Exhibit 10.1

EXECUTION VERSION

REVOLVING CREDIT

AND

SECURITY AGREEMENT

PNC BANK, NATIONAL ASSOCIATION

(AS LENDER AND AS AGENT)

WITH

VIRCO MFG. CORPORATION,

a Delaware corporation

AND

VIRCO INC.,

a Delaware corporation

(AS BORROWERS)

THE OTHER BORROWERS FROM TIME TO TIME PARTY HERETO

AND

THE GUARANTORS FROM TIME TO TIME PARTY HERETO

LOGO [g273237g90c20.jpg]

December 22, 2011

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TABLE OF CONTENTS

 

         Page   ARTICLE I   DEFINITIONS        1    1.1     Accounting Terms   
    1    1.2     General Terms        1    1.3     Uniform Commercial Code Terms
     24    1.4     Certain Matters of Construction      24    ARTICLE II  
ADVANCES, PAYMENTS      25    2.1     Revolving Advances      25    2.2    
Procedure for Revolving Advances Borrowing      26    2.3     Disbursement of
Advance Proceeds      28    2.4     Maximum Advances      29    2.5    
Repayment of Advances      29    2.6     Repayment of Excess Advances      29   
2.7     Statement of Account      29    2.8     Letters of Credit      30   
2.9     Issuance of Letters of Credit      30    2.10   Requirements For
Issuance of Letters of Credit      30    2.11   Disbursements, Reimbursement   
  31    2.12   Repayment of Participation Advances      32    2.13  
Documentation      32    2.14   Determination to Honor Drawing Request      33
   2.15   Nature of Participation and Reimbursement Obligations      33    2.16
  Indemnity      34    2.17   Liability for Acts and Omissions      34    2.18  
Additional Payments      35    2.19   Manner of Borrowing and Payment      36   
2.20   Mandatory Prepayments      37    2.21   Use of Proceeds      37    2.22  
Defaulting Lender      38    ARTICLE III   INTEREST AND FEES      39    3.1    
Interest      39    3.2     Letter of Credit Fees      39    3.3    
[Intentionally Omitted.]      40    3.4     Fee Letter      40    3.5    
Computation of Interest and Fees      40    3.6     Maximum Charges      40   
3.7     Increased Costs      40    3.8     Basis for Determining Interest Rate
Inadequate or Unfair      41    3.9     Capital Adequacy      42    3.10   Gross
Up for Taxes      42    3.11   Withholding Tax Exemption      42    3.12  
Replacement of Lenders      43    ARTICLE IV   COLLATERAL: GENERAL TERMS      44
   4.1     Security Interest in the Collateral      44   

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TABLE OF CONTENTS

(continued)

 

         Page   4.2     Perfection of Security Interest      44    4.3    
Disposition of Collateral      45    4.4     Preservation of Collateral      45
   4.5     Ownership of Collateral      45    4.6     Defense of Secured
Parties’ Interests      46    4.7     Books and Records      46    4.8    
Financial Disclosure      47    4.9     Compliance with Laws      47    4.10  
Inspections and Appraisals      47    4.11   Insurance      47    4.12   Failure
to Pay Insurance      48    4.13   Payment of Taxes      48    4.14   Payment of
Leasehold Obligations      49    4.15   Receivables      49    4.16   Inventory
     51    4.17   Maintenance of Equipment      51    4.18   Exculpation of
Liability      51    4.19   Environmental Matters      52    4.20   Financing
Statements      54    4.21   Deposit and Investment Accounts      54    4.22  
New and Newly Registered Intellectual Property      54    ARTICLE V  
REPRESENTATIONS AND WARRANTIES      55    5.1     Authority      55    5.2    
Formation and Qualification      55    5.3     Survival of Representations and
Warranties      55    5.4     Tax Returns      56    5.5     Financial
Statements      56    5.6     Entity Names      56    5.7     O.S.H.A      57   
5.8     Solvency; No Litigation, Violation, Indebtedness or Default      57   
5.9     Patents, Trademarks, Copyrights and Licenses      58    5.10   Licenses
and Permits      58    5.11   Default of Indebtedness; No Default      59   
5.12   No Default      59    5.13   No Burdensome Restrictions      59    5.14  
No Labor Disputes      59    5.15   Margin Regulations      59    5.16  
Investment Company Act      59    5.17   Disclosure      59    5.18   Swaps     
60    5.19   Conflicting Agreements      60    5.20   Application of Certain
Laws and Regulations      60    5.21   Business and Property of Credit Parties
     60    5.22   Section 20 Subsidiaries      60    5.23   Anti-Terrorism Laws
     60   

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TABLE OF CONTENTS

(continued)

 

         Page   5.24   Trading with the Enemy      61    5.25   Ricoh Financing
Statement      61    5.26   Commercial Tort Claims      61    ARTICLE VI  
AFFIRMATIVE COVENANTS      61    6.1     Payment of Fees      61    6.2    
Conduct of Business and Maintenance of Existence and Assets      61    6.3    
Violations      62    6.4     Government Receivables      62    6.5    
Financial Covenants      62    6.6     Execution of Supplemental Instruments   
  63    6.7     Payment of Indebtedness      63    6.8     Standards of
Financial Statements      64    6.9     Post-Closing Covenants      64   
ARTICLE VII   NEGATIVE COVENANTS      65    7.1     Merger, Consolidation,
Acquisition and Sale of Assets      65    7.2     Creation of Liens      65   
7.3     Guarantees      65    7.4     Investments      65    7.5    
[Intentionally Omitted.]      66    7.6     Capital Expenditures      66   
7.7     Dividends      66    7.8     Indebtedness      67    7.9     Nature of
Business      67    7.10   Transactions with Affiliates      67    7.11  
[Intentionally Omitted.]      68    7.12   Subsidiaries      68    7.13   Fiscal
Year and Accounting Changes      68    7.14   Pledge of Credit      68    7.15  
Amendment of Articles of Incorporation, By-Laws      68    7.16   Compliance
with ERISA      68    7.17   Prepayment of Funded Debt      69    7.18  
Anti-Terrorism Laws      69    7.19   Membership/Partnership Interests      69
   7.20   Trading with the Enemy Act      69    7.21   Clean Down      69   
7.22   Leases      69    ARTICLE VIII   CONDITIONS PRECEDENT      70    8.1    
Conditions to Initial Advances      70    8.2     Conditions to Each Advance   
  74    ARTICLE IX   INFORMATION AS TO CREDIT PARTIES      74    9.1    
Disclosure of Material Matters      74    9.2     Schedules      74   

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TABLE OF CONTENTS

(continued)

 

         Page   9.3     Environmental Reports      75    9.4     Litigation     
75    9.5     Material Occurrences      75    9.6     Government Receivables   
  76    9.7     Annual Financial Statements      76    9.8     Quarterly
Financial Statements      76    9.9     Monthly Financial Statements      76   
9.10   Other Reports      76    9.11   Additional Information      76    9.12  
Projected Operating Budget      77    9.13   Variances From Operating Budget   
  77    9.14   Notice of Suits, Adverse Events      77    9.15   ERISA Notices
and Requests      77    9.16   Additional Documents      78    ARTICLE X  
EVENTS OF DEFAULT      78    10.1     Nonpayment      78    10.2     Breach of
Representation      78    10.3     Noncompliance      78    10.4     Judicial
Actions      79    10.5     Judgments      79    10.6     Bankruptcy      79   
10.7     Inability to Pay      79    10.8     Affiliate Actions      79   
10.9     Lien Priority      79    10.10   Cross Default      79    10.11  
Breach of Guaranty      80    10.12   Change of Control      80    10.13  
Invalidity      80    10.14   Licenses      80    10.15   Seizures      80   
10.16   Operations      80    10.17   Pension Plans      80    10.18   Section
6.5 Covenants      81    ARTICLE XI   LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT
     81    11.1     Rights and Remedies      81    11.2     Agent’s Discretion
     82    11.3     Setoff      82    11.4     Rights and Remedies not Exclusive
     82    11.5     Allocation of Payments After Event of Default      83   
ARTICLE XII   WAIVERS AND JUDICIAL PROCEEDINGS      83    12.1     Waiver of
Notice      83    12.2     Delay      84    12.3     Jury Waiver; California
Judicial Reference      84   

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TABLE OF CONTENTS

(continued)

 

         Page   ARTICLE XIII   EFFECTIVE DATE AND TERMINATION        86   
13.1     Term        86    13.2     Termination        86    ARTICLE XIV  
REGARDING AGENT        87    14.1     Appointment        87    14.2     Nature
of Duties        87    14.3     Lack of Reliance on Agent and Resignation     
  87    14.4     Certain Rights of Agent        88    14.5     Reliance     
  88    14.6     Notice of Default        88    14.7     Indemnification     
  88    14.8     Agent in its Individual Capacity        89    14.9     Delivery
of Documents        89    14.10   Borrowers’ Undertaking to Agent        89   
14.11   No Reliance on Agent’s Customer Identification Program        89   
14.12   Other Agreements        89    ARTICLE XV   BORROWING AGENCY; GUARANTY   
    90    15.1     Borrowing Agency Provisions        90    15.2     Joint and
Several Liability of Borrowers        90    15.3     Guaranty        91   
15.4     Waivers and Agreements        93    ARTICLE XVI   MISCELLANEOUS     
  96    16.1     Governing Law        96    16.2     Entire Understanding     
  96    16.3     Successors and Assigns; Participations; New Lenders        98
   16.4     Application of Payments      100    16.5     Indemnity      100   
16.6     Notice      101    16.7     Survival      102    16.8     Severability
     102    16.9     Expenses      102    16.10   Injunctive Relief      102   
16.11   Consequential Damages      102    16.12   Captions      103    16.13  
Counterparts; Facsimile Signatures      103    16.14   Construction      103   
16.15   Confidentiality; Sharing Information      103    16.16   Publicity     
103    16.17   Certifications From Banks and Participants; USA PATRIOT Act     
104   

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LIST OF EXHIBITS AND SCHEDULES

 

EXHIBITS   Exhibit 1.2(a)   Borrowing Base Certificate Exhibit 1.2(b)  
Compliance Certificate Exhibit 2.1(a)   Revolving Credit Notes Exhibit 8.1(k)  
Financial Condition Certificate Exhibit 16.3   Commitment Transfer Supplement
SCHEDULES   Schedule A   Notice Addresses Schedule 1.2   Permitted Encumbrances
Schedule 4.5   Equipment and Inventory Locations Schedule 4.15(h)   Deposit and
Investment Accounts Schedule 4.19   Real Property Schedule 5.1   Consents
Schedule 5.2(a)   States of Qualification and Good Standing Schedule 5.2(b)  
Subsidiaries Schedule 5.4   Federal Tax Identification Number Schedule 5.6  
Prior Names Schedule 5.8(b)   Litigation Schedule 5.8(d)   Plans Schedule 5.9  
Intellectual Property, Source Code Escrow Agreements Schedule 5.10   Licenses
and Permits Schedule 5.14   Labor Disputes Schedule 5.26   Commercial Tort
Claims Schedule 7.3   Guarantees Schedule 7.4   Investments Schedule 7.8  
Indebtedness

 

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REVOLVING CREDIT

AND

SECURITY AGREEMENT

This REVOLVING CREDIT AND SECURITY AGREEMENT dated as of December 22, 2011,
among VIRCO MFG. CORPORATION, a corporation organized under the laws of the
State of Delaware (“VMC”), VIRCO INC., a corporation organized under the laws of
the State of Delaware (“Virco” and, together with VMC and each Person that
becomes a party hereto pursuant to Section 7.12 as a borrower, each a
“Borrower”, and collectively “Borrowers”), the Persons from time to time party
hereto pursuant to Section 7.12 as a guarantor (each a “Guarantor”, and
collectively “Guarantors”), the financial institutions that are now or that
hereafter become a party hereto (collectively, “Lenders” and individually a
“Lender”) and PNC BANK, NATIONAL ASSOCIATION (“PNC”), as administrative agent
for Lenders (PNC, in such capacity, “Agent”).

IN CONSIDERATION of the mutual covenants and undertakings herein contained, the
parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS

1.1 Accounting Terms. As used in this Agreement, the other Loan Documents or any
certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 1.2 or elsewhere in this
Agreement and accounting terms partly defined in Section 1.2 to the extent not
defined, have the respective meanings given to them under GAAP; provided,
however, that whenever such accounting terms are used for the purposes of
determining compliance with financial covenants in this Agreement, such
accounting terms shall be defined in accordance with GAAP as applied in
preparation of the audited financial statements of Borrowers for the fiscal year
ended January 31, 2011. Any reference herein to GAAP “as consistently applied”
shall mean GAAP as consistently applied after giving effect to any changes in
GAAP, provided, that any financial statements delivered pursuant to Sections
9.7, 9.8 or 9.9 that are prepared after any such change in GAAP shall be
accompanied by a reconciliation between such financial statements after giving
effect to such change in GAAP and such financial statements without giving
effect to such change GAAP. Notwithstanding the foregoing, if at any time any
change in GAAP would affect the computation of any financial covenant or
requirement set forth in any Loan Document, and either Borrowing Agent, Agent,
or Required Lenders so requests, Agent and Borrowing Agent shall negotiate in
good faith to amend such covenant or requirement to preserve the original intent
thereof in light of such change in GAAP (subject to the approval of Agent) it
being understood that a Default or Event of Default under Section 6.5 shall not
occur solely as a result of a change in GAAP to the extent such Default or Event
of Default would not have occurred absent such change in GAAP; provided that,
until so amended, (a) such covenant or requirement will continue to be
determined in accordance with GAAP prior to such change, and (b) Borrowers shall
provide to Agent financial statements and other documents required under this
Agreement or as reasonably requested hereunder setting forth a reconciliation
between calculations of such covenant or requirement made both before and after
giving effect to such change in GAAP.

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

“Accountants” has the meaning set forth in Section 9.7.

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“Advance Rates” means, collectively, the Receivables Advance Rate and the
Inventory Advance Rate.

“Advances” means and includes the Revolving Advances and the Letters of Credit.

“Affiliate” means, with respect to any Person (the “subject Person”), (a) any
Person that, directly or indirectly, is in control of, is controlled by, or is
under common control with the subject Person, or (b) any Person who is a
director, managing member, general partner, or officer (i) of the subject
Person, (ii) of any Subsidiary of the subject Person, or (iii) of any Person
described in clause (a) preceding. For purposes of this definition, “control” of
a Person means the power, direct or indirect, (y) to vote 10.0% or more of the
Equity Interests having ordinary voting power for the election of directors of
such Person or other Persons performing similar functions for any such Person or
(z) to direct or cause the direction of the management and policies of such
Person whether by ownership of Equity Interests, contract, or otherwise.

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

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

“Alternate Base Rate” means, for any day, a rate per annum equal to the highest
of (a) the Base Rate in effect on such day, (b) the Federal Funds Open Rate in
effect on such day plus 1/2 of 1% and (c) the Eurodollar Rate for an Interest
period of one month plus 1%.

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

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

“Applicable Margin” shall mean, as of any date of determination, the number of
percentage points set forth below opposite the level then in effect, it being
understood that the Applicable Margin for (i) Loans that are Domestic Rate Loans
shall be the percentage set forth under the column “Domestic Rate Loans” and
(ii) Loans that are Eurodollar Rate Loans shall be the percentage set forth
under the column “Eurodollar Rate Loans”:

 

Level

  

EBITDA

  

Domestic Rate Loans

  

Eurodollar Rate Loans

I    Less than or equal to ($4,700,000)    1.75    2.75 II   
Greater than (4,700,000), but less than or equal to ($2,800,000)    1.50    2.50
III    Greater than ($2,800,000), but less than or equal to $7,400,000    1.25
   2.25 IV    Greater than $7,400,000, but less than or equal to 10,500,000   
1.00    2.00 V    Greater than $10,500,000    0.75    1.75

 

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Each Applicable Margin set forth above shall be adjusted, to the extent
applicable, five (5) Business Days after Parent shall have delivered Agent
copies of its annual or quarterly financial statements, together with a
Compliance Certificate, in each case, pursuant to Section 9.7 or 9.8 (containing
the calculation of the EBITDA for the applicable measurement period set forth
therein). Prior to the delivery of such financial statements and Compliance
Certificate with respect to the fiscal quarter ending on January 31, 2012, the
Applicable Margins shall be set at Level III. If VMC shall fail to deliver such
financial statements and Compliance Certificate within the time periods set
forth for such delivery in Section 9.7 or 9.8, as applicable, Agent may, if it
elects by notice to the Borrowing Agent (provided, that no notice shall be
required if an Event of Default has occurred under Section 10.6 or an event
described in Section 11.1(a)(iii) has occurred), adjust the Applicable Margins
to the highest (i.e., most expensive) Level over the then current Level until
five (5) Business Days following the delivery of such financial statements and
Compliance Certificate, following which the Applicable Margin shall thereafter
be determined in accordance with the information set forth in such Compliance
Certificate. In the event Agent disputes the calculations or results of any such
certificate, the Applicable Margin shall not be adjusted until such dispute is
resolved. If Agent reasonably determines that the EBITDA calculation contained
in any Compliance Certificate delivered pursuant to Section 9.7 or 9.8 hereof
was inaccurate at any time prior to the payment in full of all of other
Obligations and such inaccuracy, if corrected, would have led to the application
of a higher Applicable Margin for any period than the Applicable Margin actually
applied for such period, then (x) VMC shall promptly deliver to Agent a correct
Compliance Certificate for such period, (y) the Applicable Margins shall be
determined as if the correct Applicable Margins (as set forth in the table
above) were applicable for such period, and (z) Borrowers shall promptly deliver
to Agent full payment in respect of the accrued additional interest as a result
of such increased Applicable Margin for such period.

“ATS Inventory” means Inventory that constitutes “assemble-to-ship” Inventory.

“Authority” has the meaning set forth in Section 4.19(d).

“Availability” means (a) the lesser of (i) the Maximum Revolving Advance Amount,
minus the aggregate Maximum Undrawn Amount of all outstanding Letters of Credit,
or (ii) the Formula Amount, minus (b) the aggregate amount of all outstanding
Revolving Advances

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

“Bank Products” shall mean any one or more of the following financial products
or accommodations extended to any Credit Party or its Subsidiaries by Agent or
any Lender or any of

 

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Agent’s or any Lender’s respective Affiliates: (a) credit cards, (b) credit card
processing services, (c) debit cards, (d) stored value cards, (e) purchase cards
(including so-called “procurement cards” or “P-cards”), or (f) any cash
management or related services including treasury, depository, return items,
overdraft, controlled disbursement, merchant store value cards, e-payables
services, electronic funds transfer, interstate depository network, automatic
clearing house transfer (including the Automated Clearing House processing of
electronic funds transfers through the direct Federal Reserve Fedline system)
and other cash management arrangements.

“Bank Products Obligations” shall mean all obligations, liabilities,
reimbursement obligations, fees, or expenses owing by any Credit Party or its
Subsidiaries to Agent or any Lender or any of Agent’s or any Lender’s respective
Affiliates in respect of Bank Products and irrespective of whether for the
payment of money, whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising.

“Blocked Accounts” has the meaning set forth in Section 4.15(h).

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

“Blocked Person” has the meaning set forth in Section 5.23(b).

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

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

“Borrowers’ Account” has the meaning set forth in Section 2.7.

“Borrowing Agent” means VMC.

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

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

“Capital Expenditures” means expenditures made or liabilities incurred for the
acquisition of any fixed assets or improvements, replacements, substitutions or
additions thereto that have a useful life of more than one year, including the
total principal portion of Capitalized Lease Obligations, which, in accordance
with GAAP, would be classified as capital expenditures, excluding, however, any
such expenditure (a) constituting leasehold improvement expenditures that are
actually paid for or reimbursed by unaffiliated third parties and (b) made to
restore, replace or rebuild property to the condition of such property
immediately prior to any damage, loss, destruction or condemnation of such
property, to the extent such expenditure is (i) not in excess of the amount of
insurance proceeds or condemnation awards received in cash by the Credit Parties
relating to any such damage, loss, destruction or condemnation and (ii) made
within one hundred and eighty (180) days of the date of receipt of such
insurance proceeds or condemnation awards.

 

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

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

“Change of Control” means an event or series of events by which:

(a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, but excluding any employee benefit plan
of such person or its subsidiaries, and any person or entity acting in its
capacity as trustee, agent or other fiduciary or administrator of any such
plan), other than members of the Virtue Family, becomes the “beneficial owner”
(as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934,
except that a person or group shall be deemed to have “beneficial ownership” of
all securities that such person or group has the right to acquire (such right,
an “option right”), whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of 20% or more of the equity
securities of VMC entitled to vote for members of the board of directors or
equivalent governing body of VMC on a fully-diluted basis (i.e., taking into
account all such securities that such person or group has the right to acquire
pursuant to any option right), provided that in no event may the Virtue Family
hold more than 45% in the aggregate of such equity securities of VMC; or

(b) VMC fails to own directly or indirectly 100% of the issued and outstanding
Equity Interests of any of its Subsidiaries (other than pursuant to any merger,
transaction or other event expressly permitted by Section 7.1).

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

“Closing Date” means December 22, 2011.

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

“Collateral” means and includes all of each Credit Party’s right, title and
interest in and to, whether now owned or hereafter acquired and wherever
located:

(a) Receivables;

(b) Equipment;

 

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(c) General Intangibles;

(d) all Inventory;

(e) all Investment Property;

(f) all Real Property described in a Mortgage;

(g) all Subsidiary Stock;

(h) the Leasehold Interests described in a Mortgage;

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

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

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

Notwithstanding the foregoing, Collateral shall not include, and no Credit Party
shall be deemed to have granted a security interest in: (A) any rights or
interests in any license, contract or agreement to which such Credit Party is a
party to the extent, but only to the extent, that such a grant would, under the
terms of such license, contract or agreement, result in a breach of the terms
of, or constitute a default under, such license, lease, contract or agreement;
(B) property owned by such Credit Party that is subject to a purchase money Lien
or Capitalized Lease Obligation permitted under this Agreement if the lease,
license, contract, property right or agreement to which such Lien is granted
prohibits or requires the consent of any Person other than such Credit Party or
its Affiliates as a condition to the creation of any other Lien on such
property; (C) any voting stock of a Foreign Subsidiary in excess of 65% of all
outstanding voting stock of such Foreign Subsidiary; (D) any rights or property,
including any intent-to-

 

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use trademark applications to the extent that any valid and enforceable law or
regulation applicable to such rights or property prohibits the creation of a
security interest in such rights or property or would otherwise result in a
material loss of rights from the creation of such security interest therein; or
(E) any rights or interests in the Leasehold Interest for the leased Real
Property of the Credit Parties located at 2027 Harpers Way and Torrance, CA
90501, other than in each case of the foregoing clauses (A) and (B), to the
extent the terms of any of the foregoing could be rendered ineffective pursuant
to 9-406, 9-407 or 9-408 of the UCC or other Applicable Law; provided, that
immediately upon the ineffectiveness, lapse or termination of any such
restriction, the Collateral shall include, and each Credit Party shall be deemed
to have granted a security interest in, all such rights and interests or other
assets, as the case may be, as if such provision had never been in effect; and
provided, further, that notwithstanding any such restriction, Collateral shall,
to the extent such restriction does not by its terms apply thereto, include all
rights incident or appurtenant to any such rights or interests and the right to
receive all proceeds derived from or in connection with the sale, assignment or
transfer of such rights and interests (all of the foregoing to the extent
excluded from “Collateral” pursuant to this paragraph being referred to herein
as “Excluded Property”).

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

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

“Compliance Certificate” means a compliance certificate in the form of that
attached hereto as Exhibit 1.2(b), appropriately completed and signed by the
Vice President Finance, Treasurer or Controller of Borrowing Agent.

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

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

“Controlled Group” means, at any time, each Credit Party and each of its
Subsidiaries and all members of their respective controlled groups of
corporations and all trades or businesses (whether or not incorporated) under
common control with any Credit Party or any Subsidiary of a Credit Party and all
other entities which, together with any Credit Party or any Subsidiary of a
Credit Party, are treated as a single employer under Section 414 of the Code.
Any entity shall continue to be considered a member of a Controlled Group of a
Credit Party or a Subsidiary thereof with respect to liabilities arising after
the period in which the entity is considered a single employer with any Credit
Party or any such Subsidiary for which any Credit Party or any such Subsidiary
could be liable under the Code or ERISA.

“Credit Parties” shall mean Borrowers and the Guarantors, and “Credit Party”
shall mean any of them.

 

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

“Customs” has the meaning set forth in Section 2.10(b).

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

“Default Rate” has the meaning set forth in Section 3.1.

“Defaulting Lender” has the meaning set forth in Section 2.22(a).

“Depository Accounts” has the meaning set forth in Section 4.15(h).

“Dilution Percent” means the percentage obtained by dividing (a) bad debt
write-downs or write-offs, discounts, returns, promotions, credits, credit memos
and other dilutive items with respect to all Receivables, by (b) gross sales.

“Dilution Reserve” means a reserve against the Formula Amount in an amount
equivalent to a 1.00% reduction in the Receivables Advance Rate for each
percentage point (or portion thereof) by which the Dilution Percent exceeds
5.00%.

“Documents” has the meaning set forth in Section 8.1(c).

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

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

“Drawing Date” has the meaning set forth in Section 2.11(b).

“Early Termination Date” has the meaning set forth in Section 13.1.

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

“EBITDA” means for any period, with respect to Borrowers on a Consolidated
Basis, the sum of (a) Earnings Before Interest and Taxes for such period, plus
(b) depreciation expenses for such period, plus (c) amortization expenses for
such period, plus (d) to the extent deducted in determining net income of the
Borrowers on a Consolidated Basis, non-cash compensation expense (including
deferred non-cash compensation expense), or other non-cash expenses or charges
arising from the sale or issuance of stock, the granting of stock options, and
the granting of stock appreciation rights and similar arrangements (including
any repricing, amendment, modification, substitution or change of any such
stock, stock option, stock appreciation rights or similar arrangements).

 

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“Eligible Assignee” shall mean (a) a commercial bank, or any Affiliate thereof,
organized under the laws of the United States, or any state thereof, which has
total assets in excess of $500,000,000 and (b) a commercial bank, or any
Affiliate thereof, organized under the laws of any other country which is a
member of the Organization for Economic Cooperation and Development or a
political subdivision of any such country and which (i) is acting through a
branch or agency located in the United States, and (ii) has total assets in
excess of $500,000,000, (c) any Lender or Affiliate (other than a natural
Person) of a Lender, (d) so long as no Default or Event of Default has occurred
and is continuing, any other Person (other than a natural Person) approved by
Borrower (which approval of Borrower shall not be unreasonably withheld,
conditioned or delayed), and (e) during the continuation of a Default or an
Event of Default, any other Person.

“Eligible ATS Inventory” means ATS Inventory that otherwise qualifies as
Eligible Finished Goods Inventory except for the fact that such Inventory
constitutes “assemble-to-ship” Inventory.

“Eligible Inventory” means Eligible ATS Inventory, Eligible Finished Goods
Inventory and Eligible Work In Process Inventory.

“Eligible Finished Goods Inventory” means and includes Inventory, excluding work
in process and ATS Inventory, with respect to each Borrower, valued at the lower
of cost or market value, determined on a first-in-first-out basis, that is not,
in Agent’s Permitted Discretion, obsolete, slow moving or unmerchantable and
that Agent, in its Permitted Discretion, does not deem to be ineligible
Inventory, based on such considerations as Agent may from time to time deem
appropriate in its Permitted Discretion, including whether the Inventory is
subject to a perfected, first priority security interest in favor of Agent and
no other Lien (other than a Permitted Encumbrance). In addition, Inventory shall
not be Eligible Finished Goods Inventory if it: (a) does not conform to all
applicable standards imposed by any Governmental Body that has regulatory
authority over such goods or the use or sale thereof; (b) is in transit (other
than in transit between locations of the Credit Parties, which locations are in
the United States); (c) is located outside the United States or at a location
that is not otherwise in compliance with this Agreement; (d) constitutes
Consigned Inventory; (e) is the subject of an Intellectual Property Claim that
Agent determines in its Permitted Discretion could have an adverse impact on the
ability to sell or otherwise dispose of or realize upon such Inventory or the
value thereof; (f) is subject to a License Agreement or other agreement that
limits, conditions or restricts any Borrower’s or Agent’s right to sell or
otherwise dispose of such Inventory, unless Agent is a party to a Licensor/Agent
Agreement with the Licensor under such License Agreement; or (g) or is situated
at a location not owned by a Borrower unless the owner or occupier of such
location has executed a Lien Waiver Agreement.

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

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

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

 

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

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

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

(f) the sale is to a Customer outside the United States of America or Canada,
unless the sale is (i) on letter of credit, guaranty or acceptance terms, in
each case acceptable to Agent in its Permitted Discretion or (ii) insured
pursuant to credit insurance acceptable to Agent in its sole discretion that is
issued by a credit insurer and pursuant to documentation (including an
assignment to Agent of such credit insurance and the proceeds thereof) that is,
in each case, acceptable to Agent in its sole discretion, provided, that the
aggregate amount of Receivables included pursuant to this clause (f)(ii) shall
not exceed a sublimit to be established by Agent from time to time in its sole
discretion;

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

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

(i) the Customer is the United States of America, any state or any department,
agency or instrumentality of any of them, unless the applicable Borrower assigns
its right to payment of such Receivable to Agent pursuant to the Assignment of
Claims Act of 1940, as amended (31 U.S.C. Sub-Section 3727, et seq. and 41
U.S.C. Sub-Section 15, et seq.), in the case of the United States of America or
any department, agency or instrumentality thereof, or, if requested by Agent
pursuant to Section 6.4, has otherwise complied with other applicable statutes
or ordinances, in the case of any state or any department, agency or
instrumentality thereof;

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

(k) the Receivables of the Customer exceed fifteen percent (15%) of the amount
of all Receivables of the Borrowers;

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

 

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

(n) any return, rejection or repossession of the merchandise has occurred or the
rendition of services has been disputed, but only to the extent of such return,
rejection, repossession, or dispute;

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

(p) such Receivable is not otherwise satisfactory to Agent as determined by
Agent in its Permitted Discretion.

“Eligible Work In Process Inventory” means Inventory that otherwise qualifies as
Eligible Finished Goods Inventory except for the fact that such Inventory
constitutes “work in process” Inventory (excluding (i) Eligible ATS Inventory
and (ii) any such Inventory at or in transit to a third party processor for
finishing such Inventory (other than Valley Plating located in Conway, Arkansas
for same day or next day finishing), including to any third party for processor
for chrome plating or otherwise, provided that such Inventory may be included as
“Eligible Work In Process Inventory” upon return of such Inventory by such third
party to the Borrowers).

“Environmental Complaint” has the meaning set forth in Section 4.19(d).

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

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

“Equity Interests” of any Person means any and all shares, rights to purchase,
options, warrants, general, limited or limited liability partnership interests,
member interests, participation or other equivalents of or interest in
(regardless of how designated) equity of such Person, whether voting or
nonvoting, including common stock, preferred stock, convertible securities or
any other “equity security” (as such term is defined in Rule 3a11-1 of the
General Rules and Regulations promulgated by the SEC under the Exchange Act).

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

“Eurodollar Rate” shall mean for any Eurodollar Rate Loan for the then current
Interest Period relating thereto the interest rate per annum (rounded upwards,
if necessary, to the nearest 1/100 of 1%) determined by Agent by dividing
(i) the rate which appears on the Bloomberg Page BBAM1 (or on such other
substitute Bloomberg page that displays rates at which US dollar deposits are
offered by leading

 

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banks in the London interbank deposit market), or the rate which is quoted by
another source selected by Agent which has been approved by the British Bankers’
Association as an authorized information vendor for the purpose of displaying
rates at which US dollar deposits are offered by leading banks in the London
interbank deposit market (an “Eurodollar Alternate Source”), at approximately
11:00 a.m., London time two (2) Business Days prior to the first day of such
Interest Period (or if there shall at any time, for any reason, no longer exist
a Bloomberg Page BBAM1 (or any substitute page) or any Eurodollar Alternate
Source, a comparable replacement rate determined by the Agent at such time
(which determination shall be conclusive absent manifest error)) for an amount
comparable to such Eurodollar Rate Loan and having a borrowing date and a
maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus
the Reserve Percentage. The Eurodollar Rate shall be adjusted with respect to
any Eurodollar Rate Loan that is outstanding on the effective date of any change
in the Reserve Percentage as of such effective date. Agent shall give prompt
notice to Borrowing Agent of the Eurodollar Rate as determined or adjusted in
accordance herewith, which determination shall be conclusive absent manifest
error.

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

“Event of Default” has the meaning set forth in Article X.

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

“Excluded Property” has the meaning set forth in the definition of “Collateral”.

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

“Extraordinary Receipts” means all Net Cash Proceeds received by Borrowers or
Guarantors not in the Ordinary Course of Business, including: (a) foreign,
United States, state or local tax refunds; (b) pension plan reversions;
(c) proceeds of business interruption insurance; (d) judgments, proceeds of
settlements or other consideration of any kind in connection with any cause of
action; (e) indemnity payments; (f) (i) 50% of the net proceeds for the issuance
of Equity Interests expressly permitted hereunder (other than issuances to a
Credit Party) and (ii) 100% of all other Equity Issuances; and (g) proceeds of
any issuance of Funded Debt (other than Funded Debt permitted pursuant to
Section 7.8); and (h) any purchase price adjustment received in connection with
any purchase agreement.

“Federal Funds Effective Rate” for any day means the rate per annum (based on a
year of 360 days and actual days elapsed and rounded upward to the nearest 1/100
of 1.00%) announced by the Federal Reserve Bank of New York (or any successor)
on such day as being the weighted average of the rates on overnight federal
funds transactions arranged by federal funds brokers on the previous trading
day, as computed and announced by such Federal Reserve Bank (or any successor)
in substantially the same manner as such Federal Reserve Bank computes and
announces the weighted average it refers to as the “Federal Funds Effective
Rate” as of the date of this Agreement; provided that, if such Federal Reserve
Bank (or its successor) does not announce such rate on any day, the “Federal
Funds Effective Rate” for such day shall be the Federal Funds Effective Rate for
the last day on which such rate was announced.

“Federal Funds Open Rate” for any day shall mean the rate per annum (based on a
year of 360 days and actual days elapsed) which is the daily federal funds open
rate as quoted by ICAP North America, Inc. (or any successor) as set forth on
the Bloomberg Screen BTMM for that day opposite the

 

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

“Fee Letter” means the fee letter dated as of the Closing Date among Borrowers
and PNC, as amended, restated, or otherwise modified from time to time.

“Financial Condition Certificate” has the meaning set forth in Section 8.1(k).

“Fixed Charge Coverage Ratio” means, for Borrowers on a Consolidated Basis, with
respect to any fiscal period, the ratio of:

(a) EBITDA, plus capitalized lease payments during such period, minus Unfinanced
Capital Expenditures made during such period, minus cash taxes paid during such
period; to

(b) the sum of all cash actually expended to make (i) interest payments on any
Advances hereunder (other than amortization of fees and other non-interest
expense hereunder), plus (ii) payments with respect to any other Funded Debt
(other than principal payments in respect of Revolving Advances that are not
made in connection with a permanent reduction to the Maximum Revolving Advance
Amount), plus (iii) payments for all fees, commissions and charges set forth
herein and with respect to any Advances, plus (iv) capitalized lease payments.

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

“Formula Amount” has the meaning set forth in Section 2.1(a).

“Funded Debt” means, with respect to any Person, without duplication, all
Indebtedness for borrowed money evidenced by notes, bonds, debentures, or
similar evidences of Indebtedness that by its terms matures more than one year
from, or is directly or indirectly renewable or extendible at such Person’s
option under a revolving credit or similar agreement obligating the lender or
lenders to extend credit over a period of more than one year from the date of
creation thereof, and specifically including Capitalized Lease Obligations,
current maturities of long-term debt, revolving credit and short-term debt
extendible beyond one year at the option of the debtor, and also including, in
the case of each Borrower, the Obligations and, without duplication,
Indebtedness consisting of guaranties of any of the foregoing Indebtedness of
other Persons.

“GAAP” means generally accepted accounting principles in the United States of
America.

“General Intangibles” means and includes, with respect to any Person, all of
such Person’s general intangibles, whether now owned or hereafter acquired,
including all payment intangibles, all choses in action, causes of action,
corporate or other business records, inventions, designs, patents, patent

 

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

“Governmental Acts” means any act or omission, whether rightful or wrongful, of
any present or future de jure or de facto Governmental Body.

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

“Gross-Up Payment” has the meaning set forth in Section 3.10.

“Guarantor” has the meaning set forth in the preamble to this Agreement and
shall extend to all permitted successors and assigns of such Persons.

“Guarantor Security Agreement” means any Security Agreement executed by any
Guarantor in favor of Agent securing the Guaranty of such Guarantor, in form and
substance satisfactory to the Agent.

“Guaranty” means any guaranty of the obligations of Borrowers executed by a
Guarantor in favor of Agent for its benefit and for the ratable benefit of
Lenders, in form and substance satisfactory to Agent, including the guaranty set
forth in Section 15.3.

“Hazardous Discharge” has the meaning set forth in Section 4.19(d).

“Hazardous Substance” means, without limitation, any flammable explosives,
radon, radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous
materials, Hazardous Wastes, hazardous or Toxic Substances or related materials
as defined in or regulated under CERCLA, the Hazardous Materials Transportation
Act, as amended (49 U.S.C. Sections 1801, et seq.), RCRA, Articles 15 and 27 of
the New York State Environmental Conservation Law or any other applicable
Environmental Law and in the regulations adopted pursuant thereto.

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

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

“Inchoate Obligations” means contingent indemnification or expense reimbursement
Obligations other than those related to claims, causes of action, or liabilities
that have been asserted or threatened or that otherwise can be reasonably
identified by the Agent or any Lender based on the then-known facts and
circumstances.

 

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“Indebtedness” of a Person at a particular date means all obligations of such
Person that, in accordance with GAAP, would be classified upon a balance sheet
as liabilities (except (a) capital stock and surplus earned or otherwise and
(b) trade payables incurred in the Ordinary Course of Business and repayable in
accordance with customary trade practices no later than sixty (60) days after
the incurrence thereof) and in any event, without limitation by reason of
enumeration, shall include all indebtedness, debt and other similar monetary
obligations of such Person whether direct or guaranteed, and all premiums, if
any, due at the required prepayment dates of such indebtedness, and all
indebtedness secured by a Lien on assets owned by such Person, whether or not
such indebtedness actually has been created, assumed or incurred by such Person.
Any indebtedness of such Person resulting from the acquisition by such Person of
any assets subject to any Lien shall be deemed, for the purposes hereof, to be
the equivalent of the creation, assumption and incurring of the indebtedness
secured thereby, whether or not actually so created, assumed or incurred.

“Indemnitees” means, collectively, all Secured Parties and each of their
respective officers, directors, Affiliates, attorneys, employees and agents, and
“Indemnitee” means any of the foregoing Persons, individually.

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

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

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

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

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

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

“Inventory Sublimit” means (a) during the period commencing on March 1 of each
fiscal year of VMC and ending on August 31 of such fiscal year, $30,000,000,
(b) during the period commencing on September 1 of each fiscal year of VMC and
ending on October 31 of such fiscal year, $20,000,000 and (c) during the period
commencing on November 1 of each fiscal year of VMC and ending on the last day
of February in such fiscal year, $12,500,000.

 

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“Inventory Advance Rate” has the meaning set forth in Section 2.1(a)(y)(ii).

“Investment Property” means and includes, with respect to any Person, all of
such Person’s now owned or hereafter acquired investment property, securities
(whether certificated or uncertificated), securities entitlements, securities
accounts, commodities contracts and commodities accounts.

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

“Leasehold Interests” means all of each Credit Party’s right, title and interest
in and to the premises located at 2027 Harpers Way and Torrance, CA 90501 and
1655 Amity Road Conway, AR 72034

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

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

“Letter of Credit Fees” has the meaning set forth in Section 3.2.

“Letter of Credit Borrowing” has the meaning set forth in Section 2.11(d).

“Letter of Credit Sublimit” means $3,000,000.

“Letters of Credit” has the meaning set forth in Section 2.8.

“License Agreement” means any agreement between any Credit Party and a Licensor
pursuant to which such Credit Party is authorized to use any Intellectual
Property in connection with the manufacturing, marketing, sale or other
distribution of any Inventory of such Credit Party or otherwise in connection
with such Credit Party’s business operations (other than any off-the-shelf,
shrink wrap or other generally commercially available pre-packaged software
products or licenses).

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

“Licensor/Agent Agreement” means an agreement between Agent and a Licensor, in
form and content satisfactory to Agent in its Permitted Discretion, by which
Agent is given the right, vis-à-vis such Licensor, to enforce Agent’s Liens with
respect to and to complete manufacture of and dispose of any Credit Party’s
Inventory with the benefit of any Intellectual Property applicable thereto,
irrespective of such Credit Party’s default under any License Agreement with
such Licensor.

 

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“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment,
security interest, lien (whether statutory or otherwise), Charge, claim or
encumbrance, or preference, priority or other security agreement or preferential
arrangement held or asserted in respect of any asset of any kind or nature
whatsoever including any conditional sale or other title retention agreement,
any lease having substantially the same economic effect as any of the foregoing,
and the filing of, or agreement to give, any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction.

“Lien Waiver Agreement” means an agreement, in form and substance acceptable to
Agent, executed in favor of Agent in its Permitted Discretion by a Person who
owns or occupies premises at which any Collateral may be located from time to
time and by which such Person shall waive any Lien that such Person may ever
have with respect to any of the Collateral and shall authorize Agent from time
to time to enter upon the premises to inspect or remove the Collateral from such
premises or to use such premises to store or dispose of such Inventory.

“Limited Purpose Deposit Account” means the deposit account of VMC maintained
with Wells Fargo Bank, National Association on the Closing Date to the extent
such deposit account (a) is subject to Agent’s control on the Closing Date and
sole control after notice by Agent to such account bank and (b) on and after the
day that is ninety (90) days after the Closing Date (or such later date as Agent
shall agree in its sole discretion), does not contain amounts on deposit therein
in excess of (i) amounts solely used by VMC to make employee payroll and
(ii) amounts not in excess of $100,000 per calendar month solely used to pay
charge backs and fees in connection with merchant card services provided by
Wells Fargo Bank, National Association to Borrowers.

“Loan Documents” means the Revolving Credit Notes, the Fee Letter, any Guaranty,
any Guarantor Security Agreement, any Mortgage, any Pledge Agreement, any Patent
Security Agreement, any Trademark Security Agreement, any Lender-Provided
Interest Rate Hedge and any and all other agreements, instruments and documents,
including guaranties, pledges, powers of attorney, consents, interest or
currency swap agreements or other similar agreements and all other writings
heretofore, now or hereafter executed by any Credit Party and/or delivered to
Agent or any Lender in respect of the transactions contemplated by this
Agreement.

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

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

“Maximum Revolving Advance Amount” means (a) during the period commencing on
March 1 of each fiscal year of VMC and ending on August 31 of such fiscal year,
$60,000,000, (b) during the period commencing on September 1 of each fiscal year
of VMC and ending on October 31 of such fiscal year, $40,000,000 and (c) during
the period commencing on November 1 of each fiscal year of VMC and ending on the
last day of February in such fiscal year, $30,000,000.

 

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“Maximum Undrawn Amount” means with respect to any outstanding Letter of Credit,
the amount of such Letter of Credit that is or may become available to be drawn
(whether or not any of the circumstances permitting the beneficiary to so draw
exist at the time of determination), including all automatic increases provided
for in such Letter of Credit, whether or not any such automatic increase has
become effective.

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

“Mortgage” means the mortgage or deed of trust on the Real Property securing the
Obligations, together with all extensions, renewals, amendments, supplements,
modifications, substitutions and replacements thereto and thereof.

“Multiemployer Plan” means a “multiemployer plan” as defined in Sections 3(37)
and 4001(a)(3) of ERISA to which any Credit Party or any member of the
Controlled Group is required to contribute on behalf of its employees or with
respect to which any Credit Party or any member of the Controlled Group has or
could reasonably be expected to have liability, contingent or otherwise.

“Multiple Employer Plan” means a Plan which has two or more contributing
sponsors at least two of whom are not under common control, as such a plan is
described in Section 4064 of ERISA, and to which any Credit Party or any member
of the Controlled Group contributes or has or could reasonably be expected to
have liability, contingent or otherwise.

“Net Cash Proceeds” means gross cash proceeds less (a) bona fide direct costs
incurred to non-Affiliates of any Credit Party in connection with obtaining such
proceeds, including (i) legal fees and fees of accountants and consultants, and
(ii) transfer or similar taxes actually payable by such Credit Party with
respect thereto and (b) the amounts necessary to discharge any Permitted
Encumbrances with respect thereto which have priority over Agent’s Liens.

“Obligations” means and includes (a) any and all Indebtedness, loans, advances,
debts, liabilities, obligations, covenants and duties owing by the Credit
Parties (or any of them) to Lenders or Agent or to any other direct or indirect
subsidiary or affiliate of Agent or any Lender of any kind or nature, present or
future (including any interest or other amounts accruing thereon after maturity,
or after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding relating to any Credit Party, or
that would have accrued but for the commencement of such proceeding, in each
case, whether or not a claim for post-filing or post-petition interest or other
amounts is allowed in such proceeding), whether or not evidenced by any note,
guaranty or other instrument, arising under this Agreement and the other Loan
Documents, together with all Bank Products Obligations and Hedge Liabilities,
whether or not for the payment of money, whether arising by reason of an
extension of credit, opening of a letter of credit, loan, or guarantee, under
any interest or currency swap, future, option or other similar agreement
(including indebtedness, liabilities, and obligations of Credit Parties with
respect to any Lender-Provided Interest Rate Hedge), or in any other manner,
whether arising out of overdrafts or deposit or other accounts or electronic
funds transfers (whether through automated clearing houses or otherwise) or out
of Agent’s or any Lenders non-receipt of or inability to collect funds or
otherwise not being made whole in connection with depository transfer check or
other similar arrangements, whether direct or indirect (including those acquired
by assignment or participation), absolute or contingent, joint or several, due
or to become due, now existing or hereafter arising, contractual or tortious,
liquidated or unliquidated, regardless of how such indebtedness or liabilities
arise or by what agreement or instrument they may be evidenced or whether
evidenced by any agreement or instrument, including amendments, extensions,
renewals or increases, and all costs and expenses of Agent and any Lender
incurred in the documentation, negotiation, modification, enforcement,
collection or otherwise in connection with any of

 

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the foregoing, including reasonable attorneys’ fees and expenses and all
obligations of any Credit Party to Agent or Lenders to perform acts or refrain
from taking any action, (b) all obligations of any type described in the
foregoing clause (a) arising in respect of Lender-Provided Interest Rate Hedges
and (c) all obligations of any type described in the foregoing clause
(a) arising in respect of cash management or other services provided by PNC or
any of its Affiliates.

“Ordinary Course of Business” means with respect to any Credit Party, the
ordinary course of such Credit Party’s business as conducted on the Closing
Date, including any reasonably related extensions thereof in the same line of
business conducted by such Credit Party on the Closing Date.

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

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

“Participant” has the meaning set forth in Section 16.3(b).

“Participation Advance” has the meaning set forth in Section 2.11(d).

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

“Patent Security Agreement” means the Patent Security Agreement, dated as of the
Closing Date, between Borrowers and Agent.

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

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

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

“Pension Benefit Plan” means any employee pension benefit plan (including a
Multiple Employer Plan or a Multiemployer Plan) which is covered by Title IV of
ERISA or is subject to the minimum funding standards under Section 412 of the
Code or Section 302 of ERISA and either (a) is maintained or contributed to by
any Credit Party or any member of the Controlled Group for employees of any
Credit Party or any member of the Controlled Group; or (b) has at any time
within the preceding five years been maintained or contributed to by any Credit
Party or by any entity which was at such time a member of the Controlled Group.

“Pension Funding Rules” shall mean the rules of the Code and ERISA regarding
minimum required contributions (including any installment payment thereof) to
Pension Benefit Plans and set forth in Section 412, 430, 431 and 432 of the Code
and Sections 302, 303, 304 and 305 of ERISA.

“Peak Season” means the period from March 1 through July 30 of each fiscal year
of the Borrowers.

 

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“Permitted Discretion” shall mean a determination made in the exercise of
reasonable (from the perspective of a secured asset based lender) business
judgment.

“Permitted Encumbrances” means: (a) Liens in favor of Agent for the benefit of
Agent, Lenders and other Secured Parties under the Loan Documents; (b) Liens for
taxes, assessments, levies or other governmental charges not delinquent or being
Properly Contested; (c) deposits or pledges to secure obligations under worker’s
compensation, social security or similar laws, or under unemployment insurance;
(d) deposits or pledges to secure bids, tenders, contracts (other than contracts
for the payment of money), leases, statutory obligations, surety and appeal
bonds and other obligations of like nature arising in the Ordinary Course of
Business; (e) Liens arising by virtue of the rendition, entry or issuance
against any Credit Party or Subsidiary thereof, or any property of any Credit
Party or any Subsidiary thereof, of any judgment, writ, order, or decree for so
long as each such Lien (i) is in existence for less than 20 consecutive days
after it first arises or is being Properly Contested and (ii) is at all times
junior in priority to any Liens in favor of Agent; (f) mechanics’, workers’,
materialmen’s, carriers, laborers, landlords or suppliers, or other like Liens
arising by operation of law in the Ordinary Course of Business with respect to
obligations that are not delinquent or that are being Properly Contested;
(g) Liens placed upon fixed assets hereafter acquired to secure a portion of the
purchase price thereof or the interests of lessors under Capital Leases,
provided that (i) any such lien shall not encumber any other property of the
applicable Credit Party and (ii) the aggregate amount of Indebtedness secured by
such Liens incurred as a result of such purchases during any fiscal year shall
not exceed the amount provided for in Section 7.6; (h) the interests of lessors
under operating leases and non-exclusive licensors under license agreements that
do not materially interfere with or impair the use of the assets or rights of
the Credit Parties or their Subsidiaries subject to such leases or license
agreements, (i) with respect to any Real Property, easements, rights of way, and
zoning restrictions that do not materially interfere with or impair the use or
operation thereof, (j) non-exclusive licenses of patents, trademarks,
copyrights, and other intellectual property rights in the Ordinary Course of
Business, (k) Liens securing Refinancing Indebtedness permitted hereunder that
are replacements of Permitted Encumbrances securing Indebtedness permitted
hereunder existing on the Closing Date, so long as such replacement Liens only
encumber those assets that secured the original Indebtedness, (l) rights of
setoff or, bankers’ liens and other Liens upon deposits of cash in favor of
banks or other depository institutions, solely to the extent incurred in
connection with the maintenance of such deposit accounts or the provision of
services described in the definition of Bank Products in each case in the
Ordinary Course of Business, (m) Liens granted in the Ordinary Course of
Business on the unearned portion of insurance premiums securing the financing of
insurance premiums to the extent the financing is expressly permitted hereby,
(n) Liens in favor of customs and revenue authorities arising as a matter of law
in the Ordinary Course of Business to secure payment of customs duties in
connection with the importation of goods, (o) Liens on assets of a Person (and
its Subsidiaries) existing at the time such Person (and its Subsidiaries) is
acquired by a Credit Party or any of its Subsidiaries (and not created in
anticipation or contemplation thereof) in a transaction expressly permitted
hereby, (p) customary assignments of insurance or condemnation proceeds provided
to landlords (or their mortgagees) pursuant to the terms of any lease; (q) Liens
and rights reserved in any lease for rent granted in the Ordinary Course of
Business with respect to rent that is not delinquent, (r) Liens disclosed on
Schedule 1.2; provided that such Liens shall secure only those obligations which
they secure on the Closing Date and shall not subsequently apply to any other
property or assets of any Credit Party, and (s) other Liens securing amounts not
exceeding $250,000 in the aggregate at any one time and which (i) are incidental
to the conduct of a Credit Party’s business or the ownership of its property and
assets, (ii) were not incurred in connection with the incurrence of Funded Debt
, (iii) do not constitute blanket liens on the assets of any Credit Party and
(iv) do not materially impair the use of such assets in the operation of any
Credit Party’s business;.

“Person” means any individual, sole proprietorship, partnership, corporation,
business trust, joint stock company, trust, unincorporated organization,
association, limited liability company, limited liability

 

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partnership, institution, public benefit corporation, joint venture, entity or
Governmental Body (whether federal, state, county, city, municipal or otherwise,
including any instrumentality, division, agency, body or department thereof).

“Plan” means any employee benefit plan within the meaning of Section 3(3) of
ERISA (including a Pension Benefit Plan but excluding any Multiemployer Plan),
maintained for employees of any Credit Party or any member of the Controlled
Group or any such Plan to which any Credit Party or any member of the Controlled
Group is required to contribute on behalf of any of its employees.

“Pledge Agreement” means any Pledge Agreement executed by any Credit Party in
favor of Agent.

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

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

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

“Projections” has the meaning set forth in Section 5.5(b).

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

“Purchasing CLO” has the meaning set forth in Section 16.3(d).

“Purchasing Lender” has the meaning set forth in Section 16.3(c).

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

“Real Property” means all of each Credit Party’s right, title and interest in
and to the owned and leased premises identified on Schedule 4.19 or which is
hereafter owned or leased by any Credit Party.

“Receivables” means and includes, as to any Person, all of such Person’s
accounts, contract rights, instruments (including those evidencing indebtedness
owed to such Person by its Affiliates),

 

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documents, chattel paper (including electronic chattel paper), General
Intangibles relating to accounts, drafts and acceptances, credit card
receivables and all other forms of obligations owing to such Person arising out
of or in connection with the sale or lease of Inventory or the rendition of
services, all supporting obligations, guarantees and other security therefor,
whether secured or unsecured, now existing or hereafter created, and whether or
not specifically sold or assigned to Agent hereunder.

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

“Refinancing Indebtedness” means refinancings, renewals, replacements, or
extensions of Funded Debt so long as: (a) such refinancings, renewals,
replacements or extensions do not result in an increase in the principal amount
(including the amount of unfunded commitments with respect thereto) of the
Funded Debt so refinanced, renewed, replaced or extended, other than by the
amount of premiums paid thereon and the fees and expenses incurred in connection
therewith and (b) such refinancings, renewals, replacements or extensions do not
result in a shortening of the average weighted maturity (measured as of the
refinancing, renewal, or extension) of the Funded Debt so refinanced, renewed,
replaced or extended.

“Register” has the meaning set forth in Section 16.3(e).

“Regulations” shall have the meaning set forth in Section 3.11(a).

“Reimbursement Obligation” has the meaning set forth in Section 2.11(b).

“Release” has the meaning set forth in Section 5.7(c)(i).

“Reportable Event” means a reportable event described in Section 4043(c) of
ERISA or the regulations promulgated thereunder for which the thirty (30) day
notice period has not been waived.

“Required Lenders” means Lenders holding at least fifty one percent (51%) of the
Advances and, if no Advances are outstanding, means Lenders holding fifty one
percent (51%) of the Commitment Percentages; provided, however, that for
purposes of this definition only, a Defaulting Lender will be deemed not to be a
Lender and not to have either Advances outstanding or a Commitment Percentage.

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

“Reserves” means reserves against the Formula Amount, including the Dilution
Reserve, established and adjusted by Agent from time to time in its Permitted
Discretion.

“Revolving Advances” means Advances made other than Letters of Credit.

“Revolving Credit Notes” means, collectively, the promissory notes referred to
in Section 2.1(a).

“Revolving Interest Rate” means an interest rate per annum equal to (a) the sum
of the Alternate Base Rate, plus the Applicable Margin with respect to Domestic
Rate Loans or (b) the sum of the Eurodollar Rate, plus the Applicable Margin
with respect to Eurodollar Rate Loans.

 

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

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

“Secured Parties” means, collectively, Agent, each Issuer, and Lenders.

“Securities Act” means the Securities Act of 1933, as amended.

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

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

“Subsidiary Stock” means all of the issued and outstanding Equity Interests of
any Subsidiary owned by any Credit Party.

“Tangible Net Worth” means, at a particular date, (a) the aggregate amount of
all assets of Borrowers on a Consolidated Basis as may be properly classified as
such in accordance with GAAP consistently applied excluding such other assets as
are properly classified as “intangible assets” under GAAP, less (b) the
aggregate amount of all liabilities of Borrowers on a Consolidated Basis.

“Term” has the meaning set forth in Section 13.1.

“Termination Event” means (i) a Reportable Event with respect to any Pension
Benefit Plan; (ii) the withdrawal of any Credit Party or any member of the
Controlled Group from a Multiple Employer Plan during a plan year in which such
entity was a “substantial employer” as defined in Section 4001(a)(2) of ERISA;
(iii) the providing of notice of intent to terminate a Pension Benefit Plan in a
distress termination described in Section 4041(c) of ERISA; (iv) the institution
by the PBGC of proceedings to terminate a Pension Benefit Plan; (v) any event or
condition which could reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Benefit Plan of any Credit Party or any member of the
Controlled Group; (vi) the determination that any Multiemployer Plan is in
endangered or critical status within the meaning of Section 432 of the Code or
Section 305 of ERISA; or (vii) the partial or complete withdrawal within the
meaning of Sections 4203 and 4205 of ERISA, of any Credit Party or any member of
the Controlled Group from a Multiemployer Plan.

“Toxic Substance” means and includes any material present on, at, under or from
the Real Property or the Leasehold Interests that has been shown to have
significant adverse effect on human health or that is subject to regulation
under the Toxic Substances Control Act (TSCA), 15 U.S.C. §§ 2601, et seq., or
any other Applicable Law now in force or hereafter enacted relating to toxic
substances. “Toxic Substance” includes but is not limited to asbestos,
polychlorinated biphenyls (PCBs) and lead-based paints.

 

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“Trademark Security Agreement” means the Trademark Security Agreement, dated as
of the Closing Date, between the Credit Parties and Agent.

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

“Transactions” has the meaning set forth in Section 5.5(a).

“Transferee” has the meaning set forth in Section 16.3(d).

“Undrawn Availability” at a particular date means Availability, minus the sum of
(a) all amounts due and owing to any Credit Party’s trade creditors that are
outstanding beyond normal trade terms, (b) fees and expenses for which the
Credit Parties are liable but which have not been paid or charged to Borrowers’
Account, and (c) all due but unpaid taxes of the Credit Parties.

“Unfinanced Capital Expenditures” shall mean all Capital Expenditures of
Borrowers on a Consolidated Basis other than those made utilizing financing
provided by the applicable seller or third party lenders. For the avoidance of
doubt, Capital Expenditures made by Borrowers and their Subsidiaries utilizing
Revolving Advances shall be deemed Unfinanced Capital Expenditures.

“Uniform Commercial Code” has the meaning set forth in Section 1.3.

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

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

“Withholding Certificate” has the meaning set forth in Section 3.11(a).

1.3 Uniform Commercial Code Terms. All terms used herein and defined in the
Uniform Commercial Code as adopted in the State of New York from time to time
(the “Uniform Commercial Code”) have the respective meanings given therein
unless otherwise defined herein. Without limiting the foregoing, the terms
“accessions”, “accounts”, “chattel paper”, “commercial tort claims”,
“commodities accounts”, “commodities contracts”, “documents”, “deposit
accounts”, “electronic chattel paper”, “equipment”, “fixtures”, “general
intangibles”, “goods”, “instruments”, “inventory”, “investment property”,
“letter-of-credit rights”, “payment intangibles”, “proceeds”, “securities”,
“securities accounts”, “securities entitlements”, “supporting obligations” and
“software”, as and when used in the description of Collateral (and related
underlying definitions) have the meanings given to such terms in Articles 8 or 9
of the Uniform Commercial Code. To the extent the definition of any category or
type of collateral is expanded by any amendment, modification or revision to the
Uniform Commercial Code, such expanded definition will apply automatically as of
the date of such amendment, modification or revision.

1.4 Certain Matters of Construction. The terms “herein”, “hereof” and
“hereunder” and other words of similar import refer to this Agreement as a whole
and not to any particular section, paragraph or subdivision. All references
herein to Articles, Sections, Exhibits and Schedules shall be construed to refer
to Articles and Sections of, and Exhibits and Schedules to, this Agreement. Any
pronoun used shall be deemed to cover all genders. Wherever appropriate in the
context, terms used herein in the singular also

 

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include the plural and vice versa. All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations. Unless otherwise provided, all references to any instruments or
agreements to which Agent is a party, including references to any of the Loan
Documents, shall include any and all modifications or amendments thereto or
restatements thereof and any and all extensions or renewals thereof. All
references herein to the time of day means the time in New York, New York.
Whenever the words “including” or “include” shall be used, such words shall be
understood to mean “including, without limitation” or “include, without
limitation”. A Default or Event of Default shall be deemed to exist at all times
during the period commencing on the date that such Default or Event of Default
occurs to the date on which such Default or Event of Default is waived in
writing pursuant to this Agreement or, in the case of a Default only, is cured
within any period of cure expressly provided for in this Agreement; and an Event
of Default shall “continue” or be “continuing” until such Event of Default has
been waived in writing by the Required Lenders. Any Lien referred to in this
Agreement or any of the other Loan Documents as having been created in favor of
Agent, any agreement entered into by Agent pursuant to this Agreement or any of
the other Loan Documents, any payment made by or to or funds received by Agent
pursuant to or as contemplated by this Agreement or any of the other Loan
Documents, or any act taken or omitted to be taken by Agent, shall, unless
otherwise expressly provided, be created, entered into, made or received, or
taken or omitted, for the benefit or account of Agent and Lenders. Wherever the
phrase “to the best of the Credit Parties’ knowledge” or words of similar import
relating to the knowledge or the awareness of any Credit Party are used in this
Agreement or other Loan Documents, such phrase means and refer to (a) the actual
knowledge of a senior officer of any Credit Party or (b) the knowledge that a
senior officer would have obtained if he had engaged in good faith and diligent
performance of his duties, including the making of such reasonably specific
inquiries as may be necessary of the employees or agents of such Credit Party
and a good faith attempt to ascertain the existence or accuracy of the matter to
which such phrase relates. All covenants hereunder shall be given independent
effect so that if a particular action or condition is not permitted by any of
such covenants, the fact that it would be permitted by an exception to, or
otherwise within the limitations of, another covenant shall not avoid the
occurrence of a default if such action is taken or condition exists. In
addition, all representations and warranties hereunder shall be given
independent effect so that if a particular representation or warranty proves to
be incorrect or is breached, the fact that another representation or warranty
concerning the same or similar subject matter is correct or is not breached will
not affect the incorrectness of a breach of a representation or warranty
hereunder.

ARTICLE II

ADVANCES, PAYMENTS

2.1 Revolving Advances.

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

(i) up to 85%, subject to the provisions of Section 2.1(b) (“Receivables Advance
Rate”), of Eligible Receivables, plus

(ii) up to the lesser of (A) 60%, subject to the provisions of Section 2.1(b)
hereof, of the value of the Eligible Inventory (“Inventory Advance Rate” and
together

 

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with the Receivables Advance Rate, collectively, the “Advance Rates”), (B) 85%
of the appraised net orderly liquidation value of Eligible Inventory (as
evidenced by an Inventory appraisal satisfactory to Agent in its discretion,
reasonably exercised) or (C) the applicable Inventory Sublimit (provided, that
(A) the amount of Eligible ATS Inventory included in this clause (ii) shall not
exceed $7,000,000 and (B) the amount of Eligible Work In Process Inventory
included in this clause (ii) shall not exceed $1,000,000), plus

(iii) with respect to each fiscal year of the Borrowers, during the respective
period set forth below for such fiscal year, the amount applicable to such
period

 

Period

  

Amount

 

March

   $ 6,000,000   

April

   $ 10,000,000   

May

   $ 12,000,000   

June 1st through and including July 15th

   $ 6,000,000   

minus

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

(v) Reserves.

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

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

2.2 Procedure for Revolving Advances Borrowing.

(a) Borrowing Agent on behalf of any Borrower may notify Agent prior to 10:00
a.m. on a Business Day of a Borrower’s request to incur, on that day, a
Revolving Advance hereunder (without requirement as to any minimum borrowing
amount in the case of Domestic Rate Loans and subject to the minimum borrowing
requirements of clause (b) below in the case of Eurodollar Rate Loans). Should
any amount required to be paid as interest hereunder, or as fees or other
charges under this Agreement or any other agreement with Agent or Lenders, or
with respect to any other Obligation, become due, same shall be deemed a request
for a Revolving Advance maintained as a Domestic Rate

 

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Loan as of the date such payment is due, in the amount required to pay in full
such interest, fee, charge or Obligation under this Agreement or any other
agreement with Agent or Lenders, and such request shall be irrevocable.

(b) Notwithstanding the provisions of subsection (a) above, in the event any
Borrower desires to obtain a Eurodollar Rate Loan, Borrowing Agent shall give
Agent written notice by no later than 10:00 a.m. on the day that is three
(3) Business Days prior to the date such Eurodollar Rate Loan is to be borrowed,
specifying (i) the date of the proposed borrowing (which shall be a Business
Day), (ii) the type of borrowing and the amount on the date of such Advance to
be borrowed, which amount shall be in an aggregate principal amount that is not
less than $1,000,000 and integral multiples of $500,000 in excess thereof, and
(iii) the duration of the first Interest Period therefor. Interest Periods for
Eurodollar Rate Loans shall be for one, two or three months; provided, that if
an Interest Period would end on a day that is not a Business Day, it shall end
on the next succeeding Business Day unless such day falls in the next succeeding
calendar month in which case the Interest Period shall end on the next preceding
Business Day. No Lender shall be required to make available a Eurodollar Rate
Loan to any Borrower during the continuance of a Default or Event of Default.
After giving effect to each requested Eurodollar Rate Loan, including those that
are converted from a Domestic Rate Loan under Section 2.2(d), there shall not be
outstanding more than five (5) Eurodollar Rate Loans, in the aggregate.

(c) Each Interest Period of a Eurodollar Rate Loan shall commence on the date
such Eurodollar Rate Loan is made and shall end on such date as Borrowing Agent
may elect as set forth in Section 2.2(b)(iii); provided that the exact length of
each Interest Period shall be determined in accordance with the practice of the
interbank market for offshore Dollar deposits and no Interest Period shall end
after the last day of the Term.

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

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

 

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

(f) Each Borrower shall indemnify Agent and Lenders and hold Agent and Lenders
harmless from and against any and all losses (other than any loss of anticipated
profits) or expenses that Agent and Lenders may sustain or incur as a
consequence of any prepayment, conversion of or any default by any Borrower in
the payment of the principal of or interest on any Eurodollar Rate Loan or
failure by any Borrower to complete a borrowing of, a prepayment of or
conversion of or to a Eurodollar Rate Loan after notice thereof has been given,
including any interest payable by Agent or Lenders to lenders of funds obtained
by it in order to make or maintain its Eurodollar Rate Loans hereunder. A
certificate as to any additional amounts payable pursuant to the foregoing
sentence submitted by Agent or any Lender to Borrowing Agent shall be conclusive
absent manifest error.

(g) Notwithstanding any other provision hereof, if any Applicable Law, treaty,
regulation or directive, or any change therein or in the interpretation or
application thereof, shall make it unlawful for any Lender (for purposes of this
subsection (g), the term “Lender” shall include any Lender and the office or
branch where any Lender or any corporation or bank controlling such Lender makes
or maintains any Eurodollar Rate Loans) to make or maintain its Eurodollar Rate
Loans, the obligation of Lenders to make Eurodollar Rate Loans hereunder shall
forthwith be cancelled and Borrowers shall, if any affected Eurodollar Rate
Loans are then outstanding, promptly upon request from Agent, either pay all
such affected Eurodollar Rate Loans or convert such affected Eurodollar Rate
Loans into loans of another type (regardless of whether a Default or Event of
Default has occurred and is continuing). If any such payment or conversion of
any Eurodollar Rate Loan is made on a day that is not the last day of the
Interest Period applicable to such Eurodollar Rate Loan, Borrowers shall pay
Agent, upon Agent’s request, such amount or amounts as may be necessary to
compensate Lenders for any loss (other than any loss of anticipated profits) or
expense sustained or incurred by Lenders in respect of such Eurodollar Rate Loan
as a result of such payment or conversion, including any interest or other
amounts payable by Lenders to lenders of funds obtained by Lenders in order to
make or maintain such Eurodollar Rate Loan. A certificate as to any additional
amounts payable pursuant to the foregoing sentence submitted by Lenders to
Borrowing Agent shall be conclusive absent manifest error. Notwithstanding
anything to the contrary contained herein, neither Agent nor Lender is required
to acquire eurodollar deposits to fund or otherwise match fund any Eurodollar
Rate Loans.

2.3 Disbursement of Advance Proceeds. All Advances shall be disbursed from
whichever office or other place Agent may designate from time to time and,
together with any and all other Obligations of Borrowers to Agent or Lenders,
shall be charged to Borrowers’ Account on Agent’s books. During the Term,
Borrowers may use the Revolving Advances by borrowing, prepaying and
reborrowing, all in accordance with the terms and conditions hereof. The
proceeds of each Revolving Advance requested by Borrowing Agent on behalf of any
Borrower or deemed to have been requested by any Borrower under Section 2.2(a)
hereof shall, with respect to requested Revolving Advances to the extent Lenders
make such Revolving Advances, be made available to the applicable Borrower on
the day so requested by way of credit to such Borrower’s operating account at
PNC, or such other bank as Borrowing Agent may designate following notification
to Agent, in immediately available federal funds or other immediately available
funds or, with respect to Revolving Advances deemed to have been requested by
any Borrower, be disbursed to Agent to be applied to the outstanding Obligations
giving rise to such deemed request.

 

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2.4 Maximum Advances. The aggregate balance of Revolving Advances and Letters of
Credit outstanding at any time shall not cause Availability to be less than
zero.

2.5 Repayment of Advances.

(a) The Revolving Advances shall be due and payable in full on the last day of
the Term subject to earlier prepayment as herein provided.

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

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

(d) Borrowers shall pay principal, interest, and all other amounts payable
hereunder, or under any related agreement, without any deduction whatsoever,
including any deduction for any setoff or counterclaim.

2.6 Repayment of Excess Advances. The aggregate balance of Advances outstanding
at any time in excess of the maximum amount of Advances permitted hereunder
shall be immediately due and payable without the necessity of any demand, at the
Payment Office, whether or not a Default or Event of Default has occurred,
including, as a result of a change in the applicable Maximum Revolving Advance
Amount.

2.7 Statement of Account. Agent shall maintain, in accordance with its customary
procedures, a loan account (“Borrowers’ Account”) in the name of Borrowers in
which shall be recorded the date and amount of each Advance made by Agent and
the date and amount of each payment in respect thereof; provided, however, that
the failure by Agent to record the date and amount of any Advance shall not
adversely affect Agent or any Lender. Each month, Agent shall send to Borrowing
Agent a statement showing the accounting for the Advances made, payments made or
credited in respect thereof, and other transactions between Agent and Borrowers
during such month. The monthly statements shall be deemed correct and binding
upon Borrowers in the absence of manifest error and shall constitute an account
stated between Lenders and Borrowers unless Agent receives a written statement
of Borrowers’ specific exceptions thereto within thirty (30) days after such
statement is received by Borrowing Agent. The records of Agent with respect to
the loan account shall be conclusive evidence absent manifest error of the
amounts of Advances and other charges thereto and of payments applicable
thereto.

 

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2.8 Letters of Credit. Subject to the terms and conditions hereof, Agent shall
issue or cause the issuance of standby Letters of Credit (“Letters of Credit”)
for the account of any Borrower; provided, however, that Agent will not be
required to issue or cause to be issued any Letters of Credit to the extent that
the issuance thereof would then cause Availability to be less than zero. The
Maximum Undrawn Amount of outstanding Letters of Credit shall not exceed in the
aggregate at any time the Letter of Credit Sublimit. All disbursements or
payments related to Letters of Credit shall be deemed to be Domestic Rate Loans
consisting of Revolving Advances and shall bear interest at the Revolving
Interest Rate for Domestic Rate Loans; Letters of Credit that have not been
drawn upon shall not bear interest.

2.9 Issuance of Letters of Credit.

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

(b) Each Letter of Credit shall, among other things, (i) provide for the payment
of sight drafts, other written demands for payment, or acceptances of usance
drafts when presented for honor thereunder in accordance with the terms thereof
and when accompanied by the documents described therein and (ii) have an expiry
date not later than twenty-four (24) months after such Letter of Credit’s date
of issuance and in no event later than the last day of the Term. Each standby
Letter of Credit shall be subject either to the Uniform Customs and Practice for
Documentary Credits as most recently published by the International Chamber of
Commerce at the time a Letter of Credit is issued (the “UCP”) or the
International Standby Practices (ISP98 International Chamber of Commerce
Publication Number 590) (the “ISP98 Rules”)), and any subsequent revision
thereof at the time a standby Letter of Credit is issued, as determined by
Agent, and each trade Letter of Credit shall be subject to the UCP.

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

2.10 Requirements For Issuance of Letters of Credit.

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

 

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

2.11 Disbursements, Reimbursement.

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

(b) In the event of any request for a drawing under a Letter of Credit by the
beneficiary or transferee thereof, Agent will promptly notify Borrowing Agent.
Provided that Borrowing Agent has received such notice, Borrowers shall
reimburse (such obligation to reimburse Agent shall sometimes be referred to as
a “Reimbursement Obligation”) Agent prior to 12:00 Noon, New York time on each
date that an amount is paid by Agent under any Letter of Credit (each such date,
a “Drawing Date”) in an amount equal to the amount so paid by Agent. In the
event Borrowers fail to reimburse Agent for the full amount of any drawing under
any Letter of Credit by 12:00 Noon, New York time, on the Drawing Date, Agent
will promptly notify each Lender thereof, and Borrowers shall be deemed to have
requested that a Domestic Rate Loan be made by Lenders to be disbursed on the
Drawing Date under such Letter of Credit, to the extent that Availability would
be greater than zero after giving effect to such Revolving Advance and subject
to Section 8.2. Any notice given by Agent pursuant to this Section 2.11(b) may
be oral if immediately confirmed in writing; provided that the lack of such an
immediate confirmation shall not affect the conclusiveness or binding effect of
such notice.

(c) Each Lender shall upon any notice pursuant to Section 2.11(b) make available
to Agent an amount in immediately available funds equal to its Commitment
Percentage of the amount of the drawing, whereupon the participating Lenders
shall (subject to Section 2.11(d)) each be deemed to have made a Domestic Rate
Loan to Borrowers in that amount. If any Lender so notified fails to make
available to Agent the amount of such Lender’s Commitment Percentage of such
amount by no later than 2:00 p.m., New York time on the Drawing Date, then
interest shall accrue on such Lender’s obligation to make such payment, from the
Drawing Date to the date on which such Lender makes such payment (i) at a rate
per annum equal to the Federal Funds Effective Rate during the first three days
following the Drawing Date and (ii) at a rate per annum equal to the Revolving
Interest Rate applicable to Domestic Rate Loans on and after the fourth day
following the Drawing Date. Agent will promptly give notice of the occurrence of
the Drawing Date, but failure of Agent to give any such notice on the Drawing
Date or in sufficient time to enable any Lender to effect such payment on such
date shall not relieve such Lender

 

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from its obligation under this Section 2.11(c), provided that such Lender shall
not be obligated to pay interest as provided in Sections 2.11(c)(i) and
(ii) until and commencing from the date of receipt of notice from Agent of a
drawing.

(d) With respect to any unreimbursed drawing that is not converted into a
Domestic Rate Loan to Borrowers in whole or in part as contemplated by
Section 2.11(b), because of Borrowers’ failure to satisfy the conditions set
forth in Section 8.2 (other than any notice requirements) or for any other
reason, Borrowers shall be deemed to have incurred from Agent a borrowing (each
a “Letter of Credit Borrowing”) in the amount of such drawing. Such Letter of
Credit Borrowing shall be due and payable on demand (together with interest) and
shall bear interest at a rate per annum equal to the Revolving Interest Rate
applicable to Domestic Rate Loans. Each Lender’s payment to Agent pursuant to
Section 2.11(c) shall be deemed to be a payment in respect of its participation
in such Letter of Credit Borrowing and shall constitute a “Participation
Advance” from such Lender in satisfaction of its Participation Commitment under
this Section 2.11.

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

2.12 Repayment of Participation Advances.

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

(b) If Agent is required at any time to return to any Borrower, or to a trustee,
receiver, liquidator, custodian, or any official in any insolvency proceeding,
any portion of the payments made by Borrowers to Agent pursuant to
Section 2.12(a) in reimbursement of a payment made under the Letter of Credit or
interest or fee thereon, each Lender shall, on demand of Agent, forthwith return
to Agent the amount of its Commitment Percentage of any amounts so returned by
Agent plus interest at the Federal Funds Effective Rate.

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

 

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

2.15 Nature of Participation and Reimbursement Obligations. Each Lender’s
obligation in accordance with this Agreement to make the Revolving Advances or
Participation Advances as a result of a drawing under a Letter of Credit, and
the obligations of Borrowers to reimburse Agent upon a draw under a Letter of
Credit, shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of this Section 2.15 under all
circumstances, including the following circumstances:

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

(ii) the failure of any Borrower or any other Person to comply, in connection
with a Letter of Credit Borrowing, with the conditions set forth in this
Agreement for the making of a Revolving Advance, it being acknowledged that such
conditions are not required for the making of a Letter of Credit Borrowing and
the obligation of Lenders to make Participation Advances under Section 2.11;

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

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

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

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

 

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

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

(ix) any Material Adverse Effect on any Credit Party;

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

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

(xii) the fact that a Default or Event of Default has occurred and is
continuing;

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

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

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

2.17 Liability for Acts and Omissions. As between Borrowers and Agent and
Secured Party, each Borrower assumes all risks of the acts and omissions of, or
misuse of the Letters of Credit by, the respective beneficiaries of such Letters
of Credit. In furtherance and not in limitation of the respective foregoing,
Agent shall not be responsible for: (a) the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted by any party in
connection with the application for an issuance of any such Letter of Credit,
even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged (even if Agent has been notified
thereof); (b) the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any such Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in part, that may
prove to be invalid or ineffective for any reason; (c) the failure of the
beneficiary of any such Letter of Credit, or any other party to which such
Letter of Credit may be transferred, to comply fully with any conditions
required in order

 

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to draw upon such Letter of Credit or any other claim of any Borrower against
any beneficiary of such Letter of Credit, or any such transferee, or any dispute
between or among any Borrower and any beneficiary of any Letter of Credit or any
such transferee; (d) errors, omissions, interruptions or delays in transmission
or delivery of any messages, by mail, cable, facsimile, telegraph, telex or
otherwise, whether or not they be in cipher; (e) errors in interpretation of
technical terms; (f) any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under any such Letter of Credit or
of the proceeds thereof; (g) the misapplication by the beneficiary of any such
Letter of Credit of the proceeds of any drawing under such Letter of Credit; or
(h) any consequences arising from causes beyond the control of Agent, including
any Governmental Acts, and none of the above shall affect or impair, or prevent
the vesting of, any of Agent’s, its attorneys’, officers’, directors’,
Affiliates’, employees’ or agents’ rights or powers hereunder. Notwithstanding
the foregoing, nothing in the preceding sentence shall relieve Agent from
liability for Agent’s gross negligence or willful misconduct (as determined by a
court of competent jurisdiction in a final non-appealable judgment) in
connection with actions or omissions described in such clauses (a) through
(h) of the preceding sentence. In no event shall Agent or Agent’s Affiliates be
liable to any Borrower for any indirect, consequential, incidental, punitive,
exemplary or special damages or expenses (including attorneys’ fees), or for any
damages resulting from any change in the value of any property relating to a
Letter of Credit.

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

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

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

 

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2.19 Manner of Borrowing and Payment.

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

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

(i) Notwithstanding anything to the contrary contained in Sections 2.19(a) and
(b) hereof, commencing with the first Business Day following the Closing Date,
each borrowing of Revolving Advances shall be advanced by Agent and each payment
by any Borrower on account of Revolving Advances shall be applied first to those
Revolving Advances advanced by Agent. On or before 1:00 P.M., New York time, on
each Settlement Date commencing with the first Settlement Date following the
Closing Date, Agent and Lenders shall make certain payments as follows: (1) if
the aggregate amount of new Revolving Advances made by Agent during the
preceding Week (if any) exceeds the aggregate amount of repayments applied to
outstanding Revolving Advances during such preceding Week, then each Lender
shall provide Agent with funds in an amount equal to its applicable Commitment
Percentage of the difference between (w) such Revolving Advances and (x) such
repayments and (2) if the aggregate amount of repayments applied to outstanding
Revolving Advances during such Week exceeds the aggregate amount of new
Revolving Advances made during such Week, then Agent shall provide each Lender
with funds in an amount equal to its applicable Commitment Percentage of the
difference between (y) such repayments and (z) such Revolving Advances.

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

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

(c) If any Lender or Participant (a “benefited Lender”) shall at any time
receive any payment of all or part of its Advances, or interest thereon, or
receive any Collateral in respect thereof (whether voluntarily or involuntarily
or by set-off) in a greater proportion than any such payment to and Collateral
received by any other Lender, if any, in respect of such other Lender’s
Advances, or interest thereon, and such greater proportionate payment or receipt
of Collateral is not expressly permitted hereunder, such benefited Lender shall
purchase for cash from the other Lenders a participation in such portion of each
such other Lender’s Advances, or shall provide such other Lender with the
benefits of any such Collateral, or the proceeds thereof, as shall be necessary
to cause such benefited Lender to share the excess payment or benefits of such
Collateral or proceeds ratably with each of the other Lenders; provided,
however, that if all or any portion of such excess payment or benefits is
thereafter recovered from such benefited Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest. Each Lender so purchasing a portion of another
Lender’s Advances may exercise all rights of payment (including rights of
set-off) with respect to such portion as fully as if such Lender were the direct
holder of such portion.

 

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

2.20 Mandatory Prepayments.

(a) Subject to Section 4.3, when any Credit Party sells or otherwise disposes of
any Collateral other than Inventory in the Ordinary Course of Business,
Borrowers shall repay the Advances in an amount equal to the net proceeds of
such sale (i.e., gross proceeds less the reasonable costs of such sales or other
dispositions), such repayments to be made promptly but in no event more than one
(1) Business Day following receipt of such net proceeds, and until the date of
payment, such proceeds shall be held in trust for Agent. The foregoing shall not
be deemed to be implied consent to any such sale otherwise prohibited by the
terms and conditions hereof. Such repayments shall be applied to the Revolving
Advances in such order as Agent may determine, subject to Borrowers’ ability to
reborrow Revolving Advances in accordance with the terms.

(b) When any Credit Party receives any Extraordinary Receipts, Borrowers shall
repay the Advances in an amount equal to such Extraordinary Receipts, such
repayments to be made promptly but in no event more than one (1) Business Day
following receipt thereof, and until the date of repayment, all such amounts
shall be held in trust for Agent. Such repayments will be applied to the
Revolving Advances in such order as Agent may determine, subject to Borrowers’
ability to reborrow Revolving Advances in accordance with the terms hereof.

2.21 Use of Proceeds.

(a) Borrowers shall apply the proceeds of Advances to (i) repay in full existing
indebtedness owed to Wells Fargo Bank, National Association, (ii) pay fees and
expenses relating to this transaction, and (iii) provide for its working capital
and other general corporate needs and reimburse drawings under Letters of
Credit.

(b) Without limiting the generality of Section 2.21(a), neither any Borrower,
any other Credit Party, nor any other Person which may in the future become a
Credit Party, intends to use nor shall they use any portion of the proceeds of
the Advances, directly or indirectly, for any purpose in violation of the
Trading with the Enemy Act.

 

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2.22 Defaulting Lender.

(a) Notwithstanding anything to the contrary contained herein, in the event any
Lender (x) has refused (which refusal constitutes a breach by such Lender of its
obligations under this Agreement) to make available its portion of any Advance
or (y) notifies either Agent or Borrowing Agent that it does not intend to make
available its portion of any Advance (if the actual refusal would constitute a
breach by such Lender of its obligations under this Agreement) (each, a “Lender
Default”), all rights and obligations hereunder of such Lender (a “Defaulting
Lender”) as to which a Lender Default is in effect and of the other parties
hereto shall be modified to the extent of the express provisions of this
Section 2.22 while such Lender Default remains in effect.

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

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

(d) Other than as expressly set forth in this Section 2.22, the rights and
obligations of a Defaulting Lender (including the obligation to indemnify Agent)
and the other parties hereto shall remain unchanged. Nothing in this
Section 2.22 shall be deemed to release any Defaulting Lender from its
obligations under this Agreement and the other Loan Documents, shall alter such
obligations, shall operate as a waiver of any default by such Defaulting Lender
hereunder, or shall prejudice any rights that any Borrower or any Secured Party
may have against any Defaulting Lender as a result of any default by such
Defaulting Lender hereunder.

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

 

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ARTICLE III

INTEREST AND FEES

3.1 Interest. Interest on Advances shall be payable in arrears on the first day
of each month with respect to Domestic Rate Loans and, with respect to
Eurodollar Rate Loans, at the end of each Interest Period or, for Eurodollar
Rate Loans with an Interest Period in excess of three months, at the earlier of
(a) each three months from the commencement of such Eurodollar Rate Loan or
(b) the end of the Interest Period. Interest charges shall be computed on the
actual principal amount of Advances outstanding during the month at a rate per
annum equal to the applicable Revolving Interest Rate. Whenever, subsequent to
the date of this Agreement, the Alternate Base Rate is increased or decreased,
the Revolving Interest Rate for Domestic Rate Loans shall be similarly changed
without notice or demand of any kind by an amount equal to the amount of such
change in the Alternate Base Rate during the time such change or changes remain
in effect. The Eurodollar Rate shall be adjusted with respect to Eurodollar Rate
Loans without notice or demand of any kind on the effective date of any change
in the Reserve Percentage as of such effective date. Upon and after the
occurrence of an Event of Default, and during the continuation thereof, at the
option of Agent or at the direction of Required Lenders, upon notice to the
Borrowing Agent (provided that no notice shall be required if an Event of
Default has occurred under Section 10.6 or any event described in
Section 11.1(a)(iii) has occurred), the Obligations shall bear interest at the
rate applicable thereto plus two percent (2.0%) per annum or, if no rate is
otherwise applicable thereto, two percent (2.0%) per annum (as applicable, the
“Default Rate”).

3.2 Letter of Credit Fees.

(a) Borrowers shall pay (x) to Agent, for the ratable benefit of Lenders, fees
for each Letter of Credit for the period from and excluding the date of issuance
of same to and including the date of expiration or termination, equal to the
average daily face amount of each outstanding Letter of Credit multiplied by a
per annum rate equal to the Applicable Margin for Eurodollar Rate Loans, such
fees to be calculated on the basis of a 360-day year for the actual number of
days elapsed and to be payable quarterly in arrears on the first day of each
quarter and on the last day of the Term, and (y) to the Issuer, a fronting fee
of one quarter of one percent (0.25%) per annum, multiplied by the Maximum
Undrawn Amount of each Letter of Credit, together with any and all
administrative, issuance, amendment, payment and negotiation charges with
respect to Letters of Credit and all fees and expenses as agreed upon by the
Issuer and Borrowing Agent in connection with any Letter of Credit, including in
connection with the opening, amendment or renewal of any such Letter of Credit
and any acceptances created thereunder and shall reimburse Agent for any and all
fees and expenses, if any, paid by Agent to the Issuer (all of the foregoing
fees, the “Letter of Credit Fees”). All such charges shall be deemed earned in
full on the date when the same are due and payable hereunder and shall not be
subject to rebate or pro-ration upon the termination of this Agreement for any
reason. Any such charge in effect at the time of a particular transaction shall
be the charge for that transaction, notwithstanding any subsequent change in the
Issuer’s prevailing charges for that type of transaction. All Letter of Credit
Fees payable hereunder shall be deemed earned in full on the date when the same
are due and payable hereunder and shall not be subject to rebate or pro-ration
upon the termination of this Agreement for any reason. Upon and after the
occurrence of an Event of Default, and during the continuation thereof, at the
election of Agent or Required Lenders, upon notice to the Borrowing Agent
(provided that no notice shall be required if an Event of Default has occurred
under Section 10.6 or any event described in Section 11.1(a)(iii) has occurred),
the Letter of Credit Fees described in Section 3.2(a)(i) shall be increased by
an additional two percent (2%) per annum.

 

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(b) Upon the occurrence and during the continuance of an Event of Default, upon
demand (provided that no demand shall be required if an Event of Default has
occurred under Section 10.6 or any event described in Section 11.1(a)(iii) has
occurred), Borrowers will cause cash to be deposited and maintained in an
account with Agent, as cash collateral, in an amount equal to one hundred and
five percent (105%) of the Maximum Undrawn Amount of all outstanding Letters of
Credit, and each Borrower hereby irrevocably authorizes Agent, in its
discretion, on such Borrower’s behalf and in such Borrower’s name, to open such
an account and to make and maintain deposits therein, or in an account opened by
such Borrower, in the amounts required to be made by such Borrower, out of the
proceeds of Receivables or other Collateral or out of any other funds of such
Borrower coming into any Secured Party’s possession at any time. Agent will
invest such cash collateral (less applicable Reserves) in such short-term
money-market items as to which Agent and such Borrower mutually agree and the
net return on such investments shall be credited to such account and constitute
additional cash collateral. No Borrower may withdraw amounts credited to any
such account without written consent of Agent, to be given or withheld in its
sole discretion, except upon the occurrence of all of the following: (x) payment
and performance in full of all Obligations, (y) expiration of all Letters of
Credit and (z) termination of this Agreement.

3.3 [Intentionally Omitted.]

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

3.5 Computation of Interest and Fees. Subject to Section 3.6, interest and fees
hereunder shall be computed on the basis of a year of 360 days and for the
actual number of days elapsed. If any payment to be made hereunder becomes due
and payable on a day other than a Business Day, the due date thereof shall be
extended to the next succeeding Business Day and interest thereon shall be
payable at the applicable Revolving Interest Rate during such extension. All
fees payable under this Agreement and the other Loan Documents will be deemed
earned in full on the date when same is due and payable and will not be subject
to rebate or proration upon termination of this Agreement for any reason.

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

3.7 Increased Costs. In the event that any Applicable Law, treaty or regulation
enacted after the Closing Date, or any change therein or in the interpretation
or application of any Applicable Law, treaty or regulation (including, without
limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010 and all rules and regulations promulgated thereunder) after the Closing
Date, or compliance by any Lender (for purposes of this Section 3.7, the term
“Lender” shall include Agent or any Lender and any corporation or bank
controlling Agent or any Lender) and the office or branch where Agent or any
Lender (as so defined) makes or maintains any Eurodollar Rate Loans as of the
Closing Date with any request or directive enacted after the Closing Date
(whether or not having the force of law) from any central bank or other
financial, monetary or other authority, shall:

(a) subject Agent or any Lender to any tax of any kind whatsoever with respect
to this Agreement or any other Loan Document or change the basis of taxation of
payments to Agent or any

 

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Lender of principal, fees, interest or any other amount payable hereunder or
under any other Loan Documents (except for changes in the rate of tax on the
overall net income of Agent or any Lender by the jurisdiction in which it
maintains its principal office);

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

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

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

3.8 Basis for Determining Interest Rate Inadequate or Unfair. In the event that
Agent or any Lender has determined that:

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

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

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

 

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3.9 Capital Adequacy.

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

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

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

3.11 Withholding Tax Exemption.

(a) Each Payee that is not incorporated under the Laws of the United States of
America or a state thereof (and, upon the written request of Agent, each other
Payee) agrees that it will deliver to Borrowing Agent and Agent two (2) duly
completed appropriate valid Withholding Certificates (as defined under
§1.1441-1(c)(16) of the Income Tax Regulations (“Regulations”)) certifying its
status (i.e., U.S. or foreign Person) and, if appropriate, making a claim of
reduced, or exemption from, U.S. withholding tax on the basis of an income tax
treaty or an exemption provided by the Code. The term “Withholding Certificate”
means a Form W-9; a Form W-8BEN; a Form W-8ECI; a Form W-8IMY and the related
statements and certifications as required under §1.1441-1(e)(2) and/or (3) of
the Regulations; a statement described in §1.871-14(c)(2)(v) of the Regulations;
or any other certificates under the Code or Regulations that certify or
establish the status of a payee or beneficial owner as a U.S. or foreign Person.

 

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

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

3.12 Replacement of Lenders. If any Lender (an “Affected Lender”) (a) makes
demand upon any Credit Party for (or if any Credit Party is otherwise required
to pay) amounts pursuant to Section 3.7 or 3.9, (b) is unable to make or
maintain Eurodollar Rate Loans as a result of a condition described in
Section 2.2(g), or (c) is a Defaulting Lender, Borrowing Agent may, within
thirty (30) days of receipt of such demand, notice (or the occurrence of such
other event causing any Credit Party to be required to pay such compensation or
causing Section 2.2(g) to be applicable), or Lender Default, as the case may be,
by notice (a “Replacement Notice”) in writing to Agent and such Affected Lender
(i) request the Affected Lender to cooperate with Borrowers in obtaining a
replacement Lender satisfactory to Agent and Borrowers (a “Replacement Lender”);
(ii) request the non-Affected Lenders to acquire and assume all of the Affected
Lender’s Revolving Advances and Commitment Percentage as provided herein, but
none of such Lenders shall be under an obligation to do so; or (iii) designate a
Replacement Lender approved by Agent, such approval not to be unreasonably
withheld or delayed. If any satisfactory Replacement Lender is obtained, and/or
if any one or more of the non-Affected Lenders agrees to acquire and assume all
of the Affected Lender’s Revolving Advances and Commitment Percentage, then such
Affected Lender shall assign, in accordance with Section 16.3, all of its
Advances and Commitment Percentage and other rights and obligations under this
Agreement and the other Loan Documents to such Replacement Lender or
non-Affected Lenders, as the case may be, in exchange for payment of the
principal amount so assigned and all interest and fees accrued on the amount so
assigned, plus all other Obligations then due and payable to the Affected
Lender; provided, however, that (A) such assignment shall be without recourse,
representation or warranty and shall be on terms and conditions reasonably
satisfactory to such Affected Lender and such Replacement Lender and/or
non-Affected Lenders, as the case may be, and (B) prior to any such assignment,
Borrowers shall have paid to such Affected Lender all amounts properly demanded
and unreimbursed under Section 3.7 and 3.9. Upon the effective date of such
assignment, Borrowers shall issue replacement Revolving Credit Notes to such
Replacement Lender and/or non-Affected Lenders, as the case may be, and such
institution(s) shall become a “Lender” for all purposes under this Agreement and
the other Documents.

 

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ARTICLE IV

COLLATERAL: GENERAL TERMS

4.1 Security Interest in the Collateral. To secure the prompt payment and
performance to Agent and each Secured Party of the Obligations, each Credit
Party hereby assigns, pledges and grants to Agent for its benefit and for the
ratable benefit of each Secured Party a continuing security interest in and to
and Lien on all of its Collateral, whether now owned or existing or hereafter
acquired or arising and wheresoever located. Each Credit Party shall mark its
books and records as may be necessary or appropriate to evidence, protect and
perfect Agent’s security interest and shall cause its financial statements to
reflect such security interest. Each Credit Party shall promptly provide Agent
with written notice of all commercial tort claims as provided in Section 4.2(b),
such notice to contain the case title together with the applicable court and a
brief description of the claim(s). Upon delivery of each such notice, such
Credit Party shall be deemed to hereby grant to Agent a security interest and
lien in and to such commercial tort claims and all proceeds thereof.

4.2 Perfection of Security Interest.

(a) Each Credit Party shall take all action that may be necessary or desirable,
or that Agent may reasonably request, so as at all times to maintain the
validity, perfection, enforceability and priority of Agent’s security interest
in and Lien on the Collateral or to enable Agent to protect, exercise or enforce
its rights hereunder and in the Collateral, including: (i) promptly discharging
all Liens other than Permitted Encumbrances; (ii) using commercially reasonable
efforts to obtain Lien Waiver Agreements; (iii) delivering to Agent, endorsed or
accompanied by such instruments of assignment as Agent may specify, and stamping
or marking, in such manner as Agent may specify, all chattel paper, instruments,
letters of credit and advices thereof and documents evidencing or forming a part
of the Collateral, except, so long as no Default or Event of Default has
occurred and is continuing, for such chattel paper, instruments, letters of
credit and related documents having an aggregate value for all such items of
less than $250,000; (iv) entering into warehousing, lockbox and other custodial
arrangements pursuant to this Agreement in form and substance reasonably
satisfactory to Agent; and (v) executing and delivering financing statements,
control agreements (to the extent required hereunder), instruments of pledge,
mortgages, notices and assignments, in each case in form and substance
reasonably satisfactory to Agent, relating to the creation, validity,
perfection, maintenance or continuation of Agent’s security interest and Lien
under the Uniform Commercial Code or other Applicable Law. By its signature
hereto, each Credit Party hereby authorizes Agent to file against such Credit
Party, one or more financing, continuation or amendment statements pursuant to
the Uniform Commercial Code in form and substance satisfactory to Agent (which
statements may have a description of collateral that is broader than that set
forth herein, including a description of “all assets” or words of similar
import). All reasonable and documented out of pocket charges, expenses and fees
Agent may incur in doing any of the foregoing, and any local taxes relating
thereto, shall be charged to Borrowers’ Account as a Revolving Advance of a
Domestic Rate Loan and added to the Obligations, or, at Agent’s option, shall be
paid to Agent for its benefit and for the ratable benefit of Secured Parties
immediately upon demand.

(b) The Credit Parties shall (i) promptly notify Agent in writing upon acquiring
or otherwise obtaining any Collateral after the date hereof consisting of
(x) deposit accounts required to be subject to Agent’s control pursuant to
Section 4.21, and (y) investment property, letter-of-credit rights, tangible
chattel paper or electronic chattel paper (as such terms are defined from time
to time in the UCC)

 

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and, upon the request of Agent in the case of the foregoing clauses (x) and (y),
promptly execute such other documents, and do such other acts or things deemed
appropriate by Agent to deliver to Agent control with respect to such
Collateral, provided that such action shall only be required with respect to
Collateral of the type described in clause (y) having an aggregate value in
excess of $25,000 for all such Collateral; (ii) promptly notify Agent in writing
upon acquiring or otherwise obtaining any Collateral after the date hereof
consisting of documents or instruments and, upon the request of Agent, promptly
execute such other documents, and do such other acts or things deemed
appropriate by Agent to deliver to Agent possession of such documents which are
negotiable and instruments having an aggregate value in excess of $25,000, and,
with respect to nonnegotiable documents, to have such nonnegotiable documents
issued in the name of Agent; (iii) with respect to Collateral in the possession
of a third party, other than certificated securities and goods covered by a
document, obtain an acknowledgment from the third party that it is holding the
Collateral for the benefit of Agent; (iv) promptly notify Agent in writing upon
incurring or otherwise obtaining a commercial tort claim after the date hereof
asserted against any third party, of the details thereof in the form of an
amendment to Schedule 5.26 hereto, and do such other acts or things deemed
appropriate by Agent to give Agent a security interest in such commercial tort
claim; (v) not change its state of incorporation or organization or type of
organization; (vi) not change its legal name without providing Agent with at
least 30 days’ prior written notice (or such longer period as Agent shall agree
in its sole discretion); and (vii) reimburse Agent for all expenses, including
reasonable attorney’s fees and charges (including time charges of attorneys who
are employees of Agent), incurred by Agent in seeking to collect or enforce any
rights in respect of such Collateral.

4.3 Disposition of Collateral. Each Credit Party will safeguard and protect all
Collateral for Agent’s general account and make no disposition thereof whether
by sale, lease or otherwise except (a) the sale of Inventory in the Ordinary
Course of Business and (b) the disposition or transfer of obsolete and worn-out
Equipment in the Ordinary Course of Business during any fiscal year having an
aggregate fair market value of not more than $200,000 and only to the extent
that the proceeds of which are remitted to Agent to be applied pursuant to
Section 2.20.

4.4 Preservation of Collateral. Following the occurrence and during the
continuance of a Default or Event of Default, in addition to the rights and
remedies set forth in Section 11.1, Agent: (a) may at any time take such steps
as Agent deems necessary to protect Agent’s interest in and to preserve the
Collateral, including the hiring of such security guards or the placing of other
security protection measures as Agent may deem appropriate; (b) may employ and
maintain at any of any Credit Party’s premises a custodian who shall have full
authority to do all acts necessary to protect Agent’s interests in the
Collateral; (c) may lease warehouse facilities to which Agent may move all or
part of the Collateral; (d) may use any Credit Party’s owned or leased lifts,
hoists, trucks and other facilities or equipment for handling or removing the
Collateral; and (e) shall have, and is hereby granted, a right of ingress and
egress to the places where the Collateral is located, and may proceed over and
through any of Credit Party’s owned or leased property. Each Credit Party shall
cooperate fully with all of Agent’s efforts to preserve the Collateral and will
take such actions to preserve the Collateral as Agent may direct. All of Agent’s
reasonable and documented out of pocket expenses of preserving the Collateral,
including any expenses relating to the bonding of a custodian, shall be charged
to Borrowers’ Account as a Revolving Advance maintained as a Domestic Rate Loan
and added to the Obligations.

4.5 Ownership of Collateral.

(a) With respect to the Collateral, at the time the Collateral becomes subject
to Agent’s security interest: (i) each Credit Party shall be the sole owner of
and fully authorized and able to sell, transfer, pledge and/or grant a first
priority security interest in each and every item of the its respective
Collateral to Agent; and, except for Permitted Encumbrances the Collateral shall
be free and

 

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clear of all Liens and encumbrances whatsoever; (ii) each Loan Document executed
by each Credit Party or delivered to Agent or any Secured Party in connection
with this Agreement shall be true and correct in all material respects;
(iii) all signatures and endorsements of each Credit Party that appear on such
documents and agreements shall be genuine and each Credit Party shall have full
capacity to execute same; and (iv) each Credit Party’s Equipment (other than
vehicles and Equipment out for repair) and Inventory (other than sample
Inventory and other immaterial items of Collateral held by employees of the
Credit Parties for marketing and sales purposes) shall be located in the United
States as set forth on Schedule 4.5 or in transit to or between such locations
or to a customer; provided that the Credit Parties may amend Schedule 4.5 by
delivery of such amended schedule to the Agent at the time of acquisition of any
new location in the United States.

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

4.6 Defense of Secured Parties’ Interests. Until (a) payment and performance in
full of all of the Obligations (other than Inchoate Obligations) and
(b) termination of this Agreement, Agent’s interests in the Collateral shall
continue in full force and effect. During such period no Credit Party shall,
without Agent’s prior written consent, pledge, sell (except to the extent
permitted in Section 4.3), assign, transfer, create or suffer to exist a Lien
upon or encumber or allow or suffer to be encumbered in any way except for
Permitted Encumbrances, any part of the Collateral. Each Credit Party shall
defend Agent’s interests in the Collateral against any and all Persons
whatsoever. At any time following demand by Agent for payment of all Obligations
in accordance with this Agreement, Agent shall have the right to take possession
of the indicia of the Collateral and the Collateral in whatever physical form
contained, including: labels, stationery, documents, instruments and advertising
materials. If Agent exercises this right to take possession of the Collateral,
the Credit Parties shall, upon demand, assemble it in the best manner possible
and make it available to Agent at a place reasonably convenient to Agent. In
addition, with respect to all Collateral, Secured Parties shall be entitled to
all of the rights and remedies set forth herein and further provided by the
Uniform Commercial Code or other Applicable Law. Each Credit Party shall and,
after the occurrence and during the continuance of a Default or Event of
Default, Agent may, at its option, instruct all suppliers, carriers, forwarders,
warehousers or others receiving or holding cash, checks, Inventory, documents or
instruments in which Agent holds a security interest to deliver same to Agent
and/or subject to Agent’s order and if they shall come into any Credit Party’s
possession, they, and each of them, shall be held by such Credit Party in trust
as Agent’s trustee, and such Credit Party will immediately deliver them to Agent
in their original form together with any necessary endorsement.

4.7 Books and Records. Each Credit Party shall (a) keep proper books of record
and account in which full, true and correct entries will be made of all dealings
or transactions of or in relation to its business and affairs; (b) set up on its
books accruals with respect to all taxes, assessments, charges, levies and
claims; and (c) on a reasonably current basis set up on its books, from its
earnings, allowances against doubtful Receivables, advances and investments and
all other proper accruals (including by reason of

 

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enumeration, accruals for premiums, if any, due on required payments and
accruals for depreciation, obsolescence, or amortization of properties), which
should be set aside from such earnings in connection with its business. All
determinations pursuant to this subsection shall be made in accordance with, or
as required by, GAAP consistently applied in the opinion of such independent
public accountant as shall then be regularly engaged by the Credit Parties.

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

4.9 Compliance with Laws. Each Credit Party shall comply with all Applicable
Laws with respect to the Collateral or any part thereof or to the operation of
such Credit Party’s business the non-compliance with which could reasonably be
expected to have a Material Adverse Effect. The assets of the Credit Parties at
all times shall be maintained in accordance with the requirements of all
insurance carriers that provide insurance with respect to the assets of the
Credit Parties so that such insurance shall remain in full force and effect.

4.10 Inspections and Appraisals. Agent and each Lender shall have access to and
the right to audit, check, inspect and, subject to applicable confidentiality
restrictions, make abstracts and copies from each Credit Party’s books, records,
audits, correspondence and all other papers relating to the Collateral and the
operation of each Credit Party’s business. Agent and its agents may enter upon
any premises of any Credit Party at any time during business hours and at any
other reasonable time, and from time to time, for the purpose of inspecting the
Collateral and any and all records pertaining thereto and the operation of such
Credit Party’s business. Agent shall have the right to obtain appraisals of the
Collateral through one or more appraisers acceptable to Agent at any time and
from time to time and the Credit Parties agree to reimburse Agent for all
charges, costs and expenses of Agent in connection therewith. In addition to the
foregoing, Agent shall have the right to conduct desktop appraisals
semi-annually.

4.11 Insurance. The assets and properties of each Credit Party at all times
shall be maintained in accordance with the requirements of all insurance
carriers that provide insurance with respect to the assets and properties of
such Credit Party so that such insurance shall remain in full force and effect.
Each Credit Party shall bear the full risk of any loss of any nature whatsoever
with respect to the Collateral. At each Credit Party’s own cost and expense in
amounts and with carriers acceptable to Agent, each Credit Party shall (a) keep
all its insurable properties and properties in which such Credit Party has an
interest insured against the hazards of fire, flood, sprinkler leakage, those
hazards covered by extended coverage insurance and such other hazards, and for
such amounts, as is customary in the case of companies engaged in businesses
similar to such Credit Party’s including business interruption insurance;
(b) maintain a bond in such amounts as is customary in the case of companies
engaged in businesses similar to such Credit Party insuring against larceny,
embezzlement or other criminal misappropriation of insured’s officers and
employees who may either singly or jointly with others at any time have access
to the assets or funds of such Credit Party either directly or through authority
to draw upon such funds or to direct generally the disposition of such assets;
(c) maintain public and product liability insurance against claims for personal
injury, death or property damage suffered by others; (d) maintain all such
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compensation or similar insurance as may be required under the laws of any state
or jurisdiction in which such Credit Party is engaged in business; (e) furnish
Agent with (i) copies of all policies and evidence of the maintenance of such
policies by the renewal thereof as soon as practicable before any expiration
date therefor and in any event not less than ten (10) days’ prior to such
expiration date, and (ii) appropriate loss payable endorsements in form and
substance satisfactory to Agent, naming Agent as a co-insured and loss payee as
its interests may appear with respect to all insurance coverage referred to in
clauses (a) and (b) above, and providing (A) that all proceeds thereunder shall
be payable to Agent, (B) no such insurance shall be affected by any act or
neglect of the insured or owner of the property described in such policy, and
(C) that such policy and loss payable clauses may not be cancelled, amended or
terminated unless at least ten (10) days’ prior written notice is given to Agent
for any cancellation, amendment or termination of such policy resulting from
nonpayment of premiums and at least thirty (30) days’ prior written notice is
given to Agent for any other reason for cancellation, amendment or termination
of such policy. In the event of any loss thereunder, the carriers named therein
hereby are directed by Agent and the applicable Credit Party to make payment for
such loss to Agent and not to such Credit Party and Agent jointly. If any
insurance losses are paid by check, draft or other instrument payable to any
Credit Party and Agent jointly, Agent may endorse such Credit Party’s name
thereon and do such other things as Agent may deem advisable to reduce the same
to cash. Agent is hereby authorized to adjust and compromise claims under
insurance coverage referred to in clauses (a) and (b) above. All loss recoveries
received by Agent upon any such insurance may be applied to the Obligations, in
such order as Agent in its sole discretion shall determine. Any surplus shall be
paid by Agent to the Credit Parties or applied as may be otherwise required by
law. Any deficiency thereon shall be paid by the Credit Parties to Agent, on
demand.

4.12 Failure to Pay Insurance.

(a) If any Credit Party fails to obtain insurance as hereinabove provided, or to
keep the same in force, Agent, if Agent so elects, may obtain such insurance and
pay the premium therefor on behalf of such Credit Party, and charge Borrowers’
Account therefor as a Revolving Advance of a Domestic Rate Loan and such
expenses so paid shall be part of the Obligations; provided that Agent shall use
commercially reasonable efforts to notify Borrowing Agent of the foregoing.

(b) Unless the Credit Parties provide Agent with evidence of the insurance
coverage required by this Agreement, Agent may purchase insurance at the expense
of the Credit Parties to protect Agent’s and the Lenders’ interests in the
Collateral. This insurance may, but need not, protect the Credit Parties’
interests. The coverage that Agent purchases may not pay any claim that is made
against the Credit Parties in connection with the Collateral. The Credit Parties
may later cancel any insurance purchased by Agent, but only after providing
Agent with evidence that the Credit Parties have obtained insurance as required
by this Agreement. If Agent purchases insurance for the Collateral, the Credit
Parties will be responsible for the costs of that insurance, including interest
and any other charges that may be imposed with the placement of the insurance,
until the effective date of the cancellation or expiration of the insurance. The
costs of the insurance may be added to the amount of the Obligations. The costs
of the insurance may be more than the cost of the insurance the Credit Parties
may be able to obtain.

(c) The premiums and other costs of any insurance obtained by Agent pursuant to
this Section 4.12 may be charged to Borrowers’ Account as a Revolving Advance
maintained as a Domestic Rate Loan and added to the Obligations.

4.13 Payment of Taxes. Each Credit Party will pay, when due, to the extent
lawfully levied or assessed upon such Credit Party or any of the Collateral, all
real and personal property taxes, assessments and Charges, all franchise and
federal taxes, assessments and Charges, all state and local taxes,

 

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assessments and Charges in excess of $250,000 in the aggregate, and all
employment, social security benefits, withholding, and sales taxes, in each
case, other than those being Properly Contested. If any tax by any Governmental
Body is or may be imposed on or as a result of any transaction between any
Credit Party and any Secured Party that any Secured Party may be required to
withhold or pay or if any taxes, assessments, or other Charges remain unpaid
after the date fixed for their payment, or if any claim shall be made that, in
any Secured Party’s opinion, may possibly create a valid Lien on the Collateral,
Agent may without notice to the Credit Parties pay the taxes, assessments or
other Charges and each Credit Party hereby indemnifies and holds each Indemnitee
harmless in respect thereof. Agent will not pay any taxes, assessments or
Charges to the extent that any applicable Credit Party has Properly Contested
those taxes, assessments or Charges. The amount of any payment by Agent under
this Section 4.13 shall be charged to Borrowers’ Account as a Revolving Advance
maintained as a Domestic Rate Loan and added to the Obligations and, until the
Credit Parties shall furnish Agent with an indemnity therefor (or supply Agent
with evidence satisfactory to Agent that due provision for the payment thereof
has been made), Agent may hold without interest any balance standing to
Borrowers’ credit and Agent shall retain its security interest in and Lien on
any and all Collateral held by Agent.

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

4.15 Receivables.

(a) Nature of Receivables. Each Credit Party represents and warrants that each
of the Receivables (without representing that any such Receivable is an Eligible
Receivable except to the extent otherwise expressly so represented pursuant to
the Loan Documents) shall be, (i) as of the date of creation thereof, a bona
fide and valid account representing a bona fide indebtedness incurred by the
Customer therein named, for a fixed sum as set forth in the invoice relating
thereto (provided that immaterial or unintentional invoice errors shall not be
deemed to be a breach hereof) with respect to an absolute sale or lease and
delivery of goods upon stated terms of a Credit Party, or work, labor or
services theretofore rendered by a Credit Party and (ii) due and owing in
accordance with the applicable Credit Party’s standard terms of sale without
known dispute, setoff or counterclaim, except as may be stated on the most
recently delivered Borrowing Base Certificate; provided that if any such
dispute, setoff or counterclaim arises between delivery of Borrowing Base
Certificates in an aggregate amount greater than $500,000, the Credit Parties
shall have disclosed the same to Agent in writing.

(b) Solvency of Customers. Each Customer, to the best of each Credit Party’s
knowledge based on such Credit Party’s use and review of customary credit checks
and other similar inspections with respect to such Customer, as of the date each
Receivable is created, is not subject to any insolvency proceeding and is and
will be able to pay all Receivables on which the Customer is obligated in full
when due or with respect to such Customers of any Credit Party who are not so
able such Credit Party has set up on its books and in its financial records bad
debt reserves adequate to cover such Receivables.

(c) Location of Credit Parties. Each Credit Party’s chief executive office is
located at 2027 Harpers Way, Torrance, California. Until written notice is given
to Agent by Borrowing Agent of any other office at which any Credit Party keeps
its records pertaining to Receivables (including collection thereof), all such
records shall be kept at such executive office; provided that duplicate copies
thereof may be kept at other locations of the Credit Parties and their
Subsidiaries.

 

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(d) Collection of Receivables. Until any Credit Party’s authority to do so is
terminated by Agent (which notice Agent may give at any time following the
occurrence and during the continuance of a Default or Event of Default ), each
Credit Party will, at such Credit Party’s sole cost and expense, but on Agent’s
behalf and for Agent’s account, collect as Agent’s property and in trust for
Agent all amounts received on Receivables, and shall not commingle such
collections with any Credit Party’s funds or use the same except to pay
Obligations. Each Credit Party shall deposit in the Blocked Account or, upon
request by Agent, deliver to Agent, in original form and on the date of receipt
thereof, all checks, drafts, notes, money orders, acceptances, cash and other
evidences of Indebtedness.

(e) Notification of Assignment of Receivables. After the occurrence and during
the continuance of a Default or Event of Default, Agent shall have the right to
send notice of the assignment of, and Agent’s security interest in and Lien on,
the Receivables to any and all Customers or any third party holding or otherwise
concerned with any of the Collateral. Thereafter, Agent shall have the sole
right, if it has made such election, to collect the Receivables, take possession
of the Collateral, or both. Agent’s actual collection expenses, including
stationery and postage, telephone and telegraph, secretarial and clerical
expenses and the charges of any collection personnel used for collection, may be
charged to Borrowers’ Account and added to the Obligations.

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

(g) No Liability. No Secured Party shall, under any circumstances or in any
event whatsoever, have any liability for any error or omission or delay of any
kind occurring in the settlement,

 

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collection or payment of any of the Receivables or any instrument received in
payment thereof, or for any damage resulting therefrom. Following the occurrence
and during the continuance of an Event of Default or Default Agent may, without
notice or consent from any Credit Party, sue upon or otherwise collect, extend
the time of payment of, compromise or settle for cash, credit or upon any terms
any of the Receivables or any other securities, instruments or insurance
applicable thereto and/or release any obligor thereof. Agent is authorized and
empowered to accept following the occurrence and during the continuance of an
Event of Default or Default the return of the goods represented by any of the
Receivables, without notice to or consent by any Credit Party, all without
discharging or in any way affecting any Credit Party’s liability hereunder.

(h) Establishment of a Lockbox Account, Dominion Account. All proceeds of
Collateral and all Extraordinary Receipts shall be deposited by Borrowers into
either (i) a lockbox account, dominion account or such other “blocked account”
(“Blocked Accounts”) established at a bank or banks (each such bank, a “Blocked
Account Bank”) pursuant to an arrangement with such Blocked Account Bank as may
be selected by Borrowing Agent and be acceptable to Agent or (ii) depository
accounts (“Depository Accounts”) established at Agent for the deposit of such
proceeds. Each applicable Borrower, Agent and each Blocked Account Bank shall
enter into a deposit account control agreement in form and substance
satisfactory to Agent directing such Blocked Account Bank to transfer such funds
so deposited to Agent, either to any account maintained by Agent at said Blocked
Account Bank or by wire transfer to appropriate account(s) of Agent. All funds
deposited in such Blocked Accounts shall immediately become the property of
Agent and Borrowing Agent shall obtain the agreement by such Blocked Account
Bank to waive any offset rights against the funds so deposited. No Secured Party
assumes any responsibility for such blocked account arrangement, including any
claim of accord and satisfaction or release with respect to deposits accepted by
any Blocked Account Bank thereunder. All deposit accounts and investment
accounts of each Credit Party and its Subsidiaries are set forth on Schedule
4.15(h).

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

4.16 Inventory. All Inventory held for sale or lease by any Credit Party has
been and will be manufactured and maintained in all material respects in
compliance with all requirements of each Governmental Body that has regulatory
authority over such Inventory or the use or sale thereof. To the extent
Inventory held for sale or lease has been produced by any Credit Party, it has
been and will be produced by such Credit Party in accordance with the Federal
Fair Labor Standards Act of 1938, as amended, and all rules, regulations and
orders thereunder.

4.17 Maintenance of Equipment. The Equipment shall be maintained in good
operating condition and repair (reasonable wear and tear excepted) and all
necessary replacements of and repairs thereto shall be made so that the value
and operating efficiency of the Equipment shall be maintained and preserved. The
Credit Parties shall use or operate the Equipment in compliance in all material
respects with Applicable Law. Each Credit Party shall have the right to sell
Equipment to the extent expressly set forth in Section 4.3.

4.18 Exculpation of Liability. Nothing herein contained shall be construed to
constitute Agent or any Lender as any Credit Party’s agent for any purpose
whatsoever, nor shall Agent or any Lender be responsible or liable for any
shortage, discrepancy, damage, loss or destruction of any part of the Collateral
wherever the same may be located and regardless of the cause thereof. No Secured
Party,

 

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whether by anything herein or in any assignment or otherwise, assumes any of any
Credit Party’s obligations under any contract or agreement assigned to Agent or
such Lender, and no Secured Party shall be responsible in any way for the
performance by any Credit Party of any of the terms and conditions thereof.

4.19 Environmental Matters.

(a) The Credit Parties shall ensure that the Real Property and all operations
and businesses conducted thereon remains in compliance with all Environmental
Laws except as could not individually or in the aggregate reasonably be expected
to have a Material Adverse Effect, and they shall not place or permit to be
placed any Hazardous Substances on any Real Property except as permitted by
Applicable Law or appropriate Governmental Bodies except as could not
individually or in the aggregate reasonably be expected to have a Material
Adverse Effect.

(b) The Credit Parties shall establish and maintain a system to assure and
monitor continued compliance in a reasonable manner with all applicable
Environmental Laws, which system shall include periodic reviews of such
compliance.

(c) The Credit Parties shall (i) employ in connection with the use of the Real
Property appropriate technology necessary to maintain compliance with any
applicable Environmental Laws and (ii) dispose of any and all Hazardous Waste
generated at the Real Property only at facilities and with carriers that
maintain valid permits under RCRA and any other applicable Environmental Laws.
The Credit Parties shall use their best efforts to obtain certificates of
disposal, such as hazardous waste manifest receipts, from all treatment,
transport, storage or disposal facilities or operators employed by the Credit
Parties in connection with the transport or disposal of any Hazardous Waste
generated at the Real Property, except, in each case, as could not individually
or in the aggregate reasonably be expected to have a Material Adverse Effect.

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

(e) Borrowing Agent shall promptly forward to Agent copies of any written
request for information, notification of potential liability, demand letter
relating to any Credit Party’s potential material liability under Environmental
Laws, including potential responsibility with respect to the investigation or
cleanup of Hazardous Substances at any other site owned, operated or used by any
Credit Party to dispose of Hazardous Substances and shall continue to forward
copies of material

 

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correspondence between any Credit Party and the Authority regarding such claims
to Agent until the claim is settled. Borrowing Agent shall promptly forward to
Agent copies of all documents and reports concerning a Hazardous Discharge that
any Credit Party is required to file under any Environmental Laws, except as to
such Hazardous Discharges as could not reasonably be expected to have a Material
Adverse Effect. Such information is to be provided solely to allow Agent to
protect Agent’s security interest in and Lien on the Real Property and the
Collateral.

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

(g) Promptly upon the written request of Agent from time to time, the Credit
Parties shall provide Agent, at the Credit Parties’ expense, with an
environmental site assessment or environmental audit report prepared by an
environmental engineering firm acceptable in the reasonable opinion of Agent, to
assess with a reasonable degree of certainty the existence of a Hazardous
Discharge and the potential costs in connection with the investigation,
abatement, cleanup, removal and monitoring of any Hazardous Substances found on,
under, at, from or within the owned Real Property. Any report or investigation
of such Hazardous Discharge proposed and acceptable to an appropriate Authority
that is charged to oversee the clean-up of such Hazardous Discharge shall be
acceptable to Agent. If such estimates, individually or in the aggregate, exceed
$25,000, Agent shall have the right to require the Credit Parties to post a
bond, letter of credit or other security reasonably satisfactory to Agent to
secure payment of these costs and expenses.

(h) The Credit Parties shall defend and indemnify Agent and Lenders and hold
Agent, Lenders and their respective employees, agents, directors and officers
harmless from and against all loss, liability, damage and expense, claims,
costs, fines and penalties, including attorney’s fees, suffered or incurred by
Agent or Lenders under or on account of any Environmental Laws, including the
assertion of any Lien thereunder, with respect to any Hazardous Discharge, the
presence of any Hazardous Substances affecting the Real Property, whether or not
the same originates or emerges from the Real Property or any contiguous real
estate, including any loss of value of the Real Property as a result of the
foregoing except to the extent such loss, liability, damage and expense is
attributable to any Hazardous Discharge resulting from actions on the part of
any Secured Party. The Credit Parties’ obligations under this Section 4.19 shall
arise upon the discovery of the presence of any Hazardous Substances at the Real
Property, whether or not any Governmental Body has taken or threatened any
action in connection with the presence of any Hazardous Substances. The Credit
Parties’ obligation and the indemnifications hereunder shall survive the
termination of this Agreement.

 

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(i) For purposes of Sections 4.19 and 5.7, all references to Real Property shall
be deemed to include all of each Credit Party’s right, title and interest in and
to its currently owned and leased premises.

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

4.21 Deposit and Investment Accounts. Borrowers agree not to maintain any
deposit or investment accounts other than accounts held at or through Agent,
except that Borrowers may maintain the accounts set forth on Schedule 4.15(h)
(as so updated from time to time) that are (a) deposit accounts exclusively used
for payroll, payroll taxes and other employee wage and benefit payments to or
for the benefit of Borrowers’ employees (including any “rabbi trust” account
used in connection with such purposes) and identified to Agent by Borrowers as
such, or (b) subject to a control agreement in favor of Agent from the holder of
such account, giving Agent a first-priority security interest in such account,
in form and substance satisfactory to Agent; provided, that, notwithstanding the
foregoing, all deposit accounts of the Credit Parties (other than (x) deposit
accounts of the type described in the foregoing clause (a) and (y) the Limited
Purpose Deposit Account to the extent such deposit account is in compliance with
the requirements set forth in the definition thereof) shall be maintained at PNC
no later than ninety (90) days following the Closing Date (or such later date as
Agent shall agree in its sole discretion) other than deposit accounts at
Comerica Bank that comply with the foregoing clause (b). On each Business Day
that amounts received in the Limited Purpose Deposit Account (other amounts of
the type described in clause (b) of the definition thereof deposited therein by
VMC) since the last date of transfer required by this sentence (or the Closing
Date, in the case of the first such transfer) are equal to or in excess of
$250,000 in the aggregate, the Borrowers shall transfer on such Business Day all
such amounts to the collection account of VMC maintained at PNC.

4.22 New and Newly Registered Intellectual Property. If any Credit Party
(a) obtains ownership of any patent registered with the United States Patent and
Trademark Office, trademark registered with the United States Patent and
Trademark Office, or copyright registered with the United States Copyright
Office, or (b) submits a registered application for any patent or any trademark,
then such Credit Party shall, concurrently with the delivery of the Compliance
Certificate for the relevant period, provide written notice thereof to Agent and
shall execute such intellectual property security agreements and other documents
and take such other actions (including recording or allowing Agent to record
such intellectual property security agreements with the United States Copyright
Office or the United States Patent and Trademark Office, as applicable) as Agent
shall request in its Permitted Discretion to perfect and maintain a first
priority perfected security interest in favor of Agent. No Credit Party shall
register any copyrights or mask works in the United States Copyright Office,
unless such Credit Party shall: (i) not less than five (5) Business Days prior
to making the relevant filings, provide Agent written notice of such Credit
Party’s filing of an application to register such copyrights or mask works
together with a copy of the application to be filed with the United States
Copyright Office (excluding exhibits thereto); (ii) execute an intellectual
property security agreement and such other documents and take such other actions
as Agent may request in its Discretion to perfect and maintain a first priority
perfected security interest in favor of Agent in the copyrights or mask works
intended to be registered with the United States Copyright Office; and
(iii) record or allow Agent to record such intellectual property security
agreement with the United States Copyright Office. Each Credit Party shall
promptly provide to Agent evidence of the recording of the intellectual property
security agreement necessary for Agent to perfect and maintain a first priority
perfected security interest in such property.

 

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ARTICLE V

REPRESENTATIONS AND WARRANTIES

Each Credit Party represents and warrants to Secured Parties as follows:

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

5.2 Formation and Qualification.

(a) Each Credit Party is duly incorporated and in good standing under the laws
of its state of incorporation, as listed on Schedule 5.2(a) and is qualified to
do business and is in good standing as of the Closing Date in the states listed
on Schedule 5.2(a), which constitute all states in which qualification and good
standing are necessary for such Credit Party to conduct its business and own its
property where the failure to be so qualified could reasonably be expected to
have a Material Adverse Effect on such Credit Party. Each Credit Party has
delivered to Agent true and complete copies of its certificate of incorporation
and by-laws and will notify Agent of any amendment or changes thereto not less
than 30 days prior to each such amendment.

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

5.3 Survival of Representations and Warranties. All representations and
warranties of such Credit Party contained in this Agreement and the other Loan
Documents shall be true, correct, and complete, in all material respects (except
that any such representation or warranty already qualified or modified by
materiality in the text thereof shall be true, correct and complete in all
respects), and shall survive the execution, delivery and acceptance thereof by
the parties thereto and the closing of the transactions described therein or
related thereto.

 

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5.4 Tax Returns. Each Credit Party’s federal tax identification number, as of
the Closing Date, is set forth on Schedule 5.4. Each Credit Party has filed all
material federal, state and local tax returns and other reports each is required
by law to file and has paid all taxes, assessments, fees and other governmental
charges that are due and payable. Federal, state and local income tax returns of
each Credit Party have been examined and reported upon by the appropriate taxing
authority or closed by applicable statute and satisfied for all fiscal years
prior to and including the fiscal year ending January 31, 2004. The provision
for taxes on the books of each Credit Party is adequate for all years not closed
by applicable statutes, and for its current fiscal year, and no Credit Party has
any knowledge of any deficiency or additional assessment in connection therewith
not provided for on its books.

5.5 Financial Statements.

(a) The pro forma balance sheet of Borrowers on a Consolidated Basis (the “Pro
Forma Balance Sheet”) furnished to Agent on the Closing Date reflects the
consummation of the transactions contemplated by and under this Agreement
(collectively, the “Transactions”) and fairly reflects the financial condition
of Borrowers on a Consolidated Basis as of the Closing Date after giving effect
to the Transactions, and has been prepared in accordance with GAAP, consistently
applied. The Pro Forma Balance Sheet has been certified by the Vice President
Finance of Borrowing Agent as fairly presenting, in all material respects, the
financial condition of the Borrowers as of the date thereof. All financial
statements referred to in this subsection 5.5(a), including the related
schedules and notes thereto, have been prepared, in accordance with GAAP, except
as may be disclosed in such financial statements and except for the absence of
footnotes and customary year-end adjustments.

(b) The twelve-month cash flow projections of Borrowers on a Consolidated Basis
and their projected balance sheets as of the Closing Date, copies of which are
annexed to the Financial Condition Certificate (the “Projections”) were prepared
by the Vice President Finance of VMC, in good faith based upon assumptions
believed by the Borrowers to be reasonable at the time made (it being understood
that such projections are subject to uncertainties and contingencies and that no
assurance can be given that any particular projections will be realized). The
cash flow Projections together with the Pro Forma Balance Sheet, are referred to
as the “Pro Forma Financial Statements”.

and

(c) The consolidated and consolidating (if applicable) balance sheets of
Borrowers, their Subsidiaries and such other Persons described therein
(including the accounts of all Subsidiaries for the respective periods during
which a subsidiary relationship existed) as of November 30, 2011, and the
related statements of income, changes in stockholder’s equity, and changes in
cash flow for the period ended on such date, all accompanied by reports thereon
containing opinions without qualification by independent certified public
accountants, copies of which have been delivered to Agent, have been prepared in
accordance with GAAP, as in effect from time to time (except as expressly noted
therein and except for changes in application in which such accountants concur
and present fairly the financial position of Borrowers and their Subsidiaries at
such date and the results of their operations for such period). Since
January 31, 2011 there has been no change in the condition, financial or
otherwise, of Borrowers or their Subsidiaries as shown on the consolidated
balance sheet as of such date which individually or in the aggregate could
reasonably be expected to have a Materially Adverse Effect.

5.6 Entity Names. No Credit Party has changed its corporate name or used a trade
name in the past five years and does not sell Inventory under any other name,
nor has any Credit Party been the surviving corporation of a merger or
consolidation or acquired all or substantially all of the assets of any Person
during the preceding five (5) years, in each case except as set forth on
Schedule 5.6.

 

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

(a) Each Credit Party has duly complied with, and its facilities, business,
assets, property, leaseholds, Real Property and Equipment are in compliance in
all material respects with, the provisions of the Federal Occupational Safety
and Health Act, the Environmental Protection Act, RCRA and all other
Environmental Laws; there have been no outstanding citations, notices or orders
of non-compliance issued to any Credit Party or relating to its business,
assets, property, leaseholds or Equipment under any such laws, rules or
regulations other than, in each case, such non-compliance as count not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

(b) Each Credit Party has been issued all required federal, state and local
licenses, certificates or permits relating to all applicable Environmental Laws
other than those the failure of which to obtain could not individually or in the
aggregate reasonably be expected to have a Material Adverse Effect.

(c) There are no visible signs of releases, spills, discharges, leaks or
disposal (collectively referred to as “Releases”) of Hazardous Substances at,
upon, under or within any Real Property or any premises leased by any Credit
Party that could individually or in the aggregate reasonably be expected to have
a Material Adverse Effect.

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

(a) The Credit Parties, taken as a whole, are solvent, able to pay their debts
as they mature, have capital sufficient to carry on their businesses and all
businesses in which they are about to engage, and (i) as of the Closing Date,
the fair present saleable value of their assets, taken as a whole, calculated on
a going concern basis, is in excess of the amount of its liabilities and
(ii) subsequent to the Closing Date, the fair saleable value of their assets
(calculated on a going concern basis), taken as a whole, will be in excess of
the amount of its liabilities.

(b) Except as disclosed in Schedule 5.8(b), no Credit Party has (i) any pending
or threatened (in writing to any Credit Party) litigation, arbitration, actions
or proceedings that could reasonably be expected to have a Material Adverse
Effect, and (ii) any indebtedness for borrowed money other than the Obligations
and Funded Debt set forth on Schedule 7.8 hereof.

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

(d) No Credit Party or member of the Controlled Group maintains or contributes,
or has any obligation to contribute to, or liability under, any Pension Benefit
Plan, any Multiemployer Plan or any Multiple Employer Plan other than (x) on the
Closing Date, those listed on Schedule 5.8(d) hereto and (y) thereafter, as
permitted under this Agreement. Further, (i) each Credit Party and each member
of the Controlled Group has met all applicable minimum funding requirements
under the Pension Funding Rules in respect of each Pension Benefit Plan and no
waiver of the Pension Funding Rules has been applied for or obtained in the past
five years; (ii) each Pension Benefit Plan which is intended to be a qualified
plan under Section 401(a) of the Code as currently in effect has been determined
by the Internal Revenue Service to be qualified under Section 401(a) of the Code
and the trust related thereto is exempt from federal income tax under
Section 501(a) of the Code; (iii) no Credit Party or member of the Controlled
Group has incurred any liability to the PBGC other than for the payment of
premiums, and there are no premium payments which have become due which are
unpaid; (iv) no Pension Benefit Plan

 

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has been terminated by the plan administrator thereof nor by the PBGC for which
there is any unsatisfied material liability, and there is no occurrence which
would reasonably be expected to cause the PBGC to institute proceedings under
Title IV of ERISA to terminate any Pension Benefit Plan; (v) except as would not
reasonably be expected to have a Material Adverse Effect, the present value of
the aggregate benefit liabilities under each Pension Benefit Plan sponsored,
maintained or contributed to by any Credit Party or any member of the Controlled
Group (determined as of the end of the most recent plan year on the basis of the
actuarial assumptions specified for funding purposes in the most recent
actuarial valuation for such Pension Benefit Plan), did not exceed the aggregate
current fair market value of the assets of such Pension Benefit Plan;
(vi) except as would not reasonably be expected to have a Material Adverse
Effect, no Credit Party or member of the Controlled Group has breached any of
the responsibilities, obligations or duties imposed on it by ERISA with respect
to any Plan; (vii) except as would not reasonably expected to have a Material
Adverse Effect, no Credit Party or member of the Controlled Group has nor any
fiduciary of, nor any trustee to, any Plan, has engaged in a “prohibited
transaction” described in Section 406 of the ERISA or Section 4975 of the Code;
(viii) no Termination Event has occurred and no Credit Party or member of the
Controlled Group has taken any action which would reasonably be expected to
constitute or result in a Termination Event; (ix) each Credit Party and each
member of the Controlled Group have made all material contributions due and
payable with respect to each Plan; (x) no Credit Party or member of the
Controlled Group has withdrawn, completely or partially, from any Multiemployer
Plan so as to incur any unsatisfied liability under the Multiemployer Pension
Plan Amendments Act of 1980 and there exists no fact which would reasonably be
expected to result in any such liability; and (xi) no Credit Party or any member
of the Controlled Group has received notice from any Multiemployer Plan that it
is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or
that it intends to terminate or has terminated under Section 4041A or 4042 of
ERISA.

5.9 Patents, Trademarks, Copyrights and Licenses. All patents and patent
applications registered with the United States Patent and Trademark Office,
trademarks and trademark applications registered with the United States Patent
and Trademark Office, copyrights and copyright applications registered with the
United States Copyright Office are set forth on Schedule 5.9, are valid and have
been duly registered or filed with all appropriate Governmental Bodies and
constitute all of the intellectual property rights that are necessary for the
operation of the business of the Credit Parties, to the knowledge of the Credit
Parties, there is no objection to or pending challenge to the validity of any
such patent, trademark, or copyright, and no Credit Party is aware of any
grounds for any such challenge, except as set forth in Schedule 5.9. Each
patent, patent application, patent license, trademark, trademark application,
trademark license, service mark, service mark application, service mark license,
design rights, copyright, copyright application and copyright license that is
necessary to the conduct of the business of the Credit Parties and their
Subsidiaries and owned or held by any Credit Party and all trade secrets used by
any Credit Party consist of original material or property developed by such
Credit Party, was lawfully acquired by such Credit Party from the proper and
lawful owner thereof or is otherwise lawfully licensed or used by the Credit
Parties. With respect to all software used by any Credit Party (other than
commercially available off-the-shelf software), such Credit Party is in
possession of all source and object codes related to each piece of software or
is the beneficiary of a source code escrow agreement, each such source code
escrow agreement being listed on Schedule 5.9.

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

 

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5.11 Default of Indebtedness; No Default. Upon the contemporaneous repayment in
full and termination of VMC’s Wells Fargo Credit Facility, no Credit Party is in
default in the payment of the principal of or interest on any Indebtedness or
under any instrument or agreement under or subject to which any Indebtedness has
been issued and no event has occurred under the provisions of any such
instrument or agreement that, in each case, with or without the lapse of time or
the giving of notice, or both, constitutes or could constitute an Event of
Default hereunder.

5.12 No Default. No Credit Party is in default in the payment or performance of
any of its material contractual obligations and no default thereunder has
occurred, in each case that with or without the lapse of time or the giving of
notice, or both, constitutes or could constitute an Event of Default hereunder.

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

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

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

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

5.17 Disclosure. No representation or warranty made by any Credit Party in this
Agreement or in any other Loan Document or in any financial statement, report,
certificate or any other document furnished in connection herewith or therewith
contains any untrue statement of a material fact or omits to state any material
fact necessary to make the statements herein or therein not misleading as of the
time it was made or deemed made or delivered; provided that any Credit Party’s
representation and warranty as to any forecast, projection or other statement
regarding future performance, future financial results or other future
development is limited to the fact that such forecast, projection or statement
was prepared in good faith on the basis of information and assumptions that such
Credit Party believed to be reasonable as of the date such material was prepared
(it being understood that the projections are subject to uncertainties and
contingencies, many of which are beyond such Credit Party’s control, and that no
assurance can be given that the projections will be realized). There is no fact
known to any Credit Party or which reasonably should be known to such Credit
Party that such Credit Party has not disclosed to Agent in writing with respect
to the transactions contemplated by this Agreement that could reasonably be
expected to have a Material Adverse Effect.

 

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

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

5.20 Application of Certain Laws and Regulations. No Credit Party is subject to
any law, statute, rule or regulation that regulates the incurrence of any
Indebtedness that is not applicable to businesses generally, including laws,
statutes, rules or regulations relative to common or interstate carriers or to
the sale of electricity, gas, steam, water, telephone, telegraph or other public
utility services.

5.21 Business and Property of Credit Parties. Upon and after the Closing Date,
the Credit Parties do not propose to engage in any business other than as set
forth in Section 7.9 the business of manufacturing to supplying equipment and
furniture to schools and activities necessary to conduct the foregoing. On the
Closing Date, each Credit Party will own all the property and possess all of the
rights and Consents necessary for the conduct of the business of such Credit
Party.

5.22 Section 20 Subsidiaries. No Credit Party intends to use and shall not use
any portion of the proceeds of the Advances, directly or indirectly, to purchase
during the underwriting period, or for 30 days thereafter, Ineligible Securities
being underwritten by a Section 20 Subsidiary.

5.23 Anti-Terrorism Laws.

(a) General. No Credit Party (nor to the knowledge of any Credit Party, any
Affiliate of any Credit Party) is in violation of any Anti-Terrorism Law or
engages in or conspires to engage in any transaction that evades or avoids, or
has the purpose of evading or avoiding, or attempts to violate, any of the
prohibitions set forth in any Anti-Terrorism Law.

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

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

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

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

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

 

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

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

Neither any Credit Party nor to the knowledge of any Credit Party, any of its
agents acting in any capacity in connection with the Advances or other
transactions hereunder (1) conducts any business or engages in making or
receiving any contribution of funds, goods or services to or for the benefit of
any Blocked Person, or (2) deals in, or otherwise engages in any transaction
relating to, any property or interests in property blocked pursuant to the
Executive Order No. 13224.

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

5.25 Ricoh Financing Statement. The Liens evidenced by UCC-1 Financing Statement
No. 2009 3342604 filed with the Delaware Secretary of State on October 16, 2009
naming Ricoh Americas Corporation (“Ricoh”), as secured party, and VMC, as
debtor, only encumber office Equipment leased by VMC from Ricoh.

5.26 Commercial Tort Claims. No Credit Party holds any commercial tort claim it
has asserted in excess of $250,000, except as set forth on Schedule 5.26.

ARTICLE VI

AFFIRMATIVE COVENANTS

Each Credit Party shall, until indefeasible payment in full in cash (or other
immediately available funds) of the Obligations (other than Inchoate
Obligations) and termination of this Agreement:

6.1 Payment of Fees. With respect to Borrowers, pay to Agent, without
duplication: (a) all fees and other amounts required to be paid pursuant to this
Agreement and the other Loan Documents, as and when the same become due; and
(b) ON DEMAND all usual and customary fees and expenses that Agent incurs in
connection with (i) the forwarding of Advance proceeds and (ii) the
establishment and maintenance of any Blocked Accounts or Depository Accounts as
provided for in Section 4.15(h). Agent may, without making demand, charge
Borrowers’ Account for all such fees and expenses.

6.2 Conduct of Business and Maintenance of Existence and Assets. (a) Conduct its
business according to good business practices and maintain all of its properties
useful or necessary in its business in good working order and condition
(reasonable wear and tear excepted and except as may be disposed of or sold in
accordance with the terms of this Agreement), including all licenses, patents,
copyrights, design rights, trade names, trade secrets and trademarks and take
all actions necessary to enforce and protect the validity of any intellectual
property right or other right included in the Collateral; (b) keep in full force
and effect its existence and comply with the laws and regulations governing the
conduct of its business where the failure to do so could reasonably be expected
to have a Material Adverse Effect; and (c) make all such reports and pay all
such franchise and other taxes and license fees and do all such other acts and
things as may be lawfully required to maintain its rights, licenses, leases,
powers and franchises under the laws of the United States or any political
subdivision thereof except where failure to do so could not reasonably be
expected to have a Material Adverse Effect.

 

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

6.4 Government Receivables. Take all steps necessary to protect Agent’s interest
in the Collateral under the Federal Assignment of Claims Act, the Uniform
Commercial Code and all other applicable state or local statutes or ordinances,
and deliver to Agent appropriately endorsed, any instrument or chattel paper
connected with, any Receivable arising out of contracts between any Credit Party
and the United States, any state or any department, agency or instrumentality of
any of them; provided, that such actions shall only be required under such
applicable state or local statutes or ordinances (i) at Agent’s request and
(ii) with respect to a Receivable in excess of $500,000.

6.5 Financial Covenants.

(a) Tangible Net Worth. Have as of each fiscal quarter of the Borrowers ending
as of the date set forth below a Tangible Net Worth for such fiscal quarter end
in an amount not less than the amount set forth opposite such fiscal quarter
end.

 

Fiscal Quarter End

   Minimum Tangible Net Worth  

January 31, 2012

   $ 28,177,000   

April 30, 2012

   $ 24,654,000   

July 31, 2012

   $ 32,351,000   

October 31, 2012

   $ 37,468,000   

January 31, 2012

   $ 32,122,000   

(b) Fixed Charge Coverage Ratio. Cause to be maintained a Fixed Charge Coverage
Ratio of not less than 1.10 to 1.00 (i) for the two consecutive fiscal quarter
period of the Borrowers ending July 30, 2012, (ii) for the three consecutive
fiscal quarter period of the Borrowers ending October 31, 2012, and
(iii) for each consecutive four fiscal quarter period of the Borrowers ending
thereafter.

(c) Minimum EBITDA. Cause to be maintained, for the applicable consecutive
fiscal month period ending as of the applicable fiscal month end set forth
below, EBITDA as of such fiscal month end of not less than the amount set forth
opposite the respective fiscal month period below:

 

Fiscal Month Period and Fiscal Month End

   EBITDA  

Fiscal month ending December 2011

   $ (2,268,000 ) 

Two consecutive fiscal months ending January 2012

   $ (6,006,000 ) 

Fiscal month ending February 2012

   $ (1,896,000 ) 

Two consecutive fiscal months ending March 2012

   $ (2,970,000 ) 

Three consecutive fiscal months ending April 2012

   $ (3,294,000 ) 

Four consecutive fiscal months ending May 2012

   $ (2,588,000 ) 

Five consecutive fiscal months ending June 2012

   $ 1,683,000   

Six consecutive fiscal months ending July 2012

   $ 6,894,000   

Seven consecutive fiscal months ending August 2012

   $ 12,147,000   

Eight consecutive fiscal months ending September 2012

   $ 12,563,000   

Nine consecutive fiscal months ending October 2012

   $ 13,328,000   

Ten consecutive fiscal months ending November 2012

   $ 11,462,000   

Eleven consecutive fiscal months ending December 2012

   $ 9,988,000   

Twelve consecutive fiscal months ending January 2013

   $ 9,172,000   

 

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

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

 

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6.8 Standards of Financial Statements. Cause all financial statements referred
to in Sections 9.7, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13 and 9.14 as to which GAAP
is applicable to fairly present in all material respects the financial condition
and results of operations of the Borrowers and their Subsidiaries (subject, in
the case of interim financial statements, to normal year-end audit adjustments
and the absence of footnotes) and to be prepared in reasonable detail and in
accordance with GAAP applied consistently throughout the periods reflected
therein (except as concurred in by such reporting accountants or officer, as the
case may be, and disclosed therein).

6.9 Post-Closing Covenants.

(a) On or before the sixtieth (60th) day following the Closing Date (or such
later date as Agent shall agree in its sole discretion):

(i) cause Patent No. D471729 (App. No. 29147210 for “Four Legged Chair”),
Trademark Reg. No. 0,740,021 (MARTEST), and Trademark Reg. No. 4,040,857
(PLANSCAPE) the chain of title records in the Patent and Trademark Office to
properly reflect VMC as the registered owner of all such Intellectual Property;
and

(ii) deliver to Agent, in form and substance satisfactory to Agent, a Phase II
environmental assessment in respect of the Real Property of Borrowers located at
1265 Bruce Street, Conway, AR 72034.

(b) On or before the ninetieth (90th) day following the Closing Date (or such
later date as Agent shall agree in its sole discretion) deliver to Agent a
credit card processor agreement in form and substance acceptable to Agent for
(i) credit card receivables processed by Discover and (ii) credit card
receivables processed by American Express.

(c) No later than thirty (30) days after Agent’s written request therefor (or
such later date as Agent shall agree in its sole discretion), deliver each of
the following items, in form and substance satisfactory to Agent and Lenders,
with respect to the Real Property of Borrowers located at 1265 Bruce Street,
Conway, AR 72034:

(i) an executed Mortgage in respect of such Real Property;

(ii) a survey for such Real Property; and

(iii) a fully paid mortgagee title insurance policy, in standard ALTA form,
issued by a title insurance company reasonably satisfactory to Agent, in an
amount equal to not less than the fair market value of such Real Property,
insuring such Mortgage to create a valid Lien on such Real Property with no
exceptions that Agent shall not have approved in writing and no survey
exceptions.

 

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ARTICLE VII

NEGATIVE COVENANTS

No Credit Party shall, until indefeasible payment in full in cash (or other
immediately available funds) of the Obligations (other than Inchoate
Obligations) and termination of this Agreement:

7.1 Merger, Consolidation, Acquisition and Sale of Assets.

(a) Enter into any merger, consolidation or other reorganization with or into
any other Person or acquire all or a substantial portion of the assets or Equity
Interests of any Person or permit any other Person to consolidate with or merge
with it, except for (i) any merger, consolidation or reorganization between the
Credit Parties, provided that any Borrower must be the surviving entity of any
such merger, consolidation or reorganization to which it is a party or (ii) any
merger, consolidation or reorganization between a Credit Party and Subsidiaries
of such Credit Party that are not Credit Parties so long as such Credit Party is
the surviving entity of any such merger.

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

7.2 Creation of Liens. Create or suffer to exist any Lien or transfer upon or
against any of its property or assets now owned or hereafter acquired, except
Permitted Encumbrances provided that nothing herein constitutes an admission by
any Secured Party that a Permitted Encumbrance has priority over any Lien in
favor of Agent or any other Secured Party, and Agent and the other Secured
Parties reserve their rights to assert such priority as against any Permitted
Encumbrance.

7.3 Guarantees. Become liable upon the obligations or liabilities of any Person
by assumption, endorsement or guaranty thereof or otherwise (other than to
Secured Parties) except (a) as disclosed on Schedule 7.3, (b) guarantees made in
the Ordinary Course of Business in respect of (i) performance bonds (other than
performance bonds in respect of sales of school furniture), surety or appeal
bonds, notary public bonds and bonds in support of Borrowers’ prior
self-insurance program up to an aggregate amount of $250,000 and (ii) unsecured
bid bonds and unsecured performance bonds in respect of sales of school
furniture, (c) the endorsement of checks in the Ordinary Course of Business and
(d) guarantees in respect of Indebtedness otherwise permitted hereunder.

7.4 Investments. Purchase or acquire obligations or Equity Interests of, or any
other interest in, any Person, or make any investments, advances, loans or
extensions of credit to any Person, including any Parent, Subsidiary or
Affiliate (each, an “Investment”) except with respect to:

(a) the following cash equivalents (i) obligations issued or guaranteed by the
United States of America or any agency thereof, (ii) commercial paper with
maturities of not more than 180 days and a published rating of not less than A-1
or P-1 (or the equivalent rating), (iii) certificates of time deposit and
bankers’ acceptances having maturities of not more than 180 days and repurchase
agreements backed by United States government securities of a commercial bank if
(x) such bank has a combined capital and surplus of at least $500,000,000, or
(y) its debt obligations, or those of a holding company of which it is a
Subsidiary, are rated not less than A (or the equivalent rating) by a nationally
recognized investment rating agency, (iv) bonds and other fixed income
instruments (including tax-exempt bonds) rated investment grade from companies
or public entities, and mutual funds that invest substantially all of their
assets in such bonds and other fixed income instruments, either owned directly
by a Credit Party or managed on a Credit Party’s behalf by any nationally
recognized investment advisor who or which has assets under management in excess
of $500,000,000, (v) repurchase agreements or similar arrangements with banks
which have capital and surplus of not less than $500,000,000, (vi) U.S. money
market funds that invest solely in obligations issued or guaranteed by the
United States of America or an agency thereof and (vii) mutual funds or money
market funds that invest substantially all of their assets in instruments
described in the subsections above;

 

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(b) advances to officers, directors and employees of the Credit Parties in an
aggregate amount not to exceed $25,000 at any time outstanding, for travel,
entertainment, relocation and other purposes in the Ordinary Course of Business
and consistent with past practice;

(c) Investments of Borrowers in any Guarantor and Investments of any Subsidiary
in any Credit Party;

(d) Investments received in satisfaction of judgments or pursuant to any plan or
reorganization or similar arrangement upon the bankruptcy or insolvency of trade
creditors or account debtors;

(e) guarantees permitted by Section 7.3;

(f) Investments existing as of the date hereof and set forth on Schedule 7.4 and
any replacements, renewals or extensions of any such Investments; provided that
the amount of any such Investment is not increased at the time of such
replacement, renewal or extension of such Investment except by an amount equal
to a reasonable premium or other reasonable amount paid in respect of the
underlying obligations and fees and expenses reasonably incurred in connection
with such replacement, renewal or extension;

(g) Investments in respect of prepaid expenses, negotiable instruments held for
collection or lease, utility, workers’ compensation, in each case in the
Ordinary Course of Business;

(h) Investments pursuant to employee wage and benefit plans for the benefit of
the Credit Parties’ employees (including any “rabbi trust” account used in
connection with such purposes); and

(i) additional Investments not exceeding $50,000 in the aggregate outstanding at
any time.

7.5 [Intentionally Omitted.]

7.6 Capital Expenditures. Contract for, purchase or make any expenditure or
commitments for Capital Expenditures in any fiscal year in an aggregate amount
for all Borrowers in excess of $4,000,000.

7.7 Dividends. Declare, pay or make any dividend or distribution on any shares
of the common stock or preferred stock of any Credit Party (other than dividends
or distributions payable in its stock, or split-ups or reclassifications of its
stock, including, in respect of VMC’s Rights Plan) or apply any of its funds,
property or assets to the purchase, redemption or other retirement of any common
or preferred stock, or of any options to purchase or acquire any such shares of
common or preferred stock of any Credit Party (collectively, “Restricted
Payments”), except that:

(a) each Subsidiary may make Restricted Payments to any Credit Party that owns
an Equity Interest in such Subsidiary;

(b) each Credit Party and Subsidiary may purchase, redeem or otherwise acquire
Equity Interests issued by it solely with the proceeds received from the
substantially concurrent issue of new shares of its common stock or other common
Equity Interests; and

 

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(c) each Borrower and Subsidiary may purchase (i) Equity Interests in any Credit
Party or options with respect to Equity Interests in any Credit Party held by
directors, employees or management of any Borrower or any of its Subsidiaries
(or their estates or authorized representatives) in connection with the death,
disability or termination of employment of any such directors, employees or
management and (ii) Equity Interests in any Credit Party for the purpose of
holding such Equity Interest for future issuance under an employee stock plan.

7.8 Indebtedness. Create, incur, assume or suffer to exist any Indebtedness
(exclusive of trade debt) except in respect of::

(a) the Obligations;

(b) Indebtedness in respect of Capital Expenditures permitted under Section 7.6;

(c) without duplication, guarantees of any Credit Party or Subsidiary in respect
of Indebtedness of the Borrowers expressly permitted hereunder;

(d) intercompany Indebtedness between the Credit Parties;

(e) Indebtedness of any Credit Party or Subsidiary thereof incurred in the
Ordinary Course of Business in respect of bank guarantees, letters of credit or
similar instruments to support local regulatory requirements;

(f) Indebtedness disclosed on Schedule 7.8 and any permitted Refinancing
Indebtedness in respect thereof;

(g) additional unsecured Indebtedness in an aggregate principal amount not to
exceed $500,000 at any time outstanding;

(h) Indebtedness in respect of Capitalized Lease Obligations not in excess of
$150,000 in the aggregate at any time outstanding, solely to the extent arising
due to changes imposed subsequent to the Closing Date by GAAP requiring leases
characterized as operating leases as of the Closing Date (or any renewal or
replacement thereof) to be recharacterized as a Capital Lease Obligation; in the
aggregate at any time outstanding;

(i) Guarantees permitted under Section 7.3; and

(j) other Indebtedness incurred in the Ordinary Course of Business or arising as
result of operations of the Credit Parties in the Ordinary Course of Business,
in each case not constituting Funded Debt and not otherwise prohibited under
this Agreement or any other Loan Document.

7.9 Nature of Business. Substantially change the nature of the business in which
it is presently engaged or any business substantially related or incidental
thereto or any reasonable extension thereof, as determined in good faith by the
Credit Parties.

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

 

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(a) any contract, agreement or business arrangement between Credit Parties; and

(b) reasonable and customary director, officer and employee compensation
(including bonuses) and other benefits (including retirement, health, stock
option and other benefit plans, any issuances of securities or other payments,
awards or grants in cash, securities or otherwise pursuant to, or the funding
of, employment agreements, stock options and stock ownership plans) and
reasonable and customary indemnification and reimbursement arrangements with
respect to such Persons, in each case incurred in the Ordinary Course of
Business and consistent in all material respects with past practice.

7.11 [Intentionally Omitted.]

7.12 Subsidiaries.

(a) Form or acquire any Subsidiary unless (i) such Subsidiary is not a Foreign
Subsidiary and such Subsidiary expressly joins in this Agreement as a borrower
or becomes a Guarantor of the Obligations and grants a security interest in its
assets (subject to the same exceptions and limitations as the security interest
granted by the Credit Parties hereunder) and becomes jointly and severally
liable for the obligations of Borrowers hereunder, under the Revolving Credit
Notes and under any other agreement between any Borrower and Agent or Lenders,
in each case pursuant to a joinder agreement acceptable to Agent, and (ii) Agent
shall have received all documents, including legal opinions, it may reasonably
require to establish compliance with each of the foregoing conditions.

(b) Enter into any partnership, joint venture or similar arrangement.

7.13 Fiscal Year and Accounting Changes. Change, without the prior written
consent of Agent to be given or withheld in its sole discretion, its fiscal year
end from January 31 or make any change (a) in accounting treatment and reporting
practices except as required by GAAP or the Securities Act or (b) in tax
reporting treatment except as required by law.

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

7.15 Amendment of Articles of Incorporation, By-Laws. Amend, modify or waive any
term or material provision of its Certificate of Incorporation or By-Laws in a
manner adverse to Agent or any other Secured Party in any material respect
(including, without limitation of those amendments which may be adverse to the
Secured Parties, any such amendment that changes the manner in which members of
the board of directors are elected, vacancies on such board are filled, the
number of members that may constitute such board (or any provision pursuant to
which the number of members may be increased or decreased) or the manner in
which any class of shares is entitled to vote or the manner in which the weight
of such vote is calculated, including, in all cases any amendment to Article IX
of the Certificate of Incorporation of VMC, shall, in each case, be materially
adverse to Agent and the Lenders).

7.16 Compliance with ERISA. (a)(i) Maintain, or permit any member of the
Controlled Group to maintain, or (ii) become obligated to contribute to, or
permit any member of the Controlled Group to become obligated to contribute to,
any Pension Benefit Plan, other than those Pension Benefit Plans disclosed on
Schedule 5.8(d) or those Pension Benefit Plans for which the Agent has provided
its prior written consent; (b) engage, or permit any member of the Controlled
Group to engage, in any non-exempt “prohibited transaction”, as that term is
defined in section 406 of ERISA and Section 4975 of the Code that could
reasonably expected to have a Material Adverse Effect, (c) fail to satisfy, or
permit any

 

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member of the Controlled Group to fail to satisfy, the minimum funding standards
of the Pension Funding Rules, (d) except as could not reasonably be expected to
have a Material Adverse Effect terminate, or permit any member of the Controlled
Group to terminate, any Pension Benefit Plan where such event could result in
any liability of any Credit Party or any member of the Controlled Group or the
imposition of a lien on the property of any Credit Party or any member of the
Controlled Group pursuant to Section 430(k) of the Code or Section 4068 of
ERISA, (e) incur, or permit any member of the Controlled Group to incur, any
withdrawal liability to any Multiemployer Plan that could reasonably be expected
to have a Material Adverse Effect; (f) fail promptly to notify Agent of the
occurrence of any Termination Event that could reasonably be expected to have a
Material Adverse Effect, (g) fail to comply, or permit a member of the
Controlled Group to fail to comply, with the requirements of ERISA or the Code
or other Applicable Laws in respect of any Plan, that could reasonably be
expected to have a Material Adverse Effect or (h) postpone or delay, or allow
any member of the Controlled Group to postpone or delay, any funding requirement
under the Pension Funding Rules with respect of any Pension Benefit Plan.

7.17 Prepayment of Funded Debt. At any time, directly or indirectly, prepay any
Funded Debt (other than the Obligations), or repurchase, redeem, retire or
otherwise acquire any Funded Debt of any Credit Party, in an amount not in
excess of $150,000 in the aggregate in any fiscal year of the Borrowers.

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

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

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

(c) Engage in or conspire to engage in any transaction that evades or avoids, or
has the purpose of evading or avoiding, or attempts to violate, any of the
prohibitions set forth in the Executive Order No. 13224, the USA PATRIOT Act or
any other Anti-Terrorism Law. The Credit Parties shall deliver to Lenders any
certification or other evidence requested from time to time by any Lender in its
sole discretion, confirming the Credit Parties’ compliance with this
Section 7.18.

7.19 Membership/Partnership Interests. Treat or permit any of its Subsidiaries
to (a) treat its limited liability company membership interests or partnership
interests, as the case may be, as securities as contemplated by the definition
of “security” in Section 8-102(15) and by Section 8-103 of Article 8 of Uniform
Commercial Code or (b) certificate its limited liability company membership
interests or partnership interests, as the case may be, unless, in each case,
such certificates are contemporaneously with such treatment delivered to Agent
together with an endorsement in blank.

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

7.21 Clean Down. Commencing in calendar year 2012, permit Undrawn Availability
to be less than $6,000,000 for a period of 60 consecutive days during the last
fiscal quarter of each fiscal year of Borrowers.

7.22 Leases. Enter as lessee into any lease arrangement for real or personal
property (unless capitalized and permitted under Section 7.6) if after giving
effect thereto, aggregate annual rental payments for all leased property would
exceed $10,000,000 in any one fiscal year in the aggregate for all Borrowers.

 

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ARTICLE VIII

CONDITIONS PRECEDENT

8.1 Conditions to Initial Advances. The agreement of Lenders to make the initial
Advances requested to be made on the Closing Date , and of Agent to issue or
cause to be issued any Letter(s) of Credit to be issued on the Closing Date, if
any, is subject to the satisfaction, or waiver by Agent, immediately prior to or
concurrently with the making of such Advances, of the following conditions
precedent:

(a) Loan Documents. Agent shall have received (i) the Revolving Credit Notes
duly executed and delivered by an authorized officer of each Borrower, and
(ii) each other Loan Document to be delivered on the Closing Date executed and
delivered by each of the parties thereto;

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

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

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

(e) Corporate Proceedings of Guarantors. Agent shall have received a copy of the
resolutions in form and substance reasonably satisfactory to Agent, of the Board
of Directors of each Guarantor authorizing the execution, delivery and
performance of the Guaranty and each other Loan Document to which it is a party
certified by the Secretary or an Assistant Secretary of each Guarantor as of the
Closing Date; and, such certificate shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded as of the date
of such certificate;

 

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

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

(h) Good Standing Certificates. Agent shall have received good standing
certificates for each Borrower and each Guarantor dated not more than 30 days
prior to the Closing Date, issued by the Secretary of State or other appropriate
official of each Borrower’s and each Guarantor’s jurisdiction of incorporation
and each jurisdiction where the failure to be so qualified could reasonably be
expected to have a Material Adverse Effect;

(i) Legal Opinion. Agent shall have received the executed legal opinion of
Gibson, Dunn & Crutcher LLP in form and substance reasonably satisfactory to
Agent, which shall cover such matters incident to the transactions contemplated
by this Agreement, the other Loan Documents, and related agreements as Agent may
reasonably require and each Credit Party hereby authorizes and directs such
counsel to deliver such opinions to Agent and Lenders;

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

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

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

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

(n) Pro Forma Financial Statements. Agent shall have received a copy of the
Projections and Pro Forma Financial Statements, which shall demonstrate the
ability of Borrowers to service their Indebtedness and perform all their
Obligations hereunder and otherwise which must be satisfactory in all respects
to Agent;

 

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(o) Insurance. Agent shall have received in form and substance satisfactory to
Agent, certified copies of Borrowers’ casualty insurance policies, together with
loss payable endorsements on Agent’s standard form of loss payee endorsement
naming Agent as loss payee, and certified copies of Borrowers’ liability
insurance policies, together with endorsements naming Agent as a co-insured and
lender loss payee, as may be required by Agent, and if any Real Property is
located in an area designated as a flood hazard area by any Governmental Body,
the Borrowers will provide the Agent, at the Borrowers’ expense, a policy of
flood insurance in an amount equal to the lesser of (i) the value of the
applicable Real Property to be insured and (ii) the maximum amount available
under the federal flood insurance program;

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

(q) Environmental Reports. Agent shall have received all environmental studies
and reports prepared by independent environmental engineering firms with respect
to all Real Property owned or leased by any Credit Party, including, Phase I
environmental assessments and satisfactory flood certifications;

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

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

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

(u) No Adverse Material Change. (i) since January 31, 2011, there shall not have
occurred any event, condition or state of facts that could reasonably be
expected to have a Material Adverse Effect and (ii) no representations made or
information supplied to Agent or Lenders shall have been proven to be inaccurate
or misleading in any material respect;

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

(w) Mortgages. Agent shall have received in form and substance satisfactory to
Lenders (i) an executed Mortgage in respect of the Credit Parties’ Real Property
located at 1701 Sturgis Road, Conway, Arkansas and (ii) title policies and
(ii) surveys, for such Real Property;

 

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(x) Contract Review. Agent shall have reviewed (i) all material contracts of the
Credit Parties including leases, union contracts, labor contracts, vendor supply
contracts, license agreements and distributorship agreements and (ii) all
agreements with trade vendors including terms of sales provided to the Credit
Parties and any remaining past due amounts owed to vendors, and such contracts
and agreements, shall be satisfactory in all respects to Agent;

(y) Closing Certificate. Agent shall have received a closing certificate signed
by the Vice President Finance of each Credit Party dated as of the date hereof,
stating that (i) all representations and warranties set forth in this Agreement
and the other Loan Documents are true and correct in all respects on the Closing
Date (ii) the Credit Parties are on such date in compliance with all the terms
and provisions set forth in this Agreement and the other Loan Documents and
(iii) on such date (after giving effect to the repayment and termination of
VMC’s Wells Fargo Credit Facility) no Default or Event of Default has occurred
or is continuing;

(z) Borrowing Base. Agent shall have received a Borrowing Base Certificate from
Borrowers that the aggregate amount of Eligible Receivables and Eligible
Inventory is sufficient in value and amount to support Advances in the amount
requested by Borrowers on the Closing Date;

(aa) Undrawn Availability. After giving effect to the initial Advances
hereunder, Borrowers shall have Undrawn Availability (after payment of all fees
and transaction expenses in connection with the Loan Documents, and subtraction
of all trade payables aged beyond 60 days past due) of at least $5,500,000; and

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

(cc) Repayment of Indebtedness. Agent shall have received a copy of a payoff
letter and lien releases in respect of the Indebtedness of Borrowers outstanding
under the Second Amended and Restated Credit Agreement, dated as of March 12,
2008, between VMC and Wells Fargo, National Association (as in effect on the
date hereof, “VMC’s Wells Fargo Credit Facility”), and all Indebtedness and
commitments to lend thereunder shall be paid in full and terminated, as
applicable, on the Closing Date substantially contemporaneously with the initial
Advances made hereunder.

(dd) Corporate. Agent shall be reasonably satisfied with the legal and capital
structure of the Credit Parties and their respective Subsidiaries.

(ee) Other. All (i) corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the Transactions shall be
satisfactory in form and substance to Agent and its counsel, and (ii) documents,
instruments and agreements required to be delivered by or on behalf of Borrowers
and Guarantors pursuant to the “closing checklist” provided by Agent in
connection with this Agreement shall be delivered in form and substance
satisfactory to Agent and its counsel.

 

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8.2 Conditions to Each Advance. The agreement of Lenders to make any Advance
requested to be made on any date (including the initial Advance), and of Agent
to issue or cause to be issued any Letter of Credit requested to be issued on
any date (including the Closing Date), is subject to the satisfaction of the
following conditions precedent as of the date such Advance is made:

(a) Representations and Warranties. Each of the representations and warranties
made by any Credit Party in or pursuant to this Agreement, the other Loan
Documents and any related agreements to which it is a party, and each of the
representations and warranties contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement, the other Loan Documents or any related agreement shall be true
and correct in all material respects (except that any such representation or
warranty that is already qualified or modified by materiality shall be true and
correct in all respects) on and as of such date as if made on and as of such
date, except for those representations and warranties that relate solely to an
earlier date, in which case such representation or warranty shall be true and
correct in all material respects as of such date;

(b) No Default. No Event of Default or Default shall have occurred and be
continuing on such date, or would exist after giving effect to the Advances
requested to be made, on such date;

(c) No Material Adverse Effect. No Material Adverse Effect shall have occurred
on or prior to such date, or would result after giving effect to the Advances
requested to be made on such date;

Provided, however, that, notwithstanding Sections 8.2(a), (b) and (c), Agent, in
its sole discretion, may continue to make Advances notwithstanding the existence
of an Event of Default or Default and that any Advances so made shall not be
deemed a waiver of any such Event of Default or Default and shall not obligate
any Secured Party to make any future Advances; and

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

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

ARTICLE IX

INFORMATION AS TO CREDIT PARTIES

Until indefeasible payment in full in cash (or other immediately available
funds) of the Obligations (other than Inchoate Obligations) and termination of
this Agreement, each Credit Party shall, or (except with respect to
Section 9.11) shall cause Borrowing Agent on its behalf to:

9.1 Disclosure of Material Matters. Immediately upon learning thereof, report to
Agent all matters materially adversely affecting the value, enforceability or
collectibility of any portion of the Collateral in excess of $100,000 in the
aggregate (other than Inventory held by employees of the Credit Parties for
marketing and sales purposes not in excess of $10,000 in the aggregate),
including any Credit Party’s reclamation or repossession of, or the return to
any Credit Party of, a material amount of goods or claims or disputes asserted
by any Customer or other obligor.

9.2 Schedules. During the Peak Season, deliver to Agent on or before Wednesday
of each week (or as frequently as Agent shall require during the existence of a
Default) as and for the prior week (a) accounts receivable ageings inclusive of
reconciliations to the general ledger, (b) accounts payable schedules inclusive
of reconciliations to the general ledger, (c) Inventory reports and (d) a
Borrowing

 

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Base Certificate in form and substance satisfactory to Agent (which shall be
calculated as of the last day of the prior week and which shall not be binding
upon Agent or restrictive of Agent’s rights under this Agreement). At all times
other than during the Peak Season, deliver to Agent on or before the fifteenth
(15th) day of each month (or as frequently as Agent shall require during the
existence of a Default) as and for the prior month (a) accounts receivable
ageings inclusive of reconciliations to the general ledger, (b) accounts payable
schedules inclusive of reconciliations to the general ledger, (c) Inventory
reports and (d) a Borrowing Base Certificate in form and substance satisfactory
to Agent (which shall be calculated as of the last day of the prior month and
which shall not be binding upon Agent or restrictive of Agent’s rights under
this Agreement). Borrowers shall also deliver to Agent on or before Wednesday of
each week (or as frequently as Agent shall require during the existence of a
Default) as and for the prior week, a report of the sales and collections
activity for such week. In addition, each Borrower will deliver to Agent at such
intervals as Agent may require: (i) confirmatory assignment schedules,
(ii) copies of Customer’s invoices, (iii) evidence of shipment or delivery, and
(iv) such further schedules, documents and/or information regarding the
Collateral as Agent may require including trial balances and test verifications.
Agent shall have the right to confirm and verify all Receivables by any manner
and through any medium it considers advisable and may do whatever it deems
reasonably necessary to protect its interests hereunder. The items to be
provided under this Section 9.2 are to be in form satisfactory to Agent and
executed by Borrowing Agent and delivered to Agent from time to time solely for
Agent’s convenience in maintaining records of the Collateral, and any Borrower’s
failure to deliver any of such items to Agent shall not affect, terminate,
modify or otherwise limit Agent’s Lien with respect to the Collateral.

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

9.4 Litigation. Promptly notify Agent in writing of any claim, litigation, suit
or administrative proceeding affecting any Credit Party, whether or not the
claim is covered by insurance, and of any litigation, suit or administrative
proceeding, which in any such case adversely affects the Collateral or that
could reasonably be expected to have a Material Adverse Effect.

9.5 Material Occurrences. Promptly notify Agent in writing upon the occurrence
of (a) any Event of Default or Default; (b) any event, development or
circumstance whereby any financial statements or other reports furnished to
Agent fail in any material respect to present fairly, in accordance with GAAP
consistently applied (after giving effect to any reconciliation required to
accompany such financial statements pursuant to Section 1.1), the financial
condition or operating results of any Borrower as of the date of such
statements; (c) any accumulated retirement plan funding deficiency which, if
such deficiency continued for two plan years and was not corrected as provided
in Section 4971 of the Code, could subject any Credit Party to a tax imposed by
Section 4971 of the Code; (d) each and every default by any Credit Party that
might result in the acceleration of the maturity of any Funded Debt, including
the names and addresses of the holders of such Funded Debt with respect to which
there is a default existing or with respect to which the maturity has been or
could be accelerated, and the amount of such Funded Debt; and (e) any other
development in the business or affairs of any Credit Party that could reasonably
be expected to have a Material Adverse Effect; in each case describing the
nature thereof and the action the Credit Parties propose to take with respect
thereto.

 

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9.6 Government Receivables. Upon request of Agent, provide Agent with a listing
of all Receivables that arise out of contracts between any Credit Party and the
United States, any state, or any department, agency or instrumentality of any of
them, in such reasonable detail as Agent may require.

9.7 Annual Financial Statements. Furnish Agent and Lenders within ninety
(90) days after the end of each fiscal year of VMC, financial statements of
Borrowers and their Subsidiaries on a consolidating (if applicable) and
consolidated basis including statements of income and stockholders’ equity and
cash flow from the beginning of the current fiscal year to the end of such
fiscal year and the balance sheet as at the end of such fiscal year, all
prepared in accordance with GAAP consistently applied, and in reasonable detail
and reported upon without a “going concern” or like qualification by an
independent certified public accounting firm selected by Borrowers and
satisfactory to Agent (the “Accountants”). The report of the Accountants shall
be prepared in accordance with generally accepted accounting standards. In
addition, the reports shall be accompanied by a Compliance Certificate.

9.8 Quarterly Financial Statements. Furnish Agent and Lenders within forty five
(45) days after the end of (i) each fiscal quarter (other than the fourth fiscal
quarter), an unaudited balance sheet of Borrowers and their Subsidiaries on a
consolidating (if applicable) and consolidated basis and unaudited statements of
income and stockholders’ equity and cash flow of Borrowers and their
Subsidiaries on a consolidating (if applicable) and consolidated basis
reflecting results of operations from the beginning of the fiscal year to the
end of such quarter and for such quarter, prepared on a basis consistent with
prior practices and fairly representing the financial condition of the Borrowers
in all material respects, subject to normal and recurring year end adjustments
and to the absence of footnotes and (ii) the fourth fiscal quarter a summary of
the last three month’s profits and losses, and cash flow. The reports shall be
accompanied by a Compliance Certificate.

9.9 Monthly Financial Statements. Furnish Agent and Lenders within thirty
(30) days after the end of each month, an unaudited balance sheet of Borrowers
and their Subsidiaries on a consolidating (if applicable) and consolidated basis
and unaudited statements of income and stockholders’ equity and cash flow of
Borrowers and their Subsidiaries on a consolidating (if applicable) and
consolidated basis reflecting results of operations from the beginning of the
fiscal year to the end of such month and for such month, prepared on a basis
consistent with prior practices and fairly representing the financial condition
of the Borrowers in all material respects, subject to normal and recurring year
end adjustments and to the absence of footnotes. The reports shall be
accompanied by a Compliance Certificate.

9.10 Other Reports. Furnish Agent as soon as available, but in any event within
ten (10) days after the issuance thereof, (a) with copies of such financial
statements, reports and returns as each Borrower shall send to its stockholders,
(b) with copies of each annual report, proxy or financial statement or other
report or communication sent to the shareholders of Borrowers, and copies of all
annual, regular, periodic and special reports and registration statements which
Borrowers may file or be required to file with the SEC under Section 13 or 15(d)
of the Exchange Act, and not otherwise required to be delivered to Lenders
pursuant to other provisions of this Section, and (c) with copies of any other
report or other document that was filed by Borrower or any of its Subsidiaries
with any Governmental Authority;

9.11 Additional Information. Furnish Agent with such additional information as
Agent shall reasonably request in order to enable Agent to determine whether the
terms, covenants, provisions and conditions of this Agreement and the Revolving
Credit Notes have been complied with by the Credit Parties including, without
the necessity of any request by Agent, (a) copies of all environmental audits
and reviews, (b) at least thirty (30) days prior thereto, notice of any Credit
Party’s opening of any new office or place of business or any Credit Party’s
closing of any existing office or place of business (other than home offices of
individual marketing and sales employees and regional sales managers of the
Credit

 

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Parties), and (c) promptly upon any Credit Party’s learning thereof, notice of
any labor dispute to which any Credit Party may become a party, any strikes or
walkouts relating to any of its plants or other facilities, and the expiration
of any labor contract to which any Credit Party is a party or by which any
Credit Party is bound.

9.12 Projected Operating Budget. Commencing with fiscal year 2012, furnish Agent
and Lenders, (a) no later than thirty (30) days prior to the beginning of each
Borrower’s fiscal years a draft of, and (b) no later than thirty (30) days after
the beginning of each such fiscal years a final board of directors approved,
month by month projected operating budget and cash flow of Borrowers and their
Subsidiaries on a consolidating (if applicable) and consolidated basis for such
fiscal year (including an income statement for each month and a balance sheet as
at the end of the last month in each fiscal quarter), such projections, in the
case of the foregoing clause (b), to be accompanied by a certificate signed by
the President or Vice President Finance of each Borrower to the effect that such
projections have been prepared on the basis of sound financial planning practice
consistent with past budgets and financial statements and that such officer has
no reason to question the reasonableness of any material assumptions on which
such projections were prepared.

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

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

9.15 ERISA Notices and Requests. Furnish Agent with prompt written notice in the
event that (a) any Credit Party or any member of the Controlled Group knows or
has reason to know that a Termination Event has occurred, together with a
written statement describing such Termination Event and the action, if any,
which any Credit Party or any member of the Controlled Group has taken, is
taking, or proposes to take with respect thereto and, when known, any action
taken or threatened by the Internal Revenue Service, Department of Labor or PBGC
with respect thereto, (b) any Credit Party or any member of the Controlled Group
knows or has reason to know that a prohibited transaction (as defined in
Sections 406 of ERISA and 4975 of the Code) that could reasonably be expected to
have a Material Adverse Effect has occurred together with a written statement
describing such transaction and the action which such Credit Party or such
member of the Controlled Group (as applicable) has taken, is taking or proposes
to take with respect thereto, (c) a funding waiver request has been filed with
respect to any Pension Benefit Plan together with all communications received by
any Credit Party or any member of the Controlled Group with respect to such
request, (d) any increase in the benefits of any frozen Pension Benefit Plan as
set forth in Schedule 5.8(d), (e) any Credit Party or any member of the
Controlled Group shall receive from the PBGC a notice of intention to terminate
a Pension Benefit Plan or to have a trustee appointed to administer a Pension
Benefit Plan, together with copies of each such notice, (f) any Credit Party or
any member of the Controlled Group shall receive any unfavorable determination
letter from the Internal Revenue Service regarding the qualification of a
Pension Benefit Plan under Section 401(a) of the Code, together with copies of
each such letter; (g) any Credit Party or any member of the Controlled Group
shall

 

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receive a notice regarding the imposition of withdrawal liability with respect
to a Multiemployer Plan, together with copies of each such notice; (h) any
Credit Party or any member of the Controlled Group shall fail to make a required
installment or any other required payment under the Pension Funding Rules on or
before the due date for such installment or payment; (i) any Credit Party or any
member of the Controlled Group knows that (i) a Multiemployer Plan has been
terminated, (ii) the administrator or plan sponsor of a Multiemployer Plan
intends to terminate a Multiemployer Plan, or (iii) the PBGC has instituted or
will institute proceedings under Section 4042 of ERISA to terminate a
Multiemployer Plan. The Credit Parties shall promptly deliver to Agent all
information required to be reported to the PBGC under Section 4010 of ERISA and
such other documents or governmental reports or filings related to any Pension
Benefit Plan as Agent shall reasonably request. Promptly following an request
therefor, the Credit Parties shall deliver to the Agent copies of any documents
or notices described in Sections 101(j), (k) or (l) of ERISA that any Credit
Party or any member of the Controlled Group may request with respect to any
Pension Benefit Plan or Multiemployer Plan, as applicable; provided, that, if
any Credit Party or any member of the Controlled Group has not requested such
documents or notices from the administrator or sponsor of the applicable Pension
Benefit Plan or Multiemployer Plan, then the applicable Credit Party or the
applicable member of the Controlled Group shall, upon request by Agent, promptly
make a request for such documents or notices from such administrator or sponsor
and shall provide copies of such documents and notices to Agent promptly after
receipt thereof.

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

ARTICLE X

EVENTS OF DEFAULT

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

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

10.2 Breach of Representation. Any representation or warranty made or deemed
made by any Credit Party in this Agreement, any other Loan Document or in any
related agreement, certificate, document or financial or other statement
furnished at any time in connection herewith or therewith shall prove to have
been incorrect in any material respect or when taken together with all such
other information delivered under the Loan Documents, misleading in any material
respect (except, in each case, that any such representation or warranty that is
already qualified or modified by materiality shall be true and correct in all
respects) on the date when made or deemed to have been made;

10.3 Noncompliance. Except as otherwise provided in Section 10.1, failure or
neglect of any Credit Party to perform, keep or observe any term, provision,
condition or covenant:

(a) contained in Sections 4.3, 4.5, 4.6, 4.7, 4.11, 4.21, 6.5, 6.6, 6.7,
Sections 7.1 through 7.22 or Sections 9.7, 9.8, 9.9, 9.12 and 9.13;

 

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(b) contained in Sections 9.1 through 9.15 (other than Sections 9.7, 9.8, 9.9,
9.12 and 9.13), which remains unremedied for a period of five (5) Business Days;

(c) contained in any other provisions of this Agreement or any of the other Loan
Documents, which remains unremedied for a period of thirty (30) days after the
earlier of (x) knowledge of such failure by any Credit Party, or (y) written
notice of such failure to Borrowing Agent by Agent or any Lender;

10.4 Judicial Actions. Issuance of a notice of Lien, levy, assessment,
injunction or attachment against any Credit Party’s Inventory, Receivables or
other property having an aggregate value in excess of $250,000 that is not
stayed or lifted within thirty (30) days;

10.5 Judgments. Any judgment or judgments are rendered against any Credit Party
for an aggregate amount in excess of $250,000 and (a) enforcement proceedings
shall have been commenced by a creditor upon such judgment, (b) there shall be
any period of thirty (30) consecutive days during which a stay of enforcement of
such judgment, by reason of a pending appeal or otherwise, shall not be in
effect, or (c) any such judgment results in the creation of a Lien upon any of
the Collateral (other than a Permitted Encumbrance);

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

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

10.8 Affiliate Actions. Any Affiliate of any Credit Party (a) violates any
Anti-Terrorism Law or engages in or conspires to engage in any transaction that
evades or avoids, or has the purpose of evading or avoiding, or attempts to
violate, any of the prohibitions set forth in any Anti-Terrorism Law, (b) shall,
or its respective agents acting or benefiting in any capacity in connection with
the Advances or other transactions hereunder, shall be a Blocked Person,
(c) (i) conducts any business or engages in any transaction or dealing with any
Blocked Person, including the making or receiving any contribution of funds,
goods or services to or for the benefit of any Blocked Person, (ii) deals in, or
otherwise engages in, any transaction relating to, any property or interests in
property blocked pursuant to the Executive Order No. 13224, or (iii) engages in
or conspires to engage in any transaction that evades or avoids, or has the
purpose of evading or avoiding, or attempts to violate, any of the prohibitions
set forth in the Executive Order No. 13224, the USA PATRIOT Act or any other
Anti-Terrorism Law.

10.9 Lien Priority. Any Lien created hereunder or provided for hereby or under
any related agreement for any reason ceases to be or is not a valid and
perfected Lien having a first priority interest;

10.10 Cross Default. A default of the obligations of any Credit Party shall
occur under (i) any agreement to which it is a party in respect of Funded Debt
in excess of $200,000 in the aggregate for all such Persons, or (ii) any other
agreement to which it is a party that materially adversely affects its
condition, affairs or prospects (financial or otherwise), in each case which
default is not cured within any applicable grace period;

 

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10.11 Breach of Guaranty. Termination or breach of any Guaranty or Guarantor
Security Agreement or similar agreement executed and delivered to Agent in
connection with the Obligations of any Borrower, or if any Guarantor attempts to
terminate, challenges (in writing) the validity of, or its liability under, any
such Guaranty or Guaranty Security Agreement or similar agreement;

10.12 Change of Control. Any Change of Control shall occur;

10.13 Invalidity. Any material provision of this Agreement or any other Loan
Document shall, for any reason, cease to be valid and binding on any Credit
Party, or any Credit Party shall so claim in writing to Agent or any Lender;

10.14 Licenses. (a) Any Governmental Body shall (i) revoke, terminate, suspend
or adversely modify any license, permit, patent trademark or trade name of any
Credit Party, or (ii) commence proceedings to suspend, revoke, terminate or
adversely modify any such license, permit, trademark, trade name or patent and
such proceedings shall not be dismissed or discharged within sixty (60) days, or
(iii) schedule or conduct a hearing on the renewal of any license, permit,
trademark, trade name or patent necessary for the continuation of any Credit
Party’s business and the staff of such Governmental Body issues a report
recommending the termination, revocation, suspension or material, adverse
modification of such license, permit, trademark, trade name or patent; or
(b) any agreement that is necessary or material to the operation of any Credit
Party’s business shall be revoked or terminated and not replaced by a substitute
acceptable to Agent within thirty (30) days after the date of such revocation or
termination, and such revocation or termination and non-replacement could, in
each case of this Section 10.15, reasonably be expected to have a Material
Adverse Effect;

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

10.16 Operations. The operations of any Credit Party’s manufacturing facility
are interrupted at any time for more than (a) five (5) consecutive days during
the Peak Season or (b) fifteen (15) consecutive days at any other time, in each
case unless such Credit Party shall (i) be entitled to receive for such period
of interruption, proceeds of business interruption insurance sufficient to
assure that its per diem cash needs during such period is at least equal to its
average per diem cash needs for the consecutive six month period immediately
preceding the initial date of interruption and (ii) receive such proceeds in the
amount described in clause (a) preceding not later than thirty (30) days
following the initial date of any such interruption; provided, however, that
notwithstanding the provisions of clauses (i) and (ii) of this section, an Event
of Default shall be deemed to have occurred if such Credit Party shall be
receiving the proceeds of business interruption insurance for a period of thirty
(30) consecutive days; or

10.17 Pension Plans. Any failure by any Credit Party to comply with the
requirements of Sections 7.16 or 9.15 hereof, determined without regard to any
materiality limitation or threshold set forth therein, shall occur or exist with
respect to any Pension Benefit Plan and, as a result of such event or condition,
together with all other such events or conditions, any Credit Party or any
member of the Controlled Group shall incur, or in the opinion of Agent be
reasonably likely to incur, a liability to a Pension Benefit Plan or the PBGC
(or both) which, in the reasonable judgment of Agent, would be reasonably likely
to result in aggregate liability to the Credit Parties (or any of them) of
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10.18 Section 6.5 Covenants. Any covenant in Section 6.5 becomes inapplicable
due to the failure of such covenant to apply by its terms in a future period,
and the Borrowers and Agent fail to come to an agreement acceptable to Agent in
its sole discretion to amend the covenant to apply to future periods.

ARTICLE XI

LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT

11.1 Rights and Remedies.

(a) Upon the occurrence of (i) an Event of Default pursuant to Section 10.6 all
Obligations shall be immediately due and payable and this Agreement and the
obligation of Lenders to make Advances shall be deemed terminated; and, (ii) any
of the other Events of Default and at any time thereafter (such Event of Default
not having previously been waived), at the option of Required Lenders all
Obligations shall be immediately due and payable and Lenders shall have the
right to terminate this Agreement and to terminate the obligation of Lenders to
make Advances and (iii) a filing of a petition against any Credit Party in any
involuntary case under any state or federal bankruptcy laws, all Obligations
shall be immediately due and payable and the obligation of Lenders to make
Advances hereunder and the obligation of Agent to issue or cause the issuance of
any Letter of Credit will be terminated other than as may be agreed to by Agent
and Lenders and approved by an appropriate order of the bankruptcy court or
other governmental Body having jurisdiction over such Credit Party in connection
therewith in form and substance satisfactory to Agent and Lenders in their sole
discretion. Upon the occurrence of any Event of Default, Agent shall have the
right to exercise any and all rights and remedies provided for herein, under the
other Loan Documents, under the Uniform Commercial Code and at law or equity
generally, including the right to foreclose the security interests granted
herein and to realize upon any Collateral by any available judicial procedure
and/or to take possession of and sell any or all of the Collateral with or
without judicial process. Agent may enter any of any Credit Party’s premises or
other premises without legal process and without incurring liability to any
Credit Party therefor, and Agent may thereupon, or at any time thereafter, in
its discretion without notice or demand, take the Collateral and remove the same
to such place as Agent may deem advisable and Agent may require the Credit
Parties to make the Collateral available to Agent at a convenient place. With or
without having the Collateral at the time or place of sale, Agent may sell the
Collateral, or any part thereof, at public or private sale, at any time or
place, in one or more sales, at such price or prices, and upon such terms,
either for cash, credit or future delivery, as Agent may elect. Except as to
that part of the Collateral that is perishable or threatens to decline speedily
in value or is of a type customarily sold on a recognized market, Agent shall
give the Credit Parties reasonable notification of such sale or sales, it being
agreed that in all events written notice mailed to Borrowing Agent at least ten
(10) days prior to such sale or sales is reasonable notification. At any public
sale Agent or any Secured Party may bid for and become the purchaser, and Agent,
any Secured Party or any other purchaser at any such sale thereafter shall hold
the Collateral sold absolutely free from any claim or right of whatsoever kind,
including any equity of redemption and all such claims, rights and equities are
hereby expressly waived and released by each Credit Party. In connection with
the exercise of the foregoing remedies, including the sale of Inventory, Agent
is granted a perpetual non-revocable, royalty free, nonexclusive license and
Agent is granted permission to use all of each Credit Party’s (a) trademarks,
trade styles, trade names, patents, patent applications, copyrights, service
marks, licenses, franchises and other proprietary rights that are used or useful
in connection with Inventory for the purpose of marketing, advertising for sale
and selling or otherwise disposing of such Inventory and (b)

 

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Equipment for the purpose of completing the manufacture of unfinished goods. The
cash proceeds realized from the sale of any Collateral shall be applied to the
Obligations in the order set forth in Section 11.5. Non-cash proceeds will only
be applied to the Obligations as they are converted into cash. If any deficiency
shall arise, the Credit Parties shall remain liable to Secured Party therefor.

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

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

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

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

 

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

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

SECOND, to payment of any fees owed to Agent;

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

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

FIFTH, to the payment of the outstanding principal amount of the Obligations
(including the payment or cash collateralization of any outstanding Letters of
Credit);

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

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

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

ARTICLE XII

WAIVERS AND JUDICIAL PROCEEDINGS

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

 

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

12.3 Jury Waiver; California Judicial Reference.

(a) EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES TO THE MAXIMUM EXTENT
NOT PROHIBITED BY APPLICABLE LAW, ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS, OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR (B) IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR THERETO OR ANY
OF THEM WITH RESPECT TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH
OR THEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT OR SUCH OTHER LOAN DOCUMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

(b) IN THE EVENT THAT ANY SUCH ACTION IS COMMENCED OR MAINTAINED IN ANY COURT IN
THE STATE OF CALIFORNIA, AND THE WAIVER OF JURY TRIAL SET FORTH IN SECTION ABOVE
IS NOT ENFORCEABLE, AND EACH PARTY TO SUCH ACTION DOES NOT SUBSEQUENTLY WAIVE IN
AN EFFECTIVE MANNER UNDER CALIFORNIA LAW ITS RIGHT TO A TRIAL BY JURY, THE
PARTIES HERETO HEREBY ELECT TO PROCEED AS FOLLOWS:

(i) WITH THE EXCEPTION OF THE ITEMS SPECIFIED IN CLAUSE (II) BELOW, ANY
CONTROVERSY, DISPUTE OR CLAIM (EACH, A “CONTROVERSY”) BETWEEN THE PARTIES
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT WILL BE
RESOLVED BY A REFERENCE PROCEEDING IN ACCORDANCE WITH THE PROVISIONS OF SECTIONS
638, ET SEQ. OF THE CALIFORNIA CODE OF CIVIL PROCEDURE (“CCP”), OR THEIR
SUCCESSOR SECTIONS, WHICH SHALL CONSTITUTE THE EXCLUSIVE REMEDY FOR THE
RESOLUTION OF ANY CONTROVERSY, INCLUDING WHETHER THE CONTROVERSY IS SUBJECT TO
THE REFERENCE PROCEEDING. EXCEPT AS OTHERWISE PROVIDED ABOVE, VENUE FOR THE
REFERENCE PROCEEDING WILL BE IN ANY COURT IN WHICH VENUE IS APPROPRIATE UNDER
APPLICABLE LAW (THE “COURT”).

(ii) THE MATTERS THAT SHALL NOT BE SUBJECT TO A REFERENCE ARE THE FOLLOWING:
(A) NON-JUDICIAL FORECLOSURE OF ANY SECURITY INTERESTS IN REAL OR PERSONAL
PROPERTY; (B) EXERCISE OF SELF HELP REMEDIES (INCLUDING SET-OFF);
(C) APPOINTMENT OF A RECEIVER; AND (D) TEMPORARY, PROVISIONAL OR ANCILLARY
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POSSESSION, TEMPORARY RESTRAINING ORDERS OR PRELIMINARY INJUNCTIONS). THIS
AGREEMENT DOES NOT LIMIT THE RIGHT OF ANY PARTY TO EXERCISE OR OPPOSE ANY OF THE
RIGHTS AND REMEDIES DESCRIBED IN CLAUSES (A) AND (B) OR TO SEEK OR OPPOSE FROM A
COURT OF COMPETENT JURISDICTION ANY OF THE ITEMS DESCRIBED IN CLAUSES (C) AND
(D). THE EXERCISE OF, OR OPPOSITION TO, ANY OF THOSE ITEMS DOES NOT WAIVE THE
RIGHT OF ANY PARTY TO A REFERENCE PURSUANT TO THIS AGREEMENT.

(iii) THE REFEREE SHALL BE A RETIRED JUDGE OR JUSTICE SELECTED BY MUTUAL WRITTEN
AGREEMENT OF THE PARTIES. IF THE PARTIES DO NOT AGREE WITHIN TEN (10) DAYS OF A
WRITTEN REQUEST TO DO SO BY ANY PARTY, THEN, UPON REQUEST OF ANY PARTY, THE
REFEREE SHALL BE SELECTED BY THE PRESIDING JUDGE OF THE COURT (OR HIS OR HER
REPRESENTATIVE). A REQUEST FOR APPOINTMENT OF A REFEREE MAY BE HEARD ON AN EX
PARTE OR EXPEDITED BASIS, AND THE PARTIES AGREE THAT IRREPARABLE HARM WOULD
RESULT IF EX PARTE RELIEF IS NOT GRANTED.

(iv) EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE REFEREE SHALL
DETERMINE THE MANNER IN WHICH THE REFERENCE PROCEEDING IS CONDUCTED INCLUDING
THE TIME AND PLACE OF HEARINGS, THE ORDER OF PRESENTATION OF EVIDENCE, AND ALL
OTHER QUESTIONS THAT ARISE WITH RESPECT TO THE COURSE OF THE REFERENCE
PROCEEDING. ALL PROCEEDINGS AND HEARINGS CONDUCTED BEFORE THE REFEREE, EXCEPT
FOR TRIAL, SHALL BE CONDUCTED WITHOUT A COURT REPORTER, EXCEPT THAT WHEN ANY
PARTY SO REQUESTS, A COURT REPORTER WILL BE USED AT ANY HEARING CONDUCTED BEFORE
THE REFEREE, AND THE REFEREE WILL BE PROVIDED A COURTESY COPY OF THE TRANSCRIPT.
THE PARTY MAKING SUCH A REQUEST SHALL HAVE THE OBLIGATION TO ARRANGE FOR THE
COURT REPORTER. SUBJECT TO THE REFEREE’S POWER TO AWARD COSTS TO THE PREVAILING
PARTY, THE CREDIT PARTIES WILL PAY THE COST OF THE REFEREE AND ALL COURT
REPORTERS.

(v) THE REFEREE SHALL BE REQUIRED TO DETERMINE ALL ISSUES IN ACCORDANCE WITH
EXISTING APPLICABLE CASE LAW AND STATUTORY LAW. THE RULES OF EVIDENCE APPLICABLE
TO PROCEEDINGS AT LAW IN THE COURT WILL BE APPLICABLE TO THE REFERENCE
PROCEEDING. THE REFEREE SHALL BE EMPOWERED TO ENTER EQUITABLE AS WELL AS LEGAL
RELIEF, ENTER EQUITABLE ORDERS THAT WILL BE BINDING ON THE PARTIES AND RULE ON
ANY MOTION THAT WOULD BE AUTHORIZED IN A COURT PROCEEDING. THE REFEREE SHALL
ISSUE A DECISION AT THE CLOSE OF THE REFERENCE PROCEEDING WHICH DISPOSES OF ALL
CLAIMS OF THE PARTIES THAT ARE THE SUBJECT OF THE REFERENCE. PURSUANT TO CCP
SECTION 644, SUCH DECISION SHALL BE ENTERED BY THE COURT AS A JUDGMENT OR AN
ORDER IN THE SAME MANNER AS IF THE ACTION HAD BEEN TRIED BY THE COURT AND ANY
SUCH DECISION WILL BE FINAL, BINDING AND CONCLUSIVE. THE PARTIES RESERVE THE
RIGHT TO APPEAL FROM THE

 

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FINAL JUDGMENT OR ORDER OR FROM ANY APPEALABLE DECISION OR ORDER ENTERED BY THE
REFEREE. THE PARTIES RESERVE THE RIGHT TO FINDINGS OF FACT, CONCLUSIONS OF LAWS,
A WRITTEN STATEMENT OF DECISION, AND THE RIGHT TO MOVE FOR A NEW TRIAL OR A
DIFFERENT JUDGMENT, WHICH NEW TRIAL, IF GRANTED, IS ALSO TO BE A REFERENCE
PROCEEDING UNDER THIS PROVISION.

(vi) NEITHER THE INCLUSION OF THIS SECTION 12.3, NOR ANY REFERENCE TO CALIFORNIA
LAW CONTAINED HEREIN SHALL BE DEEMED TO AFFECT OR LIMIT IN ANY WAY THE PARTIES’
CHOICE OF NEW YORK LAW.

ARTICLE XIII

EFFECTIVE DATE AND TERMINATION

13.1 Term. This Agreement, which shall inure to the benefit of and shall be
binding upon the respective successors and permitted assigns of each Credit
Party, Agent and each Secured Party, shall become effective on the date hereof
and shall continue in full force and effect until December 22, 2014 (the “Term”)
unless sooner terminated as herein provided. Borrowers may terminate this
Agreement at any time upon not less than sixty (60) days’ nor more than ninety
(90) days’ prior written notice upon payment in full of the Obligations (other
than Inchoate Obligations).

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

REGARDING AGENT

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

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

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

Agent may resign on sixty (60) days’ written notice to each of Lenders and
Borrowing Agent and upon such resignation, the Required Lenders will promptly
designate a successor Agent reasonably satisfactory to Borrowers: provided that
no consent or approval of Borrowers will be required hereunder if a Default or
Event of Default has occurred and is continuing at the time of such designation.

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

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

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

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

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

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

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

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

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

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

 

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ARTICLE XV

BORROWING AGENCY; GUARANTY

15.1 Borrowing Agency Provisions.

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

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

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

15.2 Joint and Several Liability of Borrowers. Each Borrower hereby agrees as
follows.

(a) Each Borrower is accepting joint and several liability hereunder and under
the other Loan Documents in consideration of the financial accommodations to be
provided by Agent and the Lenders under this Agreement, for the mutual benefit,
directly and indirectly, of each Borrower and in consideration of the
undertakings of the other Borrowers to accept joint and several liability for
the Obligations.

(b) Each Borrower, jointly and severally, hereby irrevocably and unconditionally
accepts, not merely as a surety but also as a co-debtor, joint and several
liability with the other Borrowers, with respect to the payment and performance
of all of the Obligations (including any Obligations arising under this
Section 15.2), it being the intention of each Borrower and the parties hereto
that all the Obligations shall be the joint and several obligations of each
Borrower without preferences or distinction among them.

 

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(c) If and to the extent that any Borrower shall fail to make any payment with
respect to any of the Obligations as and when due or to perform any of the
Obligations in accordance with the terms thereof, then in each such event the
other Borrowers will make such payment with respect to, or perform, such
Obligation.

(d) The Obligations of each Borrower under the provisions of this Section 15.2
constitute the absolute and unconditional, full recourse Obligations of each
Borrower enforceable against each Borrower to the full extent of its properties
and assets, irrespective of the validity, regularity or enforceability of this
Agreement or any other circumstances whatsoever.

15.3 Guaranty.

(a) Guaranty. Each Guarantor hereby absolutely and unconditionally guarantees,
as a guaranty of payment and performance and not merely as a guaranty of
collection, prompt payment when due, whether at stated maturity, by required
prepayment, upon acceleration, demand or otherwise, and at all times thereafter,
of any and all of the Obligations, whether for principal, interest, premiums,
fees, indemnities, damages, costs, expenses or otherwise, of Borrowers and the
other Credit Parties to the Secured Parties, arising hereunder or under any
other Loan Document (including all renewals, extensions, amendments,
refinancings and other modifications thereof and all costs, attorneys’ fees and
expenses incurred by the Secured Parties in connection with the collection or
enforcement thereof). Agent’s books and records showing the amount of the
Obligations shall be admissible in evidence in any action or proceeding, and
shall be binding upon each Guarantor, and conclusive for the purpose of
establishing the amount of the Obligations. This Guaranty shall not be affected
by the genuineness, validity, regularity or enforceability of the Obligations or
any instrument or agreement evidencing any Obligations, or by the existence,
validity, enforceability, perfection, non-perfection or extent of any collateral
therefor, or by any fact or circumstance relating to the Obligations which might
otherwise constitute a defense to the obligations of any Guarantor under this
Guaranty, and each Guarantor hereby irrevocably waives any defenses it may now
have or hereafter acquire in any way relating to any or all of the foregoing.

(b) Limitation of Guaranty. Any term or provision of this Section 15.3 or any
other provision in this Agreement or any other Loan Document to the contrary
notwithstanding, the maximum aggregate amount for which any Guarantor shall be
liable hereunder shall not exceed the maximum amount for which such Guarantor
shall be liable without rendering this Guaranty or any other Loan Document, as
it relates to such Guarantor, subject to avoidance under Applicable Law relating
to fraudulent conveyance or fraudulent transfer (including the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act and Section 548
of the Bankruptcy Code or any comparable provisions of Applicable Law
(collectively, “Fraudulent Transfer Laws”). Any analysis of the provisions of
this Guaranty for purposes of Fraudulent Transfer Laws shall take into account
the right of contribution established in clause (c) of Section 15.3 and, for
purposes of such analysis, give effect to any discharge of intercompany debt as
a result of any payment made under any Guaranty made pursuant to this Section.

(c) Right of Contribution. To the extent that any Guarantor shall be required
hereunder to pay any portion of any guaranteed Obligation exceeding the greater
of (i) the amount of the value actually received by such Guarantor and its
Subsidiaries from the Advances and the other Obligations and (ii) the amount
such Guarantor would otherwise have paid if such Guarantor had paid the
aggregate amount of the guaranteed Obligations (excluding the amount the amount
paid by Borrowers) in the same proportion as such Guarantor’s net worth on the
date enforcement is sought hereunder bears to the aggregate net worth of all the
Guarantors on such date, then such Guarantor shall be reimbursed by such other
Guarantors for the amount of such excess, pro rata, based on the respective net
worth of such Guarantors on such date.

 

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(d) Rights of Secured Parties. Each Guarantor consents and agrees that the
Secured Parties may, at any time and from time to time, without notice or
demand, and without affecting the enforceability or continuing effectiveness
hereof: (i) amend, extend, renew, compromise, discharge, accelerate or otherwise
change the time for payment or the terms of the Obligations or any part thereof;
(ii) take, hold, exchange, enforce, waive, release, fail to perfect, sell, or
otherwise dispose of any security for the payment of this Guaranty or any
Obligations; (iii) apply such security and direct the order or manner of sale
thereof as Agent and the Lenders in their sole discretion may determine; and
(iv) release or substitute one or more of any endorsers or other guarantors of
any of the Obligations. Without limiting the generality of the foregoing, each
Guarantor consents to the taking of, or failure to take, any action which might
in any manner or to any extent vary the risks of any Guarantor under this
Guaranty or which, but for this provision, might operate as a discharge of such
Guarantor.

(e) Obligations Independent. The obligations of each Guarantor hereunder are
those of primary obligor, and not merely as surety, and are independent of the
Obligations and the obligations of any other guarantor, and a separate action
may be brought against any Guarantor to enforce this Guaranty whether or not
Borrowers or any other Credit Party or any other person or entity is joined as a
party.

(f) Subrogation. No Guarantor shall exercise any right of subrogation,
contribution, indemnity, reimbursement or similar rights with respect to any
payments it makes under this Guaranty until all of the Obligations and any
amounts payable under this Guaranty have been indefeasibly paid and performed in
full and all of the commitments of the Lenders hereunder have been terminated.
If any amounts are paid to any Guarantor in violation of the foregoing
limitation, then such amounts shall be held in trust for the benefit of the
Secured Parties and shall forthwith be paid to the Secured Parties to reduce the
amount of the Obligations, whether matured or unmatured.

(g) Termination; Reinstatement. This Guaranty is a continuing and irrevocable
guaranty of all Obligations now or hereafter existing and shall remain in full
force and effect until all Obligations and any other amounts payable under this
Guaranty are indefeasibly paid in full in cash and all of the commitments of the
Lenders hereunder have been terminated. Notwithstanding the foregoing, this
Guaranty shall continue in full force and effect or be revived, as the case may
be, if any payment by or on behalf of Borrowers or any Guarantor or any other
Credit Party is made, or any of the Secured Parties exercises its right of
setoff, in respect of the Obligations and such payment or the proceeds of such
setoff or any part thereof is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required (including pursuant to any
settlement entered into by any of the Secured Parties in their discretion) to be
repaid to a trustee, receiver or any other party, in connection with any
proceeding under any insolvency proceeding or otherwise, all as if such payment
had not been made or such setoff had not occurred and whether or not the Secured
Parties are in possession of or have released this Guaranty and regardless of
any prior revocation, rescission, termination or reduction. The obligations of
each Guarantor under this paragraph shall survive termination of this Guaranty.

(h) Stay of Acceleration. If acceleration of the time for payment of any of the
Obligations is stayed, in connection with any case commenced by or against any
Credit Party under any insolvency proceeding, or otherwise, all such amounts
shall nonetheless be payable by such Credit Party immediately upon demand by the
Secured Parties.

(i) Condition of Borrowers. Each Guarantor acknowledges and agrees that it has
the sole responsibility for, and has adequate means of, obtaining from Borrowers
and the other Credit Parties and any other guarantor such information concerning
the financial condition, business and operations of Borrowers and any such other
guarantor as such Guarantor requires, and that none of the Secured Parties

 

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has any duty, and such Guarantor is not relying on the Secured Parties at any
time, to disclose to such Guarantor any information relating to the business,
operations or financial condition of Borrowers or any other Credit Party or any
other guarantor (each Guarantor waiving any duty on the part of the Secured
Parties to disclose such information and any defense relating to the failure to
provide the same).

15.4 Waivers and Agreements.

(a) Except as otherwise expressly provided in this Agreement, each Credit Party
hereby waives notice of acceptance of its joint and several liability, notice of
any Advances or Letters of Credit issued under or pursuant to this Agreement,
notice of the occurrence of any Default, Event of Default, or of any demand for
any payment under this Agreement, notice of any action at any time taken or
omitted by Agent or Lenders under or in respect of any of the Obligations, any
requirement of diligence or to mitigate damages and, generally, to the extent
permitted by applicable law, all demands, notices and other formalities of every
kind in connection with this Agreement (except as otherwise provided in this
Agreement). Each Credit Party hereby waives all rights that it may have now or
in the future under any statute, at common law, in equity or otherwise, to
compel Agent or Lenders to marshal assets or to proceed against any other Credit
Party, other Person or security for the payment or performance of any
Obligations before, or as a condition to, proceeding against such Credit Party.
Each Credit Party waives all defenses available to a surety, guarantor or
accommodation co-obligor other than payment in full of all Obligations. Each
Credit Party hereby assents to, and waives notice of, any extension or
postponement of the time for the payment of any of the Obligations, the
acceptance of any payment of any of the Obligations, the acceptance of any
partial payment thereon, any waiver, consent or other action or acquiescence by
Agent or Lenders at any time or times in respect of any default by any Credit
Party in the performance or satisfaction of any term, covenant, condition or
provision of this Agreement, any and all other indulgences whatsoever by Agent
or Lenders in respect of any of the Obligations, and the taking, addition,
substitution or release, in whole or in part, at any time or times, of any
security for any of the Obligations or the addition, substitution or release, in
whole or in part, of any Credit Party. Without limiting the generality of the
foregoing, each Credit Party assents to any other action or delay in acting or
failure to act on the part of Agent or any Lender with respect to the failure by
any Credit Party to comply with any of its respective Obligations, including,
without limitation, any failure strictly or diligently to assert any right or to
pursue any remedy or to comply fully with applicable laws or regulations
thereunder, which might, but for the provisions of this Section 15.4 afford
grounds for terminating, discharging or relieving any Credit Party, in whole or
in part, from any of its Obligations under this Section 15.4, it being the
intention of each Credit Party that, so long as any of the Obligations hereunder
remain unsatisfied, the Obligations of each Credit Party under this Section 15.4
shall not be discharged except by performance and then only to the extent of
such performance. The Obligations of each Credit Party under this Section 15.4
shall not be diminished or rendered unenforceable by any winding up,
reorganization, arrangement, liquidation, reconstruction or similar proceeding
with respect to any Credit Party or Agent or any Lender.

(b) Each Credit Party represents and warrants to Agent and Lenders that such
Credit Party is currently informed of the financial condition of the other
Credit Parties and of all other circumstances which a diligent inquiry would
reveal and which bear upon the risk of nonpayment of the Obligations. Each
Credit Party further represents and warrants to Agent and Lenders that such
Credit Party has read and understands the terms and conditions of this Agreement
and the other Loan Documents. Each Credit Party hereby covenants that such
Credit Party will continue to keep informed of the other Borrowers’ financial
condition, the financial condition of other guarantors, if any, and of all other
circumstances which bear upon the risk of nonpayment or nonperformance of the
Obligations.

 

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

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

(e) Each Credit Party waives any right or defense it may have at law or equity,
including California Code of Civil Procedure Section 580a, to a fair market
value hearing or action to determine a deficiency judgment after a foreclosure.
As provided in Section 16.1 hereof, this Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York. The foregoing
provisions are included solely out of an abundance of caution and shall not be
construed to mean that any of the above referenced provisions of California law
are in any way applicable to this Agreement or the Obligations.

(f) Agent and Lenders may, in their discretion, pursue such rights and remedies
as they deem appropriate, including realization upon Collateral by judicial
foreclosure or non-judicial sale or enforcement, without affecting any rights
and remedies under this Agreement. If, in taking any action in connection with
the exercise of any rights or remedies, Agent or any Lender shall forfeit any
other rights or remedies, including the right to enter a deficiency judgment
against any Credit Party or other Person, whether because of any Applicable Laws
pertaining to “election of remedies” or otherwise, each Credit Party consents to
such action and waives any claim based upon it, even if the action may result in
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any rights of subrogation that any Credit Party might otherwise have had,
whether under Section 580(d) of the California Code of Civil Procedure, any
comparable statute, or otherwise. Any election of remedies that results in
denial or impairment of the right of Agent or any Lender to seek a deficiency
judgment against any Credit Party shall not impair any other Credit Party’s
obligation to pay the full amount of the Obligations. Each Credit Party waives
all rights and defenses arising out of an election of remedies, such as
non-judicial foreclosure with respect to any security for the Obligations, even
though that election of remedies destroys such Credit Party’s rights of
subrogation against any other Person. Agent may bid all or a portion of the
Obligations at any foreclosure or trustee’s sale or at any private sale, and the
amount of such bid need not be paid by Agent but shall be credited against the
Obligations. The amount of the successful bid at any such sale, whether Agent or
any other Person is the successful bidder, shall be conclusively deemed to be
the fair market value of the Collateral, and the difference between such bid
amount and the remaining balance of the Obligations shall be conclusively deemed
to be the amount of the Obligations, notwithstanding that any present or future
law or court decision may have the effect of reducing the amount of any
deficiency claim to which Agent or any Lender might otherwise be entitled but
for such bidding at any such sale.

(g) The provisions of this Section 15.4 are made for the benefit of Agent,
Lenders and their respective successors and assigns, and may be enforced by it
or them from time to time against any Credit Party as often as occasion therefor
may arise and without requirement on the part of Agent, any Lender, any of their
respective successors or assigns first to marshal any of its or their claims or
to exercise any of its or their rights against any Credit Party or to exhaust
any remedies available to it or them against any Credit Party or to resort to
any other source or means of obtaining payment of any of the Obligations
hereunder or to elect any other remedy. The provisions of this Section 15.4
shall remain in effect until all of the Obligations shall have been paid in full
in accordance with the terms of this Agreement. If at any time, any payment, or
any part thereof, made in respect of any of the Obligations, is rescinded or
must otherwise be restored or returned by Agent or any Lender upon the
insolvency, bankruptcy or reorganization of any Credit Party, or otherwise, the
provisions of this Section 15.4 will forthwith be reinstated in effect, as
though such payment had not been made.

(h) Until the Obligations (other than Inchoate Obligations) have been paid in
full in cash or cash collateralized in accordance with the terms hereof and all
of the commitments of the Lenders hereunder have been terminated, each Credit
Party hereby agrees that it will not enforce any of its rights of contribution
or subrogation against any other Credit Party with respect to any liability
incurred by it hereunder or under any of the other Loan Documents, any payments
made by it to Agent or any Lender with respect to any of the Obligations or any
collateral security therefor until such time as all of the Obligations (other
than Inchoate Obligations) have been paid in full in cash. Any claim which any
Credit Party may have against any other Credit Party with respect to any
payments to Agent or any Lender hereunder or under any other Loan Documents are
hereby expressly made subordinate and junior in right of payment, without
limitation as to any increases in the Obligations arising hereunder or
thereunder, to the prior payment in full in cash of the Obligations (other than
Inchoate Obligations) and, in the event of any insolvency, bankruptcy,
receivership, liquidation, reorganization or other similar proceeding under the
laws of any jurisdiction relating to any Credit Party, its debts or its assets,
whether voluntary or involuntary, all such Obligations shall be paid in full in
cash before any payment or distribution of any character, whether in cash,
securities or other property, shall be made to any other Credit Party therefor.

(i) Each Credit Party hereby agrees that, after the occurrence and during the
continuance of any Default or Event of Default, the payment of any amounts due
with respect to the indebtedness or other obligations owing by any Credit Party
to any other Credit Party is hereby subordinated to the prior payment in full in
cash of the Obligations (other than Inchoate Obligations) in accordance with the
terms of this Agreement. Each Credit Party hereby agrees that after the
occurrence

 

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and during the continuance of any Default or Event of Default, such Credit Party
will not demand, sue for or otherwise attempt to collect any indebtedness of any
other Credit Party owing to such Credit Party until the Obligations (other than
Inchoate Obligations) shall have been paid in full in cash. If, notwithstanding
the foregoing sentence, any Credit Party shall collect, enforce or receive any
amounts in respect of such indebtedness, such amounts shall be collected,
enforced and received by such Credit Party as trustee for Agent, and such Credit
Party shall deliver any such amounts to Agent for application to the Obligations
in accordance with the terms of this Agreement.

(j) Each Credit Party expressly waives any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution of any other claim that such
Credit Party may now or hereafter have against the other Credit Parties or other
Person directly or contingently liable for the Obligations hereunder, or against
or with respect to the other Credit Parties’ property (including any property
that is Collateral for the Obligations), arising from the existence or
performance of this Agreement, until termination of this Agreement and repayment
in full of the Obligations.

ARTICLE XVI

MISCELLANEOUS

16.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applied to contracts to be
performed wholly within the State of New York. Any judicial proceeding brought
against any Credit Party with respect to any of the Obligations, this Agreement,
the other Loan Documents or any related agreement may be brought in any court of
competent jurisdiction in the City of New York, Borough of Manhattan, State of
New York, United States of America, and, by execution and delivery of this
Agreement, each Credit Party accepts for itself and in connection with its
properties, generally and unconditionally, the non-exclusive jurisdiction of the
aforesaid courts, and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement. Each Credit Party hereby waives
personal service of any and all process upon it and consents that all such
service of process may be made by registered mail (return receipt requested)
directed to the Borrowing Agent at its address set forth in Schedule A and
service so made shall be deemed completed five (5) days after the same has been
so deposited in the mails of the United States of America, or, at Agent’s
option, by service upon Borrowing Agent, which each Credit Party irrevocably
appoints as such Credit Party’s agent for the purpose of accepting service
within the State of New York. Nothing herein shall affect the right to serve
process in any manner permitted by law or shall limit the right of Agent or any
Secured Party to bring proceedings against any Credit Party in the courts of any
other jurisdiction. Each Credit Party waives any objection to jurisdiction and
venue of any action instituted hereunder and shall not assert any defense based
on lack of jurisdiction or venue or based upon forum non conveniens. Each Credit
Party waives the right to remove any judicial proceeding brought against such
Credit Party in any state court to any federal court. Any judicial proceeding by
any Credit Party against any Secured Party or any other Indemnitee involving,
directly or indirectly, any matter or claim in any way arising out of, related
to or connected with this Agreement or any related agreement, shall be brought
only in a federal or state court located in the City of New York, Borough of
Manhattan, State of New York, United States of America; provided, that the
Credit Parties may bring counterclaims in any other court in which the original
claim was brought by Agent or any Secured Party.

16.2 Entire Understanding.

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

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

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

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

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

(iv) release any Collateral during any calendar year (other than in accordance
with the provisions of this Agreement) having an aggregate value in excess of
$250,000.

(v) change the rights and duties of Agent.

(vi) permit any Revolving Advance to be made if after giving effect thereto the
total of Revolving Advances outstanding hereunder would exceed the Formula
Amount for more than sixty (30) consecutive Business Days or exceed one hundred
and ten percent (110%) of the Formula Amount.

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

(viii) release any Guarantor.

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

 

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In the event that Agent requests the consent of a Lender pursuant to this
Section 16.2 and such Lender shall not respond or reply to Agent in writing
within five (5) days of delivery of such request, such Lender shall be deemed to
have consented to the matter that was the subject of the request. In the event
that Agent requests the consent of a Lender pursuant to this Section 16.2 and
such consent is denied, then PNC may, at its option, require such Lender to
assign its interest in the Advances to PNC or to another Lender or to any other
Person designated by Agent (the “Designated Lender”), for a price equal to
(i) the then outstanding principal amount thereof plus (ii) accrued and unpaid
interest and fees due such Lender, which interest and fees shall be paid when
collected from Borrowers. In the event PNC elects to require any Lender to
assign its interest to PNC or to the Designated Lender, PNC will so notify such
Lender in writing within forty five (45) days following such Lender’s denial,
and such Lender will assign its interest to PNC or the Designated Lender no
later than five (5) days following receipt of such notice pursuant to a
Commitment Transfer Supplement executed by such Lender, PNC or the Designated
Lender, as appropriate, and Agent.

Notwithstanding (a) the existence of a Default or Event of Default, (b) that any
of the other applicable conditions precedent set forth in Section 8.2 have not
been satisfied or (c) any other provision of this Agreement, Agent may at its
discretion and without the consent of Required Lenders, voluntarily permit the
sum of the outstanding Revolving Advances and the Maximum Undrawn Amount at any
time to exceed ten percent (10%) of the Formula Amount for up to sixty
(60) consecutive Business Days (the “Out-of-Formula Loans”); provided, that,
such outstanding Advances do not exceed the Maximum Revolving Advance Amount. If
Agent is willing in its sole and absolute discretion to make such Out-of-Formula
Loans, such Out-of-Formula Loans shall be payable on demand and shall bear
interest at the Default Rate for Revolving Advances ; provided that, if Lenders
do make Out-of-Formula Loans, neither Agent nor Lenders shall be deemed thereby
to have changed the limits of Section 2.1(a). For purposes of this paragraph,
the discretion granted to Agent hereunder shall not preclude involuntary
overadvances that may result from time to time due to the fact that the Formula
Amount was unintentionally exceeded for any reason, including Collateral
previously deemed to be either “Eligible Receivables” or “Eligible Inventory”,
as applicable, becomes ineligible, collections of Receivables applied to reduce
outstanding Revolving Advances are thereafter returned for insufficient funds or
overadvances are made to protect or preserve the Collateral. In the event Agent
involuntarily permits the outstanding Revolving Advances to exceed the Formula
Amount by more than ten percent (10%), Agent shall use its efforts to have
Borrowers decrease such excess in as expeditious a manner as is practicable
under the circumstances and not inconsistent with the reason for such excess.
Revolving Advances made after Agent has determined the existence of involuntary
overadvances shall be deemed to be involuntary overadvances and shall be
decreased in accordance with the preceding sentence.

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

16.3 Successors and Assigns; Participations; New Lenders.

 

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

(b) Each Credit Party acknowledges that in the regular course of commercial
banking business one or more Lenders may at any time and from time to time sell
participating interests in the Advances to other financial institutions (each
such transferee or purchaser of a participating interest, a “Participant”). Each
Participant may exercise all rights of payment (including rights of set-off)
with respect to the portion of such Advances held by it or other Obligations
payable hereunder as fully as if such Participant were the direct holder
thereof; provided that Borrowers shall not be required to pay to any Participant
more than the amount that it would have been required to pay to Lender that
granted an interest in its Advances or other Obligations payable hereunder to
such Participant had such Lender retained such interest in the Advances
hereunder or other Obligations payable hereunder; and provided, further, that in
no event shall Borrowers be required to pay any such amount arising from the
same circumstances and with respect to the same Advances or other Obligations
payable hereunder to both such Lender and such Participant. Each Borrower hereby
grants to any Participant a continuing security interest in any deposits, moneys
or other property actually or constructively held by such Participant as
security for the Participant’s interest in the Advances.

(c) Any Lender, with the consent of Agent (which shall not be unreasonably
withheld or delayed), may sell, assign or transfer all or any part of its rights
and obligations under or relating to Revolving Advances under this Agreement and
the other Loan Documents to one or more Eligible Assignees and one or more
Eligible Assignees may commit to make Advances hereunder (each a “Purchasing
Lender”), in minimum amounts of not less than $5,000,000 (or its entire
interest, if less), pursuant to a Commitment Transfer Supplement, executed by a
Purchasing Lender, the transferor Lender, and Agent and delivered to Agent for
recording. Upon such execution, delivery, acceptance and recording, from and
after the transfer effective date determined pursuant to such Commitment
Transfer Supplement, (i) Purchasing Lender thereunder shall be a party hereto
and, to the extent provided in such Commitment Transfer Supplement, have the
rights and obligations of a Lender thereunder with a Commitment Percentage as
set forth therein, and (ii) the transferor Lender thereunder shall, to the
extent provided in such Commitment Transfer Supplement, be released from its
obligations under this Agreement, the Commitment Transfer Supplement creating a
novation for that purpose. Such Commitment Transfer Supplement shall be deemed
to amend this Agreement to the extent, and only to the extent, necessary to
reflect the addition of such Purchasing Lender and the resulting adjustment of
the Commitment Percentages arising from the purchase by such Purchasing Lender
of all or a portion of the rights and obligations of such transferor Lender
under this Agreement and the other Loan Documents. Each Borrower hereby consents
to the addition of such Purchasing Lender and the resulting adjustment of the
Commitment Percentages arising from the purchase by such Purchasing Lender of
all or a portion of the rights and obligations of such transferor Lender under
this Agreement and the other Loan Documents. Borrowers shall execute and deliver
such further documents and do such further acts and things in order to
effectuate the foregoing.

(d) Any Lender, with the consent of Agent (which shall not be unreasonably
withheld or delayed), may directly or indirectly sell, assign or transfer all or
any portion of its rights and obligations under or relating to Revolving
Advances under this Agreement and the other Loan Documents to an entity, whether
a corporation, partnership, trust, limited liability company or other entity
that (i) is engaged in making, purchasing, holding or otherwise investing in
bank loans and similar extensions of credit in the ordinary course of its
business and (ii) is administered, serviced or managed by the assigning Lender
or an Affiliate of such Lender (a “Purchasing CLO” and together with each
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Purchasing Lender, each a “Transferee” and collectively the “Transferees”),
pursuant to a Commitment Transfer Supplement modified as appropriate to reflect
the interest being assigned (“Modified Commitment Transfer Supplement”),
executed by any intermediate purchaser, the Purchasing CLO, the transferor
Lender, and Agent as appropriate and delivered to Agent for recording. Upon such
execution and delivery, from and after the transfer effective date determined
pursuant to such Modified Commitment Transfer Supplement, (i) Purchasing CLO
thereunder shall be a party hereto and, to the extent provided in such Modified
Commitment Transfer Supplement, have the rights and obligations of a Lender
thereunder and (ii) the transferor Lender thereunder shall, to the extent
provided in such Modified Commitment Transfer Supplement, be released from its
obligations under this Agreement, the Modified Commitment Transfer Supplement
creating a novation for that purpose. Such Modified Commitment Transfer
Supplement shall be deemed to amend this Agreement to the extent, and only to
the extent, necessary to reflect the addition of such Purchasing CLO. Each
Borrower hereby consents to the addition of such Purchasing CLO. Borrowers shall
execute and deliver such further documents and do such further acts and things
in order to effectuate the foregoing.

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

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

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

16.5 Indemnity. Each Credit Party shall indemnify each Indemnitee from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements of any kind or
nature whatsoever (including fees and disbursements of counsel) that may be
imposed on, incurred by, or asserted against any Indemnitee in any claim,
litigation, proceeding or investigation instituted or conducted by any
Governmental Body or instrumentality or any other Person with respect to any
aspect of, or any transaction contemplated by, or referred to in, or any matter
related to, this Agreement or the other Loan Documents, whether or not any
Indemnitee is a party thereto, except to the extent that any of the foregoing
arises out of the gross (not mere) negligence or willful misconduct of the party
being indemnified (as determined by a court of competent jurisdiction in a final
and non-

 

100

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appealable judgment). Without limiting the generality of the foregoing, this
indemnity shall extend to any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements of any
kind or nature whatsoever (including fees and disbursements of counsel) asserted
against or incurred by any Indemnitees by any Person under any Environmental
Laws or similar laws by reason of any Credit Party’s or any other Person’s
failure to comply with laws applicable to solid or hazardous waste materials,
including Hazardous Substances and Hazardous Waste, or other Toxic Substances.
Additionally, if any taxes (excluding taxes imposed upon or measured solely by
the net income of Agent and Lenders, but including any intangibles taxes, stamp
tax, recording tax or franchise tax) shall be payable by any Secured Party or
the Credit Parties on account of the execution or delivery of this Agreement, or
the execution, delivery, issuance or recording of any of the Loan Documents, or
the creation or repayment of any of the Obligations hereunder, by reason of any
Applicable Law now or hereafter in effect, the Credit Parties will pay (or will
promptly reimburse Secured Parties for payment of) all such taxes, including
interest and penalties thereon, and will indemnify and hold the indemnitees
described above in this Section 16.5 harmless from and against all liability in
connection therewith.

16.6 Notice. Any notice or request hereunder may be given to Borrowing Agent or
any Credit Party or to Agent or any Lender at their respective addresses set
forth in Schedule A or at such other address as may hereafter be specified in a
notice designated as a notice of change of address under this Section 16.6. Any
notice, request, demand, direction or other communication (for purposes of this
Section 16.6 only, a “Notice”) to be given to or made upon any party hereto
under any provision of this Loan Agreement shall be given or made by telephone
or in writing (which includes by means of electronic transmission (i.e.,
“e-mail” or.pdf) or facsimile transmission or by setting forth such Notice on a
site on the World Wide Web (a “Website Posting”) if Notice of such Website
Posting (including the information necessary to access such site) has previously
been delivered to the applicable parties hereto by another means set forth in
this Section 16.6) in accordance with this Section 16.6. Any such Notice must be
delivered to the applicable parties hereto at the addresses and numbers set
forth under their respective names on Schedule A or in accordance with any
subsequent unrevoked Notice from any such party that is given in accordance with
this Section 16.6. Any Notice shall be effective:

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

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

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

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

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

(f) In the case of a Website Posting, upon delivery of a Notice of such posting
(including the information necessary to access such site) by another means set
forth in this Section 16.6; and

 

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

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

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

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

16.9 Expenses. All reasonable and documented out-of-pocket costs and expenses,
including reasonable attorneys’ fees (including the allocated costs of in-house
counsel, one primary counsel to Agent and, if necessary, one local counsel in
any relevant jurisdiction) and disbursements incurred by Agent on its behalf or
on behalf of Secured Parties, including all costs and expenses incurred (and
including in or in connection with or anticipation of an insolvency proceeding,
reorganization, or any similar proceeding): (a) in all efforts made to enforce
payment of any Obligation or effect collection of any Collateral, or (b) in
connection with the entering into, modification, amendment, administration and
enforcement of this Agreement and the other Loan Documents or any consents or
waivers hereunder or thereunder and all related agreements, documents and
instruments, or (c) in instituting, maintaining, preserving, enforcing and
foreclosing on Agent’s security interest in or Lien on any of the Collateral, or
maintaining, preserving or enforcing any of Agent’s or any Lender’s rights
hereunder and under the other Loan Documents and under all related agreements,
documents and instruments, whether through judicial proceedings or otherwise, or
(d) in defending or prosecuting any actions or proceedings arising out of or
relating to Agent’s or any Lender’s transactions with any Credit Party, or
(e) in connection with any advice given to Agent or any Lender with respect to
its rights and obligations under this Agreement and under the other Loan
Documents and all related agreements, documents and instruments, may be charged
to Borrowers’ Account and shall be part of the Obligations, or (f) in connection
with any inspections or appraisal conducted pursuant to Section 4.10, provided
that absent the occurrence and continuation of an Event of Default, only four
collateral appraisals (other than desk top appraisals) during any 12 month
period following the Closing Date shall be at the expense of the Borrowers.

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

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

 

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

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

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

16.15 Confidentiality; Sharing Information.

Agent, each Lender and each Transferee shall hold all non-public information
obtained by Agent, such Lender or such Transferee pursuant to the requirements
of this Agreement in accordance with Agent’s, such Lender’s and such
Transferee’s customary procedures for handling confidential information of this
nature; provided, however, that Agent, each Lender and each Transferee may
disclose such confidential information (a) to its examiners, Affiliates, outside
auditors, counsel and other professional advisors, (b) to Agent, any Lender or
to any prospective Transferees, (c) as required or requested by any Governmental
Body or representative thereof or pursuant to legal process, and (d) in
connection with the enforcement of its rights under this Agreement and the other
Loan Documents; provided, further that (i) unless specifically prohibited by
Applicable Law or court order, Agent, each Lender and each Transferee shall use
its reasonable best efforts prior to disclosure thereof, to notify the
applicable Credit Party of the applicable request for disclosure of such
non-public information (A) by a Governmental Body or representative thereof
(other than any such request in connection with an examination of the financial
condition of a Lender or a Transferee by such Governmental Body) or (B) pursuant
to legal process and (ii) in no event shall Agent, any Lender or any Transferee
be obligated to return any materials furnished by any Credit Party other than
those documents and instruments in possession of Agent or any Lender in order to
perfect its Lien on the Collateral once the Obligations have been paid in full
and this Agreement has been terminated.

Each Credit Party acknowledges that from time to time financial advisory,
investment banking and other services may be offered or provided to such Credit
Party or one or more of its Affiliates (in connection with this Agreement or
otherwise) by any Lender or by one or more Subsidiaries or Affiliates of such
Lender and each Credit Party hereby authorizes each Lender to share any
information delivered to such Lender by such Credit Party and its Subsidiaries
pursuant to this Agreement, or in connection with the decision of such Lender to
enter into this Agreement, to any such Subsidiary or Affiliate of such Lender,
it being understood that any such Subsidiary or Affiliate of any Lender
receiving such information shall be bound by the provisions of this
Section 16.15 as if it were a Lender hereunder. Such authorization shall survive
the repayment of the other Obligations and the termination of this Agreement.

16.16 Publicity. Each Credit Party and each Lender hereby authorizes Agent to
make appropriate announcements of the financial arrangement entered into among
the Credit Parties, Agent and Lenders, including announcements that are commonly
known as tombstones, in such publications and to such selected parties as Agent
shall in its sole and absolute discretion deem appropriate. No Lender may make
any such announcement without the prior written consent of Agent, such consent
to be given or withheld in Agent’s sole and absolute discretion.

 

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

[Signature Pages Follow; Remainder of Page Intentionally Left Blank]

 

104

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

 

BORROWERS:

VIRCO MFG. CORPORATION,

a Delaware corporation

By:

 

/s/ Robert E. Dose

Name:

  Robert E. Dose

Title:

  Vice President Finance,   Treasurer and Secretary

VIRCO INC.,

a Delaware corporation

By:

 

/s/ Robert E. Dose

Name:

  Robert E. Dose

Title:

  Vice President Finance,   Treasurer and Secretary

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

PNC BANK, NATIONAL ASSOCIATION,

as Lender and as Agent

By:

 

/s/ Jeanette Vandenbergh

Name:

  Jeanette Vandenbergh

Title:

  Vice President

Commitment Percentage: 100%

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

Exhibit 1.2(a)

 

Borrowing Base Certificate    PNCBANK

 

                                          Report No.                            
  Inventory                           Collateral Status    A/R     RM     WIP  
  WIP - ATS     FG     Total
Inventory      Total       

1. Beginning Collateral (Line 4 prior report)

                  

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

                  

3. Deductions to Collateral

                  

4. Total Collateral

               —           —        

5. Less Ineligible Collateral

           —            —           —        

6. Total Eligible Collateral

     —          —          —          —          —          —           —     
   Loan Status    A/R     Inventory            Total       

7. Advance Percentage or Credit Limit

     85 %      30.0 %      5.1 %      5.3 %      54.1 %         

8. Collateral Value (Elg. Coll. X Adv %)

     —          —          —          —          —          —           —     
  

9. Previous Loan Balance (Prior Line 13)

                  

10. Less: A) Net Collections

                  

 B) Adjustments

                  

 C) Other

                  

11. Subtotal for Loan Balance

                  

12. Additional A) Request for Funds

                  

      Loan B) Return Items

                  

      Increases C) Other

                  

13. New Loan Balance

                  

14. Letters of Credit Outstanding

                  

15. Collateral Available for Loan

     —                  —           —         Borrowing Base Loan             
     —         Availability

To induce PNC Bank, National Association (“PNC Bank”) to grant advances or other
financial accomodations to us pursuant to the terms of our Credit and Security
Agreement dated as of                      with PNC Bank, as the same may be
extended, amended, and/or restated from time to time (“Credit Agreement”), we
hereby certify, represent and warrant the following to PNC Bank, all as of the
date hereof: (1) the foregoing statements of our accounts receivable and/or
inventory collateral described above are true and complete; (2) the total
eligible collateral described in line 6 above represents only Qualified Accounts
and Qualified Inventory, as those terms are defined in the Credit Agreement;
(3) we are in compliance with all of the terms and provisions of the Credit
Agreement; and (4) there exists no Default or Event of Default under the Credit
Agreement.

 

For PNC Bank Use          DATE   

 

Checked By                      Date                     .          BORROWER   

 

Approved By                      Date                     .          BY   

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

Exhibit 1.2(b)

Form of Compliance Certificate

COMPLIANCE CERTIFICATE

Dated             , 20    

This COMPLIANCE CERTIFICATE is executed and delivered under and pursuant to the
terms of that certain Revolving Credit and Security Agreement, dated as of
December 22, 2011 (as such agreement may be amended, restated, or otherwise
modified from time to time, the “Credit Agreement”), among VIRCO MFG.
CORPORATION, a Delaware corporation (“Borrowing Agent”), VIRCO INC., a Delaware
corporation (together with Borrowing Agent and each other Person that becomes a
party thereto as a borrower pursuant to Section 7.12 of the Credit Agreement,
collectively “Borrowers”), the Persons from time to time party thereto as a
guarantor pursuant to Section 7.12 of the Credit Agreement, the financial
institutions that are now or that hereafter become a party thereto
(collectively, “Lenders” and individually a “Lender”) and PNC BANK, NATIONAL
ASSOCIATION (“PNC”), as administrative agent for Lenders (PNC, in such capacity,
“Agent”). Initially capitalized terms used but not defined herein have the
respective meanings set forth in the Credit Agreement.

The undersigned, duly appointed and acting [Vice President Finance] [Treasurer]
[Controller] of Borrowing Agent, being duly authorized, hereby delivers this
Compliance Certificate to Agent and Lenders solely in [his/her] capacity as
[Vice President Finance] [Treasurer] [Controller] and on behalf of the Credit
Parties and not in [his/her] individual capacity, pursuant to
Section [9.7][9.8][9.9]of the Credit Agreement.

1. Borrowing Agent hereby delivers to Agent and each Lender [check as
applicable]:

 

  ¨ the fiscal year end audited financial statements of Borrowers and their
Subsidiaries on a consolidating (if applicable) and consolidated basis and the
statements, reports and/or other management letters thereon from the Accountants
to the extent required by Section 9.7 of the Credit Agreement, dated as of
[             ,         ], which financial statements were prepared in
accordance with GAAP applied on a basis consistent with prior practices and in
reasonable detail and reported upon without a “going concern” or like
qualification by the Accountants;

 

  ¨ an unaudited fiscal quarter end balance sheet of Borrowers and their
Subsidiaries on a consolidating (if applicable) and consolidated basis and
unaudited statements of income and stockholders’ equity and cash flow of
Borrowers and their Subsidiaries on a consolidating (if applicable) and
consolidated basis reflecting results of operations from the beginning of the
fiscal year to the end of such quarter and for such quarter, to the extent
required by Section 9.8(i) of the Credit Agreement, dated as of
[            ,         ], internally prepared in accordance with GAAP (as
applicable) on a basis consistent with prior practices and fairly representing
the financial condition of Borrowers in all material respects, subject to normal
and recurring year end adjustments and to the absence of footnotes;

 

  ¨ for the fourth fiscal quarter, a summary of the last three month’s profits
and losses, and cash flow of Borrowers and their Subsidiaries to the extent
required by Section 9.8(ii) of the Credit Agreement; or

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

  ¨ an unaudited month end balance sheet of Borrowers and their Subsidiaries on
a consolidating (if applicable) and consolidated basis and unaudited statements
of income and stockholders’ equity and cash flow of Borrowers and their
Subsidiaries on a consolidating (if applicable) and consolidated basis
reflecting results of operations from the beginning of the fiscal year to the
end of such month and for such month, to the extent required by Section 9.9 of
the Credit Agreement, dated as of [            ,         ], prepared in
accordance with GAAP (as applicable) on a basis consistent with prior practices
and fairly representing the financial condition of Borrowers in all material
respects, subject to normal and recurring year end adjustments and to the
absence of footnotes that individually and in the aggregate are not material to
Borrowers’ business.

2. Borrowing Agent hereby certifies that, to the best of the applicable
officer’s knowledge [check as applicable]1:

 

  ¨ The Credit Parties are in compliance in all material respects with all
federal, state and local Environmental Laws as of the date of this Compliance
Certificate.

 

  ¨ The Credit are not in compliance in all material respects with all federal,
state and local Environmental Laws as of the date of this Compliance
Certificate. The specific area(s) of non-compliance and the Credit Parties’
proposed action the Credit Parties will implement to achieve full compliance is
listed in Exhibit A.

3. The undersigned officer certifies to Agent and Lenders that, except as may
have been previously or concurrently disclosed to Agent in writing by Borrowing
Agent, each of the representations and warranties made by any Credit Party (or
by the Borrowing Agent on their behalf) in or pursuant to the Credit Agreement,
the other Loan Documents and any related agreements, and each of the
representations and warranties contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
the Credit Agreement, the other Loan Documents or any related agreement are true
and correct in all material respects on and as of the date of this Compliance
Certificate as if made on and as of such date (except to the extent such
representations and warranties relate specifically to an earlier date, in which
case, such representations and warranties are be true and correct in all
material respects as of such earlier date); provided that any Credit Party’s
representation and warranty as to any forecast, projection or other statement
regarding future performance, future financial results or other future
development is limited to the fact that such forecast, projection or statement
was prepared in good faith on the basis of information and assumptions that such
Credit Party believed to be reasonable as of the date such material was prepared
(it being understood that the projections are subject to uncertainties and
contingencies, many of which are beyond such Credit Party’s control, and that no
assurance can be given that the projections will be realized).

 

 

1 

To be included in Compliance Certificates delivered in connection with the
financial statements referred to in Sections 9.7 and 9.8.

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

4. The undersigned certifies to Agent and each Lender that, to [his/her] actual
knowledge obtained in the reasonably diligent performance of [his/her] duties,
as of the date of this Compliance Certificate, except as previously or
concurrently disclosed to Agent in writing by Borrowing Agent, the Credit
Parties are in compliance with the following negative covenants as indicated by
circling yes/no under the “Complies” column below:

 

Negative Covenants

   Complies?  

Section 7.4 — Investments

     Yes         No   

Section 7.6 — Capital Expenditures

     Yes         No   

Section 7.7 — Dividends

     Yes         No   

Section 7.8 — Indebtedness

     Yes         No   

Section 7.10 — Transactions with Affiliates

     Yes         No   

5. The undersigned officer hereby certifies to Agent and each Lender that, to
[his/her] actual knowledge obtained in the reasonably diligent performance of
[his/her] duties [check as applicable]:

 

  ¨ No Default or Event of Default exists as of the date hereof or existed
during the period covered by the financial statements referenced in paragraph 1
of this Compliance Certificate, except as previously or concurrently disclosed
to Agent in writing by Borrowing Agent.

 

  ¨ One or more Defaults or Events of Default exist as of the date hereof or
existed during the period covered by the financial statements referenced in
paragraph 1 of this Compliance Certificate that have not been previously or
concurrently disclosed to Agent in writing by Borrowing Agent. Included within
Exhibit B attached hereto is a written description specifying each such Default
or Event of Default, its nature, when it occurred, whether it is continuing as
of the date hereof and the steps being taken by the Credit Parties with respect
thereto. Except as so specified, no other Default or Event of Default exists as
of the date hereof.

6. Attached hereto as Exhibit C is a true and accurate calculation setting forth
information that demonstrates compliance (or non-compliance) with the covenants
set forth in Section 6.5 of the Credit Agreement as of the end of the most
recent test period. The undersigned officer certifies that Borrowers are in
compliance with the following financial covenants as indicated by circling
yes/no under the “Complies” column below:

 

Financial Covenants

   Required      Actual      Complies  

Section 6.5(a) — Tangible Net Worth

   > $                                       Yes         No   

Section 6.5(b) — Fixed Charge Coverage Ratio 1.10 to 1.02

            to             Yes         No   

Section 6.5(c) — Minimum EBITDA

   > $                                       Yes         No   

 

2 

Although the Fixed Charge Coverage Ratio covenant does not commence until
July 30, 2012, Borrowers will report the Fixed Charge Coverage Ratio for
informational purposes for the fiscal period ending April 30, 2012.

 

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

IN WITNESS WHEREOF, the undersigned officer of Borrowing Agent has duly executed
this Compliance Certificate solely in [his/her] capacity as [Vice President
Finance] [Treasurer] [Controller] and on behalf of the Credit Parties and not in
[his/her] individual capacity, as of the date first written above.

 

 

[Name], [Vice President Finance] [Treasurer] [Controller] of VIRCO MFG.
CORPORATION

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

EXHIBIT A

to

COMPLIANCE CERTIFICATE

dated

            , 20    

The following is attached to and made a part of the above referenced Compliance
Certificate.

[specify non-compliance with Environmental Laws and proposed action]

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

EXHIBIT B

to

COMPLIANCE CERTIFICATE

dated

            , 20    

[specify Defaults or Events of Defaults]

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

EXHIBIT C

to

COMPLIANCE CERTIFICATE

dated

            , 20    

[attach calculations]

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

Exhibit 2.1(a)

Form of Revolving Credit Note

REVOLVING CREDIT NOTE

 

$                       , 20    

This REVOLVING CREDIT NOTE (this “Note”) is executed and delivered under and
pursuant to the terms of that certain Revolving Credit and Security Agreement,
dated as of the date hereof (as such agreement may be amended, restated, or
otherwise modified from time to time, the “Credit Agreement”), among VIRCO MFG.
CORPORATION, a Delaware corporation (“Borrowing Agent”), VIRCO INC., a Delaware
corporation (together with Borrowing Agent and each other Person that becomes a
party thereto as a borrower pursuant to Section 7.12 of the Credit Agreement,
each a “Borrower”, and collectively “Borrowers”), the Persons from time to time
party thereto as a guarantor pursuant to Section 7.12 of the Credit Agreement,
the financial institutions that are now or that hereafter become a party thereto
(collectively, “Lenders” and individually a “Lender”) and PNC BANK, NATIONAL
ASSOCIATION (“PNC”), as administrative agent for Lenders (PNC, in such capacity,
“Agent”). Initially capitalized terms used but not defined herein have the
respective meanings set forth in the Credit Agreement.

FOR VALUE RECEIVED, Borrowers hereby promise to pay to the order of
                    , at the office of Agent specified in the Credit Agreement
or at such other place as Agent may from time to time designate, in accordance
with the Credit Agreement, to Borrowing Agent in writing:

(i) the principal sum of $        , or such other amount thereof as may be from
time to time advanced hereunder and pursuant to the terms of the Credit
Agreement (the “Principal Amount”), subject to acceleration pursuant to the
terms of the Credit Agreement; and

(ii) interest on the Principal Amount of this Note from time to time outstanding
until such Principal Amount is paid in full at the applicable Revolving Interest
Rate in accordance with the provisions of the Credit Agreement. In no event,
however, shall interest exceed the maximum interest rate permitted by Applicable
Law. Upon the occurrence and during the continuation of an Event of Default, in
accordance with the terms of the Credit Agreement, interest may be payable at
the Default Rate.

This Note is a Revolving Credit Note under and as defined in the Credit
Agreement and is secured by the Liens granted pursuant to the Credit Agreement
and the other Loan Documents, is entitled to the benefits of the Credit
Agreement and the other Loan Documents, and is subject to all of the agreements,
terms, and conditions therein contained.

This Note is subject to mandatory prepayment and may be voluntarily prepaid, in
whole or in part, on the terms and conditions set forth in the Credit Agreement.

If an Event of Default under Section 10.6 of the Credit Agreement occurs, this
Note shall immediately become due and payable, without notice on demand,
together with reasonable and documented attorneys’ fees if the collection hereof
is placed in the hands of an attorney to obtain or enforce payment hereof and if
any other Event of Default occurs and is continuing, this Note may, as provided
in the Credit Agreement, be declared to be immediately due and payable, without
notice on demand, in each case together with expenses and costs as provided in
the Credit Agreement.

 

1

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This Note shall be governed by and construed in accordance with the Applicable
Law pertaining in the State of New York, other than those conflict of law
provisions that would defer to the substantive laws of another jurisdiction.
This governing law election has been made in reliance (at least in part) on
Section 5-1401 of the General Obligations Law of the State of New York (as and
to the extent applicable), and other Applicable Law. Any judicial proceeding
brought by or against any Borrower with respect to any of the Obligations, the
Credit Agreement, this Note, the other Loan Documents or any related agreement
may be brought in any court of competent jurisdiction in the City of New York,
Borough of Manhattan, State of New York, United States of America, and, by
execution and delivery of this Note, each Borrower accepts, for itself and in
connection with its properties, generally and unconditionally, the non-exclusive
jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Note. Each Borrower waives any
objection to jurisdiction and venue of any action instituted hereunder and shall
not assert any defense based on lack of jurisdiction or venue or based upon
forum non conveniens. Each Borrower waives the right to remove any judicial
proceeding brought against any other party in any state court to any federal
court. Any judicial proceeding by any party against any other Indemnitee
involving, directly or indirectly, any matter or claim in any way arising out
of, related to or connected with this Note or any related agreement, shall be
brought only in a federal or state court located in the City of New York,
Borough of Manhattan, County of New York, State of New York. Without limiting
the applicability of any other provision of the Credit Agreement, the terms of
Section 12.3 of the Credit Agreement are incorporated herein, mutatis mutandis,
and shall apply to and govern this Note.

Each Borrower expressly waives, to the extent not prohibited by law, the
requirements of any presentment, demand, protest, notice of protest, notice of
intent to accelerate, notice of acceleration, or any other notice of any kind
except as expressly provided in the Credit Agreement.

IN WITNESS WHEREOF, each Borrower has duly executed this Note as of the date
first written above.

 

VIRCO MFG. CORPORATION, a Delaware corporation By:  

 

Name:   Title:  

VIRCO INC.,

a Delaware corporation

By:  

 

Name:   Title:  

 

2

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Exhibit 8.1(k)

Form of Financial Condition Certificate

FINANCIAL CONDITION CERTIFICATE

Dated             , 20    

This FINANCIAL CONDITION CERTIFICATE is executed and delivered under and
pursuant to the terms of that certain Revolving Credit and Security Agreement,
dated as of the date hereof (as such agreement may be amended, restated, or
otherwise modified from time to time, the “Credit Agreement”), among VIRCO MFG.
CORPORATION, a Delaware corporation (“Borrowing Agent”), VIRCO INC., a Delaware
corporation (together with Borrowing Agent and each other Person that becomes a
party thereto as a borrower pursuant to Section 7.12 of the Credit Agreement,
collectively “Borrowers”), the Persons from time to time party thereto as a
guarantor pursuant to Section 7.12 of the Credit Agreement, the financial
institutions that are now or that hereafter become a party thereto
(collectively, “Lenders” and individually a “Lender”) and PNC BANK, NATIONAL
ASSOCIATION (“PNC”), as administrative agent for Lenders (PNC, in such capacity,
“Agent”). Initially capitalized terms used but not defined herein have the
respective meanings set forth in the Credit Agreement.

Pursuant to Section 8.1(k) of the Credit Agreement, the undersigned, duly
appointed and acting Vice President Finance of Borrowing Agent, being duly
authorized, hereby delivers this Financial Condition Certificate to Agent and
Lenders and hereby certifies, solely in [his/her] capacity as Vice President
Finance and on behalf of the Credit Parties and not in [his/her] individual
capacity, pursuant the Credit Agreement, that to (a) [his/her] actual knowledge
or (b) the knowledge that [he/she] would have obtained if engaged in the good
faith and reasonably diligent performance of [his/her] duties, as of the date
hereof:

(i) The pro forma balance sheet of Borrowers on a Consolidated Basis (the “Pro
Forma Balance Sheet”) furnished to Agent as of the Closing Date reflects the
consummation of the transactions contemplated by and under the Credit Agreement
(collectively, the “Transactions”) and fairly reflects the financial condition
of Borrowers on a Consolidated Basis as of the Closing Date after giving effect
to the Transactions, and has been prepared in accordance with GAAP, consistently
applied, except as may be disclosed in such financial statement.

(ii) The twelve-month operating statement projections of Borrowers on a
Consolidated Basis and their projected balance sheets as of the Closing Date,
copies of which are annexed to hereto as Exhibit 5.5(b) (the “Projections”),
were prepared by the Vice President Finance of Borrowing Agent, in good faith
based upon assumptions believed by Borrowers to be reasonable at the time made
(it being understood that such projections are subject to uncertainties and
contingencies and that no assurance can be given that any particular projection
will be realized).

(iii) After giving effect to the Transactions, the Credit Parties, taken as a
whole, are solvent, able to pay their debts as they mature, have capital
sufficient to carry on their businesses and all businesses in which they are
about to engage, and as of the Closing Date, the fair present saleable value of
their assets, taken as a whole, calculated on a going concern basis, is in
excess of the amount of their liabilities.

(iv) Each of the representations and warranties made by each Credit Party in or
pursuant to the Credit Agreement and the other Loan Documents, and each of the
representations and warranties contained in any certificate, document or
financial or other statement furnished under or in

 

1

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connection with the Credit Agreement or the other Loan Documents are true and
correct in all material respects on and as of the date hereof (except to the
extent any such representation or warranty is already qualified by a materiality
qualifier in which case it is true and correct in all respects); provided that
any Credit Party’s representation and warranty as to any forecast, projection or
other statement regarding future performance, future financial results or other
future development is limited to the fact that such forecast, projection or
statement was prepared in good faith on the basis of information and assumptions
that such Credit Party believed to be reasonable as of the date such material
was prepared (it being understood that the projections are subject to
uncertainties and contingencies, many of which are beyond such Credit Party’s
control, and that no assurance can be given that the projections will be
realized).

(v) As of the Closing Date, since January 31, 2011, there has been no change in
the condition, financial or otherwise, of the Credit Parties that individually
or in the aggregate has had a Material Adverse Effect.

IN WITNESS WHEREOF, the undersigned officer of Borrowing Agent has duly executed
this Financial Condition Certificate solely in [his/her] capacity as Vice
President Finance and on behalf of the Credit Parties and not in [his/her]
individual capacity, as of the date first written above.

 

 

[Name], Vice President Finance of VIRCO MFG. CORPORATION

 

2

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Exhibit 5.5(b)

Projections

(See attached.)

 

3

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Exhibit 16.3

Form of Commitment Transfer Supplement

COMMITMENT TRANSFER SUPPLEMENT

This COMMITMENT TRANSFER SUPPLEMENT is dated as of             , 20    by and
among                     (the “Transferor Lender”), each Purchasing Lender
executing this Commitment Transfer Supplement (each, a “Purchasing Lender”), and
PNC BANK, NATIONAL ASSOCIATION, (“PNC”) as administrative agent (PNC, in such
capacity, “Agent”) for Lenders (as defined below) under the Credit Agreement (as
defined below).

WHEREAS, this Commitment Transfer Supplement is being executed and delivered in
accordance with Section 16.3 of the Revolving Credit and Security Agreement,
dated as December 22, 2011(as such agreement may be amended, restated, or
otherwise modified from time to time, the “Credit Agreement”), among VIRCO MFG.
CORPORATION, a Delaware corporation, VIRCO INC., a Delaware corporation
(together with each other Person that becomes a party thereto as a borrower
pursuant to Section 7.12 of the Credit Agreement, collectively “Borrowers”), the
Persons from time to time party thereto as a guarantor pursuant to Section 7.12
of the Credit Agreement, the financial institutions that are now or that
hereafter become a party thereto (collectively, “Lenders” and individually a
“Lender”) and Agent;

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

WHEREAS, the Transferor Lender is selling and assigning to each Purchasing
Lender, rights, obligations and commitments under the Credit Agreement.

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

1. Initially capitalized terms used but not defined herein have the respective
meanings set forth in the Credit Agreement.

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

3. At or before 12:00 Noon (New York City Time) on the Transfer Effective Date
each Purchasing Lender shall pay to the Transferor Lender, in immediately
available funds, an amount equal to the purchase price, as agreed between the
Transferor Lender and such Purchasing Lender (the “Purchase Price”), of the
portion of the Advances being purchased by such Purchasing Lender (such
Purchasing Lender’s “Purchased Percentage”) of the outstanding Advances and
other amounts owing to the Transferor Lender under the Credit Agreement and the
Revolving Credit Note. Effective upon receipt by the Transferor Lender of the
Purchase Price from a Purchasing Lender, the Transferor Lender hereby

 

1

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irrevocably sells, assigns, and transfers to such Purchasing Lender, without
recourse, representation or warranty, and each Purchasing Lender hereby
irrevocably purchases, takes and assumes from the Transferor Lender, such
Purchasing Lender’s Purchased Percentage of the Advances and other amounts owing
to the Transferor Lender under the Credit Agreement, together with all
instruments, documents and collateral security pertaining thereto.

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

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

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

7. Concurrently with the execution and delivery hereof, the Transferor Lender
will provide to each Purchasing Lender copies of the Credit Agreement and all
related documents delivered to the Transferor Lender.

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

9. By executing and delivering this Commitment Transfer Supplement, the
Transferor Lender and each Purchasing Lender confirm to and agree with each
other and Agent and Lenders as follows: (a) other than the representation and
warranty that it is the legal and beneficial owner of the interest being
assigned hereby free and clear of any adverse claim, the Transferor Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement or any other
instrument or document furnished pursuant thereto; (b) the Transferor Lender
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of Borrowers or the performance or observance by
Borrowers of any of their Obligations under the Credit Agreement or any other
instrument or document furnished pursuant hereto; (c) each Purchasing Lender
confirms that it has received a copy of the Credit Agreement, together with
copies of such financial statements and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into this Commitment Transfer Supplement; (d) each Purchasing Lender will,
independently and without reliance

 

2

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

upon Agent, the Transferor Lender or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Credit
Agreement; (e) each Purchasing Lender appoints and authorizes Agent to take such
action as agent on its behalf and to exercise such powers under the Credit
Agreement as are delegated to Agent by the terms thereof; (f) each Purchasing
Lender agrees that it will perform all of its respective obligations as set
forth in the Credit Agreement to be performed by each as a “Lender”; and
(g) each Purchasing Lender represents and warrants to the Transferor Lender, the
other Lenders, Agent and Borrowers that it is either (i) entitled to the
benefits of any income tax treaty with the United States of America that
provides for an exemption from the United States withholding tax on interest and
other payments made by Borrowers under the Credit Agreement and the Loan
Documents or (ii) is engaged in trade or business within the United States of
America.

10. Each Purchasing Lender: (a) represents and warrants to the Transferor
Lender, the other Lenders, Agent and Borrowers that under applicable law and
treaties no tax will be required to be withheld by Borrowers with respect to any
payments to be made to the Purchasing Lender under the Credit Agreement;
(b) agrees to furnish (if the Transferor Lender is organized under the laws of
any jurisdiction other than the U.S. or any state thereof) to Agent and
Borrowers prior to the time that Agent or Borrowers are required to make any
payment of principal, interest, or fees to the Purchasing Lender under the
Credit Agreement, duplicate executed originals of either U.S. Internal Revenue
Service Form W-8ECI or U.S. Internal Revenue Service Form W-8BEN (wherein the
Purchasing Lender claims entitlement to the benefits of a tax treaty that
provides for a complete exemption from U.S. federal income withholding tax on
all payments hereunder) and agrees to provide new Forms W-8ECI or W-8BEN upon
the expiration of any previously delivered form or comparable statements in
accordance with applicable U.S. laws and regulations and any amendments thereto,
duly executed and completed by the Purchasing Lender; and (c) agrees to comply
with all applicable U.S. laws and regulations and any amendments thereto with
regard to such withholding tax exemption.

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

12. This Commitment Transfer Supplement shall be governed by and construed in
accordance with the laws of the State of New York applied to contracts to be
performed wholly within the State of New York.

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

 

 

as the Transferor Lender By:  

 

Name:   Title:  

 

as a Purchasing Lender

 

3

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

By:  

 

Name:   Title:  

PNC BANK, NATIONAL ASSOCIATION,

as Agent

By:  

 

Name:   Title:  

 

4

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

SCHEDULE I

TO

COMMITMENT TRANSFER SUPPLEMENT

LIST OF OFFICES, ADDRESSES FOR NOTICE AND COMMITMENT AMOUNTS

 

[Transferor Lender]    Revised Commitment Amount    $               
Revised Commitment Percentage            % [Purchasing Lender]    Commitment
Amount    $                Commitment Percentage            %

Addresses for Notices:

 

 

 

 

Attention:  

 

Telephone:  

 

Telecopier:  

 

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

SCHEDULE II

TO

COMMITMENT TRANSFER SUPPLEMENT

[Form of Transfer Effective Notice]

To:                     , as the Transferor Lender

and

                    , as a Purchasing Lender:

The undersigned, as Agent under the Revolving Credit and Security Agreement,
dated as December 22, 2011 (as such agreement may be amended, restated, or
otherwise modified from time to time, the “Credit Agreement”), among VIRCO MFG.
CORPORATION, a Delaware corporation, VIRCO INC., a Delaware corporation, each
other Person that becomes a party thereto as a borrower pursuant to Section 7.12
of the Credit Agreement, the Persons from time to time party thereto as a
guarantor pursuant to Section 7.12 of the Credit Agreement, the financial
institutions that are now or that hereafter become a party thereto
(collectively, “Lenders”) and PNC BANK, NATIONAL ASSOCIATION (“PNC”), as
administrative agent for Lenders (PNC, in such capacity, “Agent”), acknowledges
receipt of four (4) executed counterparts of a completed Commitment Transfer
Supplement in the form attached hereto. Initially capitalized terms used but not
defined herein have the respective meanings set forth in such Commitment
Transfer Supplement.

Pursuant to such Commitment Transfer Supplement, you are advised that the
Transfer Effective Date will be             , 20    .

 

PNC BANK, NATIONAL ASSOCIATION,

as Agent

By:

 

 

Name:

 

Title:

 

ACCEPTED FOR RECORDATION

IN REGISTER:                     

[ATTACH COMMITMENT TRANSFER SUPPLEMENT]

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

Schedule A

Notice Address

 

Notice Address for Agent: PNC Bank, National Association Two North Lake Avenue,
Suite 440 Pasadena, California 91101 Attention:    Relationship Manager (Virco
Mfg. Corporation) Telephone:    (626) 432-7546 Facsimile:    (626) 432-4589 with
a copy (which shall not constitute notice) to: PNC Bank, National Association
PNC Agency Services PNC Firstside Center 500 First Avenue, 4th Floor Pittsburgh,
Pennsylvania 15219 Attention:    Lisa Pierce Telephone:    (412) 762-6442
Facsimile:    (412) 762-8672 with an additional copy to: McGuireWoods LLP 1800
Century Park East, 8th Floor Los Angeles, California 90067 Attention:    Matthew
J. Wrysinski, Esq. Telephone:    (310) 315-8294 Facsimile:    (310) 956-3194
Notice Address for Credit Parties: Virco Mfg. Corporation 2027 Harpers Way
Torrance, California 90501 Attention:    Robert E. Dose    VP Finance Facsimile:
   (310)533-1906 Attention:    Robert E. Dose Virco Inc.    2027 Harpers Way
Torrance, California 90501 Attention:    Robert E. Dose    VP Finance Facsimile:
   (310)533-1906 Attention:    Robert E. Dose

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

Schedule 1.2

Permitted Encumbrances

Liens evidenced by the following UCC-1 Financing Statements:

 

CREDIT PARTY

  

JURISDICTION

  

SECURED PARTY

  

FILE NO./

FILE DATE

Virco Mfg. Corporation    DE SOS   

General Electric Capital Corporation

2400 E. Katella

Avenue, Suite 800

Anaheim, CA 92806

  

Initial

4047750 7

02/20/04

        

Amendment

4047750 7

03/03/04

        

Continuation

2008 3916259

11/24/08

Virco Mfg. Corporation    DE SOS   

General Electric Capital Corporation

7700 Irvine Center

Drive, Suite 400

Irvine, CA 92618

  

Initial

4047790 3

02/20/04

        

Amendment

4053985 0

02/26/04

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

CREDIT PARTY

  

JURISDICTION

   SECURED PARTY   

FILE NO./

FILE DATE

        

Continuation

2008 3916267

11/24/08

Virco Mfg. Corporation

   DE SOS    Wells Fargo Equipment Finance, Inc.

733 Marquette Avenue,

Suite 700

Minneapolis,

MN 55402

  

Initial

2008 3225370

09/18/08

Virco Mfg. Corporation

   DE SOS    Wells Fargo Equipment Finance, Inc.

733 Marquette Avenue,

Suite 700

Minneapolis,

MN 55402

  

Initial

2008 3225412

09/18/08

        

Amendment

2008 4317416

12/18/08

Virco Mfg. Corporation

   DE SOS    Wells Fargo Equipment Finance, Inc.

733 Marquette Avenue,

Suite 700

Minneapolis,

MN 55402

  

Initial

2008 3758677

11/10/08

        

Amendment

2009 0805975

03/13/09

 

2

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

CREDIT PARTY

  

JURISDICTION

   SECURED PARTY   

FILE NO./

FILE DATE

Virco Mfg. Corporation

   DE SOS    Air Liquide Industrial US LP

801 W. North Carrier

Grand Prairie,

TX 75050

  

Initial

2009 1636254

05/22/09

Virco Mfg. Corporation

   DE SOS    Comerica Bank

1508 West

Mockingbird Lane

MC 6583

Dallas, Texas 75235

  

Initial

2009 2341995

07/22/09

Virco Mfg. Corporation

   DE SOS    Ricoh Americas Corporation

1111 Old Eagle School Road

Wayne, PA 19087

  

Initial

2009 3342604

10/16/09

Virco Mfg. Corporation

   DE SOS    Toyota Motor Credit Corporation

PO Box 3457

Torrance, CA 90510-345

  

Initial

2010 1212947

04/08/10

Virco Mfg. Corporation

   DE SOS    Toyota Motor Credit Corporation

PO Box 3457

Torrance, CA 90510-345

  

Initial

2010 1501562

04/29/10

Virco Mfg. Corporation

   DE SOS    Toyota Motor Credit Corporation

PO Box 3457

Torrance, CA 90510-345

  

Initial

2010 1501836

04/29/10

 

3

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

CREDIT PARTY

  

JURISDICTION

  

SECURED PARTY

  

FILE NO./

FILE DATE

Virco Mfg. Corporation

   DE SOS   

Toyota Motor Credit Corporation

PO Box 3457

Torrance, CA 90510-345

  

Initial

2010 1502149

04/29/10

Virco Mfg. Corporation

   DE SOS   

Toyota Motor Credit Corporation

PO Box 3457

Torrance, CA 90510-345

  

Initial

2010 1502271

04/29/10

Virco Mfg. Corporation

   DE SOS   

Toyota Motor Credit Corporation

PO Box 3457

Torrance, CA 90510-345

  

Initial

2010 1502461

04/29/10

Virco Mfg. Corporation

   DE SOS   

Toyota Motor Credit Corporation

PO Box 3457

Torrance, CA 90510-345

  

Initial

2010 1502750

04/29/10

Virco Mfg. Corporation

   DE SOS   

Toyota Motor Credit Corporation

PO Box 3457

Torrance, CA 90510-345

  

Initial

2010 1503014

04/29/10

Virco Mfg. Corporation

   DE SOS   

Business World Inc.

PO Box 609

Cedar Rapids, IA 52406

  

Initial

2010 2351322

07/07/10

 

4

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

CREDIT PARTY

  

JURISDICTION

   SECURED PARTY   

FILE NO./

FILE DATE

Virco Mfg. Corporation

   DE SOS    Toyota Motor Credit Corporation

PO Box 3457

Torrance, CA 90510-345

  

Initial

2011 0424690

02/04/11

        

Amendment

2011 0439342

02/07/11

Virco Inc.

   DE SOS    Dell Financial Services, L.P.

122234 N. IN-35

Bldg B

Austin, TX 78753

  

Initial

5142095 0

05/09/05

        

Continuation

5142095 0

04/13/10

      Dell Financial Services L.L.C

Mail Stop PS2DF-23

One Dell Way

Round Rock,

TX 78682

  

Amendment

5142095 0

07/20/10

Virco Inc.

   DE SOS    Toyota Motor Credit Corporation

PO Box 3457

Torrance, CA 90510-345

  

Initial

2007 1860096

05/14/07

Virco Inc.

   DE SOS    Greatamerica Leasing Corporation

PO Box 609

Cedar Rapids, IA 52406-060

  

Initial

2008 1777992

05/22/08

 

5

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

CREDIT PARTY

  

JURISDICTION

  

SECURED PARTY

  

FILE NO./

FILE DATE

Virco Inc.

   DE SOS   

GFC Leasing, A Division of Gordon

Flesch Co., Inc.

2101 W. Beltline Hwy

Madison, WI 53713

  

Initial

2008 3676382

10/31/08

Virco Inc.

   DE SOS   

Toyota Motor Credit Corporation

PO Box 3457

Torrance, CA 90510-345

  

Initial

2010 1214760

04/08/10

Virco Inc.

   DE SOS   

Toyota Motor Credit Corporation

PO Box 3457

Torrance, CA 90510

  

Initial

2010 1503352

04/29/10

Virco Inc.

   DE SOS   

Toyota Motor Credit Corporation

PO Box 3457

Torrance, CA 90510

  

Initial

2010 1503592

04/29/10

Virco Inc.

   DE SOS   

Toyota Motor Credit Corporation

PO Box 3457

Torrance, CA 90510

  

Initial

2010 1503691

04/29/10

Virco Inc.

   DE SOS   

Toyota Motor Credit Corporation

PO Box 3457

Torrance, CA 90510

  

Initial

2010 1503774

04/29/10

Virco Inc.

   DE SOS   

Toyota Motor Credit Corporation

PO Box 3457

Torrance, CA 90510

  

Initial

2010 1503873

04/29/10

 

6

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

CREDIT PARTY

  

JURISDICTION

  

SECURED PARTY

  

FILE NO./

FILE DATE

Virco Inc.

   DE SOS   

Toyota Motor Credit Corporation

PO Box 3457

Torrance, CA 90510

  

Initial

2010 1503964

04/29/10

Virco Inc.

   DE SOS   

Toyota Motor Credit Corporation

PO Box 3457

Torrance, CA 90510

  

Initial

2010 1504012

04/29/10

Virco Inc.

   DE SOS   

Toyota Motor Credit Corporation

PO Box 3457

Torrance, CA 90510

  

Initial

2010 1504087

04/29/10

Virco Inc.

   DE SOS   

Komatsu Financial, L.P.

1701 W. Golf Road,

Suite 300

Rolling Meadows, IL 60008

  

Initial

2011 4134097

10/17/11

 

7

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Schedule 4.5

Locations of Equipment/Inventory

Chief Executive Office

2027 Harpers Way

Torrance, CA 90501

Owned Locations

1701 Sturgis Road

Conway, AR 72034

1265 Bruce Street

Conway, AR 72034

Leased Locations

 

Credit Party

  

Leased Location

 

Landlord

Virco Mfg. Corporation   

2027 Harpers Way

Torrance, CA 90501

 

Starboard Distribution Center, LLC

c/o Prologis

17777 Center Court Drive N.

Suite 100

Cerritos, CA 90703

Attn: Maribel Castro

Virco Mfg. Corporation   

1655 Amity Road

Conway, AR 72034

 

Dewayne Davis

PO Box 2027

Edwards, CO 81632

Third Party Locations

 

Credit Party

  

Third Party Location

 

Third Party

Virco Mfg. Corporation   

2250 East Cherry Industrial Circle

Long Beach, CA 90805

 

Medway Plastics Corp.

2250 East Cherry Industrial Circle

Long Beach, CA 90805

Virco Mfg. Corporation   

434 W. 164th St.

Gardena, CA 90248

 

Decor Plating, Inc.

434 W. 164th St.

Gardena, CA 90248

Virco Mfg. Corporation   

2701 N. San Fernando Road

Los Angeles, CA 90065

 

Valley Plating Works, Inc.

2701 N. San Fernando Road

Los Angeles, CA 90065

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Other

Sample inventory, computers and cell phones held at regional sales offices.

 

9

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Schedule 4.15(h)

Deposit and Investment Accounts

Provided to Agent.

 

10

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Schedule 4.19

Real Property

 

Property Location

  

Owned/Leased

2027 Harpers Way

Torrance, CA 90501

   Leased

1701 Sturgis Road

Conway, AR 72034

   Owned

1265 Bruce Street

Conway, AR 72034

   Owned

1655 Amity Road

Conway, AR 72034

   Leased

 

11

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Schedule 5.1

Consents

Consent of the Board of Directors of Virco Mfg. Corporation.

Consent of the Board of Directors of Virco Inc.

 

12

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Schedule 5.2(a)

States of Qualification and Good Standing

 

Company

  

State of Incorporation

  

States of Qualification

Virco Mfg. Corporation    Delaware    Delaware, California, Arkansas Virco Inc.
   Delaware    Delaware, California, Arkansas

 

13

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Schedule 5.2(b)

Subsidiaries

Virco Inc. is a wholly-owned subsidiary of Virco Mfg. Corporation.

 

14

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Schedule 5.4

Federal Tax Identification Numbers

Provided to Agent.

 

15

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Schedule 5.6

Prior Names

On January 31, 2011, Virco Mgmt Corporation, a 100% wholly owned subsidiary of
Virco Mfg. Corporation was liquidated and all assets transferred to Virco Mfg.
Corporation.

 

16

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Schedule 5.8(b)

Litigation

None.

 

17

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Schedule 5.8(d)

Plans

Virco Employees Retirement Plan

Virco Important Performers Master Plan

Retirement Plan for Non-Employee Directors of Virco Mfg. Corporation

Virco Mfg. Corporation 401(k) Plan

 

18

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Schedule 5.9

Intellectual Property

Provided to Agent.

 

19

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Schedule 5.10

Licenses and Permits

None.

 

20

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Schedule 5.14

Labor Disputes

None.

 

21

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Schedule 5.26

Commercial Tort Claims

None.

 

22

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Schedule 7.3

Guarantees

None.

 

23

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Schedule 7.4

Investments

Virco Mfg. Corporation’s investment in all the capital stock of Virco Inc.

 

24

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Schedule 7.8

Indebtedness

$24,000 to be paid to CRX Limited pursuant to that certain Patent Purchase
Agreement dated as of December 16, 2003 by and between Virco Mgmt. Corporation
(as predecessor in interest of Virco Mfg. Corporation) and CRX limited.

 

25