EXHIBIT 10.1

AMENDED AND RESTATED FINANCING AGREEMENT

MONROE CAPITAL ADVISORS LLC

(AS LENDER)

AND

AIRCRAFT INTERIOR DESIGN, INC., BRICE MANUFACTURING COMPANY, INC.

TIMCO AVIATION SERVICES, INC.,

TIMCO ENGINE CENTER, INC., TIMCO ENGINEERED SYSTEMS, INC. AND

TRIAD INTERNATIONAL MAINTENANCE CORPORATION

(AS BORROWERS)

DATED: AS OF APRIL 8, 2005

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TABLE OF CONTENTS

PAGE

Section 1

Definitions

2

 

Section 2

Conditions Precedent

18

Section 3

Revolving Loan Matters

21

Section 4

Term Loan

24

Section 5

INTENTIONALLY OMITTED

25

Section 6

Collateral

25

Section 7

Representations, Warranties and Covenants

28

Section 8

Interest, Fees and Expenses

43

Section 9

Powers

47

Section 10

Events of Default

47

Section 11

Termination

51

Section 12

Joint and Several Liability; Cross-Guaranty; Right of Subrogation; Waiver of

 

 

Suretyship Defenses; Subordination; Appointment

51

Section 13

Miscellaneous

53

 

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EXHIBIT

Exhibit A-1

Form of Term Note (Term Loan A-1)

 

Exhibit A-2

Form of Term Note A-2 (Term Loan A-2)

Exhibit A-3

Form of Term Note B (Term Loan B)

 

Exhibit B

CIT Intercreditor Agreement

 

SCHEDULES

Schedule 1 -

Specific Permitted Encumbrances

Schedule 2 -

Specific Permitted Indebtedness

 

Schedule 3 -

Consignment Agreements

 

Schedule 4 -

General Intangibles

 

Schedule 5 -

Chief Executive Offices, Locations of Collateral, Formation Locations,
Qualification to Do Business Jurisdictions, Etc.

Schedule 6 -

Real Estate; Leases

Schedule 7 -

Litigation

 

Schedule 8 -

Benefit Plans

 

Schedule 9 -

Investments

 

Schedule 10 -

Subordinated Debt

 

Schedule 11 -

Equipment

 

 

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MONROE CAPITAL ADVISORS LLC, a Delaware limited liability company, with offices
located at Sears Tower, 233 South Wacker Drive, Suite 5210, Chicago, Illinois
60606 (hereinafter, the “Lender”), is pleased to confirm the terms and
conditions under which the Lender shall make the Term Loans (hereinafter
defined) to AIRCRAFT INTERIOR DESIGN, INC., a Florida corporation ("AID"), BRICE
MANUFACTURING COMPANY, INC., a California corporation ("Brice"), TIMCO AVIATION
SERVICES, INC., a Delaware corporation ("Parent"), TIMCO ENGINE CENTER, INC., a
Delaware corporation ("Engine"), TIMCO ENGINEERED SYSTEMS, INC., a Delaware
corporation ("Engineered Systems"), and TRIAD INTERNATIONAL MAINTENANCE
CORPORATION, a Delaware corporation ("TIMCO"; AID, Brice, Parent, Engine,
Engineered Systems and TIMCO being collectively called the "Borrowers" and
individually, a "Borrower"), the payment and performance of which Term Loans are
guaranteed by AVIATION SALES DISTRIBUTION SERVICES COMPANY, a Delaware
corporation ("Distribution Services"), AVIATION SALES LEASING COMPANY, a
Delaware corporation ("Leasing"), AVIATION SALES PROPERTY MANAGEMENT CORP., a
Delaware corporation ("Property Management"), AVS/CAI, INC., a Florida
corporation ("AVS/CAI"), AVS/M-1, INC., a Delaware corporation ("AVS/M-1"),
AVS/M-2, INC., a Delaware corporation ("AVS/M-2"), AVS/M-3, INC., an Arizona
corporation ("AVS/M-3"), AVSRE, L.P., a Delaware limited partnership ("AVSRE"),
HYDROSCIENCE, INC., a Texas corporation ("Hydroscience"), TMAS/ASI, INC., an
Arkansas corporation ("TMAS/ASI"), and WHITEHALL CORPORATION, a Delaware
corporation ("Whitehall"; Distribution Services, Leasing, Property Management,
AVS/CAI, AVS/M-1, AVS/M-2, AVS/M-3, AVSRE, Hydroscience, TMAS/ASI and Whitehall
being collectively called the "Guarantors" and, individually, a "Guarantor"; and
the Borrowers and the Guarantors being collectively called the "Companies" and,
individually, a "Company").

BACKGROUND STATEMENTS

Pursuant to that certain Financing Agreement, dated as of April 5, 2004 (as
amended, the "Existing Financing Agreement"), among the Companies and Hilco
Capital LP ("Hilco"), Hilco made available to the Borrowers a term loan in the
original principal amount of $8,000,000 (the "Existing Term Loan") which was
evidenced by that certain Term Note dated as of April 5, 2004 made by the
Borrowers to Hilco in the face amount of $8,000,000 (the “Existing Term Note”).

Pursuant to that certain General Assignment Agreement, dated as of the date
hereof, by Hilco in favor of Lender, Hilco has assigned to Lender all of Hilco's
rights and obligations under the Existing Financing Agreement and the other loan
documents executed in connection therewith, and has endorsed over and delivered
to Lender the Existing Term Note.

The Companies and the Lender desire to amend and restate the Existing Financing
Agreement in its entirety, all upon the terms and subject to the conditions set
forth herein.

The Companies have requested that the Lender make available the Term Loans to
the Borrowers. The proceeds of Term Loan A-2 shall be used by the Borrowers to
provide working capital to the Borrowers. The proceeds of Term Loan B (as
defined below) shall be used by the Borrowers to finance Capital Expenditures.
The Companies intend that Term Loan A-1 constitutes “Designated Senior Debt ”as
such term is defined in each of the Indentures. and that the Term Loans and all
other Obligations constitute “Senior Debt” as such term is defined in each of
the Indentures.

In order to utilize the financial powers of Parent and each Borrower in the most
efficient and economical manner, and in order to facilitate the financing of the
Parent's and each Borrower's needs, the

 

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Lender will make the Term Loans to the Borrowers on a combined basis in
accordance with the provisions set forth in this Financing Agreement. The
Parent's and the Borrowers' business is a mutual and collective enterprise, and
Parent and the Borrowers believe that the consolidation of all loans and other
financial accommodations under this Financing Agreement will enhance the
aggregate borrowing powers of the Parent and each Borrower and ease the
administration of their loan relationship with the Lender, all to the mutual
advantage of the Companies. The Lender’s willingness to extend credit to the
Borrowers and to administer each Borrower's collateral security therefor on a
combined basis as more fully set forth in this Financing Agreement is done
solely as an accommodation to the Companies and at the Companies' request in
furtherance of the Companies' mutual and collective enterprise.

STATEMENT OF AGREEMENT

NOW, THEREFORE, in consideration of the premises set forth herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree to amend and restate the Existing
Financing Agreement to read in its entirety as follows:

Section 1

Definitions  

Accounts shall mean all of each 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 Lender), including, without
limitation, all accounts created by, or arising from, all of such 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 such Company's
trade names or styles, or through any of such 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 such Company; and (j) cash and non-cash proceeds (as defined
in the UCC) of any and all of the foregoing.

Additional Success Fee shall have the meaning provided for in Paragraph 8.1(m)
of Section 8 of this Financing Agreement.

Affiliate shall mean a person, firm, entity or corporation (other than a
subsidiary of Parent): (i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with, a
person, firm, entity or corporation; (ii) which beneficially owns or holds ten
percent (10%) or more of any class of the capital stock of a person, firm,
entity or corporation; or (iii) ten percent (10%) or more of the capital stock
(or in the case of a person, firm or entity which is not a corporation, ten
percent (10%) or more of the equity interest) of which is beneficially owned or
held by a person, firm, entity or corporation or a subsidiary of a person, firm,
entity or corporation.

Agent shall mean “Agent” as defined in the CIT Financing Agreement.

Amendment Date shall mean the date on which the conditions to closing set forth
in Section 2 of this Agreement are satisfied, but in no event later than April
8, 2005.

 

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Anniversary Date shall mean April 8, 2006 and April 8 of each year thereafter.

Availability shall mean “Availability” as defined in the CIT Financing
Agreement.

Availability Reserve shall mean “Availability Reserve” as defined in the CIT
Financing Agreement.

Benefit Plan shall mean a defined benefit plan as defined in Section 3(35) of
ERISA (other than a "multiemployer plan", as such term is defined in ERISA) in
respect of which a Company or any ERISA Affiliate is, or within the immediately
preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA.

Bond Letter of Credit shall mean “Bond Letter of Credit” as defined in the CIT
Financing Agreement.

Bond Order shall mean that certain Bond Order, adopted October 31, 1989,
Authorizing and Securing Piedmont Triad Airport Authority Special Facility
Revenue Bonds (Triad International Maintenance Corporation Project).

Bond Guaranty shall mean that certain Guaranty Agreement, dated November 1,
1989, between the Piedmont Triad Airport Authority and Primark Storage Leasing
Corporation, as guarantor, pursuant to which the guarantor has unconditionally
guaranteed the obligations of TIMCO pursuant to the Lease (as defined in the
Bond Order) of the Project (as defined in the Bond Order).

Bonds shall mean those certain Piedmont Triad Airport Authority Special Facility
Revenue Bonds (Triad International Maintenance Corporation Project), Series
1989, dated November 1, 1989, in the original aggregate principal amount of
$13,800,000.

Borrowing Base shall mean “Borrowing Base” as defined in the CIT Financing
Agreement.

Borrowing Base Certificate shall mean “Borrowing Base Certificate” as defined in
the CIT Financing Agreement.

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

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

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 in the
balance sheet of the Companies.

Capitalized Lease Obligations shall mean all Indebtedness represented by
obligations under a Capital Lease.

Cash Equivalents shall mean (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one (1) year from the date of acquisition; (b)
certificates of deposit, time deposits, eurodollar time deposits or overnight
bank deposits having maturities

 

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of six months or less from the date of acquisition issued by any commercial bank
organized under the laws of the United States of America or any state thereof
having combined capital and surplus of not less than $500,000,000; (c)
commercial paper of an issuer rated at least A-2 by Standard & Poor's Ratings
Services ("S&P") or P-2 by Moody's Investors Service, Inc. ("Moody's"), or
carrying an equivalent rating by a nationally recognized rating agency, if both
of the two named rating agencies cease publishing ratings of commercial paper
issuers generally, and maturing within six months from the date of acquisition;
(d) repurchase obligations of any commercial bank satisfying the requirements of
clause (b) of this definition, having a term of not more than thirty (30) days
with respect to securities issued or fully guaranteed or insured by the United
States government; (e) securities with maturities of one (1) year or less from
the date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States, by any political subdivision or taxing authority
of any such state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political subdivision,
taxing authority or foreign government (as the case may be) are rated at least A
by S&P or A by Moody's; (f) securities with maturities of six months or less
from the date of acquisition backed by standby letters of credit issued by any
commercial bank satisfying the requirements of clause (b) of this definition;
and (g) shares of money market mutual or similar funds which invest exclusively
in assets satisfying the requirements of clauses (a) through (f) of this
definition.

Change of Control shall mean at any time:

(a)        during any period of twelve (12) months, individuals who at the
beginning of such period constituted the board of directors of the Parent
(together with any new directors whose election or appointment by such board of
directors, or whose nomination for election by shareholders of the Parent, as
the case may be, was approved by a vote of a majority of the directors still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the board of directors then in office;

(b)        the acquisition by any group of Persons (within the meaning of the
Securities Exchange Act of 1934, as amended) or any Person, of beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange
Commission), directly or indirectly, of more of the issued and outstanding
Voting Stock of the Parent than that owned and Controlled by the Harber Group
(on a fully-diluted basis);

(c)        as a result of the sale of other disposition of Voting Stock of the
Parent, the Harber Group shall cease to have beneficial ownership and Control of
more than twenty percent (20%) of the issued and outstanding Voting Stock of the
Parent (on a fully-diluted basis); or

(d)        the Parent fails at any time to own, directly or indirectly, 100% of
the capital stock or other equity interests of each other Company free and clear
of all liens (other than the liens in favor of the Lender and the Agent).

CIT shall mean The CIT Group/Business Credit, Inc., a New York corporation.

CIT Lenders shall mean the “Lenders” as defined in the CIT Financing Agreement.

CIT Documents shall mean the CIT Financing Agreement and all other documents,
instruments and agreements executed or delivered in connection therewith, as
amended from time to time in accordance with the CIT Intercreditor Agreement.

 

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CIT Financing Agreement shall mean the Financing Agreement dated April 5, 2004
entered into by and among the Companies, the Agent and the CIT Lenders, as
amended from time to time in accordance with the CIT Intercreditor Agreement.

CIT Intercreditor Agreement shall mean the Intercreditor Agreement between the
Lender and the Agent described in Section 2(k) below, as amended from time to
time.

CIT Loans shall mean the loans made to the Borrowers pursuant to the CIT
Documents.

CIT Revolving Line of Credit shall mean the “Revolving Line of Credit” in the
aggregate amount of $35,000,000 as defined in the CIT Financing Agreement.

CIT Revolving Loans shall mean the “Revolving Loans” as defined in the CIT
Financing Agreement

CIT Term Loan shall mean the “Term Loan” in the original principal amount of
$6,400,000 as defined in the CIT Financing Agreement.

Closing Date shall mean the date on or after the date hereof on which (i) all
conditions precedent set forth in Section 2 of this Agreement have either been
met to the Lender’s satisfaction or waived by it and (ii) the Lender is
obligated hereunder.

Closing Fee shall have the meaning provided for in Paragraph 8.1(h) of Section 8
of this Financing Agreement.

Collateral shall mean all present and future assets of each Company, including,
without limitation, all Accounts, Equipment, Inventory, Documents of Title,
General Intangibles, Real Estate, Pledged Stock of each Company’s Subsidiaries
and Other Collateral.

Collateral Management Fee shall have the meaning provided in Paragraph 8.1(j)of
Section 8 of this Financing Agreement.

Commitment Fee shall have the meaning provided for in Paragraph 8.1(g) of
Section 8 of this Financing Agreement.

Consolidated Balance Sheet shall mean a consolidated or compiled, as applicable,
balance sheet for the Parent, each of the other Companies and the consolidated
subsidiaries of each, eliminating all intercompany transactions and prepared in
accordance with GAAP.

Consolidating Balance Sheet shall mean a Consolidated Balance Sheet plus
individual balance sheets for the Parent, each of the other Companies and the
subsidiaries of each, showing all eliminations of intercompany transactions, all
prepared in accordance with GAAP.

Control shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise. The
terms “Controlling” and “Controlled” have meanings correlative thereto.

Copyright Security Agreement shall mean that certain Amended and Restated
Copyright Security Agreement, dated the Closing Date, pursuant to which the
Parent shall grant to the Lender liens and security interests in all its
Copyrights.

 

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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.

Default shall mean any event or condition the occurrence of which would, with
the lapse of time or the giving of notice, or both, become an Event of Default.

Default Rate of Interest shall mean a rate of interest per annum on any
Obligations hereunder, equal to the sum of four percent (4%) and the then
existing Interest Rate being charged by the Lender on the Obligations (as set
forth in Paragraph 8.1(f) of Section 8 of this Financing Agreement), which the
Lender shall be entitled to charge the Companies on all Obligations due the
Lender by the Companies, as further set forth in Paragraph 10.2 of Section 10 of
this Financing Agreement.

Depository Accounts shall mean the collection accounts, which are subject to the
Lender’s instructions, as specified in Paragraph 3.4 of Section 3 of this
Financing Agreement.

Documentation Fee shall mean subsequent to the Closing Date, the Lender’s
standard fees relating to any and all modifications, waivers, releases,
amendments or additional collateral with respect to this Financing Agreement,
the Collateral and/or the Obligations, which fees shall be based on the Lender’s
then current fees in effect from time to time and the complexity of and issues
addressed in such modifications, waivers, releases, amendments and additional
collateral.

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 Fee shall have the meaning provided for in Paragraph 8.1(k) of
Section 8 of this Financing Agreement.

EBITDA shall mean, in any period, all earnings of the Companies for said period
before interest and all tax, depreciation and amortization expenses and all
other non-cash charges of the Companies for said period, excluding the effect of
extraordinary or non-reoccurring gains or losses for such period, in each case
determined in accordance with GAAP on a consistent basis with the latest audited
financial statements of the Companies; provided, however, that for purposes of
calculating Surplus Cash, only the effect of all extraordinary or
non-reoccurring cash gains or cash losses for such period shall be excluded.

Eligible Domestic Accounts Receivable shall mean “Eligible Domestic Accounts
Receivable” as defined in the CIT Financing Agreement.

Eligible Foreign Accounts Receivables shall mean “Eligible Foreign Accounts
Receivable” as defined in the CIT Financing Agreement.

Eligible Inventory shall mean “Eligible Inventory” as defined in the CIT
Financing Agreement.

Eligible Unbilled Accounts Receivable shall mean “Eligible Unbilled Accounts
Receivable” as defined in the CIT Financing Agreement.

Environmental Indemnity Agreements shall mean those certain Amended and Restated
Environmental Indemnity Agreements, dated the Closing Date, executed by each
Company which is a

 

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lessee or lessor of Real Estate, each in form and substance reasonably
satisfactory to the Lender, pursuant to which each Company which is a party
thereto shall indemnify the Lender as to the claims, costs and expenses more
particularly described therein.

Environmental Laws shall mean applicable federal, state or local laws, rules or
regulations, and any applicable judicial interpretations thereof, including any
judicial or administrative order, judgment, permit, approval decision or
determination, in each case pertaining to conservation or protection of the
environment, in effect at the time in question, including the Clean Air Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Federal Water Pollution Control Act, the Occupational Safety and Health Act, the
Resource Conservation and Recovery Act, the Safe Drinking Water Act, the Toxic
Substances Control Act, the Superfund Amendments and Reauthorization Act of
1986, the Hazardous Materials Transportation Act and analogous state and local
laws, each as amended from time to time thereby imposing either more or less
stringent requirements as relates to activity occurring after the date hereof.

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.

Equipment Appraisal shall mean an appraisal of each Company's Equipment
conducted at the Companies' expense by an appraiser selected by the Companies
and acceptable to the Lender in its sole discretion, which shall be received on
or before the Closing Date and thereafter conducted with such frequency as the
Lender may require.

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.

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

Ex-Im Bank shall mean the Export-Import Bank of the United States.

Ex-Im Bank Documents shall mean the Ex-Im Borrower Agreement together with the
“Master Guarantee Agreement”, the “Loan Authorization Notice” and the other
agreements, documents and instruments executed and delivered in connection with
the Ex-Im Borrower Agreement, as amended from time to time in accordance with
the CIT Intercreditor Agreement.

Ex-Im Borrower Agreement shall mean the Borrower Agreement dated as of April 5,
2004 among CIT, the Borrowers and Ex-Im Bank, as amended from time to time in
accordance with the CIT Intercreditor Agreement.

Expense Deposit shall have the meaning provided for in Paragraph (aa) of Section
2 of this Financing Agreement.

Export Transaction shall mean any transaction in which a Borrower will sell
goods or services to an account debtor located in a foreign country.

Financing Agreement shall mean this Amended and Restated Financing Agreement, as
amended, supplemented or otherwise modified from time to time.

 

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Fiscal Quarter shall mean, with respect to the Companies, 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 31.

Fixed Charge Coverage Ratio shall mean with respect to any period of
determination, the ratio of (a) EBITDA minus Capital Expenditures of the
Companies incurred during such period which are not financed by Indebtedness
secured by Purchase Money Liens for such period to (b) the sum of (i) payments
(other than payments made with Surplus Cash) of principal on all Indebtedness
required to be paid by the Companies during such period (excluding non-cash
interest paid on the Subordinated Debt) plus (ii) payments (other than payments
made with Surplus Cash) of interest on all Indebtedness required to be paid by
the Companies during such period plus (iii) dividends or distributions paid
during such period plus (iv) federal, state and local income taxes paid during
such period, in each case as determined in accordance with GAAP.

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 Companies
modify their accounting principles and procedures as applied as of the Closing
Date, the Companies shall provide such statements of reconciliation as shall be
in form and substance reasonably acceptable to the Lender.

General Intangibles shall mean all present and hereafter acquired general
intangibles (as defined in the UCC), including, without limitation, all present
and future right, title and interest in and to: (a) all Trademarks, tradenames,
corporate names, business names, logos and any 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, blueprints, 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 any Company and any licensee of
any of such Company’s General Intangibles.

Guarantors shall mean the Guarantors listed on page 1 of this Financing
Agreement and any other person or entity which may hereafter guarantee all or a
portion of the Obligations.

Harber Group shall mean (i) Lacy Harber, (ii) during the lifetime of Lacy
Harber, (x) any entity (including any trust) formed for estate planning purposes
which is under the Control of Lacy Harber, and (y) any member of Lacy Harber’s
immediate family (so long as Lacy Harber shall be solely responsible for voting
the Voting Shares of such family member pursuant to one or more written
agreements reasonably acceptable to the Lender) and (iii) at any time after the
death of Lacy Harber, the spouse, children or lineal descendants of Lacy Harber,
any trust or other entity established for the benefit thereof or the Scottish
Rites Hospital.

Hazardous Material shall mean (a) any petroleum or petroleum products, flammable
explosives, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation and transformers or other equipment
that contain dielectric fluid containing levels of polychlorinated biphenyls
(PCBs); (b) any chemicals or other materials or substances which are now or

 

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hereafter become defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely hazardous
wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants"
or words of similar import under any Environmental Law; and (c) any other
chemical or other material or substance, exposure to which is now or hereafter
prohibited, limited or regulated by any governmental or regulatory authority
under any Environmental 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, (b) lease obligations which, in accordance with
GAAP, have been, or which should be, capitalized and (c) all obligations,
contingent or otherwise, of a Person as an account party in respect of letters
of credit and letters of guaranty. For avoidance of doubt, “Indebtedness” shall
exclude payables due and owing from one Company to another arising in the
ordinary course of business.

Indentures shall mean (i) the Indenture dated as of February 17, 1998 under
which the 8-1/8% Senior Subordinated Notes Due 2008 were issued by the Parent,
(ii) the Indenture dated as of September 20, 2002 under which the 8% Junior
Subordinated Convertible PIK Notes due 2007 were issued by the Parent and (iii)
the Indenture dated as of February 28, 2002 under which the 8% Senior
Subordinated Convertible PIK Notes due 2006 were issued by the Parent, in each
case.

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

Internal Revenue Code means the Internal Revenue Code of 1986, as amended from
time to time and the rules and regulations promulgated thereunder from time to
time.

Inventory shall mean all of each 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.

Inventory Appraisal shall mean an appraisal of each Company's Inventory
conducted at the Companies' expense by an appraiser selected by the Companies
and acceptable to the Lender in its sole discretion, which shall be received on
or before the Closing Date and thereafter conducted with such frequency as the
Lender may require.

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

Letters of Credit shall mean “Letters of Credit” as defined in the CIT Financing
Agreement.

LIBOR shall mean a variable rate of interest equal to the rate set forth as of
the first Business Day of each month in the New York edition of The Wall Street
Journal under the "Money Rates" section for "London Interbank Offered Rates" for
deposits in U.S. dollars, for a period of time equal to one month; provided,
however, that (a) if such rate shall at any time be less than 2.25%, LIBOR shall
be deemed to be equal to 2.25% and (b) for purposes of the Term Loan B only, if
such rate shall at any time be higher than 5.00%, LIBOR shall be deemed to be
equal to 5.00%.

 

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Line of Credit shall mean the aggregate commitment of the CIT Lenders to (a)
make Revolving Loans pursuant to the CIT Financing Agreement, (b) assist the
Borrowers in opening Letters of Credit pursuant to the CIT Financing Agreement
and (c) make the CIT Term Loan pursuant to the CIT Financing Agreement, in the
aggregate amount equal to $40,527,273 as of the Amendment Date.

LJH Leases shall mean the LJH Dallas Lease, LJH Equipment Lease and LJH Goodyear
Lease.

LJH, Ltd. shall mean LJH, Ltd., a Texas limited partnership with an address at
377 Neva Lane, Denison, Texas 75020.

LJH Dallas Lease shall mean that certain lease, dated October 4, 2002, between
LJH, Ltd. and AID, in respect of the premises located at 2659 Nova Drive,
Dallas, Texas, as amended from time to time in accordance with the terms of
Section 12(d) of the LJH Subordination Agreement.

LJH Documents shall mean the (a) $14,411,704.00 Amended and Restated
Consolidated Term Promissory Note, dated March 31, 2004, executed by the Parent
to the order of LJH, Ltd., (b) the Amended and Restated Guaranty, dated March
31, 2004, executed by each Company in favor of LJH, Ltd., (c) the Amended and
Restated Security Agreement, dated March 31, 2004, among each Company and LJH,
Ltd. and (d) the LJH Equipment Lease, in each case as amended from time to time
in accordance with the terms of Section 12(d) of the LJH Subordination
Agreement.

LJH Equipment Lease shall mean the Equipment Lease dated April 4, 2004 between
LJH and the Parent, as amended from time to time in accordance with the terms of
Section 12(d) of the LJH Subordination Agreement.

LJH Goodyear Lease shall mean that certain sublease agreement, dated as of April
1, 2003, between LJH, Ltd. and TIMCO, in respect of the real property known as
Hangars 18 and 52 and additional land located at Phoenix-Goodyear Airport,
Goodyear, Arizona, as amended from time to time in accordance with the terms of
Section 12(d) of the LJH Subordination Agreement.

LJH Subordination Agreement shall mean the Intercreditor and Subordination
Agreement between the Lender and LJH, Ltd. described in Section 2 (v) below, as
amended from time to time in accordance with its terms.

LJH Subordinated Debt shall mean the Indebtedness owing by a Company to LJH,
Ltd. described on Schedule 10 hereto.

Loan Documents shall mean this Financing Agreement, the Term Notes, the
Mortgages, the Pledge Agreements, the CIT Intercreditor Agreement, the LJH
Subordination Agreement, the Trademark Security Agreement, the Copyright
Security Agreement, the Environmental Indemnity Agreements, 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 the Lender in accordance with,
and pursuant to, the provisions of Paragraph 8.1(i) of Section 8 of this
Financing Agreement.

Mandatory Prepayment shall be determined as set forth in Paragraph 4.7 of
Section 4 of this Financing Agreement.

 

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Material Adverse Effect shall mean, relative to any occurrence of whatever
nature (including any adverse determination in any litigation, arbitration or
governmental investigation or proceeding), (a) a material adverse effect on the
financial condition, business, operations, prospects or assets of a Company on
an individual basis or the Companies taken as a whole, or (b) a material
impairment of the ability of a Company on an individual basis or the Companies
taken as a whole to perform obligations under the Loan Documents or (c) an
impairment of the validity or enforceability of any Loan Document in any manner
which materially and adversely affects any material rights and/or material
benefits intended to be bestowed on the Lender under the Loan Documents.

Maturity Date shall mean December 31, 2007.

Minimum Availability Reserve shall mean (i) the amount of $3,000,000 from the
Amendment Date through the first Anniversary date and (ii) on and after the
first Anniversary Date “Minimum Availability Reserve” as defined in the CIT
Financing Agreement.

Mortgages shall mean the mortgages, deeds of trust, leasehold mortgages,
leasehold deeds of trust, assignments of leases, subleases and rents, including
any assignments and modifications thereof, executed and to be executed by the
Company which owns or leases such Real Estate on or about the Closing Date in
favor of the Lender and by which such Company shall grant and convey to the
Lender, as security for the Obligations, liens and security interests upon the
Real Estate owned or leased by such Company.

Net Orderly Liquidation Value shall mean, with respect to any Inventory, the
liquidation proceeds of such Inventory, net of the anticipated liquidation
expenses associated therewith, which proceeds may be expected to be realized
from an orderly liquidation of such Inventory.

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
Companies.

Obligations shall mean all loans, advances and extensions of credit made or to
be made by the Lender to any Borrower or to others for any Borrower's account
(including, without limitation, the Term Loan), any and all indebtedness and
obligations which may at any time be owing by any Borrower to the Lender
pursuant to or under this Financing Agreement, whether now in existence or
incurred by a Borrower 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 any 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 any Borrower is liable to the Lender
for such indebtedness as principal, surety, endorser, guarantor or otherwise.
Obligations shall also include indebtedness owing to the Lender by any Company
under any Loan Document or under any other agreement or arrangement now or
hereafter entered into between any Company and the Lender related or pursuant to
this Financing Agreement; indebtedness or obligations incurred by, or imposed
on, the Lender as a result of environmental claims arising out of any Company's
operations, premises or waste disposal practices or sites in accordance with
Paragraph 7.7 of Section 7 hereof; each Company's liability to the Lender as
maker or endorser of any promissory note or other instrument for the payment of
money; each Company's liability to the Lender under any instrument of guaranty
or indemnity, or arising under any guaranty, endorsement or undertaking which
the Lender may make or issue to others for any Company's account.

 

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

Other Collateral shall mean all now owned and hereafter acquired lockbox,
blocked account and any other deposit accounts of each Company 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 of each
Company; all cash and other monies and property of each Company in the
possession or control of the Lender; all books, records, ledger cards, disks and
related data processing software of each Company 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;
all Cash Equivalents of each Company; and all cash and non-cash proceeds of the
foregoing.

Out-of-Pocket Expenses shall mean all of the Lender’s present and future
reasonable 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 the Lender in opening bank accounts, depositing checks,
receiving and transferring funds, and wire transfer charges; any charges imposed
on the Lender due to returned items and "insufficient funds" of deposited checks
and the Lender's standard fees relating thereto; reasonable travel, lodging and
similar expenses of the Lender's personnel in connection with inspecting and
monitoring the Collateral from time to time hereunder; the costs and expenses
for any Inventory Appraisals and any Equipment Appraisals; any applicable
reasonable counsel fees and disbursements; fees and taxes relative to the filing
of financing statements; all expenses, costs and fees set forth in Paragraph
10.3 of Section 10 of this Financing Agreement; and title insurance premiums and
real estate survey costs, if any, and costs of preparing and recording Mortgages
against the Real Estate.

Overadvances shall mean “Overadvances” as defined in the CIT Financing Agreement

Patents shall mean all of each 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 such Company,
and all income, royalties, cash and non-cash proceeds thereof.

Permitted Encumbrances shall mean: (a) liens existing on the date hereof as set
forth on Schedule 1 hereto, liens securing the Permitted Indebtedness described
in clause (f) of the definition thereof, and other liens expressly permitted, or
consented to in writing by the Lender; (b) Purchase Money Liens; (c) liens of
local or state authorities for franchise or other like Taxes, provided that the
aggregate amounts of such liens shall not exceed $250,000 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 Companies in accordance with GAAP; (e)
deposits made (and the liens thereon) in the ordinary course of business of a
Company (including, without limitation, security deposits for leases, indemnity
bonds, surety bonds, appeal bonds and performance 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),
leases, surety bonds, appeal bonds and performance bonds and other similar
obligations arising in the ordinary course of business; (f) easements
(including, without limitation, reciprocal easement agreements and utility
agreements), rights-of-way, encroachments, minor defects or irregularities in
title, variation and other restrictions, charges or

 

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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 owning or leasing such Real Estate of its
business or property so encumbered and (B) in the reasonable business judgment
of the Lender do not materially and adversely affect the value of such Real
Estate; (g) liens granted the Lender by each Company; (h) liens of judgment
creditors provided such liens do not exceed, in the aggregate, at any time,
$250,000 (other than liens bonded or insured to the reasonable satisfaction of
the Lender); (i) tax liens which are not yet due and payable or which are being
diligently contested in good faith by the Company owing such taxes 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 the
Lender or (z) for Taxes due the United States of America or any state thereof
having similar priority statutes, as further set forth in Paragraph 7.6 of
Section 7 of this Financing Agreement; (j) liens in favor of CIT as security for
the CIT Loans; (k) liens in favor of LJH, Ltd. securing the LJH Subordinated
Debt and (l) normal and customary rights of set off on deposits of cash in favor
of banks or other depository institutions unless the Lender and such bank or
other depository institution agree otherwise pursuant to an account control
agreement, which the Lender may request be executed in connection with any such
accounts.

Permitted Indebtedness shall mean: (a) current Indebtedness maturing in less
than one year 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; (c) Subordinated Debt, including (i) extensions and
renewals thereof that do not increase the outstanding principal amount of such
Indebtedness as of the date of such extension or renewal and do not increase the
amount of interest paid in cash thereon or, with respect to the LJH Equipment
Lease, increase the lease payments thereunder, and (ii) replacements thereof
that do not increase the outstanding principal amount of such Indebtedness as of
the date of such extension or renewal, do not increase the amount of interest
paid in cash thereon, or, with respect to the LJH Equipment Lease, increase the
lease payments thereunder and which is subject to subordination terms or a
Subordination Agreement satisfactory to the Lender, in its sole discretion; (d)
Indebtedness arising under this Financing Agreement; (e) deferred Taxes and
other expenses incurred in the ordinary course of business; (f) other
Indebtedness existing on the date of execution of this Financing Agreement and
listed in the most recent financial statement delivered to the Lender or
otherwise set forth on Schedule 2 hereto; (g) the CIT Loans (subject to the
limitations in Paragraph 7.9(b) of Section 7 of this Financing Agreement; and
(h) Indebtedness not included in clauses (a) through (g) above which does not
exceed in the aggregate, at any time, the sum of $100,000.

PIK Interest shall have the meaning provided for in Paragraph 8.1(b) of Section
8 of this Financing Agreement.

PIK Subordinated Debt shall mean Indebtedness evidenced by (a) the 8% Junior
Subordinated Convertible PIK Notes due 2007 issued by Parent under that certain
Indenture dated as of September 20, 2002 and (b) the 8% Senior Subordinated
Convertible PIK Notes due 2006 issued by Parent under that certain Indenture
dated as of February 28, 2002.

Pledge Agreements shall mean (a) those Amended and Restated Stock Pledge
Agreements, dated the Closing Date, executed by Parent, AVS/M-1, TIMCO and
Whitehall pledging to the Lender as additional collateral for the Obligations
all of the issued and outstanding stock of each of their respective corporate
subsidiaries, and (b) those Amended and Restated Partnership Interests Pledge
Agreements, dated the Closing Date, executed by Property Management and
Whitehall pledging to the Lender as additional collateral for the Obligations
all of the issued and outstanding partnership interests of each of them in
AVRSE, all in form and substance satisfactory to the Lender.

 

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Prime Rate shall mean the rate of interest per annum announced by LaSalle
National Bank from time to time as its prime rate in effect at its principal
office in Chicago. (The prime rate is not intended to be the lowest rate of
interest charged by LaSalle National Bank to its borrowers).

Purchase Money Liens shall mean liens on any item of Equipment acquired after
the date of this Financing Agreement which (a) secure Term Loan B Advances or
(b) are liens which (i) attach only to the property to be acquired and (ii)
attach to Equipment a description of which is furnished to the Lender; such
liens, in the aggregate for clause (a) and clause (b), shall secure debt which
shall not exceed $3,000,000 in the aggregate in any Fiscal Year and $10,000,000
in the aggregate during the term of this Financing Agreement.

Real Estate shall mean each Company's fee and/or leasehold interests in the real
property, including any such real property which has been, or will be,
encumbered, mortgaged, pledged or assigned to the Lender or its designee other
than the real property leased by (a) Brice located at 10252 and 10262 Norris
Avenue, Pacoima, Los Angeles County, California and (b) AID located in Opa
Locka, Miami-Dade County, Florida.

Senior Secured Debt shall mean on any date of determination thereof the sum of
(a) all “Obligations” outstanding under the CIT Documents and (b) all
Obligations outstanding hereunder.

Senior Secured Debt Cap Certificate shall have the meaning provided for in
Paragraph 7.9(b) of Section 7 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 or by the terms of note(s) evidencing such debt or the documents
executed in connection with such note(s), to the prior payment and satisfaction
of the Obligations, more particularly described on Schedule 10 hereto.

Subordinating Creditor shall mean LJH, Ltd., and any other party now or
hereafter executing a Subordination Agreement.

Subordination Agreements shall mean the agreements (in form and substance
satisfactory to the Lender) among the Companies, each Subordinating Creditor and
the Lender pursuant to which (a) Subordinated Debt is subordinated to the prior
payment and satisfaction of the Obligations and/or (b) liens and security
interests in all or portions of the Collateral are subordinated to the liens and
security interests in such Collateral granted pursuant to this Financing
Agreement in favor of the Lender.

Success Fee shall have the meaning provided for in Paragraph 8.1(l) of Section 8
of this Financing Agreement.

Surplus Cash shall mean, with respect to the Companies on a Consolidated basis
for any Fiscal Year, fifteen percent (15%) of the amount, if any, by which (a)
the sum of (i) EBITDA and (ii) non-cash charges exceeds (b) the sum, without
duplication, of (i) all cash interest obligations paid or due by the Companies
(but excluding all cash interest paid or due by the Companies with respect to
the LJH Subordinated Debt), (ii) the amount of all principal repaid on the CIT
Term Loan, (iii) the amount of all principal repaid to the Lender on the Term
Loans, (iv) Capital Expenditures which are not financed by Indebtedness secured
by Purchase Money Liens, (v) taxes paid in cash by the Companies, (vi) cash
payments in respect of Capital Leases and (vii) cash payments made with respect
to the Bonds.

 

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Tangible Net Worth shall mean, as of any date of determination, Net Worth minus
deferred assets (other than prepaid insurance and prepaid taxes), patents,
copyrights, trademarks, trade names, non-compete agreements, franchises and
other similar intangibles, goodwill, including any amounts, however designated
on a Consolidated Balance Sheet, and Accounts, notes and other receivables due
from Affiliates or employees as of such date which would be treated as
intangibles in accordance with GAAP plus the principal amount of Subordinated
Debt as of such date.

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

Term Loan A-1 shall mean the Existing Term Loan in the principal amount of
$8,000,000 repayable in accordance with the provisions of Section 4 of this
Financing Agreement.

Term Loan A-2 shall mean the term loan in the principal amount of $7,000,000,
made by the Lender pursuant to, and repayable in accordance with, the provisions
of Section 4 of this Financing Agreement.

Term Loan A shall mean Term Loan A-1 and Term Loan A-2.

Term Loan A Cash Interest shall have the meaning provided for in Paragraph
8.1(a) of Section 8 -of this Financing Agreement.

Term Loan A Interest Rates shall have the meaning provided for in Paragraph
8.1(a) of Section 8 -of this Financing Agreement.

Term Loan A PIK Interest shall have the meaning provided for in Paragraph 8.1(a)
of Section 8 -of this Financing Agreement.

Term Loan B shall mean the term loan in the principal amount of up to the Term
Loan B Amount made by the Lender pursuant to, and repayable in accordance with,
the provisions of Sections 4.3 and 4.4 of this Financing Agreement.

Term Loan B Advance shall have the meaning provided for in Paragraph 4.3(b) of
Section 4 of this Financing Agreement.

Term Loan B Amount shall have the meaning provided for in Paragraph 4.3(a) of
Section 4 of this Financing Agreement

Term Loan B Borrowing Notice shall have the meaning provided for in Paragraph
4.3(b) of Section 4 of this Financing Agreement

Term Loan B Cash Interest shall have the meaning provided for in Paragraph
8.1(b) of Section 8 -of this Financing Agreement.

Term Loan B Interest Rates shall have the meaning provided for in Paragraph
8.1(b) of Section 8 -of this Financing Agreement.

Term Loan B Line shall have the meaning provided for in Paragraph 4.3(a) of
Section 4 of this Financing Agreement

 

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Term Loan B PIK Interest shall have the meaning provided for in Paragraph 8.1(b)
of Section 8 -of this Financing Agreement..

Term Note B shall have the meaning provided for in Paragraph 4.3(a) of Section 4
of this Financing Agreement

Term Loans shall mean Term Loan A and Term Loan B.

Term Notes shall mean the promissory notes, in the form of Exhibit A-1, Exhibit
A-2 and Exhibit A-3 attached hereto, delivered by the Borrowers to the Lender to
evidence Term Loan A-1, Term Loan A-2 and Term Loan B, respectively, pursuant
to, and repayable in accordance with, the provisions of Section 4 of this
Financing Agreement.

“Termination Date” shall mean the earliest to occur of (i) the Maturity Date,
(ii) the date on which the maturity of the Obligations is accelerated or (iii)
the date of the occurrence of any Event of Default pursuant to Section 10.1(a),
10.1(b) or 10.1(c) of Section 10 of this Financing Agreement.

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

Total Liabilities shall mean total liabilities determined in accordance with
GAAP, on a basis consistent with the latest audited financial statements of the
Companies, minus PIK Subordinated Debt.

Trade Account Receivable shall mean “Trade Account Receivable” as defined in the
CIT Financing Agreement.

Trademark Security Agreements shall mean those certain Amended and Restated
Trademark Security Agreements, each dated the Closing Date, pursuant to which
the Parent shall grant to the Lender liens and security interests in all its
Trademarks.

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.

TTM EBITDA shall mean EBITDA of the Companies for the twelve (12) month period
most recently ended.

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

Voting Stock shall mean, with respect to any corporation, the outstanding stock
of all classes (or equivalent interests) which ordinarily, in the absence of
contingencies, entitles holders thereof to vote for the election of directors
(or persons performing similar functions) of such corporation, even though the
right so to vote has been suspended by the happening of such contingency.

Section 2

Conditions Precedent

 

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The obligation of the Lender to make the Term Loans hereunder is subject to the
satisfaction of, extension of or waiver of in writing, the following conditions
precedent:

(a)        Lien Searches The Lender shall have received tax, judgment and
Uniform Commercial Code searches satisfactory to the Lender for each Company 's
location (as such term is defined in the UCC) and all locations presently
occupied or used by such Company.

(b)        Casualty Insurance - The Companies shall have delivered to the Lender
evidence satisfactory to the Lender that casualty insurance policies listing the
Lender as additional insured, loss payee or mortgagee, as the case may be, are
in full force and effect, all as set forth in Paragraph 7.5 of Section 7 of this
Financing Agreement.

(c)        UCC Filings - Any financing statements required to be filed in order
to assign to the Lender 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 assign to the Lender a
perfected lien on the Collateral. The Lender shall have received acknowledgment
copies of all such filings (or, in lieu thereof, the Lender shall have received
other evidence satisfactory to the Lender that all such filings have been made)
and the Lender 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)        Resolutions - The Lender shall have received a copy of the
resolutions of the Board of Directors, members or partners of each Company
authorizing the execution, delivery and performance of (i) this Financing
Agreement, and (ii) the other Loan Documents, in each case certified by the
Secretary, Assistant Secretary, managing member or general partner of such
Company as of the date hereof, together with a certificate of the Secretary,
Assistant Secretary, managing member or general partner of such Company as to
the incumbency and signature of the officers, members, managers or partners of
such Company executing such Loan Documents and any certificate or other
documents to be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary, Assistant Secretary, managing member or general
partner.

(e)        Corporate Organization - The Lender shall have received (i) a copy of
the Certificate of Incorporation or Organization of each Company certified by
the Secretary of State of the state of its formation, and (ii) a copy of the
bylaws, operating agreement or partnership agreement of each Company certified
by the Secretary, Assistant Secretary, managing member or general partner
thereof, all as amended through the date hereof.

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

(g)        Opinions - Counsel for the Companies shall have delivered to the
Lender legal opinion letters in form and substance reasonably satisfactory to
the Lender.

(h)        Absence of Default - As of the Closing Date, no Default or Event of
Default shall have occurred and since December 31, 2004, no material adverse
change shall have occurred in the financial condition, business, prospects,
profits, operations or assets of the Companies.

 

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(i)         Subordination Agreements – The Subordinating Creditors shall have
executed and delivered to the Lender Subordination Agreements, or amendments to
existing Subordination Agreements, each in form and substance satisfactory to
the Lender, subordinating the Indebtedness due such Subordinating Creditor by
one or more of the Companies to the prior payment and satisfaction of the
Obligations of the Company and, if applicable, subordinating the liens granted
to such Subordinating Creditor to secure such Indebtedness to the liens granted
to the Lender under the Loan Documents.

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

(k)       CIT Intercreditor Agreement - The Agent shall have executed and
delivered to the Lender the CIT Intercreditor Agreement, in form and substance
satisfactory to the Lender, to which each Company shall have agreed.

(l)         Cash Budget Projections - The Lender shall have received, reviewed
and been satisfied with a report prepared by Companies’ management concerning
the twelve (12) month cash budget projection prepared by the Companies on the
form provided by the Lender.

(m)       Pledge Agreements - Parent, AVS/M-1, TIMCO, Property Management and
Whitehall shall have each executed and delivered to the Lender each Pledge
Agreement.

(n)        Trademark Security Agreements - The Parent shall have delivered to
the Lender the Trademark Security Agreement, in form and substance satisfactory
to the Lender.

(o)        Loan Documents - The Companies shall have executed and delivered to
the Lender all other Loan Documents and any other documents, instruments and
agreements necessary to consummate the lending arrangement contemplated among
the Companies and the Lender.

(p)        Disbursement Authorization - The Borrowers shall have delivered to
the Lender all information necessary for the Lender to issue wire transfer
instructions on behalf of the Borrowers for Term Loan A-2, including, but not
limited to, disbursement authorizations in form acceptable to the Lender.

(q)        Examination & Verification - The Lender shall have received and been
satisfied with a copy of an examination and verification of the Accounts,
Inventory, Equipment, other Collateral, financial statements, books and records
of each Company prepared by or on behalf of CIT which examination shall indicate
that, after giving effect to all CIT Loans, the Term Loans and any other
advances and extensions of credit to be made at closing, the Borrowers shall
have an opening Availability of at least $10,000,000, as evidenced by a
Borrowing Base Certificate delivered by the Borrowers to the Lender as of the
Closing Date, all in form and substance satisfactory to the Lender. It is
understood that such requirement contemplates that all debts and obligations are
current, and that all payables are being handled in the normal course of the
Companies' business and consistent with its past practice.

 

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(r)        Depository Accounts - The Companies 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 the Lender in all
respects. Such accounts shall be subject to three party agreements (among the
Company, the Agent and the depository bank), which shall be in form and
substance satisfactory to the Lender.

(s)

Intentionally Omitted.

(t)        Mortgages - The Companies which have any interest in any Real Estate
shall have executed and delivered to the Lender assignments to the Mortgages and
Assignments of Leases and Rents in favor of Hilco relating thereto, assigning to
the Lender Hilco's liens in such Company's interest in such Real Estate and in
the rents and profits thereof, subject only to Permitted Encumbrances.

(u)        Schedules - The Companies shall provide the Lender with schedules of:
(a) each Company's General Intangibles, in such detail as to provide appropriate
recording information with respect thereto, (b) Permitted Encumbrances, (c)
Permitted Indebtedness, (d) consignment agreements, (e) locations of collateral,
(f) Real Estate, (g) litigation, (h) benefit plans, (i) investments, and (j)
such other information as the Lender may reasonably request, all of the
foregoing in form and substance satisfactory to the Lender.

(v)        LJH, Ltd. Subordination Agreement - LJH, Ltd. shall have executed and
delivered to the Lender the LJH Subordination Agreement, in form and substance
satisfactory to the Lender, to which each Company shall have agreed.

(w)       Ex-Im Bank Documents - The Lender shall have received a copy of the
Ex-Im Bank Documents duly executed by all parties thereto on terms acceptable to
the Lender.

(x)        Commitment Letter - The Companies shall have fully complied, to the
reasonable satisfaction of the Lender, with all of the terms and conditions of
any commitment letter that shall have been issued by Lender in favor of the
Companies..

(y)        Bond Documents - The Lender shall have received copies of the Bond
Order, the Bond Guaranty, the Bond Letter of Credit, including all amendments
and endorsements thereto, in form and substance satisfactory to the Lender.

(z)        Copyright Security Agreement - The Parent shall have delivered to the
Lender a Copyright Security Agreement, in form and substance satisfactory to the
Lender.

(aa)      Expense Deposit - Out of the initial funding under the CIT Loans, the
Borrowers deposited with the Lender the sum of $25,000.00 as an expense deposit
(the “Expense Deposit”) to cover Out-of-Pocket Expenses and any other costs,
expenses, and fees which may be incurred by the Lender during the effective
period of this Agreement, as to which the Companies are obligated to reimburse
the Lender, as otherwise provided herein. Upon the occurrence of any Event of
Default, the amount of the Expense Deposit shall be increased to $50,000.00. On
the first Business Day of each month, the Borrowers shall restore the Expense
Deposit to $25,000.00 (or $50,000.00, as may be applicable) for any deficiency
therein. The Companies shall remain obligated to reimburse the Lender for any
and all such fees and expenses, if the Expense Deposit does not contain
sufficient funds to cover all of those items.

 

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(bb)      Other Documents - The Companies shall have delivered to the Lender
such other documents, instruments and agreements as the Lender may reasonably
request, all in form and substance satisfactory to the Lender.

Upon the execution of this Financing Agreement and the making of Term Loan A-2
hereunder, all of the above Conditions Precedent shall have been deemed
satisfied except as otherwise set forth hereinabove or as the Companies and the
Lender shall otherwise agree in writing.

Section 3

Revolving Loan Matters

 

 

3.1.

Intentionally Omitted.

3.2.       In furtherance of the continuing assignment and security interest in
each Borrower's Accounts and Inventory, each Borrower will, upon the creation of
Accounts and purchase or acquisition of Inventory, execute and deliver to the
Lender such confirmatory schedules of Accounts and Inventory as shall be
delivered to the Agent under the CIT Financing Agreement. Borrowers shall
deliver to Lender (x) a Borrowing Base Certificate concurrently with the
delivery of such Certificate to the Agent under the CIT Financing Agreement and
(y) an “Export Related Borrowing Base Certificate” (as defined in the Ex-Im
Borrower Agreement) concurrently with the delivery of such Export Related
Borrowing Base Certificate to the Agent under the Ex-Im Borrower Agreement. In
addition, each Borrower shall provide the Lender with copies of such agreements
with, or purchase orders from, such Borrower's customers, and copies of 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, in each case as shall be
delivered to the Agent under the CIT Financing Agreement and under the Ex-Im
Borrower Agreement. Failure to provide the Lender with any of the foregoing
shall in no way affect, diminish, modify or otherwise limit the security
interests granted herein. Each Borrower hereby authorizes the Lender to regard
such Borrower's printed name or rubber stamp signature on assignment schedules
or invoices as the equivalent of a manual signature by one of such Borrower's
authorized officers or agents.

3.3.       Each Borrower hereby represents and warrants that: each Trade Account
Receivable is based on an actual and bona fide sale and delivery of Inventory or
rendition of services to customers, made by such Borrower in the ordinary course
of its business; the Inventory being sold, and the Trade Accounts Receivable
created, are the exclusive property of such Borrower 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 such
Borrower; and the customers of such Borrower have accepted the Inventory or
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 such Borrower has complied with the notification
requirements of Paragraph 3.5 of this Section 3 . Each Borrower confirms to the
Lender 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 such Borrower when due, subject to Paragraph 7.6 of Section
7 of this Financing Agreement, and that none of said Taxes or fees represent a
lien on or claim against the Accounts. Each Borrower hereby further represents
and warrants that it shall not acquire any Inventory on a consignment basis
unless (i) all such consignment Inventory is segregated from other Inventory of
such Borrower, (ii) all such consignment Inventory is conspicuously marked as
being consigned inventory, and (iii) the consignor of such Inventory has
complied will all applicable laws relating to such consignment, including,
without limitation, any notices required pursuant to the applicable Uniform
Commercial Code, nor will it co-mingle its Inventory with any of its customers
or any other person, including pursuant to any bill and hold sale or otherwise,
and that its Inventory

 

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is marketable to its customers in the ordinary course of business of such
Borrower, except as it may otherwise report in writing to the Lender pursuant to
Paragraph 3.5 of this Section 3 from time to time. Schedule 3 hereto describes
all consignments of Inventory of each Borrower existing on the Closing Date.
Each Borrower also warrants and represents that it is a duly and validly
existing corporation and is qualified to do business in all states where the
failure to so qualify would have a material adverse effect on the business of
such Borrower or the ability of such Borrower to enforce collection of Accounts
due from customers residing in that state. Each Borrower agrees to maintain such
books and records regarding Accounts and Inventory as the Lender may reasonably
require and agrees that the books and records of such Borrower will reflect the
Lender's interest in the Accounts and Inventory. All of the books and records of
each Borrower will be available to the Lender at normal business hours,
including any records handled or maintained for such Borrower by any other
company or entity.

3.4.

(a)        Until the Lender has advised the Borrowers to the contrary after the
occurrence of an Event of Default, each Borrower, 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, and held on behalf of and in trust for the Lender. Such privilege shall
terminate automatically upon the institution by or against any Borrower of any
proceeding under any bankruptcy or insolvency law or, at the election of the
Lender, upon the occurrence of an Event of Default. Subject to the provisions of
the CIT Intercreditor Agreement, any checks, cash, credit card sales and
receipts, notes or other instruments or property received by any Borrower with
respect to any Collateral, including Accounts, shall be held by such Borrower in
trust for the Lender, separate from such Borrower's own property and funds, and
promptly turned over to the Lender with proper assignments or endorsements by
deposit to the Depository Accounts. Each Borrower 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 such Borrower'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 the Lender’s security interest in
such funds. Each Borrower shall provide the Lender with prior written notice of
any and all deposit accounts opened or to be opened subsequent to the Closing
Date. No checks, drafts or other instrument received by the Lender shall
constitute final payment to the Lender unless and until such instruments have
actually been collected.

(b)        Subject to the provisions of the CIT Intercreditor Agreement, each
Borrower shall establish and maintain, in its name and at its expense, deposit
accounts and lockboxes with such banks as are acceptable to the Lender (the
"Blocked Accounts") into which such Borrower shall promptly cause to be
deposited: (i) all proceeds of Collateral received by such Borrower, including
all amounts payable to such Borrower from credit card issuers and credit card
processors, and (ii) all amounts on deposit in deposit accounts used by such
Borrower at each of its locations, all as further provided in Paragraph 3.4(a)
above. The banks at which the Blocked Accounts are established shall enter into
an agreement, in form and substance satisfactory to the Lender (the "Blocked
Account Agreements"), providing that all cash, checks and items received or
deposited in the Blocked Accounts are, subject to the provisions of the CIT
Intercreditor Agreement, the property of the Lender, 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,
except as otherwise provided in the Blocked Account Agreements, and that
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 the Lender may from time to time
designate for such purpose. Each Borrower hereby confirms and agrees that all
amounts deposited in such Blocked Accounts and any other funds received and
collected by the Lender,

 

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whether as proceeds of Inventory or other Collateral or otherwise, shall,
subject to the provisions of the CIT Intercreditor Agreement, be the property of
the Lender

3.5.       Each Borrower agrees to notify the Lender: (a) of any matters
affecting the value, enforceability or collectibility of any Account and of all
customer disputes, offsets, defenses, counterclaims, returns, rejections and all
reclaimed or repossessed merchandise or goods not reported pursuant to clause
(b)(i) below, and of any adverse effect in the value of its Inventory, in each
case, in an aggregate amount in excess of $100,000, with its Borrowing Base
Certificate and other weekly and monthly collateral reports (as applicable)
provided to the Lender hereunder, in such detail and format as the Lender may
reasonably require from time to time; and (b) promptly of (i) all customer
disputes, offsets, defenses, counterclaims, returns, rejections and all
reclaimed or repossessed merchandise or goods, the amount of which dispute,
offset, defense, counterclaim, return or rejection is in excess of $500,000, and
(ii) any such matters which are material, as a whole, to the Accounts and/or the
Inventory. Each Borrower agrees to issue credit memoranda promptly (with
duplicates to the Lender upon request after the occurrence of an Event of
Default) upon accepting returns or granting allowances. Upon the occurrence of
an Event of Default (which is not cured or waived in writing by the Lender) and
on notice from the Lender, each Borrower agrees that all returned, reclaimed or
repossessed merchandise or goods shall be set aside by such Borrower, marked
with the Lender 's name (as secured party) and held by such Borrower, subject to
the provisions of the CIT Intercreditor Agreement, for the Lender 's account.

3.6.       After the end of each month, the Companies shall promptly send the
Lender any statement received from the Agent showing the accounting for the
charges, loans, advances and other transactions occurring between the Agent, CIT
Lenders and the Companies during that month.

Section 4

Term Loans  

4.1.       Each Borrower hereby agrees to execute and deliver to the Lender Term
Note A-2 and Term Note B to evidence the new Term Loans to be extended by the
Lender hereunder, and hereby acknowledges and agrees that the Existing Term Note
and all the obligations of Borrowers thereunder have been assigned by Hilco to
Lender.

4.2.       Upon receipt of Term Note A-2 and the satisfaction of the conditions
precedent set forth in Section 2 hereof, the Lender hereby agrees to extend to
the Borrowers the Term Loan A-2.

4.3.

(a)        The Lender hereby agrees to establish a line of credit (the "Term
Loan B Line") for the Borrowers pursuant to which, subject to the terms and
conditions set forth herein, the Lender shall lend to the Borrowers upon request
therefor during the period from the Amendment Date to the second Anniversary
Date, the sum of up to Three Million Dollars and Zero Cents ($3,000,000.00) (the
"Term Loan B Amount"). The Borrowers may request advances (each, a “Term Loan B
Advance”) under the Term Loan B Line to fund Capital Expenditures in the
Borrowers’ current line of business. The Term Loan B Line shall be evidenced by
that certain Term Note B, of even date herewith (the "Term Note B"), by the
Borrowers, in favor of the Lender, in the face amount of the Term Loan B Amount.
Term Loan B Advance amounts used for (i) the purchase, or repayment of CIT
Revolving Loans which were requested by Borrowers in order to effect the
purchase, of property, plant or equipment or similar fixed assets (the
foregoing, each of which must be sufficiently identified to the Lender’s
reasonable satisfaction by serial number or similar defining marks, referred to
herein as “Hard Assets”) shall not exceed 100% of the cost of any such Hard
Assets or the amount of CIT Revolving Loans being repaid and (ii) Capital
Expenditures

 

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other than the purchase (or repayment of CIT Revolving Loans with respect to the
purchase) of Hard Assets shall not exceed $600,000 in the aggregate.

(b)        The Lender shall have a first perfected security interest in each
Hard Asset with respect to which a Term Loan B Advance is made. Each request for
a Term Loan B Advance shall be submitted to the Lender in writing (each, a “Term
Loan B Borrowing Notice”) at least three (3) Business Days prior to the date the
requested Term Loan B Advance is to be made. Together with a Term Loan B
Borrowing Notice, the Borrowers shall furnish the Lender with copies of any
purchase orders, quotations, invoices, serial numbers or similar defining marks
(if applicable) and other information requested by the Lender with respect to
the Capital Expenditure to be financed with a Term Loan B Advance, in each
instance, all such documentation to be in form and substance reasonably
satisfactory to the Lender. Each Term Loan B Borrowing Notice submitted to the
Lender in accordance with the terms of this Agreement shall (i) be irrevocable
and binding on the Borrowers, (ii) specify the requested amount of the Term Loan
B Advance and (iii) be in a minimum amount of $100,000.00.

(c)        The proceeds of the Term Loan B Advance to be made on the Amendment
Date shall be used by the Borrowers to refinance CIT Loans which were used to
acquire the Hard Assets listed on Schedule 11 hereto.

(d)        In any event, no Term Loan B Advance shall be made hereunder if a
Default or Event of Default shall have occurred and be continuing at the
proposed time of the making of such Term Loan B Advance or if a Default or Event
of Default would occur after giving effect thereto.

(e)        The Borrowers hereby authorize the Lender to file and/or execute such
financing statements as shall provide for the Lender to be the holder of a first
lien on all Hard Assets purchased with the proceeds of a Term Loan B Advance or
a certificate of title naming the Lender as the first lienholder, as applicable.

4.4.

(a)        Each Fiscal Year, on the first Business Day of the calendar quarter
immediately succeeding the delivery to the Lender of the audited financial
statements required under Paragraph 7.8(a) of Section 7 of this Financing
Agreement, commencing with the audited financial statements for the Fiscal Year
ending December 31, 2005, if and to the extent any principal on the Term Loan
A-1 or Term Loan A-2 remains outstanding, or any PIK Interest, remains
outstanding, the Borrowers shall pay to the Lender an amount equal to Surplus
Cash for the Fiscal Year just ended, for application first, on a pro rata basis,
to any outstanding Term Loan A PIK Interest, second, to any outstanding Term
Loan B PIK Interest, and then, on a pro rata basis, to the outstanding principal
balance of the Term Loan A-1 and the Term Loan A-2; provided, however, that the
payments required under this Paragraph 4.4 shall not be in an amount of less
than $1,000,000.

(b)

The principal amount of Term Loan B Advances shall be repaid as follows:

(i)         On the first Business Day of the calendar month which occurs six (6)
months after the Amendment Date, Borrowers shall make a principal payment under
the Term Loan B Line in an amount equal to the aggregate principal balance of
all Term Loan B Advances outstanding as of such date, divided by 60;

(ii)        On the first Anniversary Date, and on the first day of each calendar
month thereafter, Borrowers shall make a principal payment under the Term Loan B
Line in an amount

 

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equal to (x) the amount required under clause (i) above, plus (ii) an amount
equal to the aggregate principal balance of all Term Loan B Advances which were
made during the six (6)months prior to such Anniversary Date, divided by 60; and

(iii)       On the second Anniversary Date, and on the first day of each
calendar month thereafter until the Maturity Date, Borrowers shall make a
principal payment under the Term Loan B Line in an amount equal to (x) the
amount required under clauses (i) and (ii) above, plus (y) an amount equal to
the aggregate principal balance of all Term Loan B Advances which were made
during the twelve (12 )months prior to such Anniversary Date, divided by 60.

(c)

Term Loan B Advances repaid may not be reborrowed.

4.5.       In any event, the Term Loans, and all other Obligations, shall become
due and payable in full upon the occurrence of the Termination Date
notwithstanding any provision to the contrary in the Term Notes or this
Financing Agreement.

4.6.       The Borrowers may prepay at any time, at their option, in whole or in
part, any of the Term Loans; provided, however, that on each such prepayment,
the Borrowers shall pay accrued interest on the principal so prepaid to the date
of such prepayment together with the Early Termination Fee, if applicable, in
the case of either Term Loan A-1 or Term Loan A-2. Notwithstanding the
foregoing, Term Loan A-1 may not be prepaid in full unless Term Loan A-2, Term
Loan B and all other Obligations shall also be paid in full and this Financing
Agreement and all obligations of Lender to make any further loans or extensions
of credit hereunder shall be terminated.

4.7.       Except as provided in Paragraph 6.4 of Section 6 and 7.5 of Section 7
of this Financing Agreement, if any Borrower sells any of the Equipment, or if
any of the Collateral is lost or destroyed or taken by condemnation, such
Borrower shall pay to the Lender, unless otherwise agreed by the Lender, as and
when received by such Borrower and as a mandatory prepayment (the “Mandatory
Prepayment”) of first, the Term Loan B and second, on a pro rata basis, the Term
Loan A (subject to the last sentence of Section 4.6 of this Section 4), a sum
equal to the proceeds (including insurance payments) received by such Borrower
from such sale, loss, destruction or condemnation.

4.8.       Unless otherwise provided herein, each prepayment of principal
(whether voluntary or mandatory) on the Term Loans shall be applied to the then
last maturing installments of principal of the Term Loan B, and then, on a pro
rata basis, to the Term Loan A, subject to the last sentence of Section 4.6 of
this Section 4.

Section 5

Intentionally Omitted

Section 6

Collateral

 

6.1.       As security for the prompt payment in full of all Obligations, each
Company hereby pledges and grants to the Lender a continuing general lien upon,
and security interest in, all of its assets, including, without limitation, all
of its:

(a)

Accounts;

 

(b)

Inventory;

 

(c)

General Intangibles;

 

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(d)

Documents of Title;

 

 

(e)

Other Collateral;

 

 

(f)

Equipment; and

 

 

(g)

Real Estate.

 

6.2.

The security interests granted hereunder shall extend and attach to:

(a)        All Collateral which is owned by such Company or in which such
Company has any interest, whether held by such Company or others for its
account, and, if any Collateral is Equipment, whether such 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 the Lender or such Company from
such 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 such Company, or to the sale,
promotion or shipment thereof.

6.3.       Each Company agrees to safeguard, protect and hold all Inventory for
the Lender's account and make no disposition thereof except in the ordinary
course of its business of such Company, as herein provided. Each Company
represents and warrants that Inventory will be sold and shipped by such Company
to its customers only in the ordinary course of such Company's business, and
then only on open account and on payment terms not exceeding forty-five (45)
days from invoice date (except that the Borrowers may have payment terms with
(x) Spirit Airlines, Inc. not exceeding 13 months from invoice date and (y)
Champion Air not exceeding 90 days from invoice date) provided that, absent the
prior written consent of the Lender, no Company shall sell Inventory on a
consignment basis nor retain any lien or security interest in any sold Inventory
(other than Inventory with a value not to exceed $250,000 at any time consigned
to Qantas Airlines, and such other consigned Inventory that is approved in
writing by the Lender, after receipt of documentation (i.e. consignment
agreement, notice to creditors having liens in inventory, properly filed UCC
financing statements naming the party receiving such consigned Inventory, as
debtor, and such Company, as secured party, and such other documents,
instruments and agreements as Lender may require). 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, the Lender shall have all of the rights of an unpaid seller,
including stoppage in transit, replevin, rescission and reclamation. Each
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 the Lender pending delivery to the Lender.
Irrespective of the Lender's perfection status in any and all of the General
Intangibles, including, without limitations, any Patents, Trademarks, Copyrights
or licenses with respect thereto, each Company hereby irrevocably grants the
Lender a royalty free license to sell, or otherwise dispose or transfer, in
accordance with

 

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Paragraph 10.3 of Section 9 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 the Lender.

6.4.       Subject to the provisions of the fourth sentence of this Paragraph
6.4, each 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, reasonable wear
and tear excepted, making any and all repairs and replacements when and where
necessary. Each Company also agrees to safeguard, protect and hold all Equipment
in accordance with the terms hereof and subject to the Lender’s security
interest. Absent the Lender’s prior written consent, any sale, exchange or other
disposition of any Equipment shall be made by a Company in the ordinary course
of business and as set forth herein. Each Company may, in the ordinary course of
its business, sell, exchange or otherwise dispose of obsolete or surplus
Equipment provided, however, that: (a) the then value of the Equipment so
disposed of by all Companies in any Fiscal Year does not exceed $500,000 in the
aggregate; and (b) the proceeds of any such sales or dispositions shall, subject
to the provisions of the CIT Intercreditor Agreement, be held in trust by the
selling Company for the Lender and shall be immediately delivered to the Lender
by deposit to the Depository Account, except that the selling Company may retain
and use such proceeds to purchase forthwith replacement Equipment which such
Company determines in its reasonable business judgment to have a collateral
value at least equal to the Equipment so disposed of or sold; provided, however,
that the aforesaid right shall automatically cease upon the occurrence of a
Default or an Event of Default which is not waived in writing by the Lender.
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, the Lender shall have all of the rights of an
unpaid seller, including stoppage in transit, replevin, rescission and
reclamation.

6.5.       The rights and security interests granted to the Lender hereunder are
to continue in full force and effect, notwithstanding the termination of this
Financing Agreement until the final payment in full to the Lender of all
Obligations and the termination of this Financing Agreement. Any delay, or
omission by the Lender 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 the Lender. 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.

6.6.       Notwithstanding the Lender'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, the Lender shall have the right in its sole
discretion to determine which rights, liens, security interests or remedies the
Lender 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 the Lender’s rights hereunder.

6.7.       Any reserves or balances to the credit of any Borrower and any other
property or assets of any Company in the possession or control of the Lender may
be held by the Lender 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 the Lender may
have in any other assets of any Company, shall secure payment and performance of
all now existing and future Obligations.

6.8.       Each Company possesses all General Intangibles and rights thereto as
set forth in Schedule 4 hereto reasonably necessary to conduct its business as
conducted as of the Closing Date and each Company shall maintain its rights in,
and the value of, the foregoing in the ordinary course of its business,
including, without limitation, by making timely payment with respect to any
applicable licensed rights. Each Company

 

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shall deliver to the Lender, and/or shall use reasonable commercial efforts to
cause the appropriate party to deliver to the Lender, from time to time such
pledge or security agreements with respect to General Intangibles (now or
hereafter acquired) of such Company as the Lender shall require to obtain valid
liens thereon. In furtherance of the foregoing, each Company shall provide
timely notice to the Lender of any additional Patents, Trademarks, tradenames,
service marks, Copyrights, brand names, trade names, logos and other trade
designations acquired or applied for subsequent to the Closing Date and such
Company shall execute such documentation as the Lender may reasonably require to
obtain and perfect its lien thereon. Each Company hereby confirms that it shall
deliver, or cause to be delivered, subject to the terms of the CIT Intercreditor
Agreement, any pledged stock issued subsequent to the Closing Date to the Lender
in accordance with the applicable terms of the Pledge Agreements and prior to
such delivery, shall hold any such stock in trust for the Lender.

6.9.       This Financing Agreement and the obligation of the Companies to
perform all of their covenants and obligations hereunder are further secured by
the Mortgage(s) on the Real Estate.

6.10.     Each Company shall give to the Lender from time to time such
mortgage(s), deed(s) of trust or assignment(s) on the Real Estate or real estate
acquired after the date hereof as the Lender shall require to obtain a valid
lien thereon subject only to those exceptions of title as set forth in future
title insurance policies that are satisfactory to the Lender.

Section 7

Representations, Warranties and Covenants

 

 

7.1.

Each Company hereby warrants and represents to the Lender as follows:

(a)        (i) The fair value of the Total Assets exceeds the book value of the
Total Liabilities; (ii) each Company is generally able to pay its debts as they
become due and payable; and (iii) no Company has unreasonably small capital to
carry on its business as it is currently conducted absent extraordinary and
unforeseen circumstances;

(b)        (i) Schedule 5 hereto correctly and completely sets forth each
Company’s (A) exact corporate or partnership name in its jurisdiction of
organization, (B) corporate or partnership name in each jurisdiction in which
such Company is qualified to do business, if different from its name in its
jurisdiction of organization, (C) chief executive office, (D) Collateral
locations, (E) jurisdiction of incorporation or formation, (F) federal taxpayer
identification number, and (G) organizational number or that no such number was
issued; (ii) except for the Permitted Encumbrances, after (1) the filing of
financing statement assignments in the applicable filing offices at the
jurisdictions of organization set forth in Schedule 5, (2) delivery by the
Companies of any Collateral requiring the Lender's possession of the same to
perfect its liens and security interests therein, and (3) delivery by third
parties of control agreements required to perfect the Lender's liens and
security interests in any Collateral related thereto, this Financing Agreement
creates a valid, perfected and second priority security interest in the
Collateral to the extent such security interest may be perfected by any of the
actions described in clause (1), (2) or (3) above, and the security interests
granted herein constitute and shall at all times constitute the only liens on
the Collateral except for Permitted Encumbrances; (iii) except for the Permitted
Encumbrances, each Company is, or will be, at the time additional Collateral is
acquired by it, the absolute 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) each Company will, at
its expense, forever warrant and, at the Lender’s request, defend the same from
any and all claims and demands of any other person other than a holder of a
Permitted Encumbrance; (v) no Company will 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;
and that the Equipment does not comprise a

 

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part of the Inventory of such Company; and (vi) the Equipment is and will only
be used by each Company in its business and will not be held for sale or lease,
or removed from its premises (other than to move it to any other premises of any
Company upon not less than ten (10) days prior written notice to the Lender), or
otherwise disposed of by such Company except as otherwise permitted in this
Financing Agreement;

(c)        Each Company (i) is duly organized validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, (ii) has the corporate or limited partnership (as the case may be)
power to own its property and to carry on its business as now conducted and
(iii) is duly qualified to do business and is in good standing in each
jurisdiction set forth on Schedule 5 hereto, in each case, in each jurisdiction
in which the failure to be so qualified or in good standing would reasonably be
expected to have a Material Adverse Effect;

(d)        Each Company has the corporate or limited partnership (as the case
may be) power and authority to execute, deliver and perform its obligations
hereunder and under the other Loan Documents to which such Company is a party
and all such action has been duly authorized by all necessary corporate or
partnership proceedings on its part. The Loan Documents to which it is a party
have been duly and validly executed and delivered by each Company and constitute
valid and legally binding agreements of each Company enforceable against such
Company in accordance with the respective terms thereof, except, in each case,
as such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws relating to or affecting
the enforcement of creditors’ rights generally and general principles of equity.

(e)        No authorization, consent, approval, license or exemption (other than
such authorizations, consents, approvals, licenses or exemptions that exist
under applicable law, that are permitted, or that have been obtained, as
applicable) of any person or filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is necessary for the valid delivery or performance by any
Company of any Loan Document to which it is a party or for the grant of a
security interest in or mortgage on the Collateral covered by the Loan
Documents, except such matters relating to performance as would ordinarily be
done in the ordinary course of business after the date hereof.

(f)        Neither the delivery of the Loan Documents nor compliance with the
terms and provisions hereof or thereof will be contrary to the provisions of, or
constitute a default under (i) the charter or bylaws, operating agreement or
partnership agreement (as the case may be) of any Company or (ii) any applicable
law or any applicable regulation, order, writ, injunction or decree of any court
or governmental instrumentality or (iii) any material agreement to which any
Company is a party or by which it is bound or to which it is subject.

(g)        Each Company has good title to all personal property and good and
indefeasible title to or a subsisting leasehold interest in, all Real Estate as
reflected as of the date hereof on its books and records as being owned or
leased by it after giving effect to the transaction contemplated herein, except,
as to the Real Estate, for minor defects in title that do not interfere with
such Company's ability to conduct its business as currently conducted or to
utilize such properties for their intended uses. Schedule 6 hereto lists all
Real Estate owned or leased by any Company and if leased, descriptions of such
leases, including all amendments, extensions and supplements thereto. All of
such assets are being maintained by the appropriate person in good working
condition, reasonable wear and tear excepted, in accordance with industry
standards.

(h)        Except as listed on Schedule 7 hereto, no proceedings before any
court or governmental agency or department are pending against or affecting any
Company and to the knowledge of

 

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each Company, none of same have been threatened which if adversely determined
could reasonably be expected to have a Material Adverse Effect.

(i)         No Company is in default (i) under any material provisions of any
instrument evidencing any Indebtedness or of any agreement relating thereto in
such manner as to cause a Material Adverse Effect or (ii) in any respect under
or in violation of any order, writ, injunction or decree of any court or
governmental instrumentality, in such manner as to cause a Material Adverse
Effect or (iii) under any provision of any material contract to which such
Company is a party, which default would reasonably be expected to have a
Material Adverse Effect. Each Company will give the Lender prompt written notice
of any event or circumstance that may constitute such a default and, in any
event, will provide it upon receipt with copies of all material notices from
landlords or other property owners with respect to any business location or
operation of such Company.

(j)         No Company is an "investment company," as such term is defined in,
or subject to registration under, the Investment Company Act of 1940, as
amended.

(k)       No Company maintains or contributes to any Benefit Plan other than
those listed on Schedule 8 hereto. Each Benefit Plan has been and is being
maintained and funded in accordance with its terms and in compliance in all
material respects with all provisions of ERISA and the Internal Revenue Code
applicable thereto. Each Company and each ERISA Affiliate have fulfilled all
obligations related to the minimum funding standards of ERISA and the Internal
Revenue Code for each Benefit Plan and no "accumulated funding deficiency," as
such term is defined in Section 302 of ERISA and Section 412 of the Internal
Revenue Code, has occurred or is reasonably likely to occur, nor do the
conditions for imposition of a lien under Section 302(f) of ERISA exist or are
reasonably likely to exist, with respect to any Benefit Plan, and neither any
Company nor any ERISA Affiliate has incurred any liability (other than routine
liability for premiums) under Title IV of ERISA with respect to any Benefit
Plan. No event or events have occurred with respect to any Benefit Plan in
connection with which any Company, any ERISA Affiliate, or, to the knowledge of
any Company, any fiduciary of a Benefit Plan, directly or indirectly, would be
subject to any material liability (other than routine liability for premiums,
contributions (if required) and, with respect to a Benefit Plan, routine
liabilities for benefits), individually or in the aggregate, under ERISA or the
Internal Revenue Code.

(l)         To the best of each Company’s knowledge, such Company (i) possesses
all environmental, health and safety licenses, permits, authorizations,
registrations, approvals and similar rights necessary under Environmental Laws
for such Company to conduct its operations as now being conducted, except where
failure to have such licenses, permits, authorizations, registrations,
approvals, and similar rights would not reasonably be expected to have a
Material Adverse Effect, and (ii) each of such licenses, permits,
authorizations, registrations, approvals and similar rights is valid and
subsisting, in full force and effect and enforceable by such Company, and such
Company is in compliance with all terms, conditions or other provisions of such
permits, authorizations, regulations, approvals and similar rights except for
such failure or noncompliance that, individually or in the aggregate for such
Company, would not reasonably be expected to have a Material Adverse Effect. No
Company has received any written notices of any violation or noncompliance with,
or remedial obligation under, any Environmental Laws (which violation,
non-compliance, or remedial obligation has not been cured or would not
reasonably be expected to have a Material Adverse Effect) and there are no
writs, injunctions, decrees, orders or judgments outstanding under the
Environmental Laws, or lawsuits, claims, proceedings, or, to the knowledge of
each Company, investigations or inquiries pending or threatened under
Environmental Laws, relating to the ownership, use, condition, maintenance or
operation of, or conduct of business related to, any property owned, leased or
operated by any Company or other assets of any Company other than those
violations, instances of noncompliance, obligations, writs, injunctions,
decrees, orders, judgments,

 

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lawsuits, claims, proceedings, investigations or inquiries that individually or
in the aggregate for the Companies, would not reasonably be expected to have a
Material Adverse Effect. There are no obligations, undertakings or liabilities
arising out of or relating to Environmental Laws which any Company has agreed
to, assumed or retained, or to the best of each Company’s knowledge, by which
any Company is adversely affected, by contract or otherwise, except such
obligations, undertakings or liabilities as would not reasonably be expected to
have a Material Adverse Effect. No Company has received a written notice or
claim to the effect that it is or may be liable to any other person as the
result of a release or threatened release of a Hazardous Material except such
notice or claim that would not reasonably be expected to have a Material Adverse
Effect. Each Company has complied with all Environmental Laws and the
requirements of any permits, licenses or other authorizations issued under any
Environmental Laws, except any noncompliance that would not reasonably be
expected to have a Material Adverse Effect.

(m)       The proceeds of Term Loan A-2 shall be used to provide working capital
to the Borrowers and to pay certain of the costs of closing the transactions
contemplated hereby. The proceeds of Term Loan B shall be used by the Borrowers
to finance Capital Expenditures. It is the intent of the parties hereto that (i)
this Financing Agreement, together with the CIT Financing Agreement, be deemed
the “Credit Facility” as such term is defined in the Indentures, (ii) Term Loan
A-1 continues to constitute “Designated Senior Debt” as such term is defined in
the Indentures, (iii) the Term Loans and all other Obligations constitute
“Senior Debt” as such term is defined in the Indentures and (iv) all
Indebtedness under the Indentures be subordinated to all the Obligations as set
forth in such Indentures.

(n)        The proceeds of each CIT Revolving Loan made after the Closing Date
will be used by the Borrowers for working capital purposes. None of the proceeds
of the Term Loans, the CIT Term Loan or the CIT Revolving Loans will be used
directly or indirectly for the purpose of purchasing or carrying any "margin
stock" within the meaning of Regulation U of the Board of Governors of the
Federal Reserve (herein called "margin stock") or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry
margin stock, or for any other purpose which might constitute this transaction
as a "purpose credit" within the meaning of Regulation U of the Board of
Governors of the Federal Reserve. No Borrower nor any agent acting on its behalf
has taken or will take any action which might cause this Financing Agreement or
any other Loan Document to violate Regulations U or X of the Board of Governors
of the Federal Reserve or any other regulation of the Board of Governors of the
Federal Reserve or to violate the Securities Exchange Act of 1934.

(o)        The Companies maintain insurance of such types as is usually carried
by corporations engaged in the same or similar businesses and similarly situated
with financially sound, responsible and reputable insurance companies or
associations (or, as to workers’ compensation or similar insurance, with an
insurance fund or by self-insurance authorized by the jurisdiction in which its
operations are carried on) and in such amounts (and with co-insurance and
deductibles) as such insurance is usually carried by corporations and engaged in
the same or similar businesses and similarly situated, but in any event, with
respect to improvements to real property and tangible personal property
(assuming the subject improvements are in fact replaced or restored), in amounts
acceptable to the Lender. No Company maintains any formalized self-insurance
program with respect to its assets or operations or material risks with respect
thereto.

(p)        Except for Permitted Indebtedness, no Company has any outstanding
Indebtedness (excluding the loans and advances hereunder) or material
contractually assumed contingent liabilities.

 

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(q)        This Financing Agreement and the other Loan Documents create valid
security interests and liens in all of the Collateral described therein in favor
of the Lender securing the Obligations and constitute (subject to (i) the filing
of financing statements on the date hereof and thereafter from time to time on
the Lender’s request therefor, (ii) delivery of any collateral after the date
hereof as provided herein or any other Loan Document, (iii) the execution of
Blocked Account Agreements with the banks which maintain Depository Accounts and
(iv) delivery of assignments of mortgages and/or deeds of trust to obtain liens
on the Real Estate), except for Permitted Encumbrances, perfected liens and
security interests in substantially all of such Collateral described therein
subject to no liens other than Permitted Encumbrances

(r)        Neither the making of the Term Loans hereunder (or the extension of
any other credit contemplated hereunder) nor the Borrowers' use of the proceeds
thereof will violate either Executive Order 13224 or Sections 326 and 371
through 377 of the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No.
107-56 (also known as the USA Patriot Act) or any enabling legislation or rules,
regulations or executive orders relating thereto.

7.2.       Each Company agrees to maintain books and records pertaining to the
Collateral in accordance with GAAP and in such additional detail, form and scope
as the Lender shall reasonably require. Each Company agrees that the Lender or
its agents may enter upon such Company's premises at any time during normal
business hours, and from time to time in its reasonable business judgment, for
the purpose of inspecting the Collateral and any and all records pertaining
thereto. Each Company agrees to afford the Lender fifteen (15) 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 the Lender. Each Company
shall also advise the Lender 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 the Lender herein.

7.3.       Each Company agrees to: (a) execute and deliver to the Lender, from
time to time, solely for the Lender's convenience in maintaining a record of the
Collateral, such written statements, and schedules as the Lender may reasonably
require, designating, identifying or describing the Collateral; (b) provide the
Lender with Inventory Appraisals, on request, but no more frequently than
annually prior to the occurrence of a Default or an Event of Default unless the
Lender in the exercise of its reasonable business judgment requires additional
Inventory Appraisals, which Inventory Appraisals shall be at the Borrowers'
expense and otherwise acceptable to the Lender and (c) provide the Lender with
Equipment Appraisals, on request, but no more frequently than annually prior to
the occurrence of a Default or an Event of Default unless the Lender in the
exercise of its reasonable business judgment requires additional Equipment
Appraisals, which Equipment Appraisals shall be at the Borrowers' expense and
otherwise acceptable to the Lender. Any Company's failure, however, to promptly
give the Lender such statements, or schedules shall not affect, diminish, modify
or otherwise limit the Lender's security interests in the Collateral.

7.4.       Each Company agrees to comply with the requirements of all state and
federal laws in order to grant to the Lender a valid and perfected security
interests in the Collateral, subject only to the Permitted Encumbrances. The
Lender is hereby authorized by each 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. Each Company hereby
consents to and ratifies any and all execution and/or filing of financing
statements on or prior to the Closing Date by the Lender. Each Company agrees to
do whatever the Lender 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 the Lender 's agents and employees;
(c) keeping Collateral records; (d) transferring proceeds of Collateral to the
Lender’s possession; and (e) performing such further acts as the Lender may
reasonably require in order to effect the purposes of this

 

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Financing Agreement, including but not limited to obtaining control agreements
with respect to deposit accounts and/or Investment Property.

7.5.

(a)        Each Company agrees to maintain insurance on the Real Estate,
Equipment and Inventory under such policies of insurance, with such insurance
companies, in such reasonable amounts and covering such insurable risks as are
at all times reasonably satisfactory to the Lender. All policies covering the
Real Estate, Equipment and Inventory are, subject to the rights of any holders
of Permitted Encumbrances holding claims senior to the Lender, to be made
payable to the Lender, in case of loss, under a standard non-contributory
"mortgagee", "lender" or "secured party" clause and are to contain such other
provisions as the Lender may reasonably require to fully protect the Lender's
interest in the Real Estate, 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 the Lender, premium prepaid, with the loss payable endorsement in
the Lender's favor, and shall provide for not less than thirty (30) days prior
written notice to the Lender of the exercise of any right of cancellation. At
any Company's request, or if any Company fails to maintain such insurance, the
Lender may arrange for such insurance, but at the Borrowers' expense and without
any responsibility on the Lender'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 of an Event of Default which
is not waived in writing by the Lender, the Lender shall, subject to the rights
of any holders of Permitted Encumbrances holding claims senior to the Lender,
have the sole right, in the name of the Lender or any 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 of any loss or damage by fire or other casualty,
Insurance Proceeds relating to Inventory shall, subject to the provisions of the
CIT Intercreditor Agreement, be applied to prepayment of the Term Loans in
accordance with the provisions of Section 4.7 of Section 4 of this Financing
Agreement, and any such prepayment of the Term Loans shall not be subject to the
provisions of Paragraph 8.1(k) of Section 8 of this Financing Agreement. Upon
the occurrence of a Default or Event of Default, the Lender may apply Insurance
Proceeds to the Obligations in such manner as it may deem advisable in its sole
discretion;

(ii)        In the event any part of the Real Estate or Equipment of a Borrower
is damaged by fire or other casualty and the Insurance Proceeds for such damage
or other casualty is less than or equal to $100,000, the Lender shall, subject
to the provisions of the CIT Intercreditor Agreement, promptly apply such
Insurance Proceeds to the prepayment of the Term Loans in accordance with
Section 4.7 of Section 4 of this Financing Agreement, and any such prepayment of
the Term Loans shall not be subject to the provisions of Paragraph 8.1(k) of
Section 8 of this Financing Agreement. Upon the occurrence of a Default or Event
of Default, the Lender may apply Insurance Proceeds to the Obligations in such
manner as it may deem advisable in its sole discretion;

(iii)       Absent the occurrence of an Event of Default, and provided that (x)
each Borrower has sufficient business interruption insurance to replace the lost
profits of any of such Borrower's facilities, and (y) the Insurance Proceeds are
in excess of $100,000, the Borrowers may elect (by delivering written notice to
the Lender) to replace, repair or restore such Real Estate or Equipment to
substantially the equivalent condition prior to such fire or other casualty as
set forth

 

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herein. If the Borrowers do not, or cannot, elect to use the Insurance Proceeds
as set forth above, the Lender may, subject to the rights of any holders of
Permitted Encumbrances holding claims senior to the Lender, apply the Insurance
Proceeds to the payment of the Obligations, in such manner and in such order as
the Lender may reasonably elect; and

(iv)       If the Borrowers elect in accordance with clause (iii) above to use
the Insurance Proceeds in excess of $100,000 for the repair, replacement or
restoration of any Real Estate and/or Equipment, and there is then no Event of
Default, subject to the provisions of the CIT Intercreditor Agreement, such
Insurance Proceeds will be applied to the prepayment of the Term Loans in
accordance with Section 4.7 of Section 4 of this Financing Agreement, and any
such prepayment of Term Loan A-1 or Term Loan A-2 shall not be subject to the
provisions of Paragraph 8.1(k) of Section 8 of this Financing Agreement. The
Availability Reserve will be reduced dollar-for-dollar upon receipt of
non-cancelable executed purchase orders, delivery receipts or contracts for the
replacement, repair or restoration of Equipment and/or the Real Estate and
disbursements in connection therewith. Prior to the commencement of any material
restoration, repair or replacement of Real Estate, the Borrowers shall provide
the Lender with a restoration plan and a total budget certified by an
independent third party experienced in construction costing. If there are
insufficient Insurance Proceeds to cover the cost of restoration as so
determined, the Borrowers shall be jointly and severally responsible for the
amount of any such insufficiency, prior to the commencement of restoration and
shall demonstrate evidence of such before the reserve will be reduced.
Completion of restoration shall be evidenced by a final, unqualified
certification of the design architect employed, if any; an unconditional
Certificate of Occupancy, if applicable; 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 Borrowers (herein collectively the
"Completion"). Upon Completion, any remaining reserve as established hereunder
will be automatically released.

(c)        In the event the Companies fail to provide the Lender with timely
evidence, acceptable to the Lender of their maintenance of insurance coverage
required pursuant to Paragraph 7.5(a) above, the Lender may purchase, at the
Companies' expense, insurance to protect the Lender’ s interests in the
Collateral. The insurance acquired by the Lender may, but need not, protect the
Companies' interest in the Collateral, and therefore such insurance may not pay
claims which the Companies may have with respect to the Collateral or pay any
claim which may be made against the Companies in connection with the Collateral.
In the event the Lender purchases, obtains or acquires insurance covering all or
any portion of the Collateral, the Companies shall be responsible for all of the
applicable costs of such insurance, including premiums, interest (at the
Interest Rate(s) applicable to Term Loan A Cash Interest as set forth in of
Paragraph 8.1(a) of Section 8 of this Financing Agreement and Term Loan B Cash
Interest as set forth in of Paragraph 8.1(b) of Section 8 of this Financing
Agreement), fees and any other charges with respect thereto, until the effective
date of the cancellation or the expiration of such insurance. Each Company
hereby acknowledges that the costs of the premiums of any insurance acquired by
the Lender may exceed the costs of insurance which the Companies may be able to
purchase on their own. In the event that the Lender purchases such insurance,
the Lender will notify the Companies 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 Companies provide the Lender with proof that the Companies had the
insurance coverage required pursuant to Paragraph 7.5(a) above (in form and
substance satisfactory to the Lender) as of the date on which the Lender
purchased insurance and the Companies continued at all times to have such
insurance, then the Lender agrees to cancel the insurance purchased by the
Lender and reimburse the Borrowers with the amount of all costs, interest and
other charges associated with any insurance purchased by the Lender.

7.6.       Each Company agrees to pay, when due, all Taxes, including sales
taxes, assessments, claims and other charges lawfully levied or assessed upon
each Company or the Collateral unless such Taxes are being

 

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diligently contested in good faith by such 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 the Lender’s opinion is likely
to create a valid obligation having priority over the rights granted to the
Lender herein (exclusive of Real Estate), such lien shall not be deemed to be a
Permitted Encumbrance hereunder and such Company shall immediately pay such tax
and remove the lien of record. If any Company fails to do so promptly, then at
the Lender’s election, the Lender may, upon the occurrence of a Default or Event
of Default, imminent risk of seizure, filing of any priority lien, forfeiture,
or sale of any of the Collateral, pay Taxes on any Company's behalf, and the
amount thereof shall be an Obligation secured hereby and due on demand.

7.7.       Each 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 reasonably be expected to have a material
and adverse impact on the Collateral, or any material part thereof, or on the
business or operations of the Companies taken as a whole, provided that such
Company may contest any acts, rules, regulations, orders and directions of such
bodies or officials in any reasonable manner which will not, in the Lender's
reasonable opinion, materially and adversely effect the Lender's rights or
priority in the Collateral; (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 reasonably be expected to have a material and adverse impact on the
Collateral, or any material part thereof, or on the operation of the business of
the Companies taken as a whole; and (c) shall not be deemed to have breached any
provision of this Paragraph 7.7 if (i) the failure to comply with the
requirements of this Paragraph 7.7 resulted from good faith error or innocent
omission, (ii) such Company promptly commences and diligently pursues a cure of
such breach, and (iii) such failure is cured within (30) days following such
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.

7.8.       Until termination of this Financing Agreement and payment and
satisfaction of all Obligations due hereunder, Parent agrees that, unless the
Lender shall have otherwise consented in writing, Parent will furnish to the
Lender: (a) within one hundred five (105) days after the end of each Fiscal Year
of the Companies, an audited Consolidated Balance Sheet, with an unaudited
Consolidating Balance Sheet attached thereto, as at the close of such year, and
statements of profit and loss, cash flow and reconciliation of surplus of the
Companies for such year, which consolidated financial statements shall be
audited by independent public accountants selected by Parent and satisfactory to
the Lender; (b) within sixty (60) days after the end of each Fiscal Quarter
(excluding the fourth Fiscal Quarter of each Fiscal Year), (i) a Consolidated
Balance Sheet and Consolidating Balance Sheet as at the end of such period and
statements of profit and loss, cash flow and surplus of the Companies, certified
by the Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer, Treasurer or Controller of the Parent and (ii) a calculation, in a form
satisfactory to Lender, of the effective labor rate at each of the Companies’
facilities; (c) within thirty (30) days after the end of each month a
Consolidated Balance Sheet as at the end of such period and statements of profit
and loss, cash flow and surplus of the Companies for such period, certified by
the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer,
Treasurer or Controller of the Parent and (d) from time to time, such further
information regarding the business affairs and financial condition of any
Company as the Lender may reasonably request, including, without limitation (i)
the accountant's management practice letter and (ii) annual cash flow
projections in form satisfactory to the Lender. Each financial statement which
any Company is required to submit hereunder must be accompanied by officer's
certificates, signed by the President, Chief Executive Officer, Chief Operating
Officer, Chief Financial Officer, Vice President, Controller, or Treasurer of
such Company, pursuant to which any one such officer of such Company must
certify that: (x) the financial statement(s) fairly and accurately represent(s)
in all material respects such Company's financial condition at the

 

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end of the particular accounting period, as well as such Company's operating
results during such accounting period, subject to year-end audit adjustments;
and (y) during the particular accounting period: (A) there has been no Default
or Event of Default under this Financing Agreement, 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) such Company has not
received any notice of cancellation with respect to its property insurance
policies; (C) such Company has not received any notice that could reasonably be
expected to result in a Material Adverse Effect on the value of the Collateral
taken as a whole; and (D) the exhibits attached to such financial statement(s)
constitute detailed calculations demonstrating compliance with all financial
covenants contained in this Financing Agreement.

7.9.       Until termination of this Financing Agreement and payment and
satisfaction of all Obligations hereunder, each Company agrees that, without the
prior written consent of the Lender, except as otherwise herein provided, such
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 such 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 Permitted Indebtedness;
provided, however, that notwithstanding the provisions of the CIT Financing
Agreement to the contrary, the following shall apply to the amount of Senior
Secured Debt which may be outstanding at any time:

(i)         The maximum aggregate amount of Senior Secured Debt which can be
outstanding at any time shall not exceed an amount (the “Senior Secured Debt
Cap”) equal to result of (i) TTM EBITDA multiplied by (ii) 3.60;

(ii)        The Senior Secured Debt Cap shall be calculated monthly based upon a
certificate (the “Senior Secured Debt Cap Certificate”) to be delivered to the
Lender not later than seven (7) days after the end of each month which shall be
executed by the Chief Financial Officer, Treasurer or Controller of the Parent
and shall set forth calculations in reasonable detail demonstrating compliance
by the Companies with the Senior Secured Debt Cap;

(iii)       The Borrower shall not request and the CIT Lenders shall not make
any CIT Revolving Loans in an amount such that Senior Secured Debt shall be
outstanding in an amount in excess of the Senior Secured Debt Cap and if Senior
Secured Debt shall be outstanding in an amount in excess of the Senior Secured
Debt Cap, then (a) no CIT Revolving Loans may be requested by the Borrowers or
made by the CIT Lenders until such time as the Senior Secured Debt obligations
shall be equal to or less than the Senior Secured Debt Cap and (b) the Borrowers
shall repay, in such amount as shall cause the outstanding Senior Secured Debt
to be less than or equal to the Senior Secured Debt Cap, first, CIT Revolving
Loans, and second, after the CIT Revolving Loans shall be paid in full, the CIT
Term Loan; and

(iv)       Notwithstanding the provisions of clauses (i) and (iii) above, the
Borrowers may elect, by notification to the Lender concurrently with the
delivery of the then current Senior Secured Debt Cap Certificate, to not have
the Senior Debt Cap apply for any one month in each calendar year;

 

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provided further, that Parent may pay cash interest with respect to the
Indebtedness evidenced by the 8-1/8% Senior Subordinated Notes Due 2008
Indenture dated as of February 17, 1998 and/or the LJH Subordinated Debt if and
only to the extent (1) both immediately before and after giving effect to the
payment of such interest (x) no Default or Event of Default exists, and (y)
Availability is not less than $3,000,000 and (2) with respect to payments made
on the LJH Subordinated Debt, such payment(s) are made in any year only after
the Lender has received payment in full of all Surplus Cash required to be paid
to the Lender for the Fiscal Year just ended pursuant to Paragraph 4.4 of
Section 4 of this Financing Agreement.

(c)        Sell, lease, assign, transfer or otherwise dispose of Collateral,
except (i) sales, leases, assignments, transfers or other dispositions by a
Company to another Company, which proceeds received from, or other consideration
given in connection with, such sale, lease, assignment, transfer or other
disposition, when aggregated with other sales, leases, assignments, transfers
and other dispositions to other Companies do not exceed $250,000 in the
aggregate in any consecutive twelve (12) month period, provided the Lender is
given written notice thereof not less than five (5) days after such sale, lease,
assignment, transfer or other disposition becomes effective, (ii) sales, leases,
assignments, transfers or other dispositions by a Company to another Company
other than pursuant to clause (i) above provided the Lender is given not less
than five (5) days prior written notice of such transaction and not less than
five (5) days prior to the effective date thereof, the Lender is provided copies
of all documents evidencing or relating to such sale, lease, assignment,
transfer or other disposition, and (iii) as otherwise specifically permitted by
this Financing Agreement, including but not limited to Paragraph 7.13 of Section
7 of this Financing Agreement, or any other Loan Document;

(d)        Merge, consolidate or otherwise alter or modify its corporate name,
principal place of business, structure, or existence, re-incorporate or
re-organize, or enter into or engage in any operation or activity materially
different from that presently being conducted by such Company, except that such
Company may change its corporate name or address and such Company may engage in
operations and activities reasonably related to those presently being conducted;
provided that: (i) such Company shall give the Lender thirty (30) days prior
written notice thereof and (ii) such Company shall execute and deliver, prior to
or simultaneously with any such action, any and all documents and agreements
requested by the Lender to confirm the continuation and preservation of all
security interests and liens granted to the Lender hereunder;

(e)        Assume, guarantee, endorse, or otherwise become liable upon the
obligations of any person, firm, entity or corporation, except (i) by the
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, (ii) guarantees executed by a
Company in the ordinary course of its business guaranteeing Indebtedness or
other obligations of another Company if the incurring of such Indebtedness or
other obligations is permitted hereunder and (iii) guarantees of Indebtedness or
other obligations of non-Affiliate third parties in existence on the Closing
Date and listed on Schedule 2 hereto;

(f)        Declare or pay any dividend or distributions of any kind on, or
purchase, acquire, redeem or retire, any of the capital stock or equity
interest, of any class whatsoever, whether now or hereafter outstanding, except
(i) Parent may pay dividends with respect to any class of its capital stock
payable solely in additional shares of such class of stock, and (ii)
subsidiaries of Parent may pay dividends to Parent or another Company ratably
with respect to their capital stock,

(g)        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 (i) investments in
Cash Equivalents if and only if the Lender has a perfected second

 

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priority lien and security interest in such Cash Equivalents, (ii) investments
existing on the date of this Financing Agreement described on Schedule 9, (iii)
loans made by one Company to another Company permitted pursuant to clause (h) of
the definition of Permitted Indebtedness, and (iv) loans and advances to
employees of any Company in the ordinary course of business of such Company
(including, without limitation, for travel, entertainment and relocation
expenses) which do not exceed $100,000 in the aggregate at any time outstanding;
or

(h)        Pay any management, consulting or other similar fees to any person,
corporation or other entity which is an Affiliate of such Company in excess of
$100,000 in the aggregate in any Fiscal Year.

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

(a)        Maintain at all times during each Fiscal Quarter ending below a
Tangible Net Worth of not less than the amount set forth below for the
applicable period:

Period

Tangible Net Worth

 

Fiscal Quarter ending March 31, 2005

$24,022,000

Fiscal Quarter ending June 30, 2005

$24,398,000

Fiscal Quarter ending September 30, 2005

$24,774,000

Fiscal Quarter ending December 31, 2005

$25,150,000

 

 

Fiscal Quarter ending March 31, 2006

$25,898,000

Fiscal Quarter ending June 30, 2006

$26,646,000

Fiscal Quarter ending September 30, 2006

$27,394,000

Fiscal Quarter ending December 31, 2006

$28,142,000

 

 

Fiscal Quarter ending March 31, 2007

$28,704,000

Fiscal Quarter ending June 30, 2007

$29,266,000

Fiscal Quarter ending September 30, 2007

$29,828,000

Fiscal Quarter ending December 31, 2007

$30,390,000

(b)        Maintain a Fixed Charge Coverage Ratio of not less than the ratio set
forth below as of the end of the applicable period:

 

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Period

Ratio

 

 

Fiscal Quarter ending March 31, 2005

1.25:1.00

Fiscal Quarter ending June 30, 2005

1.25:1.00

Fiscal Quarter ending September 30, 2005

1.25:1.00

Fiscal Quarter ending December 31, 2005

1.25:1.00

 

 

Fiscal Quarter ending March 31, 2006

1.35:1.00

Fiscal Quarter ending June 30, 2006

1.35:1.00

Fiscal Quarter ending September 30, 2006

1.35:1.00

Fiscal Quarter ending December 31, 2006

1.35:1.00

 

 

Fiscal Quarter ending March 31, 2007

1.40:1.00

Fiscal Quarter ending June 30, 2007

1.40:1.00

Fiscal Quarter ending September 30, 2007

1.40:1.00

Fiscal Quarter ending December 31, 2007

1.40:1.00

(c)        Maintain a ratio of (i) Senior Secured Debt plus Capital Lease
Obligations as of such date to (ii) EBITDA for the four (4) Fiscal Quarters then
ending, of not more than the ratio set forth below as of the end of the
applicable period:

Period

Ratio

 

 

Fiscal Quarter ending each of March 31, 2005, June 30, 2005, September 30, 2005
and December 31, 2005

3.90:1.00

 

 

Fiscal Quarter ending March 31, 2006 and each June 30, September 30, December
31, and March 31 thereafter

3.70:1.00

7.11.     The Companies agree to advise the Lender in writing of: (a) all
expenditures (actual or anticipated) in excess of $100,000 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 Companies' working capital; and (b) any notices any Company
receives from any local, state or federal

 

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authority advising any Company of any environmental liability (real or
potential) stemming from any Company's operations, its premises, its waste
disposal practices, or waste disposal sites used by any Company and to provide
the Lender with copies of all such notices if so required.

7.12.     Each Company hereby agrees to jointly and severally indemnify and hold
harmless the Lender 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 reasonable attorney’s fees) and any payments made by the
Lender pursuant to any indemnity provided by the Lender 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 Accounts, 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
the Lender 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 any Company's operations (including, but not limited to, any
Company's off-site disposal practices) and use of the Real Estate, which the
Lender may sustain or incur (other than solely as a result of the physical
actions of the Lender on any 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. Each Company
hereby agrees that this indemnity shall survive termination of this Financing
Agreement, as well as payments of Obligations which may be due hereunder. The
Lender may, based on such credit, collateral and other considerations
customarily taken into account by the Lender in making such determinations,
establish such Availability Reserves with respect thereto as it determine under
the circumstances and, upon any termination hereof, hold such reserves as cash
reserves for any such contingent liabilities.

7.13.     Without the prior written consent of the Lender, each Company agrees
that it will not enter into any transaction, including, without limitation, any
purchase, sale, lease, loan or exchange of property with any Affiliate of any
Company, provided that, except as otherwise set forth in this Financing
Agreement, so long as no Default or Event of Default exists or will occur
hereunder prior to and after giving effect to any such transaction, (a) each
Company may enter into sale and service transactions in the ordinary course of
its business and pursuant to the reasonable requirements of such Company, and
upon standard terms and conditions and fair and reasonable terms, no less
favorable to such Company than such Company could obtain in a comparable arms
length transaction with an unrelated third party, (b) the Companies may pay the
management, consulting and similar fees permitted by Paragraph 7.9(h) of Section
7 of this Financing Agreement and (c) the Companies may pay and perform their
obligations under the LJH Leases including, without limitation, payments not to
exceed (x) $23,832.00 each month, increasing on November 1, 2007 to $25,023.00
each month, under the LJH Dallas Lease, (y) subject to the LJH Subordination
Agreement, $74,076.67 each month under the LJH Equipment Lease and (z) a base
rent of $50,806.80 each month under the LJH Goodyear Lease, plus additional rent
under the “Master Lease” referred to in the LJH Goodyear Lease.

7.14.     The Borrowers shall at all times cause to be in effect the CIT
Financing Agreement or a replacement working capital revolving loan facility
with another lender on terms and conditions, including, without limitation,
commitment amounts, interest rate, covenants and defaults, reasonably acceptable
to Lender.

Section 8

Interest, Fees and Expenses

 

8.1.

 

 

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(a)        Cash interest (“Term Loan A Cash Interest”) on the Term Loan A-1 and
Term Loan A-2 shall be payable monthly in arrears on the first day of each
calendar month, on the date of each payment of principal thereof and on the
Maturity Date at the rate of LIBOR plus six (6%) percent per annum. In addition
to the Term Loan A Cash Interest accruing in accordance with the prior sentence,
interest (“Term Loan A PIK Interest”) shall accrue on the outstanding balance of
the Term Loan A-1 and Term Loan A-2 at the per annum rate of two (2%) percent
(the “Term Loan A Cash Interest" pay rate and “Term Loan A PIK Interest" accrual
rate are hereinafter referred to as the “Term Loan A Interest Rates”), and shall
be payable as set forth in Paragraph 8.1(c) of this Section 8 .

(b)        Cash interest (“Term Loan B Cash Interest”) on the Term Loan B shall
be payable monthly in arrears on the first day of each calendar month, on the
date of each payment of principal thereof and on the Maturity Date at the rate
of LIBOR plus six (6%) percent per annum. In addition to the Term Loan B Cash
Interest accruing in accordance with the prior sentence, interest (“Term Loan B
PIK Interest” and together with Term Loan A PIK Interest, "PIK Interest") shall
accrue on the outstanding balance of the Term Loan B at the per annum rate of
one (1%) percent (the “Term Loan B Cash Interest" pay rate and “Term Loan B PIK
Interest" accrual rate are hereinafter referred to as the “Term Loan B Interest
Rates”), and shall be payable as set forth in Paragraph 8.1(c) of this Section 8
.

(c)        On the first day of each calendar month hereof, PIK Interest which
has accrued with respect to each of the Term Loans shall be added to the
principal amount outstanding of the applicable Term Loan. PIK Interest shall be
payable upon the earliest to occur of (i) the due date of any Surplus Cash
payment made in accordance with Paragraph 4.4 of Section 4 of this Financing
Agreement, but only to the extent of such Surplus Cash payment, (ii) the
Maturity Date or (iii) the Termination Date.

(d)        Interest shall accrue based upon a 360 day year and actual days
elapsed. Changes in LIBOR shall take effect for the purpose of calculating
interest on the Term Loans 30 days after the making of the applicable Term Loan,
subject to the following: (i)         if any 30 day period would otherwise end
on a day which is not a Business Day, that 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 period shall end on the
immediately preceding Business Day; and (ii) any thirty (30) day 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
thirty (30) day period) shall end on the last Business Day of a calendar month.
Lender shall provide to Borrower a monthly statement, containing a reasonable
level of detail, outlining the computation of all interest accruing under the
Loans.

(e)        In the event that the Lender (or any financial institution which may
become a participant hereunder) shall have determined reasonably and in good
faith (which determination shall be conclusive and binding upon the Borrowers
absent manifest error) that adequate and reasonable means do not exist for
ascertaining LIBOR for any interest period with respect to any Loan or proposed
borrowing, the Lender shall promptly give written notice of such determination
to the Borrowers and thereafter, Loans shall bear interest at the rate equal to
the Prime Rate plus 3.25% per annum until such time, if any, as Lender shall
determine it can ascertain LIBOR.

(f)        Upon and after the occurrence of an Event of Default and the giving
of any required notice by the Lender in accordance with the provisions of
Paragraph 10.2 of Section 10 of this Financing Agreement, all Obligations shall
bear interest at the Default Rate of Interest.

(g)        If the Lender shall have issued a commitment letter prior to the
Amendment Date, the Companies shall have paid to the Lender in cash a commitment
fee (the “Commitment Fee”) in the aggregate amount of $180,000.00, against which
was credited an underwriting fee in the amount of

 

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$50,000 previously paid to the Lender and the unused balance of the $50,000 good
faith expense deposit previously paid to the Lender.

(h)        On the Closing Date, a closing fee in the amount of $480,000 (the
“Closing Fee”) shall be earned and payable. The Lender has agreed that (i) if
the Commitment Fee is paid in accordance with clause (g) above, it shall be
credited toward payment of the Closing Fee so the balance of the Closing Fee in
the amount of $300,000 would be due and payable in cash on the Closing Date and
(ii) if the Commitment Fee shall not be paid, then an underwriting fee in the
amount of $50,000 previously paid to the Lender and the unused balance of the
$50,000 good faith expense deposit previously paid to the Lender shall be
credited against the Closing Fee.

(i)         In consideration for the Lender entering into this Financing
Agreement and extending the Term Loans to the Borrowers, the Borrowers shall pay
to the Lender a loan facility fee (the “Loan Facility Fee”) payable in three
installments as follows:

(i)         the first installment shall be in the amount of $450,000, shall be
deemed fully earned on the Closing Date and shall be payable on the earliest to
occur of the first Anniversary Date hereof, the Maturity Date and the
Termination Date;

(ii)        the second installment shall be in the amount of $450,000, shall be
deemed fully earned on the first Anniversary Date hereof and shall be payable on
the earliest to occur of (x) the second Anniversary Date hereof and (y) the
Maturity Date or the Termination Date if either shall occur after the first
Anniversary Date but prior to the second Anniversary Date, and

(iii)       the third installment shall be in an amount equal to $450,000
multiplied by the number of days from the second Anniversary Date to (but
excluding) the Termination Date divided by 365, shall be deemed fully earned on
the second Anniversary Date hereof and shall be payable on the Termination Date
if the same shall occur after the second Anniversary Date.

(j)         To induce the Lender to enter into this Financing Agreement and to
extend to the Borrowers the Term Loan, and in consideration of, and compensation
for the establishment of all Collateral as security for the Obligations,
including without limitation, the continued monitoring and administration of the
Collateral by the Lender, the Borrowers shall pay to the Lender a collateral
management fee (the “Collateral Management Fee”) in the amount of $54,000.00
which has been fully earned upon the execution of this Financing Agreement. The
Collateral Management Fee shall be payable in thirty-six (36) consecutive
monthly installments in the amount of $1,500.00 each commencing on the Closing
Date and continuing on the first day of each calendar month thereafter until
paid in full. Any unpaid installment of the Collateral Management Fee shall be
immediately due and payable in full along with all other Obligations upon
Default or an Event of Default, as set forth in Section 10.2 of Section 10 of
this Financing Agreement.

(k)       In view of the impracticability and extreme difficulty of ascertaining
the actual amount of damages to, or profits lost by, the Lender as a result of
the early repayment of the Term Loan A-1, and by mutual agreement of the parties
as to a reasonable estimation and calculation of the lost profits or damages
suffered by the Lender if the Term Loan A-1 shall be so prepaid, it is hereby
agreed that (i) if the Term Loan A-1 shall be prepaid, in whole or in part, at
any time prior to the first Anniversary Date, the Borrowers shall pay to the
Lender together with such prepayment a fee in an amount equal to three percent
(3%) of the principal amount of Term Loan A-1 prepaid and (ii) if Term Loan A-1
shall be prepaid, in whole or in part, at any time on or after the first
Anniversary Date but prior to the date that is 180 days after the first
Anniversary Date, the Borrower shall pay to the Lender, together with such
prepayment, a fee

 

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(which, together with the fee referred to in clause (i) above, is referred to as
the "Early Termination Fee") in an amount equal to two percent (2%) of the
principal amount of such Term Loan prepaid, provided that no Early Termination
Fee shall be payable with respect to any amounts of the Term Loans A-1 prepaid
with Surplus Cash in accordance with Paragraph 4.4 of Section 4 of this
Financing Agreement and that no Termination Fee shall be payable in the event
Term Loan A-1 is refinanced by the Lender or any of its Affiliates.

(l)         The Borrowers shall pay to the Lender a success fee ("Success Fee")
equal to (i) $180,000 on any date the Term Loan A-1 and Term Loan A-2 is repaid
in full after the first eighteen (18) calendar months after the Closing Date and
on or before the second Anniversary Date; (ii) $360,000 on any date the Term
Loan A-1 and Term Loan A-2 is repaid in full after the second Anniversary Date
and on or before thirty (30) months from the Closing Date; (iii) $450,000 on any
date the Term Loan A-1 and Term Loan A-2 is repaid in full after thirty months
from the Closing Date and on or before the third Anniversary Date; and (iv)
$540,000 if the Term Loan A-1 or Term Loan A-2 is not repaid or refinanced in
full on or prior to the Maturity Date.

(m)       Lender shall be deemed to have earned an additional success fee
("Additional Success Fee") payable upon the earlier of the Maturity Date or
Termination Date equal to (i) $750,000 if Parent does not report, for the
trailing twelve month period ending September 30, 2006, EBITDA of at least
$17,000,000 ("Initial Hurdle"), and (ii) if the Initial Hurdle is not achieved,
$750,000 if Parent does not report, for the trailing twelve month period ending
March 31, 2007, EBITDA of at least $17,000,000.

(n)        The Borrowers shall reimburse or pay the Lender, as the case may be,
for: all (a) Out-of-Pocket Expenses. and (b) any applicable Documentation Fee.

8.2.       The Borrowers shall pay the Lender's standard charges and fees for
the Lender's personnel used by the Lender for reviewing the books and records of
the Borrowers and for verifying, testing, protecting, safeguarding, preserving
or disposing of all or any part of the Collateral (which fees shall be in
addition to the Collateral Management Fee and any Out-of-Pocket Expenses) as set
forth in the Fee Agreement.

8.3.       In the event that the Lender 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
judgment 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 the Lender 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 the Lender's or such participant's capital as a consequence of its
obligations hereunder to a level below that which the Lender or such participant
could have achieved but for such adoption, change or compliance (taking into
consideration the Lender's or such participant's policies with respect to
capital adequacy) by an amount reasonably deemed by the Lender or such
participant to be material, then, from time to time, the Borrowers shall pay no
later than five (5) days following demand to the Lender or such participant such
additional amount or amounts as will compensate the Lender or such participant
for such reduction. In determining such amount or amounts, the Lender or such
participant may use any reasonable averaging or attribution methods. The
protection of this Paragraph 8.3 shall be available to the Lender or such
participant regardless of any possible contention of invalidity or
inapplicability with respect to the applicable law, regulation or condition. A
certificate of the Lender or such participant setting forth such amount or
amounts as shall be necessary to compensate the Lender or such participant with
respect to this Section 8 and the calculation thereof when delivered to the
Borrowers shall be conclusive on the Borrowers absent manifest error.
Notwithstanding anything in this paragraph to the contrary, in the event the
Lender or such participant has exercised its rights pursuant to this paragraph,
and subsequent thereto

 

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determines that the additional amounts paid by the Borrowers in whole or in part
exceed the amount which the Lender or such participant actually required to be
made whole, the excess, if any, shall be promptly returned to the Borrowers by
the Lender or such participant.

8.4.       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 the Lender or any 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 the Lender 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 the Lender or such participant of principal, fees,
interest or any other amount payable hereunder or under any other documents
(except for changes in the rate of tax on the overall net income of the Lender
or such participant by the federal government or the jurisdiction in which it
maintains its principal office);

(b)        Impose, modify or hold applicable any reserve, special deposit,
assessment or similar requirement against assets held by, or deposits in or for
the account of, advances or loans by, or other credit extended by the Lender 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 the Lender 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 the Lender or such participant of
making, renewing or maintaining its loans hereunder by an amount that the Lender
or such participant deems to be material in the exercise of its reasonable
business judgment 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 the
Lender or such participant deems to be material in the exercise of its
reasonable business judgment, then, in any case the Borrowers shall pay the
Lender or such participant, within five (5) days following its demand, such
additional cost or such reduction, as the case may be. The Lender or such
participant shall certify the amount of such additional cost or reduced amount
to the Borrowers and the calculation thereof and such certification shall be
conclusive upon the Borrowers absent manifest error. Notwithstanding anything in
this paragraph to the contrary, in the event the Lender or such participant has
exercised its rights pursuant to this paragraph, and subsequent thereto
determines that the additional amounts paid by the Borrowers in whole or in part
exceed the amount which the Lender or such participant actually required
pursuant hereto, the excess, if any, shall be returned to the Borrowers by the
Lender or such participant.

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

Section 9

Powers

9.1.       Each Company hereby constitutes the Lender, or any person or agent
the Lender may designate, as its attorney-in-fact, at the Companies' cost and
expense, to exercise all of the following powers, which being coupled with an
interest, shall be irrevocable until all Obligations have been paid in full:

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

 

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

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

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

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

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

Notwithstanding anything hereinabove contained to the contrary, the powers set
forth in clauses (b), (c), (e) and (f) above may only be exercised after the
occurrence of an Event of Default and until such time as such Event of Default
is waived in writing by the Lender.

Section 10

Events of Default

10.1.     Notwithstanding anything hereinabove to the contrary, the Lender may
terminate this Financing Agreement immediately upon the occurrence of any of the
following Events of Default:

(a)        Cessation of the business of any Company or the calling of a meeting
of the creditors of any Company for purposes of compromising the debts and
obligations of the Company (other than a meeting of the holders of any of the
PIK Subordinated Indebtedness or the Indebtedness evidenced by the 8-1/8% Senior
Subordinated Notes Due 2008 Indenture dated as of February 17, 1998);

(b)        The failure of any Borrower to generally meet its debts as they
mature or the failure of the Companies taken as a whole to generally meet their
debts as they mature;

(c)        (i) The commencement by any Company of any bankruptcy, insolvency,
arrangement, reorganization, receivership or similar proceedings under any
federal or state law; (ii) the commencement against any Company, of any
bankruptcy, insolvency, arrangement, reorganization, receivership or similar
proceeding under any federal or state law by creditors of any 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 any Company shall take action to authorize or
effect any of the actions in any such proceeding;

(d)        Breach by any Company of any warranty, representation or covenant
contained herein (other than those referred to in sub-paragraph (e) below) or in
any other Loan Document between any Company and the Lender, and the breach of
such warranty, representation or covenant is not cured to Lender's satisfaction
within ten (10) days from the date of such breach; provided, however, no Event
of Default shall be deemed to have occurred solely as a result of the breach by
a Company of any warranties,

 

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representations or covenants contained in the Bond Letter of Credit Application
which are more restrictive than the warranties, representations or covenants
contained in this Financing Agreement;

(e)        Breach by any Company of any warranty, representation or covenant of
Paragraphs 3.3 (other than the fifth sentence of Paragraph 3.3) and 3.4 of
Section 3 of this Financing Agreement; Paragraphs 6.3 and 6.4 (other than the
first sentence of Paragraph 6.4) of Section 6 hereof; Paragraphs 7.1, 7.5, 7.6,
7.8 through 7.11 and 7.13 hereof;

(f)        Failure of any Company to pay (i) when due, any principal of the Term
Loans or (ii) within two (2) Business Days of the due date thereof, any
interest, fees or other Obligations;

(g)        Any 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
Benefit 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 sub-paragraph (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 the Lender, subject any Company to any tax, penalty
or other liability material to the business, operations or financial condition
of the Company;

(h)        Without the prior written consent of the Lender and, except as
permitted in the Subordination Agreement, any Company shall (i) amend or modify
the Subordinated Debt except as permitted pursuant to clause (c) of the
definition of Permitted Indebtedness, or (ii) make any payment on account of the
Subordinated Debt except as permitted by its terms or by the terms of the
Subordination Agreement executed in connection therewith;

(i)         Any default or event of default (after giving effect to any
applicable grace or cure periods) 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;

(j)         Without the prior written consent of the Lender and, except as
permitted in the LJH Subordination Agreement or the CIT Intercreditor Agreement,
any Company shall amend or modify the Indebtedness described therein;

(k)       An "Event of Default" (as defined in the CIT Documents) under the CIT
Documents;

(l)         The failure of any Company to (i) pay any amounts due under any
lease when such amounts are due and payable (after giving effect to any
applicable cure or grace periods), or (ii) observe any of such Company's other
obligations or covenants under such lease (and not involving a payment of the
type referred to in clause (i)) which is not remedied within any applicable
grace period specified in such lease;

(m)

Termination of any lease prior to its expiration date; or

(n)

A Change of Control.

 

10.2.     Upon the occurrence of a Default and/or an Event of Default, the
Lender may (at its option) declare that upon the occurrence of an Event of
Default: (a) all Obligations shall become immediately due and payable; (b) the
Default Rate of Interest shall be charged on all then outstanding or thereafter
incurred

 

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Obligations in lieu of the interest provided for in Section 8 of this Financing
Agreement, provided that, with respect to this clause (b) the Lender has given
the Borrowers written notice of the Event of Default; provided, however, that no
notice is required if the Event of Default is the Event listed in Paragraph
10.1(c) of this Section 10 , and (c) this Financing Agreement shall immediately
terminate upon notice to the Borrowers; provided, however, that upon the
occurrence of an Event of Default listed in 10.1(c) of this Section 10 , this
Financing Agreement shall automatically terminate and all Obligations shall
become due and payable, without any action, declaration, notice or demand. The
exercise of any option is not exclusive of any other option, which may be
exercised at any time by the Lender.

10.3.     Immediately upon the occurrence of any Event of Default, the Lender
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 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 the Lender may use, at the Companies' expense, such of any
Company's personnel, supplies or space at any 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 any Company or the Lender, 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 any Company
or the Lender; (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 the Lender's sole option and
discretion, and the Lender may bid or become a purchaser at any such sale, free
from any right of redemption, which right is hereby expressly waived by each
Company; (d) foreclose the security interests in the Collateral created herein
or by the other 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; and (e) exercise any other
rights and remedies provided in law, in equity, by contract or otherwise. The
Lender 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 any Company
or the Lender, or in the name of such other party as the Lender 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 the Lender in its sole
discretion may deem advisable, and the Lender shall have the right to purchase
at any such sale. If any Inventory and Equipment shall require rebuilding,
repairing, maintenance or preparation, the Lender 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 the Lender shall deem
appropriate and any such costs shall be deemed an Obligations hereunder. Any
action taken by the Lender pursuant to this paragraph shall not affect the
commercial reasonableness of the sale. Each Company agrees, at the request of
the Lender, to assemble the Inventory and Equipment and to make it available to
the Lender at premises of any Company or elsewhere and to make available to the
Lender the premises and facilities of any Company for the purpose of the
Lender'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 prior written notice shall
constitute reasonable notification and full compliance with the law. The net
cash proceeds resulting from the Lender's exercise of any of the foregoing
rights, (after deducting all charges, costs and expenses, including reasonable
attorneys' fees) shall be applied by the Lender to the payment of the
Obligations, whether due or to become due, in such order as the Lender may
elect, and each Company shall remain jointly and severally liable to the Lender
for any deficiencies, and the Lender in turn agrees to remit to the Companies or
their 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

 

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preclude the exercise of any other rights, all of which shall be cumulative.
Each Company hereby jointly and severally indemnifies the Lender and holds the
Lender harmless from any and all reasonable costs, expenses, claims,
liabilities, Out-of-Pocket Expenses or otherwise, incurred or imposed on the
Lender 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 any
Company, any Company as debtor-in-possession, any secured or unsecured creditors
of any Company, any trustee or receiver in bankruptcy, or otherwise), and each
Company hereby agrees to so indemnify and hold the Lender harmless, absent the
Lender'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 the Lender, 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 the Lender on the Real Estate shall govern the rights
and remedies of the Lender thereto.

Section 11

Termination

The Lender may terminate this Financing Agreement immediately upon the
occurrence of an Event of Default, provided, however, that if the Event of
Default is an event listed in Paragraph 10.1(c) of Section 10 of this Financing
Agreement, this Financing Agreement shall automatically terminate in accordance
with Paragraph 10.2 of Section 10 of this Financing Agreement. The Companies may
terminate this Financing Agreement at any time upon not less than ninety (90)
days’ prior written notice. All Obligations shall become due and payable as of
any termination hereunder (including, without limitation, as of the date of
termination stated in any notice delivered to the Lender pursuant to the
previous sentence) or under Section 10 hereof and, pending a final accounting,
the Lender may withhold funded reserves (unless supplied with an indemnity
satisfactory to the Lender) to cover all of the Obligations, whether absolute or
contingent, including, but not limited to, cash reserves for any contingent
Obligations. All of the Lender’s rights, liens, and security interests shall
continue after any termination until all Obligations have been irrevocably paid
and satisfied in full.

Section 12 Joint and Several Liability; Cross-Guaranty; Right of Subrogation;
Waiver of Suretyship Defenses; Subordination; Appointment  

12.1.     Notwithstanding anything to the contrary contained herein, the
Companies shall be jointly and severally liable to the Lender for all
Obligations hereunder, regardless of whether such Obligations arise as a result
of the Term Loan or credit extensions to one Company, it being stipulated and
agreed that the Term Loan and credit extensions hereunder to one Company inure
to the benefit of all Companies, and that the Lender is relying on the joint and
several liability of the Companies in making the Term Loan and extending credit
hereunder.

12.2.     Each Company hereby guarantees to the Lender the timely payment in
full of all of the Obligations of each Borrower and further guarantees the due
performance by the other Companies of their respective duties and covenants made
in favor of the Lender hereunder. Each Company agrees that this cross-corporate
guaranty, the joint and several liability of Companies hereunder and the liens
of the Lender in all of the Collateral shall be unconditional irrespective of
(i) the validity, enforceability, avoidance or subordination of any of the
Obligations, (ii) the absence of any attempt to collect any of the Obligations
from any other Company or any Collateral or other security therefor, or the
absence of any other action to enforce the same, (iii) the waiver, consent,
extension, forbearance or granting of any indulgence by the Lender with respect
to any provision of any instrument evidencing or securing the payment of any of
the Obligations, or any other

 

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agreement now or hereafter executed by any other Company and delivered to the
Lender,(iv) the failure by the Lender to take any steps to perfect or maintain
the perfected status of its lien or security interest in, or to preserve its or
their rights to, any of the Collateral or other security for the payment or
performance of any of the Obligations or the Lender’s release of any Collateral
or of its or their liens and security interests upon any Collateral, (v) the
Lender’s election, in any proceeding instituted under the Bankruptcy Code, for
the application of Section 1111(b)(2) of the Bankruptcy Code, (vi) any borrowing
or grant of a security interest by any Company, as debtor-in-possession under
Section 364 of the Bankruptcy Code, (vii) the release or compromise, in whole or
in part, of the liability of any Company for the payment of any of the
Obligations, (ix) any amendment or modification of any of the provisions of this
Financing Agreement or waiver of any Default or Event of Default, (x) any
increase in the amount of the Obligations beyond any limits imposed herein or in
the amount of any interest, fees or other charges payable in connection
therewith, or any decrease in the same, (xi) the disallowance of all or any
portion of the Lender’s claims for the repayment of any of the Obligations under
Section 502 of the Bankruptcy Code, or (xii) any other circumstances that might
constitute a legal or equitable discharge or defense of any Company. After the
occurrence and during the continuance of any Event of Default, the Lender may
proceed directly and at once, without notice to any Company, against any or all
of the Companies to collect and recover all or any part of the Obligations,
without first proceeding against any other Company or against any Collateral or
other security for the payment or performance of any of the Obligations, and
each Company waives any provision that might otherwise require the Lender under
applicable law to pursue or exhaust its remedies against any Collateral or
Company before pursuing another Company. Each Company consents and agrees that
the Lender shall not be under any obligation to marshall any assets in favor of
any Company or against or in payment of any or all of the Obligations.

12.3.     No payment or payments made by a Company or received or collected by
the Lender from a Company or any other person by virtue of any action or
proceeding or any setoff or appropriation or application at any time or from
time to time in reduction of or in payment of the Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of any Company under
this Financing Agreement, each of whom shall remain jointly and severally liable
for the payment and performance of all Obligations until the Obligations are
paid in full and this Financing Agreement is terminated in writing.

12.4.     Each Company is unconditionally obligated to repay the Obligations as
a joint and several obligor under this Financing Agreement. If, as of any date,
the aggregate amount of payments made by a Company on account of the Obligations
and proceeds of such Company's Collateral that are applied to the Obligations
exceeds the aggregate amount of loan proceeds actually used by such Company in
its business (such excess amount being referred to as an "Accommodation
Payment"), then each of the other Companies (each such Company being referred to
as a "Contributing Company") shall be obligated to make a contribution to such
Company (the "Paying Company") in an amount equal to (i) the product derived by
multiplying the sum of each Accommodation Payment of each Company by the
Allocable Percentage of the Company from whom contribution is sought less (ii)
the amount, if any, of the then outstanding Accommodation Payment of such
Contributing Company (such last mentioned amount which is to be subtracted from
the aforesaid product to be increased by any amounts theretofore paid by such
Contributing Company by way of contribution hereunder, and to be decreased by
any amounts theretofore received by such Contributing Company by way of
contribution hereunder); provided, however, that a Paying Company's recovery of
contribution hereunder from the other Companies shall be limited to that amount
paid by the Paying Company in excess of its Allocable Percentage of all
Accommodation Payments then outstanding of all Companies. As used herein, the
term "Allocable Percentage" shall mean, on any date of determination thereof, a
fraction the denominator of which shall be equal to the number of Companies who
are parties to this Financing Agreement on such date and the numerator of which
shall be 1; provided, however, that such percentages shall be modified in the
event that contribution from a Company is not possible by reason of insolvency,
bankruptcy or otherwise by reducing such

 

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Company's Allocable Percentage equitably and by adjusting the Allocable
Percentage of the other Companies proportionately so that the Allocable
Percentages of all Companies at all times equals 100%.

12.5.     If the guarantee hereunder by any Company would be held or determined
to be void, invalid or unenforceable on account of the amount of such Company’s
liability, then, notwithstanding any other provision of this Financing Agreement
to the contrary, the aggregate amount of liability of such Company shall,
without any further action by any of the Lender, such Company or any other
Person, be automatically limited and reduced to the highest amount that is valid
and enforceable as determined in such action or proceeding, which (without
limiting the generality of the foregoing) may be an amount that does not exceed
the greater of (a) the fair consideration actually received by such Company
under the terms of and as a result of this Financing Agreement and any and all
predecessor financing agreements which the this Financing Agreement amends and
restates in exchange for its guarantee of Obligations or (b) the excess of: (i)
the amount of the fair saleable value of the consolidated assets of such Company
as of the date of this Financing Agreement as determined in accordance with
applicable laws governing determinations of the insolvency of debtors as in
effect on the date hereof, over (ii) the amount of all consolidated liabilities
of such Company as of the date of this Financing Agreement, also as determined
on the basis of applicable laws governing the insolvency of debtors as in effect
on the date of this Financing Agreement.

12.6.     Each Company hereby subordinates any claims (other than claims
evidenced by notes which have been assigned and delivered to the Lender),
including, without limitation, any other right of payment, subrogation,
contribution and indemnity, that it may have from or against any other Company,
and any successor or assign of any other Company, including, without limitation,
any trustee, receiver or debtor-in-possession, howsoever arising, due or owing
and whether heretofore, now or hereafter existing, to the payment in full of all
of the Obligations.

12.7.     Notwithstanding the provisions of Paragraph 12.6 of Section 12 of this
Financing Agreement, for so long as no Default or an Event of Default shall
exist, each Company may pay to any other Company indebtedness validly owed to
such other Company which arises in the ordinary course of such Company's
business.

Section 13

Miscellaneous

13.1.     Each 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 the Lender or any
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 the Lender of any right or remedy precludes any other or
further exercise thereof, or precludes any other right or remedy.

13.2.     This Financing Agreement and the other Loan Documents executed and
delivered in connection therewith constitute the entire agreement between the
Companies and the Lender with respect to the subject matter hereof and thereof;
supersede any prior agreements with respect hereto and thereto; and shall bind
and benefit each Company and the Lender and their respective successors and
assigns. This Financing Agreement can be amended, modified, supplemented or
restated only by a writing executed by the Companies and the Lender. The Lender
shall have the right at any time to assign, or sell participations in, all or a
portion of its rights and obligations under this Financing Agreement and the
other Loan Documents, to one or more commercial banks, commercial finance
lenders or other financial institutions. Lender shall give prompt notice to
Parent of the name of any assignee if (x) such assignee is a Person, Affiliate,
fund, account or portfolio which is not managed by Lender or an Affiliate of
Lender and (y) after giving effect to such assignment, such

 

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assignee shall have, directly or indirectly, any right to vote on, or consent
with respect to, any amendment, consent or waiver of any provision of this
Financing Agreement or any of the other Loan Documents. The Companies shall, if
necessary, execute any documents reasonably required to effectuate the
assignments. No Company may assign its interest in the Term Loan hereunder
without the prior written consent of the Lender.

13.3.     In no event shall any Company, upon demand by the Lender 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, the Lender 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 the Lender
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 such Company. This paragraph shall
control every other provision hereof, the other Loan Documents and of any other
agreement made in connection herewith.

13.4.     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.

13.5.     EACH COMPANY AND THE LENDER EACH HEREBY WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THE LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREUNDER. EACH 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 THE AGENT OR ANY
LENDER BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.

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

 

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(a)

if to Lender, at:

Monroe Capital Advisors LLC

Sears Tower,

233 South Wacker Drive,

Suite 5210, Chicago, Illinois 60606

Attn: Philip Isom

Fax No.: 847 559-9330

(b)

if to any Company at:

TIMCO Aviation Services, Inc.

623 Radar Road

Greensboro, North Carolina 27410-6221

Attn: Chief Executive Officer

Fax No.: 336-668-9508

With a courtesy copy of any material notice to the Companies' counsel at:

Akerman Senterfitt

One Southeast Third Avenue

28th Floor

Miami, Florida 33131

Attn: Phillip B. Schwartz, Esq.

Fax No.: 305-374-5095

or to such other address as any party may designate for itself by like notice;
provided, however, that the failure of the Lender to provide the Companies'
counsel with a copy of such notice shall not invalidate any notice given to the
Companies and shall not give any Company any rights, claims or defenses due to
the failure of the Lender to provide such additional notice.

13.7.     Each Company agrees that (a) it will not setoff all or any portion of
the Obligations owing from time to time to the Lender or any of its Affiliates
against any accounts or accounts receivable for products sold or leased or
services rendered by such Company which may be owing at any time and from time
to time to such Company by the Lender or any of its Affiliates (“Affiliate
Accounts”) and (b) it will not withhold payment in respect of any of the
Obligations on account of any such Affiliate Accounts; provided, however, each
Company to which an Affiliate Account is owed may offset against such Affiliate
Account any claim arising out of the specific transaction giving rise to such
Affiliate Account.

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

13.9.     The Companies hereby authorizes the Lender to publish the name of the
Companies and the amount of the credit facility provided hereunder in any
“tombstone” or comparable advertisement which the Lender elects to publish.

[SIGNATURES BEGIN ON NEXT PAGE]

 

51

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IN WITNESS WHEREOF, the parties hereto have caused this Financing Agreement to
be effective, executed, accepted and delivered under seal in Greensboro, North
Carolina, by their proper and duly authorized officers on this 8th day of April,
2005.

BORROWERS:

AIRCRAFT INTERIOR DESIGN, INC.

By: /s/ Kevin Carter

Name: Kevin Carter

Title: VP/Treasurer

BRICE MANUFACTURING COMPANY, INC.

By: /s/ Kevin Carter

Name: Kevin Carter

Title: VP/Treasurer

TIMCO AVIATION SERVICES, INC.

By: /s/ Kevin Carter

Name: Kevin Carter

Title: VP/Treasurer

TIMCO ENGINE CENTER, INC.

By: /s/ Kevin Carter

Name: Kevin Carter

Title: VP/Treasurer

TIMCO ENGINEERED SYSTEMS, INC.

By: /s/ Kevin Carter

Name: Kevin Carter

Title: VP/Treasurer

 

Amended and Restated Financing Agreement

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TRIAD INTERNATIONAL MAINTENANCE CORPORATION

By: /s/ Kevin Carter

Name: Kevin Carter

Title: VP/Treasurer

AVIATION SALES DISTRIBUTION SERVICES COMPANY

By: /s/ Kevin Carter

Name: Kevin Carter

Title: VP/Treasurer

AVIATION SALES LEASING COMPANY

By: /s/ Kevin Carter

Name: Kevin Carter

Title: VP/Treasurer

AVIATION SALES PROPERTY MANAGEMENT CORP.

By: /s/ Kevin Carter

Name: Kevin Carter

Title: VP/Treasurer

AVS/CAI, INC.

By: /s/ Kevin Carter

Name: Kevin Carter

Title: VP/Treasurer

 

Amended and Restated Financing Agreement

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AVS/M-1, INC.

By: /s/ Kevin Carter

Name: Kevin Carter

Title: VP/Treasurer

AVS/M-2, INC.

By: /s/ Kevin Carter

Name: Kevin Carter

Title: VP/Treasurer

AVS/M-3, INC.

By: /s/ Kevin Carter

Name: Kevin Carter

Title: VP/Treasurer

AVSRE, L.P.

By: Aviation Sales Property Management Corp., its general partner

By: /s/ Kevin Carter

Name: Kevin Carter

Title: VP/Treasurer

HYDROSCIENCE, INC.

By: /s/ Kevin Carter

Name: Kevin Carter

Title: VP/Treasurer

 

Amended and Restated Financing Agreement

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TMAS/ASI, INC.

By: /s/ Kevin Carter

Name: Kevin Carter

Title: VP/Treasurer

WHITEHALL CORPORATION

By: /s/ Kevin Carter

Name: Kevin Carter

Title: VP/Treasurer

LENDER:

MONROE CAPITAL ADVISORS LLC

By: /s/ Philip Isom

Name: Philip Isom

Title: Executive Vice President

 

 

Amended and Restated Financing Agreement

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