exv10w43



 






Exhibit 10.43




LOAN AND SECURITY AGREEMENT




     AGREEMENT made as of this 11th day of January, 2005, by and between Smith & Wesson Corp., a
Delaware corporation having a chief executive principal place of business at 2100 Roosevelt Avenue,
Springfield, Massachusetts, (hereinafter referred to as the “Borrower”), Smith & Wesson Holding
Corporation, a Nevada corporation with a usual place of business at 2100 Roosevelt Avenue,
Springfield, Massachusetts (the “Guarantor”) and Banknorth, N.A., a national banking association
organized under the laws of the United States of America, having a usual place of business at 1441
Main Street, Springfield, Massachusetts (hereinafter referred to as the “Lender”).



     1.00 DEFINITIONS AND ACCOUNTING TERMS



     As used in this Agreement, the following terms have the following meanings (terms defined in
the singular to have the same meaning when used in the plural and vice versa):



     “Advance” means an Advance by Lender to Borrower in accordance with the terms and conditions
of the Notes, this Agreement, the Mortgage or any other Loan Documents.



     “Affiliate” means any person controlling, controlled by, or under common control with
Borrower. For purposes of this definition “Control” means the possession, directly or indirectly
of the power to direct or cause direction of the management and policies of the Borrower, whether
through ownership of common or preferred stock or other equity interests, by contract or otherwise.
Without limiting the generality of the forgoing, each of the following shall be an Affiliate: Any
officer, director, employee or other agent of Borrower, any shareholder or subsidiary of Borrower
and any other Person with whom for which Borrower has common shareholders, officers and directors.



     “Agreement” means this Loan and Security Agreement as amended, supplemented, or modified from
time to time.



     “Available Amount” means (a) up to an aggregate outstanding principal amount not to exceed the
lesser of: (i) Seventeen Million and 00/100 Dollars ($17,000,000) (the “Maximum Amount of
Revolving Line of Credit Loans”) or (ii) the sum of (x) an amount equal to eighty-five percent
(85%) of the net amount of the Eligible Receivables; plus the lesser of Six Million and 00/100
Dollars ($6,000,000.00) or (y) seventy percent (70%) of Eligible Raw Materials Inventory; plus
sixty percent (60%) of Eligible Finished Goods Inventory; and (z) forty percent (40%) of Eligible
Finished Parts Inventory; (b) Twelve Million One Hundred Four Thousand and 00/100 Dollar
($12,104,000) Commercial Term Loan; (c) Five Million Eight Hundred Ninety Six Thousand and 00/100
Dollar ($5,896,000) Commercial Real Estate Term Loan; and (d) Five Million and 00/100 Dollar
($5,000,000) Equipment Line of Credit. Notwithstanding the foregoing, the Available Amount of the
Revolving Line of Credit Loan shall be reduced by the sum of the Lender’s exposure of (1) foreign
exchange transactions, (2) ACH, and (3) outstanding Letters of Credit issued on behalf of the
Borrower from time-to-time.



     “Blocked Account” shall have the meaning set forth in Section 4.03.



     “Borrowing Base Certificate”, means a borrowing base certificate having substantially the same
form and substance as the certificate attached hereto as Exhibit “A”.



     “Borrower’s Loan Account” with respect to the Revolving Line of Credit means:



     A. Insofar as the Borrower may request and the Lender may be willing, in the Lender’s
reasonable discretion, to make such loans to the Borrower, pursuant to the Revolving Line of
Credit, the Lender shall enter such loans as debits in the Borrower’s Loan Account. The Lender
shall also record as a debit to the Borrower’s Loan Account, in accordance with customary
accounting practice, all other obligations, debts, charges, expenses, and other items properly
chargeable to the Borrower; and shall credit all payments made by the Borrower on account of
indebtedness evidenced by the



1









 







Borrower’s Loan Account and other appropriate debits and credits. The principal balance of
the Borrower’s Loan Account shall reflect the amount of the Borrower’s indebtedness to the Lender
from time-to-time by reason of loans and other appropriate charges hereunder. At least once each
month the Lender shall render a statement of account for the Borrower’s Loan Account which
statement shall be considered correct and accepted by the Borrower and conclusively and judicially
binding upon the Borrower, unless the subject of written objection received by Lender within thirty
(30) days from its mailing to Borrower.



     B. The Borrower agrees that the debit balance of the Borrower’s Loan Account shall at no time
exceed the Available Amount and that if at any time such excess does arise, the Borrower shall
pledge, assign, and transfer to the Lender additional Collateral or shall pay cash to the Lender to
be credited to the Borrower’s Loan Account, in such amount as may be necessary to eliminate such
excess.



     C. However, nothing herein shall be construed to restrict the Lender, in its sole and
exclusive discretion, from making Advances in excess of the stated Available Amount or waiving
other requirements herein, without executing any additional promissory note, Loan and Security
Agreement, or other evidence of debt, and its so doing at any time, or times, shall not waive its
rights to insist upon strict compliance with the terms thereof at any other time.



     “Business Day” means any day other than a Saturday, Sunday, or other day on which commercial
banks in Massachusetts are authorized or required to close under the laws of the Commonwealth of
Massachusetts.



     “Code” means the Internal Revenue Code of 1986, as amended from time-to-time and the
regulations and published interpretations thereof.



     “Collateral” means any and all personal property or chose in action, of the Borrower and in
which the Lender now has, by this Agreement acquires or hereafter acquires, a security interest as
more fully described in Section 11.00 of this Agreement.



     “Commercial Real Estate Term Loan” shall have the meaning assigned to such term in Section
7.01.



     “Commercial Real Estate Term Promissory Note” shall have the meaning assigned to such term in
Section 7.03.



     “Commercial Term Loan” shall have the meaning assigned to such term in Section 6.01.



     “Commercial Term Promissory Note” shall have the meaning assigned to such term in Section
6.03.



     “Covenant Compliance Certificate” shall have the meaning assigned to such term in Section
13.09A.



     “Debt” means, as applied to any Person, as of any date of determination (without duplication):




	 	(a)  	all obligations of such Person for borrowed money (whether or
not represented by bonds, debentures, notes, drafts or other similar
instruments) or evidenced by bonds, debentures, notes, drafts or similar
instruments;
	 
	 	(b)  	all obligations of such Person for all, or any part of, the
deferred purchase price of property or services, or for the cost of property
constructed or of improvements thereon, including trade accounts payable
incurred, in respect of property purchased, in the ordinary course of business,
which are overdue or which are being contested in good faith by appropriate
proceedings and are required to be classified on such Person’s balance sheet,
in accordance with GAAP, as debt;
	 
	 	(c)  	all obligations secured by any Lien on or payable out of the
proceeds of production from property owned or held by such Person even though
such Person has not assumed or become liable for the payment of such
obligation;




2









 












	 	(d)  	all capital lease obligations of such Person;
	 
	 	(e)  	all obligations of such Person, contingent or otherwise, in respect of
any letter of credit facilities, bankers’ acceptance facilities or other
similar credit facilities other than any such obligation which relate to an
underlying obligation which otherwise constitutes Debt of such Person hereunder
or a current account payable of such Person incurred in the ordinary course of
business;
	 
	 	(f)  	all obligations of such Person upon which interest payments are
customarily made; and
	 
	 	(g)  	all guaranties by such Person of or with respect to obligations
of the character referred to in the foregoing clauses (a) through (f) of
another Person;




provided, however, that in determining the Debt of any Person, (i) all liabilities
for which such Person is jointly and severally liable with one or more other Persons (including,
without limitation, all liabilities of any partnership or joint venture of which such Person is a
general partner or co-venturer) shall be included at the full amount thereof without regard to any
right such Person may have against any such other Persons for contribution or indemnity, and (ii)
no effect shall be given to deposits, trust arrangements or similar arrangements which, in
accordance with GAAP, extinguish Debt for which such Person remains legally liable.




     “Default” means any of the events specified in Section 18.00, whether or not any requirement
for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied.



     “Default Rate” means with respect to any and all of the principal due to Lender, to the extent
that any principal amount not paid when due (at maturity, by acceleration or otherwise) shall bear
interest thereafter until paid in full, payable on demand, at a rate per annum equal to the
aggregate of the interest rate currently in effect on such Loan, as determined herein, plus five
percent (5.00%).



     “Designated Collateral Impairment Events” has the meaning set forth in Section 4.02 hereof.



     “Eligible Finished Goods Inventory” means finished goods Inventory which Lender, in its
reasonable judgment deems Eligible Finished Goods Inventory, based on such considerations as Lender
may from time-to-time deem appropriate. Without limiting the generality of the foregoing, no
Inventory shall be Eligible Finished Goods Inventory unless, in Lender’s reasonable judgment, such
Inventory (i) consists of finished goods, in a good, new and salable condition which are not
obsolete or unmerchantable, and are not comprised of packaging, materials or supplies, reels,
skids, spools, tin pots, scrap or tolling inventory, perishable tooling or inventory held at
outside processors, and are not slow-moving or held on consignment; (ii) meets all standards
imposed by any governmental agency or authority; (iii) conforms in all respects to the warranties
and representations set forth herein; (iv) is at all times subject to Lender’s duly perfected,
first priority security interest; and (v) is situated at a location in compliance with Section
12.01 hereof.



     “Eligible Finished Parts Inventory” means finished parts Inventory which Lender, in its
reasonable judgment deems Eligible Finished Parts Inventory, based on such considerations as Lender
may from time-to-time deem appropriate. Without limiting the generality of the foregoing, no
Inventory shall be Eligible Finished Parts Inventory unless, in Lender’s reasonable judgment, such
Inventory (i) consists of finished parts, in a good, new and salable condition which are not
obsolete or unmerchantable, and are not comprised of packaging, materials or supplies, reels,
skids, spools, tin pots, scrap or tolling inventory, perishable tooling or inventory held at
outside processors, and are not slow-moving or held on consignment; (ii) meets all standards
imposed by any governmental agency or authority; (iii) conforms in all respects to the warranties
and representations set forth herein; (iv) is at all times subject to Lender’s duly perfected,
first priority security interest; and (v) is situated at a location in compliance with Section
12.01 hereof.



3









 





     “Eligible Raw Materials Inventory” means raw materials Inventory which Lender, in its
reasonable judgment deems Eligible Raw Materials Inventory, based on such considerations as Lender
may from time-to-time deem appropriate. Without limiting the generality of the foregoing, no
Inventory shall be Eligible Raw Materials Inventory unless, in Lender’s reasonable judgment, such
Inventory (i) consists of raw materials or work-in-process, in a good, new and salable condition
which are not obsolete or unmerchantable, and are not comprised of packaging, materials or
supplies, reels, skids, spools, tin pots, scrap or tolling inventory, perishable tooling or
inventory held at outside processors, and are not slow-moving or held on consignment; (ii) meets
all standards imposed by any governmental agency or authority; (iii) conforms in all respects to
the warranties and representations set forth herein; (iv) is at all times subject to Lender’s duly
perfected, first priority security interest; and (v) is situated at a location in compliance with
Section 12.01 hereof.



     “Eligible Receivables” means Receivables which Lender, in its reasonable judgment shall deem
eligible based on such considerations as Lender may from time-to-time deem appropriate. Without
limiting the foregoing, a Receivable shall not be deemed to be an Eligible Receivable if (i) the
account debtor has failed to pay the receivable within a period of ninety (90) days after due date;
(ii) the account debtor has failed to pay more than thirty percent (30%) of all outstanding
receivables owed by it to Borrower within ninety (90) days after due date; (iii) the account debtor
is an Affiliate of Borrower; (iv) the goods relating thereto are placed on consignment, guaranteed
sale, “bill and hold” or other terms pursuant to which payment by the account debtor may be
conditional, including, without limitation, loaner receivables; (v) the account debtor is not
located in the United States or Canada, unless the receivable is supported by a letter of credit
in form and substance satisfactory to Lender; (vi) the account debtor is the United States or any
department, agency or instrumentality thereof or any state, city or municipality of the United
States, unless Borrower has complied with all applicable federal, state and other Assignment of
Claims Act and Lender holds a perfected security interest in such Receivable ; (vii) Borrower is or
may become liable to the account debtor for goods sold or services rendered by the account debtor
to Borrower, or for tolling inventory held by Borrower and owned by such account debtor (up to the
amount of such liability); (viii) with respect to Receivables as to which the total obligations of
such account debtor to Borrower exceed fifteen percent (15%) of Eligible Receivables; (ix) the
account debtor disputes liability or makes any claim with respect thereto (up to the amount of such
liability or claim), or is subject to any insolvency or bankruptcy proceeding, or becomes
insolvent, fails or goes out of a material portion of its business; (x) the amount thereof consists
of late charges or finance charges; (xi) the invoice constitutes a progress billing on a project
not yet completed, except that the final billing at such time as the matter has been completed and
delivered to the customer may be deemed an Eligible Receivable; (xii) credit balances over ninety
(90) days past issue date (with the result that the total amount of Receivables which shall be
considered ineligible as a result of the operation of clause (i) hereof shall be determined without
giving effect to any credit balances included in the “over ninety (90) days”); (xiii) sales for
cash or on other terms requiring cash on delivery (C.O.D.); (xiv) the face amount thereof exceeds
Ten Thousand and 00/100 Dollars ($10,000.00), unless accompanied by evidence of shipment of goods
relating thereto satisfactory to Lender in its sole discretion; (xv) unapplied cash receipts; or
(xvi) invoices with respect to amounts owed for spool/or pallet deposits.



     “Environmental Law” means any past, present or future Federal, state, local or foreign
statutory or common law, or any regulation, ordinance, code, plan, order, permit, grant, franchise,
concession, restriction or agreement issued, entered, promulgated or approved thereunder, relating
to (a) the environment, human health or safety, including, without limitation, emissions,
discharges, releases or threatened releases of oil and/or Hazardous Substances into the environment
(including, without limitation, air, surface water, groundwater or land), or (b) the manufacture,
generation, refining, processing, distribution, use, sale, treatment, receipt, storage, disposal,
transport, arranging for transport, or handling of Hazardous Substances.



     “Environmental Permits” means collectively, any and all permits, consents, licenses, approvals
and registrations of any nature at any time required pursuant to or in order to comply with any
Environmental Law.



     “Equipment Line of Credit Loan” shall have the meaning assigned to such term in Section 8.00.



     “Equipment Line of Credit Note” shall have the meaning assigned to such term in Section 8.01.



4









 





     “ERISA” means the Employment Retirement Income Security Act of 1974, as amended from
time-to-time, and the regulations and published interpretations thereof.



     “Eurocurrency Reserve Requirement” means, for any LIBOR Loan for any Interest Period therefor,
the daily average of the stated maximum rate (expressed as a decimal) at which reserves (including
any marginal, supplemental, or emergency reserves), if any, are required to be maintained during
such Interest Period under Regulation D by the Lender against “Eurocurrency Liabilities” (as such
term is used in Regulation D) but without benefit or credit of proration, exemptions, or offsets
that might otherwise be available to the Lender from time-to-time under Regulation D. Without
limiting the effect of the foregoing, the Eurocurrency Reserve Requirement shall reflect any other
reserves required to be maintained by the Lender against (a) any category of liabilities that
includes deposits by reference to which the LIBOR Interest Rate for LIBOR Loans is to be
determined; or (b) any category of extension of credit or other assets that includes LIBOR Loans.



     “Event of Default” means any of the events specified in Section 18.00, provided that any
requirement (if any) for the giving of notice, the lapse of time, or both, or any other condition,
has been satisfied.



     “Following Business Day Convention” means the convention for adjusting any relevant date that
would otherwise fall on a day that is not a Business Day so that the date will be the first
following day that is a Business Day.



     “GAAP” means generally accepted accounting principles consistently applied, in accordance with
financial reporting standards from time-to-time in effect among nationally recognized certified
public accounting firms in the United States.



     “Guarantor” means Smith & Wesson Holding Corporation, a Nevada corporation, with a usual place
of business at 2100 Roosevelt Avenue, Springfield, Massachusetts.



     “Hazardous Substances” means collectively, contaminants; pollutants; toxic or hazardous
chemicals, substances, materials, wastes and constituents; petroleum products; polychlorinated
biphenyls; medical wastes; infectious wastes; oil; asbestos; paint containing lead; and urea
formaldehyde.



     “Impositions” means with respect to Borrower relating to the Mortgaged Premises, all
taxes of every kind and nature, all charges, filing, registration and recording fees, excises and
sewer rents, charges for water, for setting or repairing meters and for all other utilities serving
the Mortgaged Premises, and assessments, levies, inspection and license fees and all other charges
imposed or assessed against the Mortgaged Premises or any portion thereof, including the income
derived from the Mortgaged Premises or imposed upon Lender by virtue of its interest in, or
measured by amounts payable under the Note, this Agreement, the Mortgage or any other Loan Document
and any stamp or other taxes which might be required to be paid with respect to the Loan Documents,
any of which might, if unpaid, result in a lien on the Mortgaged Premises or any portion thereof,
regardless of whom assessed.



     “Incipient Default” means any event or condition which, with the giving of notice or the lapse
of time, or both, would become an Event of Default.



     “Insolvency” of the Borrower or any other person means that there shall have occurred with
respect to that person one or more of the following events: dissolution, termination of existence,
insolvency, business failure, appointment of a custodian, interim trustee, or trustee, of any part
of the property of the Borrower, assignment or trust mortgage for the benefit of creditors by, or
the voluntary or involuntary filing of a petition in bankruptcy or the commencement of any
proceedings under any bankruptcy or insolvency laws, or any laws relating to the relief of debts,
readjustment of indebtedness, reorganization, composition or extension, by or against Borrower.



     “Intangible Assets” means as of any date of determination, the aggregate book value of all
assets of the following character appearing in a balance sheet of the Borrower prepared in
accordance with GAAP as at such date: goodwill, franchises, trademarks, trade names, licenses,
permits, copyrights, organization expense, and all other assets which under GAAP are deemed
intangible.



5









 





     “Interest Period” means (i) with respect to any LIBOR Loan, the period commencing on the date
such loan is made and ending, as the Borrower may select, pursuant to Section 2.02, on the
corresponding day which is one (1) month, two (2) months or three (3) months thereafter, except
that each such Interest Period that commences on the last Business Day of a calendar month (or on
any day for which there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate subsequent calendar month;
provided that all of the foregoing provisions relating to Interest Periods are subject to
the following:




	 	(a)  	no Interest Period may extend beyond the Termination Date, in
the case of a Revolving Line of Credit Loan without prior written approval of
the Lender;
	 
	 	(b)  	if an Interest Period would end on a day that is not a Business
Day, such Interest Period shall be extended to the next Business Day unless
such Business Day would fall in the next calendar month, in which event such
Interest Period shall end on the immediately preceding Business Day.





     “Inventory” means all of Borrower’s now owned and hereafter acquired goods,
merchandise and other personal property, wherever located, to be furnished under any contract of
service, or held for sale or lease, all raw materials, work-in-process, finished parts, finished
goods (as the case may be and duplicative) and materials and supplies of any kind, nature or
description which are or might be used or consumed in Borrower’s business or used in connection
with the manufacture, packing, shipping, advertising, selling or finishing of such goods,
merchandise and other personal property, and all documents of title or other documents representing
them. Inventory shall not include any goods, merchandise or other personal property which may be
in the possession of Borrower which is not owned by Borrower.



     “Lender” as used in this Agreement shall include the stated Lender herein and, except as the
context may indicate a contrary intent, any successor in interest of the Lender.



     “Lending Office” means the Lender’s office at 1441 Main Street, Springfield, Massachusetts
01103.



     “Liabilities” of any Person shall mean and include all obligations of such Person which in
accordance with GAAP shall be classified on a balance sheet of such Person as liabilities of such
Person, and in any event shall include all (i) obligations of such Person for borrowed money or
which has been incurred in connection with the acquisition of property or assets, (ii) obligations
secured by any Lien or other charge upon property or assets owned by such Person, even though such
Person has not assumed or become liable for the payment of such obligations, (iii) obligations
created or arising under any conditional sale or other title retention agreement with respect to
property acquired by such Person, notwithstanding the fact that the rights and remedies of the
seller, lender, or lessor under such agreement in the event of default are limited to repossession
or sale of property, (iv) obligations under guaranties, and (v) obligations under any capitalized
lease.



     “LIBOR Interest Rate” means, for each LIBOR Loan, the rate per annum (rounded upward, if
necessary, to the nearest 1/16 of 1%) determined by the Lender to be equal to the quotient of (a)
the London Interbank Offered Rate for such LIBOR Loan for such Interest Period divided by (b) one
minus the Eurocurrency Reserve Requirement, if any, for such Interest Period.



     “LIBOR Loan” means any Loan when and to the extent that the interest rate therefor is
determined by reference to the LIBOR Interest Rate.



     “Lien” means any mortgage, deed of trust, pledge, security interest, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority,
or other security agreement or preferential arrangement, charge, or encumbrance of any kind or
nature whatsoever (including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction to evidence any of the foregoing).



6









 





     “Loan(s)” means (i) a LIBOR or Prime Rate Revolving Line of Credit Loan or Loans; (ii)
Commercial Term Loan; (iii) Commercial Real Estate Term Loan; and (iv) Equipment Line of Credit
Loan.



     “Loan Documents” means this Agreement, any Note or other documents related to the transactions
discussed in this Agreement.



     “London Interbank Offered Rate” means the rate for deposits in U.S. Dollars for a period equal to
one (1) month, two (2) months or three (3) months (as the case may be) as such rate appears on
Telerate Page 3750 as of 11:00 a.m. London time, on the day that is two (2) business days prior to
the adjustment date. If such rate does not appear on Telerate Page 3750, the rate for that
adjustment date will be the arithmetic mean of the rates quoted by major banks in London, selected
by Banknorth, N.A., for a period equal to one (1) month, two (2) months or three (3) months, as the
case may be, as of 11:00 a.m. London time, on the day that is two (2) business days prior to the
adjustment date.



     “Long Term Lease” means any lease of property (real, personal or mixed), other than a capital
lease, having a term (including terms of renewal or extension at the option of the lessee, whether
or not such option has been exercised) expiring more than one year after the commencement of the
initial term.



     “Mortgage” means a certain Mortgage and Security Agreement between the Lender and Borrower in
which the Mortgaged Premises are mortgaged to Lender.



     “Mortgaged Premises” means the parcels of land with improvements thereon located at 2100
Roosevelt Avenue, Springfield, Massachusetts 01104 (the “Roosevelt Premises”); 299 Page Boulevard,
Springfield, Massachusetts 01104 (the “Page Premises”); and 19 Aviation Drive, Houlton, Maine 04730
(the “Aviation Premises”).



     “Multiemployer Plan” means a Plan described in Section 4001(a)(3) of ERISA.



     “Net Cash Available for Debt Service” shall be defined as earnings before taxes, plus
depreciation and amortization expense, plus interest expense, plus extraordinary expenses, less all
unfinanced capital expenditures (including capital leases), less income taxes actually paid, less
dividends, less extraordinary income.



     “Note” means: (i) the Revolving Line of Credit Note; (ii) the Commercial Term Promissory Note;
(iii) the Commercial Real Estate Term Promissory Note; and (iv) the Equipment Line of Credit Note
(collectively, the “Note” or “Notes”).



     “Obligation” and “Obligations” shall mean any and all liabilities and obligations of the
Borrower to the Lender of every kind and description, direct or indirect, absolute or contingent,
primary or secondary, due or to become due, now existing or hereafter arising, regardless of how
they arise or by what agreement or instrument they may be evidenced or whether evidenced by any
agreement or instrument, and includes a LIBOR or Prime Rate Revolving Line of Credit Loan or Loans;
(ii) Commercial Term Loan; (iii) Commercial Real Estate Term Loan; and (iv) Equipment Line of
Credit Loan; (v) obligations to perform acts and refrain from taking action, as well as obligations
to pay money, (vi) reimbursement obligations of the Borrower, pursuant to any documentation
executed in conjunction with or related to the issuance by the Lender of any letters of credit;
(vii) guaranty obligations; and/or (viii) all obligations arising under any SWAP Agreement.



     “PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all
of its functions under ERISA.



     “Permitted Encumbrance” means any of the liens, claims, assessments, encumbrances, and rights
of others encumbering title to the Mortgaged Premises which are set forth on Exhibit “B”.



     “Person” means an individual, partnership, corporation, liability company, business trust,
joint stock company, trust, unincorporated association, joint venture, governmental authority, or
other entity of whatever nature.



7









 





     “Prime Rate” means that rate established and announced as such, from time-to-time by the Wall
Street Journal as the Prime Rate.



     “Prime Loan” means any Loan when and to the extent that the interest rate therefore is
determined by reference to the Prime Rate.



     “Prohibited Transaction” means any transaction set forth in Section 406 of ERISA or Section
4975 of the Code.



     “Receivables” means all of Borrower’s now owned and hereafter acquired accounts as
defined under Article 9 of the Uniform Commercial Code in effect from time-to-time in the
Commonwealth of Massachusetts (whether or not earned by performance), proceeds of any letters of
credit naming Borrower as beneficiary, contract rights, chattel paper, instruments, documents and
all other forms of obligations at any time owing to Borrower, all guaranties and other security
therefore, whether secured or unsecured, all merchandise returned to or repossessed by Borrower and
all rights of stoppage in transit and all other rights or remedies of an unpaid vendor, lienor or
secured party.



     “Regulation D” means Regulation D of the Board of Governors of the Federal Reserve System as
amended or supplemented from time-to-time.



     “Rentals” shall mean and include all fixed rents (including as such all payments which the
lessee is obligated to make to the lessor on termination of the lease or surrender the property)
payable by the Borrower, as lessee or sublessee under lease of real or personal property, but shall
be exclusive of any amounts required to be paid by the Borrower (whether or not designated as rents
or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges.
Fixed rents under any so-called “percentage lease” shall be computed solely on the basis of the
minimum rents, if any, required to be paid by the lessee regardless of sales volume or gross
revenues.



     “Reportable Event” means any of the events set forth in Section 4043 of ERISA.



     “Revolving Line of Credit Loan(s)” or “Revolving Credit Loan(s)” shall have the meaning
assigned to such terms in Section 2.01.



     “Revolving Line of Credit Note” shall have the meaning assigned to such term in Section 2.05.



     “Tangible Net Worth” means as of any date of determination, the net value of the Borrower’s
stockholder’s equity, as defined according to GAAP less the book value as of such date of
Intangible Assets.



     “Telerate Page 3750” means the display designated as “Page 3750” on the Dow Jones Telerate
Service ( or such other page as may replace Page 3750 on that service or such other service as may
be nominated by the British Bankers’ Association as the information vendor for the purpose of
displaying British Bankers’ Association Interest Settlement Rates for U.S. Dollar Deposits).



     “Termination Date” means September 30, 2007, but if the Revolving Line of Credit Loan is
extended or renewed, the Termination Date shall be September 30th next following the
date of extension or renewal unless otherwise determined by the Lender.



     “Total Debt Service” shall be defined as the total of interest payments of
indebtedness due and principal repayments of long-term debt, including any capital
leases.



     “Total Liabilities” means as of any date of determination, the total of all Liabilities of the
Borrower which would be properly classified as liabilities, whether current or long-term, in
accordance with GAAP.



8









 





     “Yield Maintenance Fee” means the resulting sum computed by subtracting the Federal Home Loan
Bank Rate with a Maturity Date closest to the remaining term of the Note being prepaid from the
applicable interest rate in effect at the time of prepayment, including, without limitation, the
Default Rate. If the result is zero or a negative number, there shall be no Yield Maintenance Fee
due and payable. If the result is a positive number, than the resulting percentage shall be
multiplied by the amount of the principal balance being prepaid. The resulting amount shall be
divided by 360 and multiplied by the number of days remaining in the term of the Note being
prepaid. Said amount shall be reduced to present value, calculated by using the above-stated
interest rate and the number of days remaining in the term of the applicable Note. The resulting
amount shall be the Yield Maintenance Fee due to the Lender upon prepayment of a Note requiring the
payment of a Yield Maintenance Fee.



     1.01 ACCOUNTING TERMS



     All accounting terms not specifically defined herein shall be construed in accordance with
GAAP consistent with those applied in the preparation of the financial statements and all financial
data submitted pursuant to this Agreement shall be prepared in accordance with such principles.



     2.00 THE REVOLVING LINE OF CREDIT



     2.01 REVOLVING LINE OF CREDIT FACILITY (the “Revolving Line of Credit”)



     To a maximum amount of Seventeen Million and 00/100 Dollars ($17,000,000) a committed
Revolving Line of Credit (the “Revolving Line of Credit Loan”) will be made available, subject to
the Available Amount, repayable in accordance with the terms hereof, with Loans made from
time-to-time during the period from the date of this Agreement up to, but not including, the date
when demand is made for repayment of the Revolving Line of Credit on or after an the occurrence of
an Event of Default or the Termination Date, if earlier. Loans may be in any amount within the
limits of the Available Amount and within such limits, the Borrower may borrow and repay pursuant
to Section 10.02, and re-borrow under this Section 2.01 on such terms and conditions as are
contained herein, provided, however, at a time prior to the first request for borrowing under the
Revolving Line of Credit, and at monthly intervals thereafter within thirty (30) days of month end,
Borrower shall submit a Borrowing Base Certificate to Lender.



     Request for borrowings thereafter may be made from time-to-time by Borrower in the manner set
forth immediately herein to the Available Amount in the previously tendered Borrowing Base
Certificate. At such time as the full amount of such availability is borrowed, no further
borrowings shall be requested without the filing of a subsequent Borrowing Base Certificate.



     Each Loan shall be made and maintained at the Lender’s Lending Office for such Loan. The
Borrower shall pay interest to the Lender, which shall be calculated daily and payable monthly, in
arrears, on the outstanding and unpaid principal amount of the Revolving Line of Credit Loans made
under this Agreement during the preceding month at a rate per annum as follows:



          A. For a Prime Loan at a rate equal to Prime Rate; or


          B. For a LIBOR Loan at a rate equal to the adjusted LIBOR Interest Rate, plus two and
one-half percent (2.50%) based upon the Interest Period selected by the Borrower and confirmed in
writing to the Borrower following Borrower’s request for a LIBOR Loan or a conversion to a LIBOR
Loan, as set forth in Section 2.02 below. Notwithstanding the forgoing, the LIBOR Interest Rate
for a LIBOR Loan shall be reduced to LIBOR, plus two and one-quarter percent (2.25%) when Maximum
Leverage is less than or equal to 2.00:1.00 and shall be further reduced to LIBOR, plus two percent
(2.00%) at such time when Maximum Leverage is equal to or less than 1.25:1.00.



     2.02 NOTICE AND MANNER OF BORROWING



     The Borrower shall give the Lender written, telefax or telegraphic notice (effective upon
receipt) of any Revolving Line of Credit Loans under this Agreement, on the Business Day of each
Prime Loan, or at least two (2) Business Days before each LIBOR Loan, specifying in each case: (1)
the date of such Loan; (2) the amount of such Loan;



9









 







(3) the type of such Loan; and (4) in the case of a LIBOR Loan, the duration of the Interest
Period applicable thereto. Not later than 3:00 p.m. (EST) on the date of such Loan and upon
fulfillment of the applicable conditions set forth in Section 10.08.1 – 10.08.22, the Lender will
make such Loan available to the Borrower in immediately available funds by crediting the amount
thereof to the Borrower’s Loan Account with the Lender.



     All notices given under this Section 2.02 shall be irrevocable and shall be given not
later than 2:00 p.m. (EST) on the day which is not less than the number of Business Days specified
above for such notice.



     2.03 CONVERSION AND RENEWALS




     The Borrower may elect from time-to-time to convert all, or a part of, one type of Revolving
Line of Credit Loan into another type of Revolving Line of Credit Loan permitted under the
Revolving Line of Credit facility, or to renew all or part of a Revolving Line of Credit Loan by
giving the Lender notice at least one (1) Business Day before the conversion into a Prime Loan and
at least two (2) Business Days before the conversion into or renewal of a LIBOR Loan; specifying in
each case (1) the renewal or conversion date; (2) the amount of the Loan to be converted or
renewed; (3) in the case of conversions, a specification that the Loan is to be converted from a
Prime Loan to a LIBOR Loan or vice versa, as the case may be; and (4) in the case of renewals of,
or a conversion into LIBOR Loans, the duration of the Interest Period applicable thereto; provided
that:




	 	(a)  	the minimum principal amount of each Loan outstanding after a
renewal or conversion shall be Two Hundred Fifty Thousand and 00/100 Dollars
($250,000.00) or one Hundred Thousand and 00/100 Dollars ($100,000.00)
multiples there above in the case of LIBOR Loans; and
	 
	 	(b)  	LIBOR Loans can be converted only as of the last day of the
Interest Period for such Loan. All notices given under this Section 2.03 shall
be irrevocable and shall be given not later than 2:00 p.m. (EST) on the day
which is not less than the number of Business Days specified above for such
notice.





     If the Borrower shall fail to give the Lender the notice as specified above for the renewal or
conversion of a LIBOR Loan prior to the end of the Interest Period with respect thereto, such LIBOR
Loan shall automatically be converted into a Prime Loan on the last day of the Interest Period for
such Loan.



     2.04 CALCULATION AND PAYMENT OF INTEREST



     Any change in the interest rate based on the Prime Rate resulting from a change in the Prime
Rate shall be effective as of the opening of business on the day on which such change in the Prime
Rate becomes effective.



     Interest on each Prime Loan shall be calculated on the basis of a year of 360 days for the
actual number of days elapsed for any payment period. Interest on each LIBOR Loan shall be
calculated on the basis of a year of 360 days for the actual number of days elapsed for the
Interest Period.



     Interest on the Revolving Line of Credit Loan shall be paid in immediately available funds at
the Principal Office of the Lender. Interest shall be calculated daily and payable monthly in
accordance with the terms of the Note, in arrears on the average daily unpaid principal sum during
the preceding month.



     2.05 THE REVOLVING LINE OF CREDIT NOTE



     All Revolving Line of Credit Loans made by the Lender under this Agreement shall be
evidenced by, and repaid with interest in accordance with, a single Revolving Line of Credit Note
of the Borrower payable in accordance with the terms of this Agreement and in substantially the
form of Exhibit “C”, duly completed, dated the date of this Agreement, and payable to the
Lender, such Note to represent the obligation of the Borrower to repay the Revolving Line of Credit
Loans. The Lender is hereby authorized by the Borrower to endorse on the schedule attached to the
Note the amount and type of each Revolving Line of Credit Loan and each renewal, conversion, and
payment of principal amount received by



10









 







the Lender for the account of the applicable Lending Office on account of the Revolving Line
of Credit Loans, which endorsement shall, in the absence of error, be conclusive as to the
outstanding balance of the Revolving Line of Credit Loans made by the Lender; provided, however,
that the failure to make such notation with respect to any Revolving Line of Credit Loan or
renewal, conversion, or payment shall not limit or otherwise affect the obligations of the Borrower
under this Agreement or the Revolving Line of Credit Note.



     2.06 BORROWER PROMISES TO PAY



     The Borrower promises to pay to the Lender, or order, in accordance with the terms of this
Agreement:



     A. The current amount of the debit balance of the Borrower’s Loan Account.



     B. Interest on the Loans at the rates and charges described in Sections 2.01, computed
monthly on the average daily unpaid principal balance of all of Borrower’s Loan Account.



     C. Any and all reasonable charges, and expenses of every kind or description paid or incurred
by the Lender under or with respect to Loans hereunder or any Collateral therefor or the collection
of or realization upon the same including reasonable costs of collection, attorneys’ fees, expenses
of litigation and otherwise. The Borrower hereby authorizes the Lender to charge interest,
charges, and other expenses and fees provided for in this Agreement to any deposit account of the
Borrower, with the Lender, or to the Borrower’s Loan Account.



     2.07 USE OF PROCEEDS



     The proceeds of the Revolving Line of Credit may be used by the Borrower only for to support
working capital, letters of credit, foreign exchange, cash management exposure and deposits for
equipment purchases.



     The Borrower will not, directly or indirectly, use any part of such proceeds for the purpose
of purchasing or carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System or to extend credit to any Person for the purpose of
purchasing or carrying any such margin stock, or for any purpose which violates, or is inconsistent
with, Regulation X of such Board of Governors.



     2.08 UNUSED BALANCE FEE



     The Borrower shall pay Lender an unused balance fee equal to one-quarter percent (.25%) of the
average unused balance of the Revolving Line of Credit during the preceding quarter. Such fee
shall be charged quarterly and paid upon billing.



     2.09 LETTER OF CREDIT FEE



     The Borrower agrees to pay Lender, an annual fee for all monies borrowed to support standby
letters of credit equal to three-quarters percent (.75%) of the aggregate monies borrowed. Such
fee shall be charged annually and payable upon billing.



     3.00 COLLATERAL REPORTING; INVENTORY



     3.01 INVOICES



     Borrower will not re-date any invoice or sale from the original date thereof or make sales on
extended terms beyond those customary in Borrower’s Inventory, or otherwise extend or modify the
term of any Receivable, except as otherwise provided in Section 5.02. If Borrower becomes aware of
any matter affecting any Receivable, in excess of One Hundred Thousand and 00/100 Dollars
($100,000.00), including information affecting the credit of the account debtor, Borrower will
promptly notify Lender in writing.



11









 





     3.02 INSTRUMENTS



     In the event that any Receivable is or becomes evidenced by a promissory note, trade
acceptance or other instrument for the payment of money, Borrower will immediately deliver such
instrument to Lender appropriately endorsed to Lender and, regardless of the form of any
presentment, demand, notice of dishonor, protest, and notice of protest with respect thereto,
Borrower will remain liable thereon until such instrument is paid in full. Upon receipt by Lender
of payment in respect of any instrument which has been delivered to Lender, the proceeds of such
instrument or instruments shall be applied to reduction of the outstanding Obligations.



     3.03 PHYSICAL INVENTORY



     Borrower shall conduct a physical count of the Inventory at such intervals as Lender
reasonably requests and promptly supply Lender with a copy of such accounts accompanied by a
report of the value (calculated on the lower of cost or market basis) of the Inventory and such
additional information with respect to the Inventory as Lender may reasonably request from
time-to-time. The foregoing notwithstanding, at such time as Borrower has implemented a perpetual
Inventory accounting system acceptable to and approved by Lender, Lender and Borrower shall
reevaluate the frequency with which physical Inventory must be conducted by Borrower; provided,
however, that any agreement changing the frequency with which physical inventories are to be
conducted shall be without restriction upon Lender’s right to require Borrower to perform physical
inventories more frequently upon the subsequent occurrence of any Event of Default, Incipient
Default or if at any time Lender shall reasonably be concerned with the accuracy, integrity, or
other proper operation of Borrower’s perpetual Inventory accounting system.



     3.04 RETURNS



     For so long as no Event of Default has occurred and is continuing, if any account debtor
returns any Inventory to Borrower in the ordinary course of its business, Borrower shall promptly
determine the reason for such return and promptly issue a credit memorandum to the account debtor
(sending a copy to Lender of all such credit memorandum in excess of Fifty Thousand and 00/100
Dollars ($50,000.00)) in the appropriate amount. In the event any attempted return occurs after
and during the continuance of the occurrence of an Event of Default, but only as to those Events of
Default with respect to which Lender has given written notice to Borrower, Borrower shall (i) hold
the return Inventory in trust for Lender; (ii) segregate all returned Inventory in trust for
Lender; (iii) segregate all returned Inventory from all of its other property; (iv) conspicuously
label the returned Inventory as Lender’s property; and (v) immediately notify Lender of the return
of any Inventory, specifying the reason for such return, the location and condition of the returned
Inventory, and on Lender’s request deliver such returned Inventory to Lender. Borrower shall not
consign any Inventory.



     4.00 PRINCIPAL PAYMENTS; PROCEEDS OF COLLATERAL



     4.01 PRINCIPAL PAYMENTS



     That portion of the Obligations consisting of principal payable on account of the Revolving
Line of Credit Loans shall be payable by Borrower to Lender immediately upon the earliest of (i)
the receipt by Lender or Borrower of any proceeds of any of the Collateral from the sale or
disposition of the Collateral (not otherwise permitted by this Agreement or any of the other Loan
Documents) to the extent of said proceeds; (ii) the occurrence of an Event of Default in
consequence of which Lender elects to accelerate the maturity and payment of such Revolving Line of
Credit Loan; or (iii) any termination of this Agreement; provided, however, that any over advance
shall be payable on demand. Upon any acceleration of the maturity of the Loans or upon the earlier
termination of the Revolving Line of Credit Loan, the full amount of any and all Loans shall
simultaneously be due and payable in full.



12









 





     4.02 COLLECTIONS



     Until the occurrence of an Event of Default, Borrower may make collection of all Receivables.
Upon the occurrence of an Event of Default (subject to grace and cure periods) Borrower shall
collect all Receivables for Lender and shall receive all payments as trustee of Lender and
immediately deliver all payments to Lender in their original form as set forth below, duly endorsed
in blank unless otherwise notified to the contrary by Lender. Lender or its designee may, in the
circumstances described below, notify account debtors that the Receivables have been assigned to
Lender and of Lender’s security interest therein. Lender may only give the foregoing notification
to account debtors at any time when there exists and Event of Default or Incipient Default, or
absent the existence of an Event of Default or Incipient Default, if in Lender’s good faith
judgment, based upon credible evidence, Lender believes that (a) the proceeds of Lender’s
Collateral resulting from the sale or other disposition (not otherwise permitted by this Agreement
or any of the Loan Documents) are being diverted from it, or (b) the Borrower’s properties or
assets are otherwise being misappropriated (the foregoing events being referred to herein as
“Designated Collateral Impairment Events”). After the occurrence of and Event of Default or any
Designated Collateral Impairment Event, Lender may collect the Receivables directly if elected by
Lender, and charge the collection costs and expenses to Borrower’s Loan Account. Borrower agrees
that, in computing the charges under this Agreement, all items of payment shall be deemed applied
by Lender on account of the Obligations one (1) Business Day after receipt by Lender of good funds
which have been finally credited to Lender’s account. Lender is not, however, required to credit
Borrower’s Loan Account for any amount of any item of payment which is unsatisfactory to Lender in
its reasonable discretion and Lender may charge Borrower’s Loan Account for the amount of any item
of payment which is returned to Lender unpaid. In the event that Lender determines not to credit
Borrower’s Loan Account for any item which is unsatisfactory to Lender, Lender shall give prompt
notice thereof to Borrower, designating the reason such item was determined to be unsatisfactory,
and shall reasonably cooperate with Borrower in obtaining a replacement satisfactory item or
otherwise correcting the reason such item was unsatisfactory.



     4.03 ESTABLISHMENT OF A BLOCKED ACCOUNT



     Upon the occurrence of an Event of Default, all proceeds of Collateral shall, at the direction
of Lender, be deposited by Borrower into a lock box account, or such other “Blocked Account” as
Lender may require (the “Blocked Account”) with Lender. All funds deposited in the Blocked Account
shall immediately become the sole property of Lender.



     4.04 PAYMENTS WITHOUT DEDUCTION



     Borrower shall pay principal, interest and all other amounts payable hereunder, or under any
related agreement, without any deduction whatsoever, including, but not limited to, any deduction
for any set off or counterclaim.



     4.05 COLLECTION DAYS UPON REPAYMENT



     In the event Borrower repays the Obligations in full, at any time hereafter, such payment in
full will be credited (conditioned upon final collection) to Borrower’s Loan Account, one (1)
Business Day after Lender’s receipt thereof.



     5.00 RECEIVABLES



     5.01 ELIGIBILITY



     Borrower represents and warrants that each Receivable covers and will cover a bona
fide sale or lease and delivery by it of goods or the rendition by it of services in the
ordinary course of its business, and will be for a liquidated amount and Lender’s security interest
will not be subject to any offset, deduction, counterclaim, rights of return or cancellation, lien
or other condition. If any representation of warranty is breached as to any Receivable, or any
Receivable ceases to be an Eligible Receivable for any reason other than payment thereof, than
Lender may, in addition to its other rights hereunder, designate any and all Receivables owing by
that account debtor as not Eligible Receivables; provided, that Lender shall in any such event
retain its security interest in all Receivables, whether or not Eligible Receivables, until the
Obligations have been fully satisfied and Lender’s obligation to provide Loans hereunder is
terminated.



13









 





     5.02 DISPUTES



     Borrower shall notify Lender promptly of all disputes and claims in excess of One Hundred
Thousand and 00/100 Dollars ($100,000.00) and settle or adjust such disputes or claims at no
expense to Lender, but no discount, credit or allowance shall be granted any account debtor and no
returns of merchandise shall be accepted by Borrower without Lender’s consent, except for
discounts, credits and allowances made or given in the ordinary course of Borrower’s business or
where such amount is less than One Hundred Thousand and 00/100 Dollars ($100,000.00). Lender may,
at any time after the occurrence of an Event of Default as to which Event of Default Lender has
given written notice to Borrower, settle or adjust disputes and claims directly with account
debtors for amounts and upon terms which Lender considers advisable in its reasonable credit
judgment and, in all cases, Lender will credit Borrower’s Loan Account with only the net amounts
received by Lender and payment of any Receivables.



     6.00 THE COMMERCIAL TERM LOAN FACILITY



     6.01 THE COMMERCIAL TERM LOAN



     A Twelve Million One Hundred Four Thousand and 00/100 Dollars ($12,104,000) Commercial Term
Loan (the “Commercial Term Loan”) will be made available to the Borrower. The Commercial Term Loan
shall be repaid over a seven (7) year amortization schedule with fixed monthly principal and
interest payments.



     6.02 CALCULATION AND PAYMENT OF INTEREST



     The Borrower shall pay interest to the Lender, on the outstanding and unpaid principal amount
of the Loan made under this Agreement at a rate per annum equal to six and twenty-three one
hundredth percent (6.23%).



     Interest on the Commercial Term Loan shall be calculated on the basis of a year of 360 days
for the actual number of days elapsed for any payment period.



     6.03 THE TERM LOAN PROMISSORY NOTE



     The Commercial Term Loan made by the Lender under this Agreement shall be evidenced by, and
repaid with interest in accordance with a Commercial Term Promissory Note substantially in the
form of Exhibit “D”.



     6.04 USE OF PROCEEDS



     The Term Loan shall be used only to refinance certain indebtedness due the Lender and to fully
pay outstanding indebtedness due Tomkins Corporation.



     7.00 THE COMMERCIAL REAL ESTATE TERM LOAN FACILITY



     7.01 THE COMMERCIAL REAL ESTATE TERM LOAN



     A Five Million Eight Hundred Ninety Six Thousand and 00/100 Dollar ($5,896,000) Commercial
Real Estate Loan (the “Commercial Real Estate Term Loan”) will be made available to the Borrower.
The Commercial Real Estate Loan shall be repaid over a twenty (20) year amortization schedule with
a ten (10) year maturity, fixed monthly principal and interest payments.



     7.02 CALCULATION AND PAYMENT OF INTEREST



     The Borrower shall pay interest to the Lender, on the outstanding and unpaid principal amount
of the Loan made under this Agreement at a rate per annum equal to six and eighty-five one
hundredths percent (6.85%).



14









 





     Interest on the Commercial Real Estate Term Loan shall be calculated on the basis of a year of
360 days for the actual number of days elapsed for any payment period.



     7.03 THE COMMERCIAL REAL ESTATE TERM LOAN PROMISSORY NOTE



     The Commercial Real Estate Loan made by the Lender under this Agreement shall be evidenced by,
and repaid with interest in accordance with a Commercial Real Estate Term Promissory Note
substantially in the form of Exhibit “E”.



     7.04 USE OF PROCEEDS



     The Commercial Real Estate Loan shall be used only to refinance certain indebtedness due the
Lender and to fully pay outstanding indebtedness due Tomkins Corporation.



     8.00 THE EQUIPMENT LINE OF CREDIT FACILITY (“EQUIPMENT LINE OF CREDIT”)



     8.01 THE EQUIPMENT LINE OF CREDIT AGREEMENT



     Lender agrees to make available on or after May 1, 2005, an Equipment Line of Credit referred
to as the “Equipment Loans” or “Equipment Line of Credit Loan” to Borrower to a maximum aggregate
principal sum of Five Million and 00/100 Dollars ($5,000,000) until April 30, 2006, in accordance
with an Equipment Line of Credit Note annexed hereto as Exhibit “F”. Advances shall only
be made if, in the reasonable opinion of the Lender, there has been no material adverse change in
the Borrower’s financial condition and no Event of Default has occurred and is continuing under
this Agreement. No Equipment Loan shall exceed eighty percent (80%) of the cost of any equipment
being financed in connection herewith. Loans subject to the Available Amount, shall be repayable
in accordance with the terms hereof, with Loans made from time-to-time during the period from the
date of this Agreement, up to, but not including, the date of the earlier of (i) the date when
demand is made for repayment of the Equipment Line of Credit on or after the occurrence of an Event
of Default or (ii) the Conversion Date. Loans may be in any amount within the limits of the
Available Amount and within such limits, the Borrower may borrow and repay pursuant to Section
10.02 and re-borrow under this Section 8.01 on such terms and conditions as are contained herein.



     The Borrower shall pay interest to Lender, which shall be calculated daily and payable
monthly, in arrears on the outstanding and unpaid principal amount of the Equipment Line of Credit
Loan made under this Agreement during the preceding month prior to the Conversion Date at a rate
per annum as follows:



     A. For a Prime Loan at a rate equal to Prime Rate; or



     B. For LIBOR Loan at a rate equal to the adjusted LIBOR Interest Rate, plus two and one-half
percent (2.50%) based upon the Interest Period selected by the Borrower and confirmed in writing
to the Borrower following Borrower’s request for a LIBOR Loan or a conversion to a LIBOR Loan, as
set forth in Section 8.05, below. Notwithstanding the forgoing, the LIBOR Interest Rate for a LIBOR
Loan shall be reduced to LIBOR, plus two and one-quarter percent (2.25%) when Maximum Leverage is
less than or equal to 2.00:1.00 and shall be further reduced to LIBOR, plus two percent (2.00%) at
such time when Maximum Leverage is equal to or less than 1.25:1.00.



     All Equipment Loans shall be secured, inter alia, by first purchase money
security interest(s) in the specific items of personal property to be purchased by Borrower from
time-to-time, as well as the security interest granted in Section 11.00, 11.01 and 11.02 herein,
which said purchases are to be the subject of prior presentment to Lender for approval in each
instance, utilizing the Collateral Rider form annexed hereto as Exhibit “G”.



     At such time as Lender approves each Collateral Rider and each Equipment Loan is made to
Borrower; Lender then shall receive, inter alia, a first purchase money security
interest in and to said Collateral as security for payment and performance of the Obligations.



15









 





     The aggregate availability of all Equipment Loans shall cease on April 30, 2006 (the
“Conversion Date”) at which time the (then) unpaid outstanding principal balance shall convert and
be repaid over and up to the seven (7) year amortization schedule, as more fully described in the
Equipment Line of Credit Note.



     Borrower shall, in each instance in which a Collateral Rider is presented to Lender for
approval, have evidence of ability to receive good and marketable title(s) in and to said
Collateral from seller thereof, and availability of title(s) or Certificate(s) of Origin (if
applicable), for tender to Lender at the time the loan is granted; all satisfactory to Lender in
its sole, but reasonable discretion in each instance.



     8.02 ELIGIBILITY FOR BORROWING UNDER THE EQUIPMENT LINE



     At all times, it will be within the continuing, reasonable discretion of the Lender whether to
make, or continue to make further Equipment Loans of any amount under this Agreement, without the
requirement of any prior notice to Borrower, and even if the said Available Amount has not (then)
been loaned at the time of any such request.



     Nothing herein shall be construed to restrict the Lender, in it sole and exclusive discretion,
from making Loans in excess of the stated Available Amount, or waiving other requirements upon
Collateral herein, without executing any additional notes, security agreement(s) and its so doing
in any instance, shall not waive its rights to insist upon strict compliance with the terms hereof
at any other time, and to further rely upon all Collateral secured to it for satisfaction of all
Equipment Loans, without exception.



     8.03 REPAYMENT OF PRINCIPAL AND INTEREST, RATES AND CHARGES



     The next day following the Conversion Date, principal and interest shall be payable monthly,
based upon an up to a seven (7) year amortization schedule pursuant to the Equipment Term Note to
be executed by the Borrower.



     8.04 NOTICE AND MANNER OF BORROWING



     The Borrower shall give the Lender written, telefax or telegraphic notice (effective upon
receipt) of any Equipment Loans under this Agreement, on the Business Day of each Prime Loan, or at
least two (2) Business Days before each LIBOR Loan, specifying in each case: (1) the date of such
Loan; (2) the amount of such Loan; (3) the type of such Loan; and (4) in the case of a LIBOR Loan,
the duration of the Interest Period applicable thereto. Not later than 3:00 p.m. (EST) on the date
of such Loan and upon fulfillment of the applicable conditions set forth in Section 10.08.01 –
10.08.22, the Lender will make such Loan available to the Borrower in immediately available funds
by crediting the amount thereof to the Borrower’s Loan Account with the Lender.



     All notices given under this Section 8.04 shall be irrevocable and shall be given not
later than 2:00 p.m. (EST) on the day which is not less than the number of Business Days specified
above for such notice.



     8.05 CONVERSION AND RENEWALS



     Prior to the Conversion Date, the Borrower may elect from time-to-time to convert all, or a
part of, one type of Equipment Loan into another type of Loan permitted under the Revolving Line of
Credit facility, or to renew all or part of an Equipment Loan by giving the Lender notice at least
one (1) Business Day before the conversion into a Prime Loan and at least two (2) Business Days
before the conversion into or renewal of a LIBOR Loan; specifying in each case (1) the renewal or
conversion date; (2) the amount of the Loan to be converted or renewed; (3) in the case of
conversions, a specification that the Loan is to be converted from a Prime Loan to a LIBOR Loan or
vice versa, as the case may be; and (4) in the case of renewals of, or a conversion into LIBOR
Loans, the duration of the Interest Period applicable thereto; provided that:




	 	(a)  	the minimum principal amount of each Loan outstanding after a
renewal or conversion shall be Two Hundred Fifty Thousand and 00/100 Dollars
($250,000.00) or one Hundred





16









 











	 	   	Thousand and 00/100 Dollars ($100,000.00) multiples there above in the case
of LIBOR Loans; and
	 
	 	(b)  	LIBOR Loans can be converted only as of the last day of the
Interest Period for such Loan. All notices given under this Section 8.05 shall
be irrevocable and shall be given not later than 2:00 p.m. (EST) on the day
which is not less than the number of Business Days specified above for such
notice.





     If the Borrower shall fail to give the Lender the notice as specified above for the renewal or
conversion of a LIBOR Loan prior to the end of the Interest Period with respect thereto, such LIBOR
Loan shall automatically be converted into a Prime Loan on the last day of the Interest Period for
such Loan.



     8.06 INSPECTIONS



     The Lender, upon reasonable notice to the Borrower, and at the sole expense of Borrower
may, from time-to-time require Borrower to provide access to its books and records and to inspect
all Collateral, or undertake such additional or alternative actions as it deems appropriate in
connection with the maintenance of any Loan contemplated hereby. Borrower shall, at all times,
provide its full, prompt, and unlimited assistance to the Lender upon each such request, time being
of the essence.



     9.00 THE GUARANTOR



     9.01 GUARANTOR’S AGREEMENT



     Payment and performance of Borrower’s Obligations shall be unconditionally guaranteed by the
Guarantor, all as more fully described in Exhibit “H” attached hereto and incorporated by
reference.



     10.00 GENERALLY



     As to all Loan(s) made pursuant to this Agreement:



     10.01 CROSS DEFAULT



     A default beyond any applicable notice, grace or cure period, of any of the terms and
conditions of any Obligation of the Borrower to the Lender (including, without limitation any
reimbursement obligations arising out of any Letter(s) of Credit which the Lender may later issue
on behalf of the Borrower) or any document or instrument evidencing such an obligation shall
constitute a default of the Notes, this Agreement, and any other Obligations of the Borrower to the
Lender whether evidenced by notes or otherwise.



     10.02 METHOD OF PAYMENT



     All payments and prepayments of principal and all payments of interest, fees and other amounts
payable hereunder shall be made by the Borrower to the Lender at its Lending Office OR SUCH OTHER
PLACE AS THE LENDER MAY FROM TIME-TO-TIME SPECIFY IN WRITING in immediately available UNITED STATES
DOLLARS [LAWFUL CURRENCY OF THE UNITED STATES OF AMERICA], on or before 11:00 a.m. (Boston,
Massachusetts time) on the due date thereof, WITHOUT COUNTERCLAIM OR SETOFF AND FREE AND CLEAR OF,
AND WITHOUT ANY DEDUCTION OR WITHHOLDING FOR, ANY TAXES OR OTHER PAYMENTS. The Borrower hereby
authorizes the Lender, if and to the extent payment is not made when due under this Agreement or
under any Note, to charge from time-to-time against any account of the Borrower with the Lender any
amount so due. Whenever any payment to be made under this Agreement or under any Note 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 the payment of interest except, in the case of a LIBOR Loan, if the result of such
extension would be to extend such payment into another calendar month, such payment shall be made
on the immediately preceding Business Day.



17









 





     10.03 PREPAYMENT



     The Borrower may, with respect to any Prime Loan only, upon at least one (1) Business
Day’s notice to the Lender, prepay any Note in whole or in part, with accrued interest to the date
of such prepayment on the amount prepaid without any penalty or premium. LIBOR Loans where a fixed
rate of interest has been selected may not be prepaid without Borrower incurring and paying the
Lender, pursuant to the Funding Loss Indemnification, as provided in Section 10.11. If the
Commercial Real Estate Term Promissory, Commercial Term Promissory Note or the Equipment Line of
Credit Note (where a fixed rate of interest is applicable) are otherwise prepaid, there shall be a
prepayment penalty, equal to the greater of two percent (2.00%) of the principal balance being
prepaid or the Yield Maintenance Fee. Notwithstanding anything to the contrary contained herein,
there shall be no prepayment penalty if any Note is prepaid in whole or in part from excess cash
flow from the Borrower’s business operations.



     Notwithstanding anything to the contrary contained in the above prepayment clause, the Lender
agrees that in the event that (i) the Borrower seeks to consummate an acquisition whereby Borrower
shall be the surviving entity (the “Acquisition”), (ii) and Lender declines to finance such
Acquisition and does not agree to match a bona fide commitment from another lender
(the “Third Party Lender”) which agrees to finance such Acquisition (the “Acquisition Financing”),
that in the event that such Third Party Lender consummates such Acquisition Financing, the forgoing
prepayment penalty shall not apply if the Lender is fully paid off in connection with such
Acquisition Financing; provided, however, any outstanding LIBOR Loans shall still be subject to
funding loss indemnification if they are paid on or before the required LIBOR payment date.



     10.04 LATE PAYMENT



     Any payment on the Loans received more than ten (10) days after its due date shall be subject
to an additional charge of six percent (6.00%) of the amount due.



     10.05 [INTENTIONALLY DELETED]



     10.06 ADDITIONAL PAYMENTS



     If after the date of this Agreement the Lender determines that (i) the adoption of or change
in any law, rule, regulation or guideline regarding capital requirements for banks or bank holding
companies, or any change in the interpretation or application thereof by any governmental authority
charged with the administration thereof, or (ii) compliance by the Lender or any parent bank
holding company with any guideline, request or directive of any such entity regarding capital
adequacy (whether or not having the force of law), has the effect of reducing the return on the
Lender’s or such holding company’s capital as a consequence of the Lender’s agreement to make Loans
hereunder to a level below that which the Lender or such holding company could have achieved but
for such adoption, change or compliance (taking into consideration the Lender’s or such holding
company’s then existing policies with respect to capital adequacy and assuming the full utilization
of such entity’s capital) by any amount deemed by the Lender to be material, or (iii) as a result
from any change after the date of this Agreement in United States, Federal, State, Municipal or
Foreign Laws or Regulations (including Regulation D), or the adoption or making after the date of
any interpretations, directives or requirements applying to a class of banks, including the Lender
of or under any United States, Federal, State, Municipal or Foreign Laws or Regulations (whether or
not having the force of law) by any court or governmental or monetary authority charged with the
interpretation or administration thereof which changes the basis of taxation of any amounts payable
to the Lender under this Agreement, including, without limitation, the LIBOR or Prime Rate
Revolving Line of Credit Loan or Loans, Commercial Term Loan, Commercial Real Estate Term Loan and
Equipment Line of Credit Loan, other than taxes imposed on the overall net income of the bank for
any of such loans by the jurisdiction where the Lending Office of the Lender is located), then the
Lender shall notify the Borrower thereof. The Borrower agrees to pay to the Lender the amount of
such reduction in the return on capital as and when such reduction is determined, upon presentation
by the Lender of a statement in the amount and setting forth the Lender’s calculation thereof,
which statement shall be deemed true and correct absent manifest error. In determining such amount,
the Lender may use reasonable averaging and attribution methods.



18









 





     10.07 TENURE OF THE LOAN AND SECURITY AGREEMENT



     This Agreement shall become effective upon the execution by the parties hereto. When so
executed, this Agreement shall be binding on, and inure to, the benefit of the respective
successors and permitted assigns of the Borrower (if authorized by the Lender, in writing, in the
Lender’s reasonable discretion), and of the Lender, and shall continue in full force and effect and
unchanged except by agreement in writing between the Borrower and the Lender until terminated as
hereinafter provided.



     Termination of the Revolving Line of Credit under any circumstances, shall not
terminate any of the Borrower’s obligations hereunder of affect any of the Lender’s rights or
remedies, under this Agreement, or otherwise, with respect to any obligations or with respect to
any of the Borrower’s Collateral or other surety, or Collateral security provided to Lender by any
of them, it being understood and agreed that all rights, remedies, and privileges granted to the
Lender pursuant to this Agreement, the Notes, or any other document and instrument, shall continue
in full force and effect until payment in full of all Obligations.



     10.08 CONDITIONS PRECEDENT



     The obligation of the Lender to make a LIBOR or Prime Rate Revolving Line of Credit Loan or
Loans, the Commercial Term Loan, the Commercial Real Estate Term Loan and any Equipment Line of
Credit Loan shall be subject to the condition precedent that the Lender shall have received on or
before the day of such transaction each of the following, in form and substance satisfactory to the
Lender and its counsel in their reasonable discretion:



          10.08.1 EXECUTION OF NOTES



     The applicable Note duly executed by the Borrower.




		
	          10.08.2 	EVIDENCE OF BORROWER’S AUTHORITY AND INCUMBENCY OF REPRESENTATIVES.





          Certified (as of the date of this Agreement) copies of all corporate action taken by the
Borrower, including resolutions of its Board of Directors, authorizing the execution, delivery, and
performance of the Loan Documents to which it is a party and each other document to be delivered
pursuant to this Agreement together with a certificate (dated as of the date of this Agreement) of
the Secretary of the Borrower certifying the names and true signatures of the officers of the
Borrower authorized to sign the Loan Documents to which it is a party and the other documents to be
delivered by the Borrower under this Agreement.




		
	          10.08.3 	EVIDENCE OF GUARANTOR’S AUTHORITY AND INCUMBENCY OF REPRESENTATIVES.





          Certified (as of the date of this Agreement) copies of all corporate action taken by the
Guarantor, including resolutions of its Board of Directors, authorizing the execution, delivery,
and performance of the Loan Documents to which it is a party and each other document to be
delivered pursuant to this Agreement together with a certificate (dated as of the date of this
Agreement) of the Secretary of the Guarantor certifying the names and true signatures of the
officers of the Guarantor authorized to sign the Loan Documents to which it is a party and the
other documents to be delivered by the Guarantor under this Agreement.



          10.08.4 OPINION



          A favorable opinion of counsel for the Borrower and Guarantor, dated the date of the Loan, in
such form as is acceptable to the Lender and as to such other matters as the Lender may reasonably
request.



19









 





          10.08.5 OFFICER’S CERTIFICATE, ETC.



          The following statements shall be true and the Lender shall have received a certificate signed
by a duly authorized officer of the Borrower dated the date of the Loan stating that:




     a) The representations and warranties contained in Section 12.00 of
this Agreement are correct on and as of the date of the Loan as though made
on and as of such date; and




     b) No Incipient Default or Event of Default has occurred and is
continuing, or would result from the making of the Loan.



          10.08.6 FLOOD CERTIFICATES



          Lender shall have received and approved Flood Certificates concerning the Mortgaged Premises.



          10.08.7 APPRAISALS



          Appraisals of the machinery and equipment of Borrower, satisfactory to the Lender in
scope and as to the values reported therein.



          10.08.8 SOLVENCY CERTIFICATE



          Lender shall have received an executed Solvency Certificate as more fully described in
Exhibit “I”.



          10.08.9 TITLE INSURANCE



          A mortgagee’s policy of title insurance issued on the 1970 ALTA form by a nationally
recognized title company, approved by Lender, in the aggregate face amount of Five Million Eight
Hundred Ninety Six Thousand and 00/100 Dollars ($5,896,000), together with such reinsurance and
direct access agreements as Lender may request, guarantying as of the date of closing, the mortgage
to be a valid first and prior lien on Borrower’s ownership interest in the Mortgaged Premises
(including any easements appurtenant thereto), subject only to Permitted Encumbrances. The title
policy shall contain such endorsements as Lender may require.



          10.08.10 SURVEY



          A survey of the Mortgaged Premises, the building and other improvements, certified to the
Lender and the title company by a surveyor satisfactory to the Lender, which survey shall contain
the minimum detail for land surveys as most recently adopted by ALTA/ASCM, and which survey shall
comply with Lender’s survey requirements and shall contain Lender’s standard form certification.
Said survey shall show no state of facts or conditions objectionable to Lender.



          10.08.11 HAZARD INSURANCE



          Insurance policies acceptable to Lender which name Lender as mortgagee, loss payee and
additional insured with coverages acceptable to Lender or Evidence of Insurance evidencing same.



          10.08.12 UCC AND TAX LIEN SEARCHES



          Uniform Commercial Code and tax lien searches made in the Commonwealth of Massachusetts, the
City of Springfield, Massachusetts, the State of Delaware and the State of Maine, showing no
filings relative to any Collateral other than those made pursuant to this Agreement, and no federal
or state tax liens against Borrower or any Guarantor.



20









 





          10.08.13 CORPORATE DOCUMENTATION



          Certified copies of the Borrower’s Articles of Incorporation, By-Laws, Certificates of Good
Standing from the Secretary of State’s Office and Department of Revenue Office and original
Corporate Resolutions, Certificates of Incumbency with specimen signatures.



          10.08.14 APPRAISAL



          An independent appraisal of the Mortgaged Premises in compliance with FIRREA standards from a
state certified appraiser engaged by Lender which indicates the fair market value of the Mortgaged
Premises and is satisfactory to Lender in all respects.



          10.08.15 ENVIRONMENTAL ASSESSMENT



          An environmental site assessment with respect to the Mortgaged Premises prepared by an
environmental consultant satisfactory to Lender showing no matters unsatisfactory to Lender, a
letter from the consultant preparing the environmental site assessment stating that the Lender is
authorized to rely on the information contained therein and evidence satisfactory to the Lender of
said environmental consultants errors and omissions insurance coverage.



          10.08.16 [INTENTIONALLY DELETED]



          10.08.17 [INTENTIONALLY DELETED]



          10.08.18 ZONING



          Evidence satisfactory to Lender as to zoning compliance of the Mortgaged Premises.



          10.08.19 [INTENTIONALLY DELETED]



          10.08.20 PERFECTION CERTIFICATE



          A perfection certificate completed with respect to the Borrower and which is satisfactory to
Lender in all respects. A copy of such perfection certificate is annexed hereto as Exhibit
“J”.



          10.08.21 OPERATING AND FINANCIAL STATEMENTS



          Current financial statements satisfactory to Lender for Borrower and any Guarantor, together
with operating and cash flow statements for the Mortgaged Premises.



          10.08.22 OTHER ITEMS



          Such other approvals, opinions, certificates, documents and/or instruments as Lender may
require in its reasonable discretion.



     10.09 POWER OF ATTORNEY



     Borrower appoints Lender and its designees as Borrower’s attorney, with the power
after the occurrence of any Event of Default or of any Designated Collateral Impairment Event, to
endorse Borrower’s name on any checks, notes, acceptances, money orders or other forms of payment
or security that come into Lender’s possession; to sign Borrower’s name on any invoice or bill of
lading relating to any Receivable, on drafts against customers, on assignments of receivables, on
notices of assignment, financing statements and other public records, and on verifications of
accounts sent to account debtors; to send requests for verification of Receivables to customers or
account debtors; to sign Borrower’s name on notices to customers or account debtors, to notify
account debtors that the Receivables have been assigned to



21









 







Lender and of Lender’s security interest therein, and to notify the post office authorities to
change the address for delivery of Borrower’s mail to an address designated by Lender and to open
and dispose of all mail addressed to Borrower; and to do all other things Lender deems necessary
and desirable to carry out the terms of this Agreement. Borrower hereby ratifies and approves all
acts of such attorney. Neither Lender nor any of its designees will be liable for any acts or
omissions nor for any error of judgment or mistake of fact or law acting as Borrower’s attorney,
unless caused by Lender’s or its designees gross negligence or willful misconduct. This power,
being coupled with an interest, is irrevocable until the Obligations have been fully satisfied and
Lender’s obligation to provide Loans hereunder shall have terminated.



     10.10 FEDERAL RESERVE BANK



     Notwithstanding anything to the contrary contained herein, Lender may at any time pledge or
assign all or any portion of Lender’s rights under this Agreement and the other Loan Documents to
a Federal Reserve bank; provided, however, that no such pledge or assignment shall
release the Lender from Lender’s obligations hereunder or any other Loan Documents.



     10.11 FUNDING LOSS INDEMNIFICATION



     The Borrower shall pay to the Lender, upon the request of the Lender, such amount or amounts
as shall be sufficient (in the reasonable opinion of the Lender) to compensate it for any loss,
cost, or expense (including the then present value of any lost interest earnings as a result of any
re-deployment of prepaid funds) incurred as a result of:




	 	(1)  	Any payment of a LIBOR Loan on a date other than a scheduled
principal payment day or the last day of the Interest Period for such Loan
including, but not limited to, acceleration of the Loans by the Lender pursuant
to Section 19.00; or
	 
	 	(2)  	Any failure by the Borrower to borrow or convert, as the case
may be, a LIBOR Loan on the date for borrowing or conversion, as the case may
be, specified in the relevant notice provision under Sections 2.02 and 2.03 or
8.04 and 8.05; or





     10.12 ILLEGALITY



     Notwithstanding any other provision in this Agreement, if the Lender determines that any
applicable law, rule, or regulation, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank, or comparable agency charged
with the interpretation or administration thereof, or compliance by the Lender (or its Lending
Office) with any request or directive (whether or not having the force of law) of any such
authority, central bank, or comparable agency, shall make it unlawful or impossible for the Lender
(or its Lending Office) to maintain its commitment, then upon notice to the Borrower by Lender, the
rate of interest being charged to Borrower shall convert and float at the Prime Rate.



     10.13 DISASTER



     Notwithstanding anything to the contrary contained herein, if the Lender determines (which
determination shall be conclusive) that:



     (1) Quotations of interest rates for the relevant deposits referred to in the definition of
LIBOR as the case may be, are not being provided in the relevant amounts or for the relative
maturities for purposes of determining the rate of interest on a LIBOR Loan as provided in this
Agreement; or



     (2) the relevant rates of interest referred to in the definition of LIBOR, upon the basis of
which the rate of interest for any such type of loan is to be determined do not accurately cover
the cost to the Lender of making or maintaining such type of loan; then the Lender shall forthwith
give notice thereof to the Borrower, whereupon the rate of interest being charged to Borrower shall
convert and float at the Prime Rate.



22









 





     10.14 SWAP



     Borrower may enter into a SWAP agreement or other similar agreement or arrangement with Lender
or its affiliates with respect to any or all LIBOR Loans (any such agreement or arrangement shall
be in form and substance reasonably satisfactory to Lender) in order to hedge or minimize risk with
respect to the fluctuation of interest rates (the “SWAP Agreement”). The SWAP Agreement shall be
for a stipulated term, and shall, at all times, be in a notional amount sufficient to cover all
principal amounts outstanding from time to time under the respective Loan. If the SWAP Agreement
shall expire and leave any principal of the Loan uncovered thereby, or if for any other reason any
principal portion of the Loan shall be uncovered by the SWAP Agreement, such uncovered amount shall
be immediately due and payable. Interest rate SWAP’s are subject to a make whole provision in the
event of a prepayment. In the event that interest rates have moved downward, the Borrower will be
responsible to the Lender for such payment.



     11.00 SECURITY INTEREST



     Borrower, for valuable consideration received, hereby pledges, assigns, transfers and grants
to Lender, a continuing lien and security interest in all of Borrower’s tangible and intangible
personal property and chose-in-action, including, without limitation, all materials, equipment,
goods, inventory, accounts, including health care insurance receivables, accounts receivable,
contracts rights, chattel paper, general intangibles, including payment intangibles and amounts
owed by other than customers regardless of whether or not they constitute proceeds of other
Collateral; all chose-in-action, cash, cash deposits, securities, documents, rebates, documents of
title, instruments, deposit accounts, debts, refunds, letter of credit rights, supporting
obligations, new and used motor vehicles, policies and certificates of insurance, obligations and
liabilities in whatever form owing from any person, corporation or other legal entity, including
all replacements and substitutions therefore or accessions thereto; all books, records, evidence
of title, good will, and all papers relating to the operation of the Borrower’s business; all
federal, state and local tax refunds and/or abatements and any loss forward and carry back tax
refunds; computer programs; all fixtures, leases, any and all equipment leases, rentals and other
sums payable thereunder, other chattel paper, purchase option payments, lessor’s interest in leased
equipment and insurance proceeds; licenses or interests in real estate; all liens, guarantees,
investment property, including without limitation, securities, stocks, bonds, warrants, options,
rights, remedies and privileges pertaining to all of the foregoing. Also including, without
limitation, all equipment or inventory described in Collateral Riders, so-called, executed by
Borrower from time-to-time and incorporated by reference herein as restated together with products
and proceeds thereof and all accessions and additions thereto and all replacements and
substitutions therefore, and all proceeds of credit, fire, casualty, or other insurance upon said
property, or any of the above which are acquired with any cash proceeds, or other collateral, (all
hereinafter called the “Collateral”). The term “proceeds” shall include, without limitation, all
types or classifications of non-cash proceeds acquired with cash proceeds. Notwithstanding
anything in this Agreement or the other Loan Documents to the contrary, the Collateral described in
this Agreement or in the other Loan Documents shall not include: (a) any intangible which
constitutes intellectual property of the Borrower (including, without limitation, the “Smith &
Wesson” trade name and any trade secrets, know-how, licenses, trade names, logos, registrations,
patents, patent applications, copyrights, copyright applications, trademarks or trademark
applications); or (b) any licenses leases or other contracts to the extent that the granting of a
security interest therein would constitute a breach thereof or is prohibited thereby and such
prohibition is not ineffective under Sections 9-406(d), 9-407, 9-408 or 9-409 of the Uniform
Commercial Code; provided, further (x) all accounts arising under such licenses, leases or other
contracts shall be included in the definition of Collateral and shall constitute Collateral and (y)
the Collateral shall include all payments and other property received or Receivable in connection
with any sale or other disposition of such licenses, leases or other contracts.



     11.01 The security interest granted hereby is to secure payment and performance of all
Obligations from Borrower to Lender, together with all interest, and all reasonable fees, charges
and expenses including expenses of the Lender’s counsel in the maintaining, foreclosing and selling
of any of the Collateral.



     11.02 IT IS THE TRUE, CLEAR, AND EXPRESS INTENTION OF THE Borrower that the continuing grant
of this security interest remain as security for payment and performance of all Obligations,
whether now existing, or which may hereinafter be incurred by future advances, or otherwise; and
whether, or not, such obligation is related to the



23









 







transaction described in this Agreement, by class, or kind, or whether or not contemplated by
the parties at the time of the granting of this security interest. The notice of the continuing
grant of this security interest therefore shall not be required to be stated on the face of any
document representing any such obligation, nor otherwise identified it as being secured hereby.



     12.00 REPRESENTATIONS AND WARRANTIES, GENERALLY



     Borrower also represents, warrants and agrees that:



     12.01 CHIEF EXECUTIVE OFFICE



     It has no chief executive office, or principal place of business, or principal mailing
address, other than that shown above and that Borrower also keeps its records concerning accounts,
contract rights and other property, as well as all Collateral, at said location, unless otherwise
specified in Exhibit “K”, attached to this Agreement. Borrower will immediately notify
Lender in writing of any change in the location of any place of business or intention to change the
location of any Collateral or the establishment of any new chief executive office, principal place
of business, or location of inventory, or office where its aforesaid records are kept.



     12.02 GOOD STANDING



     Borrower is duly organized and existing in good standing under the laws of the State of
Delaware and is duly qualified to do business under the laws of each state where the nature of the
business done or property owned requires such qualification, except where the failure to be so
qualified could not reasonably be expected to have a material adverse effect on the Borrower.



     12.03 CORPORATE AUTHORITY



     Borrower’s delivery and performance hereof are within Borrower’s corporate powers, have been
duly authorized by vote of the Board of Directors, and are not in contravention of the terms of,
and will not result in any event of default under Borrower’s Articles of Organization, by-laws, or
other incorporation papers, or of any material indenture, promissory note, agreement or undertaking
to which Borrower is a party or by which it is bound or affected. All of Borrower’s issued and
outstanding capital stock has been properly issued and all Borrower’s books and records, in
particular its minute books, by-laws, and books of account, are accurate and up-to-date and will be
so maintained.



     12.04 PERFECTION



     Borrower agrees that any failure of perfection or other bar to lawful enforcement of said
security agreements, liens, pledges of assets of any kind or nature, wholly or in part, shall not
constitute an impairment of said Collateral by the Lender and the undersigned specifically agrees
that any such happening shall not cause, or give rise to, a waiver, or other defense by it, upon
its Obligations hereunder or upon all obligations incurred by it upon any guaranty, pledge,
endorsement, or other agreement executed by it in connection with this financial transaction, which
shall remain at all times due and owing, in their original tenor.



     12.05 LEGALLY ENFORCEABLE AGREEMENT



     This Agreement is, and each of the other Loan Documents when delivered under this Agreement
will be, legal, valid, and binding obligations of the Borrower in accordance with their respective
terms, except to the extent that such enforcement may be limited by applicable bankruptcy,
insolvency, and other similar laws affecting creditors’ rights generally.



24









 





     12.06 FINANCIAL STATEMENTS



     The balance sheet of the Borrower and the related statements of income and retained
earnings and cash flow of the Borrower for the fiscal year then ended, and the accompanying
footnotes, together with any interim financial statements of the Borrower, copies of which have
been furnished to the Lender, are complete and correct and fairly present the financial condition
of the Borrower, in all material respects, as at such dates and the results of the operations of
the Borrower for the periods covered by such statements, all in accordance with GAAP consistently
applied (subject to year-end adjustments in the case of the interim financial statements), and
there has been no material adverse change in the condition (financial or otherwise), business, or
operations of the Borrower since the presentation to the Lender of the most recently dated
financial statements, nor are there any liabilities of the Borrower, fixed or contingent, which are
material but are not reflected in such financial statements or in the notes thereto, other than
liabilities arising in the ordinary course of business. No information, exhibit or report furnished
by the Borrower to the Lender in connection with the negotiation of this Agreement contained any
material misstatement of fact or omitted to state a material fact or any fact necessary to make the
statement contained therein not materially misleading.



     12.07 PRO FORMAS The consolidated and consolidating pro forma
financial statements of the Borrower as of the date of this Agreement being delivered herewith to
the Lender are (and all financial statements hereafter delivered pursuant to this Agreement) will
be complete and accurate, fairly presenting the financial condition of the Borrower in all material
respects as of the date thereof and for the periods covered thereby, all being prepared in
accordance with GAAP consistently applied throughout the relevant periods. Borrower has no
liability, contingent or otherwise, not disclosed in the aforesaid financial statements or in any
notes thereto that could materially adversely affect the financial condition of the Borrower. The
Borrower has delivered to the Lender projected balance sheets and statements of income for each of
the fiscal years ending April 30, 2005 through April 30, 2007. The projected financial statements
referred to in the preceding sentence (including the material assumptions and adjustments made in
their preparation) were reasonable when made and continue to be reasonable, subject to the
reasonable uncertainty in any projections. The following representations are true at the date
hereof and shall be true at the date of each Advance, in each case since the date of the most
recently delivered financial statements: (i) there has been no material adverse change in the
business, assets or condition, financial or otherwise of the Borrower; (ii) neither the business,
condition or operations of the Borrower nor any of its respective properties or assets had
materially adversely affected as the result of any legislative or regulatory change, any revocation
or change in any franchise, license or right to do business, or any other event or occurrence,
whether or not insured against; (iii) Borrower has experienced no material controversy or problem
with its employees or with any labor organizations; and (iv) Borrower has not entered into any
material transaction not disclosed to Lender other than in the ordinary course of business.



     12.08 LABOR DISPUTES AND ACTS OF GOD



     Neither the business nor the properties of the Borrower are affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of
God or of the public enemy, or other casualty (whether or not covered by insurance), materially and
adversely affecting such business or properties or the operation of the Borrower.



     12.09 OTHER AGREEMENTS



     The Borrower is not a party to any indenture, loan or credit agreement, or to any lease or
other agreement or instrument, or subject to any charter or corporate restriction which could have
a material adverse effect on the business, properties, assets, operations, or conditions, financial
or otherwise, of the Borrower, or the ability of the Borrower to carry out its obligations under
the Loan Documents to which it is a party. The Borrower is not in default in any material respect
in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions
contained in any agreement or instrument material to its business to which it is a party.
Notwithstanding the foregoing, the Lender acknowledges that it is aware of the issues with respect
to the HUD settlement described in the excerpt from the Form 10-K of the Guarantor, which is
attached hereto as Schedule 12.09.



25









 





     12.10 LITIGATION



     There is no pending or threatened action or proceeding against or affecting the Borrower
before any court, governmental agency, or arbitrator, which may, in any one case or in the
aggregate, materially adversely affect the financial condition, operations, properties, or business
of the Borrower or the ability of the Borrower to perform its obligations under the Loan Documents
to which it is a party. Notwithstanding the foregoing, the Lender acknowledges that it is aware of
the SEC investigation and lawsuits referred to in the Forms 10-K and 10-Q of the Guarantor,
including without limitation, those referenced to the excerpts of the Forms 10-K and 10-Q, which
are attached hereto as Schedule 12.10.



     12.11 NO JUDGMENTS



     The Borrower has satisfied all judgments, and the Borrower is not in default with
respect to any judgment, writ, injunction, decree, rule or regulation of any court, arbitrator, or
Federal, state, municipal, or other governmental authority, commission, board, bureau, agency, or
instrumentality, domestic or foreign.



     12.12 ERISA



     The Borrower is to the best of its knowledge in compliance in all material respects with all
applicable provisions of ERISA. Neither a Reportable Event nor a Prohibited Transaction has
occurred and is continuing with respect to any Plan; no notice of intent to terminate a Plan has
been filed, nor has any Plan been terminated; no circumstances exist which constitute grounds
entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a
Plan, nor has the PBGC instituted any such proceedings; neither the Borrower nor any Commonly
Controlled Entity has completely or partially withdrawn from a Multiemployer Plan; the Borrower and
each Commonly Controlled Entity have met their minimum funding requirements under ERISA with
respect to all of their Plans and the present value of all vested benefits under each Plan does not
exceed the fair market value of all Plan assets allocable to such benefits, as determined on the
most recent valuation date of the Plan and in accordance with the provisions of ERISA; and neither
the Borrower nor any Commonly Controlled Entity has incurred any liability to the PBGC under ERISA.



     12.13 OPERATION OF BUSINESS



     The Borrower possesses all licenses, permits (including Environmental Permits), franchises,
patents, copyrights, trademarks, and trade names, or rights thereto, to conduct its businesses
substantially as now conducted and as presently proposed to be conducted, and the Borrower is not
in violation of any valid rights of others with respect to any of the foregoing.



     12.14 TAXES



     The Borrower has filed all tax returns (Federal, state, and local) required to be filed and
has paid all taxes, assessments, and governmental charges and levies thereon to be due, including
interest and penalties unless such taxes are being contested in good faith by appropriate action
with adequate reserves established on Borrower’s financial statements.



     12.15 DEBT



     Set forth in the financial statements referred to in this Agreement, to the extent required by
GAAP, is a complete and correct list of all credit agreements, indentures, purchase agreements,
guaranties, capital leases, and other investments, agreements, and arrangements presently in effect
providing for or relating to extensions of credit (including agreements and arrangements for the
issuance of letters of credit or for acceptance financing) in respect of which the Borrower is in
any manner directly or contingently obligated; and the maximum principal or face amounts of the
credit in question, which are outstanding and which can be outstanding, are correctly stated, and
all Liens of any nature given or agreed to be given as security therefor are correctly described or
indicated in such financial statements. Exhibit “L” correctly lists all secured and
unsecured Debt of the Borrower outstanding as of the date of this Agreement, and shows,



26









 







as to each item of Debt listed thereon, the obligor and obligee, the aggregate principal
amount outstanding on the date hereof.



     12.16 ENVIRONMENT



     The Borrower has duly complied with, and their businesses, operations, assets,
equipment, property, leaseholds, or other facilities are in compliance with, the provisions of all
Environmental Laws. The Borrower has been issued and will maintain all required Federal, state,
and local permits, licenses, certificates, and approvals relating to (1) air emissions; (2)
discharges to surface water or groundwater; (3) noise emissions; (4) solid or liquid waste
disposal; (5) the use, generation, storage, transportation, or disposal of Hazardous Substances
(intended hereby and hereafter to include any and all such materials listed in any Federal, state,
or local law, code or ordinance, and all rules and regulations promulgated thereunder as hazardous
or potentially hazardous); or (6) other environmental, health, or safety matters. The Borrower has
not received notice of, nor knows of, or suspects, facts which might constitute any violations of
any Environmental Laws with respect to its businesses, operations, assets, equipment, property,
leaseholds, or other facilities. Except in accordance with a valid governmental permit, license,
certificate, or approval, to the best of Borrower’s knowledge there has been no emission, spill,
release, or discharge into or upon (1) the air; (2) soils, or any improvements located thereon; (3)
surface water or groundwater; or (4) the sewer, septic system or waste treatment, storage or
disposal system servicing the Mortgaged Premises, of any Hazardous Substances at or from the
Mortgaged Premises; and accordingly the Mortgaged Premises of the Borrower is to the best of
Borrower’s knowledge free of all such Hazardous Substances. There has been no complaint, order,
directive, claim, citation, or notice by any governmental authority or any person or entity with
respect to (1) air emissions; (2) spills releases or discharges to soils or improvements located
thereon, surface water, groundwater or the sewer, septic system or waste treatment, storage or
disposal systems servicing the Mortgaged Premises; (3) noise emissions; (4) solid or liquid waste
disposal; (5) the use, generation, storage, transportation, or disposal of Hazardous Substances; or
(6) other environmental, health, or safety matters affecting the Borrower or its business,
operations, assets, equipment, property, leaseholds, or other facilities. The Borrower has no
indebtedness, obligation, or liability, absolute or contingent, matured or not matured, with
respect to the storage, treatment, cleanup, or disposal of any Hazardous Substances (including
without limitation any such indebtedness, obligation, or liability with respect to any current
regulation, law, or statute regarding such storage, treatment, cleanup, or disposal).
Notwithstanding the foregoing or anything in the other Loan Documents, the Lender acknowledges that
it is aware of the environmental issues with respect to the Springfield, Massachusetts property as
described in the excerpt from the Form 10-K of the Guarantor attached hereto as Schedule
12.16.



     12.17 TITLE TO PROPERTIES; LEASES



     The Borrower has good and marketable title in fee simple (or its equivalent under applicable
law) to its respective properties and good title to the other properties and assets it purports to
own, including those reflected in the most recent audited balance sheet provided to the Lender
(other than properties and assets disposed of in the ordinary course of business). The Borrower
enjoys peaceful and undisturbed possession under all leases of all personal and all real property
under which they operate, and all such leases are valid and subsisting and in full force and effect
and the Borrower is not in default in any material respect in the performance or observance of its
obligations under any provisions thereof. Exhibit “M” includes a general description of
all presently existing Long Term Leases and capital leases under which the Borrower is a lessee.



     12.18 INTELLECTUAL PROPERTY



     Borrower owns or has a valid right to use all patents, copyrights, trademarks, licenses, trade
names or franchises that are material and necessary to conduct its business and the conduct of its
business as now operated does not conflict with valid patents, copyrights, trademarks, licenses,
trade names or franchises of others in any manner that could materially adversely affect in any
manner the business or assets or condition, financial or otherwise, of Borrower.



     12.19 EXECUTIVE AGREEMENTS



     None of the executive officers of the Borrower is subject to any agreement in favor of anyone,
other than Borrower or the Guarantor, which limits or restricts that person’s right to engage in
the type of business activity



27









 







conducted or proposed to be conducted by such Borrower or to use therein any property or
confidential information or which grants to anyone other than the Borrower or the Guarantor any
rights in any inventions or other ideas susceptible to legal protection developed or conceived by
any such officer.



     12.20 FOREIGN ASSET CONTROL REGULATIONS



     Neither the execution of this Agreement nor the use of the proceeds thereof violates the
Trading With the Enemy Act of 1917, as amended, nor any of the Foreign Assets Control Regulations
promulgated thereunder or under the International Emergency Economic Powers Act or the U.N.
Participation Act of 1945.



     12.21 INVESTMENT COMPANY ACT OF 1940



     It is not an “investment company” within the meaning of, or is exempt from, the provisions of
the Investment Company Act of 1940, as amended.



     13.00 FURTHER AGREEMENTS OF BORROWER



     13.01 INSURANCE



     Borrower agrees at all times to keep all of its property, insured by financially sound and
reputable insurers satisfactory to the Lender, against loss or damage by fire, water, theft,
explosion or other hazards insured against by extended coverage. With respect to the Collateral,
Lender shall be listed as additional insured, with loss payable to it, and after an Event of
Default, hereby irrevocably appointing Lender as attorney for Borrower in obtaining, adjusting,
settling and canceling such insurance and endorsing any payments or other drafts, with respect to
the Collateral only. All insurance policies with respect to the Collateral shall be non-cancelable
with not less than thirty (30) days written notice to Lender. Original certificates of insurance
shall be tendered directly to the Lender upon issuance by insurer, at such times as Lender
requests.



     13.02 INSPECTION



     The Borrower shall at all reasonable times and with reasonable notice (unless an Event of
Default has occurred hereunder, after which no prior notice must be provided), and from
time-to-time, allow the Lender, by or through any of its officers, agents, attorneys, or
accountants, to physically inspect all Collateral, inspect, copy or make extracts from Borrower’s
books and records; all at Borrower’s expense.



     13.03 NO SALE OF COLLATERAL



     Excluding (i) sales of inventory in the ordinary course of business, (ii) dispositions of
obsolete assets, and (iii) the disposition of ineligible accounts receivable without recourse in
connection with the compromise of collection thereof, Borrower, during the tenure of this Agreement
will not sell, assign, or dispose of any Collateral to any other party. Borrower, during the
tenure of this Agreement, will not create or permit to be created any lien, encumbrance or security
interest of any kind on any Collateral other than Permitted Liens (as defined in Section 13.32),
and if any such lien or encumbrance is created or permitted, Borrower will effect a discharge of
same within ten (10) days thereafter.



     13.04
COMPLIANCE WITH LAW



     Borrower will comply with all laws and regulations of the United States or of any state or
states thereof or of any political subdivision thereof, or of any governmental authority which may
be applicable to it or to its business.



     13.05 MERGER OR ACQUISITION 



     Borrower will not wind up, liquidate, or dissolve itself, reorganize, merger or consolidate
with, or into, or convey, sell, assign, transfer, lease, or otherwise dispose of (whether in one
transaction or a series of transactions) all or



28









 







substantially all of its assets (whether now owned or hereafter acquired) to any Person or
acquire all or substantially all of the assets or the business of any Person or permit any
subsidiary to do so without (i) providing notice of such event to Lender within thirty (30) days of
such occurrence, together with financial information necessary for Lender to evaluate the capital
structure and debt service ability of Borrower after giving effect to such occurrence, and (ii)
obtaining Lender’s written consent which will not be unreasonably withheld or delayed, provided
that after giving effect to such transaction, Borrower will be in compliance with all of the
financial covenants contained in this Agreement and no Event of Default has occurred and is
continuing.



     13.06 NO SUBSTITUTION



     This Agreement may but need not be supplemented by separate assignments and pledges and, if
such assignments and pledges are given, the rights and security interests given thereby shall be in
addition to and not in limitation of the rights and security interests given by this Agreement.
This Agreement shall not act to terminate, cancel, revoke, nor otherwise cause a novation,
estoppel, or waiver of any or all prior security interests granted by Borrower to Lender in and to
any collateral contemplated by these presents, or other, wholly or in part, and without exception;
and any and all such security interests shall continue to remain properly perfected by Borrower to
Lender in their terms and without interruption.



     13.07 PROTECTION OF COLLATERAL



     Borrower will maintain all Collateral in a condition which is comparable to that which exists
on the date hereof, and make any necessary repairs thereto, or replacements thereof; ordinary wear
and tear and obsolescence excepted.



     Borrower will at the request of Lender, promptly furnish Lender the receipted bills for all
payments required by this Agreement. At its option, but without liability so to do, Lender may
discharge taxes, assessments, liens or security interests or other encumbrances not otherwise
permitted by this Agreement or any of the other Loan Documents, at any time levied or placed on the
Collateral, may pay for insurance on the Collateral and may pay for the maintenance and
preservation of the Collateral (if such payments are not made by Borrower within the time period
required under this Agreement). Borrower agrees to reimburse Lender on demand for such payments
made by Lender, or any reasonable expenses including attorneys’ fees incurred by Lender pursuant to
the foregoing authorization, and upon failure of Borrower so to reimburse Lender, any such sums
paid or advanced by Lender shall be deemed secured by the Collateral and constitute part of the
Loans.



     13.08 COMPLIANCE WITH ERISA



     The Borrower will not:




(A) engage in any Prohibited Transaction or commit any other breach of its fiduciary
responsibility under Part 4 of Title I of ERISA, which could subject the Borrower or
any Borrower Group Member to any material liability under Section 406, 409, 502(i)
or 502(d) of ERISA or Section 4975 of the Code, or under any agreement or other
instrument pursuant to which the Borrower or such Borrower Group Member could be
required to indemnify any Person against any such liability or which could otherwise
have a Material Adverse Effect on the Borrower or any Plan; or





(B) fail to make any contribution required to be made by it to any Plan or
Multiemployer Plan or permit to exist with respect to any Plan any “accumulated
funding deficiency” (as such term is defined in Section 412 of the Code or Section
302 of ERISA), whether or not waived; or




(C) (i) commence proceedings to terminate any Plan, other than in a “standard
termination” within the meaning of Section 4041 of ERISA, or (ii) permit to exist
any proceedings instituted by the PBGC to terminate or to have a trustee appointed
to administer any Plan, or (iii) withdraw from any Multiemployer Plan in a manner
which could result in the imposition of a withdrawal liability under Part 1 of
Subtitle E of Title IV of ERISA.



29









 





     13.09 FINANCIAL STATEMENTS



     The Borrower and Guarantor will deliver, at its sole expense, to the Lender, the following:




A. Within one hundred twenty (120) days after the close of each fiscal
year, their consolidated financial statements, audited by certified public
accountants servicing the Borrower and Guarantor, and satisfactory to the
Lender, along with the accountant’s management letter and a Covenant
Compliance Certificate, a copy of which is annexed hereto as Exhibit
“N”.




B. Within forty-five (45) days after the close of each fiscal quarter,
Borrower and Guarantor will provide to Lender, its internally prepared
financial statements, including, without limitation, income statement,
balance sheet, statement of cash flow prepared according to GAAP
consistently applied, together with a Covenant Compliance Certificate.




C. On or before the end of the first quarter ending July 31st in
each fiscal year, management prepared updated annual projections for each
fiscal year ending April 30th.




D. The Borrower shall furnish to the Lender, monthly management prepared
accounts receivable agings, accounts payable agings and borrowing base
certificates within thirty (30) days of each month end.




E. From time-to-time, such additional information regarding the financial
condition or business of the Borrower as the Lender may reasonably request.




All, or any portion of the financial information provided to the Lender by
the undersigned from time-to-time may be provided intact, or synopsized and
thereafter transmitted to other banking or financial institutions or other
parties requesting credit information as to the undersigned as is
customarily provided by the Lender.



     13.10 FINANCING STATEMENTS



     Prior to any Loan being made from Lender to Borrower, the Borrower hereby agrees to
execute, deliver, and pay the cost of filing any financing statement, or other notices appropriate
under applicable law, in respect of any security interest created pursuant to this Agreement or at
any other time which may at any time be required by the Lender. The Borrower authorizes the Lender
to file any and all financing statements on behalf of the Borrower describing the Collateral, as
well as any agricultural liens or other statutory liens held by Lender. In the event that any
re-recording or re-filing thereof (or the filing of any statements of continuation or assignment of
any financing statement) is required to protect and preserve such lien or security interest, the
Borrower shall, at its cost and expense, cause the same to be re-recorded and/or re-filed at the
time and in the manner requested by the Lender. The Borrower hereby irrevocably designates the
Lender, its agents, representatives and designees as agents and attorneys-in-fact for the Borrower
to sign such financing statements, or other instruments in connection herewith, on behalf of the
Borrower and file the same, as required.



     13.11 TAXES AND IMPOSITIONS



     (A) Borrower shall (i) pay and discharge all Impositions prior to delinquency, and (ii) if
requested by Lender, provide Lender validated receipts or such other evidence satisfactory to
Lender showing the payment of such Impositions within thirty (30) days after the same would have
otherwise become delinquent. Borrower’s obligation to pay the Impositions pursuant to this
Agreement shall include, to the extent permitted by applicable law, taxes resulting from future
changes in law which impose upon Lender an obligation to pay any property taxes or other
Impositions. Should Borrower default any payment of any Impositions, Lender may (but shall not be
obligated to) pay such Impositions or any portion thereof and Borrower shall reimburse Lender on
demand for all such Advances.



30









 





     (B) Borrower shall not be required to pay, discharge or remove any Imposition so long as
Borrower contests in good faith such Impositions or the validity, applicability or amount thereof
by an appropriate legal proceeding which operates to prevent the collection of such amounts and the
sale of the Mortgaged Premises, or any portion thereof; provided, however, that prior to the date
on which such Imposition would otherwise have become delinquent, Borrower shall have (i) given
Lender prior written notice of such contest and (ii) deposited with Lender, and shall deposit such
additional amounts as are necessary to keep on deposit at all times, in an amount equal to at least
one hundred ten percent (110%) of the total of (A) the balance of such Imposition then remaining
unpaid, and (B) all interest, penalties, costs and charges accrued or accumulated thereon. Any
such contest shall be prosecuted with due diligence, and Borrower shall promptly pay the amount of
such Imposition as finally determined, together with all interest and penalties payable in
connection therewith. Lender shall have full power and authority to apply any amount deposited
with Lender pursuant to this clause to the payment of any unpaid Imposition to prevent the sale or
forfeiture of the Mortgaged Premises or any portion thereof for non-payment thereof. Lender shall
have no liability, however, for failure to so apply any amount deposited. Any surplus retained by
Lender after payment of the Imposition for which a deposit was made, shall be repaid to Borrower
unless an Event of Default shall have occurred, in which case said surplus may be retained by
Lender to be applied to the obligations in the sole discretion of the Lender. Notwithstanding any
provisions of this clause to the contrary, Borrower shall pay any Imposition which it might
otherwise be entitled to contest if, in the sole and absolute discretion of Lender, the Mortgaged
Premises, or any portion thereof or any Collateral, is in jeopardy or in danger of being forfeited
or foreclosed. If Borrower refuses to pay any such Imposition, Lender may (but shall not be
obligated to) make such payment and Borrower shall reimburse Lender on demand for all such
Advances.



     13.12 MAINTENANCE OF RECORDS



     Keep adequate records and books of account, in which complete entries will be made in
accordance with GAAP consistently applied, reflecting all financial transactions of the Borrower.



     13.13 MAINTENANCE OF PROPERTIES



     Maintain, preserve and keep, its properties which are used or useful in the conduct of
its business (whether owned in fee or a leasehold interest) in good repair and working order
(ordinary wear and tear and obsolescence excepted) and from time-to-time will make all necessary
repairs, replacements, renewals and additions so that at all times the efficiency thereof shall be
maintained. Borrower agrees that it will maintain and repair the Collateral and the Mortgaged
Premises and keep all of the same in good and serviceable condition and in at least as good
condition and repair as same were on the date hereof or in such better condition and repair as same
may have been put thereafter (ordinary wear and tear and obsolescence excepted). Borrower will not
waste or destroy or suffer the waste or destruction of the Collateral or the Mortgaged Premises or
any part thereof. Borrower will not use any of the Collateral or the Mortgaged Premises in
violation of any insurance thereon. In the event of damage to or destruction of all or any part of
the Collateral or the Mortgaged Premises from any cause, the Borrower shall repair, replace,
restore and reconstruct the Collateral and the Mortgaged Premises to the extent necessary to
restore each portion of same to its condition immediately prior to such damage or destruction and
this obligation shall not be limited by the amount of any insurance proceeds available.



     13.14 CONDUCT OF BUSINESS



     Except as otherwise permitted herein, continue to engage in an efficient and economical
manner, in a business of the same general type as conducted by it on the date of this Agreement;
and Borrower will not, without the prior written consent of the Lender, directly or indirectly
enter into any other lines of business, businesses or ventures.



     13.15 COMPLIANCE WITH LAWS



     Promptly pay and discharge all lawful taxes, assessments and governmental charges or levies
imposed upon the Borrower, or upon, or in respect of, all or any part of the property or business
of the Borrower, all trade accounts payable in accordance with usual and customary business terms,
and all claims for work, labor or materials, which if unpaid might become a lien or charge upon any
property of the Borrower; provided the Borrower shall not be required to pay any such tax,
assessment, charge, levy, account payable or claim if (i) the validity, applicability or amount
thereof is being



31









 







contested in good faith by appropriate actions or proceedings which will prevent the
forfeiture or sale of any property of the Borrower or any material interference with the use
thereof by the Borrower, and (ii) the Borrower shall set aside on its books, reserves deemed by it
to be adequate with respect thereto. The Borrower will promptly comply with all laws, ordinances or
governmental rules and regulations to which it is subject, including without limitation, the
Occupational Safety and Heath Act of 1970, ERISA, the Americans with Disabilities Act and all
Environmental Laws in all applicable jurisdictions, the violation of which would materially and
adversely affect the properties, business, prospects, profits or condition of the Borrower or would
result in any lien or charge upon any property of the Borrower.



     13.16 ENVIRONMENT



     Notify the Lender immediately of any notice of a hazardous discharge or environmental
complaint received from any governmental agency or any other party; notify the Lender immediately
of any hazardous discharge from or affecting its Mortgaged Premises; immediately contain and remove
the same, in compliance with all applicable laws; promptly pay any fine or penalty assessed in
connection therewith, except such assessments as are being contested in good faith, against which
adequate reserves have been established; upon receipt of such notification, permit the Lender to
inspect the Mortgaged Premises, and to inspect all books, correspondence, and records pertaining
thereto; and at the Lender’s request, and at the Borrower’s expense, provide a report of a
qualified environmental engineer, satisfactory in scope, form, and content to the Lender, and such
other and further assurances reasonably satisfactory to the Lender that the condition has been
corrected.



     13.17 PAYMENT OF LOANS



     The Borrower will duly and punctually pay the principal of, and interest on the Loans in
accordance with the terms of the Loans and this Agreement.



     13.18 PRINCIPAL DEPOSITORY



     The Borrower further agrees that it shall conduct all of its banking business with the Lender,
including, without limitation, retaining the Lender as its principal depository savings accounts,
checking accounts, general demand depository accounts, and such other accounts as are utilized by
the Borrower from time-to-time.



     13.19 CHANGE IN MANAGEMENT



     The Borrower represents and warrants that there shall be no change in its present senior
management until all Obligations are fully paid and while any availability remains under the
Revolving Line of Credit, without prior written notice to the Lender.



     13.20 NO GUARANTEES




     Borrower will not assume, guaranty, endorse or otherwise become directly or contingently
liable, or permit any of its subsidiaries to assume, guaranty, endorse, or otherwise become
directly or contingently liable (including, without limitation, liable by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise
invest in any debtor or otherwise to assure any creditor against loss) in connection with any Debt
of any other Person, except (i) guaranties by endorsement or similar transaction in the ordinary
course of business and (ii) liability of the Borrower to the Lender under this Agreement.



     13.21 CORPORATE LOANS



     The Borrower agrees that it shall neither make any loans nor investments in other corporations
and business entities or to any other Persons until all Obligations are fully paid and while any
availability remains under the Revolving Line of Credit.



32









 





     13.22 ADVERSE TRANSACTIONS



     The Borrower shall not enter into any transaction which materially and adversely affects the
Collateral or their ability to repay the Obligations in full as and when due.



     13.23 REPURCHASE



     The Borrower shall not make a sale to any customer on a bill-and-hold guaranteed sale, sale
and return, sale on approval, consignment or any other repurchase or return basis.



     13.24 NAME



     The Borrower shall not use any corporate or fictitious name other than its corporate name as
set forth in its Articles of Organization on the date hereof, or any trade name or fictitious name
certified or registered in favor of Borrower, all of which names shall be set forth on page 1 of
this Agreement.



     13.25 PREPAYMENT



     The Borrower shall not prepay any Debt other than the Obligations, except in the ordinary
course of business and to the extent that it does not have a material adverse effect on the
financial condition of the Borrower.



     13.26 AFFILIATE TRANSACTIONS



     On or after an Event of Default, the Borrower shall not, sell, transfer, distribute or pay any
money or property to any Affiliate or invest in (by capital contribution or otherwise) or purchase
or repurchase any stock or debt, or any property, of any Affiliate, or become liable on any
guaranty of the indebtedness, dividends or other obligation of any Affiliate.



     13.27 NO LIENS



     Except for Permitted Encumbrances, the Mortgaged Premises shall be kept free and clear of all
liens, security interests and encumbrances of every nature or description (whether for taxes or
assessments, or charges for labor, materials, supplies or services or any other thing). Other than
the Permitted Encumbrances, Borrower will not cause or permit any instrument or document affecting
the Mortgaged Premises to be recorded without Lender’s prior written consent thereto.



     13.28 NO DEBT



     Until all Obligations have been fully paid, the Borrower shall not create, incur, assume or
suffer to exist any Debt, except (i) Debt of the Borrower pursuant to this Loan Agreement, (ii)
Debt that is subordinated to the Obligations arising under this Agreement and unsecured (excluding
intellectual property, which does not constitute Collateral), (iii) capital leases and purchase
money indebtedness, and (iv) accounts payable to trade creditors for goods or services which are
not more than thirty (30) days from the billing date and current operating liabilities (other than
for borrowed money) which are not more than thirty (30) days past due, in each case in this clause
(iv) incurred in the ordinary course of business, as presently conducted and paid within the
specified time, unless contested in good faith and by appropriate proceedings.



     13.29 LENDER’S EXPENSES



     Borrower shall pay, on demand by Lender, all reasonable expenses, charges, costs and fees in
connection with the negotiation, documentation and closing of the Loan, including all registration
and recording fees, insurance consultant fees, if any, environmental consultant fees, costs of
appraisals, costs of engineering reports, fees and disbursements of all counsel (both local and
special) of Lender, escrow fees, cost of surveys, fees and expenses of Lender’s consultant or



33









 







others employed by Lender to inspect the Collateral from time to time, and reasonable
out-of-pocket travel expenses incurred by Lender and Lender’s agents and employees in connection
with the Loan. At closing, Lender may pay directly from the proceeds of the Loan each of the
forgoing expenses.



     13.30 AUDIT AND INSPECTION BY LENDER



     Lender shall have the right, and Borrower shall permit and shall cooperate with Lender in
arranging for, at any reasonable time and from time to time, Lender and its representatives to
review and audit all books, records and financial statements. Borrower shall make or cause its
applicable Affiliates to make all such books of account and records available for such examination
at the office where the same are regularly maintained. Lender shall have the right to copy,
duplicate and make abstracts from such books and records as Lender may require. Borrower shall
pay Lender’s costs and expenses incurred in connection with no more than one (1) such audit per
year, unless there has occurred an Event of Default in which case Borrower shall pay the costs and
expenses of all such audits conducted by Lender. Borrower acknowledges and agrees that (A) all of
such audits, inspections and reports shall be made for the sole benefit of Lender, and not for the
benefit of Borrower or any third party, and neither Lender nor Lender’s auditors or inspectors or
any of Lender’s representatives, agents or contractors assumes any responsibility or liability
(except to Lender) by reason of such audits, inspections or reports, (B) Borrower will not rely
upon any of such audits, inspections or reports for any purpose whatsoever, and (C) the performance
of such audits, inspections or reports will not constitute a waiver of any of the provisions of
this Agreement or any other Loan Document or any of the obligations of Borrower hereunder or
thereunder. Borrower further acknowledges and agrees that neither Lender nor Lender’s inspector,
representatives, agents or contractors shall be deemed to be in any way responsible for any matters
related to design or construction of any improvements.



     13.31 APPRAISAL



     At any time during the term of the Commercial Real Estate Term Loan, Borrower shall cooperate
with Lender and use reasonable efforts to assist Lender in obtaining an appraisal of the Mortgaged
Premises. Such cooperation and assistance from Borrower shall include but not be limited to the
obligation to provide Lender or Lender’s appraiser with the following: (i) reasonable access to the
Mortgaged Premises, (ii) a current certified rent roll for the Mortgaged Premises in form and
substance satisfactory to Lender, including current asking rents and a history of change in asking
rents and historical vacancy for the past three years, (iii) current and budgeted income and
expense statements for the prior three years, (iv) a site plan and survey of Mortgaged Premises and
the related improvements, (v) the building plans and specifications, including typical elevation
and floor plans, (vi) a photocopy of the transfer documents conveying the beneficial interest in
the Mortgaged Premises to Borrower, together with the legal description of the Mortgaged Premises,
(vii) the current and prior year real estate tax bills, (viii) a detailed list of past and
scheduled capital improvements and the costs thereof, (ix) a summary of the then current ownership
entity, (x) all environmental reports and other applicable information relating to the Mortgaged
Premises and the related improvements, and (xi) copies of all recent appraisals/Mortgaged Premises
description information or brochures, including descriptions of amenities and services relating to
the Mortgaged Premises and the related improvements. The appraiser performing any such appraisal
shall be engaged by Lender, and Borrower shall be responsible for any fees payable to said
appraiser in connection with an appraisal of the Mortgaged Premises; provided, however, so long as
no Event of Default exists, Borrower shall not be required to pay for more than one appraisal every
year.



     13.32 NON PLEDGE



     Borrower will not create, 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 property or
assets now owned or hereinafter acquired, except that the foregoing restrictions shall not apply
to: (i) Liens for taxes, assessments or governmental charges or levies on property of Borrower or
any of its subsidiaries if the same shall not at the time be delinquent or thereafter can be paid
without interest or penalty; (ii) carriers, warehouseman’s and mechanic’s liens and other similar
Liens, arising in the ordinary course of business for sums not yet due or which are being contested
in good faith and by appropriate proceedings which serve as a matter of law to stay the enforcement
thereof and as to which adequate reserves had been made; (iii) pledges or deposits under workman’s
compensation laws, unemployment insurance, social security, retirement



34









 







benefits or similar legislation; (iv) liens related to capital leases or purchase money
indebtedness permitted hereby; and (v) Liens in favor of the Lender (collectively the “Permitted
Liens”).



     14.00 REPRESENTATIONS REMADE



     Borrower warrants and covenants that the foregoing representations and warranties will be true
and shall be deemed remade as of the date of the closing and as of the date of each other Advance.
All representations and warranties made herein or in any other Loan Documents or in any certificate
or other document delivered to Lender by or on behalf of Borrower pursuant to or in connection with
this Agreement or any other Loan Document shall be deemed to have been relied upon by Lender,
notwithstanding any investigation heretofore or hereafter made by, or on behalf of Lender. All
such representations and warranties shall survive the making of the Loans and any or all of the
Advances contemplated hereby and shall continue in full force and effect until such time as the
Loans have been paid in full.



     15.00 FINANCIAL COVENANTS



     The Borrower further agrees that from the date of this Agreement until all Obligations are
fully paid and while any availability remains under the Revolving Line of Credit, that it will
maintain the following financial ratios, the default of which shall constitute an Event of Default
of this Agreement. All financial covenants will be measured based upon the consolidated financial
statements of the Borrower and Guarantor.




A. Maximum Leverage. For fiscal ending April 30, 2005, and each quarter
thereafter, the ratio of Total Liabilities to Tangible Net Worth (such ratio being
defined as “Maximum Leverage”), shall not exceed the following:



	 	 	 	 	 
	Test Period	Requirement	 
	April 30, 2005
	3.50:1.00
	July 31, 2005
	3.50:1.00
	October 31, 2005
	3.50:1.00
	January 31, 2006
	3.50:1.00
	April 30, 2006
	3.00:1.00
	July 31, 2006
	3.00:1.00
	October 31, 2006
	3.00:1.00
	January 31, 2007
	3.00:1.00
	April 30, 2007
	2.00:1.00 and each quarter thereafter







B. Minimum EBITDA. For fiscal year ending April 30, 2005 and each quarter
thereafter (measured on a rolling four quarter basis), a minimum earnings before
interest, taxes, depreciation and amortization shall be as follows:



35









 





	 	 	 	 	 
	Test Period	Requirement
	April 30, 2005
	$12,000,000
	July 31, 2005
	$12,000,000
	October 31, 2005
	$12,000,000
	January 31, 2006
	$12,000,000
	April 30, 2006
	$13,000,000
	July 31, 2006
	$13,000,000
	October 31, 2006
	$13,000,000
	January 31, 2007
	$13,000,000
	April 30, 2007
	$13,000,000 and each quarter thereafter







C. Minimum Debt Service Coverage. For fiscal year ending April 30, 2005,
and each quarter thereafter, the ratio of (i) Net Cash Available for Debt Service to
(ii) Total Debt Service will be equal to or greater than 1.25:1.00. This covenant
will be tested quarterly on a rolling four-quarter basis. Notwithstanding the
foregoing, (x) for the fiscal year ending April 30, 2005 and the quarter ending July
31, 2005, unfinanced capital expenditures will be excluded from the foregoing
definition and (y) for the second quarter ending October 31, 2005 only, the ratio of
(i) Net Cash Available for Debt Service to (ii) Total Debt Service will be equal to
or greater than 1.10:1.00.




D. Maximum Capital Expenditures. Borrower shall make no capital
expenditures in excess of the following amounts during the following fiscal years:



	 	 	 	 	 
	Fiscal Year End	 	Amount	 
	April 30, 2005
	 	$	10,000,000	 
	April 30, 2006
	 	$	14,000,000	 
	April 30, 2007
	 	$	14,000,000	 






     16.00
BORROWER’S RIGHTS IN COLLATERAL UNTIL DEFAULT



     Except where the Lender chooses to perfect its security interest by possession, in addition to
the filing of a financing statement, in the absence of any Event of Default hereunder, Borrower
shall have the right, in the regular course of business, to possess and manage the Collateral, and
in the ordinary course of business; provided, however, said right shall not include the right to
transfer Collateral in total or partial satisfaction of any Debt.



     17.00 CONTROL



     Borrower will cooperate with Lender, and execute agreements required by Lender, in obtaining
control with respect to Collateral consisting of:



36









 






(i) deposit accounts;




(ii) investment property;




(iii) letter of credit rights; and




(iv) electronic and chattel paper.



     The Borrower grants Lender a limited power of attorney to enter into the control agreements on
behalf of the Borrower to effectuate the forgoing.



     Borrower will not create any chattel paper without placing a legend on the chattel paper
acceptable to Lender, indicating that Lender has a security interest in the chattel paper.



     18.00 DEFAULT



     Borrower shall be in default under this Agreement upon the happening of any of the following
events or conditions (which shall individually and/or collectively be referenced as an “Event of
Default”) without notice or demand:



     18.01 Failure to observe or perform any of its agreements, warranties or representations in
this Agreement, including, without limitation, financial covenants, or in any other Loan Document
and to the extent such non-monetary (which term excludes without limitation, payment and/or
financial covenants) failure is curable, Borrower has not cured such non-monetary failure within
thirty (30) days after written notice from Lender to Borrower with respect to a non-monetary
failure provided, however, if such failure cannot reasonably be cured within such thirty (30) days,
then Borrower shall have up to ninety (90) days after written notice from Lender as long as
Borrower is diligently pursuing such cure within such ninety (90) day period.



     18.02 Material loss or theft, substantial damage or destruction, unauthorized sale to or
encumbrance of any material amount of the Collateral in excess of reasonably expected recoveries
under insurance policies, or the making of any levy, seizure or attachment thereof or thereon;



     18.03 Failure of Borrower to pay within ten (10) days of when due any amount payable by it to
the Lender under any of its Obligations to the Lender when and as the same shall become due,
whether upon demand, at maturity, by acceleration, or otherwise.



     18.04 Insolvency as defined in this Agreement, or the recording or existence of any lien for
unpaid taxes that are not being contested as permitted by this Agreement.



     18.05 Default in any material agreement or undertaking to which the Borrower is a party or by
which Borrower is bound or affected; whether in connection with this financial transaction or
other, and such default has not been cured within any applicable notice, grace or cure period.



     18.06 NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, BORROWER HAS NO RIGHT TO
CURE ANY MONETARY DEFAULT FOR ANY AMOUNTS DUE AND PAYABLE TO LENDER UNDER ANY OF THE LOAN
DOCUMENTS. The term “Monetary Default” shall mean without limitation, payment, financial covenant
or any other term, condition or covenant contained in this Agreement whereby Borrower is required
to pay money.



37









 





     18.07 The making by the Borrower of any material misrepresentation to the Lender for the
purpose of obtaining credit or an extension of credit.



     19.00 LENDER’S RIGHTS



     Upon and during the continuance of any Event of Default, Lender may:



     19.01 Notify account debtors at Borrower’s expense, that the Collateral has been assigned to
Lender and that payments shall be made directly to Lender and upon request of Lender, Borrower will
so notify such account debtor that their accounts must be paid to Lender. This right may be
exercised by the Lender at any time, on or after the occurrence of an Event of Default. Borrower
will immediately upon receipt of all checks, drafts, cash and other remittances deliver the same in
kind to the Lender. Lender shall have full power to collect, compromise, endorse, sell or otherwise
deal with the Collateral or proceeds thereof in its own name or in the name of Borrower and
Borrower hereby, for consideration paid, irrevocably appoints the Lender its attorney-in-fact for
this purpose.



     19.02 Without notice to Borrower, enter and take possession of all equipment, Inventory, and
other Collateral and the premises on which they are now or hereafter located, including without
limitation, breaking the close and changing and replacing locks as may be required without the same
being considered as a trespass, as Borrower hereby expressly provides authority for the same. The
Lender, at its sole discretion, may operate and use Borrower’s equipment, complete work in process
and sell inventory without being liable to the Borrower on account of any losses, damage or
depreciation that may occur as a result thereof so long as Lender shall act reasonably and in good
faith and may lease or license the Collateral to third persons or entities for such purposes; and
in any event, Lender may at its option and without notice to Borrower, except as specifically
herein provided, sell, lease, assign and deliver, the whole or any part of the Collateral, or any
substitute therefor, or any addition thereto, at public or private sale, for cash, upon credit, or
for future delivery, at such prices and upon such terms as Lender deems advisable, including
without limitation the right to sell or lease in conjunction with other property, real or personal,
and allocate the sale proceeds or leases among the items of property sold without the necessity of
the Collateral being present at any such sale, or in view of prospective purchasers thereof.
Lender shall give Borrower timely notice by hand delivery to Borrower or by United States mail,
postage prepaid (in which event notice shall be deemed to have been given when so deposited in the
mail), at the address specified herein, of the time and place of any public or private sale or
other disposition unless the Collateral is perishable, threatens to decline speedily in value, or
is the type customarily sold in a recognized market. Upon such sale, Lender may become the
purchaser of the whole or any part of the Collateral sold, discharged from all claims and free from
any right of redemption. In case of any such sale by Lender of all or any of said Collateral on
credit, or for future delivery, such property so sold may be retained by Lender until the selling
price is paid by the purchaser. The Lender shall incur no liability in case of the failure of the
purchaser to take up and pay for the Collateral so sold. In case of any such failure, the said
Collateral may be again, from time-to-time, sold.



     19.03 Continue to occupy and use all premises which the Borrower now occupies or may
hereafter have or occupy, to the extent Borrower could legally do so, and may use all trademarks,
service marks, trade names, trade styles, logos, goodwill, trade secrets, franchises, licenses and
patents which the Borrower now has or may hereafter acquire, including the following rights:




(i) the rights in said marks, name, styles, logos and goodwill acquired by the
common law of the United States or of any state thereof or under the law of any
foreign nation, organization, or subdivision thereof;




(ii) the rights acquired by registrations of said marks, names, styles, and logos
under the statute of any foreign country, or the United States, or any state or
subdivision thereof;




(iii) the rights acquired in each and every form of said mark, name, style
and logo as used by the Borrower notwithstanding that less than all of such forms
would be registered and notwithstanding the form of said mark, name and style;



38









 






(iv) the right to use or license any party to the use of all or any of said marks,
names, styles, logos and goodwill in connection with the sale of goods and/or the
rendering of services in the conduct of services advertising, promotion and the like
anywhere in the world;




(v) the right to use said marks, names, styles, logos and goodwill either in
connection with or entirely independent from the Collateral;




(vi) the right to assign, transfer and convey a partial interest or the entire
interest in any one or more of said marks, names, styles or logos;




(vii) the right to seek registration, foreign or domestic, of any of said marks,
names, styles or logos which was not registered as of the date hereof or registered
subsequently;




(viii) the right to prosecute pending trademark applications for foreign or
domestic registration (federal or state) of any of said marks, names, styles or
logos.




Notwithstanding the foregoing, the Lender acknowledges and agrees that: (a) the
Lender has no security interest in any intangibles which constitutes intellectual
property of the Borrower (including, without limitation, the “Smith & Wesson” trade
name and any trade secrets, know-how, licenses, trade names, logos, registrations,
patents, patent applications copyrights, copyright applications, trademarks or
trademark applications (collectively the “Intangibles”)); and (b) the Lender will
exercise the rights set forth in 19.03 in a manner that will not be inconsistent
with any security interest granted to any other party in such intellectual property
assets; provided, however, Lender shall be free to use the “Smith & Wesson” trade
name and other Intangibles in connection with the sale of Collateral in the event of
foreclosure and/or the exercise of Lender’s cumulative rights and remedies.



     19.04 Act as attorney-in-fact for Borrower for the purposes herein described, and Borrower
does hereby make, constitute and appoint any officer or agent of Lender as Borrower’s true and
lawful attorney-in-fact, with full power: to endorse the name of Borrower or any of Borrower’s
officers or agents upon any assignments, notes, checks, drafts, money orders, or other instruments
of payment or Collateral that may come into possession of Lender for purposes of such recovery of
accounts receivable monies; to sign and endorse the name of Borrower or any of Borrower’s officers
or agents upon any negotiable instrument, invoice, freight or express bill, bill of lading, storage
or warehouse receipts, drafts, assignments, verifications and notices in connection with accounts,
and any instruments or documents relating thereto or to Borrower’s rights therein; to give notice
to the United States Post Office to effect changes of address so that mail addressed to the
Borrower may be permanently delivered directly to the Lender for purposes of accepting same, and
obtaining access to contents, in order to take possession of such accounts receivable monies, and
all other collateral, with full power to do any and all things necessary to be done in and about
the premises as fully and effectually as Borrower might or could do; and Borrower does hereby
ratify all that Lender shall lawfully do, or cause to be done by virtue hereof.



     19.05 Make all Obligations immediately due and payable, without presentment, demand, protest,
hearing or notice of any kind and exercise the remedies of a Lender afforded by the Uniform
Commercial Code and other applicable law or by the terms of any agreement between Borrower and
Lender.



     19.06 In the case of any sale or disposition of the Collateral, or the realization of funds
therefrom, the proceeds thereof shall first be applied to the payment of the expenses of re-taking,
maintaining, and foreclosure of Collateral, and costs, fees and expenses of such sale, commissions,
reasonable attorney’s fees and all charges paid or incurred by Lender pertaining to said sale,
including any taxes or other charges imposed by law upon the Collateral and/or the owning, holding
or transferring thereof; secondly, to pay, satisfy, and discharge the Obligations secured hereby
pro rata in accordance with the unpaid amount thereof; and thirdly, to pay the surplus, if any, to
Borrower, provided that the time of any application of the proceeds shall be at the sole and
absolute discretion of the Lender. To the extent such proceeds do not satisfy the foregoing items,
Borrower hereby promises and agrees to pay the deficiency.



39









 





     19.07 The Lender and the holders of the Obligations may take or release other security, may
release any party primarily or secondarily liable for any of the Obligations, may grant extensions,
renewals or indulgences with respect to the Obligations, or may apply to the Obligations the
proceeds of the Collateral or any amount received on account of the Collateral by the exercise of
any right permitted hereunder, without resorting or regard to other security or sources of
reimbursement.



     19.08 Require the Borrower to assemble the Collateral in a single location at a place
to be designated by Lender and make the Collateral at all times secure and available to the Lender.



     19.09 The Lender shall hereby also be granted a security interest in, and right of set off
against any balance on any deposit, deposit account, agency, reserve, holdback, or other account
maintained by, or on behalf of, the Borrower with the Lender and the Lender shall have the right to
apply the proceeds of such foreclosure or set off against such items of Borrower’ Obligations as
Lender may select.



     19.10 All rights and remedies of Lender whether provided for herein or in other agreements,
instruments, or documents, or conferred by law, are cumulative and not alternative and may be
enforced successively.



     19.11 The parties agree that in the event that a determination of Adequate Protection of
Lender is required under Section 362 or 363 of the Bankruptcy Reform Act of 1978 (the “Bankruptcy
Code”), its successor, or Bankruptcy Rules in connection therewith, that:




A. The bargain of the parties at the time of lien creation hereunder in order to
provide the Lender with adequate protection to induce it to make the loan(s),
included stated ratios herein.




B. That in the event of any proceeding under the Bankruptcy Code, that the said
ratio of the value (as determined by the Lender in its sole discretion) Collateral
secured to Lender to the amount of the Obligation (“Collateral-To-Obligation
Ratio”), must be increased by an additional One Hundred Ten Percent (110%), in
order to continue to provide minimum levels of Adequate Protection to Lender due to
the reduced expectation for present and future prospects of lien enforcement
resulting from the existence of proceedings under the Bankruptcy Code. This agreed
minimum increase in said ratio shall not act to bar Lender from presenting evidence
that even such increase is insufficient and leaves the Lender without Adequate
Protection, based upon the deteriorating nature or kind of Collateral, wholly or in
part, in any instance.




C. That the parties agree that the costs of liquidating and collecting of
Collateral, as well as the potential for rapid Collateral deterioration if Borrower
is, at any time, subject to the Bankruptcy Code, all require that the original
Collateral-To-Obligation Ratio be increased, as aforesaid, as a requirement of
minimum Adequate Protection, in addition to such other additional Adequate
Protection as may be required by the Lender.




D. The parties agree that these covenants shall be conclusive evidence in any
proceeding to determine minimum Adequate Protection under the Bankruptcy Code, as to
the intention and agreement of the parties at both this time, and at all times
hereinafter, until the Obligations to the Lender, are paid in full.




E. That these agreements may be submitted to the Court in any such proceeding, by
the Lender, in its sole and exclusive discretion, as conclusive evidence as to the
agreement of the parties at the time of such hearing, concerning minimum Adequate
Protection to be provided to the Lender at the time of presentment. PROVIDED,
HOWEVER, that such submission shall not constitute a waiver of any default or breach
hereunder, or of any other agreement by the Borrower to the Lender, but shall remain
only as evidence for the limited purposes stated herein.



40









 






F. PROVIDED, FURTHER that at all times the Lender reserves, and does not waive
Borrower’s obligation to provide Adequate Protection prior to the Borrower’s use of
“cash collateral” as defined in Section 363 of the Bankruptcy Code.



     19.12 The Lender has no obligation to attempt to satisfy the Obligations by collecting
from any other Person liable for them and Lender may release, modify or waive any
Collateral provided by any other Person to secure any of the Obligations, all without
affecting Lender’s rights against Borrower. Borrower waives any right it may have to
require Lender to pursue any third Person for any of the Obligations.



     19.13 Lender may comply with any applicable state or federal law requirements in
connection with a disposition of the Collateral and compliance will not be considered
adversely to affect the commercial reasonableness of any sale of the Collateral.



     19.14 Lender may sell the Collateral without giving any warranties as to the
Collateral. The Lender may specifically disclaim any warranties of title or the like.
This procedure will not be considered adversely to affect, the commercial reasonableness of
the sale of the Collateral.



     19.15 If Lender sells any of the Collateral upon credit, Borrower will be credited
only with payments actually made by the purchaser, received by Lender and applied to the
indebtedness of the purchaser. In the event that purchaser fails to pay for the
Collateral, Lender may resell the Collateral and Borrower shall be credited with the
proceeds of the sale.



     19.16 In the event Lender purchases any of the Collateral being sold, Lender may pay
for the Collateral by crediting some or all of the Obligations of the Borrower.



     19.17 Lender has no obligation to marshall any assets in favor of Borrower or in payment of
any of the Obligations or any other obligations owed to Lender by Borrower or any other person.



     20.00 BORROWER’S ACKNOWLEDGMENTS



     20.01 Borrower acknowledges that Lender has not, by the terms hereof, acted to intrude
into any of its management decisions, or prerogatives, nor has it entered into control or
management of Borrower’s affairs. Any reference herein to limitation on action(s) or conduct on
the part of the Borrower represents only undertakings, or forbearance(s) necessary to preserve the
management, cash flow, and asset and financial status quo promised by the Borrower upon which the
loan(s) were originally contemplated, and which the Lender relied as a condition-precedent thereto,
and which are necessary to the protection of Lender, in its sole status as secured lender, and not
otherwise.



     20.02 The Borrower acknowledges and represents that it is a sophisticated borrower and has
experience in financial matters generally and in Borrower obligations, specifically. Borrower
acknowledges that it has been represented by counsel, and that a draft of this Agreement has been
available for review and negotiation. Therefore, Borrower hereby agrees that all Lender’s rights
were the result of negotiations between the Lender and the Borrower and were induced in a material
respect by the benefits granted to the Borrower hereunder.



     21.00 BORROWER’S OBLIGATION TO PAY EXPENSES OF LENDER



     Excluding expenses in connection with the preparation of this Agreement, related loan
documents and the closing, the Borrower agrees to pay all reasonable expenses, including counsel
fees and other expenses which may be paid or incurred by Lender for itself or as agent for any
other Lender, in connection with the subject matter of this Agreement, the Obligations, the
Collateral or any rights or interest therein in the Event of a Default hereunder, including without
limiting the generality of the foregoing, the enforcement of any security interest granted hereby,
and representation in any litigation including any bankruptcy or insolvency proceedings. All such
expenses may be added to



41









 







the principal amount of any indebtedness owed by the Borrower to Lender and shall constitute
part of the Obligations secured hereby.



     22.00 TENURE



     Borrower’s liability under this Agreement shall commence with the date hereof and continue in
full force and effect and be binding upon Borrower, and until all Loans whether now in existence,
or created hereinafter, shall have been fully paid and satisfied, and until so paid and satisfied,
Lender shall be entitled to retain the security interest granted hereby in all Collateral. At any
time, either party may advise the other that no further loans or advances are to be made, but such
notice shall in no way cause any and all Obligations of the Borrower to Lender to be waived.



     23.00 NO WAIVERS BY THE LENDER



     No delay or omission on the part of Lender in exercising any rights shall operate as a waiver
of such right or any other right. Waiver on any one occasion shall not be construed as a bar to or
waiver of any right or remedy on any future occasion. All of Lender’s rights and remedies, whether
evidenced hereby or by any other agreement, instrument, or paper, shall be cumulative and may be
exercised singularly or concurrently.



     24.00 AMENDMENT



     This Agreement constitutes the entire agreement between the parties. The Agreement or any
part thereof cannot be changed, waived, or amended, except by an instrument in writing, signed by
both the Lender and Borrower herein.



     25.00 RIGHTS AND LIABILITIES OF ASSIGNS



     Borrower shall not be permitted to assign this Agreement, unless expressly authorized by the
Lender, in writing. Lender may assign its interests under this Agreement. The assignment of this
Agreement shall bind all persons to become bound as a borrower to this Agreement. In the event
Lender may assign its rights and interest under this Agreement, the Borrower shall render
performance under this Agreement to the assignee. Borrower waives and will not assert against any
assignee, any claims, defenses or set-off, which Borrower could assert against Lender except
defenses which cannot be waived.



     26.00 CONSTRUCTION



     This Agreement shall be deemed to have been entered into in the Commonwealth of Massachusetts,
and the laws of the Commonwealth of Massachusetts shall govern the construction of this Agreement
and the rights and duties of the parties hereto. It is agreed and understood that, as this form
of agreement may be used by persons of either sex, and for one or more corporations, and also where
there are several parties, in such cases, the masculine and plural, as herein used, shall be
instead of and shall stand for, the feminine or neuter gender or the single number, as the context
may require. Any ambiguity, contradiction, or inconsistency between this Agreement and any other
documents relied upon by Lender shall, at all times, be resolved in the sole and exclusive
discretion of Lender.



     27.00 NOTICE



     Any notice required or permitted hereunder shall be in writing, and shall be duly given to any
party or if mailed first class, postage prepaid, certified mail, return receipt requested, to the
Borrower at the address set forth on page 1 hereof, to the Lender at its principal banking house,
or to such other address as may be specified by notice in writing to the other parties by the party
changing such address.



     28.00 CONSENT TO JURISDICTION



     THE BORROWER AND GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY (A) SUBMITS TO PERSONAL
JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS OVER ANY



42









 







SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS, AND (B) WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAWS OF ANY STATE (I) TO THE
RIGHT, IF ANY, TO TRIAL BY JURY, (II) TO OBJECT TO JURISDICTION WITHIN THE COMMONWEALTH OF
MASSACHUSETTS OR VENUE IN ANY PARTICULAR FORUM WITHIN THE COMMONWEALTH OF MASSACHUSETTS, AND (III)
TO THE RIGHT, IF ANY, TO CLAIM OR RECOVER ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES
OR ANY DAMAGES OTHER THAN ACTUAL DAMAGES. THE BORROWER AGREES THAT, IN ADDITION TO ANY METHODS OF
SERVICE OF PROCESS PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS IN ANY SUCH SUIT,
ACTION OR PROCEEDING MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED DIRECTED
TO THE BORROWER AT THE ADDRESS SET FORTH ON PAGE ONE HEREOF, AND SERVICE SO MADE SHALL BE COMPLETE
FIVE (5) DAYS AFTER THE SAME SHALL BE SO MAILED. NOTHING CONTAINED HEREIN, HOWEVER, SHALL PREVENT
THE LENDER FROM BRINGING ANY SUIT, ACTION OR PROCEEDING OR EXERCISING ANY RIGHTS AGAINST ANY
COLLATERAL AND AGAINST THE BORROWER, AND AGAINST ANY PROPERTY OF THE BORROWER, IN ANY OTHER STATE.
INITIATING SUCH SUIT, ACTION OR PROCEEDING OR TAKING SUCH ACTION IN ANY STATE SHALL IN NO EVENT
CONSTITUTE A WAIVER OF THE AGREEMENT CONTAINED HEREIN THAT THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS SHALL GOVERN THE RIGHTS AND OBLIGATIONS OF THE BORROWER AND THE LENDER HEREUNDER OR
THE SUBMISSION HEREIN BY THE BORROWER TO PERSONAL JURISDICTION WITHIN THE COMMONWEALTH OF
MASSACHUSETTS.



     EXECUTED UNDER SEAL this 11th day of January, 2005, by the parties set forth below, or by
their duly authorized officers.



	 	 	 	 	 
	BORROWER:

	 	 	 	SMITH & WESSON CORP.
	 
	 	 	 	
	

/s/ Peter Marcil	 	BY:	 	/s/ John A. Kelly
	 

	 	 	 	 
	Witness

	 	 	 	Its duly authorized (seal)
	 
	 	 	 	 
	GUARANTOR:

	 	 	 	SMITH & WESSON HOLDING CORPORATION
	 
	 	 	 	 
	/s/ Peter Marcil
	 	BY:	 	/s/ John A. Kelly
	 

	 	 	 	 
	Witness
	 	 	 	 
	 
	 	 	 	 
	LENDER:

	 	 	 	BANKNORTH, N.A.
	 
	 	 	 	 
	/s/ Peter W. Shrair

	 	BY:	 	/s/ Maria P. Goncalves
	 

	 	 	 	 
	Witness

	 	 	 	Its duly authorized (seal)







43