Exhibit 10.37

 

 

 

 

 

 

FINANCING AGREEMENT

 

 

 

 

THE CIT GROUP/BUSINESS CREDIT, INC.

 

(as Lender)

 

 

And

 

 

SPECIALTY LABORATORIES, INC.

 

(as Borrower)

 

 

Dated: September 24, 2003

 

 

 

 

 

 

 

 

 

 

 

 

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TABLE OF CONTENTS

 

 

 

SECTION 1  Definitions

 

SECTION 2  Conditions Precedent

 

SECTION 3  Revolving Loans

 

SECTION 4  Reserved

 

SECTION 5  Letters of Credit

 

SECTION 6  Collateral

 

SECTION 7  Representations,  Warranties and Covenants

 

SECTION 8  Interest, Fees and Expenses

 

SECTION 9  Powers

 

SECTION 10  Events of Default and Remedies

 

SECTION 11  Termination

 

SECTION 12  Miscellaneous

 

 

EXHIBITS

 

Exhibit A - Form of Borrowing Base Certificate

Exhibit B - Form of Company Counsel Legal Opinion

 

SCHEDULES

 

Schedule 1 -  Collateral Information

Schedule 2 -  Dilution Calculation

Schedule 3 -  Litigation

Schedule 4 -  Insurance

Schedule 5 -  Restricted Agreements

Schedule 6 -  Patents, Copyrights, Trademarks and Tradenames

Schedule 7 -  Monthly Rental Payments

Schedule 8 -  Permitted Encumbrances

 

 

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THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation, with offices
located at 300 South Grand Avenue, 3rd Floor, Los Angeles, California  90071
(hereinafter “CIT”), is pleased to confirm the terms and conditions under which
CIT shall make revolving loans and other financial accommodations to Specialty
Laboratories, Inc., a California corporation with a principal place of business
at 1620 26th Street, 5th Floor, South Tower, Santa Monica, California 90404
(herein the “Company”).

 

SECTION 1

DEFINITIONS

Accounts shall mean all of the Company’s now existing and future:  (a) accounts
(as defined in the UCC), and any and all other receivables (whether or not
specifically listed on schedules furnished to CIT), including, without
limitation, all accounts created by, or arising from, all of the Company’s
sales, leases, rentals of goods or renditions of services to its customers,
including but not limited to, those accounts arising under any of the Company’s
trade names or styles, or through any of the Company’s divisions; (b) any and
all instruments, documents, chattel paper (including electronic chattel paper)
(all as defined in the UCC); (c) unpaid seller’s or lessor’s rights (including
rescission, replevin, reclamation, repossession and stoppage in transit)
relating to the foregoing or arising therefrom; (d) rights to any goods
represented by any of the foregoing, including rights to returned, reclaimed or
repossessed goods; (e) reserves and credit balances arising in connection with
or pursuant hereto; (f) guarantees, supporting obligations, payment intangibles
and letter of credit rights (all as defined in the UCC); (g) insurance policies
or rights relating to any of the foregoing; (h) general intangibles pertaining
to any and all of the foregoing (including all rights to payment, including
those arising in connection with bank and non-bank credit cards), and including
books and records and any electronic media and software thereto; (i) notes,
deposits or property of account debtors securing the obligations of any such
account debtors to the Company; and (j) cash and non-cash proceeds (as defined
in the UCC) of any and all of the foregoing.

 

Administrative Management Fee shall mean the sum of Thirty-Five Thousand Dollars
($35,000.00) per annum which shall be paid to CIT in accordance with Section 8.8
hereof to offset the expenses and costs (excluding Out-of-Pocket Expenses and
auditor fees) of CIT in connection with administration, record keeping,
analyzing and evaluating the Collateral.

 

Anniversary Date shall mean the date occurring three (3) years from the Closing
Date and the same date in every year thereafter.

 

Availability shall mean at any time the amount by which: (a) the Borrowing Base
exceeds (b) the outstanding aggregate amount of all Obligations, including
without limitation but without duplication, all Obligations with respect to
Revolving Loans and Availability Reserves, including Availability Reserves in
respect of Letters of Credit.

 

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Availability Reserve shall mean any reserve which CIT may reasonably require
from time to time pursuant to this Financing Agreement, including without
limitation, (a) for Letters of Credit pursuant to Section 5.1 hereof; (b) a
reserve in the amount of $1,000,000 (the “Special Reserve”) if (x) the sum of
Liquid Assets and Availability is less than $10,000,000 but greater than
$5,000,000 and (y) the Blocked Account has not been activated by CIT as set
forth in Section 3.4; and (c) such other reserves as CIT deems necessary in its
reasonable judgment as a result of (x) negative forecasts and/or trends in the
Company’s business, prospects, profits, operations or financial condition or (y)
other issues, circumstances or facts that could reasonably be expected to
otherwise negatively impact the Company, its business, prospects, profits,
operations, financial condition or assets; provided that no Availability Reserve
shall be imposed with respect to a reserve or reduction already applied against
Availability pursuant to the definitions of Eligible Accounts Receivable or
Dilution referred to herein.

 

Borrowing Base shall mean (a) the lesser of (i) eighty-five  percent (85%) of
the Company’s aggregate outstanding Eligible Accounts Receivable, provided that
such advance rate shall be reduced by one (1) percentage point for each whole or
partial percentage point by which Dilution (for the immediately preceding three
(3) month period) exceeds ten percent (10%) and (ii) fifty percent (50%) of the
aggregate cash collections by the Company of its Trade Accounts Receivable over
the immediately preceding three (3) full calendar months.

 

Borrowing Base Certificate shall mean a certificate in substantially the form of
Exhibit A annexed hereto.

 

Business Day shall mean any day on which CIT and JPMorgan Chase Bank are open
for business.

 

Capital Expenditures shall mean, for any period, the aggregate expenditures of
the Company during such period on account of, property, plant, equipment or
similar fixed assets that, in conformity with GAAP, are required to be reflected
in the balance sheet of the Company.

 

Capital Improvements shall mean operating Equipment and facilities (other than
land) acquired or installed for use in the Company’s business operations.

 

Capital Lease shall mean any lease of property (whether real, personal or mixed)
which, in conformity with GAAP, is accounted for as a capital lease or a Capital
Expenditure in the balance sheet of the Company.

 

Chase Bank Rate shall mean the rate of interest per annum announced by JPMorgan
Chase Bank from time to time as its prime rate in effect at its principal office
in New York City.  The prime rate is not intended to be the lowest rate of
interest charged by JPMorgan Chase Bank to its borrowers.

 

Chase Bank Rate Loans shall mean any loans or advances pursuant to this
Financ­ing Agreement made or maintained at a rate of interest based upon the
Chase Bank Rate.

 

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Closing Date shall mean the date that this Financing Agreement has been duly
executed by the parties hereto and delivered to CIT.

 

Collateral shall mean all present and future Accounts, Equipment, Inventory,
Documents of Title, General Intangibles, Pledged Stock of the Company’s
subsidiaries, and Other Collateral; provided that Collateral shall not include
Real Estate, including the Valencia Real Estate.

 

Collection Days shall mean one (1) Business Day to provide for the deposit,
clearance and collection of checks or other instruments representing the
proceeds of Collateral, the amount of which has been credited to the Company’s
Revolving Loan Account, and for which interest may be charged on the aggregate
amount of such deposits, at the rate provided for in Section 8.1 of Section 8 of
this Financing Agreement.

 

Commitment Fee means the fee paid to CIT by Company in the amount of $56,250 in
order to induce CIT to enter into that certain Commitment Letter, dated July 1,
2003, issued by CIT to, and accepted by, the Company.

 

Concentration Limit shall mean, as of any date, an amount equal to ten percent
(10%) of the face amount of the sum of Eligible Accounts Receivable outstanding
on such date.

 

Consolidated Financial Statements shall mean a consolidated or compiled, as
applicable, balance sheet, income statement, statement of cash flow and
reconciliation of surplus and statement of profit and loss for the Company and
its consolidated subsidiaries, eliminating all inter-company transactions and
prepared in accordance with GAAP.

 

Continuing or and during the Continuation of shall mean, in respect of a Default
or an Event of Default, that the Default is still in existence or that the Event
of Default, to the extent, and only to the extent, expressly curable under the
Loan Documents, has not been cured in accordance therewith or waived in writing
by CIT.

 

Control Agreement means an agreement, reasonably satisfactory in form and
substance to CIT, and executed by the financial institution at which a deposit
account is maintained by the Company, pursuant to which, unless otherwise agreed
by CIT, such financial institution confirms and acknowledges CIT’s security
interest in such deposit account and provides that, upon written notice from CIT
to the financial institution, all cash, checks and items received or deposited
in the deposit account shall become the property of CIT and cash, checks and
items received or deposited will be wired to a bank account as designated by CIT
from time to time as CIT shall direct, or a like agreement with a brokerage,
investment house or other intermediary with respect to Investment Property of
the Company.

 

Copyrights shall mean all present and hereafter acquired copyrights, copyright
registrations, recordings, applications, designs, styles, licenses, marks,
prints and labels bearing any of the foregoing, goodwill, any and all general
intangibles, intellectual property and rights pertaining thereto, and all cash
and non-cash proceeds thereof.

 

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Default shall mean any event specified in Section 10 hereof, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, event or act, has been satisfied.

 

Default Rate of Interest shall mean a rate of interest per annum on any
Obligations hereunder, equal to the sum of: (a) two percent (2%) and (b) the
applicable increment over the Chase Bank Rate (as set forth in Section 8.1
hereof) plus the Chase Bank Rate, or the applicable increment over the LIBOR
Rate (as set forth in Section 8.14 hereof) plus the LIBOR Rate, which CIT shall
be entitled to charge the Company on all Obligations due CIT by the Company, as
further set forth in Section 10.2 of this Financing Agreement.

 

Depository Accounts shall mean the collection accounts, which are subject to
CIT’s instructions, as specified in Section 3.4 of this Financing Agreement.

 

Dilution shall mean, with respect to any period, the percentage obtained by
dividing (i) the sum of non-cash credits against Trade Accounts Receivable
(including, but not limited to returns, adjustments and rebates) for such
period, plus pending or probable, but not yet applied, non-cash credits against
Trade Accounts Receivable for such period, as determined by Lender in its sole
discretion by (ii) total Trade Accounts Receivable generated during such
period.  Notwithstanding the foregoing, the calculation of Dilution shall be
without reference to (x) intra-month credits that relate to Trade Account
Receivables that the Company has not sent to the applicable account debtor and
(y) Trade Account Receivables that are Indirect Accounts.  Schedule 2 annexed
hereto includes an example of the calculation of Dilution prepared by CIT.

 

Documents of Title shall mean all present and future documents (as defined in
the  UCC), and any and all warehouse receipts, bills of lading, shipping
documents, chattel paper, instruments and similar documents, all whether
negotiable or not and all goods and Inventory relating thereto and all cash and
non-cash proceeds of the foregoing.

 

Early Termination Date shall mean the date on which the Company terminates this
Financing Agreement or the Line of Credit which date is prior to the first
Anniversary Date.

 

Early Termination Fee shall: (a) mean the fee CIT is entitled to charge the
Company in the event the Company terminates the Line of Credit or this Financing
Agreement on a date prior to sixty (60) days prior before the first Anniversary
Date; and (b) be determined, subject to Section 11.2, by multiplying the Line of
Credit by (x) one and one-quarter percent (1.25%) if the Early Termination Date
occurs on or before one (1) year from the Closing Date and (y) three-quarters of
one percent (0.75%) if the Early Termination Date occurs after one (1) year from
the Closing Date but prior to sixty (60) days before the first Anniversary Date.

 

EBITDA shall mean, for any period, the sum (determined in accordance with GAAP
on a consistent basis with the latest audited financial statements of the
Company) of (a) the Company’s net income (or net loss) for such period, (b) the
provision for tax obligations of the Company for such period, (c) all interest
charges paid or accrued by the Company for such period, (d) any depreciation or
amortization expenses incurred by the Company in determining its net income (or
net loss) for such period, and (e) non-cash expenses recorded (in accordance
with GAAP) for stock

 

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based compensation and stock option compensation. EBITDA will exclude for such
period: (a) the effect of extraordinary or non-recurring non-cash gains or
losses and (b) any non-cash gains or losses recorded (in accordance with GAAP)
for any sale and leaseback transaction related to the Valencia Real Estate.

 

Eligible Accounts Receivable shall mean the gross amount of the Company’s Trade
Accounts Receivable that are subject to a valid, first priority and fully
perfected security interest in favor of CIT, which conform to the warranties
contained herein and which, at all times, continue to be acceptable to CIT in
the exercise of its reasonable business judgment, less, without duplication, the
sum of: (a) any returns, discounts, claims, credits and allowances of any nature
(whether issued, owing, granted, claimed or outstanding), and (b) reserves for
any such Trade Accounts Receivable that arise from or are subject to or include:
(i) sales to the United States of America,  any state or other governmental
entity or to any agency, department or division thereof, except for such
Accounts that do not exceed Five Hundred Thousand Dollars ($500,000) in the
aggregate per account debtor at any one time plus any such sales as to which the
Company has complied with the Assignment of Claims Act of 1940 or any other
applicable statute, rules or regulation, to CIT’s satisfaction in the exercise
of its reasonable business judgment; (ii) foreign sales, other than sales which
otherwise comply with all of the other criteria for eligibility hereunder and
are (x) secured by letters of credit (in form and substance satisfactory to CIT)
issued or confirmed by, and payable at, banks having a place of business in the
United States of America, or (y) to customers residing in Canada provided such
Accounts do not exceed Five Hundred Thousand Dollars ($500,000) in the aggregate
at any one time; (iii) Accounts that remain unpaid more than four (4) months 
from invoice date; (iv) contra accounts; (v) sales to any subsidiary, or to any
company affiliated with the Company in any way; (vi) bill and hold (deferred
shipment) or consignment sales; (vii) sales to any customer which is:
(A) insolvent, (B) the debtor in any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceedings under any federal or state
law, (C) negotiating, or has called a meeting of its creditors for purposes of
negotiating, a compromise of its debts, or (D) financially unacceptable to CIT
in its reasonable credit judgment or has a credit rating unacceptable to CIT in
its reasonable credit judgment; (viii) all sales to any customer if fifty
percent (50%) or more of the aggregate dollar amount of all outstanding invoices
to such customer are unpaid more than four (4) months from invoice date; (ix) 
pre-billed receivables and receivables arising from progress billing; (x) an
amount representing, historically, returns, discounts, claims, credits,
allowances and applicable terms, without duplication to any items included in
the calculation of Dilution; (xi) sales not payable in United States currency;
(xii) Indirect Accounts; (xiii) to the extent that the aggregate outstanding
Accounts owed by any single customer exceeds the Concentration Limit, that
portion of the Accounts owed by such customer in excess of the Concentration
Limit; and (xiv) any other reasons deemed necessary by CIT in its reasonable
business judgment, including without limitation those which are customary either
in the commercial finance industry or in the lending practices of CIT.

 

Equipment shall mean all present and hereafter acquired equipment (as defined in
the UCC) including, without limitation, all machinery, equipment, furnishings
and fixtures, and all additions, substitutions and replacements thereof,
wherever located, together with all attachments, components, parts, equipment
and accessories installed thereon or affixed thereto and all proceeds thereof of
whatever sort.

 

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

 

Eurocurrency Reserve Requirements for any day, as applied to a LIBOR Loan, shall
mean the aggregate (without duplica­tion) of the maximum rates of reserve
requirements (expressed as a decimal fraction) in effect with respect to CIT
and/or any present or future lender or participant on such day (includ­ing,
without limitation, basic, supplemental, marginal and emergency reserves under
Regulation D or any other applicable regulations of the Board of Governors of
the Federal Reserve System or other governmental authority having jurisdiction
with respect thereto, as now and from time to time in effect, dealing with
reserve requirements prescribed for Eurocurrency funding (currently referred to
as “Eurocurrency Liabilities” in Regulation D of the Federal Reserve Board)
maintained by CIT and/or any such lenders or participants (such rate to be
adjusted to the nearest one sixteenth of one percent (1/16 of 1%) or, if there
is not a nearest one sixteenth of one percent (1/16 of 1%), to the next higher
one sixteenth of one percent (1/16 of 1%)).

 

Event(s) of Default shall have the meaning provided for in Section 10 of this
Financing Agreement.

 

Executive Officers shall mean the Chairman, President, Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer, Executive Vice President(s),
Senior Vice President(s), Treasurer, Controller and Secretary of the Company.

 

Fiscal Quarter shall mean, with respect to the Company, each three (3) month
period ending on March 31, June 30, September 30, and December 31 of each Fiscal
Year.

 

Fiscal Year shall mean each twelve (12) month period commencing on January 1 of
each year and ending on the following December 31st.

 

Fixed Charges shall mean, for any period, the sum (determined in accordance with
GAAP on a consistent basis with the latest audited financial statements of the
Company) of (a) the portion of interest expense due and payable during such
period, (b) principal payments on Indebtedness due and payable during such
period (other than in respect of the principal of the Revolving Loans), (c)
unfinanced Capital Expenditures for such period, and (d) federal, state, local,
and foreign income taxes due and payable during such period minus any tax
refunds received.

 

Free Cash Flow shall mean, for any period, EBITDA less Fixed Charges.

 

GAAP shall mean generally accepted accounting principles in the United States of
America as in effect from time to time and for the period as to which such
accounting principles are to apply, provided that in the event the Company
modifies its accounting principles and procedures as applied as of the Closing
Date, the Company shall provide such statements of reconciliation as shall be in
form and substance reasonably acceptable to CIT.

 

General Intangibles shall mean all present and hereafter acquired general
intangibles (as defined in the UCC), and shall include, without limitation, all
present and future right, title and interest in and to: (a) all Trademarks,
tradenames, corporate names, business names, logos and any

 

 

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other designs or sources of business identities, (b) Patents, together with any
improvements on said Patents, utility models, industrial models, and designs,
(c) Copyrights, (d) trade secrets, (e) licenses, permits and franchises, (f) all
applications with respect to the foregoing, (g) all right, title and interest in
and to any and all extensions and renewals, (h) goodwill with respect to any of
the foregoing, (i) any other forms of similar intellectual property, (j) all
customer lists, distribution agreements, supply agreements, blue prints,
indemnification rights and tax refunds, together with all monies and claims for
monies now or hereafter due and payable in connection with any of the foregoing
or otherwise, and all cash and non-cash proceeds thereof, including, without
limitation, the proceeds or royalties of any licensing agreements between the
Company and any licensee of any of the Company’s General Intangibles.

 

Guaranties shall mean the guaranty documents executed and delivered by the
Guarantors guaranteeing the Obligations.

 

Guarantors shall mean any person or entity which becomes a guarantor of the
Obligations.

 

Inactive Subsidiaries shall mean Specialty Laboratories International Ltd., a
company organized under British Virgin Islands law, and Specialty Laboratories
Asia PTE Limited, a company organized under Singapore law.

 

Indebtedness shall mean, without duplication, all liabilities, contingent or
otherwise, which are any of the following: (a) obligations in respect of
borrowed money or for the deferred purchase price of property, services or
assets, other than Inventory, or (b) lease obligations which, in accordance with
GAAP, have been, or which should be capitalized.

 

Indirect Accounts shall mean those Trade Accounts Receivable for laboratory
testing services as to which the account debtor (a) did not directly send the
specimen to be tested to the Company and/or (b) is a governmental or private
health insurer (such as Medical, Medicare and Medicaid) or an individual
patient.

 

In Lieu Collection Fee shall mean the fee referenced in Section 8.6 hereof.

 

Insurance Proceeds shall mean proceeds or payments from an insurance carrier
with respect to any loss, casualty or damage to Collateral.

 

Interest Period shall mean:

 

(a)           with respect to any initial request by the Company for a LIBOR
Loan, a one month, two month, three month or six month period commencing on the
borrowing or conver­sion date with respect to a LIBOR Loan and ending one, two
or three months thereafter, as applicable; and

 

(b)           thereafter with respect to any continuation of, or conversion to,
a LIBOR Loan, at the option of the Company, any one month, two month, three
month or six month period commencing on the last day of the immediately
preceding Interest Period applicable to such LIBOR Loan

 

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and ending one, two, three or six months thereafter, as applicable; provided
that, the foregoing provisions relating to Interest Periods are subject to the
following:

 

(i)      if any Interest Period would otherwise end on a day which is not a
Business Day, that Interest Period shall be extended to the next succeeding
Business Day, unless the result of such extension would extend such payment into
another calendar month in which event such Interest Period shall end on the
immediately preceding Business Day;

 

(ii)    any Interest Period that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month, at the end of such Interest Period) shall end on the last
Working  Day of a calendar month; and

 

(iii)   for purposes of determining the availability of Interest Periods, such
Interest Periods shall be deemed available if (x) Chase Manhattan Bank quotes an
applicable rate or CIT determines LIBOR, as provided in the definition of LIBOR,
(y) the LIBOR determined by Chase Manhattan Bank or CIT will adequately and
fairly reflect the cost of maintaining or funding its loans bearing interest at
LIBOR, for such Interest Period, and (z) such Interest Period will end on or
before the last day of the then current term of this Financing Agreement.  If a
requested Interest Period shall be unavailable in accordance with the foregoing
sentence, the Company shall continue to pay interest on the Obligations at the
applicable per annum rate based upon the Chase Bank Rate.

 

Inventory shall mean all of the Company’s present and hereafter acquired
inventory (as defined in the UCC) and including, without limitation, all
merchandise, inventory and goods, and all additions, substitutions and
replacements thereof, wherever located, together with all goods and materials
used or usable in manufacturing, processing, packaging or shipping same in all
stages of production from raw materials through work-in-process to finished
goods - and all proceeds thereof of whatever sort.

 

Investment Property shall mean all now owned and hereafter acquired investment
property (as defined in the UCC) and all proceeds thereof.

 

Issuing Bank shall mean the bank issuing Letters of Credit for the Company.

 

Letters of Credit shall mean all letters of credit issued with the assistance of
CIT in accordance with Section 5 hereof by the Issuing Bank for or on behalf of
the Company.

 

Letter of Credit Guaranty shall mean the guaranty delivered by CIT to the
Issuing Bank of the Company’s reimbursement obligations under the Issuing Bank’s
reimbursement agreement, application for Letter of Credit or other like
document.

 

Letter of Credit Guaranty Fee shall mean the fee CIT may charge the Company
under Section  8.3 of this Financing Agreement for:  (a) issuing a Letter of
Credit Guaranty, and/or (b) otherwise aiding the Company in obtaining Letters of
Credit, all pursuant to Section 5 hereof.

 

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Letter of Credit Sub-Line shall mean the commitment of CIT to assist the Company
in obtaining Letters of Credit, pursuant to Section 5 hereof, in an aggregate
amount of up to Two Million Dollars ($2,000,000).

 

LIBOR shall mean, at any time of determination, and subject to availability, for
each applicable Interest Period, a variable rate of interest equal to: (a) at
CIT’s election  (i) the rate set forth in the New York edition of The Wall
Street Journal under the “Money Rates” section for “London Interbank Offered
Rates”, (ii) the applicable LIBOR quoted to CIT by JPMorgan Chase Bank (or any
successor thereof), or (iii) the rate of interest determined by CIT at which
deposits in U.S.  dollars are offered for the relevant Interest Period based on
information presented on Telerate Systems at Page 3750 as of 11:00  A.M. 
(London time) on the day which is two (2) Business Days prior to the first day
of such Interest Period, provided that, if at least two such offered rates
appear on the Telerate  Page (or any successor thereof) 3750 in respect of such
Interest Period, the arithmetic mean of all such rates (as determined by CIT)
will be the rate used; divided by (b) a number equal to 1.0 minus the aggregate
(but without duplication) of the rates (expressed as a decimal fraction) of
Eurocurrency Reserve Requirements in effect on the day which is two (2) Business
Days prior to the beginning of such Interest Period.

 

LIBOR Loan shall mean any loans made pursuant to this Financing Agreement which
are made or maintained at a rate of interest based upon  LIBOR, provided that
(i) no Default or Event of Default has occurred and is Continuing hereunder, and
(ii) no LIBOR Loan shall be made with an Interest Period that ends subsequent to
the last day of the then current term of this Financing Agreement or any
applicable Early Termination Date.

 

Line of Credit shall mean the aggregate commitment of CIT to (a) make Revolving
Loans pursuant to Section 3 of this Financing Agreement and (b) assist the
Company in opening Letters of Credit pursuant to Section 5 of this Financing
Agreement, in an initial aggregate amount equal to Fifteen Million Dollars
($15,000,000), subject to revision in accordance with Section 3.1(b) of this
Financing Agreement.

 

Line of Credit Fee shall mean the fee due CIT at the end of each month for the
Line of Credit in an amount equal to (a) the difference between (i) the Line of
Credit and (ii) the sum, for said month, of (x) the average daily balance of
Revolving Loans and (y) the average daily balance of Letters of Credit
outstanding for said month, multiplied by (b) three-eighths of one percent
(0.375%) per annum for the number of days in said month.

 

Liquid Assets shall mean the Company’s unrestricted, available cash, cash
equivalents, bonds and similar investments representing evidences of
indebtedness that have an investment grade rating and, as determined by Lender
in its sole discretion, Investment Property for which there is a recognized
market and that is readily salable for cash.

 

Liquidity Event shall mean that, at any time during the term of this Financing
Agreement, the sum of Availability and Liquid Assets (without deducting the
Special Reserve referenced in the definition of Availability Reserve), in each
case at the close of any Business Day, is less than Five Million Dollars
($5,000,000).

 

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Loan Documents shall mean this Financing Agreement, the promissory notes, the
other closing documents and any other ancillary loan and security agreements
executed from time to time in connection with this Financing Agreement, all as
may be renewed, amended, extended, increased or supplemented from time to time.

 

Loan Facility Fee shall mean the fee payable to CIT in accordance with, and
pursuant to, the provisions of Section 8.7 of this Financing Agreement.

 

Margin Stock shall mean “margin stock” as such term is defined in Regulation T,
U  or X of the Federal Reserve Board

 

Material Adverse Effect shall mean (i) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, condition
(financial or otherwise) or prospects of the Company or the Collateral; (ii) a
material impairment of the ability of the Company to perform under any Loan
Document to which it is a party; or (iii) a material adverse effect upon the
legality, validity, binding effect or enforceability against the Company of any
Loan Document to which it is a party or the legality, validity, enforceability
or priority of CIT’s lien and security interest in the Collateral.

 

Net Worth shall mean, at any date of determination, an amount equal to (a) Total
Assets minus (b) Total Liabilities, and shall be determined in accordance with
GAAP, on a consistent basis with the latest audited financial statements of the
Company.

 

Obligations shall mean all loans, advances and extensions of credit made or to
be made by CIT to the Company or to others for the Company’s account (including,
without limitation, all Revolving Loans and  Letter of Credit Guaranties); any
and all indebtedness and obligations which may at any time be owing by the
Company to CIT howsoever arising, whether now in existence or incurred by the
Company from time to time hereafter; whether principal, interest, fees, costs,
expenses or otherwise; whether secured by pledge, lien upon or security interest
in any of the Company’s Collateral, assets or property or the assets or property
of any other person, firm, entity or corporation; whether such indebtedness is
absolute or contingent, joint or several, matured or unmatured, direct or
indirect and whether the Company is liable to CIT for such indebtedness as
principal, surety, endorser, guarantor or otherwise.  Obligations shall also
include indebtedness owing to CIT by the Company under any Loan Document or
under any other agreement or arrangement now or hereafter entered into between
the Company and CIT; indebtedness or obligations incurred by, or imposed on, CIT
as a result of environmental claims arising out of the Company’s operations,
premises or waste disposal practices or sites in accordance with Section 7.7
hereof; the Company’s liability to CIT as maker or endorser of any promissory
note or other instrument for the payment of money; the Company’s liability to
CIT under any instrument of guaranty or indemnity, or arising under any
guaranty, endorsement or undertaking which CIT may make or issue to others for
the Company’s account, including any Letter of Credit Guaranty or other
accommodation extended by CIT with respect to applications for Letters of
Credit, CIT’s acceptance of drafts or CIT’s endorsement of notes or other
instruments for the Company’s account and benefit.

 

Operating Leases shall mean all leases of property (whether real, personal or
mixed) other than Capital Leases.

 

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Other Collateral shall mean all now owned and hereafter acquired lockbox,
blocked account and any other deposit accounts maintained with any bank or
financial institutions into which the proceeds of Collateral are or may be
deposited; all other deposit accounts and all Investment Property; all cash and
other monies and property in the possession or control of CIT; all books,
records, ledger cards, disks and related data processing software at any time
evidencing or containing information relating to any of the Collateral described
herein or otherwise necessary or helpful in the collection thereof or
realization thereon; and all cash and non-cash proceeds of the foregoing.

 

Out-of-Pocket Expenses shall mean all of CIT’s present and future expenses
incurred relative to this Financing Agreement or any other Loan Documents,
whether incurred heretofore or hereafter, which expenses shall include, without
being limited to: the cost of record searches, all costs and expenses incurred
by CIT in opening bank accounts, depositing checks, receiving and transferring
funds, and wire transfer charges, any charges imposed on CIT due to returned
items and “insufficient funds” of deposited checks and CIT’s standard fees
relating thereto, any amounts paid by, incurred by or charged to, CIT by the
Issuing Bank under a Letter of Credit Guaranty or the Company’s reimbursement
agreement, application for Letters of Credit or other like document which
pertain either directly or indirectly to such Letters of Credit, and CIT’s
standard fees relating to the Letters of Credit and any drafts thereunder,
travel, lodging and similar expenses of CIT’s  personnel in connection with
inspecting and monitoring the Collateral from time to time hereunder, any
applicable reasonable counsel fees and disbursements, fees and taxes relative to
the filing of financing statements, and all expenses, costs and fees set forth
in Section 10.3 of this Financing Agreement.

 

Overadvances shall mean the amount by which (a) the sum of all outstanding
Revolving Loans, Letters of Credit and advances made hereunder exceed (b) the
Borrowing Base.

 

Patents shall mean all of the Company’s present and hereafter acquired patents,
patent applications, registrations, any reissues or renewals thereof, licenses,
any inventions and improvements claimed thereunder, and all general intangible,
intellectual property and patent rights with respect thereto of the Company, and
all income, royalties, cash and non-cash proceeds thereof.

 

Permitted Encumbrances shall mean: (a) liens existing on the date hereof on
specific items of Equipment and other liens expressly permitted, or consented to
in writing by CIT; (b) Purchase Money Liens and Capital Leases; (c) liens of
local or state authorities for franchise or other like Taxes, provided that the
aggregate amounts of such liens shall not exceed $100,000.00 in the aggregate at
any one time; (d) statutory liens of landlords and liens of carriers,
warehousemen, bailees, mechanics, materialmen and other like liens imposed by
law, created in the ordinary course of business and for amounts not yet due (or
which are being contested in good faith, by appropriate proceedings or other
appropriate actions which are sufficient to prevent imminent foreclosure of such
liens) and with respect to which adequate reserves or other appropriate
provisions are being maintained by the Company in accordance with GAAP; (e)
deposits made (and the liens thereon) in the ordinary course of business of the
Company (including, without limitation, security deposits for leases, indemnity
bonds, surety bonds and appeal bonds) in connection with workers’ compensation,
unemployment insurance and other types of social security benefits or to secure
the performance of tenders, bids, contracts (other than for the repayment or
guarantee of borrowed money or purchase money obligations), statutory
obligations and other similar obligations arising as a result of progress

 

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payments under government contracts; (f) easements (including, without
limitation, reciprocal easement agreements and utility agreements),
encroachments, minor defects or irregularities in title, variation and other
restrictions, charges or encumbrances (whether or not recorded) affecting the
Real Estate, if applicable, and which in the aggregate (A) do not materially
interfere with the occupation, use or enjoyment by the Company of its business
or property so encumbered and (B) in the reasonable business judgment of CIT do
not materially and adversely affect the value of such Real Estate; and (g) liens
granted to CIT by the Company; (h) liens of judgment creditors provided such
liens do not exceed, in the aggregate, at any time, Two Hundred Fifty Thousand
Dollars ($250,000) (other than liens bonded or insured to the reasonable
satisfaction of CIT);  (i)  tax liens which are not yet due and payable or which
are being diligently contested in good faith by the Company by appropriate
proceedings, and which liens are not (x) filed on any public records, (y) other
than with respect to Real Estate, senior to the liens of CIT or (z) for Taxes
due the United States of America or any state thereof having similar priority
statutes, as further set forth in Section 7.6 hereof; (j) licenses of General
Intangibles, leases and subleases granted to third parties in accordance with
any applicable terms of the Loan Documents and not interfering in any material
respect with the ordinary conduct of the business of the Company or resulting in
a diminution in the value of any Collateral as security for the Obligations; (k)
liens arising from filing UCC financing statements relating solely to leases not
prohibited by this Financing Agreement; (l) liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of customs
duties that are not delinquent in connection with the importation of goods; (m)
liens on Real Estate; and (n) liens on the Company’s cash in connection with a
letter of credit described in clause (h) of the definition of Permitted
Indebtedness.

 

Permitted Indebtedness shall mean: (a) current Indebtedness maturing in one year
or less and incurred in the ordinary course of business for raw materials,
supplies, equipment, services, Taxes or labor; (b) the Indebtedness secured by
Purchase Money Liens or Capital Leases; (c) Subordinated Debt; (d) Indebtedness
arising under the Letters of Credit and this Financing Agreement; (e) deferred
Taxes and other expenses incurred in the ordinary course of business; (f)
Valencia Real Estate Indebtedness; (g) other Indebtedness existing on the date
of execution of this Financing Agreement and listed in the most recent financial
statement delivered to CIT or otherwise disclosed to CIT in writing prior to the
Closing Date; (h) obligations in an aggregate amount not to exceed Two Million
Dollars ($2,000,000) in connection with letters of credit issued by any bank
which are secured solely by the Company’s cash up to 110% of such open letters
of credit; or (i) other Indebtedness in an aggregate outstanding principal
amount not to exceed One Hundred Thousand Dollars ($100,000).

 

Pledge Agreement means any Pledge Agreement executed and delivered by the
Company pursuant to this Financing Agreement in form and substance reasonably
satisfactory to CIT, as any such Pledge Agreement may thereafter be amended,
supplemented or otherwise modified from time to time.

 

Purchase Money Liens shall mean liens on any item of Equipment or other property
acquired after the date of this Financing Agreement or assumed in connection
with an acquisition permitted under Section 7.9 hereof, provided that (a) each
such lien shall attach only to the property

 

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to be acquired, (b) a description of the property so acquired is furnished to
CIT, and (c) at the time such lien attaches, no Default or Event of Default has
occurred and is Continuing.

 

Real Estate shall mean the Company’s fee and/or leasehold interests in any real
property, including fixtures that are integral to the operation of any improved
real property, including, without limitation, heating, air-conditioning,
electrical and lighting systems, but excluding trade fixtures.

 

Revolving Loan Account shall mean the account on CIT’s books, in the Company’s
name, in which the Company will be charged with all Obligations under this
Financing Agreement.

 

Revolving Loans shall mean the loans and advances made, from time to time, to or
for the account of the Company by CIT pursuant to Section 3 of this Financing
Agreement.

 

Subordinated Debt shall mean the debt due a Subordinating Creditor (and the
note(s) evidencing such) which has been subordinated, by a Subordination
Agreement, to the prior payment and satisfaction of the Obligations of the
Company to CIT.

 

Subordinating Creditor shall mean any party hereafter executing a Subordination
Agreement.

 

Subordination Agreement shall mean the agreement (in form and substance
satisfactory to CIT) among the Company, a Subordinating Creditor and CIT
pursuant to which Subordinated Debt is subordinated to the prior payment and
satisfaction of the Company’s Obligations to CIT.

 

Taxes shall mean all federal, state, municipal and other governmental taxes,
levies, charges, claims and assessments which are or may be due by the Company
with respect to its business, operations, Collateral or otherwise.

 

Total Assets shall mean total assets determined in accordance with GAAP, on a
basis consistent with the latest audited financial statements of the Company.

 

Total Liabilities shall mean total liabilities determined in accordance with
GAAP, on a basis consistent with the latest audited financial statements of the
Company.

 

Trade Accounts Receivable shall mean that portion of the Company’s Accounts
which arises from the rendition of services in the ordinary course of the
Company’s business.

 

Trademarks shall mean all present and hereafter acquired trademarks, trademark
registrations, recordings, applications, tradenames, trade styles, service
marks, prints and labels (on which any of the foregoing may appear), licenses,
reissues, renewals, and any other intellectual property and trademark rights
pertaining to any of the foregoing, together with the goodwill associated
therewith, and all cash and non-cash proceeds thereof.

 

UCC shall mean the Uniform Commercial Code as the same may be amended and in
effect from time to time in the state of California.

 

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Valencia Real Estate shall mean the Company’s fee interests in its real property
located in Valencia, California, including all buildings and improvements and
any fixtures that are integral to the operation of such buildings and
improvements, including, without limitation, heating, air-conditioning,
electrical and lighting systems, but excluding trade fixtures.

 

Valencia Real Estate Indebtedness shall mean Indebtedness incurred by the
Company that is secured by the Valencia Real Estate, as such Indebtedness may be
amended, modified, supplemented, replaced or refinanced from time to time.

 

SECTION 2

CONDITIONS PRECEDENT

Section 2.1            The obligation of CIT to make the initial loans hereunder
is subject to the satisfaction of, extension of or waiver of in writing, on or
prior to, the Closing Date, the conditions set forth below in subparagraphs (a)
through (s).  All documents delivered to CIT shall be in form and substance
satisfactory to CIT:

 

(a)           Lien Searches - CIT shall have received tax, judgment and Uniform
Commercial Code searches satisfactory to CIT for all locations presently
occupied or used by the Company and the location of the Company pursuant to
Division 9 of the UCC.

 

(b)           Casualty Insurance - The Company shall have delivered to CIT
evidence satisfactory to CIT that casualty insurance policies listing CIT as
additional insured, loss payee or mortgagee, as the case may be, are in full
force and effect, all as set forth in Section 7.5 of  this Financing Agreement.

 

(c)           UCC Filings - Any financing statements required to be filed in
order to create, in favor of CIT, a first perfected security interest in the
Collateral, subject only to the Permitted Encumbrances, shall have been properly
filed in each office in each jurisdiction required in order to create in favor
of CIT a perfected lien on the Collateral.  CIT shall have received  searches to
reflect all such filings and CIT shall have received evidence that all necessary
filing fees and all taxes or other expenses related to such filings have been
paid in full.

 

(d)           Board Resolution - CIT shall have received a copy of the
resolutions of the Board of Directors of the Company authorizing the execution,
delivery and performance of (i) this Financing Agreement, and (ii) any related
agreements, in each case certified by the Secretary or Assistant Secretary of
the Company (as the case may be) as of the date hereof, together with a
certificate of the Secretary or Assistant Secretary of the Company as to the
incumbency and signature of the officers of the Company executing such Loan
Documents and any certificate or other documents to be delivered by them
pursuant hereto, together with evidence of the incumbency of such Secretary or
Assistant Secretary.

 

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(e)           Corporate Organization - CIT shall have received (i) a copy of the
Certificate of Incorporation of the Company certified by the Secretary of State
of the state of its incorporation, and (ii) a copy of the By-Laws of the Company
certified by the Secretary or Assistant Secretary thereof, all as amended
through the date hereof.

 

(f)            Officer’s Certificate - CIT shall have received an executed
Officer’s Certificate of the Company, satisfactory in form and substance to CIT,
certifying that (i) the representations and warranties contained herein are true
and correct in all material respects on and as of the Closing Date; (ii) the
Company is in compliance with all of the terms and provisions set forth herein;
and (iii) no Default or Event of Default has occurred.

 

(g)           Opinions - Counsel for the Company shall have delivered to CIT
opinions in form and substance satisfactory to CIT setting forth substantially
the matters in Exhibit B hereto.

 

(h)           Absence of Default - No Default or Event of Default shall have
occurred and no Material Adverse Effect or event or circumstance which could
reasonably be expected to result in a Material Adverse Effect shall have
occurred since December 31, 2002.

 

(i)            Payment of Fees - The Company shall have paid to CIT on the
Closing Date: (i) the Administrative Management Fee, and (ii) the Loan Facility
Fee.

 

(j)            Legal Restraints/Litigation - Except as disclosed on Schedule 3
hereto, as of the Closing Date, there shall be no: (x) litigation, investigation
or proceeding (judicial or administrative) pending or threatened against the
Company or its assets, by any agency, division or department of any county,
city, state or federal government arising out of this Financing Agreement; (y)
injunction, writ or restraining order restraining or prohibiting the
consummation of the financing arrangements contemplated under this Financing
Agreement; or (z) suit, action, investigation or proceeding (judicial or
administrative) pending against the Company or its assets, which could
reasonably be expected to have a Material Adverse Effect.

 

(k)           Cash Budget Projections - CIT shall have received, reviewed and
been satisfied with a twelve (12) month cash budget projection prepared by the
Company on the form provided by CIT.

 

(l)            Additional Documents - The Company shall have executed and
delivered to CIT, and caused to be executed and delivered by third parties to
CIT, all Loan Documents necessary to consummate the lending arrangement
contemplated between the Company and CIT, including, without limitation, Blocked
Account Agreements, each of which Loan Documents shall be in form and substance
satisfactory to CIT.

 

(m)          Disbursement Authorization - The Company shall have delivered to
CIT all information necessary for CIT to issue wire transfer instructions on
behalf of the Company for the initial and subsequent loans and/or advances to be
made under this Financing Agreement including, but not limited to, disbursement
authorizations in form acceptable to CIT.  The Company shall request that the
initial advance hereunder be made as soon as possible after the Closing Date in
an amount equal to or exceeding Five Million Dollars ($5,000,000).

 

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(n)           Examination & Verification - CIT shall have completed, to its
satisfaction, an examination and verification of the Accounts, Inventory,
financial statements, books and records of the Company, which examination shall
indicate that, after giving effect to all Revolving Loans, advances and
extensions of credit to be made at closing, the sum of Availability and Liquid
Assets equals or exceeds Ten Million Dollars ($10,000,000), as evidenced by,
without limitation, a Borrowing Base certificate delivered by the Company to CIT
as of the Closing Date.  It is understood that such requirement contemplates
that all Indebtedness and obligations are current, and that all payables are
being handled in the normal course of the Company’s business and consistent with
its past practice.

 

(o)           Depository Accounts - The Company shall have established a system
of lockbox and bank accounts with respect to the collection of Accounts and the
deposit of proceeds of Collateral as shall be acceptable to CIT in all respects,
it being understood that collections in respect of Collateral shall not be
required to be applied to repay Revolving Loans or other Obligations except in
accordance with Section 3.4 hereof.  Such accounts shall be subject to three
party agreements (between the Company, CIT and the depository bank), which shall
be in form and substance satisfactory to CIT.

 

(p)           Schedules  The Company shall provide CIT with schedules of: (a)
any of the Company’s and its subsidiaries’ federally registered and applications
to federally register (i) Trademarks, (ii) Patents, and (iii) Copyrights, as
applicable and all in such detail as to provide appropriate recording
information with respect thereto, (b) any tradenames, (c) monthly rental
payments for any leased premises or any other premises where any Collateral may
be stored or processed,  and (d) Permitted Encumbrances described in clauses (a)
and (b) of the definition thereof, all of the foregoing in form and substance
satisfactory to CIT.

 

(q)           Additional Conditions.  The Company shall have provided CIT with
such other documents (including, without limitation, copies of the Company’s
material contracts), certificates, opinions, and information that CIT may
require, each of which shall be in form and substance satisfactory to CIT.

 

Upon the execution of this Financing Agreement and the initial disbursement of
loans hereunder, all of the above Conditions Precedent shall have been deemed
satisfied except as otherwise set forth hereinabove or as CIT shall otherwise
agree in writing.

 

Section 2.2            Conditions to Each Extension of Credit.  Except to the
extent expressly set forth in this Financing Agreement, the agreement of CIT to
make any extension of credit requested to be made by it to the Company on any
date (including without limitation, the initial extension of credit) is subject
to the satisfaction of the following conditions precedent:

 

(a)           Representations and Warranties - Each of the representations and
warranties made by the Company in or pursuant to this Financing Agreement shall
be true and correct in all material respects on and as of such date as if made
on and as of such date, except to the extent such representations and warranties
specifically relate to an earlier date, in which case such representations and
warranties shall have been true, correct and complete in all material respects
on and as of such earlier date.

 

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(b)           No Default - No Default or Event of Default shall have occurred
and be Continuing on such date or after giving effect to the extension of credit
requested to be made on such date.

 

(c)           Borrowing Base - Except as may be otherwise agreed to from time to
time by CIT and the Company in writing, after giving effect to the extension of
credit requested to be made by the Company on such date, the aggregate
outstanding balance of the Revolving Loans and outstanding Letters of Credit
owing by the Company will not exceed the lesser of (i) the Line of Credit or
(ii) the Borrowing Base.

 

Each borrowing by the Company hereunder shall constitute a representation and
warranty by the Company as of the date of such loan or advance that each of the
representations, warranties and covenants contained in the Financing Agreement
have been satisfied and are true and correct in all material respects, except as
the Company and CIT shall otherwise agree herein or in a separate writing.

 

SECTION 3

REVOLVING LOANS

Section 3.1            CIT agrees, subject to the terms and conditions of this
Financing Agreement, from time to time (but subject to CIT’s right to make
“Overadvances”), to make loans and advances to the Company on a revolving basis
(i.e.  subject to the limitations set forth herein, the Company may borrow,
repay and re-borrow Revolving Loans).

 

(a)           Such requests for loans and advances shall be in amounts not to
exceed the lesser of (i) the Availability or (ii) the Line of Credit. All
requests for loans and advances must be received by an officer of CIT no later
than (i) 1:00 p.m., New York time, of the Business Day on which any such Chase
Bank Rate Loans and advances are required or (ii) three (3) Business Days prior
to any requested LIBOR Loan. Should CIT for any reason honor requests for
Overadvances, any such Overadvances shall be made in CIT’s sole discretion and
subject to any additional terms CIT deems necessary. Unless and until the
Company otherwise directs CIT in writing, all Revolving Loans shall be wired to
the Company’s following operating account:

 

Union Bank of California

ABA No.: 122-000-496

Account # 2100688231; Specialty Laboratories, Inc.

 

(b)           Company may, with three (3) Business days prior written notice to
CIT, increase the Line of Credit in increments of Five Million Dollars
($5,000,000) up to a maximum of Twenty-Five Million Dollars ($25,000,000) if the
Company: (i) has one fiscal quarter of positive net income (as defined under
GAAP but excluding nonrecurring gains and the effect of nonrecurring, non-cash
losses) during the term of this Financing Agreement, as evidenced by the
Company’s financial statements delivered pursuant to Section 7.8 hereof; (ii)
has a Net Worth equal to or in excess of One Hundred Nineteen Million Dollars
($119,000,000), as evidenced by the Company’s most recent quarterly or annual
financial statements delivered pursuant to Section 7.8 hereof; and

 

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(iii) pays to CIT, concurrent with such request, a nonrefundable fee equal to
three quarters of one percent (0.75%) of the amount of the requested increase in
the Line of Credit, provided that no Default or Event of Default has occurred
and is Continuing.

 

Section 3.2            In furtherance of the continuing assignment and security
interest in the Company’s Accounts and Inventory, the Company will execute and
deliver to CIT in such form and manner as CIT may reasonably require, solely for
CIT’s convenience in maintaining records of Collateral, such confirmatory
schedules of Accounts and Inventory as CIT may reasonably request, including,
without limitation, monthly schedules of Accounts and Inventory, all in form and
substance reasonably satisfactory to CIT, and such other appropriate reports
designating, identifying and describing the Accounts and Inventory as CIT may
reasonably request, and provided further that CIT may not request any such
information more frequently than monthly unless an Event of Default or Material
Adverse Effect has occurred and is Continuing.  In addition, in the event that
the outstanding principal amount of the Revolving Loans is greater than Ten
Million Dollars ($10,000,000) or an Event of Default has occurred and is
Continuing, upon CIT’s request, but subject to any applicable confidentiality
restrictions and other applicable laws, the Company shall provide CIT with
copies of or access to agreements with, or purchase orders from, the Company’s
customers, and copies of or access to invoices to customers, proof of shipment
or delivery, access to its computers, electronic media and software programs
associated therewith (including any electronic records, contracts and
signatures) and such other documentation and information relating to said
Accounts and other Collateral as CIT may reasonably require.  Failure to provide
CIT with any of the foregoing shall in no way affect, diminish, modify or
otherwise limit the security interests granted herein.  The Company hereby
authorizes CIT to regard the Company’s printed name or rubber stamp signature on
assignment schedules or invoices as the equivalent of a manual signature by one
of the Company’s authorized officers or agents.

 

Section 3.3            The Company hereby represents and warrants that:  each
Trade Account Receivable is based on an actual and bona fide rendition of
services to its customers by the Company in the ordinary course of its business;
the Trade Accounts Receivable created are the exclusive property of the Company
and are not and shall not be subject to any lien, consignment arrangement,
encumbrance, security interest or financing statement whatsoever, other than the
Permitted Encumbrances; the invoices evidencing such Trade Accounts Receivable
are in the name of the Company; and the customers of the Company have accepted
the services, owe and are obligated to pay the full amounts stated in the
invoices according to their terms, without dispute, offset, defense,
counterclaim or contra, except for disputes and other matters arising in the
ordinary course of business with respect to which the Company has complied with
the notification requirements of Section 3.5 hereof.  The Company confirms to
CIT that any and all Taxes or fees relating to its business, its sales, the
Accounts or Inventory relating thereto, are its sole responsibility and that
same will be paid by the Company when due, subject to Section 7.6 of this
Financing Agreement, and that none of said Taxes or fees represent a lien on or
claim against the Accounts.  The Company also warrants and represents that it is
a duly and validly existing corporation and is qualified in all states where the
failure to so qualify would have a Material Adverse Effect.  The Company agrees
to maintain such books and records regarding Accounts and Inventory as CIT may
reasonably require and agrees that the books and records of the Company will
reflect CIT’s interest in the Accounts and

 

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Inventory.  All of the books and records of the Company will be available to CIT
at normal business hours, including any records handled or maintained for the
Company by any other company or entity.

 

Section 3.4

 

(a)           Until CIT has advised the Company to the contrary after the
occurrence of a Liquidity Event or after the occurrence and during the
Continuation of an Event of Default, the Company, at its expense, will enforce,
collect and receive all amounts owing on the Accounts in the ordinary course of
its business and any proceeds it so receives shall be subject to the terms
hereof. Such privilege shall terminate at the election of CIT upon the
occurrence of a Liquidity Event or after the occurrence and during the
Continuation of an Event of Default. Any checks, cash, credit card sales and
receipts, notes or other instruments or property received by the Company with
respect to any Accounts, shall, at the election of CIT after the occurrence of a
Liquidity Event or after the occurrence and during the Continuation of an Event
of Default,  be held by the Company separate from the Company’s own property and
funds, and, held in trust for CIT (to the extent permitted by law) and promptly
turned over to CIT with proper assignments or endorsements by deposit to the
Depository Accounts.  After the occurrence of a Liquidity Event or after the
occurrence and during the Continuation of an Event of Default, the Company
shall: (i) indicate on all of its invoices that funds should be delivered to and
deposited in a Depository Account; (ii) direct all of its account debtors to
deposit any and all proceeds of Collateral into the Depository Accounts; (iii)
irrevocably authorize and direct any banks which maintain the Company’s initial
receipt of cash, checks and other items to promptly wire transfer all available
funds to a Depository Account; and (iv) advise all such banks of CIT’s security
interest in such funds.  The Company shall provide CIT with prior written notice
of any and all deposit accounts opened or to be opened subsequent to the Closing
Date.  Subject to Collection Days, all amounts received by CIT in payment of
Accounts will be credited to the Revolving Loan Account when CIT is advised by
its bank of its receipt of “collected funds” at CIT’s bank account in New York,
New York on the Business Day of such advise if advised no later than 1:00 p.m. 
EST or on the next succeeding Business Day if so advised after 1:00 PM EST. No
checks, drafts or other instrument received by CIT shall constitute final
payment to CIT unless and until such instruments have actually been collected.

 

(b)           The Company shall establish and maintain, in its name and at its
expense, deposit accounts with such banks as are acceptable to CIT (the “Blocked
Accounts”) into which the Company shall, at the election of CIT after the
occurrence of a Liquidity Event or after the occurrence and during the
Continuation of an Event of Default, promptly cause to be deposited: (i) all
proceeds of Collateral received by the Company, including all amounts payable to
the Company from credit card issuers and credit card processors, and (ii) all
amounts on deposit in deposit accounts used by the Company at each of its
locations, all as further provided in Section 3.4(a) above.  The banks at which
the Blocked Accounts are established shall enter into an agreement, in form and
substance satisfactory to CIT (the “Blocked Account Agreements”), providing that
all cash, checks and items received or deposited in the Blocked Accounts are at
all times subject to the security interest of CIT and, upon notice by CIT after
the occurrence of a Liquidity Event or after the occurrence and during the
Continuation of an Event of Default (subject to applicable law), the property of
CIT, that the depository bank has no lien upon, or right of set off against, the
Blocked Accounts and any  cash, checks, items, wires or other funds from time to
time on deposit therein,

 

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except as otherwise provided in the Blocked Account Agreements, and that, upon
notice by CIT after the occurrence of a Liquidity Event or after the occurrence
and during the Continuation of an Event of Default, automatically, on a daily
basis the depository bank will wire, or otherwise transfer, in  immediately
available funds, all funds received or deposited into the Blocked Accounts to
such bank account as CIT may from time to time designate for such purpose.  The
Company hereby confirms and agrees that all amounts deposited in such Blocked
Accounts and any other funds received and collected by CIT, whether as proceeds
of Inventory or other Collateral or otherwise, shall be the property of CIT, to
the extent permitted by law.

 

(c)           All provisions of this Agreement and the other Loan Documents
shall be subject to applicable laws regarding Medicare and Medicaid account
debtors and Collateral relating thereto.

 

Section 3.5            The Company agrees to notify CIT: (a) of any matters
materially affecting the value, enforceability or collectibility of any Account
and of all customer disputes, offsets, defenses, counterclaims, returns and
rejections in excess of One Hundred Thousand Dollars ($100,000) or, in the case
of credits with substantially concurrent rebills by the Company in the ordinary
course of business for any Account with respect to which there has been a change
in the identity of the account debtor, Two Hundred and Fifty Thousand Dollars
($250,000), in its collateral reports provided to CIT hereunder, in such detail
and format as CIT may reasonably require from time to time; provided that such
reports shall be provided on a monthly basis unless an Event of Default or
Material Adverse Effect has occurred and is Continuing, and (b) promptly of any
such matters which are material, as a whole, to the Accounts and/or the
Inventory.  The Company agrees to issue credit memoranda promptly (with
duplicates to CIT upon request after the occurrence and during the Continuation
of an Event of Default) upon accepting returns or granting allowances in excess
of One Hundred Thousand Dollars ($100,000).

 

Section 3.6            CIT shall maintain a Revolving Loan Account on its books
in which the Company will be charged as provided herein with all loans and
advances made by CIT to it or for its account, and with any other Obligations,
including any and all costs, expenses and reasonable attorney’s fees which CIT
may incur in connection with the exercise by or for CIT of any of the rights or
powers herein conferred upon CIT, or in the prosecution or defense of any action
or proceeding to enforce or protect any rights of CIT in connection with this
Financing Agreement, the other Loan Documents or the Collateral assigned
hereunder, or any Obligations owing by the Company.  The Company will be
credited with all amounts received by CIT from the Company or from others for
the Company’s account, including, as above set forth, all amounts received by
CIT in payment of Accounts, and such amounts will be applied to payment of the
Obligations as set forth herein to the extent required pursuant to Section 3.4
hereof.  In no event shall prior recourse to any Accounts or other security
granted to or by the Company be a prerequisite to CIT’s right to demand payment
of any Obligation.  Further, it is understood that CIT shall have no obligation
whatsoever to perform in any respect any of the Company’s contracts or
obligations relating to the Accounts.

 

Section 3.7            After the end of each month, CIT shall promptly send the
Company a statement showing the accounting for the charges, loans, advances and
other transactions occurring between CIT and the Company during that month.  The
monthly statements shall be deemed correct and binding upon the Company and
shall constitute an account stated between the Company and CIT

 

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unless CIT receives a written statement of the exceptions within thirty (30)
days of the date of the monthly statement or, in the event of a manifest error
in the monthly statement, within ninety (90) days of the date of the monthly
statement.

 

Section 3.8            In the event that any requested advance exceeds
Availability or that (a) the sum of (i) the outstanding balance of Revolving
Loans and (ii) outstanding balance of Letters of Credit exceeds (b)(x) the
Borrowing Base or (y) the Line of Credit, any such  nonconsensual Overadvance
shall be due and payable to CIT immediately upon CIT’s demand therefor.

 

SECTION 4

RESERVED

SECTION 5

LETTERS OF CREDIT

In order to assist the Company in establishing or opening Letters of Credit with
an Issuing Bank, the Company has requested CIT to join in the applications for
such Letters of Credit, and/or guarantee payment or performance of such Letters
of Credit and any drafts or acceptances thereunder through the issuance of the
Letters of Credit Guaranty, thereby lending CIT’s credit to the Company and CIT
has agreed to do so.  These arrangements shall be handled by CIT subject to the
terms and conditions set forth below.

 

Section 5.1            Within the Line of Credit and Availability, CIT shall
assist the Company in obtaining Letter(s) of Credit in an amount not to exceed
the outstanding amount of the Letter of Credit Sub-Line.  CIT’s assistance for
amounts in excess of the limitation set forth herein shall at all times and in
all respects be in CIT’s sole discretion.  It is understood that the term, form
and purpose of each Letter of Credit and all documentation in connection
therewith, and any amendments, modifications or extensions thereof, must be
mutually acceptable to CIT, the Issuing Bank and the Company, provided that
Letters of Credit shall not be used for  the purchase of domestic Inventory or
to secure present or future debt of domestic Inventory suppliers. Any and all
outstanding Letters of Credit shall be reserved dollar for dollar from
Availability  as an Availability Reserve.

 

Section 5.2            CIT shall have the right, without notice to the Company,
to charge the Company’s Revolving Loan Account with the amount of any and all
payments made by CIT under Letters of Credit Guaranty upon payment by CIT under
Letters of Credit Guaranty.  Any amount charged to Company’s Revolving Loan
Account shall be deemed a Revolving Loan hereunder and shall incur interest at
the rate provided in Section 8.1 of this Financing Agreement.

 

Section 5.3            The Company unconditionally indemnifies CIT and holds CIT
harmless from any and all loss, claim or liability incurred by CIT arising from
any transactions or occurrences relating to Letters of Credit established or
opened for the Company’s account, the collateral relating thereto and any drafts
or acceptances thereunder, and all Obligations thereunder, including any such

 

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loss or claim due to any errors, omissions, negligence, misconduct or action
taken by any Issuing Bank, other than for any such loss, claim or liability
arising out of the gross negligence or willful misconduct by CIT under the
Letters of Credit Guaranty.  This indemnity shall survive termination of this
Financing Agreement. The Company agrees that any charges incurred by CIT for the
Company account by the Issuing Bank shall be conclusive on CIT and may be
charged to the Company’s Revolving Loan Account.

 

Section 5.4            CIT shall not be responsible for: (a) the existence,
character, quality, quantity, condition, packing, value or delivery of the goods
purporting to be represented by any documents; (b) any difference or variation
in the character, quality, quantity, condition, packing, value or delivery of
the goods from that expressed in the documents; (c) the validity, sufficiency or
genuineness of any documents or of any endorsements thereon, even if such
documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; (d) the time, place, manner or order in
which shipment is made; partial or incomplete shipment, or failure or omission
to ship any or all of the goods referred to in the Letters of Credit or
documents; (e) any deviation from instructions; (f) delay, default, or fraud by
the shipper and/or anyone else in connection with the goods or the shipping
thereof; or (g) any breach of contract between the shipper or vendors and the
Company.

 

Section 5.5            The Company agrees that any action taken by CIT, if taken
in good faith, or any action taken by any Issuing Bank, under or in connection
with the Letters of Credit, the Letter of Credit Guarantees, the drafts or
acceptances, or any Collateral relating to any Letter of Credit, shall be
binding on the Company and shall not result in any liability whatsoever of CIT
to the Company.  In furtherance thereof, CIT shall have the full right and
authority to: (a) clear and resolve any questions of non-compliance of
documents; (b) give any instructions as to acceptance or rejection of any
documents or goods; (c) execute any and all steamship or airways guaranties (and
applications therefore), indemnities or delivery orders; (d) grant any
extensions of the maturity of, time of payment for, or time of presentation of,
any drafts, acceptances, or documents; and (e) agree to any amendments,
renewals, extensions, modifications, changes or cancellations of any of the
terms or conditions of any of the applications, Letters of Credit, drafts or
acceptances; all in CIT’s sole name.  The Issuing Bank shall be entitled to
comply with and honor any and all such documents or instruments executed by or
received solely from CIT, all without any notice to or any consent from the
Company.  Notwithstanding any prior course of conduct or dealing with respect to
the foregoing including amendments and non-compliance with documents and/or the
Company’s instructions with respect thereto, CIT may exercise its rights
hereunder in respect of Letters of Credit in its sole and reasonable business
judgment. In addition, without CIT’s express consent and endorsement in writing,
the Company agrees, in respect of any outstanding Letters of Credit: (a) not to
execute any and all applications for steamship or airway guaranties, indemnities
or delivery orders; to grant any extensions of the maturity of, time of payment
for, or time of presentation of, any drafts, acceptances or documents; agree to
any amendments, renewals, extensions, modifications, changes or cancellations of
any of the terms or conditions of any of the applications, Letters of Credit,
drafts or acceptances; and (b) after the occurrence and during the Continuation
of an Event of Default, not to (i) clear and resolve any questions of
non-compliance of documents, or (ii) give any instructions as to acceptances or
rejection of any documents or goods.

 

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Section 5.6            The Company agrees that: (a) any necessary import, export
or other licenses or certificates for the import or handling of the Collateral
will have been promptly procured in all material respects; (b) all foreign and
domestic governmental laws and regulations in regard to the shipment and
importation of the Collateral, or the financing thereof will have been promptly
and fully complied with in all material respects; and (c) any certificates in
that regard that CIT may at any time reasonably request will be promptly
furnished.  In connection herewith, the Company warrants and represents that all
shipments made under any such Letters of Credit will be in accordance with the
laws and regulations of the countries in which the shipments originate and
terminate in all material respects, and will not be prohibited by any such laws
and regulations.  The Company assumes all risk, liability and responsibility
for, and agrees to pay and discharge, all present and future local, state,
federal or foreign Taxes, duties, or levies arising out of the Letters of Credit
or Letters of Credit Guaranties or any related property.  Any embargo,
restriction, laws, customs or regulations of any country, state, city, or other
political subdivision, where the Collateral is or may be located, or wherein
payments are to be made, or wherein drafts may be drawn, negotiated, accepted,
or paid, shall be solely the Company’s risk, liability and responsibility.

 

Section 5.7            Upon any payments made to the Issuing Bank under the
Letter of Credit Guaranty, CIT shall acquire by subrogation, any rights,
remedies, duties or obligations granted or undertaken by the Company to the
Issuing Bank in any application for Letters of Credit, any standing agreement
relating to Letters of Credit or otherwise, all of which shall be deemed to have
been granted to CIT and apply in all respects to CIT and shall be in addition to
any rights, remedies, duties or obligations contained herein.

 

SECTION 6

COLLATERAL

Section 6.1            As security for the prompt payment in full of all
Obligations, the Company hereby pledges and grants to CIT a continuing general
lien upon, and security interest in, all of its:

 

(a)           Accounts;

 

(b)           Inventory;

 

(c)           General Intangibles;

 

(d)           Documents of Title;

 

(e)           Other Collateral; and

 

(f)            Equipment.

 

Section 6.2            The security interests granted hereunder shall extend and
attach to:

 

(a)           All Collateral which is owned by the Company or in which the
Company has any interest, whether held by the Company or others for its account,
and, if any Collateral is

 

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Equipment, whether the Company’s interest in such Equipment is as owner, finance
lessee or conditional vendee;

 

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

 

(c)           All Inventory and any portion thereof which may be returned,
rejected, reclaimed or repossessed by either CIT or the Company from the
Company’s customers, as well as to all supplies, goods, incidentals, packaging
materials, labels and any other items which contribute to the finished goods or
products manufactured or processed by the Company, or to the sale, promotion or
shipment thereof.

 

Notwithstanding anything herein to the contrary, “Collateral” shall not include
(a) any general intangible that is the subject of a written agreement which
specifically prohibits assignment thereof or grant of a security interest
therein but only to the extent of such prohibition, and only to the extent that
the terms and provisions of such written agreement, document or instrument
creating or evidencing such property or any rights relating thereto expressly
prohibit the granting of a security interest therein or condition the granting
of a security interest therein on the consent of a third party whose consent has
not been obtained or would cause, or allow a third party to cause, forfeiture of
such property upon the granting of a security interest therein or a breach under
any written agreement relating thereto (any such agreement, document or
instrument is referred to herein as a “Restricted Agreement”); provided,
however, that (x) if any such provision purporting to prevent or condition the
granting of a security interest is, or at any time becomes, ineffective or
unenforceable under the UCC or other applicable law to prevent the creation of 
a security interest in the applicable agreement, document or instrument and
related rights or (y) upon any lapse or termination of such provision, then,
under any such circumstance, the Collateral shall include, and Company shall be
deemed to have granted a security interest in, all such general intangibles as
if such provision had never been in effect or (b) any Real Estate, including the
Valencia Real Estate.  To the best of the Company’s knowledge, all of the
Company’s Restricted Agreements are identified on Schedule 5 hereto.  If Company
enters into one or more Restricted Agreements after the Closing Date, Company
shall notify CIT thereof no later than five (5) Business Days after its
execution of each such agreement.

 

 

Section 6.3            The Company agrees to safeguard and protect all Inventory
and make no disposition thereof except in the ordinary course of its business of
the Company, as herein provided.  Upon the sale, exchange, or other disposition
of Inventory, as herein provided, the security interest in the Inventory
provided for herein shall, without break in continuity and without further
formality or act, continue in, and attach to, all proceeds, including any
instruments for the payment of money, Trade Accounts Receivable, documents of
title, shipping documents, chattel paper and all other cash and non-cash
proceeds of such sale, exchange or disposition.  As to any such sale, exchange
or other disposition, CIT shall have all of the rights of an unpaid seller,
including stoppage in transit, replevin, rescission and reclamation, to the
extent permitted by law.  To the extent required by

 

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Section 3.4 of this Financing Agreement, the Company hereby agrees to
immediately forward any and all proceeds of Collateral to the Depository
Account, and to hold any such proceeds (including any notes and instruments), in
trust for CIT pending delivery to CIT.  Irrespective of CIT’s perfection status
in any and all of the General Intangibles, including, without limitation, any
Patents, Trademarks, Copyrights or licenses with respect thereto, the Company,
effective upon the occurrence and during the Continuation of an Event of
Default, hereby irrevocably grants CIT a royalty free license to sell, or
otherwise dispose or transfer, in accordance with Section 10.3 of this Financing
Agreement, and the applicable terms hereof, of any of the Inventory upon the
occurrence of an Event of Default which has not been waived in writing by CIT.

 

Section 6.4            The Company agrees at its own cost and expense to keep
the Equipment in as good and substantial repair and condition as the same is now
or at the time the lien and security interest granted herein shall attach
thereto in all material respects, reasonable wear and tear excepted, making any
and all repairs and replacements when and where necessary.  The Company also
agrees to safeguard, protect and hold all Equipment in accordance with the terms
hereof and subject to  CIT’s security interest. Absent CIT’s prior written
consent or as set forth herein, any sale, exchange or other disposition of any
Equipment shall be made by the Company in the ordinary course of business.  The
Company may sell, exchange or otherwise dispose of Equipment so long as (i) no 
Default or Event of Default has occurred and is Continuing and (ii) any proceeds
of such sale or disposal are promptly delivered to CIT by wire transfer,
provided that (A) the Company may retain and use such proceeds to purchase
replacement Equipment which the Company determines in its reasonable judgment to
have a collateral value at least equal to the Equipment so disposed of or sold
and (B) provided no Liquidity Event has occurred and is continuing, the Company
may retain and use such proceeds in any manner it deems fit within its
reasonable judgment and not in violation of the provisions of this Financing
Agreement in an aggregate amount of up to Five Hundred Thousand Dollars
($500,000) during each consecutive twelve month period commencing on the Closing
Date. Notwithstanding the prior sentence but provided that CIT has not notified
the Company of the occurrence of a Continuing Event of Default under Section
10.1(g) hereof or arising out of a failure to comply with Section 7.10 hereof,
the Company (x) may sell, exchange, abandon or otherwise dispose of Equipment in
connection with its relocation of substantially all of its operations to the
Valencia Real Estate and (y) may sell, exchange or otherwise dispose of obsolete
or surplus Equipment in the ordinary course of business.  The Company shall
remit by wire transfer to CIT the proceeds of a permitted disposition pursuant
to the previous sentence if a Default or an Event of Default has occurred and is
Continuing or if a Liquidity Event has occurred and is continuing;  in all other
circumstances the Company may retain and use such proceeds in any manner it
deems fit within its reasonable judgment and not in violation of the provisions
of this Financing Agreement.  Upon the sale, exchange, or other disposition of
the Equipment, as herein provided, the security interest provided for herein
shall, without break in continuity and without further formality or act,
continue in, and attach to, all proceeds, including any instruments for the
payment of money, Accounts, documents of title, shipping documents, chattel
paper and all other cash and non-cash proceeds of such sales, exchange or
disposition.  As to any such sale, exchange or other disposition, CIT shall have
all of the rights of an unpaid seller, including stoppage in transit, replevin,
rescission and reclamation, to the extent permitted by law.

 

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Section 6.5            The rights and security interests granted to CIT
hereunder are to continue in full force and effect, notwithstanding the
termination of this Financing Agreement or the fact that the  Revolving Loan
Account may from time to time be temporarily in a credit position, until the
final payment in full to CIT of all Obligations and the termination of this
Financing Agreement.  Any delay, or omission by CIT to exercise any right
hereunder shall not be deemed a waiver thereof, or be deemed a waiver of any
other right, unless such waiver shall be in writing and signed by CIT.  A waiver
on any one occasion shall not be construed as a bar to, or waiver of, any right
or remedy on any future occasion.

 

Section 6.6            Notwithstanding CIT’s security interest in the Collateral
and to the extent that the Obligations are now or hereafter secured by any
assets or property other than the Collateral or by the guarantee, endorsement,
assets or property of any other person, CIT shall have the right in its sole
discretion to determine which rights, liens, security interests or remedies CIT
shall at any time pursue, foreclose upon, relinquish, subordinate, modify or
take any other action with respect to, without in any way modifying or affecting
any of them, or any of CIT’s rights hereunder.

 

Section 6.7            Any balances to the credit of the Company and any other
property or assets of the Company in the possession or control of CIT may be
held by CIT as security for any Obligations and applied in whole or partial
satisfaction of such Obligations when due.  The liens and security interests
granted herein, and any other lien or security interest CIT may have in any
other assets of the Company, shall secure payment and performance of all now
existing and future Obligations.  CIT may in its discretion charge any or all of
the Obligations to the Revolving Loan Account when due.

 

Section 6.8            The Company possess all General Intangibles and rights
thereto necessary to conduct its business as conducted as of the Closing Date in
all material respects and the Company shall maintain its rights in, and the
value of, the foregoing in the ordinary course of its business in all material
respects, including, without limitation, by making timely payment with respect
to any applicable material licensed rights.  The Company shall deliver to CIT,
and/or shall cause the appropriate party to deliver to CIT, from time to time
such pledge or security agreements with respect to General Intangibles (now or
hereafter acquired) of the Company and its subsidiaries  as CIT shall reasonably
require to obtain valid first liens thereon, subject to Permitted Encumbrances. 
In furtherance of the foregoing, the Company shall provide timely notice to CIT
of any additional federally registered Patents, Trademarks or Copyrights
acquired or applied for subsequent to the Closing Date and the Company shall
execute such documentation as CIT may reasonably require to obtain and perfect
its lien thereon.  The Company hereby confirms that it shall deliver, or cause
to be delivered, any pledged stock issued subsequent to the Closing Date to CIT
in accordance with the applicable terms of the Pledge Agreement and prior to
such delivery, shall hold any such stock in trust for CIT.  The Company,
effective upon the occurrence and during the Continuation of an Event of
Default, hereby irrevocably grants to CIT a royalty-free, non-exclusive license
in the General Intangibles, including tradenames, Trademarks, Copyrights,
Patents, licenses, and any other proprietary and intellectual property rights
and any and all right, title and interest in any of the foregoing, for the sole
purpose, upon the occurrence and during the Continuation of an Event of Default,
of the right to: (i) advertise for sale and sell or transfer any Inventory
bearing any of the General Intangibles, (ii) make, assemble, prepare for sale or
complete, or cause others to do so, any applicable raw materials or Inventory
bearing any of the General Intangibles, including use of the

 

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Equipment and Real Estate for the purpose of completing the manufacture of
unfinished goods, raw materials or work-in-process comprising  Inventory, and
(iii) complete any services or orders undertaken by the Company from its
customers and to invoice the customers therefor and, in each of the foregoing
cases, to apply the proceeds thereof to the Obligations hereunder, all as
further set forth in this Financing Agreement and irrespective of CIT’s lien and
perfection in any General Intangibles.

 

SECTION 7

REPRESENTATIONS, WARRANTIES AND COVENANTS

Section 7.1            The Company hereby warrants and represents that: (a) the
fair value of the Total Assets exceeds the book value of the Total Liabilities;
(b) the Company is generally able to pay its debts as they become due and
payable; and (c) the Company does not have unreasonably small capital to carry
on its business as it is currently conducted absent extraordinary and unforeseen
circumstances.  The Company further warrants and represents that: (i) Schedule 1
hereto correctly and completely sets forth the Company’s (A) chief executive
office, (B) Collateral locations, (C) tradenames , and (D) all the other
information listed on said Schedule; (ii) except for the Permitted Encumbrances,
after filing of financing statements with the Secretary of State of the State of
California and in the official records of the County of Los Angeles, California,
this Financing Agreement creates a valid, perfected and first priority security
interest in the Collateral that can be perfected by the filing of a financing
statement and the security interests granted herein constitute and shall at all
times constitute the first liens on the Collateral; (iii) except for the
Permitted Encumbrances, the Company is, or will be, at the time additional
Collateral is acquired by it, the owner of the Collateral with full right to
pledge, sell, consign, transfer and create a security interest therein, free and
clear of any and all claims or liens in favor of others; (iv) the Company will,
at its expense, warrant and, at CIT’s request, defend the same from any and all
material claims and demands of any other person other than a holder of a
Permitted Encumbrance; (v) the Company will not grant, create or permit to
exist, any lien upon, or security interest in, the Collateral, or any proceeds
thereof, in favor of any other person other than the holders of the Permitted
Encumbrances; (vi) the Equipment is and will only be used by the Company in its
business and will not be held for sale or lease, or removed from its premises,
or otherwise disposed of by the Company except as otherwise permitted in this
Financing Agreement; (vii) other than as disclosed to CIT in writing prior to
the date hereof or disclosed pursuant to Section 7.2 hereof, to the best of the
Company’s knowledge, as of the Closing Date there is no circumstance existing or
likely to occur which could reasonably result in a claim by one or more third
parties against the Company in excess of $500,000 in the aggregate; (viii) the
Company has no subsidiaries other than the Inactive Subsidiaries; and (ix) none
of the Inactive Subsidiaries is conducting any business or has any material
assets.

 

Section 7.2            The Company agrees to maintain books and records
pertaining to the Collateral in accordance with GAAP and in such additional
detail, form and scope as CIT shall reasonably require. Without limiting CIT’s
default rights and remedies upon the occurrence of an Event of Default, the
Company agrees that CIT or its agents may enter upon the Company’s premises at
any time during normal business hours, and from time to time in its reasonable
business judgement not to exceed once per calendar quarter, for the purpose of
inspecting the Collateral and any and all

 

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records pertaining thereto, except that if the sum of Availability and Liquid
Assets is equal to or greater than Ten Million Dollars ($10,000,000) at the
close of each and every Business Day during the term of this Financing
Agreement, CIT and its agents shall not conduct such field examinations more
frequently than once each one hundred fifty (150) days. The Company agrees to
afford CIT ten (10) Business Days prior written notice of any change in the
location of any Collateral, other than to locations, that as of the Closing
Date, are known to CIT and at which CIT has fully perfected its liens thereon.
The Company is also to advise CIT promptly, in sufficient detail, of any
material adverse change relating to the type, quantity or quality of the
Collateral or on the security interests granted to CIT therein or relating to
any matters which could reasonably be expected to have a Material Adverse
Effect.

 

Section 7.3            The Company agrees to execute and deliver to CIT, from
time to time, solely for CIT’s convenience in maintaining a record of the
Collateral, such written statements and schedules as CIT may reasonably require
designating, identifying or describing the Collateral, including, without
limitation, Borrowing Base Certificates, provided that CIT may not request any
such statements and schedules more frequently than monthly unless an Event of
Default or Material Adverse Effect has occurred and is Continuing.  The Company
shall deliver such monthly statements and schedules to CIT no later than the
fifteenth (15th) day of each calendar month for the prior month.  The Company’s
failure, however, to promptly give CIT such statements, or schedules shall not
affect, diminish, modify or otherwise limit CIT’s security interests in the
Collateral.

 

Section 7.4            The Company agrees to comply with the requirements of all
state and federal laws in order to grant to CIT valid and perfected first
security interests in the Collateral, subject only to the Permitted
Encumbrances.  CIT is hereby authorized by the Company to file (including
pursuant to the applicable terms of the UCC) from time to time any financing
statements, continuations or amendments covering the Collateral.  The Company
hereby consents to and ratifies any and all execution and/or filing of financing
statements on or prior to the Closing Date by CIT.  The Company agrees to do
whatever CIT may reasonably request, from time to time, by way of: (a) filing
notices of liens, financing statements, amendments, renewals and continuations
thereof; (b) cooperating with CIT’s agents and employees; (c) keeping Collateral
records; (d) subject to Section 3.4 hereof, transferring proceeds of Collateral
to CIT’s possession; and (e) performing such further acts as CIT may reasonably
require in order to effect the purposes of this Financing Agreement, including
but not limited to obtaining (i) Control Agreements with respect to deposit
accounts and/or Investment Property, (ii) prior to or concurrent with the
granting by the Company of a lien on any Real Estate owned by the Company, a
mortgagee waiver and intercreditor agreement in form and substance reasonably
satisfactory to CIT, and (iii) without limiting any other covenant,
representation or warranty by the Company under this Financing Agreement, upon
any of the Inactive Subsidiaries becoming active or owning any material assets
or the formation or acquisition of any additional subsidiaries by the Company,
the Company shall promptly take all steps necessary or useful in CIT’s
reasonable discretion to create a lien on the equity owned by the Company in
such subsidiary, including, without limitation, by entering into a Pledge
Agreement with respect thereto.

 

Section 7.5

 

(a)           The Company agrees to maintain insurance on the Equipment and
Inventory under such policies of insurance, with such insurance companies, in
such reasonable amounts and

 

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covering such insurable risks as are set forth on Schedule 4 annexed hereto. 
All such policies are, subject to the rights of any holders of Permitted
Encumbrances holding claims senior to CIT or on property other than the
Collateral, to be made payable to CIT, in case of loss, under a standard
non-contributory “mortgagee”, “lender” or “secured party” clause and are to
contain such other provisions as CIT may require to fully protect CIT’s interest
in the Inventory and Equipment and to any payments to be made under such
policies.  All original policies or true copies thereof are to be delivered to
CIT, premium prepaid, with the loss payable endorsement in CIT’s favor, and
shall provide for not less than thirty (30) days prior written notice to CIT of
the exercise of any right of cancellation.  At the Company’s request, or if the
Company fails to maintain such insurance, CIT may arrange for such insurance,
but at the Company’s expense and without any responsibility on CIT’s part for: 
(i) obtaining the insurance; (ii) the solvency of the insurance companies; (iii)
the adequacy of the coverage; or (iv) the collection of claims. Upon the
occurrence and during the Continuation of an Event of Default, CIT shall,
subject to the rights of any holders of Permitted Encumbrances holding claims
senior to CIT or on property other than the Collateral, have the sole right, in
the name of CIT or the Company, to file claims under any insurance policies, to
receive, receipt and give acquittance for any payments that may be payable
thereunder, and to execute any and all endorsements, receipts, releases,
assignments, reassignments or other documents that may be necessary to effect
the collection, compromise or settlement of any claims under any such insurance
policies.

 

(b)           (i)            In the event any part of the Company’s property
constituting Collateral is damaged by fire or other casualty and the Insurance
Proceeds for such damage or other casualty is less than or equal to $250,000.00,
CIT shall, provided no Default or Event of Default has occurred and is
Continuing, promptly remit any such Proceeds received by it to the Company .
Upon the occurrence and during the Continuation of a Default or Event of
Default, CIT may apply Insurance Proceeds to the Obligations in such manner as
it may deem advisable in its sole discretion;

 

(ii)           Absent the occurrence and Continuation of an Event of Default,
and provided that (x) the Company has sufficient business interruption insurance
or available Liquid Assets to replace the lost profits of any of the Company’s
facilities, and (y) the Insurance Proceeds are in excess of Two Hundred Fifty
Thousand Dollars ($250,000), the Company may elect (by delivering written notice
to CIT) to replace, repair or restore such property to substantially the
equivalent condition prior to such fire or other casualty as set forth herein. 
If the Company does not, or cannot, elect to use the Insurance Proceeds as set
forth above, CIT may, subject to the rights of any holders of Permitted
Encumbrances holding claims senior to CIT or on property other Collateral, apply
the Insurance Proceeds to the payment of the Obligations in such manner and in
such order as CIT may reasonably elect; and

 

(iii)         If, pursuant to the foregoing clause (ii), the Company elects to
use Insurance Proceeds for the repair, replacement or restoration of any
Equipment, and no Liquidity Event, Default or Event of Default has occurred and
is Continuing, the Insurance Proceeds may be applied to such repair, replacement
or restoration only upon receipt of non-cancelable executed purchase orders,
delivery receipts or contracts for the replacement, repair or restoration of
property, copies of which have been provided to CIT.  If there are insufficient
Insurance Proceeds to cover the cost of restoration, the Company shall be
responsible for the amount of any such insufficiency and

 

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shall reasonably demonstrate to CIT evidence of its ability to pay such
difference without causing a Liquidity Event or shall pay all Insurance Proceeds
to CIT for application to the Revolving Loan Account.  Completion of restoration
shall be demonstrated to CIT and shall be evidenced by a final, unqualified
certification of the architect, mechanic or engineer employed, if any, a sales
or service contract certified as fully paid and performed or such other
certification as may be required by law; or if none of the above is applicable,
a written good faith determination of completion by the Company that is
reasonably satisfactory to CIT.

 

(c)           The Company agrees to maintain liability insurance under such
policies of insurance, with such insurance companies, in such reasonable amounts
and covering such insurable risks as are set forth on Schedule 4 annexed
hereto.  Without limiting the generality of the foregoing, Company shall
maintain at all times professional liability insurance with coverage equal to or
greater than Three Million Dollars ($3,000,000) per occurrence.  All such
policies shall name CIT as an additional insured thereunder and are to contain
such other provisions as CIT may reasonably require.  All original policies or
true copies thereof are to be delivered to CIT, premium prepaid, with the
additional insured endorsement in CIT’s favor, and shall provide for not less
than thirty (30) days prior written notice to CIT of the exercise of any right
of cancellation.  At the Company’s request, or if the Company fails to maintain
such insurance, CIT may arrange for such insurance, but at the Company’s expense
and without any responsibility on CIT’s part for:  (i) obtaining the insurance;
(ii) the solvency of the insurance companies; (iii) the adequacy of the
coverage; or (iv) the collection of claims. Upon the occurrence and during the
Continuation of an Event of Default, CIT shall have the sole right, in the name
of CIT or the Company, to file claims under any insurance policies, to receive,
receipt and give acquittance for any payments that may be payable thereunder,
and to execute any and all endorsements, receipts, releases, assignments,
reassignments or other documents that may be necessary to effect the collection,
compromise or settlement of any claims under any such insurance policies.

 

(d)           In the event the Company fails to provide CIT with timely
evidence, acceptable to CIT,  of its maintenance of insurance coverage required
pursuant to this Section 7.5,  CIT may purchase, at the Company’s expense, such
insurance.  The insurance acquired by CIT may, but need not, protect the
Company’s interest in the Collateral, and therefore such insurance may not pay
claims which the Company may have with respect to the Collateral or pay any
claim which may be made against the Company in connection with the Collateral.
In the event CIT purchases, obtains or acquires  liability insurance and
insurance covering all or any portion of the Collateral, the Company shall be
responsible for all of the applicable costs of such insurance, including
premiums, interest (at the applicable Chase Bank Rate for Revolving Loans  set
forth in Section 8.1 hereof), fees and any other charges with respect thereto,
until the effective date of the cancellation or the expiration of such
insurance.  CIT may charge all of such premiums, fees, costs, interest and other
charges to the Company’s Revolving Loan Account.  The Company hereby
acknowledges that the costs of the premiums of any insurance acquired by CIT may
exceed the costs of insurance which the Company may be able to purchase on its
own.  In the event that CIT purchases such insurance, CIT will notify the
Company of said purchase within thirty (30) days of the date of such purchase. 
If, within thirty (30) days of the date of such notice, the Company provides CIT
with proof that the Company had the insurance coverage required pursuant to this
Section 7.5 (in form and substance satisfactory to CIT) as of the date on which
CIT purchased insurance and the Company continued at

 

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all times to have such insurance, then CIT agrees to cancel the insurance
purchased by CIT and credit the Company’s Revolving Loan Account with the amount
of all costs, interest and other charges associated with any insurance purchased
by CIT, including with any amounts previously charged to the Revolving Loan
Account.

 

Section 7.6            The Company agrees to pay, when due, all Taxes, including
sales taxes, assessments, claims and other charges lawfully levied or assessed
upon the Company or the Collateral unless such Taxes are being diligently
contested in good faith by the Company by appropriate proceedings and adequate
reserves are established in accordance with GAAP.  Notwithstanding the
foregoing, if any lien shall be filed or claimed thereunder (A) for Taxes due
the United States of America or (B) which in CIT’s opinion might create a valid
obligation having priority over the rights granted to CIT herein (exclusive of
Real Estate), such lien shall not be deemed to be a Permitted Encumbrance
hereunder and the Company shall immediately pay such tax and remove the lien of
record.  If the Company fails to do so promptly, then at CIT’s election, CIT may
(i) create an Availability Reserve in such amount as it may deem appropriate in
its business judgement, or (ii) upon the occurrence of a Default or Event of
Default, imminent risk of seizure, filing of any priority lien, forfeiture, or
sale of the Collateral, pay Taxes on the Company’s behalf, and the amount
thereof shall be an Obligation secured hereby and due on demand.

 

Section 7.7            The Company:  (a) agrees to comply with all acts, rules,
regulations and orders of any legislative, administrative or judicial body or
official, which the failure to comply with would have a Material Adverse Effect,
provided that the Company may contest any acts, rules, regulations, orders and
directions of such bodies or officials in any reasonable manner which could not
reasonably be expected to result in a Material Adverse Effect; (b) agrees to
comply with all environmental statutes, acts, rules, regulations or orders as
presently existing or as adopted or amended in the future, applicable to the
Collateral, the ownership and/or use of its real property and operation of its
business, which the failure to comply with would have a Material Adverse Effect,
and (c) shall not be deemed to have breached any provision of this Section 7.7
if (i) the failure to comply with the requirements of this Section 7.7 resulted
from good faith error or innocent omission, (ii) the Company promptly commences
and diligently pursues a cure of such breach, and (iii) such failure is cured
within thirty (30) days following the Company’s receipt of notice of such
failure, or if such cannot in good faith be cured within thirty (30) days, then
such breach is cured within a reasonable time frame based upon the extent and
nature of the breach and the necessary remediation, and in conformity with any
applicable consent order, consensual agreement and applicable law.

 

Section 7.8            Until termination of this Financing Agreement and payment
and satisfaction of all Obligations due hereunder, the Company agrees that,
unless CIT shall have otherwise consented in writing, the Company will furnish
to CIT: (a) within ninety (90) days after the end of each Fiscal Year of the
Company, audited Consolidated Financial Statements, as at the close of such
year, audited by independent public accountants selected by the Company and
satisfactory to CIT; (b) within forty-five (45) days after the end of each
Fiscal Quarter (other than the Fiscal Quarter ending on December 31 of each
year) Consolidated Financial Statements as at the end of such period, certified
by an authorized financial or accounting officer of the Company; and (c) from
time to time, such further information regarding the business affairs and
financial condition of the Company and its consolidated subsidiaries as CIT may
reasonably request, including, without limitation (i) the

 

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accountant’s management practice letter and (ii) annual cash flow projections in
form reasonably satisfactory to CIT.  Each financial statement which the Company
is required to submit hereunder must be accompanied by an officer’s certificate,
signed by the President, Vice President, Controller, or Treasurer, pursuant to
which any one such officer must certify that: (x) the financial statement(s)
fairly and accurately represent(s) the Company’s financial condition at the end
of the particular accounting period, as well as the Company’s operating results
during such accounting period, subject to year-end audit adjustments in all
material respects; and (y) during the particular accounting period: (A) to the
best of such officers’ knowledge after due inquiry, there has been no Default or
Event of Default under this Financing Agreement that has occurred and is
Continuing, provided, however, that if any such officer has knowledge that any
such Default or Event of Default, has occurred during such period, the existence
of and a detailed description of same shall be set forth in such officer’s
certificate; (B) the Company has not received any notice of cancellation with
respect to its property insurance policies except as may be set forth in such
certificate; (C) the Company has not received any notice that could reasonably
be expected to have a Material Adverse Effect except as may be set forth in such
certificate; and (D) the exhibits attached to such financial statement(s)
constitute detailed calculations showing compliance with all financial covenants
contained in this Financing Agreement except as set forth in such certificate.

 

Section 7.9            Until termination of the Financing Agreement and payment
and satisfaction of all Obligations hereunder, the Company agrees that, without
the prior written consent of CIT, except as otherwise herein provided, the
Company will not:

 

(a)           Mortgage, assign, pledge, transfer or otherwise permit any lien,
charge, security interest, encumbrance or judgment, (whether as a result of a
purchase money or title retention transaction, or other security interest, or
otherwise) to exist on any of  the Company’s Collateral or any other assets,
whether now owned or hereafter acquired, except for the Permitted Encumbrances;

 

(b)           Incur or create any Indebtedness other than the Permitted
Indebtedness;

 

(c)           Sell, lease, assign, transfer or otherwise dispose of (i)
Collateral, except as otherwise specifically permitted by this Financing
Agreement, or (ii) either all or substantially all of the Company’s assets,
which do not constitute Collateral, except that this clause (ii) shall not apply
to the Valencia Real Estate or to the purchase or sale of Investment Property
constituting Indebtedness (but excluding anything that would be considered
Margin Stock);

 

(d)           Except as allowed in clause (f) below, merge, consolidate or
otherwise alter or modify its corporate name, principal place of business,
structure, or existence, re-incorporate or re-organize, form any subsidiaries,
or enter into or engage in any operation or activity that is not in the same or
a similar industry from that presently being conducted by the Company, except
that the Company may change its corporate name or address; provided that: (i)
the Company shall give CIT thirty (30) days prior written notice in the case of
a change of name and ten (10) days prior written notice in the case of a change
of address and (ii) the Company shall execute and deliver, prior to or
simultaneously with any such action, any and all documents and agreements
requested by CIT to confirm the continuation and preservation of all security
interests and liens granted to CIT hereunder, and except that the Company may
engage in transactions permitted by Section 7.9(f) hereof;

 

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(e)           Assume, guarantee, endorse, or otherwise become liable upon the
obligations of any person, firm, entity or corporation, except by the
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business and except in respect of Letters
of Credit and other Permitted Indebtedness;

 

(f)            Make any advance or loan to, or any investment in, any firm,
entity, person or corporation, or purchase or acquire all or substantially all
of the stock or assets of any entity, person or corporation, except that the
Company may purchase or acquire all or substantially all of the stock or assets
of any business, entity, person or corporation (the “Target”) without the
consent of CIT if:

 

(i)            the Target is engaged in the same or similar industry as the
Company;

 

(ii)           the cash purchase price plus any deferred or contingent
consideration plus any liabilities of the Target assumed by the Company for the
purchase of the stock or assets of the Target (collectively, the “Gross Purchase
Price”) is equal to or less than Fifty Million Dollars ($50,000,000); and

 

(iii)         immediately after giving effect to the sale and purchase of the
stock or assets of the Target by the Company, the sum of (x) Availability
(excluding any Availability that may be created by the inclusion of the assets
of the Target in the calculation of the Borrowing Base) and (y) Liquid Assets
less the Gross Purchase Price is equal to or greater than Fifteen Million
Dollars ($15,000,000).

 

Notwithstanding the foregoing, the Company may purchase or acquire and dispose
of cash, cash equivalents and other publicly traded Investment Property
constituting investment grade indebtedness (but excluding Margin Stock).

 

(g)           Pay any management, consulting or other similar fees to any
person, corporation or other entity affiliated with the Company in excess of
Five Hundred Thousand Dollars during any consecutive twelve month period, except
that the Company may pay fees to the  members of the board of directors of the
Company in the ordinary course of business and make payments made pursuant to
the existing severance arrangements with James B. Peter).

 

Section 7.10         Until termination of the Financing Agreement and payment
and satisfaction in full of all Obligations hereunder, the Company shall:

 

(a)           Reserved.

 

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(b)           subject to the proviso at the end of this Section 7.10, have at
the end of each period a cumulative sum from July 1, 2003 and ending on the date
set forth in the table below no less than the corresponding amount of Free Cash
Flow:

 

Period End Date

 

Free Cash Flow (negative)

 

September 30, 2003

 

($6,000,000.00

)

December 31, 2003

 

($7,000,000.00

)

March 31, 2004

 

($17,500,000.00

)

June 30, 2004

 

($22,000,000.00

)

September 30, 2004

 

($23,250,000.00

)

December 31, 2004

 

($18,500,000.00

)

March 31, 2005

 

($17,250,000.00

)

June 30, 2005

 

($16,000,000.00

)

September 30, 2005

 

($14,750,000.00

)

December 31, 2005

 

($13,500,000.00

)

March 31, 2006

 

($12,250,000.00

)

June 30, 2006

 

($11,000,000.00

)

 

Provided, the Company shall not be required to comply with the financial
covenants set forth in Section 7.10(b) of this Financing Agreement so long as:
(x) the sum of Availability and Liquid Assets, in each case at the close of each
and every Business Day during the term of this Financing Agreement, exceeds the
then current Line of Credit and (y) no Default or Event of Default has occurred
and is Continuing.

 

Section 7.11         The Company agrees to advise CIT in writing of:  (a) all
expenditures (actual or anticipated) in excess of Two Hundred Fifty Thousand
Dollars ($250,000) from the budgeted amount therefor in any Fiscal Year for (i)
environmental clean-up, (ii) environmental compliance or  (iii) environmental
testing and the impact of said expenses on the Company’s Working Capital; and
(b) any notices the Company receives from any local, state or federal authority
advising the Company of any environmental liability (real or potential) stemming
from the Company’s operations, its premises, its waste disposal practices, or
waste disposal sites used by the Company and to provide CIT with copies of all
such notices if so required.

 

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Section 7.12         The Company hereby agrees to indemnify and hold harmless
CIT and its officers, directors, employees, attorneys and agents (each an
“Indemnified Party”) from, and holds each of them harmless against, any and all
losses, liabilities, obligations, claims, actions, damages, costs and expenses
(including attorney’s fees) and any payments made by CIT pursuant to any
indemnity provided by CIT with respect to or to which any Indemnified Party
could be subject insofar as such losses, liabilities, obligations, claims,
actions, damages, costs, fees or expenses with respect to the Loan Documents,
including without limitation those which may arise from or relate to: (a) the
Depository Account, the Blocked Accounts, the lockbox and/or any other
depository account and/or the agreements executed in connection therewith; and
(b) any and all claims or expenses asserted against CIT as a result of any
environmental pollution, hazardous material or environmental clean-up relating
to the Real Estate; or any claim or expense which results from the Company’s
operations (including, but not limited to, the Company’s off-site disposal
practices) and use of the Real Estate, which CIT may sustain or incur (other
than solely as a result of the physical actions of CIT on the Company’s premises
which are determined to constitute gross negligence or willful misconduct by a
court of competent jurisdiction), all whether through the alleged or actual
negligence of such person or otherwise, except and to the extent that the same
results solely and directly from the gross negligence or willful misconduct of
such Indemnified Party as finally determined by a court of competent
jurisdiction. The Company hereby agrees that this indemnity shall survive
termination of this Financing Agreement, as well as payments of Obligations
which may be due hereunder. CIT may, in its sole business judgement, establish
such Availability Reserves with respect thereto as it may deem reasonably
advisable under the circumstances and, upon any termination hereof, hold such
reserves as cash reserves for any such contingent liabilities.

 

Section 7.13         Without the prior written consent of CIT, the Company
agrees that it will not enter into any transaction, including, without
limitation, any purchase, sale, lease, loan or exchange of property, with any
subsidiary, owner or affiliate, provided that, except as otherwise set forth in
this Financing Agreement, the Company may enter into sale and service
transactions in the ordinary course of its business and pursuant to the
reasonable requirements of the Company, and upon standard terms and conditions
and fair and reasonable terms, no less favorable to the Company than the Company
could obtain in a comparable arms length transaction with an unrelated third
party, provided further that no Default or Event of Default exists or will occur
hereunder prior to and after giving effect to any such transaction.

 

Section 7.14         The Company hereby represents that, as of the Closing Date:
(a) all of the Company’s and its subsidiaries’ federally registered or
applications to federally register:  (i) Trademarks, (ii) Patents, and (iii)
Copyrights are identified on Schedule 6 hereto; (b) monthly rental payments for
any leased premises or Collateral locations are identified on Schedule 7 hereto;
and (c) Permitted Encumbrances described in clauses (a) and (b) of the
definition thereof are identified on Schedule 8 hereto.  The Company shall
notify CIT of any change in the information set forth in Schedule 6 within
thirty (30) days after the end of the Fiscal Quarter during which such change
occurs and of any change in the information set forth in Schedules 7 and 8
within thirty (30) days after the end of the Fiscal Year during which such
change occurs.

 

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Section 7.15         The Company shall use reasonable efforts to deliver to CIT
within a reasonable time a recordable landlord waiver for the Company’s chief
executive office and Control Agreements with respect to all of the Company’s
material deposit accounts, all fully executed in form and substance reasonably
satisfactory to CIT.

 

SECTION 8

INTEREST, FEES AND EXPENSES

Section 8.1

 

(a)           Interest on the Revolving  Loans, whether bearing interest based
on the Chase Bank Rate or LIBOR, shall be payable monthly at the end of each
month. Chase Bank Rate Loans shall be an amount equal to the Chase Bank Rate
plus one half of one percent (0.5%) per annum on the average of the net balances
owing by the Company to CIT in the Revolving Loan Account at the close of each
day during such month.  In the event of any change in said  Chase Bank Rate, the
rate hereunder for Chase Bank Rate Loans shall change, as of the date of such
change, so as to remain one half of one percent (0.5%) above the  Chase Bank
Rate.  The rate hereunder for Chase Bank Rate Loans shall be calculated based on
a 360-day year.  CIT shall be entitled to charge the Company’s Revolving Loan
Account at the rate provided for herein when due until all Obligations have been
paid in full.

 

(b)           Upon the occurrence and during the Continuation of an Event of
Default and the giving of any required notice by CIT in accordance with the
provisions of Section 10.2 hereof, all Obligations shall bear interest at the
Default Rate of Interest.

 

Section 8.2            If the average of the net balances owing by the Company
to CIT in the Revolving Loan Account at the close of each day during any month
is less than Five Million Dollars ($5,000,000), CIT shall charge Company a fee
equal to interest (applying the Chase Bank Rate plus the applicable margin in
accordance with this Financing Agreement) on the amount of such difference. Such
fee shall be payable at the end of the applicable month.  No fees described in
this Section 8.2 shall accrue prior to the Closing Date or to the extent, and
only to the extent, that such fee results from: (a) the Company’s inability to
borrow Revolving Loans or direct the issuance of Letters of Credit otherwise
available to it in accordance with this Financing Agreement due to CIT’s
establishment of one or more Availability Reserves (excluding Availability
Reserves for issued, undrawn Letters of Credit and for unpaid Taxes pursuant to
Section 7.6); (b) the Company’s inability to borrow Revolving Loans or direct
the issuance of Letters of Credit otherwise available to it in accordance with
this Financing Agreement due to CIT’s election to not make Revolving Loans or
finance Letters of Credit while an Event of Default has occurred and is
Continuing; (c) the payment in full of the Obligations and the termination of
this Financing Agreement; or (d) CIT’s election to treat as ineligible for
borrowing purposes one or more Trade Accounts Receivable due solely to the
failure of such Account to satisfy the criterion set forth in clause (b)(xiv) of
the definition of Eligible Accounts Receivable.

 

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Section 8.3            In consideration of the Letter of Credit Guaranty of CIT,
the Company shall pay CIT the Letter of Credit Guaranty Fee which shall be an
amount equal to two percent (2%) per annum, payable monthly at the end of each
month, on the face amount of each standby Letter of Credit less the amount of
any and all amounts previously drawn under such standby Letter of Credit.

 

Section 8.4            Any and all charges, fees, commissions, costs and
expenses charged to CIT for the Company’s account by any Issuing Bank in
connection with, or arising out of, Letters of Credit or out of transactions
relating thereto will be charged to the Revolving Loan Account in full when
charged to, or paid by CIT, or as may be due upon any termination of this
Financing Agreement hereof, and when made by any such Issuing Bank shall be
conclusive on CIT.

 

Section 8.5            The Company shall reimburse or pay CIT for all
Out-of-Pocket Expenses.  Upon request of the Company, CIT shall provide Company
with a reasonably detailed accounting of the Out-of-Pocket Expenses invoiced to
Company, provided that the Company shall not delay payment of such expenses
pending receipt of such accounting.

 

Section 8.6            Upon the last Business Day of each month, commencing on
September 30, 2003, the Company shall pay to CIT (i)  the Line of Credit Fee
(except that the Line of Credit Fee shall be reduced by the amount of the fee
set forth in Section 8.2 actually paid for the particular month), and (ii)
interest on the Collection Days.  Interest will be computed at the rate, and in
the manner, set forth in Section 8.1 of this Financing Agreement.
Notwithstanding the foregoing, so long as the Blocked Account has not been
activated by CIT as set forth in Section 3.4 (b) above,  interest on the
“Collection Days” shall not be charged but in lieu of charging interest on the
Collection Days, Company agrees to pay to CIT an In Lieu Collection Fee of
$1,000 per month (pro-rated for any partial month) due and payable on the last
day of each month beginning on the last day of the month of the Closing Date and
continuing on the last day of each succeeding month until this Agreement has
been terminated and the Obligations paid in full.  If CIT activates the Blocked
Account pursuant to Section 3.4 (b) (and so long as the Blocked Account is
active), interest on the Collection Days shall be charged.  In no event shall
the In Lieu Collection Fee be charged if CIT is charging interest on the
Collection Days.  If during any month interest on the Collection Days is charged
for a portion of the month and/or the In Lieu Collection Fee is charged for
another portion of the month, interest on the Collection Days and the In Lieu
Collection Fee shall be charged only for those days of the month during which
each such charge was applicable.

 

Section 8.7            To induce CIT to enter into this Financing Agreement and
to extend to the Company the Revolving Loans and  Letters of Credit Guaranties,
the Company shall pay to CIT a Loan Facility Fee in the amount of three-quarters
of one percent of the initial  Line of Credit, or One Hundred Twelve Thousand
Five Hundred Dollars ($112,500.00), payable upon execution of this Financing
Agreement.  The Commitment Fee shall be credited toward the Loan Facility Fee
upon consummation of this financing transaction on the Closing Date.

 

Section 8.8            On the Closing Date and each anniversary of the Closing
Date thereafter, the Company shall pay to CIT the Administrative Management Fee,
which shall be deemed fully earned when due.

 

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Section 8.9            The Company shall pay CIT’s standard charges and fees for
CIT’s personnel used by CIT for reviewing the books and records of the Company
and for verifying, testing, protecting, safeguarding, preserving or disposing of
all or any part of the Collateral (which fees shall be no more than Seven
Hundred Fifty Dollars ($750) per person per day and shall be in addition to the
Administrative Management Fee and any Out-of-Pocket Expenses).  Upon request of
the Company, CIT shall provide Company with a reasonably detailed accounting of
the expenses invoiced to Company pursuant to this Section 8.9, provided that the
Company shall not delay payment of such expenses pending receipt of such
accounting.

 

Section 8.10         The Company hereby authorizes CIT to charge the Revolving
Loan Account with the amount of all payments due hereunder as such payments
become due.  The Company confirms that any charges which CIT may so make to the
Revolving Loan Account as herein provided will be made as an accommodation to
the Company and solely at CIT’s discretion.

 

Section 8.11         In the event that CIT or any participant hereunder (or any
financial institution which may from time to time become a participant or lender
hereunder) shall have determined in the exercise of its reasonable business
judgement, that subsequent to the Closing Date, any change in applicable law,
rule, regulation or guideline regarding capital adequacy, or any change in the
interpretation or administration thereof, or compliance by CIT or such
participant with any new 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 CIT’s or such participant’s capital as a consequence of its obliga­tions
hereunder to a level below that which CIT or such participant could have
achieved but for such adoption, change or compliance (taking into consideration
CIT or such participant’s policies with respect to capital adequacy) by an
amount reasonably deemed by CIT or such participant to be material, then, from
time to time, the Company shall pay no later than five (5) days follow­ing
demand to CIT or such participant such additional amount or amounts as will
compensate CIT’s or such participant’s for such reduction.  In determin­ing such
amount or amounts, CIT or such participant may use any reason­able averaging or
attribution methods.  The protection of this Section 8.11 shall be available to
CIT or such participant regard­less of any possible contention of invalidity or
inapplicability with respect to the applicable law, regulation or condition.  A
certificate of CIT or such participant setting forth such amount or amounts as
shall be necessary to compensate CIT or such participant with respect to this
Section 8 and the calculation thereof when delivered to the Company shall be
conclusive on the Company absent manifest error.  Notwithstanding anything in
this Section to the contrary, in the event CIT or such participant has exercised
its rights pursuant to this Section, and subsequent thereto determines that the
additional amounts paid by the Company in whole or in part exceed the amount
which CIT or such participant actually required to be made whole, the excess, if
any, shall be returned to the Company by CIT or such participant.

 

Section 8.12         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 CIT or such participant 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 CIT or such participant to any tax of any kind whatsoever
with respect to this Financing Agreement or change the basis of taxation of
payments to CIT or such participant

 

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of principal, fees, interest or any other amount payable hereunder or under any
other documents (excluding taxes imposed on or measured by its overall net
income, franchise taxes imposed on it (in lieu of net income taxes), and any
branch profits or similar tax imposed by the jurisdiction (or any political
subdivision thereof) under the laws of which any such person is organized or
maintains a lending office or is deemed to be doing business on all or part of
its net income, profits or gains);

 

(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 CIT or such
participant by reason of or in respect to this Financing Agreement and the Loan
Documents, including (without limitation) pursuant to Regulation D of the Board
of Governors of the Federal Reserve System; or

 

(c)           impose on CIT or such participant any other condition with respect
to this Financing Agreement or any other document, and the result of any of the
foregoing is to increase the cost to CIT or such participant of making, renewing
or maintaining its loans hereunder by an amount that CIT or such participant
deems to be material in the exercise of its reasonable busi­ness judgement or to
reduce the amount of any payment (whether of principal, interest or otherwise)
in respect of any of the loans by an amount that CIT or such participant deems
to be material in the exercise of its reasonable business judge­ment, then, in
any case the Company shall pay CIT or such participant, within five (5) days
following its demand, such additional cost or such reduction, as the case may
be.  CIT or such participant shall certify the amount of such ad­ditional cost
or reduced amount to the Company and the calculation thereof and such
certification shall be conclusive upon the Company absent manifest error. 
Notwithstanding anything in this paragraph to the contrary, in the event CIT or
such participant has exercised its rights pursuant to this paragraph, and
subsequent thereto determine that the additional amounts paid by the Company in
whole or in part exceed the amount which CIT or such participant actually
required pursuant hereto, the excess, if any, shall be returned to the Company
by CIT or such participant.

 

Section 8.13         The Company may request LIBOR Loans on the following terms
and conditions:

 

(a)           The Company may elect on or subsequent to the Closing Date and
from time to time thereafter  (i) to request any loan made hereunder to be a
LIBOR Loan as of the date of such loan or (ii) to convert Chase Bank Rate Loans
to LIBOR Loans, and may elect from time to time to convert LIBOR Loans to Chase
Bank Rate Loans by giv­ing CIT at least three (3) Business Days’ prior
irrevocable notice of such election, provided that any such conversion of LIBOR
Loans to Chase Bank Rate Loans shall only be made, subject to the second
following sentence, on the last day of an Interest Period with respect thereto. 
Should the Company elect to convert Chase Bank Rate Loans to LIBOR Loans, it
shall give CIT at least four (4) Business Days’ prior irrevocable notice of such
election.  If the last day of an Interest Period with respect to a loan that is
to be converted is not a Business Day, then such conversion shall be made on the
next succeed­ing Business Day, as the case may be, and dur­ing the period from
such last day of an Interest Period to such succeeding Business Day, such loan
shall bear interest as if it were a Chase Bank Rate Loan.  All or any part of
outstanding Chase Bank Rate Loans then outstanding with respect to Revolving
Loans may be converted to LIBOR Loans as provided herein, provided that partial
conversions shall be in multiples in an aggregate principal amount of $1,000,000
or more.

 

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(b)           Any LIBOR Loans may be continued as such upon the expira­tion of
an Interest Period, provided the Company so notifies  CIT, at least three (3)
Business Days’ prior to the expiration of said Interest Period, and provided
further that no LIBOR Loan may be continued as such upon the occurrence and
during the Continuation of any Default or Event of Default under this Financing
Agreement, but shall be automatically converted to a Chase Bank Rate Loan on the
last day of the Interest Period during which occurred such Default or Event of
Default.  Absent such notification, LIBOR Rate Loans shall convert to Chase Bank
Rate Loans on the last day of the applicable Interest Period.  Each notice of
election, conversion or continuation furnished by the Company pursuant hereto
shall specify whether such election, conversion or continuation is for a one,
two, three or six month period.  Notwithstanding anything to the contrary
contained herein, CIT (or any participant, if applicable) shall not be required
to purchase United States Dollar deposits in the London interbank market or from
any other applicable LIBOR Rate market or source or otherwise “match fund” to
fund LIBOR Rate Loans, but any and all provisions hereof relating to LIBOR Rate
Loans shall be deemed to apply as if CIT (and any participant, if applicable)
had purchased such deposits to fund any LIBOR Rate Loans.

 

(c)           The Company may request a LIBOR Loan, convert any Chase Bank Rate
Loan or continue any LIBOR Loan provided no Default or Event of Default has
occurred and is Continuing.

 

(d)           The Company may repay a LIBOR Loan at any time, it being
understood that Company may incur obligations as a result thereof under Section
8.19 hereof.

 

Section 8.14

 

(a)           The LIBOR Loans shall bear interest for each Interest Period with
respect thereto on the unpaid principal amount thereof at a rate per annum equal
to the LIBOR determined for each Interest Period in accordance with the terms
hereof plus two and one-half percent (2.5%).

 

(b)           If all or a portion of the outstanding principal amount of the
Obligations shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such outstanding amount, to the extent it is a LIBOR
Loan, shall be converted to a Chase Bank Rate Loan at the end of the last
Interest Period therefor.

 

(c)           The Company may not have more than five (5) LIBOR Loans
outstanding at any given time.

 

Section 8.15

 

(a)           Interest in respect of the LIBOR Loans shall be calculated on the
basis of a 360 day year and shall be payable as of the end of each month.

 

(b)           CIT shall, at the request of the Company, deliver to the Company a
statement showing the quotations given by JPMorgan Chase Bank and the
computations used in determining any inter­est rate pursuant to Section 8.14
hereof.

 

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Section 8.16         As further set forth in Section 8.12 above, in the event
that CIT (or any financial institution which may become a participant hereunder)
shall have determined in the exercise of its reason­able business judgment
(which determination shall be conclusive and binding upon the Company absent
manifest error) that by reason of circumstances affecting the interbank LIBOR
market, adequate and reasonable means do not exist for ascertaining LIBOR
applicable for any Interest Period with respect to: (a) a proposed loan that the
Company has requested be made as a LIBOR Loan; (b) a LIBOR Loan that will result
from the requested conversion of a Chase Bank Rate Loan into a LIBOR Loan; or
(c) the continuation of LIBOR Loans beyond the expira­tion of the then current
Interest Period with respect thereto, CIT shall forthwith give written notice of
such determination to the Company at least one (1) Business Day prior to, as the
case may be, the requested borrowing date for such LIBOR Loan, the conversion
date of such Chase Bank Rate Loan or the last day of such Interest Period.  If
such notice is given (i) any requested LIBOR Loan shall be made as a Chase Bank
Rate Loan, (ii) any Chase Bank Rate Loan that was to have been converted to a
LIBOR Loan shall be continued as a Chase Bank Rate Loan, and (iii) any
outstanding LIBOR Loan shall be converted, on the last day of then current
Interest Period with respect thereto, to a Chase Bank Rate Loan.  Until such
notice has been withdrawn by CIT, no further LIBOR Loan shall be made nor shall
the Company have the right to convert a Chase Bank Rate Loan to a LIBOR Loan.

 

Section 8.17         If any payment on a LIBOR Loan becomes due and pay­able on
a day other than a Business Day, the maturity thereof shall be extended to the
next succeeding Business Day unless the result of such extension would be to
extend such payment into another calendar month in which event such pay­ment
shall be made on the immediately preceding Business Day.

 

Section 8.18         Notwithstanding any other provisions herein, if any law,
regula­tion, treaty or directive or any change therein or in the interpretation
or application thereof, shall make it unlawful for CIT to make or maintain LIBOR
Loans as contemplated herein, the then outstand­ing LIBOR Loans, if any, shall
be converted automatically to Chase Bank Rate Loans as of the end of such month,
or within such earlier period as required by law.  The Company hereby agrees
promptly to pay CIT, upon demand, any ad­ditional amounts necessary to
compensate CIT for any costs incurred by CIT in making any conversion in
accordance with this Section 8 including, but not limited to, any interest or
fees payable by ­CIT to lenders of funds obtained by CIT in order to make or
maintain LIBOR Loans hereunder.

 

Section 8.19         The Company agrees to indemnify and to hold  CIT (including
any participant) harmless from any loss or expense which  CIT or such
participant may sustain or incur as a consequence of: (a) Default by the Company
in pay­ment of the principal amount of or interest on any LIBOR Loans, as and
when the same shall be due and payable in accordance with the terms of this
Financing Agreement, including, but not limited to, any such loss or expense
arising from interest or fees payable by  CIT or such participant to lenders of
funds obtained by either of them in order to maintain the LIBOR Loans hereunder;
(b) default by the Company in making a borrowing or conversion after the Company
has given a notice in ac­cordance with Section 8.13 hereof; (c) any prepayment
of LIBOR Loans on a day which is not the last day of the Interest Period
applicable thereto, including, without limitation, prepay­ments arising as a
result of the application of the proceeds of Collateral to the Revolving Loans;
and (d) default by the Company in mak­ing any prepayment after the Company had
given notice to CIT thereof. The determination by CIT of the

 

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amount of any such loss or expense, when set forth in a written notice to the
Company, containing CIT’s calculations thereof in reasonable detail, shall be
conclusive on the Company in the absence of manifest error.  Calculation of all
amounts payable under this section with regard to LIBOR Loans shall be made as
though CIT had actually funded the LIBOR Loans through the purchase of deposits
in the relevant market and currency, as the case may be, bearing interest at the
rate applicable to such LIBOR Loans in an amount equal to the amount of the
LIBOR Loans and having a maturity comparable to the relevant interest period;
provided, however, that CIT may fund each of the LIBOR Loans in any manner CIT
sees fit and the foregoing assumption shall be used only for calculation of
amounts payable under this section.  In addition, notwithstanding anything to
the contrary contained herein, CIT shall apply all proceeds of Collateral and
all other amounts received by it from or on behalf of the Company that are
required to pay Revolving Loans hereunder (i) initially to the Chase Bank Rate
Loans and (ii) subsequently to LIBOR Loans; provided, however, (x) upon the
occurrence and during the Continuation of an Event of Default or (y) in the
event the aggregate amount of outstanding LIBOR Rate Loans exceeds Availability
or the applicable maximum levels set forth therefor, CIT may apply all such
amounts received by it to the payment of Obligations in such manner and in such
order as CIT may elect in its reasonable business judgment.  In the event that
any such amounts are applied to Revolving Loans which are LIBOR Loans, such
application shall be treated as a prepayment of such loans and CIT shall be
entitled to indemnification hereunder.  This covenant shall survive termination
of this Financing Agreement and payment of the outstanding Obligations.

 

Section 8.20         Notwithstanding anything to the contrary in this Agreement,
in the event that, by reason of any Regula­tory Change (for purposes hereof
“Regulatory Change” shall mean, with respect to CIT, any change after the date
of this Financing Agreement in United States federal, state or foreign law or
regulations (including, without limitation, Regulation D) or the adoption or
making after such date of any interpretation, directive or request apply­ing to
a class of banks including CIT of or under any United States federal, state or
foreign law or regulations (whether or not having the force of law and whether
or not failure to comply therewith would be unlawful), CIT either (a) incurs any
material additional costs based on or measured by the excess above a specified
level of the amount of a category of deposits or other li­abilities of such bank
which includes deposits by reference to which the interest rate on LIBOR Loans
is determined as provided in this Financing Agreement or a category of
extensions of credit or other as­sets of CIT which includes LIBOR Loans, or (b)
becomes subject to any material restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if CIT so elects by notice to the
Company, the obliga­tion of CIT to make or continue, or to convert Chase Bank
Rate Loans into LIBOR Loans hereunder shall be suspended until such Regula­tory
Change ceases to be in effect.

 

Section 8.21         For purposes of this Financing Agreement and Section 8
hereof, any reference to CIT shall include any financial institution which may
become a participant or co-lender subsequent to the Closing Date.

 

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SECTION 9

POWERS

The Company hereby constitutes CIT, or any person or agent CIT may designate, as
its attorney-in-fact, at the Company’s cost and expense, to exercise all of the
following powers (but without any obligation on the part of CIT to exercise such
powers, except as may be required by law), which being coupled with an interest,
shall be irrevocable until all Obligations to CIT have been paid in full:

 

(a)           To receive, take, endorse, sign, assign and deliver, all in the
name of CIT or the Company, any and all checks, notes, drafts, and other
documents or instruments relating to the Collateral;

 

(b)           To receive, open and dispose of all mail addressed to the Company
and to notify postal authorities to change the address for delivery thereof to
such address as CIT may designate;

 

(c)           To request from customers indebted on Accounts at any time, in the
name of CIT, information concerning the amounts owing on the Accounts;

 

(d)           To request from customers indebted on Accounts at any time, in the
name of the Company, in the name of a certified public accountant designated by
CIT or in the name of CIT’s designee, information concerning the amounts owing
on the Accounts;

 

(e)           To transmit to customers indebted on Accounts notice of CIT’s
interest therein and to notify customers indebted on Accounts to make payment
directly to CIT for the Company’s account; and

 

(f)            To take or bring, in the name of CIT or the Company, all steps,
actions, suits or proceedings deemed by CIT necessary or desirable to enforce or
effect collection of the Accounts.

 

Notwithstanding anything hereinabove contained to the contrary, the powers set
forth in paragraphs (a), (b), (c), (e) and (f) above may only be exercised after
the occurrence and during the Continuation of an Event of Default.

 

SECTION 10

EVENTS OF DEFAULT AND REMEDIES

Section 10.1         Notwithstanding anything hereinabove to the contrary, CIT
may terminate this Financing Agreement immediately upon the occurrence of any of
the following (herein “Events of Default”):

 

(a)           cessation of the business of the Company or the calling of a
meeting of the creditors of the Company for purposes of compromising the debts
and obligations of the Company;

 

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(b)           the failure of the Company to generally meet its debts as they
mature;

 

(c)           (i) the commencement by the Company of any bankruptcy, insolvency,
arrangement, reorganization, receivership or similar proceedings under any
federal or state law; (ii) the commencement against the Company, of any
bankruptcy, insolvency, arrangement, reorganization, receivership or similar
proceeding under any federal or state law by creditors of the Company, provided
that such Default shall not be deemed an Event of Default if such proceeding is
controverted within twenty (20) days and dismissed and vacated within forty-five
(45) days of commencement, except in the event that any of the actions sought in
any such proceeding shall occur or the Company shall take action to authorize or
effect any of the actions in any such proceeding; or (iii) the commencement (x)
by the Company’s subsidiaries, or any one of them (other than any Inactive
Subsidiary), of any bankruptcy, insolvency, arrangement, reorganization,
receivership or similar proceeding under any applicable state law, or (y)
against  the Company’s subsidiaries, or any one of them (other than any Inactive
Subsidiary), of any involuntary bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceeding under applicable law,
provided that such Default shall not be deemed an Event of Default if such
proceeding is controverted within twenty (20) days and dismissed or vacated
within forty-five (45) days of commencement, except in the event that any of the
actions sought in any such proceeding shall occur or the Company’s subsidiaries,
or any one of them (other than any Inactive Subsidiary), shall take action to
authorize or effect any of the actions in any such proceeding;

 

(d)           breach by the Company of any warranty or representation in any
material respect or covenant contained herein (other than those referred to in
subparagraph (e) and (f) below) or in any other written agreement between the
Company or CIT, provided that such Default by the Company of any of the
warranties, representations or covenants referred in this clause (d) shall not
be deemed to be an Event of Default unless and until (if such Default is capable
of cure) such Default shall remain unremedied to CIT’s satisfaction for a period
of ten (10) Business Days from the date of such breach;

 

(e)           breach by the Company of any covenant set forth in Sections 7.3
and 7.8 hereof, provided that any such breach shall not constitute an Event of
Default unless CIT has provided notice of such breach to the Company and Company
has not cured such breach within three (3) Business Days, provided further, that
Company shall not be entitled to the benefit of the foregoing notice obligation
on the part of CIT and subsequent cure period more than three (3) times in the
aggregate during any consecutive twelve month period;

 

(f)            breach by the Company of any warranty, representation or covenant
of Sections 3.3 (other than the fourth sentence of Section 3.3) and 3.4 hereof;
Sections 6.3 and 6.4 (other than the first sentence of Section 6.4) hereof;
Sections 7.1, 7.5, 7.6, and 7.9 through 7.14 hereof;

 

(g)           failure of the Company to pay any of the Obligations when due,
provided that nothing contained herein shall prohibit CIT from charging such
amounts to the Revolving Loan Account on the due date thereof;

 

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(h)           the Company shall (i) engage in any “prohibited transaction” as
defined in ERISA, (ii) have any “accumulated funding deficiency” as defined in
ERISA, (iii) have any “reportable event” as defined in ERISA, (iv) terminate any
“plan”, as defined in ERISA or (v) be engaged in any proceeding in which the
Pension Benefit Guaranty Corporation shall seek appointment, or is appointed, as
trustee or administrator of any “plan”, as defined in ERISA, and with respect to
this subparagraph (g) such event or condition (x) remains uncured for a period
of thirty (30) days from date of occurrence and (y) could, in the reasonable
opinion of CIT, subject the Company to any tax, penalty or other liability
material to the business, operations or financial condition of the Company;

 

(i)            without the prior written consent of CIT and, except as permitted
in the Subordination Agreement, the Company shall (x) amend or modify the
Subordinated Debt, or (y) make any payment on account of the Subordinated Debt;

 

(j)            the occurrence of any default or event of default (after giving
effect to any applicable grace or cure periods or any written waiver thereof by
the affected party) under any instrument or agreement evidencing (x)
Subordinated Debt or (y) any other Indebtedness of the Company having a
principal amount in excess of $250,000; or

 

(k)           failure of the Company to maintain its existing federal, state and
other business licenses, certifications and permits which are material to the
operation of the Company’s business in full force, scope and effect, including,
without limitation, its certification pursuant to the Clinical Laboratory
Improvement Amendments of 1988 (“CLIA”), its laboratory testing license under
the laws of the State of California, and its status as an approved provider by
the Centers for Medicare and Medicaid Services (“CMS”).

 

Section 10.2         Upon the occurrence and during the Continuation of a
Default and/or an Event of Default, at the option of CIT, all loans, advances
and extensions of credit provided for in Sections 3, 4 and 5 of this Financing
Agreement shall be thereafter in CIT’s sole discretion and the obligation of CIT
to make Revolving Loans, open Letters of Credit and provide Letters of Credit
Guaranties, shall cease unless such Default is cured to CIT’s satisfaction or
Event of Default is waived in writing by CIT, and at the option of CIT upon the
occurrence of an Event of Default: (a) all Obligations shall become immediately
due and payable; (b) CIT may charge the Company the Default Rate of Interest on
all then outstanding or thereafter incurred Obligations in lieu of the interest
provided for in Section 8 of this Financing Agreement, provided that, with
respect to this clause “(b)” CIT has given the Company written notice of the
Event of Default; provided, however, that no notice is required if the Event of
Default is the Event listed in Section 10.1(c), and (c) CIT may immediately
terminate this Financing Agreement upon notice to the Company; provided,
however,  that upon the occurrence of  an Event of Default listed in  Section
10.1(c), this Financing Agreement shall automatically terminate and all
Obligations shall become due and payable, without any action, declaration,
notice or demand by CIT.  The exercise of any option is not exclusive of any
other option, which may be exercised at any time by CIT.

 

Section 10.3         Immediately upon the occurrence of any Event of Default,
CIT may, to the extent permitted by law:  (a) remove from any premises where
same may be located any and all books and records, computers, electronic media
and software programs associated with any

 

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Collateral (including any electronic records, contracts and signatures
pertaining thereto), documents, instruments, files and records, and any
receptacles or cabinets containing same, relating to the Accounts, or CIT may
use, at the Company’s expense, such of the Company’s personnel, supplies or
space at the Company’s places of business or otherwise, as may be necessary to
properly administer and control the Accounts or the handling of collections and
realizations thereon; (b) bring suit, in the name of the Company or CIT, and
generally shall have all other rights respecting said Accounts, including
without limitation the right to:  accelerate or extend the time of payment,
settle, compromise, release in whole or in part any amounts owing on any
Accounts and issue credits in the name of the Company or CIT; (c) sell, assign
and deliver the Collateral and any returned, reclaimed or repossessed Inventory,
with or without advertisement, at public or private sale, for cash, on credit or
otherwise, at CIT’s sole option and discretion, and CIT may bid or become a
purchaser at any such sale, free from any right of redemption, which right is
hereby expressly waived by the Company; (d) foreclose the security interests in
the Collateral created herein or by the Loan Documents by any available judicial
procedure, or to take possession of any or all of the Collateral, including any
Inventory, Equipment and/or Other Collateral without judicial process, and to
enter any premises where any Inventory and Equipment and/or Other Collateral may
be located for the purpose of taking possession of or removing the same; (e)
enter into the premises of the Company and other locations for the purpose of
inspecting the Collateral and any and all books and records relating thereto,
and CIT may use, at the Company’s expense, such of the Company’s personnel,
supplies or space at the Company’s places of business or otherwise, as may be
necessary to properly inspect and examine the Collateral; and (f) exercise any
other rights and remedies provided in law, in equity, by contract or otherwise.
CIT shall have the right, without notice or advertisement, to sell, lease, or
otherwise dispose of all or any part of the Collateral, whether in its then
condition or after further preparation or processing, in the name of the Company
or CIT, or in the name of such other party as CIT may designate, either at
public or private sale or at any broker’s board, in lots or in bulk, for cash or
for credit, with or without warranties or representations (including but not
limited to warranties of title, possession, quiet enjoyment and the like), and
upon such other terms and conditions as CIT in its sole discretion may deem
advisable, and CIT shall have the right to purchase at any such sale.  If any
Inventory and Equipment shall require rebuilding, repairing, maintenance or
preparation, CIT shall have the right, at its option, to do such of the
aforesaid as is necessary, for the purpose of putting the Inventory and
Equipment in such saleable form as CIT shall deem appropriate and any such costs
shall be deemed an Obligation hereunder. Any action taken by CIT pursuant to
this section shall not effect commercial reasonableness of the sale.  The
Company agrees, at the request of CIT, to assemble the Inventory and Equipment
and to make it available to CIT at premises of the Company or elsewhere and to
make available to CIT the premises and facilities of the Company for the purpose
of CIT’s taking possession of, removing or putting the Inventory and Equipment
in saleable form.  If notice of intended disposition of any Collateral is
required by law, it is agreed that ten (10) days notice shall constitute
reasonable notification and full compliance with the law.  The net cash proceeds
resulting from CIT’s exercise of any of the foregoing rights, (after deducting
all charges, costs and expenses, including reasonable attorneys’ fees) shall be
applied by CIT to the payment of the  Obligations, whether due or to become due,
in such order as CIT may elect, and the Company shall remain liable to CIT for
any deficiencies, and CIT in turn agrees to remit to the Company or its
successors or assigns, any surplus resulting therefrom.  The enumeration of the
foregoing rights is not intended to be exhaustive and the exercise of any right
shall not preclude the exercise of any other rights, all of which shall be
cumulative.  The Company hereby indemnifies CIT and holds CIT

 

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harmless from any and all costs, expenses, claims, liabilities, Out-of-Pocket
Expenses or otherwise, incurred or imposed on CIT by reason of the exercise of
any of its rights, remedies and interests hereunder, including, without
limitation, from any sale or transfer of Collateral, preserving, maintaining or
securing the Collateral, defending its interests in Collateral (including
pursuant to any claims brought by the Company, the Company as
debtor-in-possession, any secured or unsecured creditors of the Company, any
trustee or receiver in bankruptcy, or otherwise), and the Company hereby agrees
to so indemnify and hold CIT harmless, absent CIT’s gross negligence or willful
misconduct as finally determined by a court of competent jurisdiction.  The
foregoing indemnification shall survive termination of this Financing Agreement
until such time as all Obligations (including the foregoing) have been finally
and indefeasibly paid in full.  In furtherance thereof CIT, may establish such
reserves for Obligations hereunder (including any contingent Obligations) as it
may deem advisable in its reasonable business judgment.  Any applicable
mortgage(s), deed(s) of trust or assignment(s) issued to CIT on the Real Estate
shall govern the rights and remedies of CIT thereto.

 

SECTION 11

TERMINATION

Section 11.1         Except as otherwise permitted herein, CIT may terminate
this Financing Agreement only as of the initial or any subsequent Anniversary
Date and then only by giving the Company at least sixty (60) days prior written
notice of termination. Notwithstanding the foregoing CIT may terminate the
Financing Agreement immediately upon the occurrence of an Event of Default,
provided, however, that if the Event of Default is an event listed in Section
10.1(c) of this Financing Agreement, this Financing Agreement shall terminate in
accordance with Section 10.2. This Financing Agreement, unless terminated as
herein provided, shall automatically continue from Anniversary Date to
Anniversary Date.  The Company may terminate this Financing Agreement at any
time upon no more than forty-five (45) days’ and no less than thirty (30) days’
prior written notice to CIT (with written confirmation two (2) Business Days
prior to the date of termination), provided that the Company pays to CIT on or
prior to the date of termination an Early Termination Fee, if applicable.  All
Obligations shall become due and payable as of any termination hereunder or
under Section 10 hereof and, pending a final accounting, CIT may withhold any
balances in the Company’s account (unless supplied with an indemnity
satisfactory to CIT) to cover all of the Obligations, whether absolute or
contingent, including, but not limited to, cash reserves for any contingent
Obligations, including an amount of 110% of the face amount of any outstanding
Letters of Credit with an expiry date on, or within thirty (30) days of, the
effective date of termination of this Financing Agreement. All of CIT’s rights,
liens and security interests shall continue after any termination until all
Obligations have been paid and satisfied in full.

 

Section 11.2         CIT shall modify or waive the Early Termination Fee as
follows, in each case provided that no Default or Event of Default has occurred
and is Continuing:

 

(a)           The Early Termination Fee shall be waived in full if the Company
terminates this Financing Agreement (i) on a date that is eighteen (18) months
or more after the Closing Date;

 

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and (ii) the Obligations are paid in full by loans advanced under a credit
facility that is not secured by the Accounts and that is provided by Union Bank
or one of its affiliates; and

 

(b)           The Early Termination Fee shall be reduced to fifty percent (50%)
of the otherwise applicable fee if (i) the Company requests that CIT make
advances against the assets of a business acquired or sought to be acquired by
the Company in accordance with this Financing Agreement and (ii) CIT deems all
or substantially all of such assets ineligible for borrowing purposes hereunder
notwithstanding that (x) CIT has or would have a first priority, perfected lien
and security interest in such assets; (y) such assets are otherwise suitable
collateral for borrowing purposes pursuant to the criteria set forth in the
Financing Agreement or other criteria that CIT may establish and that are
customary either in the commercial finance industry or in the lending practices
of CIT; and (z) any requested advances to Borrower are not in excess of the Line
of Credit and Revolving Line of Credit.

 

 

SECTION 12

 

MISCELLANEOUS

Section 12.1         The Company hereby waives diligence, notice of intent to
accelerate, notice of acceleration, demand, presentment and protest and any
notices thereof as well as notice of nonpayment.  No delay or omission of CIT or
the Company to exercise any right or remedy hereunder, whether before or after
the happening of any Event of Default, shall impair any such right or shall
operate as a waiver thereof or as a waiver of any such Event of Default.  No
single or partial exercise by CIT of any right or remedy precludes any other or
further exercise thereof, or precludes any other right or remedy.

 

Section 12.2         CIT agrees to take normal and reasonable precautions and
exercise due care to maintain the confidentiality of all information provided to
CIT by or on behalf of the Company, under this Financing Agreement or the other
Loan Documents, except to the extent that such information (i) was or becomes
generally available to the public other than as a result of disclosure by CIT,
or (ii) was or becomes available on a nonconfidential basis from a source other
than the Company, provided that such source is not bound by a confidentiality
agreement with the Company known to CIT; provided, however, that CIT may
disclose such information (1) at the request or pursuant to any requirement of
any governmental authority to which CIT is subject or in connection with an
examination of CIT by any such governmental authority; (2) pursuant to subpoena
or other court process; (3) when required to do so in accordance with the
provisions of any applicable legal requirement; (4) to the extent reasonably
required in connection with any litigation or proceeding (including, but not
limited to, any bankruptcy proceeding) to which CIT or its affiliates may be
party; (5) to the extent reasonably required in connection with the exercise of
any remedy hereunder or under any other Loan Document; (6) to CIT’s independent
auditors, accountants, attorneys and other professional advisors; (7) to any
prospective participant or assignee of CIT’s rights under this Financing
Agreement, provided that such prospective participant or assignee agrees to keep
such information confidential to the same extent required of CIT hereunder; 
(8) as expressly permitted under the terms of any other document or agreement
regarding confidentiality to which the Company is party or is deemed party with
CIT, and (9) to its affiliates.  Notwithstanding anything herein to the
contrary, the information subject to this Section 12.2 shall not include, and
CIT may disclose without

 

51

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limitation of any kind, any information with respect to the “tax treatment” and
“tax structure” (in each case, within the meaning of Treasury Regulation Section
1.6011-4) of the transactions contemplated hereby and all materials of any kind
(including opinions or other tax analyses) that are provided to CIT relating to
such tax treatment and tax structure; provided that with respect to any document
or similar item that in either case contains information concerning the tax
treatment or tax structure of the transactions as well as other information,
this sentence shall only apply to such portions of the document or similar item
that relate to the tax treatment or tax structure of the Revolving Loans,
Letters of Credit and transactions contemplated hereby.

 

Section 12.3         This Financing Agreement and the Loan Documents executed
and delivered in connection therewith constitute the entire agreement between
the Company and CIT;  supersede any prior agreements; can be changed only by a
writing signed by both the Company and CIT; and shall bind and benefit the
Company and CIT and their respective successors and assigns.

 

Section 12.4         In no event shall the Company, upon demand by CIT for
payment of any Indebtedness relating hereto, by acceleration of the maturity
thereof, or otherwise, be obligated to pay interest and fees in excess of the
amount permitted by law.  Regardless of any provision herein or in any agreement
made in connection herewith, CIT shall never be entitled to receive, charge or
apply, as interest on any indebtedness relating hereto, any amount in excess of
the maximum amount of interest permissible under applicable law.  If CIT ever
receives, collects or applies any such excess, it shall be deemed a partial
repayment of principal and treated as such; and if principal is paid in full,
any remaining excess shall be refunded to the Company.  This section shall
control every other provision hereof, the Loan Documents and of any other
agreement made in connection herewith.

 

Section 12.5         If any provision hereof or of any other agreement made in
connection herewith is held to be illegal or unenforceable, such provision shall
be fully severable, and the remaining provisions of the applicable agreement
shall remain in full force and effect and shall not be affected by such
provision’s severance.  Furthermore, in lieu of any such provision, there shall
be added automatically as a part of the applicable agreement a legal and
enforceable provision as similar in terms to the severed provision as may be
possible.

 

Section 12.6         THE COMPANY AND CIT EACH HEREBY WAIVE ANY RIGHT TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THE LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREUNDER.  THE COMPANY HEREBY IRREVOCABLY WAIVES
PERSONAL SERVICE OF PROCESS AND CONSENTS TO  SERVICE OF PROCESS BY CERTIFIED OR
REGISTERED MAIL, RETURN  RECEIPT REQUESTED.  IN NO EVENT WILL CIT BE LIABLE FOR
LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.

 

Section 12.7         Except as otherwise herein provided, any notice or other
communication required hereunder shall be in writing (provided that, any
electronic communications from the Company with respect to any request,
transmission, document, electronic signature, electronic mail or facsimile
transmission shall be deemed binding on the Company for purposes of this
Financing Agreement, provided further that any such transmission shall not
relieve the Company from any other obligation hereunder to communicate further
in writing), and shall be deemed to have been

 

 

52

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validly served, given or delivered when hand delivered or sent by facsimile, or
three days after deposit in the United State mails, with proper first class
postage prepaid and addressed to the party to be notified or to such other
address as any party hereto may designate for itself by like notice, as follows:

 

If to CIT, at:

The CIT Group/Business Credit, Inc.

300 South Grand Avenue, 3rd Floor

Los Angeles, California  90071

Attn:  Regional Credit Manager

Fax No.: (213) 613-2537

If to the Company at:

Specialty Laboratories, Inc.

1620 26th Street, 5th Floor South Tower

Santa Monica, California 90404

Attn: General Counsel

Fax No.: (310) 586-7235

 

With a courtesy copy of any material notice to the Company’s counsel at:

O’Melveny & Myers LLP

400 S. Hope Street

Los Angeles, CA 90071

Attn: John Laco, Esq. and Thomas Baxter, Esq.

Fax No.  (213) 430-6407

 

provided, however, that the failure of CIT to provide the Company’s counsel with
a copy of such notice shall not invalidate any notice given to the Company and
shall not give the Company any rights, claims or defenses due to the failure of
CIT to provide such additional notice.

 

Section 12.8         THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS 
FINANCING AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY THE LAWS
OF THE  STATE OF CALIFORNIA, EXCEPT TO THE EXTENT THAT ANY OTHER LOAN DOCUMENT
INCLUDES AN EXPRESS ELECTION TO BE GOVERNED BY THE LAWS OF ANOTHER JURISDICTION.

 

53

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IN WITNESS WHEREOF, the parties hereto have caused this Financing Agreement to
be effective, executed, accepted and delivered at Los Angeles, California, by
their proper and duly authorized officers as of the date set forth above. 

 

“BORROWER”

“LENDER”

 

 

SPECIALTY LABORATORIES, INC.

THE CIT GROUP / BUSINESS CREDIT,

a California corporation

INC., a New York corporation

 

 

 

 

 

 

By 

/s/ Frank J. Spina

By 

/s/ Jeffrey Chiu

Its

Chief Financial Officer

Its

Vice President

 

 

 

 

By 

/s/ Nicholas R. Simmons

 

Its

General Counsel

 

 

 

 

 

54

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Exhibit A-Form of Borrowing Base Certificate

 

[Omitted.  Immaterial to agreement]

 

55

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Exhibit B-Form of Company Legal Counsel Opinion

 

See attached.

 

56

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Schedule 1 — Collateral Information

 

 

Exact Company Name in State of Organization:

 

Specialty Laboratories, Inc.

 

State of Incorporation or Formation:

 

California

 

Federal Tax I.D. No.

 

95-2961036

 

Chief Executive Office:

 

1620 26th Street, 5th Floor South Tower

Santa Monica, California 90404

 

Collateral Locations:

 

2211 Michigan Avenue

Santa Monica, California 90404

 

1620 26th Street, 5th Floor South Tower

Santa Monica, California 90404

 

1752 Cloverfield Avenue

Santa Monica, California  90404

 

1819 Cloverfield Avenue

Santa Monica, California 90404 (parking lot)

 

Van Nuys Storage

15424 Cabrito, #7

Van Nuys, California

 

1756 22nd Street

Santa Monica, California 90404

 

2701 Pennsylvania Avenue

Santa Monica, California 90404 (parking lot)

 

57

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Edison Parking

1701 22nd Street (parking lot)

Santa Monica, California  90404

 

4800 Pleasant Hill Road

Memphis, Tennessee (sub-leased to an independent third party)

 

415 Boston Turnpike

Shrewsbury, Massachusetts

 

 

58

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Schedule 2 — Dilution Calculation

 

[Omitted.  Immaterial to agreement]

 

59

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Schedule 3 — Litigation

 

None.

 

 

60

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Schedule 4 — Insurance

 

[Omitted.  Immaterial to agreement.]

 

61

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Schedule 5 — Restricted Agreements

 

1.

 

Lease dated June 1996, as amended on November 4, 1999 and October 24, 2002,
between Howard Real Property Trust (lessor) and Company (lessee) for the
property located at 1752-1756 Cloverfield, Santa Monica, California.

 

 

 

2.

 

Sublease dated July 9, 1996, as amended on March 9, 1998 between The Rand
Corporation (sublandlord) and Company (subtenant) for the property located at
1620 20th Street, Santa Monica, California.

 

 

 

3.

 

Lease dated January 26, 2000, as amended on November 22, 2002, between WDI Santa
Monica LLC (Lessor) and Company (Lessee) for the property located at 1756 22nd
Street, Santa Monica, California.

 

 

 

4.

 

Lease dated July 17, 1993, as amended on October 24, 2002, between Oscar & Ethel
Salenger Trust (Landlord) and Company (Tenant) for the property located at 2211
Michigan Avenue, Santa Monica, California.

 

 

 

5.

 

Agreement dated August 26, 1996, as amended on October 23, 1998 and as amended
on December 31, 1999 between Triple G Corporation and Company.

 

 

 

6.

 

Expanded PCR Diagnostics Services Agreement dated August 20, 2001 by and between
Roche Molecular Systems, Inc. and Company.

 

 

 

7.

 

Group Purchasing Agreement effective as of July 15, 1998 between AmeriNet, Inc.
and Company as amended by that certain letter agreement dated October 2, 2002.

 

 

 

8.

 

Group Purchasing Agreement dated December 13, 2002 between Managed Healthcare
Associates, Inc. and Specialty Laboratories, Inc, as amended by that certain
letter agreement dated April 18, 2003

 

 

 

9.

 

License Agreement, undated, between Southern California Edison Company
(Licensor) and Company (Licensee) regarding Santa Monica Service Center
property.

 

 

 

10.

 

Collaborative Research, Development and License Agreement dated May 9, 2000
between Epoch Biosciences, Inc. (formerly known as Epoch Pharmaceuticals, Inc.)
and Company.

 

 

 

11.

 

License Agreement dated March 15, 2000 between Gen-Probe Incorporated and
Company.

 

 

 

12.

 

Asset Purchase Agreement, dated February 20, 2001, among Company, Boston
Biomedica, Inc. and BBI Clinical Laboratories, Inc.

 

 

 

13.

 

Settlement and License Agreement, dated August 15, 2003, between Company and
Bayer Healthcare, LLC

 

 

 

14.

 

Letter Agreement, dated August 15, 2003, between Company and Chiron Corporation

 

 

 

15.

 

Many of the Company’s customer contracts contain a non-assignment clause,
substantially similar to the following language: 

 

 

 

 

 

Assignment — Neither party may assign or otherwise transfer this Agreement or
any of its rights or obligations hereunder, without the other party’s prior
written consent, except that Specialty may assign its rights and obligations
hereunder in the event of a change of control or sale of all or substantially
all of its assets related to this Agreement, whether by merger, reorganization,
operation of law, or otherwise.

 

 

62

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Schedule 6 — Patents, Copyrights, Trademarks and Tradenames

 

 

Patents

 

Patent Number                              Title

 

5,187,083                                          Rapid purification of DNA

 

5,234,824                                          Rapid purification of DNA

 

5,432,059                                          Assay for glycosylation
deficiency disorders

 

5,747,270                                          Method for silicone-specific
hypersensitivity

 

 

 

 

Copyrights

 

None.

 

 

 

 

 

Trademarks

 

[Omitted.  Immaterial to agreement]

 

63

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Schedule 7 — Monthly Rental Payments

 

[Omitted. Immaterial to agreement]

 

64

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Schedule 8 — Permitted Encumbrances

 

Coulter Leasing Corporation; UCC file no. 199725860813; filed 9/12/1997;
collateral: Two (2) Coulter ® Epics XLMCL 4 Color; One (1) Coulter ® MAXM
Autoloader; One (1) Mulit Q Prep

 

Biomerieux Vitek, Inc.; UCC file no. 199727460752; filed 9/26/1997; collateral:
Biomerieux Vitek Sysmem Model 120

 

Boehringer Manheim Corporation; UCC file no. 199728060228; filed 10/2/1997;
collateral: Boehringer Manheimm/Hitachi #2010 Elecsys System

 

Tokai Financial Services, Inc.; UCC file no. 199730161028; filed 10/23/1997;
assigned 11/21/1997 (From Boehringer Manheim Corporation); collateral:
Boehringer Mannheim/Hitachi #917 Analyzer

 

Behring Diagnostics Incorporated; UCC file no. 199732161045; filed 11/13/1997;
collateral: BNII (Nephelometer II) — (2)

 

Chiron Diagnostics Corporation; UCC file no. 19981460976; filed 5/19/1998;
collateral: One (1) Model 340 Quantiplex System with Centrifuge #109494

 

Bayer Corporation Diagnostic Division; UCC file no. 199816261329; filed
6/10/1998;continued 5/16/2003; collateral: System: Immuno 1

 

Chiron Diagnostics Corporation; UCC file no. 199817360532; filed 6/18/1998;
collateral: One (1) ACS: 180 Plus with EOM; One (1) 180 Plus (Existing); One (1)
EOM

 

Nichols Institute Diagnostics; UCC file no. 199834560252; filed 12/8/1998;
collateral: 65-10085-0004 Nichols Advantage Chemiluminescence Specialty System

 

Heller Financial Leasing, Inc.; UCC file no. 199926760448; filed 9/16/1999;
collateral: Leased computer equipment

 

Becton Dickinson Microbiology Systems; UCC file no. 199932860047; filed
11/15/1999; collateral: One (1) Bactec brand 960 instrument; One (1) instrument
starter group; One (1) printer

 

Dade Behring Financial Services; UCC file no. 200002160808; filed 1/18/2000;
collateral: One (1) Nephelometer

 

Pitney Bowes Credit Corporation; UCC file no. 200006160134; filed 2/28/2000;
collateral: All equipment manufactured, sold, or distributed by Pitney Bowes,
Monarch Marketing System, Inc., or Distaphone Corp — leased

 

65

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Bayer Corporation Diagnostic Division; UCC file no. 200022060530; filed
7/31/2000; collateral Four (4) 340 Quantiplex Systems

 

Norwest Financial Leasing, Inc.; UCC file no. 200022260509; filed 8/2/2000;
collateral: Nuclisens Extractor

 

Bayer Corporation Diagnostic Division; UCC file no. 200107160614; filed
3/7/2000; collateral: Three (3) 340 Quantiplex Systems

 

Bayer Corporation Diagnostic Division; UCC file no. 200107460601; filed
3/12/2001; collateral: TMA Component System

 

Beckman Coulter, Incorporated; UCC file no. 200109260852; filed 3/30/2001;
collateral: R-XL-MCL R CLR W/FLOW, including all consumables, reagent stream,
attached hardware/ software.

 

Beckman Coulter, Incorporated; UCC file no. 200122260140; filed 8/9/2001;
collateral: Prep Plus Final; Two (2) R-XL-MCL R CLR W/FLOW, Including all
consumables, reagent stream, attached hardware/ software.

 

Pitney Bowes Credit Corporation; UCC file no. 200123460854; filed 8/17/2001;
collateral: All equipment manufactured, sold, or distributed by Pitney Bowes,
Monarch Marketing System, Inc., or Distaphone Corp — leased

 

DVI Strategic Partner Group a Division of DVI Financial Services, Inc.
(ASSIGNOR) and U.S. Bank Trust N.A. as Custodian or Trustee; UCC file no.
200128860600; filed 10/12/2001l; collateral: Two (2) Smartsource 2000 with 2
supply drawers; Two (2) bar code readers s/n’s; Equipment Lease No. 9900553.002

 

Bayer Corporation Diagnostic Division; UCC file no. 200205760139; filed
2/22/2002; collateral: One (1) TMA Component System

 

Bayer Corporation Diagnostic Division; UCC file no. 200225360595; filed
9/9/2002; amended 3/3/2003; collateral: One (1) Advai w/ Autosampler

 

Bayer Corporation Diagnostic Division; UCC file no. 200225361120; filed
9/9/2002; amended 3/3/2003; collateral: One (1) Advai 120

 

Gen-Probe Incorporated; UCC file no. 200235860152; filed 12/18/2002; collateral:
equipment and medical instruments

 

Bayer Corporation Diagnostic Division; UCC file no. 200300960733; filed 1/6/200;
amended 3/3/2003; collateral: One (1) Advia 1650

 

66

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Beckman Coulter, Inc.; UCC file no. 200305161006; filed 2/18/2003; collateral:
Eight (8) pieces of equipment, all related consumables, reagent stream, attached
hardware/software

 

Leasing Associates of Barrington, Inc. and Norlease, Inc.; UCC file no.
200305260658; filed 2/18/2003; assigned 3/12/2003 collateral: Three (3) Bayer
Advia Centuar Immunoassay Analyzers (leased) including attachments and
accessories.

 

Enterprise Fleet Services:  Collateral: all vehicles

 

Union Bank of California, N.A.: Collateral: standby letter of credit for Federal
Insurance Company in the amount of $680,000

 

67

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