CREDIT
AGREEMENT
  $6,000,000
  Dated
as of August 6, 2007
  by
and among
  DEEP
DOWN, INC.,
  as
Borrower,
  THE
FINANCIAL INSTITUTIONS FROM TIME TO TIME PARTY HERETO,
  as
Lenders, and
  PROSPECT
CAPITAL CORPORATION,
   as
Agent
  
  TABLE
OF CONTENTS
  PageARTICLE
      I DEFINITIONS; CERTAIN TERMS
                1Section
      1.01 Definitions
                1Section
      1.02 Terms Generally
                15Section
      1.03 Accounting and Other Terms
                15Section
      1.04 Time References
                15ARTICLE
      II THE LOANS .
                15Section
      2.01 Commitments
                15Section
      2.02 Making the Loans
                16Section
      2.03 Repayment of Loans; Evidence of Debt
                16Section
      2.04 Interest
                17Section
      2.05 Reduction of Commitment; Prepayment of Loans
                18Section
      2.06 Structuring Fee
                19Section
      2.07 Taxes
                19ARTICLE
      III FEES, PAYMENTS AND OTHER COMPENSATION
                20Section
      3.01 Payments; Computations, Statements and Debt Service Reserve
      Account
                20Section
      3.02 Sharing of Payments, Etc
                21Section
      3.03 Apportionment of Payments
                21ARTICLE
      IV CONDITIONS TO LOANS
                22Section
      4.01 Conditions Precedent to Effectiveness
                22ARTICLE
      V REPRESENTATIONS AND WARRANTIES
                25Section
      5.01 Organization, Good Standing, Etc
                25Section
      5.02 Authorization, Etc
                25Section
      5.03 Governmental Approvals
                25Section
      5.04 Enforceability of Loan Documents
                25Section
      5.05 Capitalization; Subsidiaries
                26Section
      5.06 Litigation; Commercial Tort Claims
                26Section
      5.07 Financial Condition.
                26Section
      5.08 Compliance with Law, Etc
                26Section
      5.09 ERISA
                26Section
      5.10 Taxes, Etc
                27Section
      5.11 Regulations T, U and X
                27Section
      5.12 Nature of Business
                27Section
      5.13 Adverse Agreements, Etc
                27Section
      5.14 Permits, Etc
                28Section
      5.15 Properties.
                28Section
      5.16 Full Disclosure
                28Section
      5.17 Operating Lease Obligations
                29Section
      5.18 Environmental Matters
                29Section
      5.19 Insurance
                29
 
 i
 
 Section
      5.20 Use of Proceeds
                29Section
      5.21 Solvency
                29Section
      5.22 Location of Bank Accounts
                30Section
      5.23 Material Contracts
                30Section
      5.24 Investment Company Act
                30Section
      5.25 Employee and Labor Matters
                30Section
      5.26 Customers and Suppliers
                30Section
      5.27 No Bankruptcy Filing
                30Section
      5.28 Casualty Events
                31Section
      5.29 Organizational Information
                31Section
      5.30 Equipment
                31Section
      5.31 Locations of Collateral
                31Section
      5.32 Security Interests
                31Section
      5.33 Schedules
                31Section
      5.34 Representations and Warranties in Documents; No
    Default
                31Section
      5.35 Reliance
                32Section
      5.36 Brokers
                32Section
      5.37 Use of Loans
                32ARTICLE
      VI AFFIRMATIVE COVENANTS
                32Section
      6.01 Reporting Requirements
                32Section
      6.02 Additional Guaranties and Collateral Security
                35Section
      6.03 Compliance with Laws, Etc
                35Section
      6.04 Preservation of Existence, Etc
                35Section
      6.05 Keeping of Records and Books of Account
                36Section
      6.06 Inspection Rights
                36Section
      6.07 Maintenance of Properties, Etc
                36Section
      6.08 Maintenance of Insurance
                36Section
      6.09 Obtaining of Permits, Etc
                37Section
      6.10 Environmental
                37Section
      6.11 Further Assurances
                37Section
      6.12 Change in Collateral; Collateral Records
                37Section
      6.13 Landlord Waivers; Collateral Access Agreements
                37Section
      6.14 Subordination
                38Section
      6.15 Fiscal Year
                38Section
      6.16 Key Man Life Insurance
                38Section
      6.17 Agent Observers.
                38Section
      6.18 Management
                39Section
      6.19 Budget
                39Section
      6.20 Material Contracts
                39Section
      6.21 Right of First Refusal
                39Section
      6.22 Amegy Factoring Agreement
                39Section
      6.23 Properties
                39ARTICLE
      VII Negative Covenants
                39Section
      7.01 Liens, Etc
                40Section
      7.02 Fundamental Changes; Dispositions
                40
 
 ii
 
 Section
      7.03 Change in Nature of Business
                40Section
      7.04 Loans, Advances, Investments, Etc
                40Section
      7.05 Lease Obligations
                41Section
      7.06 Restricted Payments
                41Section
      7.07 Federal Reserve Regulations; Use of Proceeds
                41Section
      7.08 Transactions with Affiliates
                41Section
      7.09 Limitations on Dividends and Other Payment Restrictions Affecting
      Subsidiaries
                41Section
      7.10 Capital Stock
                42Section
      7.11 Modifications of Indebtedness, Organizational Documents and Certain
      Other Agreements; Etc
                42Section
      7.12 Investment Company Act of 1940
                43Section
      7.13 Compromise of Accounts Receivable
                43Section
      7.14 ERISA
                43Section
      7.15 Environmental
                43Section
      7.16 Certain Agreements; Permits; Authorizations.
                43Section
      7.17 Corporate Status
                43Section
      7.18 General and Administrative Costs
                43Section
      7.19 Indebtedness
                43ARTICLE
      VIII Financial Covenants
                44Section
      8.01 Debt/EBITDA
                44Section
      8.02 Interest Coverage
                44Section
      8.03 Free Cash Flow Coverage
                44Section
      8.04 EBITDA
                45ARTICLE
      IX OPERATING ACCOUNT
                45Section
      9.01 Operating Account
                45ARTICLE
      X EVENTS OF DEFAULT
                46Section
      10.01 Events of Default
                46Section
      10.02 Remedies.
                48ARTICLE
      XI AGENT
                49Section
      11.01 Appointment
                49Section
      11.02 Nature of Duties
                50Section
      11.03 Rights, Exculpation, Etc
                50Section
      11.04 Reliance
                51Section
      11.05 Indemnification
                51Section
      11.06 Agent Individually
                51Section
      11.07 Successor Agent
                51Section
      11.08 Collateral Matters
                52Section
      11.09 Agency for Perfection
                53ARTICLE
      XII MISCELLANEOUS
                53Section
      12.01 Notices, Etc
                53Section
      12.02 Amendments, Etc
                54
 
 iii
 
 
 Section
      12.03 No Waiver; Remedies, Etc
                54Section
      12.04 Expenses; Taxes; Attorneys' Fees
                55Section
      12.05 Right of Set-off
                55Section
      12.06 Severability
                56Section
      12.07 Assignments and Participations
                56Section
      12.08 Counterparts
                58Section
      12.09 GOVERNING LAW
                59Section
      12.10 CONSENT TO JURISDICTION; SERVICE OF PROCESS AND
VENUE
                59Section
      12.11 WAIVER OF JURY TRIAL, ETC
                59Section
      12.12 No Party Deemed Drafter
                60Section
      12.13 Reinstatement; Certain Payments
                60Section
      12.14 Indemnification
                60Section
      12.15 Records
                61Section
      12.16 Binding Effect
                61Section
      12.17 Interest
                61Section
      12.18 Confidentiality
                62Section
      12.19 Integration
                63Section
      12.20 Waiver
                63Section
      12.21 Joint and Several Nature of Obligation
                63
 
 
 Schedule
      1.01(A)
                Lenders
      and Lenders' CommitmentsSchedule
      1.01(B)
                EquipmentSchedule
      2.03
                AmortizationSchedule
      5.05
                CapitalizationSchedule
      5.06
                Litigation;
      Commercial Tort ClaimsSchedule
      5.09
                ERISASchedule
      5.15
                Real
      PropertySchedule
      5.17
                Operating
      Lease ObligationsSchedule
      5.18
                Environmental
      MattersSchedule
      5.19
                InsuranceSchedule
      5.20
                Use
      of ProceedsSchedule
      5.22
                Bank
      AccountsSchedule
      5.23
                Material
      ContractsSchedule
      5.29
                Name;
      Jurisdiction of Organization; Organizational ID Number; Chief Place of
      Business; Chief Executive Office; FEINSchedule
      5.31
                Collateral
      LocationsSchedule
      5.36
                BrokersSchedule
      7.04
                Permitted
      InvestmentsExhibit
      A
                Form
      of Guaranty and Collateral AgreementExhibit
      B
                [Reserved]Exhibit
      C
                Form
      of Notice of BorrowingExhibit
      D
                Form
      of Opinion of Counsel to the Loan PartiesExhibit
      E
                Form
      of Assignment and AcceptanceExhibit
      F
                Form
      of Warrant AgreementExhibit
      G
                Form
      of Note
  iv
  CREDIT
AGREEMENT
  Credit
Agreement, dated as of August 6, 2007 and made effective as of the Effective
Date (as hereinafter defined), by and among Deep Down, Inc., a Nevada
corporation ("Deep
Down" or "Borrower"),
the financial institutions from time to time party hereto (each a "Lender"
and collectively, the "Lenders")
and Prospect Capital Corporation, a Maryland corporation ("Prospect"),
as agent for the Lenders (in such capacity, the "Agent").
  RECITALS
  A.  The
Borrower has requested that the Lenders provide certain loans to the
Borrower.
  B.  The
Lenders have agreed to make such loans subject to the terms and conditions of
this Agreement.
  C. In
consideration of the mutual covenants and agreements herein contained and of the loans,
extensions of credit and commitments hereinafter referred to, the parties hereto
agree as follows:
  ARTICLE
I
 DEFINITIONS;
CERTAIN TERMS
  Section 1.01Definitions.
As used in this Agreement, the following terms shall have the respective
meanings indicated below, such meanings to be applicable equally to both the
singular and plural forms of such terms:
  "Account
Receivable" means, with respect to any Person, any and all rights of such
Person to payment for goods sold and/or services rendered, including accounts,
general intangibles and any and all such rights evidenced by chattel paper,
instruments or documents, whether due or to become due and whether or not earned
by performance, and whether now or hereafter acquired or arising in the future,
and any proceeds arising therefrom or relating thereto.
  "Affiliate"
means, with respect to any Person, any other Person that directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, such Person. For purposes of this definition, "control" of
a Person means the power, directly or indirectly, either to (i) vote 10% or more
of the Capital Stock having ordinary voting power for the election of directors
of such Person or (ii) direct or cause the direction of the management and
policies of such Person whether by contract or otherwise. Notwithstanding
anything herein to the contrary, in no event shall the Agent or any Lender be
considered an "Affiliate" of any Loan Party.
  "Agent"
has the meaning specified therefor in the preamble.
  "Agent
Advances" has the meaning specified therefor inSection
1 1.08(a).
  "Agent
Observers" has the meaning specified therefor in Section
6.17(a).
  "Agent's
Account" means an account at a bank designated by the Agent from time to
time as the account into which the Loan Parties shall make all payments to the
Agent for the benefit of the Agent and the Lenders under this Agreement and the
other Loan Documents.
  1
    "Agreement" means
this Credit Agreement, including all amendments, modifications and supplements
and any exhibits or schedules to any of the foregoing, and shall refer to the
Agreement as the same may be in effect at the time such reference becomes
operative.
  "Amegy Factoring
Agreements"] means the Deep Down Factoring Agreement and the ElectroWave
Factoring Agreement..
  "Approved Sale of
Assets" means a Disposition (excluding any Disposition made pursuant to
Sections 7.02(b)(i) and (ii)) of no more than five percent (5%) of the
Borrower's tangible and intangible assets at the fair market saleable value of
such assets, during any consecutive twelve-month period, approved in advance by
the Agent in its sole discretion.
  "Assignment and
Acceptance" means an assignment and acceptance entered into by an
assigning Lender and an assignee, and accepted by the Agent, in accordance with
Section 12.07
hereof and substantially in the form of Exhibit E hereto or
such other form acceptable to the Agent.
  "Authorized Officer"
means with respect to any Person, the chief executive officer, chief financial
officer or president of such Person.
  "Bankruptcy Code"
means Chapter 11 of Title 11 of the United States Code.
  "Board of Directors"
means, with respect to any Person, the board of directors (or comparable
managers) of such Person or any committee thereof duly authorized to act on
behalf of such board of directors (or comparable managers).
  "Borrower" has the
meaning specified therefor in the preamble hereto.
  "Building Lease"
means that certain lease agreement dated September 1, 2006 by and between JUMA,
L.L.C., as landlord and the Borrower, as tenant.
  "Business Day" means
any day other than a Saturday, Sunday or other day on which commercial banks in
New York City are authorized or required to close.
  "Capital
Expenditures" means, with respect to any Person for any period, the sum
of (a) the aggregate of all expenditures by such Person and its Subsidiaries
during such period that in accordance with GAAP are or should be included in
"property, plant and equipment" or in a similar fixed asset account on its
balance sheet, whether such expenditures are paid in cash or financed and
including all Capitalized Lease Obligations paid or payable during such period,
and (b) to the extent not covered by clause (a) above, the aggregate of all
expenditures by such Person and its Subsidiaries during such period to acquire
by purchase or otherwise the business or fixed assets of, or the Capital Stock
of, any other Person.
  "Capital Stock" means
(a) with respect to any Person that is a corporation, any and all shares,
interests, participations or other equivalents (however designated and whether
or not voting) of corporate stock and (b) with respect to any Person that is not
a corporation, any and all partnership, membership or other equity interests of
such Person.
  "Capitalized Lease"
means, with respect to any Person, any lease of real or personal property by
such Person as lessee which is (a) required under GAAP to be capitalized on the
balance sheet of such Person or (b) a transaction of a type commonly known as a
"synthetic lease" (i.e., a lease
transaction that
  2
   is
treated as an operating lease for accounting purposes but with respect to which
payments of rent are intended to be treated as payments ofprincipal and
interest on a loan for Federal income tax purposes).
  "Capitalized
Lease Obligations" means, with respect to any Person, obligations of such
Person and its Subsidiaries under Capitalized Leases, and, for purposes hereof,
the amount of any such obligation shall be the capitalized amount thereof
determined in accordance with GAAP.
  "Cash
and Cash Equivalents" means all cash and any presently existing or
hereafter arising deposit account balances, certificates of deposit or other
financial instruments properly classified as cash equivalents under
GAAP.
  "Cash
Sweep Trigger" shall meanthe occurrenceof one
or more of the following events:
  (a) Debt/EBITDA.
Permit the ratio of outstanding Total Debt at any time, divided by
Consolidated EBITDA, as of the last day of each fiscal quarter, commencing on or
after March 31, 2008, to be greater than the ratio set forth below for the
applicable period:
  Each
      fiscal quarter ending:
              Ratio3/31/08
      to 12/31/08
              3.0:1.003/31/09
      and thereafter
              2.5:1.0
 
  (b) Interest
Coverage. Permit Consolidated EBITDA divided by Consolidated Net Interest
Expense on the Total Debt, as of the last day of each fiscal quarter, commencing
on or after March 31, 2008, for any trailing four quarter period, to be less
than the ratio set forth below for the applicable period:
  Each
      fiscal quarter ending:
              Ratio3/31/08
      to 12/31/08
              2.5:1.003/31/09
      and thereafter
              3.0:1.00
 
  (c) Free
Cash Flow Coverage. Permit Free Cash Flow divided by Debt Service as of the last
day of each fiscal quarter, commencing on or after March 31, 2008, for any
trailing four quarter period to be less than the ratio set forth below for the
applicable period:
  Each
      fiscal quarter ending:
              Ratio3/31/08
      to 12/31/08
              1.2:1.003/31/09
      and thereafter
              1.5:1.00
 
  "Casualty
Event" means any loss, casualty or other insured damage to, or any
nationalization, taking under power of eminent domain or by condemnation or
similar proceeding of, any Property of the Loan Parties valued in excess of
$250,000.
  3
   "Change of Control"
means each occurrence of any of the following:(1)
  (a)  the
failure of the Permitted Holders to own, directly or indirectly, beneficial ownership
of 45% or more of the aggregate outstanding voting power of the Capital Stock of
the Borrower;
  (b)  the
acquisition, directly or indirectly, by any person or group (within the meaning of
Section 13(d)(3) of the Exchange Act) other than the Permitted Holders of
beneficial ownership of 51% or more of the aggregate outstanding voting power of
the Capital Stock of the Borrower;
  (c)  during
any period of two consecutive years, individuals who at the beginning of such
period constituted the Board of Directors of the Borrower (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Borrower was approved by a vote of at least
a majority of the directors of the Borrower then still in office who were either
directors at the beginning of such period, or whose election or nomination for
election was previously approved) cease for any reason to constitute a majority
of the Board of Directors of the Borrower, except where the failure to
constitute a majority is due to death or other incapacitation of a director or
dismissal of a director for willful misconduct; or
  (d)  the
Borrower shall cease to have beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act) of 100% of the aggregate voting power of the Capital Stock of each
other Loan Party, free and clear of all Liens (other than any Liens granted
hereunder and Permitted Liens).
  "Collateral" means
all of the property and assets and all interests therein and proceeds thereof
now owned or hereafter acquired by any Person upon which a Lien is granted or
purported to be granted by such Person as security for all or any part of the
Obligations.
  "Commitment" means,
with respect to each Lender, the commitment of such Lender to make a Loan to the
Borrower in the amount set forth opposite such Lender's name in Schedule 1.01(A)
hereto, as the same may be increased pursuant to Section 2.04(b) and
terminated or reduced from time to time in accordance with the terms of this
Agreement. The aggregate amount of the Commitments available on the Effective
Date (the "Initial
Commitments") is $6,000,000.
  "Consolidated EBITDA"
means, with respect to the Loan Parties for any period, the Consolidated Net
Income of the Loan Parties for such period, plus without
duplication, the sum of the following amounts of the Loan Parties for such
period and to the extent deducted in determining Consolidated Net Income of the
Borrower for such period: (a) Consolidated Net Interest Expense, (b) income tax
expense, (c) depreciation expense, and (d) amortization expense.
  "Consolidated Net
Income" means, with respect to the Loan Parties for any period, the net
income (loss) of the Loan Parties for such period, determined on a consolidated
basis and in accordance with GAAP, but excluding from the determination of
Consolidated Net Income (without duplication) (a) any extraordinary or non
recurring gains or losses or gains or losses from Dispositions and (b) effects
of discontinued operations.
  "Consolidated Net Interest
Expense" means, with respect to the Loan Parties for any period, gross
cash interest expense of the Loan Parties for such period determined on a
consolidated basis and in accordance with GAAP (including, without limitation,
interest expense paid to Affiliates of the Loan Parties), less (i) the sum of
(A) cash interest income for such period and (B) cash gains for such period
on
  (1) This
will need to change pending diligence on capital structure of
borrower
  4
   interest
rate hedging agreements (to the extent not included in interest income above and
to the extent not deducted in the calculation of gross interest expense), plus (ii) the sum of
(A) cash losses for such period on interest rate hedging agreements (to the
extent not included in gross interest expense) and (B) the upfront cash costs or
fees for such period associated with interest rate hedging agreements (to the
extent not included in gross interest expense), in each case, determined on a
consolidated basis and in accordance with GAAP.
  "Consolidated
Revenues" means, with respect to the Loan Parties for any period, the
gross revenues of the Loan Parties for such period, determined on a consolidated
basis and in accordance with GAAP.
  "Contingent
Obligation" means, with respect to any Person, any obligation of such
Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends
or other obligations ("primary obligations") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, (i) the direct or indirect guaranty, endorsement (other than for
collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such Person of the obligation
of a primary obligor, (ii) the obligation to make take-or-pay or similar
payments, if required, regardless of nonperformance by any other party or
parties to an agreement, (iii) any obligation of such Person, whether or not
contingent, (A) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (B) to advance or supply
funds (1) for the purchase or payment of any such primary obligation or (2) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (C) to purchase
property, assets, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (D) otherwise to assure or hold
harmless the holder of such primary obligation against loss in respect thereof;
provided,
however, that the term "Contingent Obligation" shall not include any
product warranties extended in the ordinary course of business. The amount of
any Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation with respect to which such
Contingent Obligation is made (or, if less, the maximum amount of such primary
obligation for which such Person may be liable pursuant to the terms of the
instrument evidencing such Contingent Obligation) or, if not stated or
determinable, the maximum reasonably anticipated liability with respect thereto
(assuming such Person is required to perform thereunder), as determined by such
Person in good faith.
  "Debt. Service" shall
mean, for any period of determination, the sum of (i) Consolidated Interest
Expense and (ii) required payments of principal on Total Debt and any other
Indebtedness.
  "Debt Service Reserve
Account" means an account maintained hereunder by and under the exclusive
control of the Agent with respect to the Borrower, for the purposes described in
Section 3.01(b).Any interest accruing on such account shall belong to the
Borrower.
  "Debt. Service Reserve
Amount" has the meaning specified therefor in Section
3.01(b).
  "Deep Down Factoring
Agreement" means that certain Purchase and Sale Agreement/Security
Agreement dated June 2, 2005 between Amegy Bank National Association and the
Borrower.
  "Default" means any
of the events specified in Section 10.01,
whether or not any requirement for the giving of notice, the lapse of time, or
both, has been satisfied.
  "Disbursement Date"
has the meaning given such term in Section
2.03(f).
  5
   "Dispose"
or "Disposition"
means the sale, transfer, license, lease or other disposition (including any
sale and leaseback transaction) of any property by any Person, in each case,
whether or not the consideration therefore consists of cash, securities or other
assets owned by the acquiring Person.
  "Dollar," "Dollars"
and the symbol "$" each means lawful money of the United States of
America.
  "ElectroWave
Factoring Agreement" means that certain Purchase and Sale/Security
Agreement dated as of March 22, 2007 between Amegy Bank National Association and
ElectroWave USA, Inc., a Nevada corporation.
  "Effective
Date" means the date, on or before August 6, 2007, on which all of the
conditions precedent set forth in Section
4.01 are satisfied or waived and Loans are made on such
date.
  "Employee
Plan" means an employee benefit plan (other than a Multiemployer Plan)
covered by Title IV of ERISA and maintained (or that was maintained at any time
during the six (6) calendar years preceding the date of any borrowing hereunder)
for employees of any Loan Party or any of its ERISA Affiliates.
  "Enviromnental
Actions" means any complaint, summons, citation, notice, directive,
order, claim, litigation, investigation, judicial or administrative proceeding,
judgment, letter or other written communication from any Person or Governmental
Authority alleging violations of Environmental Laws or liability for Releases of
Hazardous Materials.
  "Environmental
Laws" means the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. § 9601, et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. § 1801, et. seq.), the Resource Conservation and
Recovery Act (42 U.S.C. § 6901, et sec .), the Federal Clean Water Act (33
U.S.C. § 1251 et seq.), the Clean Air Act (42 U.S.C. § 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. § 2601 et m.), the Occupational Safety and
Health Act (29 U.S.C. § 651 et seq.), as such laws may he amended or otherwise
modified from time to time, and any other present or future federal, state,
local or foreign statute, ordinance, rule, regulation, order, judgment, decree,
permit, license or other binding determination of any Governmental Authority
imposing liability or establishing standards of conduct for the prevention of
pollution, protection of the environment or the remediation of contamination,
and any other government restrictions relating to the Release of any Hazardous
Materials into the environment.
  "Environmental
Liabilities and Costs" means all liabilities, monetary obligations,
Remedial Actions, losses, damages, natural resource damages, punitive damages,
consequential damages, treble damages, costs and expenses (including all
reasonable fees, disbursements and expenses of counsel, experts and consultants
and costs of investigations and feasibility studies), fines, penalties,
sanctions and interest incurred as a result of any claim or demand by any
Governmental Authority or any third party, and which relate to any alleged
violation of Environmental Laws, any environmental condition or a Release of
Hazardous Materials.
  "Environmental
Lien" means any Lien in favor of any Governmental Authority for
Environmental Liabilities and Costs.
  "Equipment"
means the equipment, machinery, vehicles, rolling stock, tools and related items
of the Loan Parties used in the conduct of their business, including without
limitation the equipment described on Schedule
1.01(B).
  6
   "ERISA"
means the Employee Retirement Income Security Act of 1974, as amended, and any
successor statute of similar import, and regulations thereunder, in each case,
as in effect from time to time. References to sections of ERISA shall be
construed also to refer to any successor sections.
  "ERISA
Affiliate" means, with respect to any Person, any trade or business
(whether or not incorporated) which is a member of a group of which such Person
is a member and which would be deemed to be a "controlled group" within the
meaning of Sections 414(b), (c), (m) and (o) of the Internal Revenue
Code.
  "Event
of Default" means any of the events set forth in Section
10.01."Exchange
Act" means the Securities Exchange Act of 1934, as amended.
  "Federal
Funds Rate" means, for any period, a fluctuating interest rate per annum
equal to, for each day during such period, the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the quotations for
such day on such transactions received by the Agent from three Federal funds
brokers of recognized standing selected by it.
  "Federal
Reserve Board" means the Board of Governors of the Federal Reserve System
of the United States.
  "Fee
Letter" means the letter agreement and related term sheet between
Borrower and Agent dated as of July , 2007.
  "Final
Maturity Date" means the earlier of (i) August 6, 2011 or (ii) the date
on which any Loan shall become due and payable in accordance with the terms of
this Agreement and the other Loan Documents.
  "Financial
Statements" means (i) the audited balance sheet of the Loan Parties for
the Fiscal Year ended December 31, 2006, and the related consolidated statement
of operations, stockholders' deficit and cash flows for the Fiscal Year then
ended and (ii) the unaudited pro forma balance sheet of the Loan Parties as of
the Effective Date, after giving effect to the Transactions, in each case
presented on a consolidated basis.
  "Fiscal
Year" means the fiscal year of the Loan Parties ending on December 31 of
each year.
  "Free
Cash Flow" means, for the Loan Parties, for any period, (i) Consolidated
Net Income of the Loan Parties for such period, plus
(ii) all non-cash items of such Loan Party deducted in determining Consolidated
Net Income for such period, less (iii) the sum of (A) all non-cash items of such
Loan Party added to the calculation of Consolidated Net Income for such period,
(B) cash tax payments made by the Loan Parties, (C) changes in working capital
(as determined in accordance with GAAP) from the immediately preceding period of
the same duration as such period, (D) budgeted General and Administrative Costs
and (E) Capital Expenditures permitted pursuant to this Agreement.
  "GAAP"
means generally accepted accounting principles in the United States of America
as in effect from time to time subject to the terms and conditions set forth in
Section
1.03.
  "General
and Administrative Costs" means normal and customary expenses and costs
that are reasonable and classified as general and administrative costs,
including salaries and all other
  7
    compensation
to the management of the Borrower, consulting fees, salary, rent, supplies,
travel and entertainment, insurance, accounting, legal, engineering and broker
related fees, required to manage the affairs of the Borrower.
  "Governmental
Authority" means any nation or government, any Federal, state, city,
town, municipality, county, local or other political subdivision thereof or
thereto and any department, commission, board, bureau, instrumentality, agency
or other entity exercising executive, legislative, judicial, taxing, regulatory
or administrative powers or functions of or pertaining to
government.
  "Guarantor"
means ElectroWave USA, Inc., a Nevada corporation, Deep Down, Inc., a Delaware
corporation and each domestic Subsidiary of the Borrower, if any, or other
Person which guarantees, pursuant to Section
6.02 or otherwise, all or any part of the Obligations.
  "Guaranty
and Collateral Agreement" means a guaranty and collateral agreement in a
form acceptable to the Agent, made by any Guarantor in favor of the Agent for
the benefit of the Lenders pursuant to Section
6.02 or otherwise.
  "Hazardous
Material" means (a) any element, compound or chemical that is defined,
listed or otherwise classified as a contaminant, pollutant, toxic pollutant,
toxic or hazardous substance, extremely hazardous substance or chemical,
hazardous waste, special waste, or solid waste under Environmental Laws or that
is likely to cause immediately, or at some future time, harm to or have an
adverse effect on, the environment or risk to human health or safety; (b)
petroleum and its refined products; (c) polychlorinated biphenyls; (d) any
substance exhibiting a hazardous waste characteristic, including, without
limitation, corrosivity, ignitability, toxicity or reactivity as well as any
radioactive (including naturally occurring radioactive materials) or explosive
materials; and (e) any asbestos-containing materials.
  "Highest
Lawful Rate" means, with respect to the Agent or any Lender, the maximum
non- usurious interest rate, if any, that at any time or from time to time may
be contracted for, taken, reserved, charged or received on the Obligations under
laws applicable to the Agent or such Lender which are currently in effect or, to
the extent allowed by law, under such applicable laws which may hereafter be in
effect and which allow a higher maximum non-usurious interest rate than
applicable laws now allow. The Highest Lawful Rate shall be calculated in a
manner that takes into account any and all fees, payments and other charges in
respect of the Loan Documents that constitute interest under applicable
law.
  "Indebtedness"
means, without duplication, with respect to any Person, without duplication, (a)
all indebtedness of such Person for borrowed money; (b) all obligations of such
Person for the deferred purchase price of property or services (other than trade
payables or other accounts payable incurred in the ordinary course of such
Person's business and not outstanding for more than 90 days after the date such
payable was created); (c) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments or upon which interest payments
are customarily made; (d) all reimbursement, payment or other obligations and
liabilities of such Person created or arising under any conditional sales or
other title retention agreement with respect to property used and/or acquired by
such Person, even though the rights and remedies of the lessor, seller and/or
lender thereunder may be limited to repossession or sale of such property; (e)
all Capitalized Lease Obligations of such Person; (1) all obligations and
liabilities, contingent or otherwise, of such Person, in respect of letters of
credit, acceptances and similar facilities; (g) all Contingent Obligations in
respect of Indebtedness; (h) liabilities incurred under Title IV of ERISA with
respect to any Employee Plan (other than a Multiemployer Plan); (i) withdrawal
liability incurred under ERISA by such Person or any of its ERISA Affiliates
with respect to any Multiemployer Plan; and (j) all obligations referred to in
clauses (a) through (i) of this definition of another Person secured by (or for
which the holder of such Indebtedness has an existing right,
contingent
  8
   or
otherwise, to be secured by) a Lien upon property owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness. The Indebtedness of any Person shall include the Indebtedness of
any partnership of or joint venture in which such Person is a general partner or
a joint venturer.
  "Indemnified Matters"
has the meaning specified therefor in Section 12.14(a).
  "Indemnitees" has the
meaning specified therefor in Section
12.14(a).
  "Insolvency
Proceeding" means any proceeding commenced by or against any Person under
any provision of the Bankruptcy Code or under any other bankruptcy or insolvency
law, assignments for the benefit of creditors, formal or informal moratoria,
compositions, or extensions generally with creditors, or proceedings seeking
reorganization, arrangement, or other similar relief.
  "Internal Revenue
Code" means the Internal Revenue Code of 1986, as amended (or any
successor statute thereto) and the regulations thereunder.
  "Inventory" means,
with respect to any Person, all goods and merchandise of such Person, including,
without limitation, all raw materials, work-in-process, packaging, supplies,
materials and finished goods of every nature used or usable in connection with
the shipping, storing, advertising or sale of such goods and merchandise,
whether now owned or hereafter acquired, and all such other property the sale or
other disposition of which would give rise to an Account Receivable or
cash.
  "Lease" means any
lease of real property to which any Loan Party is a party as lessor or lessee.
  "Lender" has the
meaning specified therefor in the preamble hereto.
  "LIBOR" shall mean
for the applicable month the twelve-month London Interbank Offered Rate as
published in the Wall Street Journal on the first Business Day of each such
month and such rate shall be applicable throughout the given month until the
first Business Day of the next succeeding month.
  "Lien" means any mortgage, deed of
trust, pledge, lien (statutory or otherwise), security interest, charge or other
encumbrance or security or preferential arrangement of any nature, including,
without limitation, any conditional sale or title retention arrangement, any
Capitalized Lease and any assignment, deposit arrangement or financing lease
intended as, or having the effect of, security.
  "Loan" means any loan
made by a Lender to the Borrower on the Effective Date pursuant to Article II
hereof.
  "Loan Document" means
this Agreement, any Guaranty and Collateral Agreement, any UCC Filing and any
other agreement, instrument, and other document executed and delivered pursuant
hereto or thereto or otherwise evidencing or securing any Loan or any other
Obligation.
  "Loan Party" means
the Borrower and any direct or indirect Subsidiary of the Borrower.
  "Managers" means
Ronald Smith and Robert Chamberlain.
  "Material Adverse
Effect" means a material adverse effect on any of (a) the operations,
business, prospects, assets, properties or condition (financial or otherwise) of
the Borrower or of the Loan Parties taken as a whole, (b) the ability of any
Loan Party to perform any of its obligations under any Loan Document to which it
is a party, (c) the legality, validity or enforceability of this Agreement or
any other
  9
  Loan
Document, (d) the rights and remedies of the Agent or any Lender under any Loan
Document, or (e) the validity, perfection or priority of a Lien in favor of the
Agent for the benefit of the Lenders on any of the Collateral.
  "Material
Contract" means, with respect to any Person, (a) each contract or
agreement to which such Person or any of its Subsidiaries is a party involving
aggregate consideration payable to or by such Person or such Subsidiary of
$100,000 or more (other than purchase orders in the ordinary course of the
business of such Person or such Subsidiary and other than contracts that by
their terms may be terminated by such Person or Subsidiary in the ordinary
course of its business upon less than 60 days' notice without penalty or
premium), and (b) all other contracts or agreements material to the business,
operations, condition (financial or otherwise), performance, prospects or
properties of such Person or such Subsidiary.
  "Monthly
Date" means the last Business Day of each calendar month.
  "Moody's"
means Moody's Investors Service, Inc. and any successor thereto.
  "Multiemployer
Plan" means a "multiemployer plan" (as defined in Section 4001(a)(3) of
ERISA), to which any Loan Party, any of its Subsidiaries or any of its ERISA
Affiliates has contributed to, or has been obligated to contribute, at any time
during the preceding six (6) years.
  "Net
Cash Proceeds" means, (a) with respect to any Disposition by any Person
or any of its Subsidiaries, the amount of cash received (directly or indirectly)
from time to time (whether as initial consideration or through the payment or
disposition of deferred consideration) by or on behalf of such Person or such
Subsidiary, in connection therewith after deducting therefrom only (i) the
amount of any Indebtedness secured by any Lien permitted by Section
7.01 on any asset (other than Indebtedness assumed by the purchaser of
such asset) which is required to be, and is, repaid in connection with such
Disposition (other than Indebtedness under this Agreement), (ii) reasonable
expenses (including commissions and discounts) related thereto incurred by such
Person or such Subsidiary in connection therewith (provided that such costs
shall not exceed five percent (5%) of the total sales price received by the Loan
Party of the assets being disposed of), (iii) transfer taxes paid to any taxing
authorities by such Person or such Subsidiary in connection therewith, and (iv)
net income taxes to be paid in connection with such Disposition (after taking
into account any tax credits or deductions and any tax sharing arrangements) and
(b) with respect to the issuance or incurrence of any Indebtedness by any Person
or any of its Subsidiaries, or the sale or issuance by any Person or any of its
Subsidiaries of any shares of itsCapital
Stock, the aggregate
amountof cash received (directly or indirectly) from time to time
(whether as initial consideration or through the payment or disposition of
deferred consideration) by or on behalf of such Person or such Subsidiary in
connection therewith, after deducting therefrom only (i) reasonable expenses
related thereto incurred by such Person or such Subsidiary in connection
therewith, (ii) transfer taxes paid by such Person or such Subsidiary in
connection therewith and (iii) net income taxes to be paid in connection
therewith (after taking into account any tax credits or deductions and any tax
sharing arrangements); in each case of clause (a) and (b) to the extent, but
only to the extent, that the amounts so deducted are (x) actually paid to a
Person that, except in the case of reasonable out-of-pocket expenses, is not an
Affiliate of such Person or any of its Subsidiaries and (y) properly
attributable to such transaction or to the asset that is the subject
thereof.
  "Notice
of Borrowing" has the meaning specified therefor in Section
2.02(b).
  "Obligations"
means all present and future indebtedness, obligations, and liabilities of each
Loan Party to the Agent and the Lenders, or any of them, under or in connection
with the Loan Documents, whether or not the right of payment in respect of such
claim is reduced to judgment, liquidated,
  10
   unliquidated,
fixed, contingent, matured, disputed, undisputed, legal, equitable, secured,
unsecured, and whether or not such claim is discharged, stayed or otherwise
affected by any proceeding referred to in Section
10.01. Without limiting the generality of the foregoing, the Obligations
of each Loan Party under the Loan Documents include (a) the obligation
(irrespective of whether a claim therefor is allowed in an Insolvency
Proceeding) to pay principal, interest, charges, expenses, fees, attorneys' fees
and disbursements, indemnities and other amounts payable by such Person under
the Loan Documents, and (b) the obligation of such Person to reimburse any
amount in respect of any of the foregoing that the Agent or any Lender (in its
sole discretion) may elect to pay or advance on behalf of such
Person.
  "Operating
Account" shall have the meaning assigned such term in Section
9.01(a).
  "Operating
Account Bank" shall have the meaning assigned such term in Section
9.01(a).
  "Operating
Lease Obligations" means all obligations for the payment of rent for any
real or personal property under leases or agreements to lease, other than
Capitalized Lease Obligations.
  "Other
Boards" has the meaning specified therefor in Section
6.17(a).
  "Participant
Register" has the meaning specified therefor in Section
12.07(f).
  "PBGC"
means the Pension Benefit Guaranty Corporation or any successor
thereto.
  "Permitted
Holders" means, collectively, Ronald Smith, Robert Chamberlain and Mary
Budrunas.
  "Permitted
Indebtedness" means (a) any Indebtedness owing to the Agent and any
Lender under this Agreement and the other Loan Documents, (b) up to $4,250,000
in subordinated debentures resulting from the exchange of the Borrower's Series
E Exchangeable Preferred Stock, (c) up to $525,000 in connection with a capital
lease obligation for one (1) 2003 Shuttlelift ISL 100 crane, (d) a $150,000
promissory note payable to Ronald E. Smith and Mary Budrunas and (e)
Indebtedness incurred pursuant to the Amegy Factoring Agreement, but such
Indebtedness contained in this clause (e) shall only be Permitted Indebtedness
until the date that is 90 days after the Effective Date; provided
that each of (b) and (d) shall be subject to a subordination agreement on the
terms and conditions acceptable to the Agent.
  "Permitted
Investments" means (i) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case, maturing within six months from the date of acquisition thereof; (ii)
commercial paper, maturing not more than 270 days after the date of issue rated
P-1 by Moody's or A-1 by Standard & Poor's; (iii) certificates of deposit
maturing not more than 270 days after the date of issue, issued by commercial
banking institutions and money market or demand deposit accounts maintained at
commercial banking institutions, each of which is a member of the Federal
Reserve System and has a combined capital and surplus and undivided profits of
not less than $500,000,000; (iv) repurchase agreements having maturities of not
more than 90 days from the date of acquisition which are entered into with major
money center banks included in the commercial banking institutions described in
clause (iii) above and which are secured by readily marketable direct
obligations of the United States Government or any agency thereof, (v) money
market accounts maintained with mutual funds having assets in excess of
$2,500,000,000; and (vi) tax exempt securities rated A or better by Moody's or
A+ or better by Standard & Poor's.
  "Permitted
Liens"means
  (a) Liens
securing the Obligations;
  11
  (b)  Liens for
taxes, assessments and governmental charges the payment of which is not
required under Section
6.03;
  (c)  customary
Liens of landlords arising in the ordinary course of business pursuant to
customary lease provisions, and Liens imposed by law, such as landlord's,
carriers', warehousemen's, mechanics', materialmen's and other similar Liens
arising in the ordinary course of business, in each case securing obligations
(other than Indebtedness for borrowed money) that are not overdue by more than
30 days or are being contested in good faith and by appropriate proceedings
promptly initiated and diligently conducted, and a reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made
therefor;
  (d)  deposits
and pledges of cash securing (i) obligations incurred in respect of workers'
compensation, unemployment insurance or other forms of governmental insurance or
benefits, (ii) the performance of bids, tenders, leases, contracts (other than
for the payment of money) and statutory obligations and (iii) obligations on
surety or appeal bonds, but in each case, only to the extent such deposits or
pledges are incurred or otherwise arise in the ordinary course of business and
secure obligations not past due; and
  (e)  easements,
zoning restrictions and similar encumbrances on real property and minor
irregularities in the title thereto that do not (i) secure obligations for the
payment of money or (ii) materially impair the value of such property or its use
by any Loan Party in the normal conduct of such Person's business.
  Provided
that, notwithstanding the foregoing, (i) Liens described in clauses (a) through
(d) shall remain "Permitted Liens" only for so long as no action to enforce such
Lien has been commenced and (2) no intention to subordinate the first priority
Lien granted in favor of the Administrative Agent and the Lenders is to be
hereby implied or expressed by the permitted existence of any Permitted
Lien
  "Person"
means an individual, corporation, limited liability company, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture or other enterprise or entity or Governmental Authority.
  "Plan" means any Employee Plan or
Multiemployer Plan.
  "Post-Default
Rate" means a rate of interest per annum equal to the rate as provided
for in Section
2.04(a) then in effect plus
5.00%.
  "Pro Rata Share"means:
  (a)  with
respect to a Lender's obligation to make a Loan and receive payments of interest,
fees, and principal with respect thereto, the percentage obtained by dividing
(i) such Lender's Commitment, by (ii) the Total Commitment, provided
that if the Total Commitment has been reduced to zero, the numerator shall be
the aggregate unpaid principal amount of such Lender's Loan and the denominator
shall be the aggregate unpaid principal amount of all of the Loans;
and
  (b)  with
respect to all other matters (including, without limitation, the indemnification
obligations arising under Section
11.05), the percentage obtained by dividing (i) the unpaid principal
amount of such Lender's Loan, by (ii) the sum of the aggregate unpaid principal
amount of all of the Loans.
  12
   "Register"
has the meaning specified therefor in Section
12.07(d).
  "Registered
Loans" has the meaning specified therefor in Section
12.07(d).
  "RegulationT", "Regulation
U" and "Regulation
X" mean, respectively, Regulations T, U and X of the Federal Reserve
Board or any successor, as the same may be amended or supplemented from time to
time.
  "Release"
means any spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, seeping, migrating, dumping or disposing of any
Hazardous Material (including the abandonment or discarding of barrels,
containers and other closed receptacles containing any Hazardous Material) into
the indoor or outdoor environment, including, without limitation, the movement
of Hazardous Materials through or in the ambient air, soil, surface or ground
water, or property.
  "Remedial
Action" means all actions required by Environmental Law taken to (i)
clean up, remove, remediate, contain, treat, monitor, assess, evaluate or in any
other way address Hazardous Materials in the indoor or outdoor environment; (ii)
prevent or minimize a Release or threatened Release so that Hazardous Materials
do not migrate or endanger or threaten to endanger public health or welfare or
the indoor or outdoor environment; (iii) perform pre-remedial studies and
investigations and post- remedial operation and maintenance activities; or (iv)
perform any other actions authorized by 42 U.S.C. § 96W .
  "Reportable
Event" means an event described in Section 4043 of ERISA (other than an
event not subject to the provision for 30-day notice to the PBGC under the
regulations promulgated under such Section).
  "Required
Lenders" means Lenders whose Pro Rata Share of the Loans aggregate at
least 66-
 2/3%.
  "SEC" means the Securities and
Exchange Commission or any other similar or successor agency of the Federal
government administering the Securities Act.
  "Securities
Act" means the Securities Act of 1933, as amended, or any similar Federal
statute, and the rules and regulations of the SEC thereunder, all as the same
shall be in effect from time to time.
  "Solvent"
means, with respect to any Person on a particular date, that on such date (i)
the fair value of the property of such Person is not less than the total amount
of the liabilities of such Person, (ii) the present fair salable value of the
assets of such Person is not less than the amount that will be required to pay
the probable liability of such Person on its existing debts as they become
absolute and matured, (iii) such Person is able to realize upon its assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (iv) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature, and (v) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital.
  "Standard
& Poor's" means Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc. and any successor thereto.
  13
   "Subsidiary"
means, with respect to any Person at any date, any corporation, limited or
general partnership, limited liability company, trust, estate, association,
joint venture or other business entity (i) the accounts of which would be
consolidated with those of such Person in such Person's consolidated financial
statements if such financial statements were prepared in accordance with GAAP or
(ii) of which more than 50% of (A) the outstanding Capital Stock having (in the
absence of contingencies) ordinary voting power to elect a majority of the board
of directors or other managing body of such Person, (B) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (C) in the case of a trust,
estate, association, joint venture or other entity, the beneficial interest in
such trust, estate, association or other entity business is, at the time of
determination, owned or controlled directly or indirectly through one or more
intermediaries, by such Person.
  "Term
Loan Amount" shall mean the principal amount of the Loans outstanding at
any time on a consolidated basis determined in accordance with
GAAP.
  "Termination
Event" means (i) a Reportable Event with respect to any Employee Plan,
(ii) any event that causes any Loan Party or any of its ERISA Affiliates to
incur liability under Section 409, 502(i), 502(1), 515, 4062, 4063, 4064, 4069,
4201, 4204 or 4212 of ERISA or Section 4971 or 4975 of the Internal Revenue
Code, (iii) the filing of a notice of intent to terminate an Employee Plan or
the treatment of an Employee Plan amendment as a termination under Section 4041
of ERISA, (iv) the institution of proceedings by the PBGC to terminate an
Employee Plan, or (v) any other event or condition which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Employee Plan.
  "Total
Commitment" means the sum of the amounts of the Lenders' Commitments,
which sum equals the Initial Commitments plus any additional Commitments as the
same may be increased pursuant to Section
2.04(b).
  "Total
Debt" means, at any date, all Debt of the Loan Parties on a consolidated
basis.
  "Transaction
Documents" means the Loan Documents and each other document, agreement,
contract, certificate and conveyance executed in connection with the
foregoing.
  "Transactions"
means the transactions contemplated by the Transaction Documents to occur on the
Effective Date, including the making of the Loans pursuant to this
Agreement.
  "UCC
Filing" means any filing pursuant to the Uniform Commercial Code to
perfect a Lien securing the Obligations.
  "Uniform
Commercial Code" has the meaning specified therefor in Section
1.03.
  "WARN"
has the meaning specified therefor in Section
5.25.
  "Warrant
Agreement" means the Warrant Agreement dated as of the Effective Date and
executed by the Borrower and the Agent, in the form of Exhibit
F.
  "Yield
Maintenance Premium" means a premium equal to (i) 4.0% of amounts prepaid
if repayment occurs anytimefrom the
Effective Date through the first anniversary of the Effective Date, (ii) 3.0% of
amounts prepaid if repayment occurs anytime from the day after the first
anniversary of the Effective Date through the second anniversary of the
Effective Date, (iii) 2.0% of amounts prepaid if repayment occurs anytime from
the day after the second anniversary of the Effective Date through
the
  14
   third
anniversary of the Effective Date, (iv) 1.0% of amounts prepaid if repayment
occurs anytime from the day after the third anniversary of the Effective Date
through the Final Maturity Date; provided
that, notwithstanding the foregoing, the Yield Maintenance Premium shall be
equal to 0.0% if the outstanding Loans and all Obligations hereunder are prepaid
in full with the proceeds of a new credit facility provided by the
Agent.
  Section
1.02 Terms
Generally. The definitions of terms herein shall apply equally to the
singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include", "includes" and "including" shall be deemed to
be followed by the phrase "without limitation". The word "will" shall be
construed to have the same meaning and effect as the word "shall". Unless the
context requires otherwise, (a) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring to such
agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (c) the words "herein", "hereof' and "hereunder", and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, (d) 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 and (e) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any right or interest in or to assets and properties of any kind
whatsoever, whether real, personal or mixed and whether tangible or intangible.
References in this Agreement to "determination" by the Agent include estimates
by the Agent (in the case of quantitative determinations) and beliefs by the
Agent (in the case of qualitative determinations).\
  Section
1.03 Accounting
and Other Terms. Unless otherwise expressly provided herein, each
accounting term used herein shall have the meaning given it under GAAP applied
on a basis consistent with those used in preparing the Financial Statements. All
terms used in this Agreement which are defined in Article 8 or Article 9 of the
Uniform Commercial Code as in effect from time to time in the State of New York
(the "Uniform
Commercial Code") and which are not otherwise defined herein shall have
the same meanings herein as set forth therein, provided that terms used herein
which are defined in the Uniform Commercial Code as in effect in the State of
New York on the date hereof shall continue to have the same meaning
notwithstanding any replacement or amendment of such statute except as the Agent
may otherwise determine.
  Section1.04 Time
References. Unless otherwise indicated herein, all references to time of
day refer to Eastern Standard Time or Eastern daylight saving time, as in effect
in New York City on such day. For purposes of the computation of a period of
time from a specified date to a later specified date, the word "from" means
"from and including" and the words "to" and "until" each means "to but
excluding"; provided, however, that with respect to a computation of fees or
interest payable to the Agent or any Lender, such period shall in any event
consist of at least one full day.
  ARTICLE
II
 THE
LOANS
  Section
2.01 Commitments.
  (a)Subject to the
terms and conditions and relying upon the representations and warranties
herein set forth, each Lender severally agrees (i) to make a Loan to the
Borrower on the Effective Date in an amount notto exceed the
Commitment of such Lender and (ii) to permit the
  15
   Borrower
to issue PIK Notes to such lender based on its Pro Rata Share of the Total
Commitments (but in any case not to exceed the P1K Note Cap).
  (b)Notwithstanding
the foregoing, the aggregate principal amount of the Loans made on
the Effective Date will equal the Initial Commitment. Any principal amount of a
Loan which is repaid or prepaid may not be reborrowed.
  Section 2.02Making the
Loans.
  (a)  The
Borrower shall give the Agent prior telephonic notice of its intention to receive
the Loans to be made hereunder confirmed in writing not later than 12:00 noon
(New York City time) at least one Business Day prior to the anticipated
Effective Date (the "Notice
of Borrowing"). The Notice of Borrowing shall specify (1) the aggregate
principal amount of the Loans which shall be $6,000,000 and (ii) the proposed
borrowing date. The Agent and the Lenders may act without liability upon the
basis of written, telecopied or telephonic notice believed by the Agent ingood faith to be
from the Borrower (or from any Authorized Officer thereof designated in writing
purportedly from the Borrower to the Agent). The Borrower hereby waives the
right to dispute the Agent's record of the terms of any such telephonic Notice
of Borrowing. The Agent and each Lender shall be entitled to rely conclusively
on any Authorized Officer's authority to request the Loans on behalf of the
Borrower until the Agent receives written notice to the contrary. The Agent and
the Lenders shall have no duty to verify the authenticity of the signature
appearing on any written Notice of Borrowing.
  (b)  The
Notice of Borrowing pursuant to this Section
2.02 shall be irrevocable and the
Borrower shall be bound to make a borrowing in accordance
therewith.
  (c) All
Loans under this Agreement shall be made by the Lenders simultaneously
and proportionately to their Pro Rata Shares of the Total Commitment, it being
understood that no Lender shall be responsible for any default by any other
Lender in that other Lender's obligations to make a Loan requested hereunder,
nor shall the Commitment of any Lender be increased or decreased as a result of
the default by any other Lender in that other Lender's obligation to make a Loan
requested hereunder, and each Lender shall be obligated to make the Loan
required to be made by it by the terms of this Agreement regardless of the
failure by any other Lender.
  Section
2.03 Repayment of
Loans; Evidence of Debt.
  (a)  The
outstanding principal of the Loan will be repaid (i) by Borrower making quarterly
installments of $75,000 commencing on September 30, 2008 and on the last
Business Day of each quarter thereafter, and (ii) by Borrower making a final
payment of the amount of the Loans outstanding on the Final Maturity Date, in
each case as set forth on Schedule
2.03 to the Agent for the account of each Lender. The Borrower hereby
authorizes the Agent to, and the Agent may, from time to time, debit the Debt
Service Reserve Account with the amount of any payment due
hereunder.
  (b)  Each
Lender shall maintain in accordance with its usual practice an account or
accounts evidencing the Indebtedness of the Borrower to such Lender resulting
from each Loan made by such Lender, including the amounts of principal and
interest payable and paid to such Lender from time to time
hereunder.
  (c)TheAgent shall
maintain the Register in accordance with Section
12.07(d) hereto,
inwhich it
shall record (i) the amount of each Loan made hereunder, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender
  16
   hereunder
and (iii) the amount of any sum received by the Agent hereunder for the account
of the Lenders and each Lender's share thereof.
  (d)  The
entries made in the accounts maintained pursuant to paragraph (b) or in the
Register pursuant to paragraph (c) of this Section shall be prima
facie evidence of the existence and amounts of the obligations recorded
therein; provided
that the failure of any Lender to maintain such accounts or the Agent to
maintain the Register or any error therein shall not in any manner affect the
obligation of the Borrower to repay the Loans in accordance with the terms of
this Agreement.
  (e)  The Loans
made by each Lender shall be evidenced by a promissory note in the form
of Exhibit
G attached hereto, dated, in the case of (i) any Lender party hereto as
of the date of this Agreement, the date of this Agreement or (ii) any Lender
that becomes a party hereto pursuant to an Assignment and Acceptance, as of the
effective date of the Assignment and Acceptance, payable to the order of such
Lender in a principal amount equal to its Commitment as in effect on such date,
and otherwise duly completed. The date, amount and interest rate of each Loan
made by each Lender, and all payments made on account of the principal thereof,
shall be recorded by such Lender on its books for its promissory note, and,
prior to any transfer, may be endorsed by such Lender on a schedule attached to
such promissory note or any continuation thereof or on any separate record
maintained by such Lender. Failure to make any such notation or to attach a
schedule shall not affect any Lender's or the Borrower's rights or obligations
in respect of such Loans or affect the validity of such transfer by any Lender
of its promissory note. In the event that any Lender's Loan increases or
decreases for any reason, upon such Lender's request, the Borrower shall deliver
or cause to be delivered on the effective date of such increase or decrease, a
new promissory note payable to the order of such Lender in a principal amount
equal to its Loan after giving effect to such increase or decrease, and
otherwise duly completed.
  (f) Cash
Sweep Trigger. On each Monthly Date after a Cash Sweep Trigger has occurred
(each such date being a "Disbursement
Date") at the election of Agent, the Borrower shall repay principal
(through Agent charging the Operating Account) in an amount equal to 50% of Free
Cash Flow, provided, however, that in no case shall such prepayment reduce the
cash and cash equivalents (per GAAP) of Borrower on hand as of the date of such
payment to less than $300,000.00.
  Section
2.04 Interest.
  (a) Loans.
Each Loan shall bear interest on the principal amount thereof from time to
time outstanding, from the date of such Loan until such principal amount becomes
due, at a rate per annum equal to the lesser of: (i) the Highest Lawful Rate or
(ii) 12.5%. Interest on each Loan calculated pursuant to this Section
2.04(a) shall be payable monthly, in arrears, on each Monthly Date
commencing on August 31, 2007.
  (b) PIK
Interest. In addition to the interest set forth in paragraph (a),
Borrower shall pay
interest in an amount equal to three percent (3%) per annum of the principal
amount of the Loans from time to time outstanding (the "PIK
Amount"), which PfK Amount shall be paid monthly, in arrears, on each
Monthly Date, either (at the Borrower's
option) (i) in cash or (ii) in kind through the issuance to each Lender of an
additional promissory note (a "PIK
Note") in an amount equal to such Lender's Pro Rata Share of the PIK
Amount, and the PIK Amount shall be added to the outstanding principal balance
of the Loans, and amounts so added shall thereafter, for all purposes, be deemed
to be part of the principal amount of the Loans; provided that the PIK Amount
represented by all such PIK Notes may not exceed $500,000 (the "PIK
Note Cap") at any time outstanding, and option (b)(ii) contained in this
Section
2.04 shall not be available at such time as the PIK Amount represented by
PIKNotes
shall equal the PIK Note Cap.
  17
   (c) Default
Interest. To the extent permitted by law, (i) upon the occurrence and during
the continuance of an Event of Default or (ii) during the time that any reports
required to be delivered pursuant to Section
6.01(a), (b) and are overdue, in each case whether or not declared, the
principal of, and all accrued and unpaid interest on, all Loans, fees,
indemnities or any other Obligations of the Loan Parties under this Agreement
and the other Loan Documents, shall bear interest, from the date such Event of
Default occurred until the date such Event of Default is cured or waived in
writing in accordance herewith, at a rate per annum equal at all times to the
lesser of (i) the Highest Lawful Rate or (ii) the Post-Default Rate. Interest at
the Post-Default Rate shall be payable on demand.
  (d) Interest Payment from Debt
Service Reserve Account.The Borrower hereby authorizes
the Agent to, and the Agent may, from time to time, charge the Debt Service
Reserve Account, and make a payment to the Agent, for the benefit of the Lenders
with the amount of any interest or principal payment due hereunder. Such payment
shall be considered received by each such Lender on the date of any such charge
to the Debt Service Reserve Account.
  (e) General.
All interest shall be computed on the basis of a year of 360 days for the
actual number of days, including the first day but excluding the last day,
elapsed.
  Section 2.05Reduction of Commitment;
Prepayment of Loans.
  (a) Reduction
of Commitments. The Total Commitment shall terminate at 11:59 p.m. (New
York City time) on the Effective Date.
  (b) Optional
Prepayment.
  (i) At
any time after the date that is 6 months after the Effective Date, the Borrower
shall have the right at its option on any date to prepay the Loans in whole or
in part in increments of not less than $1,000,000; provided
that if the outstanding principal balance of the Loans is less than $1,000,000,
the Loans must be prepaid in whole. Any prepayment made hereunder is subject to
the following criteria:
  (A)  the
Borrower must simultaneously pay to each Lender the Yield Maintenance
Premium, all accrued and unpaid interest and all unpaid fees, costs and expenses
due hereunder; provided,
that no Yield Maintenance Premium shall be due in connection with any
refinancing of this Agreement by Prospect Capital Corporation or any Affiliate
thereof;
  (B)  the
Borrower shall provide notice to the Agent by 1:00 p.m. at least
fifteen (15) Business Days prior to the date on which such prepayment of the
Loans shall occur setting forth the total principal amount of such prepayment
and the date on which such prepayment will be made. All optional prepayment
notices shall be irrevocable;
  (C) the
principal amount of the Loans for which a prepayment notice is given,
together with any accrued but unpaid interest on such principal amount, any
Yield Maintenance Premium and all unpaid fees, costs and expense, shall be due
and payable on the date specified in such prepayment notice as the date on which
the proposed prepayment is to be made; and
  (c) Mandatory
Prepayment. Notwithstanding the provisions of Section
2.05(b) above:
  18
   (i)  Immediately
upon any Disposition by any Loan Party pursuant to Section 7.02(b)(iii), the
Borrower shall make a prepayment of the Loans together with the accrued interest
on such portion of the Loans so prepaid in an amount equal to 100% of the Net
Cash Proceeds received by such Person in connection with such Disposition,
unless otherwise agreed to in writing by the Lenders. Nothing contained in this
subsection (i) shall permit any Loan Party or any of its Subsidiaries to make a
Disposition of any property other than in accordance with Section
7.02(b).
  (ii)  No later
than ten (10) days following the date of receipt by any Loan Party of
Net Cash Proceeds from any Casualty Event, the Borrower shall, at the Lender's
request, prepay the Loans in an amount equal to 100% of the Net Cash Proceeds
from such Casualty Event.
  (iii)
Each mandatory prepayment shall be accompanied by a written statement from an
Authorized Officer of the Borrower detailing the reason for such prepayment as
reasonably requested by the Agent and shall require the Borrower simultaneously
paying to the Lender the Yield Maintenance Premium (other than in connection
with a prepayment made pursuant to clause (ii) above), all accrued and unpaid
interest and all unpaid fees, costs and expenses due hereunder,
  (d)Application of Optional and
Mandatory Prepayments. All optional or mandatory
prepayments made pursuant to Sections 2.05(a) and
(b) shall be
applied in the following order of priority: (i) expenses, (ii) fees, including
the Yield Maintenance Premium, (iii) accrued and unpaid interest (including the
MK Amount) and (iv) outstanding principal on the Loans in the inverse order of
maturity.
  Section2.06 Structuring Fee. On
the Effective Date, the Borrower shall pay to the Agent at Closing for the
account of the Lenders, a non-refundable upfront fee in accordance with the Fee
Letter.
  Section
2.07 Taxes.
  (a)  Any and
all payments by any Loan Party hereunder shall be made free and clear of
and without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding taxes imposed on the net income of the Agent or any Lender (or any
transferee or assignee thereof, including a participation holder (any such
entity, a "Transferee")) by the
jurisdiction in which such Person is organized or has its principal lending
office (all such nonexcluded taxes, levies, imposts, deductions, charges
withholdings and liabilities, collectively or individually, "Taxes"). If any Loan
Party shall be required to deduct any Taxes from or in respect of any sum
payable hereunder to the Agent or any Lender (or any Transferee), (i) the sum
payable shall be increased by the amount (an "additional amount")
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.07) the
Agent or such Lender (or such Transferee) shall receive an amount equal to the
sum it would have received had no such deductions been made, (ii) such Loan
Party shall make such deductions and (iii) such Loan Party shall pay the full
amount deducted to the relevant Governmental Authority in accordance with
applicable law.
  (b)  Inaddition, each
Loan Party agrees to pay to the relevant Governmental Authority
in accordance with applicable law any present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies that
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement ("OtherTaxes"). To the
extent available, each Loan Party shall deliver to the Agent and each Lender
official receipts in respect of any Taxes or Other Taxes payable hereunder
promptly after payment of such Taxes or Other Taxes.
  19
   (c)  The Loan
Parties hereby jointly and severally indemnify and agree to hold the Agent
and each Lender harmless from and against Taxes and Other Taxes (including,
without limitation, Taxes and Other Taxes imposed on any amounts payable under
this Section
2.07) paid by such Person, whether or not such Taxes or Other Taxes were
correctly or legally asserted. Such indemnification shall be paid within thirty
(30) days from the date on which any such Person makes written demand therefor
specifying in reasonable detail the nature and amount of such Taxes or Other
Taxes.
  (d)  No Lender
shall be organized under the laws of a jurisdiction other than the United
States, any State thereof or the District of Columbia.
  (e)  Any
Lender (or Transferee) claiming any indemnity payment or additional
p ayment
amounts payable pursuant to this Section 2.07 shall
use reasonable efforts (consistent with legal and regulatory restrictions) to
file any certificate or document reasonably requested in writing by the Borrower
or to change the jurisdiction of its applicable lending office if the making of
such a filing or change would avoid the need for or reduce the amount of any
such indemnity payment or additional amount which may thereafter accrue, would
not require such Lender (or Transferee) to disclose any information such Lender
(or Transferee) deems confidential and would not, in the sole determination of
such Lender (or Transferee), be otherwise disadvantageous to such Lender (or
Transferee).
  (f)  The
obligations of the Loan Parties under this Section 2.07 shall
survive the termination
of this Agreement and the payment of the Loans and all other amounts payable
hereunder.
  ARTICLE
III
 FEES,
PAYMENTS AND OTHER COMPENSATION
  Section
3.01 Payments;
Computations, Statements and Debt Service Reserve Account.
  (a) The
Borrower will make each payment under this Agreement not later than 12:00
noon (New York City time) on the day when due, in lawful money of the United
States of America and in immediately available funds, to the Agent's Account.
All payments received by the Agent after 12:00 noon (New York City time) on any
Business Day will be deemed paid on the next succeeding Business Day. All
payments shall be made by the Borrower without set-off, counterclaim, deduction
or other defense to the Agent and the Lenders. After receipt, the Agent will
promptly thereafter cause to be distributed like funds relating to the payment
of principal ratably to the Lenders in accordance with their Pro Rata Shares and
like funds relating to the payment of any other amount payable to any Lender to
such Lender, in each case to be applied in accordance with the terms of this
Agreement. The Borrower hereby authorizes the Agent to, and the Agent may, from
time to time, charge the Debt Service Reserve Account of the Borrower with any
principal or interest on the Loans due and payable by the Borrower. The Borrower
agrees that the Agent shall have the right to make such charges whether or not
any Default or Event of Default shall have occurred and be continuing. Whenever
any payment to be made under any such Loan Document shall be stated to be due on
a day other than a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall in such case be
included in the computation of interest or fees, as the case may be. All
computations of fees shall be made by the Agent on the basis of a year of 360
days for the actual number of days (including the first day but excluding the
last day) occurring in the period for which such fees are payable. Each
determination by the Agent of an interest rate, the Debt Service Reserve Amount,
or fees hereunder shall be conclusive and binding for all purposes in the
absence of manifest error.
  20
   (b)
Except as provided in this Section
3.01(b), the Borrower shall at all times maintain
cash in the Debt Service Reserve Account in an amount equal to the immediately
succeeding six months interest expense, not including the PIK Amount, under this
Agreement, such amount to be determined by the Agent (the "Debt
Service Reserve Amount"). On the Effective Date the Agent shall notify
the Borrower of the Debt Service Reserve Amount and the Borrower shall pay to
the Agent such amount to be deposited into the Debt Service Reserve Account. If
the Agent notifies the Borrower that there is a deficiency in the Debt Service
Reserve Account, the Borrower shall within two (2) Business Days of receipt of
such notice pay the amount required by the Agent to be deposited into the Debt
Service Reserve Account. All amounts in the Debt Service Reserve Account will be
returned to the Borrower upon repayment of the full principal amount of the
Loan.
  Section
3.02 Sharing
of Payments, Etc. If any Lender shall obtain any payment (whether
voluntary, involuntary, through the exercise of any right of set-off, or
otherwise) on account of any Obligation in excess of its ratable share of
payments on account of similar obligations obtained by all the Lenders, such
Lender shall forthwith purchase from the other Lenders such participations in
such similar obligations held by them as shall be necessary to cause such
purchasing Lender to share the excess payment ratably with each of them; provided,
however, that if all or any portion of such excess payment is thereafter
recovered from such purchasing Lender, such purchase from each Lender shall be
rescinded and such Lender shall repay to the purchasing Lender the purchase
price to the extent of such recovery together with an amount equal to such
Lender's ratable share (according to the proportion of (a) the amount of such
Lender's required repayment to (b) the total amount so recovered from the
purchasing Lender of any interest or other amount paid by the purchasing Lender
in respect of the total amount so recovered). The Borrower agrees that any
Lender so purchasing a participation from another Lender pursuant to this Section
3.02 may, to the fullest extent permitted by law, exercise all of its
rights (including the Lender's right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.
  Section
3.03 Apportionment
of Payments. Subject to any written agreement among the Agent and/or the
Lenders:
  (a)  all
payments of principal and interest in respect of outstanding Loans, all payments
of fees and all other payments in respect of any other Obligations, shall be
allocated by the Agent among such of the Lenders as are entitled thereto, in
proportion to their respective Pro Rata Shares or otherwise as provided herein
or, in respect of payments not made on account of the Loans, as designated by
the Person making payment when the payment is made.
  (b)  After the
occurrence and during the continuance of an Event of Default, the Agent
may, and upon the direction of the Required Lenders shall, apply all payments in
respect of any Obligations and all proceeds of the Collateral, subject to the
provisions of this Agreement, (i) first,
ratably to pay the Obligations in respect of any fees, expense reimbursements,
indemnities and other amounts then due to the Agent until paid in full; (ii)
second,
ratably to pay the Obligations in respect of any fees and indemnities then due
to the Lenders until paid in full; (iii) third,
ratably to pay interest due in respect of the Loans until paid in full; (iv)
fourth,
ratably to pay principal of the Loans until paid in full, and (v) fifth, to the
ratable payment of all other Obligations then due and payable.
  (c) For
purposes of Section
3.03(a), "paid in full" with respect to interest shall include
interest accrued after the commencement of any Insolvency Proceeding
irrespective of whether a claim for such interest is allowable in such
Insolvency Proceeding.
  (d) In
the event of a direct conflict between the priority provisions of this Section 3.03 and other provisions contained in
any other Loan Document, it is the intention of the parties hereto
  21
  that both
such priority provisions in such documents shall be read together and construed,
to the fullest extent possible, to be in concert with each other. In the event
of any actual, irreconcilable conflict that cannot be resolved as aforesaid, the
terms and provisions of this Section
3.03 shall control and govern.
  ARTICLE
IV
 CONDITIONS
TO LOANS
  Section
4.01 Conditions
Precedent to Effectiveness. This Agreement shall become effective as of the
Business Day when each of the following conditions precedent shall have been
satisfied in a manner satisfactory to the Agent or waived in
writing:
  (a) Payment
of Fees, Etc. The Borrower shall have paid on or before the date of this
Agreement all fees, costs, expenses and taxes then payable pursuant to Section
2.06 and Section  12.04.
   (b) Representations and
Warranties; No Event of Default.The following statements
shall be true and correct: (i) the representations and warranties contained in
ARTICLE
V and in each other Loan Document, certificate or other writing delivered
to the Agent or any Lender pursuant hereto or thereto on or prior to the
Effective Date are true and correct on and as of the Effective Date as though
made on and as of such date except to the extent applicable to another specific
date, and (ii) after giving effect to the Transactions, no Default or Event of
Default shall have occurred and be continuing on the Effective Date or would
result from this Agreement or the other Loan Documents becoming effective in
accordance with its or their respective terms.
  (c) Legality.
The making of the Loans shall not contravene any law, rule or regulation
applicable to the Agent or any Lender.
  (d) Delivery
of Documents. The Agent shall have received on or before the Effective
Date the following, each in form and substance satisfactory to the Agent and,
unless indicated otherwise, dated the Effective Date:
  (i)  the
Guaranty and Collateral Agreement, duly executed by the Loan Parties;
  (ii)  the
Warrant Agreement, duly executed by the Borrower;
  (iii)  the
promissory note as provided for in Section
2.03(e);
  (iv)  UCC lien
searches, listing all effective financing statements which name as debtor any
Loan Party and which are filed in the offices where any Loan Party is organized,
together with copiesof such financing statements, none of which, except as otherwise agreed
in writing by the Agent and except for Liens to be terminated on the Effective
Date, shall cover any of the Collateral and the results of searches for any tax
Lien and judgment Lien filed against such Person or its property, which results,
except as otherwise agreed to in writing by the Agent, shall not show any such
Liens;
  (v)a copy of the resolutions of each Loan Party, certified as of the
Effective Date by
an Authorized Officer thereof, authorizing (A) the borrowings hereunder and the
transactions contemplated by the Loan Documents to which such Loan Party is or
will be a party and the other Transactions, and (B) the execution, delivery and
performance by such Loan Party of each Loan Document and each other Transaction
Document to which such Loan Party is or will be a party and the
  22
   execution
and delivery of the other documents to be delivered by such Person in connection
herewith and therewith;
  (vi)  a
certificate of an Authorized Officer of each Loan Party, certifying the names
and true signatures of the representatives of such Loan Party authorized to sign
each Loan Document to which such Loan Party is or will be a party and the other
documents to be executed and delivered by such Loan Party in connection herewith
and therewith, and authorized to provide the Notice of Borrowing and all other
notices under this Agreement and the other Loan Documents, together with
evidence of the incumbency of such authorized officers;
  (vii)  a
certificate of the appropriate official(s) of the state of organization and each
state of foreign qualification of each Loan Party certifying as of a recent date
as to the subsistence in good standing of, and the payment of taxes by, such
Loan Party in such states;
  (viii)  establishment
of the Operating Account and Debt Service Reserve Account at financial
institutions acceptable to the Agent and the execution and delivery of deposit
account control agreements to govern (A) the Debt Service Reserve Account and
(B) the Operating Account, each in form and substance satisfactory to the
Agent;
  (ix)  a copy of
the articles of incorporation, charter and by-laws, limited liability company
agreement, operating agreement, agreement of limited partnership or other
organizational document of each Loan Party, together with all amendments
thereto, certified as of the Effective Date by an Authorized Officer of such
Loan Party;
  (x)  an
opinion of The Welscher Law Firm, counsel to the Loan Parties, in the form of
Exhibit D attached hereto;
  (xi)  a
certificate of an Authorized Officer of the Borrower, certifying as to the
matters set forth in subsection
(h) of this Section
4.01;
  (xii)  a copy of
the Financial Statements and the financial projections described in Section
5.07 hereof, together with a certificate executed by an Authorized
Officer of the Borrower, certifying as to the matters set forth in Section
5.07;
  (xiii)  each
certificate of an Authorized Officer of the Borrower required pursuant to Section
4.01(j);
  (xiv)  a
certificate of an Authorized Officer of the Borrower, certifying that the
Borrower and each Loan Party, after giving effect to the Transactions, is
Solvent;
  (xv)  evidence
of the insurance coverage required by Section
5.19, including, without limitation, insurance assigned to the Borrower
pursuant to the terms of the Guaranty and Collateral Agreement and such other
insurance coverage with respect to the business and operations of the Loan
Parties as the Agent may reasonably request, in each case, where requested by
the Agent, with such endorsements as to the named insureds or loss payees
thereunder as the Agent may request and providing that such policy may be
terminated or canceled (by the insurer or the insured thereunder) only upon 30
days' prior written notice to the Agent and each such named insured or loss
payee, together with evidence of the payment of all premiums due in respect
thereof for such period as the Agent may request;
  23
   (xvi)  a
landlord waiver, in form and substance satisfactory to the Agent, executed by
each landlord with respect to each of the Leases set forth on Schedule 6.01(o);
provided that in the event the Borrower, despite its commercially reasonable
efforts to do so, is unable to deliver to the Agent on the Effective Date one or
more of the landlord waivers required to be delivered under this Section 4.01(d)(xvi),
the Borrower shall deliver such landlord waiver or waivers to the Agent within
twenty-one (21) days after the Effective Date.
  (xvii)  a
certificate evidencing the "key man" life insurance with respect to Ronald E.
Smith in the amount of at least $3,000,000, pursuant to policies reasonably
satisfactory to the Agent and with Agent as the beneficiary;
  (xviii)  copies of
the Material Contracts as in effect on the Effective Date, certified as true and
correct copies thereof by an Authorized Officer of each Borrower, together with
a certificate of an Authorized Officer of each Borrower stating that such
agreements have been duly assigned to the Borrower, as applicable, remain in
full force and effect and that none of the Loan Parties has breached or
defaulted in any of its obligations under such agreements;
  (xix)  the
employment agreements entered into by the Borrower with each of the Managers,
the terms of which are satisfactory to the Agent, and such agreements shall be
certified as being true and correct copies thereof and as being in full force
and effect by an Authorized Officer of each Borrower.
  (xx) such
other agreements, instruments, approvals, opinions and other documents, each
satisfactory to the Agent in form and substance, as the Agent may reasonably
request.
  (e) Material Adverse
Effect. The Agent shall have determined, in its sole judgment,
that, no event or development shall have occurred since December 31, 2006 which
could have a Material Adverse Effect.
  (f) Approvals. All
consents, authorizations and approvals of, and filings and registrations
with, and all other actions in respect of, any Governmental Authority or other
Person required in connection with the making of the Loans, the consummation of
the Transactions or the conduct of the Loan Parties' business shall have been
obtained and shall be in full force and effect.
  (g) Proceedings; Receipt of
Documents. All proceedings in connection with the making of
the initial Loans and the other transactions contemplated by this Agreement and
the other Loan Documents, and all documents incidental hereto and thereto, shall
be satisfactory to the Agent and its counsel, in their sole discretion, and the
Agent and such counsel shall have received all such information and such
counterpart originals or certified or other copies of such documents as the
Agent or such counsel may reasonably request.
  (h) Management Reference
Checks. The Agent shall have received satisfactory reference
checks for key management of Borrower, including Robert Chamberlain and Ronald
E. Smith.
  Due Diligence. The
Agent shall have completed its business, legal and collateral due diligence with
respect to the Borrower and each other Loan Party, the results of which shall be
acceptable to the Agent, in its sole and absolute discretion.
  24
  (j) Liabilities.
All liabilities of the Loan Parties shall be current. The Borrower shall
deliver to the Agent a certificate of an Authorized Officer of the Borrower
certifying as to the matters set forth above.
  (k) Investment
Committee. Each Lender shall have received approval of their investment
committee for making the Loans under this Agreement in their sole and absolute
discretion.
  Notices.
The Agent shall have received a Notice of Borrowing pursuant to Section 2.02hereof.
  (m) Delivery
of Documents. The Agent shall have received such other agreements,
instruments, approvals, opinions and other documents, each in form and substance
satisfactory to the Agent, as the Agent may reasonably request.
  ARTICLE
V
 REPRESENTATIONS
AND WARRANTIES
  Each Loan
Party hereby represents and warrants to the Agent and the Lenders as
follows:
  Section
5.01Organization,
Good Standing, Etc. Each Loan Party (i) is a corporation, limited liability
company or limited partnership duly organized, validly existing and in good
standing under the laws of the state or jurisdiction of its organization, (ii)
has all requisite power and authority to conduct its business as now conducted
and as presently contemplated and to make the borrowings hereunder (in the case
of the Borrower), and to execute and deliver each Loan Document and each other
Transaction Document to which it is a party, and to consummate the Transactions,
and (iii) is duly qualified to do business and is in good standing in each
jurisdiction in which the character of the properties owned or leased by it or
in which the transaction of its business makes such qualification necessary,
except where the failure to be so qualified or in good standing could not
reasonably be expected to have a Material Adverse Effect
  Section
5.02 Authorization,
Etc. The execution, delivery and performance by each Loan Party of each
Loan Document and each other Transaction Document to which it is or will be a
party and the performance of the Transactions, (a) have been duly authorized by
all necessary action, (b) do not and will not contravene its charter or by-laws,
its limited liability company or operating agreement or its certificate of
partnership or partnership agreement, as applicable, (c) do not and will not
contravene any applicable law or any contractual restriction binding on or
otherwise affecting it or any of its properties except where such contravention
would not have a Material Adverse Effect, (d) do not and will not result in or
require the creation of any Lien (other than pursuant to any Loan Document) upon
or with respect to any of its properties, and (e) do not and will not result in
any default, noncompliance, suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to its
operations or any of its properties.
  Section
5.03 Governmental
Approvals. No authorization or approval or other action by, and no notice
to or filing with, any Governmental Authority is required in connection with the
due execution, delivery and performance by any Loan Party of any Loan Document
or any other Transaction Document to which it is or will be a party or the
performance of the Transactions other than filings and recordations to perfect
Liens.
  Section
5.04 Enforceability
of Loan Documents. This Agreement is, each other Loan Document to which
any Loan Party is or will be a party when delivered hereunder will be, and each
other Transaction Document is, a legal, valid and binding obligation of such
Person, enforceable against such
  25
   Person in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar law and general
principles of equity.
  Section 5.05Capitalization;
Subsidiaries.
  (a)  On the
Effective Date, after giving effect to the Transactions, the authorized Capital
Stock of the Borrower is set forth on Schedule
5.05. All of the issued and outstanding shares of Capital Stock of the
Borrower has been validly issued and are fully paid and nonassessable, and the
holders thereof are not entitled to any preemptive, first refusal or other
similar rights. Except as described on Schedule
5.05, as of the Effective Date, there are no outstanding debt or equity
securities of the Borrower and no outstanding obligations of the Borrower
convertible into or exchangeable for, or warrants, options or other rights for
the purchase or acquisition from the Borrower, or other obligations of the
Borrower to issue, directly or indirectly, any shares of Capital Stock of the
Borrower.
  (b)  On the
Effective Date the Borrower has no Subsidiaries other than those set forth onSchedule
5.05.
  Section5.06 Litigation;
Commercial Tort Claims. Except as set forth on Schedule
5.06, there is no pending or, to the best knowledge of any Loan Party,
threatened action, Claim, suit or proceeding affecting any Loan Party before any
court or other Governmental Authority or any arbitrator that (A) if adversely
determined, could have a Material Adverse Effect or (B) relates to this
Agreement, any other Loan Document or other Transaction Document or any of the
Transactions and (ii) as of the Effective Date, none of the Loan Parties holds
any commercial tort claims in respect of which a claim has been filed in a court
of law or a written notice by an attorney has been given to a potential
defendant.
  Section 5.07FinancialCondition.
  (a)  The
Financial Statements, copies of which have been delivered to the Agent and each
Lender, fairly present the financial condition of the Loan Parties for the
fiscal periods ended on such respective dates, on a consolidated basis, all in
accordance with GAAP, and since December 31, 2006, no event or development has
occurred that has had or could have a Material Adverse Effect.
  (b)  The
Borrower has heretofore furnished tothe Agent the
unaudited pro forma balance
sheet of the Borrower as of the Effective Date, on a consolidated basis, after
giving effect to Loans under this Agreement and other Transactions contemplated
by the Transaction Documents. Such balance sheet has been prepared on a
reasonable basis and in good faith by the Borrower and has been based on
preliminary estimates, available information and certain assumptions believed by
the Borrower to be reasonable.
  Section
5.08 Compliance
with Law, Etc. No Loan Party is in violation of its organizational documents,
or in violation of any law, rule or regulation or any judgment or order of any
Governmental Authority
applicable to it or any of its property or assets, or any Transaction Document
or other Material Contract
binding on or otherwise affecting it or any of its properties, and no Default or
Event of Default has
occurred and is continuing.
  Section5.09 ERISA.
Except as set forth on Schedule
5.09, (i) each Employee Plan is in substantial compliance with ERISA and
the Internal Revenue Code, (ii) no Termination Event has occurred nor is
reasonably expected to occur with respect to any Employee Plan, (iii) the most
recent annual report (Form 5500 Series) with respect to each Employee Plan,
including any required Schedule B (Actuarial Information) thereto, copies of
which have been filed with the U.S. Department of Labor and delivered to the
Agent, is complete and correct and fairly presents the funding status of such
Employee
  26
  Plan, and
since the date of such report there has been no material adverse change in such
funding status, (iv) copies of each agreement entered into with the PBGC, the
U.S. Department of Labor or the Internal Revenue Service with respect to any
Employee Plan have been delivered to the Agent, (v) no Employee Plan had an
accumulated or waived funding deficiency or permitted decrease which would
create a deficiency inits funding
standard account or has applied for an extension of any amortization period
within the meaning of Section 412 of the Internal Revenue Code at any time
during the previous 60 months, and (vi) no Lien imposed under the Internal
Revenue Code or ERISA exists or is likely to arise on account of any Employee
Plan within the meaning of Section 412 of the Internal Revenue Code. Except as
set forth on Schedule
5.09, no Loan Party or any of its ERISA Affiliates has incurred any
withdrawal liability under ERISA with respect to any Multiemployer Plan, or is
aware of any facts indicating that it or any of its ERISA Affiliates may in the
future incur any such withdrawal liability. No Loan Party or any of its ERISA
Affiliates nor any fiduciary of any Employee Plan has (i) engaged in a nonexempt
prohibited transaction described in Sections 406 of ERISA or 4975 of the
Internal Revenue Code, (ii) failed to pay any required installment or other
payment required under Section 412 of the Internal Revenue Code on or before the
due date for such required installment or payment, (iii) engaged in a
transaction within the meaning of Section 4069 of ERISA or (iv) incurred any
liability to the PBGC which remains outstanding other than the payment of
premiums, and there are no premium payments which have become due which are
unpaid. There are no pending or, to the best knowledge of any Loan Party,
threatened claims, actions, proceedings or lawsuits (other than claims for
benefits in the normal course) asserted or instituted against (i) any Employee
Plan or its assets, (ii) any fiduciary with respect to any Employee Plan, or
(iii) any Loan Party or any of its ERISA Affiliates with respect to any Employee
Plan. Except as required by Section 4980B of the Internal Revenue Code, no Loan
Party or any of its ERISA Affiliates maintains an employee welfare benefit plan
(as defined in Section 3(1) of ERISA) which provides health or welfare benefits
(through the purchase of insurance or otherwise) for any retired or former
employee of any Loan Party or any of its ERISA Affiliates or coverage after a
participant's termination of employment.
  Section
5.10 Taxes,
Etc. All Federal, state and local tax returns and other reports required
by applicable law to be filed by any Loan Party have been timely filed, or
extensions have been obtained, and all taxes, assessments and other governmental
charges imposed upon any Loan Party or any property of any Loan Party and which
have become due and payable on or prior to the date hereof have been paid,
except to the extent contested in good faith by proper proceedings which stay
the imposition of any penalty, fine or Lien resulting from the non-payment
thereof and with respect to which adequate reserves have been set aside for the
payment thereof on the Financial Statements in accordance with modified GAAP.
The charges, accruals and reserves on the books of the Borrower in respect of
Taxes and other governmental charges are, in the reasonable opinion of the
Borrower, adequate. No Lien for Taxes has been filed and, to the knowledge of
the Borrower, no claim is being asserted with respect to any such Tax or other
such governmental charge.
  Section5.11 Regulations
T, U and X. No Loan Party is or will be engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation T, U or X),and no proceeds
of any Loan will be used to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying any margin
stock.
  Section
5.12 Nature
of Business. No Loan Party is engaged in any business other than
providing services to the offshore segment of the energy industry.
  Section
5.13 Adverse
Agreements, Etc. No Loan Party is a party to any agreement or instrument,
or subject to any charter, limited liability company agreement, partnership
agreement or other corporate, partnership or limited liability company
restriction or any judgment, order, regulation, ruling or other requirement of a
court or other Governmental Authority, which has, or in the future
could
  27
  reasonably
be expected to have, a Material Adverse Effect. The Borrower is not a party to
any material agreement or arrangement, or subject to any order, judgment, writ
or decree, that either restricts or purports to restrict its ability to grant
Liens to the Agent and the Lenders on or in respect of its properties to secure
the Obligations and the Loan Documents.
  Section
5.14 Permits,
Etc. Each Loan Party has, and is in compliance with, all permits,
licenses, authorizations, approvals, entitlements and accreditation required for
such Person lawfully to own, lease, manage or operate, or to acquire, each
business currently owned, leased, managed or operated, or to be acquired, by
such Person, except where the failure to have or be in compliance with any such
permit, license, authorization, approval, entitlement or accreditation could not
reasonably be expected to have a Material Adverse Effect. No condition exists or
event has occurred which, in itself or with the giving of notice or lapse of
time or both, would result in the suspension, revocation, impairment, forfeiture
or non-renewal of any such permit, license, authorization, approval, entitlement
or accreditation, and there is no claim that any thereof is not in full force
and effect, except where such suspension, revocation, impairment, forfeiture or
non-renewal or such failure to be in full force and effect could not reasonably
be expected to have a Material Adverse Effect.
  Section
5.15 Properties.
  (a)  Each Loan
Party has good and marketable title to, valid leasehold interests in, or
valid licenses to use, all property and assets material to its business, free
and clear of all Liens, except Permitted Liens. All such properties and assets
are in good working order and condition, ordinary wear and tear
excepted.
  (b) Schedule
5.15 sets forth a complete and accurate list, as of the Effective Date, of
the location, by state and street address, of all real property owned or leased
by each Loan Party. As of the Effective Date, each Loan Party has valid
leasehold interests in the Leases described on Schedule
5.15 to which it is a party. Schedule
5.15 sets forth with respect to each such Lease, the commencement date,
termination date, renewal options (if any) and annual base rents. Each such
Lease is valid and enforceable in accordance with its terms in all material
respects and is in full force and effect. No consent or approval of any landlord
or other third party in connection with any such Lease is necessary for any Loan
Party to enter into and execute the Loan Documents or the other Transaction
Documents to which it is a party or to perform the Transactions, except as set
forth on Schedule
5.15. To the best knowledge of any Loan Party, no other party to any such
Lease is in default of its material obligations thereunder, and no Loan Party
(or any other party to any such Lease) has at any time delivered or received any
notice of default which remains uncured under any such Lease and, as of the
Effective Date, no event has occurred which, with the giving of notice or the
passage of time or both, would constitute a default under any such
Lease.
  Section
5.16 Full
Disclosure. Each Loan Party has disclosed to the Agent all material
agreements, instruments and corporate or other restrictions to which it is
subject, and all other matters known to it, that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect.
None of the reports, financial statements, certificates or other information
furnished by or on behalf of any Loan Party to the Agent in connection with the
negotiation of this Agreement or delivered hereunder (as modified or
supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which it was made,
not misleading; provided
that, with respect to projected financial information, each Loan Party
represents only that such information was prepared in good faith based upon
assumptions believed to be reasonable at the time. There is no contingent
liability
  28
   or fact
that could reasonably be expected to be material which has not been set forth in
a footnote included in the Financial Statements or a Schedule
hereto.
  Section 5.17Operating Lease
Obligations. On the Effective Date and after giving effect to the Transactions,
none of the Loan Parties has any Operating Lease Obligations other than the
Operating Lease Obligations set forth on Schedule
5.17.
  Section 5.18Environmental
Matters. Except as set forth on Schedule 5.18, (a)
the operations of each
Loan Party are in full compliance with all Environmental Laws, except any
non-compliance which could not reasonably be expected to have a Material Adverse
Effect; (b) there has been no Release at any of the properties owned or operated
by any Loan Party or a predecessor in interest, or at any disposal or treatment
facility which received Hazardous Materials generated by any Loan Party or any
predecessor in interest which could reasonably be expected to have a Material
Adverse Effect; (c) no Environmental Action has been asserted against any Loan
Party or any predecessor in interest nor does any Loan Party have knowledge or
written notice of any threatened Environmental Action against any Loan Party or
any predecessor in interest which could reasonably be expected to have a
Material Adverse Effect; (d) to the knowledge of each Loan Party, no
Environmental Actions have been asserted against any facilities that have
received Hazardous Materials generated by any Loan Party or any predecessor in
interest which could reasonably be expected to have a Material Adverse Effect;
(e) no property now or formerly owned or operated by a Loan Party was used as a
treatment or disposal site for any Hazardous Material before or during the time
period of such Loan Party's operations or ownership except as could not
reasonably be expected to have a Material Adverse Effect; (f) no Loan Party has
failed to report to the proper Governmental Authority any Release which is
required to be so reported by any Environmental Laws which could reasonably be
expected to have a Material Adverse Effect; (g) each Loan Party holds all
licenses, permits and approvals required under any Environmental Laws in
connection with the operation of the business carried on by it, except for such
licenses, permits and approvals as to which a Loan Party's failure to maintain
or comply with could not reasonably be expected to have a Material Adverse
Effect; and (h) no Loan Party has received any written notification pursuant to
any Environmental Laws that (i) any work, repairs, construction or Capital
Expenditures are required to be made in respect as a condition of continued
compliance with any Environmental Laws, or any license, permit or approval
issued pursuant thereto or (ii) any license, permit or approval referred to
above is about to be reviewed, made subject to limitations or conditions,
revoked, withdrawn or terminated, in each case, except as could not reasonably
be expected to have a Material Adverse Effect.
  Section
5.19 Insurance.
Each Loan Party keeps its property adequately insured and maintains (a)
insurance to such extent and against such risks, including fire, as is customary
with companies in the same or similar businesses, (b) workmen's compensation
insurance in the amount required by applicable law, (c) public liability
insurance, which shall include product liability insurance, in the amount
customary with companies in the same or similar business against claims for
personal injury or death on properties owned, occupied or controlled by it, and
(d) such other insurance as may be required by law or as may be reasonably
required by the Agent (including, without limitation, against larceny,
embezzlement or other criminal misappropriation). Schedule 5.19 sets
forth a list of all insurance maintained by each Loan Party on the Effective
Date.
  Section5.20 Use of Proceeds. The
proceeds of the Loans shall be used for the purposes set forth in Schedule
5.20.
  Section 5.21Solvency. Before and
after giving effect to the Transactions as contemplated by this
Agreement, the other Transaction Documents, each Loan Party is, and the Loan
Parties on a consolidated basis are, Solvent.
  29
   Section 5.22Location
of Bank Accounts. Schedule 5.22 sets forth a complete and accurate list
as of the Effective Date of all deposit, checking and other bank accounts, all
securities and other accounts maintained with any broker dealer and all other
similar accounts maintained by each Loan Party, together with a description
thereof (i.e.,
the bank or broker dealer at which such deposit or other account is maintained
and the account number and the purpose thereof).
  Section
5.23 Material
Contracts. Set forth on Schedule
5.23 is a complete and accurate list as of the
Effective Date of all Material Contracts of each Loan Party, showing the parties
and subject matter thereof and amendments and modifications thereto. Each such
Material Contract (a) is in full force and effect and is binding upon and
enforceable against each Loan Party that is a party thereto and, to the best
knowledge of such Loan Party, all other parties thereto in accordance with its
terms, (b) has not been otherwise amended or modified, and (c) is not in default
due to the action of any Loan Party or, to the best knowledge of any Loan Party,
any other party thereto.
  Section
5.24 Investment
Company Act. None of the Loan Parties is an "investment company" or an
"affiliated person" or "promoter" of, or "principal underwriter" of or for, an
"investment company", as such terms are defined in the Investment Company Act of
1940, as amended.
  Section
5.25 Employee
and Labor Matters. There is (a) no unfair labor practice complaint
pending or, to the best knowledge of any Loan Party, threatened against any Loan
Party before any Governmental Authority and no grievance or arbitration
proceeding pending or, to the best knowledge of any Loan Party, threatened
against any Loan Party which arises out of or under any collective bargaining
agreement which, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect, (b) no strike, labor dispute, slowdown,
stoppage or similar action or grievance pending or, to the best knowledge of any
Loan Party, threatened against any Loan Party or (c) to the best knowledge of
any Loan Party, no union representation question existing with respect to the
employees of any Loan Party and no union organizing activity taking place with
respect to any of the employees of any Loan Party. Neither any Loan Party nor
any of its ERISA Affiliates has incurred any liability or obligation under the
Worker Adjustment and Retraining Notification Act ("WARN") or similar state law,
which remains unpaid or unsatisfied. The hours worked and payments made to
employees of any Loan Party have not been in violation of the Fair Labor
Standards Act or any other applicable legal requirements, except to the extent
such violations could not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect. All material payments due from
any Loan Party on account of wages and employee health and welfare insurance and
other benefits have been paid or accrued as a liability on the books of such
Loan Party, except where the failure to do so could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect.
  Section
5.26 Customers
and Suppliers. There exists no actual or, to the best knowledge of any Loan
Party, threatened termination, cancellation or limitation of, or modification to
or change in, the business relationship between (a) any Loan Party, on the one
hand, and any customer or any group thereof of any Loan Party, on the other
hand, whose agreements with any Loan Party are individually or in the aggregate
material to the business or operations of such Loan Party, or (b) any Loan
Party, on the one hand, and any material supplier of any Loan Party, on the
other hand; and there exists no present state of facts or circumstances that
could give rise to or result in any such termination, cancellation, limitation,
modification or change, except for any such termination, cancellation,
limitation, modification or change which could not reasonably be expected to
have a Material Adverse Effect. Nothing in the preceding sentence, however,
shall be construed to create an exception to the provisions of this Section
5.26.
  Section 5.27No
Bankruptcy Filing. No Loan Party is contemplating either an Insolvency
Proceeding or the liquidation of all or a major portion of such Loan Party's
assets or property, and no Loan Party has any knowledge of any Person
contemplating an Insolvency Proceeding against it.
  30
   Section
5.28 Casualty
Events. Since December 31, 2006, neither the business nor any properties
of the Borrower have been materially and adversely affected as a result of any
fire, explosion, earthquake, flood, drought, windstorm, accident, strike or
other labor disturbance, embargo, requisition or taking of property or
cancellation of contracts, permits or concessions by any domestic or foreign
Governmental Authority, riot, activities or armed forces or acts of God or of
any public enemy.
  Section
5.29 Organizational
Information. Schedule 5.29 sets forth a complete and accurate list as of the
date hereof of (a) the exact legal name of each Loan Party, (b) the jurisdiction
of organization of each Loan Party, (c) the organizational identification number
of each Loan Party (or indicates that such Loan Party has no organizational
identification number), (d) each place of business of each Loan Party, (e) the
chief executive office of each Loan Party, (f) the federal employer
identification number of each Loan Party and (g) the exact name used in each
Federal tax return of each Loan Party.
  Section
5.30 Equipment.
Other than the Equipment listed on Schedule
1.01(B), the Borrower has no titled Equipment.
  Section
5.31 Locations
of Collateral. Schedule 5.31 hereto contains a true, correct and complete
list, as of the Effective Date, of the legal names and addresses of each
warehouse at which Collateral of each Loan Party is stored. None of the receipts
received by any Loan 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.
  Section
5.32 Security
Interests. The Guaranty and Collateral Agreement creates in favor of the
Agent, for the benefit of the Lenders, a legal, valid and enforceable security
interest in the Collateral secured thereby. Upon (a) the filing of the UCC-1
financing statements by the Lenders, (b) with respect to the perfection of any
security interest created in motor vehicles for which the title to such motor
vehicles is governed by a certificate of title or ownership, the submission of
an appropriate application requesting that the Lien of the Agent be noted on the
certificate of title or ownership, completed and authenticated by the applicable
Loan Party, together with the certificate of title, with respect to each such
motor vehicle, to the appropriate state agency, (c) with respect to any action
that may be necessary to obtain control in Collateral under Sections 9-104,
9-105, 9-106, and 9-107 of the Uniform Commercial Code, the taking of such
action and (d) the Agent taking possession of all documents, chattel paper,
instruments and cash constituting Collateral, such security interests in and
Liens on the Collateral granted thereby shall be perfected, first priority
security interests, and no further recordings or filings are or will be required
in connection with the creation, perfection or enforcement of such security
interests and Liens in such Collateral, other than (i) the filing of
continuation statements in accordance with applicable law and (ii) the
recordation of appropriate evidence of the security interest in the appropriate
foreign registry with respect to all foreign intellectual property.
  Section
5.33 Schedules.
All of the information which is required to be scheduled to this Agreement
is set forth on the Schedules attached hereto, is correct and accurate and does
not omit to state any information material thereto.
  Section
5.34 Representations
and Warranties in Documents; No Default. All representations and
warranties set forth in this Agreement and the other Loan Documents are true and
correct in all respects at the time as of which such representations were made
and on the Effective Date. No Event of Default has occurred and is continuing
and no condition exists which constitutes a Default or an Event of
Default.
  31
   Section
5.35 Reliance.
In connection with the negotiation of and the entering into this Agreement
and the other Loan Documents, the Borrower acknowledges and represents that none
of the Lenders or the Agent or any representative of any of the foregoing is
acting as a fiduciary or financial or investment advisor for it; it is not
relying upon any representations (whether written or oral) of such Persons; it
has consulted with its own legal, regulatory, tax, business investment, fmancial
and accounting advisors to the extent it has deemed necessary, and it has made
its own investment, hedging, and trading decisions based upon its own judgment
and upon any advice from such advisors as it has deemed necessary and not upon
any view expressed by any Lender or the Agent or any representative of any of
the foregoing; it has not been given by any Lender or the Agent or any
representative of any of the foregoing (directly or indirectly through any other
Person) any advice, counsel, assurance, guarantee, or representation whatsoever
as to the expected or projected success, profitability, return, performance,
result, effect, consequence, or benefit (either legal, regulatory, tax,
financial, accounting, or otherwise) of this Agreement or the Transactions; and
it is entering into this Agreement and the other Loan Documents with a full
understanding of all of the risks hereof and thereof (economic and otherwise),
and it is capable of assuming and willing to assume (financially and otherwise)
those risks.
  Section5.36 Brokers. No Person is
entitled to any brokerage fee or fmders fee or similar fee or commission in
connection with arranging the Loans contemplated by this Agreement other than
any such arrangement listed in Schedule
5.36.
  Section
5.37 Use of
Loans. The proceeds of the Loans shall be used for the purposes set forth
in Section 5.20
or otherwise agreed to by the Lenders. The Loan Parties are not engaged
principally, or as one of its or their important activities, in the business of
extending credit for the purpose, whether immediate, incidental or ultimate, of
buying or carrying margin stock (within the meaning of Regulation T, U or X of
the Federal Reserve Board). No part of the proceeds of any Loans will be used
for any purpose which violates the provisions of Regulations T, U or X of the
Board.
  ARTICLE
VI
 AFFIRMATIVE
COVENANTS
  So long
as any principal of or interest on any Loan or any other Obligation (whether or
not due) shall remain unpaid, each Loan Party will, unless the Required Lenders
shall otherwise consent in writing:
  Section
6.01 Reporting
Requirements. Furnish to the Agent and each Lender:
  (a)  as soon
as available and in any event within 45 days after the end of each fiscal
quarter of the Loan Parties commencing with the fiscal quarter of the Loan
Parties ending on September 30, 2007, balance sheets, statements of operations
and retained earnings and statements of cash flows of the Loan Parties as at the
end of such quarter, in each case presented on a consolidated basis (and, if so
requested by the Agent, on a consolidating basis), and for the period commencing
at the end of the immediately preceding Fiscal Year and ending with the end of
such quarter, setting forth in each case in comparative form the figures for the
corresponding date or period of the immediately preceding Fiscal Year and other
comparable periods, all in reasonable detail and certified by an Authorized
Officer of each Borrower as fairly presenting, in all material respects, the
financial position of the Loan Parties as of the end of such quarter and the
results of operations and cash flows of the Loan Parties for such quarter, in
accordance with GAAP applied in a manner consistent with that of the most recent
audited financial statements of the Loan Parties furnished to the Agent and the
Lenders, subject to normal year-end adjustments;
  (b)  as soon
as available, and in any event within 90 days after the end of each Fiscal
Year of the Loan Parties, balance sheets, statements of operations and retained
earnings and
  32
   statements
of cash flows of the Loan Parties as at the end of such Fiscal Year, in each
case presented on a consolidated basis (and, if so requested by the Agent, on a
consolidating basis, provided that consolidating statements need not be
accompanied by the auditor's opinion referred to below), setting forth in each
case in comparative form the corresponding figures for the immediately preceding
Fiscal Year and other comparable periods, all in reasonable detail and prepared
in accordance with GAAP, and accompanied by a report and an unqualified opinion,
prepared in accordance with generally accepted auditing standards, of
independent certified public accountants of recognized standing selected by the
Loan Parties and reasonably satisfactory to the Agent (which opinion shall be
without (i) a "going concern" or like qualification or exception, (ii) any
qualification or exception as to the scope of such audit, or (C) any
qualification which relates to the treatment or classification of any item and
which, as a condition to the removal of such qualification, would require an
adjustment to such item, the effect of which would be to cause any noncompliance
with the provisions of ARTICLE
VIII), together with a written statement of such accountants (A) to the
effect that, in making the examination necessary for their certification of such
financial statements, they have not obtained any knowledge of the existence of
any Event of Default arising as a result of any noncompliance with the
provisions of ARTICLE
VIII and (B) if such accountants shall have obtained any knowledge of the
existence of any such Event of Default, describing the nature
thereof;
  (c)  as soon
as available, and in any event within 30 days after the end of each calendar
month of the Loan Parties commencing with August 31, 2007, internally prepared
balance sheets, statements of operations and retained earnings and statements of
cash flows as at the end of such calendar month, and for the period commencing
at the end of the immediately preceding Fiscal Year and ending with the end of
such calendar month, in each case presented on a consolidated basis (and, if so
requested by the Agent, on a consolidating basis), setting forth in comparative
form the figures for the corresponding date or period set forth in the financial
projections referred to in clause (vii) below, all in reasonable detail and
certified by an Authorized Officer of each Borrower as fairly presenting, in all
material respects, the financial position of the Loan Parties as at the end of
such calendar month and the results of operations, retained earnings and cash
flows of the Loan Parties for such calendar month, in accordance with GAAP
applied in a manner consistent with that of the most recent audited financial
statements furnished to the Agent and the Lenders, subject to normal year-end
adjustments;
  (d)  simultaneously
with the delivery of the financial statements of the Loan Parties
required by clauses (a), (b) and (c) of this Section
6.01, a certificate of an Authorized Officer of each Borrower (A) stating
that such Authorized Officer has reviewed the provisions of this Agreement and
the other Loan Documents and has made or caused to be made under his or her
supervision a review of the condition and operations of the Loan Parties during
the period covered by such financial statements with a view to determining
whether the Loan Parties were in compliance with all of the provisions of this
Agreement and such Loan Documents at the times such compliance is required
hereby and thereby, and that such review has not disclosed, and such Authorized
Officer has no knowledge of, the existence during such period of an Event of
Default or Default or, if an Event of Default or Default existed, describing the
nature and period of existence thereof and the action which the Loan Parties
propose to take or have taken with respect thereto and (B) attaching a schedule
showing the calculations specified in ARTICLE
VIII;
  (e)
within thirty (30) days of the end of each calendar month, all bank statements related
to the Debt Service Reserve Account and the Operating Account;
  (f)
Promptly, but in any event within 30 days prior to the end of each fiscal year, the
Borrower shall deliver to the Agent a detailed annual budget and Capital
Expenditure program for next three years on a monthly basis, including
consolidating and consolidated balance sheets, income and cash flow statements
with respect to such period. The budget for the fiscal year ending December
31,
  33
    2007
shall be prepared and delivered within 30 days of the Effective Date and will be
revised quarterly with monthly reports to be submitted to the Agent. The annual
budget for 2008 will be prepared by and delivered to the Agent by October 31,
2007. All expenses in excess of $50,000 as provided for in the annual budget
must be approved by the Agent. The Agent shall have 30 days from the date of
receipt to approve or reject any proposed budget submitted by Borrower. In the
event that the Agent rejects any proposed budget presented by the Borrower, the
Borrower will review the Agent's reasons for rejecting such budget and revise
its proposed budget consistent with the Agent's reasonable comments and resubmit
a revised budget to Agent within five (5) Business Days of the Agent's rejection
of the proposed budget and Agent shall notify the Borrower if it approves the
revised budget. The Borrower will continue to cooperate with Agent as set forth
above until such time that a budget has been approved.
  (g)  promptly
after submission to any Governmental Authority, all documents and
information furnished to such Governmental Authority in connection with any
investigation of any Loan Party other than routine inquiries by such
Governmental Authority;
  (h)  as soon
as possible, and in any event within five (5) Business Days after the occurrence
of an Event of Default or Default or the occurrence of any event or development
that could reasonably be expected to have a Material Adverse Effect, the written
statement of an Authorized Officer of the applicable Borrower(s) setting forth
the details of such Event of Default or Default or other event or development
having a Material Adverse Effect and the action which the affected Loan Party
proposes to take with respect thereto;
  (i)  (A) as
soon as possible and in any event within ten (10) Business Days after any Loan
Party or any ERISA Affiliate thereof knows or has reason to know that (1) any
Reportable Event with respect to any Employee Plan has occurred, (2) any other
Termination Event with respect to any Employee Plan has occurred, or (3) an
accumulated funding deficiency has been incurred or an application has been made
to the Secretary of the Treasury for a waiver or modification of the minimum
funding standard (including installment payments) or an extension of any
amortization period under Section 412 of the Internal Revenue Code with respect
to an Employee Plan, a statement of an Authorized Officer of the applicable
Borrower(s) setting forth the details of such occurrence and the action, if any,
which such Loan Party or such ERISA Affiliate proposes to take with respect
thereto, (B) promptly and in any event within three (3) Business Days after
receipt thereof by any Loan Party or any ERISA Affiliate thereof from the PBGC,
copies of each notice received by any Loan Party or any ERISA Affiliate thereof
of the PBGC's intention to terminate any Plan or to have a trustee appointed to
administer any Plan, (C) promptly and in any event within ten (10) Business Days
after the filing thereof with the Internal Revenue Service if requested by the
Agent, copies of each Schedule B (Actuarial Information) to the annual report
(Form 5500 Series) with respect to each Employee Plan and Multiemployer Plan,
(D) promptly and in any event within ten (10) Business Days after any Loan Party
or any ERISA Affiliate thereof knows or has reason to know that a required
installment within the meaning of Section 412 of the Internal Revenue Code has
not been made when due with respect to an Employee Plan, (E) promptly and in any
event within five (5) Business Days after receipt thereof by any Loan Party or
any ERISA Affiliate thereof from a sponsor of a Multiemployer Plan or from the
PBGC, a copy of each notice received by any Loan Party or any ERISA Affiliate
thereof concerning the imposition or amount of withdrawal liability under
Section 4202 of ERISA or indicating that such Multiemployer Plan may enter
reorganization status under Section 4241 of ERISA, and (F) promptly and in any
event within ten (10) Business Days after any Loan Party or any ERISA Affiliate
thereof sends notice of a plant closing or mass layoff (as defined in WARN) to
employees, copies of each such notice sent by such Loan Party or such ERISA
Affiliate thereof;
  (j)  promptly
after the commencement thereof but in any event not later than three (3)
Business Days after service of process with respect thereto on, or the obtaining
of knowledge thereof by, any Loan Party, notice of each action, suit or
proceeding before any court or other
  34
  Governmental
Authority or other regulatory body or any arbitrator which, if adversely
determined, could have a Material Adverse Effect;
  (k) as
soon as possible and in any event within five (5) Business Days after execution,
receipt or delivery thereof, copies of any material notices that any Loan Party
executes or receives in connection with any Material Contract;
  (l) if
applicable, promptly after the sending or filing thereof, copies of all statements,
reports and other information any Loan Party sends to any holders of its
Indebtedness or its securities or files with the SEC or any national (domestic
or foreign) securities exchange;
  (m)  promptly
upon receipt thereof, copies of all financial reports (including, without
limitation, management letters), if any, submitted to any Loan Party by its
auditors in connection with any annual or interim audit of the books
thereof;
  (n)  promptly
upon request, such other information concerning the condition or operations,
financial or otherwise, of any Loan Party as the Agent may from time to time may
reasonably request.
  Section
6.02 Additional
Guaranties and Collateral Security. Cause each domestic Subsidiary of any
Loan Party not in existence on the Effective Date or upon formation or
acquisition to execute and deliver to the Agent promptly and in any event within
three (3) Business Days after the formation, acquisition or change in status
thereof (i) a Guaranty and Collateral Agreement guaranteeing the Obligations and
granting a security interest to Agent on all of its assets or their properties
with (A) copies of all certificates evidencing all of the Capital Stock of any
Person owned by such Subsidiary, (B) copies of all undated stock powers executed
in blank, and (C) such opinion of counsel and such approving certificate of such
Subsidiary as the Agent may reasonably request in respect of complying with any
legend on any such certificate or any other matter relating to such shares, (ii)
together with such other agreements, instruments and documents as the Agent may
reasonably require whether comparable to the documents required under Section
6.14 or otherwise and (iii) such other agreements, instruments,
approvals, legal opinions or other documents reasonably requested by the Agent
in order to create, perfect, establish the first priority of or otherwise
protect any Lien purported to be covered by any such Guaranty and Collateral
Agreement or otherwise to effect the intent that such Subsidiary shall become
bound by all of the terms, covenants and agreements contained in the Loan
Documents and that all property and assets of such Subsidiary shall become
Collateral for the Obligations.
 Section
6.03 Compliance
with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in
all material respects with all laws, rules, regulations, orders (including,
without limitation, all Environmental Laws), judgments and awards (including any
settlement of any claim that, if breached, could give rise to any of the
foregoing), such compliance to include, without limitation, (a) paying before
the same become delinquent all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or profits or upon any of its
properties and (b) paying all lawful claims which if unpaid might become a Lien
or charge upon any of its properties, except to the extent contested in good
faith by proper proceedings which stay the imposition of any penalty, fine or
Lien resulting from the non-payment thereof and with respect to which adequate
reserves have been set aside for the payment thereof in accordance with
GAAP.
  Section
6.04 Preservation
of Existence, Etc. Except as otherwise expressly permitted under Section
7.02, maintain and preserve, and cause each of its Subsidiaries to
maintain and preserve, its existence, rights and privileges, and become or
remain, and cause each of its Subsidiaries to become or
  35
   remain,
duly qualified and in good standing in each jurisdiction in which the character
of the properties owned or leased by it or in which the transaction of its
business makes such qualification necessary.
  Section
6.05 Keeping
of Records and Books of Account. Keep, and cause each of its Subsidiaries
to keep, adequate records and books of account, with complete entries made to
permit the preparation of financial statements in accordance with
GAAP.
  Section
6.06 Inspection
Rights. Permit, and cause each of its Subsidiaries to permit, the agents
and representatives of the Lenders at any time and from time to time during
normal business hours to examine and make copies of and abstracts from its
records and books of account, to visit and inspect its properties, to verify
materials, leases, notes, accounts receivable, deposit accounts and its other
assets, to conduct audits, physical counts, valuations, appraisals, or
examinations and to discuss its affairs, finances and accounts with any of its
directors, officers, managerial employees, independent accountants or any of its
other representatives. In furtherance of the foregoing, each Loan Party hereby
authorizes its independent accountants, and the independent accountants of each
of its Subsidiaries, to discuss the affairs, finances and accounts of such
Person (independently or together with representatives of such Person) with the
agents and representatives of the Lenders in accordance with this Section
6.05.
  Section
6.07 Maintenance
of Properties, Etc. Maintain and preserve, and cause each of its
Subsidiaries to maintain and preserve, all of its properties which are necessary
or material to the proper conduct of its business in good working order and
condition, ordinary wear and tear excepted, and comply, and cause each of its
Subsidiaries to comply, at all times in all material respects with the
provisions of all leases to which it is a party as lessee or under which it
occupies property, so as to prevent any loss or forfeiture thereof or
thereunder.
  Section
6.08 Maintenance
of Insurance. Maintain, and cause each of its Subsidiaries to maintain,
insurance with responsible and reputable insurance companies or associations
(including, without limitation, comprehensive general liability, hazard,
business interruption insurance and the key man insurance provided for in Section
4.01(d)(xvii) with respect to its properties (including all real
properties leased or owned by it) and business, in such amounts and covering
such risks as is required by any Governmental Authority having jurisdiction with
respect thereto or as is carried generally in accordance with sound business
practice by companies in similar businesses similarly situated and in any event
in amount, adequacy and scope reasonably satisfactory to the Agent. All policies
covering the Collateral are to be made payable to the Agent for the benefit of
the Lenders, as its interests may appear, in case of loss, under a standard
non-contributory "lender" or "secured party" clause and are to contain such
other provisions as the Agent may require to fully protect the Lenders' interest
in the Collateral and to any payments to be made under such policies. All
certificates of insurance are to be delivered to the Agent and the policies are
to be premium prepaid or paid in installments in accordance with the prior
practice of the Loan Parties, with the loss payable and additional insured
endorsement in favor of the Agent and such other Persons as the Agent may
designate from time to time, and shall provide for not less than 30 days' prior
written notice to the Agent of the exercise of any right of cancellation. If any
Loan Party fails to maintain such insurance, the Agent may arrange for such
insurance, but at the Loan Parties' expense and without any responsibility on
the Agent's part for obtaining the insurance, the solvency of the insurance
companies, the adequacy of the coverage, or the collection of claims. Upon the
occurrence and during the continuance of an Event of Default, the Agent shall
have the sole right, in the name of the Lenders, any Loan Party and its
Subsidiaries, to file claims under any insurance policies, to receive, receipt
and give acquittance for any payments that may be payable thereunder, and to
execute any and all endorsements, receipts, releases, assignments, reassignments
or other documents that may be necessary to effect the collection, compromise or
settlement of any claims under any such insurance policies.
  36
   Section
6.09 Obtaining
of Permits, Etc. Obtain, maintain and preserve, and cause each of its
Subsidiaries to obtain, maintain and preserve, and take all necessary action to
timely renew, all material permits, licenses, authorizations, approvals,
entitlements and accreditations which are necessary or useful in the proper
conduct of its business.
  Section
6.10 Environmental.
(a) Keep any property either owned or operated by it or any of its Subsidiaries
free of any Environmental Liens; (b) comply, and cause each of its Subsidiaries
to comply, in all material respects with all Environmental Laws and provide to
the Agent any documentation of such compliance which the Agent may reasonably
request; (c) provide the Agent written notice within five (5) Business Days of
obtaining knowledge of any Release in excess of any reportable quantity from its
operations or onto property owned or operated by it or any of its Subsidiaries
and take any Remedial Actions required under Environmental Laws to abate said
Release consistent with the use of the property and (d) provide the Agent with
written notice within ten (10) Business Days of the receipt of any of the
following: (i) written notice that an Environmental Lien has been filed against
any property of any Loan Party; (ii) commencement of any Environmental Action or
written notice that an Environmental Action will be filed against any Loan
Party; and (iii) written notice of a violation, citation or other administrative
order which could have a Material Adverse Effect.
  Section
6.11 Further
Assurances. Take such action and execute, acknowledge and deliver, and cause
each of its Subsidiaries to take such action and execute, acknowledge and
deliver, at its sole cost and expense, such agreements, instruments or other
documents as the Agent may reasonably require from time to time in order (a) to
carry out more effectively the purposes of this Agreement and the other Loan
Documents, (b) to subject to valid and perfected first priority Liens any of the
Collateral or any other property of any Loan Party and its Subsidiaries, (c) to
establish and maintain the validity and effectiveness of any of the Loan
Documents and the validity, perfection and priority of the Liens intended to be
created thereby and (d) to better assure, convey, grant, assign, transfer and
confirm unto the Agent and each Lender the rights now or hereafter intended to
be granted to it under this Agreement or any other Loan Document. In furtherance
of the foregoing, if not promptly executed by the Borrower at the request of the
Administrative Agent and to the maximum extent permitted by applicable law, each
Loan Party (i) authorizes the Agent to execute any such agreements, instruments
or other documents in such Loan Party's name and to file such agreements,
instruments or other documents in any appropriate filing office, (ii) authorizes
the Agent to file any financing statement required hereunder or under any other
Loan Document, and any continuation statement or amendment with respect thereto,
in any appropriate filing office without the signature of such Loan Party and
(iii) ratifies the filing of any financing statement, and any continuation
statement or amendment with respect thereto, filed without the signature of such
Loan Party prior to the date hereof.
  Section
6.12 Change
in Collateral; Collateral Records. (a) Give the Agent not less than ten (10)
days' prior written notice of any change in the location of any Equipment valued
in excess of $2,000,000, other than to locations set forth on Schedule
5.31 or as approved in advance by the Administrative Agent; and (b)
execute and deliver, and cause each of its Subsidiaries to execute and deliver,
to the Agent for the benefit of the Lenders from time to time, solely for the
Agent's convenience in maintaining a record of Collateral, such written
statements and schedules as the Agent may reasonably require, designating,
identifying or describing the Collateral.
  Section
6.13 Landlord
Waivers; Collateral Access Agreements. (i) At any time any Collateral
with a book value in excess of $250,000 (when aggregated with all other
Collateral at the same location) is located on any real property leased to a
Loan Party (whether such real property is now existing or acquired after the
Effective Date), obtain written subordinations or waivers, in form and substance
satisfactory to the Agent, of all present and future Liens to which the owner or
lessor of such premises may be entitled to assert against the Collateral; and
(ii) obtain written access agreements, in form and
  37
   substance
satisfactory to the Agent, providing access to any collateral with a book value
in excess of $250,000 located on any premises not owned by a Loan Party in order
to remove such Collateral from such premises during an Event of
Default.
  Section
6.14 Subordination. Cause
all Indebtedness and other obligations now or hereafter owed by
it to any of its Affiliates, to be subordinated in right of payment and security
to the Indebtedness and other Obligations owing to the Agent and the Lenders in
accordance with a subordination agreement in form and substance satisfactory to
the Agent; provided that this provision shall not be construed to permit any
Indebtedness not otherwise permitted by the terms of this
Agreement.
  Section
6.15 Fiscal
Year. Cause the Fiscal Year of the Loan Parties to end on December 31 of
each calendar year unless the Agent consents to a change in such Fiscal Year
(and appropriate related changes to this Agreement).
  Section
6.16 Key Man Life
Insurance. Obtain within 30 days after the Closing Date and maintain
thereafter, with a responsible insurance company, "key man" life insurance with
respect to Ronald E. Smith in the amount of at least $3,000,000 pursuant to
policies reasonably satisfactory to the Agent and with Agent as the
beneficiary.
  Section
6.17 Agent
Observers.
  (a)  The Agent
shall be entitled to have two observers (the "Agent Observers") attend
any regular meeting of the Board of Directors of the Borrower. The Agent
Observers shall not be entitled to vote on matters presented to or discussed by
the Board of Directors of the Borrower at any such meeting. The Agent Observers
shall be timely notified of the time and place of any such meeting and will be
given written notice of all proposed actions to be taken by the Board of
Directors of the Borrower at any such meeting as if the Agent Observers were a
member of the Board of Directors of the Borrower. Such notice shall describe in
reasonable detail the nature and substance of the matters to be discussed and/or
voted upon at any such meeting (or the proposed actions to be taken by written
consent without a meeting). The Agent Observers shall have the right to receive
all information provided to the members of the Board of Directors of the
Borrower in anticipation of or at any such meeting, in addition to copies of the
records of the proceedings or minutes of any such meeting, when provided to the
members of the Board of Directors of the Borrower. The Borrower shall reimburse
the Agent Observers for all reasonable and documented out-of-pocket costs and
expenses incurred in connection with its participation in any such meeting. The
Agent Observers shall also have the right to receive all information provided to
each member of the Board of Directors of each Subsidiary (if any) of the
Borrower (the "Other
Boards"), in anticipation of or at all meetings thereof (whether regular
or special and whether telephonic or otherwise), in addition to copies of the
records of the proceedings or minutes of such meetings, when provided to the
members of such Other Boards. The Borrower will also furnish or will cause to be
furnished to Agent and its counsel a copy of each written consent without a
meeting adopted by the Board of Directors of the Borrower or any of the Other
Boards not later than ten (10) days after it has been signed by the last signatory
thereto.
  (b) Meetings. The Board
of Directors of the Borrower shall hold a regularly scheduled
meeting at least monthly during the period of twelve months following the
Effective Date and at least quarterly thereafter. The Borrower shall cause an
amendment to its organizational documents to effect this schedule if
necessary.
  (c)Independent Director.
The Borrower shall appoint at least one independent director
acceptable to the Agent to its Board of Directors.
  38
   Section
6.18 Management.
  (a)  The
Borrower shall maintain the employment agreements with each of the Managers.
Such employment agreement shall include non-compete agreements with a term at
least three (3) months in excess of the Maturity Date. The Loan Parties shall
cause each Manager to be focused primarily on his or her duties as a Manager of
the relevant Loan Party.
  (b)  The
Borrower shall withhold twenty percent (20%) of all amounts due as salary or other
compensation to the Managers related to their employment during the continuance
of any Event of Default set forth in Section 10.01(a)
until such time as such Event of Default is no longer continuing.
  Section
6.19 Budget.
Comply with its budgeting process set forth in Section 6.01(f) and
the annual budgets as approved by the Agent.
  Section
6.20 Material
Contracts. Maintain, and will cause each other Loan Party to maintain, in
full force and effect all Material Contracts and other agreements material to
the conduct of the Borrower's and each Loan Party's business, and the Borrower
will, and will cause each Loan Party to, timely perform all of its obligations
thereunder. The Borrower will, and will cause each Loan Party to, properly and
timely pay all rents and other payments due and payable under any Material
Contract and other such agreements, or under the Permitted Liens, or otherwise
attendant to its ownership or operation of its business.
  Section
6.21Right of First
Refusal. If at any time during the term of this Agreement, Borrower
desires to issue additional debt or Capital Stock, Borrower shall present to
Agent 30 days prior to the proposed debt or Capital Stock offering, including
any other information which Agent may reasonably request so as to enable Agent
to evaluate and determine whether Agent and Lenders shall offer to purchase such
debt or stock. Any such offer to finance a proposed project by Agent or Lenders
shall be accepted by the Borrower so long as the terms of such offer (a) are
reasonable compared generally to the terms of other debt or Capital Stock
offerings for similar companies and (b) are not less favorable to the Borrower
than financing proposals it has received from other third-parties relating to
the proposed debt or Capital Stock.
  Section
6.22 Amegy Factoring
Agreements. The Borrower shall have provided documentation satisfactory
to the Administrative Agent evidencing the termination of the Amegy Factoring
Agreements, the payment in full of all amounts owing thereunder and the release
of all security interests granted in connection therewith no later than ninety
(90) days after the Effective Date.
  Section
6.23 Properties. After the
Effective Date, the Borrower shall use its best efforts to prevent
any property from becoming a fixture with respect to real property or to become
an accession with respect to other personal property with respect to which real
or personal property the Agent does not have a valid and perfected first
priority Lien (for the benefit of the Lenders) (subject to Permitted
Liens).
  ARTICLE
VII
 NEGATIVE
COVENANTS
  So long
as any principal of or interest on any Loan or any other Obligation (whether or
not due) shall remain unpaid, the Loan Parties shall not, unless the Required
Lenders shall otherwise consent in writing:
  39
   Section
7.01 Liens,
Etc. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries
to create, incur, assume or suffer to exist, any Lien upon or with respect to
any of its properties, including but not limited to Equipment, whether now owned
or hereafter acquired; file or suffer to exist under the Uniform Commercial Code
or any similar law or statute of any jurisdiction, a financing statement (or the
equivalent thereof) that names it or any of its Subsidiaries as debtor; sign or
suffer to exist any security agreement authorizing any secured party thereunder
to file such financing statement (or the equivalent thereof); sell any of its
property or assets subject to an understanding or agreement, contingent or
otherwise, to repurchase such property or assets (including sales of accounts
receivable) with recourse to it or any of its Subsidiaries or assign or
otherwise transfer, or permit any of its Subsidiaries to assign or otherwise
transfer, any account or other right to receive income; other than, as to all of
the above, Permitted Liens.
  Section
7.02 Fundamental
Changes; Dispositions. Wind-up, liquidate or dissolve, or merge,
consolidate or amalgamate with any Person, or Dispose of, whether in one
transaction or a series of related transactions, all or substantially all of its
business, property or assets, whether now owned or hereafter acquired (or agree
to do any of the foregoing), or purchase or otherwise acquire, whether in one
transaction or a series of related transactions, all or substantially all of the
assets of any Person (or any division thereof) (or agree to do any of the
foregoing), or permit any of its Subsidiaries to do any of the foregoing; provided, however,
that:
  (a)  any
wholly-owned Subsidiary of the Borrower may be merged into any Loan Party, or
may consolidate with another Loan Party, so long as in each case (i) no other
provision of this Agreement would be violated thereby, (ii) the Borrower gives
the Agent at least 30 days' prior written notice of such merger, consolidation
or dissolution and transfer, (iii) no Default or Event of Default shall have
occurred and be continuing either before or after giving effect to such
transaction, (iv) the Lenders' rights in any Collateral, including, without
limitation, the existence, perfection and priority of any Lien thereon, are not
adversely affected by such merger, consolidation or dissolution and transfer and
(v) the surviving Subsidiary, if any, if not already a party to a Guaranty and
Collateral Agreement becomes a party to a Guaranty and Collateral Agreement and
the Capital Stock of such Subsidiary if not already subject to a Guaranty and
Collateral Agreement become the subject of a Guaranty and Collateral Agreement,
in each case, which is in full force and effect on the date of and immediately
after giving effect to such merger or consolidation; and
  (b)  the Loan
Parties may (i) sell Inventory in the ordinary course of business, (ii)
Dispose of obsolete or worn-out equipment in the ordinary course of business in
an aggregate amount not to exceed $75,000 in any twelve-month period, and (iii)
conduct an Approved Sale of Assets.
  Section
7.03 Change in Nature
of Business. Make, or permit any of its Subsidiaries to make, any change
in the nature of its business as described in Section
5.12.
  Section
7.04 Loans, Advances,
Investments, Etc. Make or commit or agree to make any loan, advance
guarantee of obligations, other extension of credit or capital contributions to,
or hold or invest in or commit or agree to hold or invest in, or purchase or
otherwise acquire or commit or agree to purchase or otherwise acquire any shares
of the Capital Stock, bonds, notes, debentures or other securities of, or make
or commit or agree to make any other investment in, any other Person, purchase
or own any futures contract or otherwise become liable for the purchase or sale
of currency or other commodities at a future date in the nature of a futures
contract, or provide goods and services to any Person except for such goods and
services provided in the ordinary course of business and in accordance with
Section 7.13,
or permit any of its Subsidiaries to do any of the foregoing, except for: (a)
investments existing on the date hereof, as set forth on Schedule 7.04 hereto,
but not any increase in the amount thereof as set forth in such Schedule or any
other modification of the terms thereof, (b) Permitted Investments, (c) advances
to
  40
   employees
of up to $5,000 in the aggregate per employee, (d) investments made by the
Borrower in or to the Guarantors, (e) investments made by any Subsidiary in or
to the Borrower or any Guarantor, and (f) investments made by the Borrower or
any Subsidiary in or to any foreign Subsidiary in an aggregate amount at any one
time outstanding not to exceed $50,000.
  Section
7.05 Lease
Obligations. Create, incur or suffer to exist, or permit any of its Subsidiaries
to create, incur or suffer to exist, any obligations as lessee (i) for the
payment of rent for any real or personal property in connection with any sale
and leaseback transaction, or (ii) for the payment of rent for any real or
personal property under leases or agreements to lease other than Operating Lease
Obligations which would not cause the aggregate amount of all Operating Lease
Obligations owing by all Loan Parties and their Subsidiaries inany Fiscal Year to exceed $275,000.
  Section 7.06Restricted
Payments. (a) Declare or make, or agree to pay, or make, directly or
indirectly, any dividend or other distribution, direct or indirect, on account
of any Capital Stock of any Loan Party, (b) make any repurchase, redemption,
retirement, defeasance, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any Capital Stock of the Borrower,
now or hereafter outstanding, except for the redemption of preferred stock owned
by John C. Siedhoff, the former Chief Financial Officer of the Borrower, not to
exceed $20,000 per month and a total redemption amount of $600,000, so long as
no Event of Default has occurred and no Cash Flow Trigger is in effect, (c) make
any payment to retire, or to obtain the surrender of, any outstanding warrants,
options or other rights for the purchase or acquisition of shares of any class
of Capital Stock of the Borrower, now or hereafter outstanding without prior
approval of the Agent in its sole discretion, (d) return any Capital Stock to
any shareholders or other equity holders of any Loan Party, or make any other
distribution of property, assets, shares of Capital Stock, warrants, rights,
options, obligations or securities thereto as such or (e) pay any management
fees or any other fees or expenses (including the reimbursement thereof by any
Loan Party) pursuant to any management, consulting or other services agreement
to any of the shareholders or other equityholders of any Loan Party or other
Affiliates (other than pursuant to the employee stock option plan of the
Borrower as of the Effective Date); except that any other Subsidiaries or
Affiliates of the Borrower may pay dividends to the Borrower. Notwithstanding
anything herein to the contrary, this Section 7.06 shall not preclude the
Borrower from establishing any employee stock option plan.
  Section
7.07 Federal
Reserve Regulations; Use of Proceeds. Permit any Loan or the proceeds of
any Loan under this Agreement to be used (i) for any purpose other than as set
forth inSchedule 5.20or (ii) for any purpose that would cause such Loan to be a margin loan
under the provisions of Regulation T, U or X of the Federal Reserve
Board.
  Section
7.08 Transactions
with Affiliates. Enter into, renew, extend or be a party to, or permit
any of its Subsidiaries to enter into, renew, extend or be a party to, any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease, transfer or exchange of property or assets of any
kind or the rendering of services of any kind) with any Affiliate, except (i)
pursuant to theTransactions, (ii)in the ordinary course of business in a manner and to an extent
consistent with past practice, for fair consideration and on terms no less
favorable to it or its Subsidiaries than would be obtainable in a comparable
arm's length transaction with a Person that is not an Affiliate thereof provided
that the aggregate annual payments under such agreements within clause (ii) does
not exceed $20,000 in any twelve month period, (iii) the Building Lease and (iv)
transactions with a Subsidiary of the Borrower.
  Section
7.09 Limitations
on Dividends and Other Payment Restrictions Affecting Subsidiaries.Create or otherwise cause, incur, assume, suffer or permit to exist or
become effective any consensual encumbrance or restriction of any kind on the
ability of any Subsidiary of the Borrower (a) to pay dividends or to make any
other distribution on any shares of Capital Stock of such Subsidiary owned
by
  41
   such
Borrower, (b) to pay or prepay or to subordinate any Indebtedness owed to any
Subsidiary of such Borrower, (c) to make loans or advances to any Loan Party or
(d) to transfer any of its property or assets to any Loan Party, or permit any
of their Subsidiaries to do any of the foregoing; provided, however,
that nothing in any of clauses (a) through (d) of this Section 7.09 shall
prohibit or restrict compliance with:
  (i)  this
Agreement and the other Loan Documents;
  (ii)  any
applicable law, rule or regulation (including, without limitation, applicable
currency control laws and applicable state corporate statutes restricting the
payment of dividends in certain circumstances);
  (iii)  in the
case of clause (d) any agreement setting forth customary restrictions on the
subletting, assignment or transfer of any property or asset that is a lease,
license, conveyance or contract of similar property or assets; or
  (iv)  in the
case of clause (d) any agreement, instrument or other document evidencing a
Permitted Lien from restricting on customary terms the transfer of any property
or assets subject thereto.
  Section
7.10 Capital
Stock. Issue any debt.
  Section7.11 Modifications of
Indebtedness, Organizational Documents and Certain Other Agreements; Etc. (a)
Amend, modify or otherwise change (or permit the amendment, modification or
other change in any manner of) any of the provisions of any of its or its
Subsidiaries' other Permitted Indebtedness or of any instrument or agreement
(including, without limitation, any purchase agreement, indenture, loan
agreement or security agreement) relating to any such Indebtedness such
amendment, modification or change would shorten the final maturity or average
life to maturity of, or require any payment to be made earlier than the date
originally scheduled on, such Indebtedness, would increase the interest rate
applicable to such Indebtedness, would change the subordination provision, if
any, of such Indebtedness, or would otherwise be adverse to the Lenders or the
issuer of such Indebtedness in any respect, (b) make any voluntary or optional
payment, prepayment, redemption, defeasance, sinking fund payment or other
acquisition for value of any of its or its Subsidiaries' Indebtedness
(including, without limitation, by way of depositing money or securities with
the trustee therefor before the date required for the purpose of paying any
portion of such Indebtedness when due), or refund, refinance, replace or
exchange any other Indebtedness for any such Indebtedness (except to the extent
such Indebtedness is otherwise expressly permitted by the definition of "Permitted
Indebtedness"), or make any payment, prepayment, redemption, defeasance,
sinking fund payment or repurchase of any outstanding Indebtedness as a result
of any asset sale, change of control, issuance and sale ofdebt or equity
securities or similar event, or give any notice with respect to any of the
foregoing, (c) except as permitted by Section 7.02, amend,
modify or otherwise change its name, jurisdiction of organization,
organizational identification number or FEIN except upon 60 days' prior written
notice to the Agent, (d) except on the Effective Date pursuant to the
Transactions, amend, modify or otherwise change its certificate of incorporation
or bylaws (or other similar organizational documents), including, without
limitation, by the filing or modification of any certificate of designation, or
any agreement or arrangement entered into by it, with respect to any of its
Capital Stock (including any shareholders' agreement), or enter into any new
agreement with respect to any of its Capital Stock, except any such amendments,
modifications or changes or any such new agreements or arrangements pursuant to
this clause (d)
that either individually or in the aggregate, could not have a Material Adverse
Effect, (e) file any tax report or return of any Loan Party in any name other
than its complete and correct legal name or (f) enter into any agreement which
results in a Contingent Obligation or a Material Adverse Effect to any Loan
Party.
  42
   Section7.12 Investment
Company Act of 1940. Engage in any business, enter into any transaction,
use any securities or take any other action or permit any of its Subsidiaries to
do any of the foregoing, that would cause it or any of its Subsidiaries to
become subject to the registration requirements of the Investment Company Act of
1940, as amended, by virtue of being an "investment company" or a company
"controlled" by an "investment company" not entitled to an exemption within the
meaning of such Act.
  Section 7.13Compromise
of Accounts Receivable. Compromise or adjust any Account Receivable (or
extend the time of payment thereof) or grant any discounts, allowances or
credits or permit any of its Subsidiaries to do so other than, provided no
Default or Event of Default has occurred and is continuing, in the ordinary
course of its business other than in connection with the Amegy Factoring
Agreements (but only for so long as such agreements remain Permitted
Indebtedness hereunder) and only to the extent necessary to terminate such
agreement as required pursuant to Section
6.22; provided,however,
in no event shall any such discount, allowance or credit exceed $35,000 in the
aggregate and no such extension of the time for payment extend beyond 90 days
from the original due date thereof.
  Section
7.14 ERISA.
(i) Engage, or permit any ERISA Affiliate to engage, in any transaction
described in Section 4069 of ERISA; (ii) engage, or permit any ERISA Affiliate
to engage, in any prohibited transaction described in Section 406 of ERISA or
4975 of the Internal Revenue Code for which a statutory or class exemption is
not available or a private exemption has not previously been obtained from the
U.S. Department of Labor; (iii) adopt, or permit any ERISA Affiliate to adopt,
any employee welfare benefit plan within the meaning of Section 3(1) of ERISA
which provides benefits to employees after termination of employment other than
as required by Section 601 of ERISA or applicable law; (iv) fail to make any
contribution orpayment to any Multiemployer Plan which it or any ERISA Affiliate may be
required to make under any agreement relating to such Multiemployer Plan, or any
law pertaining thereto; or (v) fail, or permit any ERISA Affiliate to fail, to
pay any required installment or any other payment required under Section 412 of
the Internal Revenue Code on or before the due date for such installment or
other payment.
  Section
7.15 Environmental.
Permit the use, handling, generation, storage, treatment or Release
of Hazardous Materials at any property owned or leased by any Loan Party, except
in compliance with Environmental Laws and so long as such use, handling,
generation, storage, treatment, or Release of Hazardous Materials could not
reasonably be expected to result in a Material Adverse Effect.
  Section 7.16Certain Agreements; Permits;
Authorizations.Subject toSection 7.11,agree to any
material amendment or other material change to or material waiver of any of
its  rights under any Material Contract, permit or
authorization.
  Section
7.17 Corporate
Status. Lose theBorrower's
status as a corporation.
  Section 7.18General
and Administrative Costs. Without the prior consent of the Lenders the
Borrower and its Subsidiaries shall not incur General and Administrative Costs
on a monthly basis in excess of
$360,000 in the aggregate, provided that each line item remains subject to
approval of the Agent.
  Section7.19 Indebtedness.
Except for Permitted Indebtedness, permit any Loan Party to, incur, create,
assume or suffer to exist any Indebtedness.
  43
   ARTICLE
VIII
 FINANCIAL
COVENANTS.
  Section
8.01 Debt/EBITDA. The
Borrower will not, at any time on or after December 31, 2007,
permit the ratio of outstanding Total Debt to Consolidated EBITDA, as of the
last day of each fiscal quarter, to be greater than the ratio set forth below
for the applicable period:
  Each
      fiscal quarter ending:
              Ratio12/31/07
      until 6/30/08
              3.5:1.0009/30/08
      to 6/30/09
              3.00:1.0009/30/09
      and thereafter
              2.50:1.00
 
  Provided,
that for the purposes of determining the ratio described above for the fiscal
quarters ending 12/31/07, 3/31/08 and 6/30/08, Consolidated EBITDA will be
annualized by multiplying Consolidated EBITDA for the applicable period by
4.
  Section
8.02 Interest
Coverage. The Borrower will not, at any time on or after December 31,
2007, permit the ratio of Consolidated EBITDA to Consolidated Net Interest
Expense on the Total Debt, as of the last day of each fiscal quarter for any
trailing four quarter period, to be less than the ratio set forth below for the
applicable period:
  Each
      fiscal quarter ending:
              Ratio12/31/07
      until 6/30/08
              2.00:1.0009/30/08
      to 6/30/09
              2.25:1.0009/30/09
      and thereafter
              2.50:1.00
 
  Provided,
that for the purposes of determining the ratio described above for the fiscal
quarters ending 12/31/07, 3/31/08 and 6/30/08, Consolidated EBITDA and
Consolidated Net Interest Expense for the relevant period shall be deemed to
equal Consolidated EBITDA or Consolidated Net Interest Expense for such fiscal
quarter (and, in the case of the latter two such determinations, each previous
fiscal quarter commencing after the Closing Date).
  Section
8.03 Free Cash Flow
Coverage. The Borrower will not, at any time on or after December 31,
2007, permit the ratio of Free Cash Flow to Debt Service, as of the last day of
each fiscal quarter for any trailing four quarter period, to be less than the
ratio set forth below for the applicable period:
  Each
      fiscal quarter ending:
              Ratio12/31/07
      until 6/30/08
              1.00:1.00
  44
  09/30/08
      to 6/30/09
                1.20:1:0009/30/09
      and thereafter
                1.50:1.00
  Provided,
that for the purposes of determining the ratio described above for the fiscal
quarters ending 12/31/07, 3/31/08 and 6/30/08, Free Cash Flow and Debt Service
for the relevant period shall be deemed to equal Free Cash Flow or Debt Service
for such fiscal quarter (and, in the case of the latter two such determinations,
each previous fiscal quarter commencing after the Closing Date).
  Section 8.04EBITDA.
The Borrower will not, at any time on or after December 31, 2007, permit its
EBITDA to be less than the amounts set forth below for the applicable
period:
  Each
      year ending:
              Amount:12/31/07
              $2,000,00012/31/08
              $2,700,00012/31/09
              $3,300,00012/31/10
              $3,500,000
 
  ARTICLE
IX
 OPERATING
ACCOUNT
  Section 9.01Operating
Account.
  (a)  The
Borrower shall establish by the Effective Date and maintain at the Borrower's
expense an account (the "Operating
Account") with a bank ("Operating
Account Bank")reasonably acceptable to the Lenders pursuant to which all
cash receipts to be received by the Borrower shall be deposited, and the
Borrower shall direct (and hereby agrees to direct) each payor of any cash
receipts now and in the future to make payment to such Operating Account. The
Operating Account Bank, the Borrower and the Agent shall enter into an account
control agreement, pursuant to which the Agent shall have control of the
Operating Account following and during the continuance of any Cash Sweep Trigger
or Event of Default. Following the occurrence of any Cash Sweep Trigger or Event
of Default, the Agent shall send notice to the Borrower that the Agent is
sending or has sent a notice to the Operating Account Bank that the Agent is
exercising its right to take control of the Operating Account. With respect to
the Operating Account, the Agent shall receive copies of the Borrower's bank
account statements, statement of expenses for the preceding month and such other
supporting information as shall from time to timebe
requested by the Agent.
  (b)  Upon the
Credit Agreement Termination Date, the Agent shall notify the Operating
Account Bank to terminate the account control agreement.
  45
   ARTICLE
X
 EVENTS
OF DEFAULT
  Section
10.01 Events
of Default. One or more of the following events shall occur (each, an
"Event
of Default"):
  (a)  the
Borrower shall fail to pay any principal of or interest on any Loan or any fee,
indemnity or other amount payable under this Agreement or any other Loan
Document when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise);
  (b)  any
representation or warranty made in writing by or on behalf of any Loan Party or
by any officer of the foregoing under or in connection with any Loan Document or
under or in connection with any report, certificate, or other document delivered
to the Agent or any Lender pursuant to any Loan Document shall have been
incorrect in any material respect when made, and such misrepresentation, if
capable of being remedied, shall remain unremedied for a period of fifteen (15)
Business Days after the event or occurrence causing such
misrepresentation;
  (c)  any Loan
Party shall fail to perform or comply with any covenant or agreement
contained in Section
6.01(h), Section 6.04, Section 6.08, Section 6.12, Section 6.18 or ARTICLE
VIII, or any Loan Party shall fail to perform or comply with any covenant
or agreement contained in any Guaranty and Collateral Agreement to which it is a
party and such failure is not remedied by the date set forth therein, if
any;
  (d)  any Loan
Party shall fail to perform or comply with any other term, covenant or
agreement contained in any Loan Document to be performed or observed by it and,
except as set forth in subsections (a), (b) and (c) of this Section
10.01, and such failure, if capable of being remedied, shall remain
unremedied for a period of fifteen (15) Business Days after the event or
occurrence causing such failure;
  (e) any
Loan Party shall fail to pay any principal of or interest or premium on any of
its Indebtedness (excluding Indebtedness evidenced by this Agreement), to the
extent that the aggregate principal amount of all such Indebtedness exceeds
$20,000, when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Indebtedness, or any other default under any agreement or
instrument relating to any such Indebtedness, or any other event, shall occur
and shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such default or event is to
accelerate, or to permit the acceleration of, the maturity of such Indebtedness;
or any such Indebtedness shall be declared to be due and payable, or required to
be prepaid (other than by a regularly scheduled required prepayment), redeemed,
purchased or defeased or an offer to prepay, redeem, purchase or defease such
Indebtedness shall be required to be made, in each case, prior to the stated
maturity thereof;
  (f) any
Loan Party (i) shall institute any proceeding or voluntary case seeking to adjudicate
it as bankrupt or insolvent, or seeking dissolution, liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of it
or its debts under any law relating to bankruptcy, insolvency, reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar official for any
such Person or for any substantial part of its property, (ii) shall be generally
not paying its debts as such debts become due or shall admit in writing its
inability to pay its debts generally, (iii) shall make a general assignment for
the
  46
  benefit
of creditors, or (iv) shall take any action to authorize or effect any of the
actions set forth above in this subsection
(f);
  (g)  any
proceeding shall be instituted against any Loan Party seeking to adjudicate
it as bankrupt or insolvent, or seeking dissolution, liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for any such Person or for any
substantial part of its property, and either such proceeding shall remain
undismissed or unstayed for a period of 30 days or any of the actions sought in
such proceeding (including, without limitation, the entry of an order for relief
against any such Person or the appointment of a receiver, trustee, custodian or
other similar official for it or for any substantial part of itsproperty) shall
occur;
  (h)  any Loan
Document shall at any time for any reason (other than pursuant to the
express terms thereof) cease to be valid and binding on or enforceable against
any Loan Party intended to be a party thereto, or the validity or enforceability
thereof shall be contested by any party thereto, or a proceeding shall be
commenced by any Loan Party or any Governmental Authority having jurisdiction
over any of them, seeking to establish the invalidity or unenforceability
thereof, or any Loan Party shall deny in writing that it has any liability or
obligation purported to be created under any Loan Document;
  (i)  any
Guaranty and Collateral Agreement or any other security document, after delivery
thereof pursuant hereto, shall for any reason fail or cease to create a valid
and perfected and, except to the extent permitted by the terms hereof or
thereof, first priority Lien in favor of the Agent for the benefit of the
Lenders on any Collateral purported to be covered thereby, or the validity or
enforceability thereof shall be contested by any party thereto;
  (j)  any bank
at which any deposit account, blocked account, or operating account
of any Loan Party is maintained shall fail to comply with any of the material
terms of any deposit account, blocked account, operating account or similar
agreement to which such bank is a party or any securities intermediary,
commodity intermediary or other financial institution at any time in custody,
control or possession of any investment property of any Loan Party shall fail to
comply with any of the terms of any investment property control agreement to
which such Person is a party;
  (k) one
or more judgments, orders or awards (or any settlement of any claim that, if
breached, could result in a judgment, order or award) for the payment of money
exceeding $50,000 in the aggregate shall be rendered against any Loan Party and
remain unsatisfied and either (i) enforcement proceedings shall have been
commenced by any creditor upon any such judgment, order, award or settlement, or
(ii) there shall be a period of 10 consecutive days after entry thereof during
which a stay of enforcement of any such judgment, order, award or settlement by
reason of a pending appeal or otherwise, shall not be in effect; provided, however,
that any such judgment, order, award or settlement shall not give rise to an
Event of Default under this subsection (k) if and
for so long as (A) the amount of such judgment, order, award or settlement is
covered by a valid and binding policy of insurance between the defendant and the
insurer covering full payment thereof and (B) such insurer has been notified,
and has not disputed the claim made for payment, of the amount of such judgment,
order, award or settlement;
  (1) any
Loan Party is enjoined, restrained or in any way prevented by the order of any
court or any Governmental Authority from conducting all or any material part of
its business for more than thirty (30) days;
  (m) any
material damage to, or loss, theft or destruction of, any Collateral, whether or notinsured, or any strike, lockout, labor dispute, embargo, condemnation,
act of God or public
  47
  enemy, or
other casualty which causes, for more than fifteen (15) consecutive days, the
cessation or substantial curtailment of revenue producing activities at any
facility of any Loan Party, if any such event or circumstance could reasonably
be expected to have a Material Adverse Effect;
  (n)  any
cessation of a substantial part of the business of any Loan Party for a period
which materially and adversely affects the ability of the Loan Parties, taken as
a whole, to continue its business on a profitable basis;
  (o)  the loss,
termination or default by any Loan Party under any Material Contract
to which a Loan Party is subject if such loss, termination or default could
reasonably be expected to have a Material Adverse Effect;
  (p)  the loss,
suspension or revocation of, or failure to renew, any consent, authorization,
license or permit now held or hereafter acquired by any Loan Party, if such
loss, suspension, revocation or failure to renew could reasonably be expected to
have a Material Adverse Effect;
  (q)  the
indictment of any Loan Party under any criminal statute, or commencement
or threatened commencement of criminal or civil proceedings against any Loan
Party, pursuant to which statute or proceedings the penalties or remedies sought
or available include forfeiture to any Governmental Authority of any material
portion of the property of the Loan Parties taken as a whole;
  (r)  any Loan
Party or any of its ERISA Affiliates shall have made a complete or partial
withdrawal from a Multiemployer Plan, and, as a result of such complete or
partial withdrawal, any Loan Party or any of its ERISA Affiliates incurs a
withdrawal liability in an annual amount exceeding $50,000 or a Multiemployer
Plan enters reorganization status under Section 4241 of ERISA, and, as a result
thereof, any Loan Party's or any of its ERISA Affiliates' annual contribution
requirements with respect to such Multiemployer Plan increases in an annual
amount exceeding $50,000;
  (s)  any
Termination Event with respect to any Employee Plan shall have occurred,
and, thirty (30) days after notice thereof shall have been given to any Loan
Party by the Agent, (i) such Termination Event (if correctable) shall not have
been corrected, and (ii) the then current value of such Employee Plan's vested
benefits exceeds the then current value of assets allocable to such benefits in
such Employee Plan by more than $50,000 (or, in the case of a Termination Event
involving liability under Section 409, 502(i), 502(1), 515, 4062, 4063, 4064,
4069, 4201, 4204 or 4212 of ERISA or Section 4971 or 4975 of the Internal
Revenue Code, the liability is in excess of such amount);
  (t)  any Loan
Party shall be liable for any Environmental Liabilities and Costs the
payment of which could reasonably be expected to have a Material Adverse
Effect;
  (u)  a Change
of Control shall have occurred; or
  (v)  any of
the Managers shall cease to hold the position that such person currently
holds with the Borrower or their duties with respect thereto have been reduced
or diminished.
  (w)  an event
or development occurs which could reasonably be expected to have a
Material Adverse Effect.
  Section
10.02 Remedies.
  48
    (a)  In the
case of an Event of Default, the Agent may, and shall at the request of the
Required Lenders, by notice to the Borrower, (i) declare all or any portion of
the Loans then outstanding to be due and payable, whereupon all or such portion
of the aggregate principal of all Loans, all accrued and unpaid interest
thereon, all fees and all other amounts payable under this Agreement and the
other Loan Documents shall become due and payable immediately, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by each Loan Party and (ii) exercise any and all of its
other rights and remedies under applicable law, hereunder and under the other
Loan Documents; provided,
however, that upon the occurrence of any Event of Default described in
subsection (f) or (g) of Section
10.01, without any notice to any Loan Party or any other Person or any
act by the Agent or any Lender, all Loans then outstanding, together with all
accrued and unpaid interest thereon, all fees and all other amounts due under
this Agreement and the other Loan Documents shall become due and payable
automatically and immediately, without presentment, demand, protest or notice of
any kind, all of which are expressly waived by each Loan Party.
  (b)  In the
case of any Event of Default, and at any time thereafter during the continuance
of such Event of Default, the Borrower shall pay the Agent for the account of
the Lenders a managerial assistance fee of $10,000 per month for every month
that such Event of Default continues (such fee shall be applied pro rata for
each day that such Event of Default continues that does not constitute a full
month), each payment (or pro rata portion thereof) shall be payable on the last
day of each month.
  ARTICLE
XI
 AGENT
  Section 11.01Appointment.
Each Lender (and each subsequent maker of any Loan by its making
thereof) hereby irrevocably appoints and authorizes the Agent to perform the
duties of the Agent as set
forth in this Agreement including: (a) to receive on behalf of each Lender any
payment of principal of or
interest on the Loans outstanding hereunder and all other amounts accrued
hereunder for the account of the
Lenders and paid to the Agent, and to distribute promptly to each Lender its Pro
Rata Share of all payments
so received; (b) to distribute to each Lender copies of all material notices and
agreements received
by the Agent and not required to be delivered to each Lender pursuant to the
terms of this Agreement,
provided that the Agent shall not have any liability to the Lenders for the
Agent's inadvertent failure
to distribute any such notices or agreements to the Lenders; (c) to maintain, in
accordance with its customary
business practices, ledgers and records reflecting the status of the
Obligations, the Loans, and related
matters and to maintain, in accordance with its customary business practices,
ledgers and records reflecting
the status of the Collateral and related matters; (d) to execute or file any and
all financing or similar
statements or notices, amendments, renewals, supplements, documents,
instruments, proofs of claim,
notices and other written agreements with respect to this Agreement or any other
Loan Document; (e) to
make the Loans and Agent Advances, for the Agent or on behalf of the applicable
Lenders as provided
in this Agreement or any other Loan Document; (f) to perform, exercise, and
enforce any and all other
rights and remedies of the Lenders with respect to the Loan Parties, the
Obligations, or otherwise related
to any of same to the extent reasonably incidental to the exercise by the Agent
of the rights and remedies
specifically authorized to be exercised by the Agent by the terms of this
Agreement or any other Loan
Document; (g) to incur and pay such fees necessary or appropriate for the
performance and fulfillment
of its functions and powers pursuant to this Agreement or any other Loan
Document; and (h)
subject to Section
11.03 of this Agreement, to take such action as the Agent deems
appropriate on its behalf to
administer the Loans and the Loan Documents and to exercise such other powers
delegated to the Agent
by the terms hereof or the other Loan Documents (including, without limitation,
the authority to enter
into the Subordination Agreement on behalf of the Lenders, the power to give or
to refuse to give notices,
waivers, consents, approvals and instructions and the power to make or to refuse
to make determinations
and calculations) together with such powers as are reasonably incidental thereto
to carry
  49
   out the
purposes hereof and thereof. As to any matters not expressly provided for by
this Agreement and the other Loan Documents (including, without limitation,
enforcement or collection of the Loans), the 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 of the Required Lenders shall be binding upon all Lenders and all
makers of Loans.
  Section11.02 Nature
of Duties. The Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement or in the other Loan Documents. The
duties of the Agent shall be mechanical and administrative in nature. The Agent
shall not have by reason of this Agreement or any other Loan Document a
fiduciary relationship in respect of any Lender. Nothing in this Agreement or
any other Loan Document, express or implied, is intended to or shall be
construed to impose upon the Agent any obligations in respect of this Agreement
or any other Loan Document except as expressly set forth herein or therein. Each
Lender shall make its own independent investigation of the financial condition
and affairs of the Loan Parties in connection with the making and the
continuance of the Loans hereunder and shall make its own appraisal of the
creditworthiness of the Loan Parties and the value of the Collateral, and the
Agent shall have no duty or responsibility, either initially or on a continuing
basis, to provide any Lender with any credit or other information with respect
thereto, whether coming into its possession before the initial Loan hereunder or
at any time or times thereafter, provided that, upon the reasonable request of a
Lender, the Agent shall provide to such Lender any documents or reports
delivered to the Agent by the Loan Parties pursuant to the terms of this
Agreement or any other Loan Document. If the Agent seeks the consent or approval
of the Required Lenders to the taking or refraining from taking any action
hereunder, the Agent shall send notice thereof to each Lender. The Agent shall
promptly notify each Lender any time that the Required Lenders have instructed
the Agent to act or refrain from acting pursuant hereto.
  Section
11.03 Rights,
Exculpation, Etc. The Agent and its directors, officers, agents or employees
shall not be liable for any action taken or omitted to be taken by them under or
in connection with this
Agreement or the other Loan Documents, except for their own gross negligence or
willful misconduct
as determined by a final judgment of a court of competent jurisdiction. Without
limiting the generality
of the foregoing, the Agent (a) may treat the payee of any Loan as the owner
thereof until the Agent
receives written notice of the assignment or transfer thereof, pursuant to Section
12.07 hereof, signed by
such payee and in form satisfactory to the Agent; (b) may consult with legal
counsel (including, without
limitation, counsel to the Agent or counsel to the Loan Parties), independent
public accountants, and other
experts selected by any of them and shall not be liable for any action taken or
omitted to be taken in
good faith by any of them in accordance with the advice of such counsel or
experts; (c) make no warranty
or representation to any Lender and shall not be responsible to any Lender for
any statements, certificates,
warranties or representations made in or in connection with this Agreement or
the other Loan Documents;
(d) shall not have any duty to ascertain or to inquire as to the performance or
observance of any of
the terms, covenants or conditions of this Agreement or the other Loan Documents
on the part of any
Person, the existence or possible existence of any Default or Event of Default,
or to inspect the Collateral
or other property (including, without limitation, the books and records) of any
Person; (e) shall not be
responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency
or value of this Agreement or the other Loan Documents or any other instrument ordocument furnished
pursuant hereto or thereto; and (0 shall not be deemed to have made any
representation or warranty
regarding the existence, value or collectibility of the Collateral, the
existence, priority or perfection
of the Agent's Lien thereon, or any certificate prepared by any Loan Party in
connection therewith,
nor shall the Agent be responsible or liable to the Lenders for any failure to
monitor or maintain
any portion of the Collateral. The Agent shall not be liable for any
apportionment or distribution of
payments made in good faith pursuant to Section
3.03, and if any such apportionment or distribution is subsequently
determined to have been made in error the sole recourse of any Lender to whom
payment
  50
   was due
but not made, shall be to recover from other Lenders any payment in excess of
the amount which they are determined to be entitled. The Agent may at any time
request instructions from the Lenders with respect to any actions or approvals
which by the terms of this Agreement or of any of the other Loan Documents the
Agent is permitted or required to take or to grant, and if such instructions are
promptly requested, the Agent shall be absolutely entitled to refrain from
taking any action or to withhold any approval under any of the Loan Documents
until it shall have received such instructions from the Required Lenders.
Without limiting the foregoing, no Lender shall have any right of action
whatsoever against the Agent as a result of the Agent acting or refraining from
acting under this Agreement or any of the other Loan Documents in accordance
with the instructions of the Required Lenders.
  Section
11.04 Reliance.
The Agent shall be entitled to rely upon any written notices, statements,
certificates, orders or other documents or any telephone message believed by it
in good faith to be genuine and correct and to have been signed, sent or made by
the proper Person, and with respect to all matters pertaining to this Agreement
or any of the other Loan Documents and its duties hereunder or thereunder, upon
advice of counsel selected by it.
  Section
11.05 Indemnification.
To the extent that the Agent is not reimbursed and indemnified by any Loan
Party, the Lenders will reimburse and indemnify the Agent from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, advances or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against the
Agent in any way relating to or arising out of this Agreement or any of the
other Loan Documents or any action taken or omitted by the Agent under this
Agreement or any of the other Loan Documents, in proportion to each Lender's Pro
Rata Share, including, without limitation, advances and disbursements made
pursuant to Section
11.08; provided, however, that no Lender shall be liable for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, advances or disbursements for which there has
been a final judicial determination that such liability resulted from the
Agent's gross negligence or willful misconduct. The obligations of the Lenders
under this Section
11.05 shall survive the payment in full of the Loans and the termination
of this Agreement.
  Section
11.06 Agent
Individually. With respect to its Pro Rata Share of the Total Commitment
hereunder and the Loans made by it, the Agent shall have and may exercise the
same rights and powers hereunder and is subject to the same obligations and
liabilities as and to the extent set forth herein for any other Lender or maker
of a Loan. The terms "Lenders" or "Required Lenders" or any similar terms shall,
unless the context clearly otherwise indicates, include the Agent in its
individual capacity as a Lender or one of the Required Lenders. The Agent and
its Affiliates may accept deposits from, lend money to, and generally engage in
any kind of banking, trust or other business with the Borrower as if it were not
acting as the Agent pursuant hereto without any duty to account to the other
Lenders.
  Section 11.07Successor
Agent
  (a)  The Agent
may resign from the performance of all its functions and duties hereunder
and under the other Loan Documents at any time by giving at least thirty (30)
Business Days' prior written notice to each Borrower and each Lender. Such
resignation shall take effect upon the acceptance by a successor Agent of
appointment pursuant to clauses (b) and (c) below or as otherwise provided
below.
  (b)  Upon any
such notice of resignation, the Required Lenders shall appoint a successor
Agent. Upon the acceptance of any appointment as Agent hereunder by a successor
Agent,
  51
    such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the Agent, and the Agent shall be
discharged from its duties and obligations under this Agreement and the other
Loan Documents. After the Agent's resignation hereunder as the Agent, the
provisions of this ARTICLE
X1 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was the Agent under this Agreement and the other Loan
Documents.
  (c) If a
successor Agent shall not have been so appointed within said thirty (30) Business
Day period, the Agent shall then appoint a successor Agent who shall serve as
the Agent until such time, if any, as the Required Lenders appoint a successor
Agent as provided above.
  Section 11.08Collateral
Matters.
  (a)  The Agent
may from time to time make such disbursements and advances ("Agent
Advances") which the Agent, in its sole discretion, deems necessary or
desirable to preserve, protect, prepare for sale or lease or dispose of the
Collateral or any portion thereof, to enhance the likelihood or maximize the
amount of repayment by the Borrower of the Loans and other Obligations or to pay
any other amount chargeable to the Borrower pursuant to the terms of this
Agreement, including, without limitation, costs, fees and expenses as described
in Section
12.04. The Agent Advances shall be repayable on demand and be secured by
the Collateral. The Agent Advances shall constitute Obligations hereunder which
may be charged to the Debt Service Reserve Account in accordance with Section
3.01.The Agent shall notify each Lender and each Borrower in writing of
each such Agent Advance, which notice shall include a description of the purpose
of such Agent Advance. Without limitation to its obligations pursuant to Section
11.05, each Lender agrees that it shall make available to the Agent, upon
the Agent's demand, in Dollars in immediately available funds, the amount equal
to such Lender's Pro Rata Share of each such Agent Advance. If such funds are
not made available to the Agent by such Lender, the Agent shall be entitled to
recover such funds on demand from such Lender, together with interest thereon
for each day from the date such payment was due until the date such amount is
paid to the Agent, at the Federal Funds Rate for three Business Days and
thereafter at the Reference Rate.
  (b)  The
Lenders hereby irrevocably authorize the Agent, at its option and in its discretion,
to release any Lien granted to or held by the Agent upon any Collateral upon
payment and satisfaction of all Loans and all other Obligations which have
matured and which the Agent has been notified in writing are then due and
payable; or constituting property being sold or disposed of in compliance with
the terms of this Agreement and the other Loan Documents; or constituting
property in which the Loan Parties owned no interest at the time the Lien was
granted or at any time thereafter; or if approved, authorized or ratified in
writing by the Lenders. Upon request by the Agent at any time, the Lenders will
confirm in writing the Agent's authority to release particular types or items of
Collateral pursuant to this Section
11.08(b).
  (c)  Upon
receipt by the Agent of confirmation from the Lenders of its authority to
release any particular item or types of Collateral, and upon prior written
request by any Loan Party, the Agent shall (and is hereby irrevocably authorized
by the Lenders to) execute such documents as may be necessary to evidence the
release of the Liens granted to the Agent for the benefit of the Lenders upon
such Collateral; provided,
however, that (a) the Agent shall not be required to execute any such
document on terms which, in the Agent's opinion, would expose the Agent to
liability or create any obligations or entail any consequence other than the
release of such Liens without recourse or warranty, and (b) such release shall
not in any manner discharge, affect or impair the Obligations or any Lien upon
(or obligations of any Loan Party in respect of) all interests in the Collateral
retained by any Loan Party.
  (d)  The Agent
shall have no obligation whatsoever to any Lender to assure that the
Collateral exists or is owned by the Loan Parties or is cared for, protected or
insured or has been
  52
   encumbered
or that the Lien granted to the Agent pursuant to this Agreement or any other
Loan Document has been properly or sufficiently or lawfully created, perfected,
protected or enforced or is entitled to any particular priority, or to exercise
at all or in any particular manner or under any duty of care, disclosure or
fidelity, or to continue exercising, any of the rights, authorities and powers
granted or available to the Agent in this Section
11.08(d) or in any other Loan Document, it being understood and agreed
that in respect of the Collateral, or any act, omission or event related
thereto, the Agent may act in any manner it may deem appropriate, in its sole
discretion, given the Agent's own interest in the Collateral as one of the
Lenders and that the Agent shall have no duty or liability whatsoever to any
other Lender, except as otherwise provided herein.
  Section
11.09 Agency
for Perfection. The Agent and each Lender hereby appoints the Agent and
each other Lender as agent and bailee for the purpose of perfecting the security
interests in and liens upon the Collateral in assets which, in accordance with
Article 9 of the Uniform Commercial Code, can be perfected only by possession or
control (or where the security interest of a secured party with possession or
control has priority over the security interest of another secured party) and
the Agent and each Lender hereby acknowledges that it holds possession of or
otherwise controls any such Collateral for the benefit of the Agent and the
Lenders as secured party. Should any Lender obtain possession or control of any
such Collateral, such Lender shall notify the Agent thereof, and, promptly upon
the Agent's request therefor shall deliver such Collateral to the Agent or in
accordance with the Agent's instructions. F.ach Loan Party by its execution and
delivery of this Agreement hereby consents to the foregoing.
  ARTICLE
XII
 MISCELLANEOUS
  Section
12.01 Notices,
Etc.. All notices and other communications provided for hereunder shall
be in writing and shall be mailed, telecopied or delivered to the parties at the
following addresses:
  If toany Loan Party, to it at the following address:
  Deep
Down, Inc.
 15473
East Freeway
 Channelview,
Texas USA 77530
 Attn:
Ronald Smith
 Telephone:
(281) 862-2201
 Telecopier:
(281) 862-2522
  With a
copy to:
  CRAIG
WELSCHER
 THE
WELSCHER LAW FIRM
 1111
North Loop West, Suite 702
 Houston,
Texas 77008
 Telephone:
(713) 862-0800
 Facsimile:
(713) 862-4003
  If to the
Agent, to it at the following address:
  53
    Prospect
Capital Corporation
 10 East
40th Street, 44th Floor
 New York,
New York 10016
 Attention:
Catherine Kelly
 Telephone:
(212) 448-0702 x9481
 Telecopier:
(212) 448-9652
  With a
copy to:
  Jeffrey
S. Munoz
 Vinson
& Elkins LLP
 1001
Fannin Street, Suite 2500
 Houston,
TX 77002
 Telephone:
(713) 758-2222
 Telecopier:
(713) 615-5191
  or, as to
each party, at such other address as shall be designated by such party in a
written notice to the other parties complying as to delivery with the terms of
this Section
12.01. All such notices and other communications shall be effective, (a)
if mailed, when received or three days after deposited in the mails, whichever
occurs first, (b) if telecopied, when transmitted and confirmation received, or
(c) if delivered, upon delivery, except that the Notice of Borrowing to be
delivered to the Agent pursuant to ARTICLE II shall not
be effective until received by the Agent.
  Section12.02 Amendments, Etc. No
amendment or waiver of any provision of this Agreement, and no consent to any
departure by any Loan Party therefrom, shall in any event be effective unless
the same shall be in writing and signed by the Required Lenders or by the Agent
with the consent of the Required Lenders, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given, provided, however, that no amendment, waiver or consent shall (a)
increase the Commitment of any Lender, reduce the principal of, or interest on
the Loans payable to any Lender, reduce the amount of any fee payable for the
account of any Lender, or postpone or extend any date fixed for any payment of
principal of, or interest or fees on the Loans payable to any Lender, in each
case without the written consent of any Lender affected thereby, (b) increase
the Total Commitment without the written consent of each Lender, (c) change the
percentage of the Commitments or of the aggregate unpaid principal amount of the
Loans that is required for the Lenders or any of them to take any action
hereunder, (d) amend the definition of "Required Lenders" or "Pro Rata Share",
(e) release all or a substantial portion of the Collateral (except as otherwise
provided in this Agreement and the other Loan Documents), subordinate any Lien
granted in favor of the Agent for the benefit of the Lenders, or release the
Borrower or any Guarantor (except as otherwise provided in this Agreement and
the other Loan Documents) or (f) amend, modify or waive Section 3.03 or this
Section 12.02
of this Agreement, in each case, without the written consent of each Lender.
Notwithstanding the foregoing, no amendment, waiver or consent shall, unless in
writing and signed by the Agent, affect the rights or duties of the Agent (but
not in its capacity as a Lender) under this Agreement or the other Loan
Documents.
  Section12.03 No Waiver; Remedies,
Etc. No failure on the part of the Agent or any Lender to exercise, and
no delay in exercising, any right hereunder or under any other Loan Document
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right under any Loan Document preclude any other or further exercise thereof
or the exercise of any other right. The rights and remedies of the Agent and the
Lenders provided herein and in the other Loan Documents are cumulative and are
in addition to, and not exclusive of, any rights or remedies provided by law.
The rights of the Agent and the Lenders under any Loan Document against any
party thereto are not conditional or contingent on any
  54
   attempt
by the Agent and the Lenders to exercise any of their rights under any other
Loan Document against such party or against any other Person.
  Section
12.04 Expenses;
Taxes; Attorneys' Fees. The Borrower will pay on demand, all reasonable
costs and expenses incurred by or on behalf of the Agent and each Lender,
regardless of whether
the transactions contemplated hereby are consummated, including, without
limitation, reasonable fees,
costs, client charges and expenses of counsel for the Agent and each Lender,
accounting, due diligence,
periodic field audits, physical counts, valuations, investigations, searches and
filings, monitoring
of assets, appraisals of Collateral, title searches and reviewing environmental
assessments, miscellaneous
disbursements, examination, travel, lodging and meals, arising from or relating
to: (a) the negotiation,
preparation, execution, delivery, performance and administration of this
Agreement and the other
Loan Documents (including, without limitation, the preparation of any additional
Loan Documents pursuant
to Section
6.02 or the review of any of the agreements, instruments and documents
referred to in Section
6.05), (b) any requested amendments, waivers or consents to this
Agreement or the other Loan Documents
whether or not such documents become effective or are given, (c) the
preservation and protection
of any of the Lenders' rights under this Agreement or the other Loan Documents,
(d) the defense
of any claim or action asserted or brought against any Agent or any Lender by
any Person that arises
from or relates to this Agreement, any other Loan Document, the Agent's or the
Lenders' claims against
any Loan Party, or any and all matters in connection therewith, (e) the
commencement or defense of, or
intervention in, any court proceeding arising from or related to this Agreement
or any other Loan Document,
(f) the filing of any petition, complaint, answer, motion or other pleading by
any Agent or any Lender,
or the taking of any action in respect of the Collateral or other security,
inconnection
with this Agreement
or any other Loan Document, (g) the protection, collection, lease, sale, taking
possession of or liquidation
of, any Collateral or other security in connection with this Agreement or any
other Loan Document,
(h) any attempt to enforce any Lien or security interest in any Collateral or
other security in connection
with this Agreement or any other Loan Document, (i) any attempt to collect from
any Loan Party,
(j) all liabilities and costs arising from or in connection with the past,
present or future operations of any
Loan Party involving any damage to real or personal property or natural
resources or harm or injury
alleged to have resulted from any Release of Hazardous Materials on, upon or
into such property, (k) any
Environmental Liabilities and Costs incurred in connection with a violation of
Environmental Laws by
any Loan Party or a Release from the Properties or operations of any Loan Party,
(1)any Environmental
Liabilities and Costs incurred in connection with any Environmental Lien, except
in the case of
this subclause (1) and subclauses (j) and (k) above where such liabilities and
costs are caused (I) by the
gross negligence or willful misconduct of the Agent or any Lender, as determined
by a final judgment
of a court of competent jurisdiction or (II)solely by the
actions of the Agent or any Lender after foreclosure
or acceptance of a deed in lieu of foreclosure, or (m) the receipt by the Agent
or any Lender of any
advice from professionals with respect to any of the foregoing. Without
limitation of the foregoing or any
other provision of any Loan Document: (x) the Borrower agrees to pay all stamp,
document, transfer,
recording or filing taxes or fees and similar impositions now or hereafter
determined by the Agent or
any Lender to be payable in connection with this Agreement or any other Loan
Document, and the
Borrower agrees to save the Agent and each Lender harmless from and against any
and all present or future
claims, liabilities or losses with respect to or resulting from any omission to
pay or delay in paying any such
taxes, fees or impositions, (y) the Borrower agrees to pay all broker fees that
may become due in connection
with the transactions contemplated by this Agreement and the other Loan
Documents, and (z) if the
Borrower fails to perform any covenant or agreement contained herein or in any
other Loan Document,
the Agent may itself perform or cause performance of such covenant or agreement,
and the expenses
of the Agent incurred in connection therewith shall be reimbursed on demand by
the Borrower.
  Section
12.05 Right
of Set-off. Upon the occurrence and during the continuance of any Event
of Default, the Agent or any Lender may, and is hereby authorized to, at any
time and from time to time, without notice to any Loan Party (any such notice
being expressly waived by the Loan Parties) and to the
  55
   fullest
extent permitted by law, set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
Indebtedness at any time owing by the Agent or such Lender to or for the credit
or the account of any Loan Party against any and all obligations of the Loan
Parties either now or hereafter existing under any Loan Document, irrespective
of whether or not the Agent or such Lender shall have made any demand hereunder
or thereunder and although such obligations may be contingent or unmatured. Each
Agent and each Lender agrees to notify such Loan Party promptly after any such
set-off and application made by the Agent or such Lender provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Agent and the Lenders under this Section
12.05 are in addition to the other rights and remedies (including other
rights of set-off) which the Agent and the Lenders may have under this Agreement
or any other Loan Documents of law or otherwise.
  Section
12.06 Severability.
Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining portions
hereof or affecting the validity or enforceability of such provision in any
other jurisdiction.
  Section 12.07Assignments and
Participations.
  (a)  This
Agreement and the other Loan Documents shall be binding upon and inure to
the benefit of each Loan Party and the Agent and each Lender and their
respective successors and assigns; provided, however, that none of the Loan
Parties may assign or transfer any of its rights hereunder without the prior
written consent of the Lender and any such assignment without the Lenders' prior
written consent shall be null and void.
  (b)  Each
Lender may, with the written consent of the Agent (which consent shall not be
unreasonably withheld or delayed), assign to one or more other lenders or other
entities all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment and the Loan
made by it); provided,
however, that (i) such assignment is in an amount which, when aggregated
with all other assignments to Affiliates of such assignee or funds or accounts
managed by such assignee or an Affiliate of such assignee, is at least
$1,000,000 or a multiple of $100,000 in excess thereof (or the remainder of such
Lender's Commitment) (except such minimum amount shall not apply to an
assignment by a Lender to an Affiliate of such Lender or a fund or account
managed by such Lender or an Affiliate of such Lender), (ii) the parties to each
such assignment shall execute and deliver to the Agent, for its acceptance, an
Assignment and Acceptance, together with any promissory note subject to such
assignment and such parties shall deliver to the Agent a processing and
recordation fee of $3,500 (except the payment of such fee shall not be required
in connection with an assignment by a Lender to an Affiliate of such Lender or a
fund or account managed by such Lender or an Affiliate of such Lender) and (iii)
no written consent of the Agent shall be required in connection with any
assignment by a Lender to an Affiliate of such Lender or a fund or account
managed by such Lender or an Affiliate of such
Lender. TheBorrower and the Agent may continue to deal solely and
directly with
 an
assigning Lender in connection with the interest so assigned until such Lender
and its assignee shall have executed and delivered to the Borrower and the
Agent, and the Agent shall have accepted, an Assignment and Acceptance. Upon
such execution, delivery and acceptance, from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be at
least three Business Days after the delivery thereof to the Agent (or such
shorter period as shall be agreed to by the Agent and the parties to such
assignment), (A) the assignee thereunder shall become a "Lender" hereunder and,
in addition to the rights and obligations hereunder held by it immediately prior
to such effective date, have the rights and obligations hereunder that have been
assigned to it pursuant to such Assignment and Acceptance and (B) the assigning
Lender thereunder shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment and Acceptance, relinquish
its rights and
  56
   be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto). Notwithstanding anything contained in this Section 12.07(b) to
the contrary, a Lender may assign any or all of its rights hereunder to an
Affiliate of such Lender or a fund or account managed by such Lender or an
Affiliate of such Lender without delivering an Assignment and Acceptance to the
Agent or to the Borrower; provided, however,
that (x) the Borrower and the Agent may continue to deal solely with the
assigning Lender until such Assignment and Acceptance has been delivered to the
Agent for recording and (y) the failure of such assigning Lender to deliver the
Assignment and Acceptance to the Agent shall not affect the legality, validity
or binding effect of such assignment.
  (c)  By
executing and delivering an Assignment and Acceptance, the assigning Lender
and the assignee thereunder confirm to and agree with each other and the other
parties hereto as follows: (A) other than as provided in such Assignment and
Acceptance, the assigning Lender makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement or any other Loan Document or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of this Agreement or any other Loan Document furnished pursuant hereto; (B) the
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of any Loan Party or the
performance or observance by any Loan Party of any of its obligations under this
Agreement or any other Loan Document furnished pursuant hereto; (C) such
assignee confirms that it has received a copy of this Agreement and the other
Loan Documents, together with such other documents and information it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (D) such assignee will, independently and without
reliance upon the assigning Lender, the Agent or any 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 this
Agreement and the other Loan Documents; (E) such assignee appoints and
authorizes the Agent to take such action as agents on its behalf and to exercise
such powers under this Agreement and the other Loan Documents as are delegated
to the Agent by the terms hereof and thereof, together with such powers as are
reasonably incidental hereto and thereto; and (F) such assignee agrees that it
will perform in accordance with their terms all of the obligations which by the
terms of this Agreement and the other Loan Documents are required to be
performed by it as a Lender, including, if applicable, its obligations under
Section
2.07.
  (d)  The Agent
shall, on behalf of the Borrower, maintain, or cause to be maintained
at the principal office of the Agent, a copy of each Assignment and Acceptance
delivered to and accepted by it and a register (the "Register") for the
recordation of the names and addresses of the Lenders and the Commitments of,
and principal amount of the Loans (the "Registered Loans")
owing to each Lender from time to time. The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agent and the Lenders shall treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower and
any Lender at any reasonable time and from time to time upon reasonable prior
notice. In the case of any assignment not reflected in the Register, the
assigning Lender shall maintain a comparable register.
  (e)Upon its
receipt of an Assignment and Acceptance executed by an assigning Lender
and an assignee, together with any promissory notes subject to such assignment,
the Agent shall, if the Agent consents to such assignment (provided, however,
that no consent of the Agent is needed if the assignment is to an Affiliate of a
Lender or a fund or account managed by such Lender) and if such Assignment and
Acceptance has been completed (i) accept such Assignment and Acceptance and (ii)
record the information contained therein in the Register.
  57
   (f)  A
Registered Loan (and the registered note, if any, evidencing the same) may be
assigned or sold in whole or in part only by registration of such assignment or
sale on the Register (and each registered note shall expressly so provide). Any
assignment or sale of all or part of such Registered Loan (and the registered
note, if any, evidencing the same) may be effected only by registration of such
assignment or sale on the Register, together with the surrender of the
registered note, if any, evidencing the same duly endorsed by (or accompanied by
a written instrument of assignment or sale duly executed by) the holder of such
registered note, whereupon, at the request of the designated assignee(s) or
transferee(s), one or more new registered notes in the same aggregate principal
amount shall be issued to the designated assignee(s) or transferee(s). Prior to
the registration of assignment or sale of any Registered Loan (and the
registered note, if any, evidencing the same), the Agent shall treat the Person
in whose name such Registered Loan (and the registered note, if any, evidencing
the same) is registered as the owner thereof for the purpose of receiving all
payments thereon and for all other purposes, notwithstanding notice to the
contrary.
  (g)  In the
event that any Lender sells participations in a Registered Loan, such Lender
shall maintain a register on which it enters the name of all participants in the
Registered Loans held by it (the "Participant
Register"). A Registered Loan (and the registered note, if any,
evidencing the same) may be participated in whole or in part only by
registration of such participation on the Participant Register (and each
registered note shall expressly so provide). Any participation of such
Registered Loan (and the registered note, if any, evidencing the same) may be
effected only by the registration of such participation on the Participant
Register.
  (h)  Any
foreign Person who purchases or is assigned or participates in any portion
of such Registered Loan shall comply with the provisions of Section
2.07(d).
  (i)  Each
Lender may sell participations to one or more banks or other entities in or to all
or a portion of its rights and obligations under this Agreement and the other
Loan Documents (including, without limitation, all or a portion of its
Commitment and the Loan made by it); provided, that (i) such Lender's
obligations under this Agreement (including without limitation, its Commitment
hereunder) and the other Loan Documents shall remain unchanged; (ii) such Lender
shall remain solely responsible to the other parties hereto for the performance
of such obligations, and the Borrower, the Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and the other Loan
Documents; and (iii) a participant shall not be entitled to require such Lender
to take or omit to take any action hereunder except (A) action directly
effecting an extension of the maturity dates or decrease in the principal amount
of the Loans, (B) action directly effecting an extension of the due dates or a
decrease in the rate of interest payable on the Loans or the fees payable under
this Agreement, or (C)actions directly effecting a release of all or a substantial portion of
the Collateral or any Loan Party (except as set forth in Section
11.08 of this Agreement or any other Loan Document). The Loan Parties
agree that each participant shall be entitled to the benefits of Section
2.07 of this Agreement with respect to its participation in any portion
of the Commitments and the Loans as if it was a Lender.
  Section
12.08 Counterparts.
This Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which shall be deemed to be an
original, but all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of this Agreement by telecopier
shall be equally as effective as delivery of an original executed counterpart of
this Agreement. Any party delivering an executed counterpart of this Agreement
by telecopier also shall deliver an original executed counterpart of this
Agreement but the failure to deliver an original executed counterpart shall not
affect the validity, enforceability, and binding effect of this Agreement. The
foregoing shall apply to each other Loan Document mutatis
rnutandis.
  58
    Section
12.09 GOVERNING
LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY
PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN
DOCUMENT) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE
OF NEW YORK.
  Section 12.10CONSENT TO JURISDICTION;
SERVICE OF PROCESS AND VENUE. ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
MAY ONLY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW
YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH LOAN PARTY HEREBY
IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY,
THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. EACH LOAN PARTY HEREBY
IRREVOCABLY APPOINTS THE SECRETARY OF STATE OF THE STATE OF NEW YORK AS ITS
AGENT FOR SERVICE OF PROCESS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING AND
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER
AND ITS REPRESENTATIVES AT THEIR RESPECTIVE ADDRESSES FOR NOTICES AS SET FORTH
IN SECTION
12.01 AND TO THE SECRETARY OF STATE OF THE STATE OF NEW YORK, SUCH
SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING. NOTHING HEREIN
SHALL AFFECT THE RIGHT OF THE AGENT AND THE LENDERS TO SERVICE OF PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST ANY LOAN PARTY IN ANY OTHER JURISDICTION. EACH LOAN PARTY HEREBY
EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING OF
VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY
CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
EXTENT THAT ANY LOAN PARTY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, EACH LOAN PARTY HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
  Section
12.11 WAIVER
OF JURY TRIAL, ETC. EACH LOAN PARTY, THE AGENT AND EACH LENDER HEREBY
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, OR UNDER
ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT
DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR
ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT, AND AGREES THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH LOAN PARTY CERTIFIES THAT NO
OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE AGENT OR ANY LENDER HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE AGENT OR ANY LENDER WOULD NOT, IN
THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE
FOREGOING WAIVERS. EACH LOAN PARTY HEREBY ACKNOWLEDGES
  59
    THAT THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO
THIS AGREEMENT.
  Section
12.12 No Party Deemed
Drafter. Each of the parties hereto agrees that no party hereto shall be
deemed to be the drafter of this Agreement.
  Section
12.13 Reinstatement;
Certain Payments. If any claim is ever made upon the Agent or any Lender
for repayment or recovery of any amount or amounts received by the Agent or such
Lender in payment or on account of any of the Obligations, the Agent or such
Lender shall give prompt notice of such claim to each other Lender and the
Borrower, and if the Agent or such Lender repays all or part of such amount by
reason of (i) any judgment, decree or order of any court or administrative body
having jurisdiction over the Agent, or such Lender or any of its property, or
(ii) any good faith settlement or compromise of any such claim effected by the
Agent or such Lender with any such claimant, then and in such event each Loan
Party agrees that (A) any such judgment, decree, order, settlement or compromise
shall be binding upon it notwithstanding the cancellation of any Indebtedness
hereunder or under the other Loan Documents or the termination of this Agreement
or the other Loan Documents, and (B)it shall be and remain
liable to the Agent or such Lender hereunder for the amount so repaid or
recovered to the same extent as if such amount had never originally been
received by the Agent or such Lender.
  Section
12.14 Indemnification.
  (a) General Indemnity. In
addition to each Loan Party's other Obligations under this
Agreement, each Loan Party agrees to, jointly and severally, defend, protect,
indemnify and hold harmless the Agent and each Lender and all of their
respective officers, directors, employees, attorneys, consultants and agents
(collectively called the "Indemnitees") from
and against any and all losses, damages, liabilities, obligations, penalties,
fees, reasonable costs and expenses (including, without limitation, reasonable
attorneys' fees, costs and expenses) incurred by such Indemnitees, whether prior
to or from and after the Effective Date, whether direct, indirect or
consequential, as a result of or arising from or relating to or in connection
with any of the following: (1) the negotiation, preparation, execution or
performance or enforcement of this Agreement, any other Loan Document or of any
other document executed in connection with the transactions contemplated by this
Agreement, (ii) the Agent's or any Lender's furnishing of funds to the Borrower
or the other Loan Documents, including, without limitation, the management of
any such Loans, (iii) any matter relating to the Transactions or by any
Transaction Document, or (iv) any claim, litigation, investigation or proceeding
relating to any of the foregoing, whether or not any Indemnitee is a party
thereto (collectively, the "Indemnified Matters");
provided, however, that the Loan Parties shall not have any obligation to
any Indemnitee under this subsection (a) for any Indemnified Matter caused by
the gross negligence or willful misconduct of such Indemnitee, as determined by
a final judgment of a court of competent jurisdiction.
  (b) Environmental
Indemnity. Without limiting Section 12.14(a)
hereof, each Loan
Party agrees to, jointly and severally, defend, indemnify, and hold harmless the
Indemnitees against any and all Environmental Liabilities and Costs and all
other claims, demands, penalties, fines, liability (including strict liability),
losses, damages, costs and expenses (including without limitation, reasonable
legal fees and expenses, consultant fees and laboratory fees), arising out of
(i) any Releases or threatened Releases from the current or former properties or
operations of any Loan Party or any Subsidiary of any Loan Party, or any
predecessor in interest; (ii) any violations of Environmental Laws by any Loan
Party; (iii) any Environmental Action relating to any Loan Party or any
Subsidiary of any Loan Party, or any predecessor in interest; (iv) any personal
injury (including wrongful death) or property damage (real or personal) arising
out of exposure to Hazardous Materials used, handled, generated, transported or
disposed by any Loan Party or any Subsidiary of any Loan Party, or any
predecessor in interest; and (v) any breach of any warranty or representation
regarding environmental matters made by the Loan
  60
   Parties
in Section
6.10 or the breach of any covenant made by the Loan Parties in Section
6.10.Notwithstanding the foregoing, the Loan Parties shall not have any
obligation to any Indemnitee under this subsection (b) regarding any potential
environmental matter covered hereunder which is caused (I) by the gross
negligence or willful misconduct of such Indemnitee, as determined by a final
judgment of a court of competent jurisdiction or (II) solely by the actions of
the Agent or any Lender after foreclosure or acceptance of a deed in lieu of
foreclosure.
  (c) The
indemnification for all of the foregoing losses, damages, fees, costs and expenses
of the Indemnitees are chargeable against the Debt Service Reserve Account. To
the extent that the undertaking to indemnify, pay and hold harmless set forth in
this Section
12.14 may be unenforceable because it is violative of any law or public
policy, each Loan Party shall, jointly and severally, contribute the maximum
portion which it is permitted to pay and satisfy under applicable law, to the
payment and satisfaction of all Indemnified Matters incurred by the Indemnitees.
The indemnities set forth in this Section
12.14 shall survive the repayment of the Obligations and discharge of any
Liens granted under the Loan Documents.
  Section
12.15 Records.
The unpaid principal of and interest on the Loans, the interest rate or rates
applicable to such unpaid principal and interest, the duration of such
applicability and the Commitments shall at all times be ascertained from the
records of the Agent, which shall be conclusive and binding absent manifest
error.
  Section
12.16 Binding
Effect. This Agreement shall become effective when it shall have been
executed by each Loan Party, the Agent and each Lender and when the conditions
precedent set forth in Section
4.01 hereof have been satisfied or waived in writing by the Agent, and
thereafter shall be binding upon and inure to the benefit of each Loan Party,
the Agent and each Lender, and their respective successors and assigns, except
that the Loan Parties shall not have the right to assign their rights hereunder
or any interest herein without the prior written consent of each Lender, and any
assignment by any Lender shall be governed by Section
12.07 hereof.
  Section
12.17 Interest.
It is the intention of the parties hereto that the Agent and each Lender shall
conform strictly to usury laws applicable to it. Accordingly, if the
transactions contemplated hereby or by any other Loan Document would be usurious
as to the Agent or any Lender under laws applicable to it (including the laws of
the United States of America and the State of New York or any other jurisdiction
whose laws may be mandatorily applicable to the Agent or such Lender
notwithstanding the other provisions of this Agreement), then, in that event,
notwithstanding anything to the contrary in this Agreement or any other Loan
Document or any agreement entered into in connection with or as security for the
Obligations, it is agreed as follows: (i) the aggregate of all consideration
which constitutes interest under law applicable to the Agent or any Lender that
is contracted for, taken, reserved, charged or received by the Agent or such
Lender under this Agreement or any other Loan Document or agreements or
otherwise in connection with the Obligations shall under no circumstances exceed
the maximum amount allowed by such applicable law, any excess shall be canceled
automatically and if theretofore paid shall be credited by the Agent or such
Lender on the principal amount of the Obligations (or, to the extent that the
principal amount of the Obligations shall have been or would thereby be paid in
full, refunded by the Agent or such Lender, as applicable, to the Borrower); and
(ii) in the event that the maturity of the Obligations is accelerated by reason
of any Event of Default under this Agreement or otherwise, or in the event of
any required or permitted prepayment, then such consideration that constitutes
interest under law applicable to the Agent or any Lender may never include more
than the maximum amount allowed by such applicable law, and excess interest, if
any, provided for in this Agreement or otherwise shall be canceled automatically
by the Agent or such Lender, as applicable, as of the date of such acceleration
or prepayment and, if theretofore paid, shall be credited by the Agent or such
Lender, as applicable, on the principal amount of the Obligations (or, to the
extent that the principal amount of the Obligations shall
  61
   have been
or would thereby be paid in full,refunded by the
Agent or such Lender to the Borrower). All sums paid or agreed to be paid to the
Agent or any Lender for the use, forbearance or detention of sums due hereunder
shall, to the extent permitted by law applicable to the Agent or such Lender, be
amortized, prorated, allocated and spread throughout the full term of the Loans
until payment in full so that the rate or amount of interest on account of any
Loans hereunder does not exceed the maximum amount allowed by such applicable
law. If at any time and from time to time (x) the amount of interest payable to
the Agent or any Lender on any date shall be computed at the Highest Lawful Rate
applicable to the Agent or such Lender pursuant to this Section
12.17 and (y) in respect of any subsequent interest computation period
the amount of interest otherwise payable to the Agent or such Lender would be
less than the amount of interest payable to the Agent or such Lender computed at
the Highest Lawful Rate applicable to the Agent or such Lender, then the amount
of interest payable to the Agent or such Lender in respect of such subsequent
interest computation period shall continue to be computed at the Highest Lawful
Rate applicable to such Agent or the Lender until the total amount of interest
payable to the Agent or such Lender shall equal the total amount of interest
which would have been payable to the Agent or such Lender if the total amount of
interest had been computed without giving effect to this Section
12.17.
  For
purposes of this Section
12.17, the term "applicable law" shall mean that law in effect from time
to time and applicable to the loan transaction between the Borrower, on the one
hand, and the Agent and the Lenders, on the other, that lawfully permits the
charging and collection of the highest permissible, lawful non-usurious rate of
interest on such loan transaction and this Agreement, including laws of the
State of New York and, to the extent controlling, laws of the United States of
America.
  The right
to accelerate the maturity of the Obligations does not include the right to
accelerate any interest that has not accrued as of the date of
acceleration.
  Section
12.18 Confidentiality.
The Agent and each Lender agrees (on behalf of itself and each of its
affiliates, directors, officers, employees and representatives) to use
reasonable precautions to keep confidential, in accordance with its customary
procedures for handling confidential information of this nature and in
accordance with safe and sound practices of comparable commercial finance
companies, any non-public information supplied to it by the Loan Parties
pursuant to this Agreement or the other Loan Documents which is identified in
writing by the Loan Parties as being confidential at the time the same is
delivered to such Person (and which at the time is not, and does not thereafter
become, publicly available or available to such Person from another source not
known to be subject to a confidentiality obligation to such Person not to
disclose such information), provided that nothing herein shall limit the
disclosure of any such information (i) to the extent required by statute, rule,
regulation or judicial process, (ii) to counsel for the Agent or any Lender,
(iii) to examiners, auditors or accountants, (iv) in connection with any
litigation to which the Agent or any Lender is a party (provided that the Agent
shall attempt to provide reasonable notice before such release) or (v) to any
assignee or participant (or prospective assignee or participant) so long as such
assignee or participant (or prospective assignee or participant) first agrees,
in writing, to be bound by confidentiality provisions similar in substance to
this Section12.18.
Notwithstanding the foregoing, eachAgent and each Lender may disclose to any and all Persons, without
limitation of any kind, the tax treatment and tax structure of the financing
contemplated by this Agreement, and all materials of any kind (including
opinions or other tax analyses) that are provided to any Agent or any Lender
relating to such tax treatment and tax structure. The Agent and each Lender
agrees that, upon receipt of a request or identification of the requirement for
disclosure pursuant to clause (iv) hereof, it will make reasonable efforts to
keep the Loan Parties informed of such request or identification; provided that
each Loan Party acknowledges that the Agent and each Lender may make disclosure
as required or requested by any Governmental Authority or representative thereof
and that the Agent and each Lender may be subject to review by Securitization
Parties or other regulatory agencies and may be required to provide to, or
otherwise make available for review by, the representatives of such parties or
agencies any such non-public information.
  62
   Section
12.19 Integration.
This Agreement, together with the other Loan Documents, reflects the entire
understanding of the parties with respect to the transactions contemplated
hereby and shall not be contradicted or qualified by any other agreement, oral
or written, before the date hereof.
  Section
12.20 Waiver.
Each Borrower shall remain obligated hereunder, and such Borrower's obligations
hereunder shall not be released, discharged or otherwise affected,
notwithstanding that, without any reservation of rights against any other party
and without notice to, demand upon or further assent by the Borrower (which
notice, demand and assent requirements are hereby expressly waived by such
Borrower), (a) any demand for payment of any of the Indebtedness made by any
Lender may be rescinded by such Lender or otherwise and any of the Indebtedness
continued; (b) the Indebtedness, the liability of any other Person upon or for
any part thereof or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole or in part, be
renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by, or any indulgence or forbearance in respect thereof
granted by, any Lender; (c) any collateral security, guarantee or right of
offset at any time held by any Lender for the payment of the Indebtedness may be
sold, exchanged, waived, surrendered or released; (d) any additional guarantors,
makers or endorsers of the either Borrower's Indebtedness may from time to time
be obligated on the Indebtedness or any additional security or collateral for
the payment and performance of the Indebtedness may from time to time secure the
Indebtedness; or (e) any other event shall occur which constitutes a defense or
release of sureties generally, including but not limited to any event which
constitutes, or might be construed to constitute, an equitable or legal
discharge of either Borrower for the Indebtedness, in bankruptcy or in any other
instance.
  Section
12.21 Joint
and Several Nature of Obligation. Notwithstanding anything in the Loan
Documents to the contrary, each Borrower agrees that it (a) is a primary obligor
hereunder and (b) is jointly and severally liable for the prompt and complete
payment and performance when due of all obligations, liabilities, covenants and
undertakings of the Borrower hereunder (including, without limitation, all Loans
and other Indebtedness now in existence or hereafter incurred (whether for
interest, premium, fees, taxes, break funding costs, expenses, indemnities or
other amounts)).
  [REMAINDER
OF THIS PAGE INTENTIONALLY LEFT BLANK]
  63
  BORROWER:DEEP
      DOWN, INC.By:
      /s/ Ronald E. SmithName:
      Ron E. SmithTitle:
      PresidentAGENT
      AND LENDER:PROSPECT
      CAPITAL CORPORATIONBy:
      /s/ M. Grier EliasekName:
      M. Grier EliasekTitle:
      President
   Signature
Page to Credit Agreement
 SCHEDULE
1.01(A)
 
 Commitments
 
 Lender
                
                CommitmentProspect
      Capital Corporation
                
                $6,500,000(1)Total:
                
                $6,500,000
 (1) $6,500,000 shall be available to the Borrower on
the Effective Date with the remaining $500,000 available to the Borrower as set
forth in Section
2.04.
  Schedule
1.01(A)
 SCHEDULE
1.01 (B)
 EQUIPMENT
  SEE ATTACHED LISTS FOR DEEP DOWN INC.
AND ELECTROWAVEUSA, INC.