or asserted
against Agent or any Lender in any claim, litigation, proceeding or
investigation instituted or conducted by any Governmental Body or
instrumentality or any other Person with respect to any aspect of, or any
transaction contemplated by, or referred to in, or any matter related to, this
Agreement or the Other

 

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Documents, whether or not Agent or any Lender is a party thereto, except to the
extent that any of the foregoing arises out of the willful misconduct of the
party being indemnified (as determined by a court of competent jurisdiction in a
final and non-appealable judgment).  Without limiting the generality of the
foregoing, this indemnity shall extend to any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses and disbursements
of any kind or nature whatsoever (including fees and disbursements of counsel)
asserted against or incurred by any of the indemnitees described above in this
Section 16.5 by any Person under any Environmental Laws or similar laws by
reason of any Borrower’s or any other Person’s failure to comply with laws
applicable to solid or hazardous waste materials, including Hazardous Substances
and Hazardous Waste, or other Toxic Substances.  Additionally, if any taxes
(excluding taxes imposed upon or measured solely by the net income of Agent and
Lenders, but including any intangibles taxes, stamp tax, recording tax or
franchise tax) shall be payable by Agent, Lenders or Borrowers on account of the
execution or delivery of this Agreement, or the execution, delivery, issuance or
recording of any of the Other Documents, or the creation or repayment of any of
the Obligations hereunder, by reason of any Applicable Law now or hereafter in
effect, Borrowers will pay (or will promptly reimburse Agent and Lenders for
payment of) all such taxes, including interest and penalties thereon, and will
indemnify and hold the indemnitees described above in this Section 16.5 harmless
from and against all liability in connection therewith.

 

16.6.                        Currency Indemnity.  If, for the purposes of
obtaining judgment in any court in any jurisdiction with respect to this
Agreement or any Other Document, it becomes necessary to convert into the
currency of such jurisdiction (the “Judgment Currency”) any amount due under
this Agreement or under any Other Document in any currency other than the
Judgment Currency (the “Currency Due”), then conversion shall be made at the
rate of exchange prevailing on the Business Day before the day on which judgment
is given.  For this purpose “rate of exchange” means the rate at which the Agent
is able, on the relevant date, to purchase the Currency Due with the Judgment
Currency in accordance with its normal practice.  In the event that there is a
change in the rate of exchange prevailing between the Business Day before the
day on which the judgment is given and the date of receipt by the Agent of the
amount due, the Borrowers will, on the date of receipt by the Agent, pay such
additional amounts, if any, or be entitled to receive reimbursement of such
amount, if any, as may be necessary to ensure that the amount received by the
Agent on such date is the amount in the Judgment Currency which when converted
at the rate of exchange prevailing on the date of receipt by the Agent is the
amount then due under this Agreement or such Other Document in the Currency
Due.  If the amount of the Currency Due which the Agent is so able to purchase
is less than the amount of the Currency Due originally due to it, the Borrowers
shall indemnify and save the Agent and the Lenders harmless from and against all
loss or damage arising as a result of such deficiency.  This indemnity shall
constitute an obligation separate and independent from the other obligations
contained in this Agreement and the Other Documents, shall give rise to a
separate and independent cause of action, shall apply irrespective of any
indulgence granted by the Agent from time to time and shall continue in full
force and effect notwithstanding any judgment or order for a liquidated sum in
respect of an amount due under this Agreement or any Other Document or under any
judgment or order.

 

16.7.                        Notice.  Any notice or request hereunder may be
given to Borrowing Agent or any Borrower or to Agent or any Lender at their
respective addresses set forth below or at such other address as may hereafter
be specified in a notice designated as a notice of change of

 

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address under this Section.  Any notice, request, demand, direction or other
communication (for purposes of this Section 16.7 only, a “Notice”) to be given
to or made upon any party hereto under any provision of this Loan Agreement
shall be given or made by telephone or in writing (which includes by means of
electronic transmission (i.e., “e-mail”) or facsimile transmission.  Any such
Notice must be delivered to the applicable parties hereto at the addresses and
numbers set forth under their respective names on Section 16.7 hereof or in
accordance with any subsequent unrevoked Notice from any such party that is
given in accordance with this Section 16.7.  Any Notice shall be effective:

 

(a)                                  In the case of hand-delivery, when
delivered;

 

(b)                                 If given by mail, four days after such
Notice is deposited with the United States or Canadian Postal Service, with
first-class postage prepaid, return receipt requested;

 

(c)                                  In the case of a telephonic Notice, when a
party is contacted by telephone, if delivery of such telephonic Notice is
confirmed no later than the next Business Day by hand delivery, a facsimile or
electronic transmission, a Website Posting or an overnight courier delivery of a
confirmatory Notice (received at or before noon on such next Business Day);

 

(d)                                 In the case of a facsimile transmission,
when sent to the applicable party’s facsimile machine’s telephone number, if the
party sending such Notice receives confirmation of the delivery thereof from its
own facsimile machine;

 

(e)                                  In the case of electronic transmission,
when actually received; and

 

(f)                                    If given by any other means (including by
overnight courier), when actually received.

 

Any Lender giving a Notice to Borrowing Agent or any Borrower shall concurrently
send a copy thereof to the Agent, and the Agent shall promptly notify the other
Lenders of its receipt of such Notice.

 

(A)

If to Agent or PNC at:

 

 

 

 

 

 

 

PNC Bank, National Association

 

 

 

200 South Wacker Drive

 

 

 

Suite 600

 

 

 

Chicago, Illinois 60606

 

 

 

Attention:

Portfolio Manager

 

 

 

Telephone:

(312) 454-2920

 

 

 

Facsimile:

(312) 454-2919

 

 

 

 

 

 

 

with an additional copy to:

 

 

 

 

 

 

 

Blank Rome LLP

 

 

 

The Chrysler Building

 

 

 

405 Lexington Avenue

 

 

 

New York, New York 10174

 

 

 

97

--------------------------------------------------------------------------------

 

 

Attn:

Lawrence F. Flick, II, Esquire

 

 

 

Telephone:

212-885-5556

 

 

 

Facsimile:

215-832-5556 (B)

 

 

 

 

 

 

 

(B)

If to a Lender other than Agent, as specified on the signature pages hereof

 

 

 

 

 

(C)

If to Borrowing Agent or any Borrower:

 

 

 

 

 

 

 

Appliance Recycling Centers of America, Inc.

 

 

 

7400 Excelsior Blvd.

 

 

 

Minneapolis, MN 55426

 

 

 

Attention:

Peter Hausback

 

 

 

Telephone:

952-930-1799

 

 

 

 

 

 

 

 

with a copy to:

 

 

 

 

 

 

 

Mackall, Crounse & Moore, PLC

 

 

 

1400 AT&T Tower

 

 

 

901 Marquette Avenue

 

 

 

Minneapolis, MN 55402

 

 

 

Attention:

Timothy J. Grande, Esquire

 

 

 

Telephone:

612-305-1400

 

 

 

Facsimile:

612-305-1414

 

 

 

16.8.                        Survival.  The obligations of Borrowers under
Sections 2.2(f), 3.7, 3.8, 3.9, 4.19(h), and 16.5 and the obligations of Lenders
under Section 14.7, shall survive termination of this Agreement and the Other
Documents and payment in full of the Obligations.

 

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

 

16.10.                  Expenses.  All costs and expenses including attorneys’
fees (including the allocated costs of in house counsel) and disbursements
incurred by Agent on its behalf or on behalf of Lenders (a) in all efforts made
to enforce payment of any Obligation or effect collection of any Collateral or
enforcement of this Agreement or any of the Other Documents, or (b) in
connection with the entering into, modification, amendment and administration of
this Agreement or any of the Other Documents or any consents or waivers
hereunder or thereunder and all related agreements, documents and instruments,
or (c) in instituting, maintaining, preserving, enforcing and foreclosing on
Agent’s security interest in or Lien on any of the Collateral, or maintaining,
preserving or enforcing any of Agent’s or any Lender’s rights hereunder or under
any of the Other Documents and under all related agreements, documents and
instruments, whether through judicial proceedings or otherwise, or (d) in
defending or prosecuting any actions or proceedings arising out of or relating
to Agent’s or any Lender’s transactions with any Borrower, any Guarantor or any
Subordinated Lender or (e) in connection

 

98

--------------------------------------------------------------------------------

 

with any advice given to Agent or any Lender with respect to its rights and
obligations under this Agreement or any of the Other Documents and all related
agreements, documents and instruments, may be charged to Borrowers’ Account and
shall be part of the Obligations.

 

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

 

16.12.                  Consequential Damages.  Neither Agent nor any Lender,
nor any agent or attorney for any of them, shall be liable to any Borrower or
any Guarantor (or any Affiliate of any such Person) for indirect, punitive,
exemplary or consequential damages arising from any breach of contract, tort or
other wrong relating to the establishment, administration or collection of the
Obligations or as a result of any transaction contemplated under this Agreement
or any Other Document.

 

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

 

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

 

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

 

16.16.                  Confidentiality; Sharing Information.   Agent, each
Lender and each Transferee shall hold all non-public information obtained by
Agent, such Lender or such Transferee pursuant to the requirements of this
Agreement in accordance with Agent’s, such Lender’s and such Transferee’s
customary procedures for handling confidential information of this nature;
provided, however, Agent, each Lender and each Transferee may disclose such
confidential information (a) to its examiners, Affiliates, outside auditors,
counsel and other professional advisors, (b) to Agent, any Lender or to any
prospective Transferees, and (c) as required or requested by any Governmental
Body or representative thereof or pursuant to legal process; provided, further
that (i) unless specifically prohibited by Applicable Law, Agent, each Lender
and each Transferee shall use its reasonable best efforts prior to disclosure
thereof, to notify the applicable Borrower of the applicable request for
disclosure of such non-public information (A) by a Governmental Body or
representative thereof (other than any such request in connection with an
examination of the financial condition of a Lender or a Transferee by such
Governmental Body) or (B) pursuant to legal process and (ii) in no event shall
Agent, any Lender or any Transferee be obligated to return any materials
furnished by any Borrower other than those

 

99

--------------------------------------------------------------------------------

 

documents and instruments in possession of Agent or any Lender in order to
perfect its Lien on the Collateral once the Obligations have been paid in full
and this Agreement has been terminated.  Each Borrower acknowledges that from
time to time financial advisory, investment banking and other services may be
offered or provided to such Borrower or one or more of its Affiliates (in
connection with this Agreement or otherwise) by any Lender or by one or more
Subsidiaries or Affiliates of such Lender and each Borrower hereby authorizes
each Lender to share any information delivered to such Lender by such Borrower
and its Subsidiaries pursuant to this Agreement, or in connection with the
decision of such Lender to enter into this Agreement, to any such Subsidiary or
Affiliate of such Lender, it being understood that any such Subsidiary or
Affiliate of any Lender receiving such information shall be bound by the
provisions of this Section 16.16 as if it were a Lender hereunder.  Such
authorization shall survive the repayment of the other Obligations and the
termination of this Agreement.

 

16.17.                  Publicity.  Each Borrower and each Lender hereby
authorizes Agent to make appropriate announcements of the financial arrangement
entered into among Borrowers, Agent and Lenders, including announcements which
are commonly known as tombstones, in such publications and to such selected
parties as Agent shall in its sole and absolute discretion deem appropriate.

 

16.18.                  Certifications From Banks and Participants; USA PATRIOT
Act.  Each Lender or assignee or participant of a Lender that is not
incorporated under the Laws of the United States of America or a state thereof
(and is not excepted from the certification requirement contained in Section 313
of the USA PATRIOT Act and the applicable regulations because it is both (i) an
affiliate of a depository institution or foreign bank that maintains a physical
presence in the United States or foreign country, and (ii) subject to
supervision by a banking authority regulating such affiliated depository
institution or foreign bank) shall deliver to the Agent the certification, or,
if applicable, recertification, certifying that such Lender is not a “shell” and
certifying to other matters as required by Section 313 of the USA PATRIOT Act
and the applicable regulations: (1) within 10 days after the Closing Date, and
(2) as such other times as are required under the USA PATRIOT Act.

 

100

--------------------------------------------------------------------------------

 

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

 

 

 

APPLIANCE RECYCLING CENTERS OF AMERICA, INC.

 

 

 

 

 

 

 

 

 

 

By:

/s/Edward R. Cameron

 

 

Name:

Edward R. Cameron

 

 

Title:

President / CEO

 

 

 

 

 

 

 

 

 

 

APPLIANCE RECYCLING CENTERS OF AMERICA-CALIFORNIA, INC.

 

 

 

 

 

 

 

 

 

 

By:

/s/Edward R. Cameron

 

 

Name:

Edward R. Cameron

 

 

Title:

President / CEO

 

 

 

 

 

 

 

 

 

 

ARCA CANADA INC.

 

 

 

 

 

 

 

 

 

 

By:

s/Edward R. Cameron

 

 

Name:

Edward R. Cameron

 

 

Title:

President / CEO

 

 

 

 

 

 

 

 

 

 

PNC BANK, NATIONAL ASSOCIATION,

 

 

As Lender and as Agent

 

 

 

 

 

 

 

 

 

 

By:

/s/Peter Zimmerer

 

 

Name:

Peter Zimmerer

 

 

Title:

S.V.P.

 

 

 

 

 

 

 

 

 

 

Commitment Percentage: 100%

 

101

--------------------------------------------------------------------------------

 

EXHIBIT 1.2

 

FORM OF BORROWING BASE CERTIFICATE

 

Borrowing Base Certificate

 

PNCBANK

 

 

 

 

 

 

 

Appliance Recycling Centers of America, Inc.

 

 

 

Report No.

 

Collateral Status

 

AR-Domestic

 

Unbilled A/R-US

 

AR-Canada

 

Unbilled A/R-
Canada

 

CC-AR

 

Inventory

 

Total

 

1. Beginning Collateral (Line 4 prior report)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2. Additions to Collateral (New Billings Increases and Adjustments)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3a. Credit Memos

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3b. Cash Collections

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4. Total Collateral

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5. Less Ineligible Collateral

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6. Total Eligible Collateral ROE (Rate of Exchange)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6a. Total Eligible Collateral (USD)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan Status

 

AR-Domestic

 

Unbilled A/R-US

 

AR-Canada

 

Unbilled A/R-
Canada

 

CC-AR

 

Inventory

 

Total

 

7. Advance Percentage

 

85.0

%

80.0

%

85.0

%

80.0

%

85.0

%

Various

 

 

 

8. Collateral Value (Line 6a X Line 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserves

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8a. Gift Card Liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8b. A/R Pmt Reserve

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8c. Whirlpool Letter of Credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8c. AAP Loan Guarantee

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8d. Cap on Canadian Facility ($1.5MM)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8e. Net Collateral Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9. Loan Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10. CA Building Refinance Funds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11. Collateral Available for Loan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For PNC Bank Use

 

 

 

 

 

DATE

 

Checked By

 

 

Date

.

 

 

 

 

 

BORROWER

Appliance Recycling Centers of America, Inc

 

 

 

 

 

 

 

 

 

 

BY

 

 

--------------------------------------------------------------------------------

 

EXHIBIT 1.2(a)

 

FORM OF COMPLIANCE CERTIFICATE

 

TO:                            PNC BANK, NATIONAL ASSOCIATION, as Administrative
Agent

 

The undersigned, the [Chief Financial Officer / Controller] of Appliance
Recycling Centers of America, Inc. (“ARCA”, together with ARCA-CA, ARCA Canada
and any other Person joined as a borrower to the Credit Agreement from time to
time, the “Borrowers” and each a “Borrower”), certifies that, under the terms
and conditions of the Revolving Credit, Term Loan and Security Agreement dated
as of December     , 2010 among Borrowers, Agent and the Lenders named therein
(the “Agreement”), (i) Borrowers are in complete compliance for the period
ending                                with all required covenants set forth in
the Agreement and no Default or Event of Default exists, [(if not true, in the
“Comments Regarding Exceptions” section below specify the Default or Event of
Default, it nature, when it occurred, whether it is continuing and the steps
being taken by Borrowers with respect to such Default or Event of Default], and
(ii) all representations and warranties in the Agreement are true and correct in
all material respects on this date. Without limiting the foregoing, the
undersigned certifies that Borrowers are in compliance with the requirements or
restrictions imposed by Sections 6.5, 7.4, 7.5, 7.6, 7.7, 7.8, 7.10 and 7.11 of
the Agreement, except as may be set forth below, and attached hereto as Schedule
A are covenant calculations which show such compliance (or non-compliance)
therewith.  (Capitalized terms used in this Certificate which are not defined
herein shall have the meanings set forth in the Agreement.)  Nothing herein
limits or modifies any of the terms or provisions of the Agreement.

 

Compliance status is indicated by circling Yes/No under “Complies” column.

 

Financial Covenants

 

Required

 

Actual

 

Complies

 

 

 

 

 

 

 

Section 6.5—Fixed Charge Coverage Ratio at least

 

1.10 to 1.00

 

         

 

Yes         No

 

Other Covenants

 

Complies

 

 

 

 

 

 

 

 

Section 7.4 —

Investments

 

Yes

 

No

 

 

 

 

 

 

 

 

Section 7.5 —

Loans

 

Yes

 

No

 

 

 

 

 

 

 

 

Section 7.6 —

Capital Expenditures

 

Yes

 

No

 

 

 

 

 

 

 

 

Section 7.7 —

Dividends

 

Yes

 

No

 

 

 

 

 

 

 

 

Section 7.8 —

Indebtedness

 

Yes

 

No

 

 

 

 

 

 

 

 

Section 7.10 —

Transactions with Affiliates

 

Yes

 

No

 

 

 

 

 

 

 

 

Section 7.11 —

Leases

 

Yes

 

No

 

 

Other than as listed in the Agreement or in a prior Compliance Certificate,
Borrowers have only the following operating and other deposit accounts,
securities accounts, commodities accounts, and other accounts at which Borrower
maintains funds or investments, at the following institutions: 
                                    .

 

Other than as listed in the Agreement or in a prior Compliance Certificate,
Borrowers have only the following patents, registered trademarks, servicemarks,
copyrights and maskworks, including any applications for any of the foregoing,
and including any licenses pursuant to which any Borrower is a licensee of any
of the foregoing:                                                   
                              .

 

--------------------------------------------------------------------------------

 

Comments Regarding
Exceptions:                                                                                .

 

Sincerely,

 

 

 

 

Date

 

 

 

 

Name:

 

 

 

Title:

[Chief Financial Officer / Controller]

 

 

 

--------------------------------------------------------------------------------

 

EXHIBIT 2.1(a)

 

REVOLVING CREDIT NOTE

 

$15,000,000

January 24, 2011

 

FOR VALUE RECEIVED, APPLIANCE RECYCLING CENTERS OF AMERICA, INC., a corporation
organized under the laws of the State of Minnesota (“ARCA”), APPLIANCE RECYCLING
CENTERS OF AMERICA-CALIFORNIA, INC., a corporation organized under the laws of
the State of California (“ARCA-CA”), ARCA CANADA INC., a corporation organized
under the laws of the province of Ontario (“ARCA Canada”, together with ARCA and
ARCA-CA, collectively, the “Borrowers”, and each a “Borrower”), hereby, jointly
and severally, promise to pay to the order of PNC BANK, NATIONAL ASSOCIATION
(“PNC”), at the office of Agent (as defined below) at the address set forth in
the Loan Agreement (as defined below) or at such other place as Agent may from
time to time designate to Borrower in writing: the lesser of the principal sum
of FIFTEEN MILLION DOLLARS ($15,000,000) or such lesser sum which then
represents PNC’s Commitment Percentage of the aggregate unpaid principal amount
of all Revolving Advances made or extended to Borrowers by PNC pursuant to the
Loan Agreement, in lawful money of the United States of America in immediately
available funds, together with interest on the principal hereunder remaining
unpaid from time to time, at the rate or rates from time to time in effect under
the Loan Agreement; provided, however, that the entire unpaid principal balance
of this Revolving Credit Note shall be due and payable in full at the end of the
Term, or earlier as provided in the Loan Agreement.

 

THIS REVOLVING CREDIT NOTE is executed and delivered under and pursuant to the
terms of that certain Revolving Credit, Term Loan and Security Agreement, dated
as of the date hereof (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the “Loan Agreement”), by and among
Borrowers, the various financial institutions named therein or which hereafter
become a party thereto as lenders (the “Lenders”) and PNC, in its capacity as
agent for Lenders (in such capacity, “Agent”) and in its capacity as a Lender.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings provided in the Loan Agreement.

 

Each Borrower hereby waives diligence, presentment, demand, protest and notice
of any kind whatsoever as further set forth in the Loan Agreement.

 

This Revolving Credit Note is one of the Revolving Credit Notes referred to in
the Loan Agreement, which among other things, contains provisions for the
acceleration of the maturity hereof upon the happening of certain events, for
optional and mandatory prepayments of the principal hereof prior to the maturity
hereof and for the amendment or waiver of certain terms and conditions therein
specified.

 

THIS REVOLVING CREDIT NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF ILLINOIS.

 

[SIGNATURES TO APPEAR ON FOLLOWING PAGE]

 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the undersigned have executed this Note the day and year
first written above intending to be legally bound hereby.

 

 

 

 

APPLIANCE RECYCLING CENTERS OF AMERICA, INC.

 

 

 

 

 

 

 

 

By:

/s/Edward R. Cameron

 

 

Name:

Edward R. Cameron

 

 

Title:

President / CEO

 

 

 

 

 

 

 

 

 

 

APPLIANCE RECYCLING CENTERS OF AMERICA-CALIFORNIA, INC.

 

 

 

 

 

 

 

 

 

 

By:

/s/Edward R. Cameron

 

 

Name:

Edward R. Cameron

 

 

Title:

President / CEO

 

 

 

 

 

 

 

 

 

 

ARCA CANADA INC.

 

 

 

 

 

 

 

 

 

 

By:

/s/Edward R. Cameron

 

 

Name:

Edward R. Cameron

 

 

Title:

President / CEO

 

--------------------------------------------------------------------------------

 

EXHIBIT 2.4(a)

 

TERM LOAN NOTE

 

$2,550,000

 

January 24, 2011

 

FOR VALUE RECEIVED, APPLIANCE RECYCLING CENTERS OF AMERICA, INC., a corporation
organized under the laws of the State of Minnesota (“ARCA”), APPLIANCE RECYCLING
CENTERS OF AMERICA-CALIFORNIA, INC., a corporation organized under the laws of
the State of California (“ARCA-CA”), ARCA CANADA INC., a corporation organized
under the laws of the province of Ontario (“ARCA Canada”, together with ARCA and
ARCA-CA, collectively, the “Borrowers”, and each a “Borrower”), hereby, jointly
and severally, promise to pay to the order of PNC BANK, NATIONAL ASSOCIATION
(“PNC”), at the office of Agent (as defined below) at the address set forth in
the Loan Agreement (as defined below) or at any other place designated at any
time by the holder hereof, in lawful money of the United States of America and
in immediately available funds, the principal sum of TWO MILLION FIVE HUNDRED
FIFTY THOUSAND DOLLARS ($2,550,000) or such lesser sum which then represents
PNC’s Commitment Percentage of the aggregate unpaid principal amount of the Term
Loan in equal and consecutive monthly installments of principal as set forth in
the Loan Agreement, each of which installments of principal shall be due and
payable in accordance with the terms of the Loan Agreement, together with
interest on the principal amount hereunder remaining unpaid from time to time
from the date hereof until this Term Loan Note is fully paid, at the rate or
rates from time to time in effect under the Loan Agreement, provided, however,
that the entire unpaid principal balance of this Term Loan Note shall be due and
payable in full at the end of the Term, or earlier as provided in the Loan
Agreement.

 

THIS TERM LOAN NOTE is executed and delivered under and pursuant to the terms of
that certain Revolving Credit, Term Loan and Security Agreement, dated as of the
date hereof (as the same may be amended, restated, supplemented or otherwise
modified from time to time, the “Loan Agreement”), by and among Borrowers, the
various financial institutions named therein or which hereafter become a party
thereto as lenders (“Lenders”) and PNC, in its capacity as agent for Lenders (in
such capacity, “Agent”) and in its capacity as a Lender.  Capitalized terms used
herein and not otherwise defined herein shall have the meanings provided in the
Loan Agreement.

 

Each Borrower hereby waives diligence, presentment, demand, protest and notice
of any kind whatsoever as further set forth in the Loan Agreement.

 

This Term Loan Note is one of the Term Notes referred to in the Loan Agreement,
which among other things, contains provisions for the acceleration of the
maturity hereof upon the happening of certain events, for optional and mandatory
prepayments of the principal hereof prior to the maturity hereof and for the
amendment or waiver of certain terms and conditions therein specified.

 

THIS TERM LOAN NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
INTERNAL SUBSTANTIVE LAWS OF THE STATE OF ILLINOIS.

 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the undersigned have executed this Note the day and year
first written above intending to be legally bound hereby.

 

 

 

APPLIANCE RECYCLING CENTERS OF AMERICA, INC.

 

 

 

 

 

 

 

 

By:

/s/Edward R. Cameron

 

 

Name:

Edward R. Cameron

 

 

Title:

President / CEO

 

 

 

 

 

 

 

 

 

 

APPLIANCE RECYCLING CENTERS OF AMERICA-CALIFORNIA, INC.

 

 

 

 

 

 

By:

/s/Edward R. Cameron

 

 

Name:

Edward R. Cameron

 

 

Title:

President / CEO

 

 

 

 

 

 

 

 

 

 

ARCA CANADA INC.

 

 

 

 

 

 

 

 

 

 

By:

/s/Edward R. Cameron

 

 

Name:

Edward R. Cameron

 

 

Title:

President / CEO

 

--------------------------------------------------------------------------------

 

EXHIBIT 5.5(b)

 

FINANCIAL PROJECTIONS

 

(Delivered directly to Agent)

 

--------------------------------------------------------------------------------

 

EXHIBIT 8.1(h)

 

FINANCIAL CONDITION CERTIFICATE

 

January 24, 2011

 

TO:         PNC Bank, National Association (“PNC”), in connection with that
certain Revolving Credit, Term Loan and Security Agreement dated of even date
herewith (the “Loan Agreement”), by and among Appliance Recycling Centers of
America, Inc., a Minnesota corporation (“ARCA”), Appliance Recycling Centers of
America-California, Inc., a California corporation (“ARCA-CA”), ARCA Canada
Inc., a corporation organized under the laws of the province of Ontario (“ARCA
Canada” together with ARCA and ARCA-CA, the “Borrowers” and each individually a
“Borrower”), the financial institutions which are now or which hereafter become
a party thereto as lenders (referred to herein, collectively, as the “Lenders”
and each, individually, a “Lender”) and PNC, in its capacity as agent for the
Lenders (in such capacity, the “Agent”) and in its capacity as a Lender.

 

In connection with the Loan Agreement and the Other Documents, I hereby certify
that, effective as of the execution of the Loan Agreement and each of the Other
Documents, I am the duly elected, qualified and acting Chief Financial Officer
of ARCA, and, solely in such capacity, I hereby conclude to my knowledge that:

 

The execution and delivery of the Loan Agreement and each of the Other Documents
and the granting of any security interests or liens pursuant to the Loan
Agreement and any of the Other Documents by Borrowers will not render any
Borrower insolvent.  I understand that, in this context, “insolvent” with
respect to a Borrower means that the present saleable value of such Borrower’s
assets, calculated on an ongoing basis, is less than the amount of its
liabilities.

 

The execution and delivery of the Loan Agreement and each of the Other Documents
and the granting of any security interests or liens pursuant to the Loan
Agreement and any of the Other Documents by Borrowers will not render any
Borrower insolvent.  I understand that, in this context, “insolvent” with
respect to a Borrower means that the present saleable value of such Borrower’s
assets, calculated on an ongoing basis, is less than the amount of its
liabilities.

 

I conclude that no Borrower will likely incur debts beyond its ability to pay as
such debts mature.  This conclusion is based, in part, upon my review of the
projections provided by the Borrowers to the Agent (“Projections”), which
project that Borrowers will have positive cash flow after paying all of their
scheduled and anticipated indebtedness as it matures.  I have concluded that the
realization from Borrowers’ assets in the ordinary and usual course of business
will be sufficient to pay their recurring current debt, short term debt, and
long term debt as such debts require.

 

I understand that the Agent and the Lenders are relying on the truth and
accuracy of the foregoing in connection with the extensions of credit under the
Loan Agreement and that no one else shall be entitled to rely on this
Certificate.  All initially capitalized terms used herein shall have the
respective meanings ascribed to them in the Loan Agreement, unless specifically
defined herein.  Unless the context of this Certificate clearly requires
otherwise, the term “or” includes the inclusive meaning represented by the
phrase “and/or.”

 

--------------------------------------------------------------------------------

 

[SIGNATURE TO FOLLOW ON SEPARATE PAGE]

 

--------------------------------------------------------------------------------

 

I hereby represent and certify, in my capacity as Chief Financial Officer of
ARCA, without personal knowledge, that the foregoing information is true and
correct and execute this certificate as of the date first written above.

 

 

 

/s/ Peter P. Hausback

 

Peter P. Hausback, Chief Financial Officer

 

--------------------------------------------------------------------------------

 

EXHIBIT 16.3

 

FORM OF COMMITMENT TRANSFER SUPPLEMENT

 

COMMITMENT TRANSFER SUPPLEMENT, dated as of                               ,
201  , by [                              ] (the “Transferor Lender”),
[                              ], (the “Purchasing Lender”), and PNC Bank,
National Association, as agent for the Lenders under the Revolving Credit, Term
Loan and Security Agreement described below (in such capacity, the “Agent”).

 

W I T N E S S E T H

 

WHEREAS, this Commitment Transfer Supplement is being executed and delivered in
accordance with Section 16.3 of that certain Revolving Credit, Term Loan and
Security Agreement dated as of                                    (as may be
amended, supplemented or otherwise modified from time to time in accordance with
the terms thereof, the “Loan Agreement”) by and among
                                        ,
                                      , and                                   
(the “Borrowers” and each a “Borrower”), the financial institutions which are
now or which hereafter become a party thereto (collectively, the “Lenders”) and
the Agent.

 

WHEREAS, Purchasing Lender wishes to become a Lender party to the Loan
Agreement; and

 

WHEREAS, the Transferor Lender is selling and assigning to Purchasing Lender
rights, obligations and commitments under the Loan Agreement;

 

NOW, THEREFORE, the parties hereto hereby agree as follows:

 

All capitalized terms used herein which are not defined shall have the meanings
given to them in the Loan Agreement.

 

XVII.       Upon receipt by the Agent of four (4) counterparts of this
Commitment Transfer Supplement, to each of which is attached a fully completed
Schedule I, and each of which has been executed by the Transferor Lender, the
Purchasing Lender and Agent, Agent will transmit to Transferor Lender and
Purchasing Lender a Transfer Effective Notice, substantially in the form of
Schedule II to this Commitment Transfer Supplement (a “Transfer Effective
Notice”).  Such Transfer Effective Notice shall set forth, inter alia, the date
on which the transfer effected by this Commitment Transfer Supplement shall
become effective (the “Transfer Effective Date”), which date unless otherwise
noted therein, shall not be earlier than the first Business Day following the
date such Transfer Effective Notice is received.  From and after the Transfer
Effective Date, Purchasing Lender shall be a Lender party to the Loan Agreement
for all purposes thereof.

 

XVIII.     At or before 12:00 Noon (New York time) on the Transfer Effective
Date, Purchasing Lender shall pay to Transferor Lender, in immediately available
funds, an amount equal to the purchase price, as agreed between Transferor
Lender and such Purchasing Lender (the “Purchase Price”), of the portion of the
Advances being purchased by such Purchasing Lender (such Purchasing Lender’s
“Purchased Percentage”) of the outstanding Advances and

 

--------------------------------------------------------------------------------

 

other amounts owing to the Transferor Lender under the Loan Agreement and the
Note(s) of Transferor Lender.  Effective upon receipt by Transferor Lender of
the Purchase Price from a Purchasing Lender, Transferor Lender hereby
irrevocably sells, assigns and transfers to such Purchasing Lender, without
recourse, representation or warranty, and Purchasing Lender hereby irrevocably
purchases, takes and assumes from Transferor Lender, such Purchasing Lender’s
Purchased Percentage of the Advances and other amounts owing to the Transferor
Lender under the Loan Agreement and such Note(s) together with all instruments,
documents and collateral security pertaining thereto.

 

XIX.        Transferor Lender has made arrangements with Purchasing Lender with
respect to (i) the portion, if any, to be paid, and the date or dates for
payment, by Transferor Lender to such Purchasing Lender of any fees heretofore
received by Transferor Lender pursuant to the Loan Agreement prior to the
Transfer Effective Date and (ii) the portion, if any, to be paid, and the date
or dates of payment, by such Purchasing Lender to Transferor Lender of fees or
interest received by such Purchasing Lender pursuant to the Loan Agreement from
and after the Transfer Effective Date.

 

XX.         (a)           All principal payments that would otherwise be payable
from and after the Transfer Effective Date to or for the account of Transferor
Lender pursuant to the Loan Agreement and the Note(s) of Transferor Lender
shall, instead, be payable to or for the account of Transferor Lender and
Purchasing Lender, as the case may be, in accordance with their respective
interests as reflected in this Commitment Transfer Supplement.

 

(b)           All interest, fees and other amounts that would otherwise accrue
for the account of Transferor Lender from and after the Transfer Effective Date
pursuant to the Loan Agreement and the Note(s) of Transferor Lender shall,
instead, accrue for the account of, and be payable to, Transferor Lender and
Purchasing Lender, as the case may be, in accordance with their respective
interests as reflected in this Commitment Transfer Supplement.  In the event
that any amount of interest, fees or other amounts accruing prior to the
Transfer Effective Date was included in the Purchase Price paid by any
Purchasing Lender, Transferor Lender and Purchasing Lender will make appropriate
arrangements for payment by Transferor Lender to such Purchasing Lender of such
amount upon receipt thereof from Borrower.

 

XXI.        Concurrently with the execution and delivery hereof, Transferor
Lender will provide to Purchasing Lender conformed copies of the Loan Agreement
and all related documents delivered to Transferor Lender.

 

XXII.      Each of the parties to this Commitment Transfer Supplement agrees
that at any time and from time to time upon the written request of any other
party, it will execute and deliver such further documents and do such further
acts and things as such other party may reasonably request in order to effect
the purposes of this Commitment Transfer Supplement.

 

XXIII.     By executing and delivering this Commitment Transfer Supplement,
Transferor Lender and Purchasing Lender confirm to and agree with each other and
Agent and Lenders as follows:  (i) other than the representation and warranty
that it is the legal and beneficial owner of the interest being assigned hereby
free and clear of any adverse claim, Transferor Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,

 

--------------------------------------------------------------------------------

 

warranties or representations made in or in connection with the Loan Agreement
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Loan Agreement, the Note(s) of Transferor Lender or any other
instrument or document furnished pursuant thereto;  (ii) Transferor Lender makes
no representation or warranty and assumes no responsibility with respect to the
financial condition of Borrowers or the performance or observance by Borrowers
of any of the Obligations under the Loan Agreement, the Note(s) or any other
instrument or document furnished pursuant hereto;  (iii)  Purchasing Lender
confirms that it has received a copy of the Loan Agreement, together with copies
of such financial statements and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Commitment Transfer Supplement; (iv) Purchasing Lender will, independently
and without reliance upon Agent, Transferor Lender or any other Lenders and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Loan Agreement;  (v)  Purchasing Lender appoints and authorizes Agent
on its behalf to take such action as agent and to exercise such powers under the
Loan Agreement and Other Documents as are delegated to the Agent by the terms
thereof;  (vi) Purchasing Lender agrees that it will perform all of its
respective obligations as set forth in the Loan Agreement and Other Documents to
be performed by each as a Lender; and (vii) Purchasing Lender represents and
warrants to Transferor Lender, Lenders, Agent and Borrower that it is either
(x) entitled to the benefits of an  income tax treaty with the United States of
America that provides for an exemption from the United States withholding tax on
interest and other payments made by Borrower under the Loan Agreement and Other
Documents or (y) is engaged in trade or business within the United States of
America.

 

XXIV.     Schedule I hereto sets forth the revised Commitment Percentage of
Transferor Lender and the Commitment Percentage of Purchasing Lender as well as
administrative information with respect to Purchasing Lender.

 

XXV.      This Commitment Transfer Supplement shall be governed by, and
construed in accordance with, the laws of the State of Illinois.

 

[SIGNATURE PAGE FOLLOWS]

 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have caused this Commitment Transfer
Supplement to be executed by their respective duly authorized officers on the
date set forth above.

 

 

 

[                                                                      ]
as Transferor Lender

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

 

[                                                                      ]

 

as Purchasing Lender

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

PNC BANK, NATIONAL ASSOCIATION
as Agent

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

Signature Page To Commitment Transfer Supplement

 

--------------------------------------------------------------------------------

 

SCHEDULE I TO COMMITMENT TRANSFER SUPPLEMENT

 

LIST OF OFFICES, ADDRESSES FOR NOTICES AND COMMITMENT AMOUNTS

 

 

 

Revised Commitment Amount

 

$

 

 

 

 

 

 

 

 

 

 

Revised Commitment Percentage

 

 

%

 

 

 

 

 

 

 

 

Commitment Amount

 

$

 

 

 

 

 

 

 

 

 

 

Commitment Percentage

 

 

%

 

Addresses for Notices for [            ]

 

Attention:

Telephone:

Telecopier:

 

--------------------------------------------------------------------------------

 

Schedule 1.2

Permitted Encumbrances

 

Debtor

 

Secured Party

 

Filing Number

 

Collateral

 

 

 

 

 

 

 

Appliance Recycling Centers of America, Inc.

 

Greatamerica Leasing Corporation

 

200610010824

 

Leased equipment Phone System

Appliance Recycling Centers of America, Inc.

 

Greatamerica Leasing Corporation

 

200612201380

 

Leased equipment, proceeds Phone System

Appliance Recycling Centers of America, Inc.

 

US Bancorp

 

200717362584

 

Specific equipment Operating Lease Loffler copiers

Appliance Recycling Centers of America, Inc.

 

Wirth Business Credit Inc.

 

200717530750

 

Leased equipment Screw Compactor

Appliance Recycling Centers of America, Inc.

 

US Bancorp

 

200719109501

 

Specific equipment

Appliance Recycling Centers of America, Inc.

 

US Bancorp

 

200719109525

 

Specific equipment

Appliance Recycling Centers of America, Inc.

 

US Bancorp

 

200719127319

 

Specific equipment

Appliance Recycling Centers of America, Inc.

 

Bank of America Leasing & Capital LLC

 

200810229283

 

Specific equipment, related accounts, general intangibles, investment property,
deposit accounts, letter of credit rights, proceeds

Appliance Recycling Centers of America, Inc.

 

Greater Bay Bank NA

 

2008104472925

 

Specific equipment, proceeds Forklift

Appliance Recycling Centers of America, Inc.

 

US Bancorp

 

200810864927

 

Specific equipment

Appliance Recycling Centers of America, Inc.

 

US Bancorp

 

200916217361

 

Specific equipment

Appliance Recycling Centers of America, Inc.

 

De Lage Landen Financial Services, Inc.

 

201021248981

 

Leased equipment, proceeds

 

--------------------------------------------------------------------------------

 

ARCA Canada Inc

 

De Lage Landen Financial Services Canada Inc.

 

657497385-200911091948 1531 0631

 

Equipment, Other, Motor Vehicles 2009 TCM FG25T6H VIN listed

ARCA Canada Inc

 

CIT Financial Ltd

 

645612408-200805291639 1616 8910

 

Equipment, Other

ARCA Canada Inc

 

De Lage Landen Financial Services Canada Inc

 

641905497-200801091947 1531 1017

 

Equipment, Other, Motor Vehicles 2009 FJ 160 VIN listed Plastec Baler

ARCA Canada Inc

 

De Lage Landen Financial Services Canada Inc

 

639938709-200710161950 1531 2325

 

Equipment, Other, Motor Vehicles 2001 Mitsubishi FG20B-KPS VIN listed Totaled
Operating Lease

 

--------------------------------------------------------------------------------

 

Schedule 1.2(a)

Cash Contributions to AAP Joint Venture

 

Date

 

Purpose

 

Total

 

Loan Amount
Outstanding

 

10/26/09

 

Working Capital/Fund Operations

 

100,000.00

 

n/a

 

11/25/09

 

Working Capital/Fund Operations

 

75,000.00

 

n/a

 

12/22/09

 

Working Capital/Fund Operations

 

200,000.00

 

n/a

 

01/25/10

 

Working Capital/Fund Operations

 

100,000.00

 

n/a

 

02/11/10

 

Working Capital/Fund Operations

 

150,000.00

 

n/a

 

02/22/10

 

Working Capital/Fund Operations

 

75,000.00

 

n/a

 

03/11/10

 

Working Capital/Fund Operations

 

100,000.00

 

n/a

 

03/31/10

 

Working Capital/Fund Operations

 

100,000.00

 

n/a

 

04/07/10

 

URT Deposit

 

1,314,086.83

 

214,086.83

 

05/17/10

 

Working Capital/Fund Operations

 

50,000.00

 

50,000.00

 

07/30/10

 

GE Q2 Short-term Product Advance

 

106,230.03

 

Paid in Full

 

08/30/10

 

URT Construction Advance

 

25,000.00

 

25,000.00

 

09/24/10

 

URT Deposit

 

1,346,244.48

 

Paid in Full

 

11/29/10

 

GE Q3 Short-term Product Advance

 

305,847.13

 

100,000.00

 

 

 

 

 

 

 

 

 

Total Cash Transfers from ARCA

 

4,047,408.47

 

389,086.83

 

 

--------------------------------------------------------------------------------

 

Schedule 4.5

Equipment and Inventory Locations, Chief Executive Office, Places of Business,
Real Property

 

Chief Executive Office:  7400 Excelsior Boulevard, St. Louis Park, Minnesota
55426

 

See attached locations

 

See attached landlord information

 

Owned Real Property

Real property situated in the City of Compton, County of Los Angeles, State of
California and is described as follows:

 

Parcels 1 and 2 of Parcel Map No. 21013, in the City of Compton, County of Los
Angeles, State of California, as per map recorded in Book 233 Pages 7 and 8 of
Parcel Map, in the Office of the County Recorder of said County.

 

Except therefrom that portion of said Parcel 2 lying southerly of the following
described line:

 

Commencing at the Northwest corner of said Parcel 1, said point also lying on
the Easterly line of Acacia Avenue, as shown on said Parcel Map No. 21013;
thence along the Westerly lines of said Parcel 1 and 2, South 02°04’39” East a
distance of 341.09 feet to the point of beginning; thence North 87°55’21” East
299.26 feet, more or less, to the Easterly line of said Parcel 2.

 

Except therefrom all oil, gas, minerals, and other hydrocarbon substances lying
below the surface of said land, but with no right of surface entry as provided
in deeds of record.

 

--------------------------------------------------------------------------------

 

Schedule 4.15(h)

Deposit and Investment Accounts

 

See attached.

 

--------------------------------------------------------------------------------

 

Schedule 5.1

Consents

 

None

 

--------------------------------------------------------------------------------

 

Schedule 5.2(a)

States of Qualification and Good Standing

 

Appliance Recycling Centers of America, Inc., a Minnesota corporation

 

Appliance Recycling Centers of America, Inc., a Minnesota corporation, is
qualified to do business in the following States:

 

Colorado

Georgia

Illinois

Indiana

Michigan

Missouri

North Carolina

Ohio

Pennsylvania

Texas

Washington

 

Appliance Recycling Centers of America-California, Inc., a California
corporation

 

ARCA CANADA INC., a Canadian corporation

 

--------------------------------------------------------------------------------

 

Schedule 5.2(b)

Subsidiaries

 

Appliance Recycling Centers of America-California, Inc., a California
corporation and ARCA CANADA INC., a Canadian corporation are subsidiaries of
Appliance Recycling Centers of America, Inc.

 

--------------------------------------------------------------------------------

 

Schedule 5.4

Federal Tax Identification Number

 

Appliance Recycling Centers of America, Inc. (41-1454591)

Appliance Recycling Centers of America-California, Inc. (36-3893973)

ARCA CANADA INC. (849019120RC0001)

 

--------------------------------------------------------------------------------

 

Schedule 5.6

Prior Names

 

Appliance Recycling Centers of America, Inc., fka On-Line Communications, Inc.,
pursuant to a merger between On-Line Communications, Inc. (MN) and Major
Appliance Pickup Service, Inc. (FL), effective date of merger August 28, 1989.

 

--------------------------------------------------------------------------------

 

Schedule 5.8(b)

Litigation

 

St. Louis Park, Minnesota Property:  A lawsuit has been commenced by RKL
Landholdings, LLC and Emad Y. Abed relating to the potential sale of the
Company’s St. Louis Park, Minnesota property.  This property has been sold to a
third party and all proceeds from the sale have been received by the Company. 
The claims made by the Plaintiffs in this matter have been alleged against both
Appliance Recycling Centers of America, Inc. and Edward Cameron, individually. 
The claims relate to an originally executed Purchase Agreement and extensions
thereto executed between the parties, which Purchase Agreement and extensions
all expired by their own terms.  The Plaintiffs have alleged various facts and
claims, including promissory estoppel, unjust enrichment, conversion, fraud,
tortuous interference with prospective advantage, and breach of contract.  The
claims allege damages in excess of $50,000, with the fraud claim alleging
damages in excess of $19,000,000.  Your attention is directed to the Complaint
for all relevant details and facts associated with the claims made in this
lawsuit.  This firm, on behalf of the Company and Mr. Cameron, has answered the
Complaint and is vigorously defending and denying all claims.  The Company
brought a motion for summary judgment to dismiss all of Plaintiffs’ claims
against the Company and the District Court, Hennepin County granted such relief
and dismissed all claims of Plaintiffs against Defendants.  Pursuant to
Plaintiffs’ right to appeal this ruling, Plaintiffs have appealed the decision
of the District Court to the Minnesota Court of Appeals.  The matter has been
briefed, but has not yet been argued.  The Company is confident that the Court
of Appeals will uphold the District Court’s ruling dismissing Plaintiffs’ claims
in their entirety.

 

Claim of Joseph Berta/ARCA-Canada:  In 2007, the Company entered into an
agreement with AMTIM Capital for AMTIM to act as ARCA’s representative to market
ARCA’s recycling services in Canada under an arrangement which pays AMTIM for
revenue generated by recycling services in Canada all as more fully set forth in
the agreements between the parties.  A dispute has arisen between AMTIM and the
Company with respect to the calculation of amounts due AMTIM pursuant to said
agreements.  AMTIM claims a discrepancy in the calculation of more than
$600,000.  The parties have met and attempted to mediate the dispute between
them with respect to the calculation of the amounts due under the agreements. 
No resolution has yet been made and no action has been commenced by either party
although AMTIM has threatened to commence litigation against the Company.  The
Company characterizes AMTIM’s likelihood of success on any potential claim as
remote.

 

--------------------------------------------------------------------------------

 

Schedule 5.8(d)

Plans

 

Appliance Recycling Centers of America, Inc. Employee Dental Option

Appliance Recycling Centers of America, Inc. Cafeteria Plan

Appliance Recycling Centers of America, Inc. Medica Plan Documents

Appliance Recycling Centers of America, Inc. Long Term and Short Term Disability
Plan and Supplemental Life Policy

 

--------------------------------------------------------------------------------

 

Schedule 5.9

Intellectual Property, Source Code Escrow Agreements

 

ApplianceSmart is an assumed name for the retail appliance stores of ARCA

ApplianceSmart Factory Outlet is a name for the retail appliance stores of ARCA

 

See registered trademarks attached

 

There are no Source Code Escrow Agreements

 

Mark

 

Status/Type

 

Class

 

Goods and Services

 

Symbol

 

Filing Date/
Serial Number

 

Registration
Date/Number

 

Affidavit of
Use Due

 

Expiration
Date

 

Comments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

APPLIANCESMART

 

Registered Service Mark

 

35

 

Retail store services featuring new and used household appliances

 

®

 

4/29/02
76/401,497

 

2,677,930
1/21/03

 

Filed 12/8/2008

 

1/21/2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ARCA INCORPORATED and Design

GRAPHIC [g21271ke29ai001.jpg]

 

Registered Service Mark

 

37

40

 

Collection of used appliances for recycling
Recycling services in the field of used appliances

 

®

 

11/19/90

74/117,164

 

3/31/92

1,681,447

 

Filed 9/4/97

 

3/31/2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REFRIGERATOR ROUNDUP

 

Registered Service Mark

 

37 and
40

 

37 — Collection of used appliances for recycling
40 — Recycling services in the field of used appliances

 

®

 

9/4/07
77/270596

 

10/21/08
3,519,141

 

Due between 10/21/2013 and 10/21/2014

 

10/21/2018

 

 

 

--------------------------------------------------------------------------------

 

Schedule 5.10

Licenses and Permits

 

See attached lists

 

--------------------------------------------------------------------------------

 

Schedule 5.14

Labor Disputes

 

None

 

--------------------------------------------------------------------------------

 

Schedule 5.27

Equity Interests

 

Number of authorized shares are 12,000,000:  10,000,000 Common Shares and
2,000,000 Preferred Shares

 

ARCA is a publicly traded company; 5%+ shareholders are as follows:

 

Perkins Capital Management Inc., 16.2% Common Stock, No options or warrants

Medallion Capital, Inc., 10.7% Common Stock, No options or warrants

Sandra Pessins, 7.2% Common Stock, No options or warrants

Norman Pessins, 1.7% Common Stock, No options or warrants

General Electric, 4.6% Common Stock, Warrant Agreement to purchase 254,042
shares of Common Stock

 

Options issued to employees and directors of the company — See attached listing

 

Appliance Recycling Centers of America, Inc.

Stock Options

 

2006 STOCK OPTION PLAN

 

 

 

 

 

GRANT

 

OPTIONS

 

OPTION PRICE

 

EXPIRATION

 

VESTING

 

OPTIONS

 

OPTIONS

 

TYPE

 

OPTIONEE

 

DATE

 

GRANTED

 

PER SHARE

 

DATE

 

DATES

 

VESTING

 

OUTSTANDING

 

ISO

 

Bradley Bremer

 

01/25/07

 

12,500

 

2.42

 

01/25/14

 

01/25/08

 

12,500

 

12,500

 

ISO

 

Bradley Bremer

 

01/25/07

 

12,500

 

2.42

 

01/25/14

 

01/25/09

 

12,500

 

12,500

 

NQO

 

Duane Carlson

 

05/10/07

 

7,500

 

3.81

 

05/10/17

 

11/10/07

 

7,500

 

7,500

 

ISO

 

Jack Cameron

 

01/18/08

 

25,000

 

5.27

 

01/18/15

 

01/18/09

 

25,000

 

25,000

 

ISO

 

Jack Cameron

 

01/18/08

 

25,000

 

5.27

 

01/18/15

 

01/18/10

 

25,000

 

25,000

 

ISO

 

Bradley Bremer

 

01/18/08

 

3,750

 

5.27

 

01/18/15

 

01/18/09

 

3,750

 

3,750

 

ISO

 

Bradley Bremer

 

01/18/08

 

3,750

 

5.27

 

01/18/15

 

01/18/10

 

3,750

 

3,750

 

ISO

 

Todd Lein

 

01/18/08

 

3,750

 

5.27

 

01/18/15

 

01/18/09

 

3,750

 

3,750

 

ISO

 

Todd Lein

 

01/18/08

 

3,750

 

5.27

 

01/18/15

 

01/18/10

 

3,750

 

3,750

 

ISO

 

Jeff Woloz

 

01/18/08

 

3,750

 

5.27

 

01/18/15

 

01/18/09

 

3,750

 

3,750

 

ISO

 

Jeff Woloz

 

01/18/08

 

3,750

 

5.27

 

01/18/15

 

01/18/10

 

3,750

 

3,750

 

ISO

 

Bruce Wall

 

01/18/08

 

2,500

 

5.27

 

01/18/15

 

01/18/09

 

2,500

 

2,500

 

ISO

 

Bruce Wall

 

01/18/08

 

2,500

 

5.27

 

01/18/15

 

01/18/10

 

2,500

 

2,500

 

ISO

 

Richard Christensen

 

01/18/08

 

2,500

 

5.27

 

01/18/15

 

01/18/09

 

2,500

 

2,500

 

ISO

 

Richard Christensen

 

01/18/08

 

2,500

 

5.27

 

01/18/15

 

01/18/10

 

2,500

 

2,500

 

ISO

 

Cheri Gibbons

 

01/18/08

 

2,500

 

5.27

 

01/18/15

 

01/18/09

 

2,500

 

2,500

 

ISO

 

Cheri Gibbons

 

01/18/08

 

2,500

 

5.27

 

01/18/15

 

01/18/10

 

2,500

 

2,500

 

ISO

 

Rachel Holmes

 

01/18/08

 

2,500

 

5.27

 

01/18/15

 

01/18/09

 

2,500

 

2,500

 

ISO

 

Rachel Holmes

 

01/18/08

 

2,500

 

5.27

 

01/18/15

 

01/18/10

 

2,500

 

2,500

 

ISO

 

Cynthia Janzig

 

01/18/08

 

2,500

 

5.27

 

01/18/15

 

01/18/09

 

2,500

 

2,500

 

ISO

 

Cynthia Janzig

 

01/18/08

 

2,500

 

5.27

 

01/18/15

 

01/18/10

 

2,500

 

2,500

 

ISO

 

Stephanie Schlachter

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/09

 

500

 

500

 

ISO

 

Stephanie Schlachter

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/10

 

500

 

500

 

ISO

 

Rick Christensen

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/09

 

500

 

500

 

ISO

 

Rick Christensen

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/10

 

500

 

500

 

ISO

 

Barb Larson

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/09

 

500

 

500

 

ISO

 

Barb Larson

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/10

 

500

 

500

 

ISO

 

Laura Torrini

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/09

 

500

 

500

 

ISO

 

Laura Torrini

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/10

 

500

 

500

 

ISO

 

Candy Hatcher

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/09

 

500

 

500

 

ISO

 

Candy Hatcher

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/10

 

500

 

500

 

ISO

 

Sara Kimm

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/09

 

500

 

500

 

ISO

 

Sara Kimm

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/10

 

500

 

500

 

ISO

 

Victoria Czypryna

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/09

 

500

 

500

 

ISO

 

Victoria Czypryna

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/10

 

500

 

500

 

ISO

 

Tabatha Carlson

 

01/18/08

 

250

 

5.27

 

01/18/15

 

01/18/09

 

250

 

250

 

ISO

 

Tabatha Carlson

 

01/18/08

 

250

 

5.27

 

01/18/15

 

01/18/10

 

250

 

250

 

ISO

 

Charlie Jones-Burge

 

01/18/08

 

250

 

5.27

 

01/18/15

 

01/18/09

 

250

 

250

 

ISO

 

Charlie Jones-Burge

 

01/18/08

 

250

 

5.27

 

01/18/15

 

01/18/10

 

250

 

250

 

ISO

 

Justin Woessner

 

01/18/08

 

250

 

5.27

 

01/18/15

 

01/18/09

 

250

 

250

 

ISO

 

Justin Woessner

 

01/18/08

 

250

 

5.27

 

01/18/15

 

01/18/10

 

250

 

250

 

ISO

 

Pete Mares

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/09

 

500

 

500

 

ISO

 

Pete Mares

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/10

 

500

 

500

 

ISO

 

Elsie Smith

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/09

 

500

 

500

 

ISO

 

Elsie Smith

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/10

 

500

 

500

 

ISO

 

Rich Burgess

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/09

 

500

 

500

 

ISO

 

Rich Burgess

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/10

 

500

 

500

 

ISO

 

Rob Dallman

 

01/18/08

 

250

 

5.27

 

01/18/15

 

01/18/09

 

250

 

250

 

ISO

 

Rob Dallman

 

01/18/08

 

250

 

5.27

 

01/18/15

 

01/18/10

 

250

 

250

 

ISO

 

Marlin Hurt

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/09

 

500

 

500

 

ISO

 

Marlin Hurt

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/10

 

500

 

500

 

ISO

 

Gabe Nielson

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/09

 

500

 

500

 

ISO

 

Gabe Nielson

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/10

 

500

 

500

 

ISO

 

Todd Morehart

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/09

 

500

 

500

 

ISO

 

Todd Morehart

 

01/18/08

 

500

 

5.27

 

01/18/15

 

01/18/10

 

500

 

500

 

ISO

 

Haler Alanis

 

01/18/08

 

1,250

 

5.27

 

01/18/15

 

01/18/09

 

1,250

 

1,250

 

ISO

 

Haler Alanis

 

01/18/08

 

1,250

 

5.27

 

01/18/15

 

01/18/10

 

1,250

 

1,250

 

ISO

 

Jason Carlson

 

01/18/08

 

1,250

 

5.27

 

01/18/15

 

01/18/09

 

1,250

 

1,250

 

 

--------------------------------------------------------------------------------

 

 

 

 

 

GRANT

 

OPTIONS

 

OPTION PRICE

 

EXPIRATION

 

VESTING

 

OPTIONS

 

OPTIONS

 

TYPE

 

OPTIONEE

 

DATE

 

GRANTED

 

PER SHARE

 

DATE

 

DATES

 

VESTING

 

OUTSTANDING

 

ISO

 

Jason Carlson

 

01/18/08

 

1,250

 

5.27

 

01/18/15

 

01/18/10

 

1,250

 

1,250

 

ISO

 

David Priest

 

01/18/08

 

1,250

 

5.27

 

01/18/15

 

01/18/09

 

1,250

 

1,250

 

ISO

 

David Priest

 

01/18/08

 

1,250

 

5.27

 

01/18/15

 

01/18/10

 

1,250

 

1,250

 

ISO

 

Rick Urbanski

 

01/18/08

 

1,250

 

5.27

 

01/18/15

 

01/18/09

 

1,250

 

1,250

 

ISO

 

Rick Urbanski

 

01/18/08

 

1,250

 

5.27

 

01/18/15

 

01/18/10

 

1,250

 

1,250

 

ISO

 

Carl Dematteo

 

01/18/08

 

1,250

 

5.27

 

01/18/15

 

01/18/09

 

1,250

 

1,250

 

ISO

 

Carl Dematteo

 

01/18/08

 

1,250

 

5.27

 

01/18/15

 

01/18/10

 

1,250

 

1,250

 

ISO

 

Ron Odum

 

01/18/08

 

1,250

 

5.27

 

01/18/15

 

01/18/09

 

1,250

 

1,250

 

ISO

 

Ron Odum

 

01/18/08

 

1,250

 

5.27

 

01/18/15

 

01/18/10

 

1,250

 

1,250

 

ISO

 

Rick Stuber

 

01/18/08

 

1,250

 

5.27

 

01/18/15

 

01/18/09

 

1,250

 

1,250

 

ISO

 

Rick Stuber

 

01/18/08

 

1,250

 

5.27

 

01/18/15

 

01/18/10

 

1,250

 

1,250

 

ISO

 

Brian Bell

 

01/18/08

 

1,250

 

5.27

 

01/18/15

 

01/18/09

 

1,250

 

1,250

 

ISO

 

Brian Bell

 

01/18/08

 

1,250

 

5.27

 

01/18/15

 

01/18/10

 

1,250

 

1,250

 

ISO

 

David Findley

 

01/18/08

 

1,250

 

5.27

 

01/18/15

 

01/18/09

 

1,250

 

1,250

 

ISO

 

David Findley

 

01/18/08

 

1,250

 

5.27

 

01/18/15

 

01/18/10

 

1,250

 

1,250

 

ISO

 

Peter Hausback

 

02/15/08

 

20,000

 

5.86

 

02/15/15

 

02/15/09

 

20,000

 

20,000

 

ISO

 

Peter Hausback

 

02/15/08

 

20,000

 

5.86

 

02/15/15

 

02/15/10

 

20,000

 

20,000

 

NQO

 

Thomas Hunt

 

02/27/08

 

7,500

 

5.26

 

02/27/18

 

08/27/08

 

7,500

 

7,500

 

NQO

 

Glynnis Jones

 

03/05/08

 

7,500

 

5.90

 

03/05/18

 

09/05/08

 

7,500

 

7,500

 

NQO

 

John Pagnuco

 

03/05/08

 

3,000

 

5.90

 

03/05/18

 

09/05/08

 

3,000

 

3,000

 

NQO

 

Morgan Wolf

 

03/10/08

 

3,750

 

5.05

 

03/10/15

 

03/10/09

 

3,750

 

3,750

 

NQO

 

Morgan Wolf

 

03/10/08

 

3,750

 

5.05

 

03/10/15

 

03/10/10

 

3,750

 

3,750

 

ISO

 

Bradley Bremer

 

03/10/08

 

1,250

 

5.05

 

03/10/15

 

03/10/09

 

1,250

 

1,250

 

ISO

 

Bradley Bremer

 

03/10/08

 

1,250

 

5.05

 

03/10/15

 

03/10/10

 

1,250

 

1,250

 

NQO

 

Duane Carlson

 

05/15/08

 

7,500

 

6.33

 

05/15/18

 

11/15/08

 

7,500

 

7,500

 

ISO

 

Jeff Cammerrer

 

07/28/08

 

4,000

 

6.41

 

07/28/15

 

07/28/09

 

4,000

 

4,000

 

ISO

 

Jeff Cammerrer

 

07/28/08

 

4,000

 

6.41

 

07/28/15

 

07/28/10

 

4,000

 

4,000

 

ISO

 

Rahsaan White

 

12/01/08

 

750

 

2.46

 

12/01/15

 

12/01/09

 

750

 

750

 

ISO

 

Rahsaan White

 

12/01/08

 

750

 

2.46

 

12/01/15

 

12/01/10

 

750

 

750

 

ISO

 

Jeffrey Brown

 

12/01/08

 

20,000

 

2.46

 

12/01/15

 

12/01/09

 

20,000

 

20,000

 

ISO

 

Jeffrey Brown

 

12/01/08

 

20,000

 

2.46

 

12/01/15

 

12/01/10

 

20,000

 

20,000

 

ISO

 

Greg Guentzel

 

05/14/09

 

2,500

 

1.87

 

05/14/16

 

05/14/10

 

2,500

 

2,500

 

ISO

 

Greg Guentzel

 

05/14/09

 

2,500

 

1.87

 

05/14/16

 

05/14/11

 

2,500

 

2,500

 

ISO

 

Paul Carns

 

05/14/09

 

1,250

 

1.87

 

05/14/16

 

05/14/10

 

1,250

 

1,250

 

ISO

 

Paul Carns

 

05/14/09

 

1,250

 

1.87

 

05/14/16

 

05/14/11

 

1,250

 

1,250

 

NQO

 

Duane Carlson

 

05/14/09

 

7,500

 

1.87

 

05/14/19

 

11/14/09

 

7,500

 

7,500

 

NQO

 

Thomas Hunt

 

05/14/09

 

7,500

 

1.87

 

05/14/19

 

11/14/09

 

7,500

 

7,500

 

NQO

 

Glynnis Jones

 

05/14/09

 

7,500

 

1.87

 

05/14/19

 

11/14/09

 

7,500

 

7,500

 

NQO

 

Morgan Wolf

 

05/14/09

 

7,500

 

1.87

 

05/14/19

 

11/14/09

 

7,500

 

7,500

 

ISO

 

Cheri Gibbons

 

11/11/09

 

1,250

 

2.22

 

11/11/16

 

11/11/10

 

1,250

 

1,250

 

ISO

 

Angela Wlashin

 

11/11/09

 

500

 

2.22

 

11/11/16

 

11/11/10

 

500

 

500

 

ISO

 

Bradley Bremer

 

11/11/09

 

4,800

 

2.22

 

11/11/16

 

11/11/10

 

4,800

 

4,800

 

ISO

 

Barb Larson

 

11/11/09

 

1,000

 

2.22

 

11/11/16

 

11/11/10

 

1,000

 

1,000

 

ISO

 

Bruce Wall

 

11/11/09

 

1,750

 

2.22

 

11/11/16

 

11/11/10

 

1,750

 

1,750

 

ISO

 

Deanna Hanson

 

11/11/09

 

500

 

2.22

 

11/11/16

 

11/11/10

 

500

 

500

 

ISO

 

Candy Hatcher

 

11/11/09

 

1,000

 

2.22

 

11/11/16

 

11/11/10

 

1,000

 

1,000

 

ISO

 

Cynthia Janzig

 

11/11/09

 

1,750

 

2.22

 

11/11/16

 

11/11/10

 

1,750

 

1,750

 

ISO

 

Charlie Jones-Burge

 

11/11/09

 

500

 

2.22

 

11/11/16

 

11/11/10

 

500

 

500

 

ISO

 

David Findley

 

11/11/09

 

500

 

2.22

 

11/11/16

 

11/11/10

 

500

 

500

 

ISO

 

Jack Cameron

 

11/11/09

 

8,500

 

2.22

 

11/11/16

 

11/11/10

 

8,500

 

8,500

 

ISO

 

Greg Guentzel

 

11/11/09

 

1,500

 

2.22

 

11/11/16

 

11/11/10

 

1,500

 

1,500

 

ISO

 

Haler Alanis

 

11/11/09

 

500

 

2.22

 

11/11/16

 

11/11/10

 

500

 

500

 

ISO

 

Jim Albers

 

11/11/09

 

500

 

2.22

 

11/11/16

 

11/11/10

 

500

 

500

 

ISO

 

Jeffrey Brown

 

11/11/09

 

1,750

 

2.22

 

11/11/16

 

11/11/10

 

1,750

 

1,750

 

ISO

 

Marlin Hurt

 

11/11/09

 

500

 

2.22

 

11/11/16

 

11/11/10

 

500

 

500

 

ISO

 

Jeff Cammerrer

 

11/11/09

 

1,750

 

2.22

 

11/11/16

 

11/11/10

 

1,750

 

1,750

 

ISO

 

Kevin McDonald

 

11/11/09

 

500

 

2.22

 

11/11/16

 

11/11/10

 

500

 

500

 

ISO

 

Laura Torrini

 

11/11/09

 

500

 

2.22

 

11/11/16

 

11/11/10

 

500

 

500

 

 

--------------------------------------------------------------------------------

 

 

 

 

 

GRANT

 

OPTIONS

 

OPTION PRICE

 

EXPIRATION

 

VESTING

 

OPTIONS

 

OPTIONS

 

TYPE

 

OPTIONEE

 

DATE

 

GRANTED

 

PER SHARE

 

DATE

 

DATES

 

VESTING

 

OUTSTANDING

 

ISO

 

Marilynn Grambsch

 

11/11/09

 

500

 

2.22

 

11/11/16

 

11/11/10

 

500

 

500

 

ISO

 

Rachel Holmes

 

11/11/09

 

2,000

 

2.22

 

11/11/16

 

11/11/10

 

2,000

 

2,000

 

ISO

 

Paul Carns

 

11/11/09

 

1,000

 

2.22

 

11/11/16

 

11/11/10

 

1,000

 

1,000

 

ISO

 

Peter Hausback

 

11/11/09

 

5,400

 

2.22

 

11/11/16

 

11/11/10

 

5,400

 

5,400

 

ISO

 

Pete Mares

 

11/11/09

 

1,500

 

2.22

 

11/11/16

 

11/11/10

 

1,500

 

1,500

 

ISO

 

Rick Christensen

 

11/11/09

 

1,000

 

2.22

 

11/11/16

 

11/11/10

 

1,000

 

1,000

 

ISO

 

Sara Kimm

 

11/11/09

 

500

 

2.22

 

11/11/16

 

11/11/10

 

500

 

500

 

ISO

 

Richard Christensen

 

11/11/09

 

1,750

 

2.22

 

11/11/16

 

11/11/10

 

1,750

 

1,750

 

ISO

 

Rahsaan White

 

11/11/09

 

1,000

 

2.22

 

11/11/16

 

11/11/10

 

1,000

 

1,000

 

ISO

 

Shanna Gebhard

 

11/11/09

 

500

 

2.22

 

11/11/16

 

11/11/10

 

500

 

500

 

ISO

 

Shamara Brock

 

11/11/09

 

500

 

2.22

 

11/11/16

 

11/11/10

 

500

 

500

 

ISO

 

Victoria Czupryna

 

11/11/09

 

500

 

2.22

 

11/11/16

 

11/11/10

 

500

 

500

 

ISO

 

Stephanie Schlachter

 

11/11/09

 

1,000

 

2.22

 

11/11/16

 

11/11/10

 

1,000

 

1,000

 

ISO

 

Todd Lein

 

11/11/09

 

1,000

 

2.22

 

11/11/16

 

11/11/10

 

1,000

 

1,000

 

ISO

 

Todd Morehart

 

11/11/09

 

500

 

2.22

 

11/11/16

 

11/11/10

 

500

 

500

 

ISO

 

Tiffany Olson

 

11/11/09

 

1,000

 

2.22

 

11/11/16

 

11/11/10

 

1,000

 

1,000

 

ISO

 

Peter Hausback

 

05/13/10

 

20,000

 

3.55

 

05/13/17

 

05/13/11

 

20,000

 

20,000

 

ISO

 

Bradley Bremer

 

05/13/10

 

15,000

 

3.55

 

05/13/17

 

05/13/11

 

15,000

 

15,000

 

ISO

 

Rachel Holmes

 

05/13/10

 

15,000

 

3.55

 

05/13/17

 

05/13/11

 

15,000

 

15,000

 

ISO

 

Jeffrey Brown

 

05/13/10

 

2,000

 

3.55

 

05/13/17

 

05/13/11

 

2,000

 

2,000

 

ISO

 

Richard Christensen

 

05/13/10

 

2,000

 

3.55

 

05/13/17

 

05/13/11

 

2,000

 

2,000

 

ISO

 

Bruce Wall

 

05/13/10

 

2,000

 

3.55

 

05/13/17

 

05/13/11

 

2,000

 

2,000

 

ISO

 

Jeff Cammerrer

 

05/13/10

 

15,000

 

3.55

 

05/13/17

 

05/13/11

 

15,000

 

15,000

 

ISO

 

Greg Guentzel

 

05/13/10

 

1,750

 

3.55

 

05/13/17

 

05/13/11

 

1,750

 

1,750

 

ISO

 

Cynthia Janzig

 

05/13/10

 

1,750

 

3.55

 

05/13/17

 

05/13/11

 

1,750

 

1,750

 

ISO

 

Todd Lein

 

05/13/10

 

1,500

 

3.55

 

05/13/17

 

05/13/11

 

1,500

 

1,500

 

ISO

 

Cheri Gibbons

 

05/13/10

 

1,500

 

3.55

 

05/13/17

 

05/13/11

 

1,500

 

1,500

 

ISO

 

Rick Christensen

 

05/13/10

 

1,500

 

3.55

 

05/13/17

 

05/13/11

 

1,500

 

1,500

 

ISO

 

Pete Mares

 

05/13/10

 

1,500

 

3.55

 

05/13/17

 

05/13/11

 

1,500

 

1,500

 

ISO

 

Paul Carns

 

05/13/10

 

1,000

 

3.55

 

05/13/17

 

05/13/11

 

1,000

 

1,000

 

ISO

 

Stephanie Schlachter

 

05/13/10

 

1,000

 

3.55

 

05/13/17

 

05/13/11

 

1,000

 

1,000

 

ISO

 

Rahsaan White

 

05/13/10

 

1,000

 

3.55

 

05/13/17

 

05/13/11

 

1,000

 

1,000

 

ISO

 

Barb Larson

 

05/13/10

 

1,000

 

3.55

 

05/13/17

 

05/13/11

 

1,000

 

1,000

 

ISO

 

Candy Hatcher

 

05/13/10

 

1,000

 

3.55

 

05/13/17

 

05/13/11

 

1,000

 

1,000

 

NQO

 

Morgan Wolf

 

05/13/10

 

7,500

 

3.55

 

05/13/20

 

11/13/10

 

7,500

 

7,500

 

NQO

 

Duane Carlson

 

05/13/10

 

7,500

 

3.55

 

05/13/20

 

11/13/10

 

7,500

 

7,500

 

NQO

 

Glynnis Jones

 

05/13/10

 

7,500

 

3.55

 

05/13/20

 

11/13/10

 

7,500

 

7,500

 

ISO

 

Jack Cameron

 

08/16/10

 

35,000

 

2.30

 

08/16/17

 

08/16/11

 

35,000

 

35,000

 

NQO

 

Dean Pickerell

 

01/03/11

 

7,500

 

2.30

 

01/03/21

 

07/03/11

 

7,500

 

7,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Totals

 

 

 

 

 

529,700

 

 

 

 

 

 

 

529,700

 

529,700

 

 

--------------------------------------------------------------------------------

 

Appliance Recycling Centers of America, Inc.

Stock Options

 

1997 STOCK OPTION PLAN

 

 

 

 

 

GRANT

 

OPTIONS

 

OPTION PRICE

 

EXPIRATION

 

VESTING

 

OPTIONS

 

OPTIONS

 

TYPE

 

OPTIONEE

 

DATE

 

GRANTED

 

PER SHARE

 

DATE

 

DATES

 

VESTING

 

OUTSTANDING

 

NQO

 

Duane Carlson

 

04/25/02

 

7,500

 

4.05000

 

04/25/12

 

10/25/02

 

7,500

 

7,500

 

NQO

 

Marvin Goldstein

 

04/25/02

 

7,500

 

4.05000

 

04/25/12

 

10/25/02

 

7,500

 

7,500

 

ISO

 

Bruce Wall

 

05/05/05

 

500

 

2.80000

 

05/05/12

 

05/05/06

 

500

 

500

 

ISO

 

Bruce Wall

 

05/05/05

 

500

 

2.80000

 

05/05/12

 

05/05/07

 

500

 

500

 

ISO

 

Bradley Bremer

 

05/05/05

 

2,500

 

2.80000

 

05/05/12

 

05/05/06

 

2,500

 

2,500

 

ISO

 

Bradley Bremer

 

05/05/05

 

2,500

 

2.80000

 

05/05/12

 

05/05/07

 

2,500

 

2,500

 

ISO

 

Richard Christensen

 

05/05/05

 

500

 

2.80000

 

05/05/12

 

05/05/06

 

500

 

500

 

ISO

 

Richard Christensen

 

05/05/05

 

500

 

2.80000

 

05/05/12

 

05/05/07

 

500

 

500

 

ISO

 

Rick Christensen

 

05/05/05

 

500

 

2.80000

 

05/05/12

 

05/05/06

 

500

 

500

 

ISO

 

Rick Christensen

 

05/05/05

 

500

 

2.80000

 

05/05/12

 

05/05/07

 

500

 

500

 

ISO

 

Rachel Holmes

 

05/05/05

 

500

 

2.80000

 

05/05/12

 

05/05/06

 

500

 

500

 

ISO

 

Rachel Holmes

 

05/05/05

 

500

 

2.80000

 

05/05/12

 

05/05/07

 

500

 

500

 

ISO

 

Cyndy Janzig

 

05/05/05

 

500

 

2.80000

 

05/05/12

 

05/05/06

 

500

 

500

 

ISO

 

Cyndy Janzig

 

05/05/05

 

500

 

2.80000

 

05/05/12

 

05/05/07

 

500

 

500

 

ISO

 

Sara Kimm

 

05/05/05

 

500

 

2.80000

 

05/05/12

 

05/05/06

 

500

 

500

 

ISO

 

Sara Kimm

 

05/05/05

 

500

 

2.80000

 

05/05/12

 

05/05/07

 

500

 

500

 

NQO

 

Duane Carlson

 

05/04/06

 

7,500

 

4.32000

 

05/04/16

 

11/04/06

 

7,500

 

7,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Totals

 

 

 

 

 

33,500

 

 

 

 

 

 

 

33,500

 

33,500

 

 

--------------------------------------------------------------------------------

 

Schedule 5.28

Commercial Tort Claims

 

None

 

--------------------------------------------------------------------------------

 

Schedule 5.29

Letter of Credit Rights

 

None

 

--------------------------------------------------------------------------------

 

Schedule 5.30

Material Contracts

 

See attached lists

 

--------------------------------------------------------------------------------

 

Schedule 7.3

Guarantees

 

None

 

--------------------------------------------------------------------------------